South African petrochemical company, Sasol Limited is currently grappling with a staggering 52% decline in its earnings per share for the first half of the fiscal year, reflecting the company’s struggles in a challenging market environment.
The decline is attributed to lower oil prices, reduced refining margins, and significant impairments at its refineries.
Key Takeaways
- Earnings Per Share (EPS): Basic EPS fell to R7.22, a 52% decrease.
- Headline Earnings Per Share (Heps): Heps dropped 31% to R14.13.
- Revenue: Total revenue decreased by 10% to R122.1 billion.
- Cash Flow: Cash generated from operations increased by 20% to R17.6 billion.
- Debt: Total debt rose to R116.9 billion, with net debt increasing to R81.8 billion.
Earnings Overview
Sasol’s financial results for the six months ending December 31, 2024, reveal a significant downturn in profitability. The company’s basic earnings per share plummeted to R7.22, while headline earnings per share fell to R14.13.
This decline is primarily due to a challenging operating environment characterized by lower oil prices and weaker refining margins.
Revenue Decline Factors
The company’s revenue fell by 10%, driven by several key factors:
- Oil Prices: A 13% drop in the average rand-per-barrel Brent crude oil price.
- Sales Volumes: A 5% reduction in sales volumes.
- Market Demand: Weaker market demand and lower production levels.
Impairments and Adjustments
Sasol faced substantial non-cash adjustments that impacted its earnings before interest and tax (Ebit), which fell by 40% to R9.5 billion. Notable impairments included:
- Refinery Impairments: A net loss of R6.2 billion due to impairments at the Secunda and Sasolburg liquid fuels refineries.
- Financial Instruments: Unrealized losses on financial instruments and derivative contracts amounted to R100 million, contrasting with a R2.7 billion gain in the previous period.
Operational Performance
Despite the earnings decline, Sasol reported a 20% increase in cash generated from operations, totaling R17.6 billion. This improvement was supported by changes in working capital.
However, the company’s free cash flow remained negative at R1.1 billion, although this was an improvement from a R6.45 billion deficit in the prior period.
Debt Situation
As of December 31, 2024, Sasol’s total debt stood at R116.9 billion, with net debt (excluding leases) rising to R81.8 billion from R73.7 billion at the end of June 2024.
The company also deposited R5.4 billion on its revolving credit facility during this period.
Dividend Announcement
In light of the financial challenges, Sasol did not declare any dividends for this period, reflecting a cautious approach to its financial management amidst ongoing market volatility.
Sasol’s significant earnings plunge highlights the challenges faced by companies in the oil and gas sector, particularly in a fluctuating market.
The company’s focus on operational efficiency and debt management will be crucial as it navigates these turbulent times.