Cost savings have helped energy giant Sasol in its battle against a depressed oil price and market volatility. A restructuring of its operations and reduction in headcount have all been part of the fight to weather the storm and lessen the impact on financial performance.
The South African gas and chemicals company is also facing additional difficulties in combating costs due to climate change. But despite the extremely challenging trading environment, there continues to be a strong business performance.
Naturally there has been an impact on financial figures and half-year results are expected to show reduced profits and earnings per share.
Several strategies have been put in place to enable the company to survive and even prosper in these uncertain times. The world’s largest producer of liquid fuels has a savings target of R50bn over 30 months, has decreased manpower by 7% and capped non-essential recruitment.
It is pressing ahead with a new complex in North America – the chemical industry’s biggest ever bet on shale gas, but another much more costly scheme on the American continent has been put on hold.
In addition Sasol has concluded a major restructuring of its operating divisions across southern Africa and North America.
The energy and chemicals company is now organised into more streamlined business and customer-facing units with 31,000 employees in 37 countries.
Active since 1950, Sasol has developed into an international player at the cutting-edge of liquid fuels, chemicals and low carbon electricity production.
The company has been pioneering innovation for many years, particularly in countries requiring the conversion of hydrocarbons into liquid fuels and chemicals.
A spokesman said: “Sasol’s focused and strong project pipeline means we are actively capitalising on the growth opportunities that play to our strengths in Southern Africa and North America. Our focus is creating value sustainably and we are proud to be taking this company, to new frontiers.”
Sasol was established in 1950 in South Africa and is today one of the country’s largest investors in capital projects, skills development and technological research and development.
Company founders pursued a vision to commercialise the production of oil from coal. It first started producing drums of creosote in 1955, formed a gas distribution company in 1966 and developed petrol for Formula 1 in 1971.
Since 1950 Sasol has developed from a single petrochemical site in Sasolburg in the Free State, to become a global integrated chemicals and energy company with a presence in 37 countries and 30,000 employees – 85% of whom are in southern Africa.
Throughout its 65-year history, Sasol has played an important role in South Africa and the broader region’s industrialisation, growth and socio-economic development.
To ensure communities continue to prosper, in 2012 it launched the Sasol Ikusasa public private partnership initiative, through which it is investing over R800 million in the municipalities of Sasolburg and Secunda to upgrade infrastructure, education, health and security, over a four-year period.
In 1979 it listed on the Johannesburg Stock Exchange and 13 years ago joined the New York Stock Exchange.
A strong business performance is expected to be accompanied by reduced profits and earnings due to global prices. Sasol´s headline earnings per share (HEPS) for the six months ending December 31 are expected to decrease by between 23% and 28%.
Profitability was adversely impacted by a 47% lower than average crude oil price for the period. The price basket of commodity chemicals declined by 23%.
However there is some better news. Highlights of operational performance were an increase in 3% production volumes at the Secunda Synfuels operation and 4% liquid fuels production.
The Business Performance Enhancement Programme aimed at sustainable cost savings of R4.3bn is on track.
The response to global pricing has positioned the company to cope with a $40 a barrel environment. Assessments are being made on the implications of latest developments.
The company said: “ Our results for the first half of the 2016 financial year may be further affected by any adjustments resulting from our half-year-end closure process. Guidance will be provided on the expected full 2016 financial year´s results when there is a reasonable degree
of certainty in this regard. We expect that there will be a further negative impact on our results for the remainder of the 2016 financial year due to lower oil and commodity chemical prices.”
Mozambique connection strengthens
Sasol is to further help Mozambique realise its huge reserves of oil and gas. A new project 372 miles north of the capital Maputo will be carried out in stages.
The first phase will include an oil, liquefied petroleum gas and gas project adjacent to its Pande and Temane fields. Natural gas from the fields, in which Sasol holds a majority stake, is currently produced and processed at a central facility before being transported on an 865km pipeline to gas markets in Mozambique and South Africa.
Outgoing Sasol president and chief executive David Constable said the project was a “major milestone in further developing natural resources, which will significantly benefit Southern Africa.”
Sasol has been a frontrunner in technological innovation since it was established.
Sasol Technology has a dedicated research and development team of more than 600 people, with over a third of them holding doctorates or masters in engineering and science. Over the past 10 years, this team has been granted 210 patent families.
Most researchers are based at Sasolburg, where state-of-the-art facility includes laboratories and analytical equipment, pilot plants, maintenance workshops and a library. There is also an R&D centre at Secunda with both hubs complemented by teams in Enschede, The Netherlands and at the University of St Andrews in Scotland.
Climate change and associated government policies represent a significant potential risk to the business, much of which is reliant on coal extraction. Its response must take into account the need for economic development, job creation, energy security and greenhouse gas (GHG) emission reductions. It is an important challenge.
A spokesman said: “As a carbon-intensive company we recognise that we have a particular responsibility and opportunity to contribute to finding solutions to this challenge.
“We have had a comprehensive climate change programme in place since 2008. During 2014, we revised our GHG mitigation approach which now rests on four main pillars”:
• improving the carbon and energy efficiency of our processes;
increasing the use of natural gas (instead of coal) for energy generation;
• researching the potential for offsetting GHG emissions in Southern Africa, including potential renewable energy projects;
• monitoring and influencing the development of carbon capture and storage (CCS) as a long-term solution.
Sasol voluntarily committed to reducing the GHG emissions intensity of all existing operations by 15% by 2020, from a 2005 baseline. Last year it undertook a review of GHG intensity targets. This was in response to recent government policy developments.
New Company Chiefs
Current president and chief executive David Constable is to make way for a new partnership at the head of the company in July. Bongani Nqwababa and Stephen Russell Cornell have been named Joint-Presidents and Chief Executive Officers.
Mr Nqwababa is currently chief financial officer of Sasol, and a member of the Board while Mr Cornell is currently executive vice president of international operations.
Dr Mandla Gantsho, chairman of the Board, said, “Sasol´s succession plan for the President and CEO, which enabled the consideration of internal and external candidates in South Africa and globally, has informed the Board´s well-considered decision to appoint Steve and Bongani as Joint-
CEOs. They have complementary skills, experience, qualifications and backgrounds, and, together, they will form a formidable team.”