Sasol, outlier among fuel producers, posts disappointing H1 results
Petrochemicals giant Sasol should be printing money because of the ‘petrol’ part of its name – oil majors have been posting record profits. But the chemicals sector has been waylaid by a sour global economy and the upshot has been a ‘mixed set of results’. Meanwhile, the company has launched some interesting initiatives on the decarbonisation front.
Sasol said in a trading update two weeks ago that it expected its core headline earnings per share for the six months to the end of December to rise between 2% and 12%, which was well short of Bloomberg’s consensus expectations of a 39% increase.
So the bad news was mostly fully digested and the market was not surprised on Tuesday when the company unveiled interim earnings which showed that metric had risen 9% to R24.55 per share. Still, its share price tanked over 6% at one point in morning trade, suggesting that the top end of its guidance was expected.
“Sasol delivered a mixed set of results for the first six months of 2023, supported by oil and refining tailwinds offset by lower volumes and higher feedstock costs,” the company said.
“The impact from the global weaker economic growth, disrupted supply chains, depressed chemical prices and the resultant higher input costs impacted the chemicals business negatively.”
“The average rand per barrel price of Brent crude oil increased by 43% and the average chemical sales basket price (US$/t) increased by 3%,” the company said.
The oil price gushed to the bottom line; the chemical price, not so much.
The chemicals business was hit by the sour global economy, while the oil and refining businesses fared well. The latter would only be expected: oil companies raked it in last year, in part because of Russia’s invasion of Ukraine, which sent oil prices soaring.
TotalEnergies, ExxonMobil, Chevron, BP and Shell had profits among them that totalled $153.5-billion in 2022 – equal to over a third the size of South Africa’s gross domestic product.
Sasol is not in that league, but its fuels business did see earnings surge 92% for the period. But Putin’s war, and the uncertainties and inflation it triggered, also torpedoed much of the global economy, including Sasol’s chemicals business.
“The offshore chemicals business was effectively wiped out… It’s been a tough time for our chemicals business,” Hanré Rossouw, Sasol’s Group Chief Financial Officer, told Business Maverick in an interview. He noted that the chemicals side, which had accounted for 56% of profits previously, was down to 39%. And the offshore chemicals business only accounted for 3% of profit. Ouch.
Still, Sasol did declare an interim gross cash dividend of 700 (SA) cents per share, compared to nil for the interim period the previous year.
And it did unveil some interesting initiatives on the decarbonisation front.
As Africa’s second-biggest emitter of the greenhouse gas emissions linked to climate change – topped only by Eskom – the company is under huge pressure to reduce its carbon footprint and meet various targets it has set.
To that end, the company announced the launch of Sasol Ventures. It said this was “to advance Sasol’s decarbonisation and 2050 net zero ambitions through venture capital.
“It will invest €50-million over the next five years, making it the largest chemicals and industry venture capital fund in South Africa.
“The fund will pursue investments in start-up and early-stage technologies that will enable Sasol to meet the need for sustainable chemicals and energy solutions to decarbonise its business, communities and markets it serves globally.”
It’s not huge by global standards, but much of it will be presumably invested in South Africa’s economy, which needs every drop of investment that falls its way. And venture capital – private equity financing for risky projects – is a rare species in South Africa.
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According to the Southern African Venture Capital Association, early-stage fund managers invested R1.31-billion into 121 entities in South Africa in 2021. So Sasol’s planned investment should be a shot in this arm – perhaps more like little finger – of the economy.
Sasol also said it had signed a Memorandum of Understanding with Danish company Topsoe, developer and supplier of decarbonisation technology, to establish a joint venture to “develop sustainable aviation fuel solutions (SAF)”.
Sasol said the joint venture “will produce SAF derived from non-fossil feedstock, utilising green hydrogen, sustainable sources of CO2 and/or biomass based on Sasol’s Fischer-Tropsch [process] and Topsoe’s relevant SAF technologies.”
Sasol is a major-league polluter, but it is also pretty good at science. That puts it in position to decarbonise its operations and product offerings.
Some might see this as atonement, but it also simply makes good business sense these days. DM/BM/OBP