we remain committed to our growth plans and will continue to partner with the country's government
and other stakeholders on projects that will help stimulate socio-economic growth. We are confident that
the economics to develop the Production Sharing Agreement license area remain positive, with four wells
completed, as part of our drilling campaign, already showing promising results."
Overview*
Earnings attributable to shareholders for the six months ended 31 December 2016 increased by 19% to
R8,7 billion from R7,3 billion in the prior period. Headline earnings per share (HEPS) decreased by 38% to
R15,12 and earnings per share (EPS) increased by 19% to R14,21 compared to the prior period. Operating
profit decreased by 8% to R13,7 billion compared to the prior period.
Although business performance was mostly in line with our expectations, Sasol's profitability, period on
period, and as reflected in HEPS, was negatively impacted by the following items:
-
The strengthening of the Rand against the US dollar to R13,74 at 31 December 2016 (30 June 2016: R14,71) resulted
in translation losses of approximately R1,3 billion on the valuation of the balance sheet, compared to translation
gains of R2,6 billion in the prior period (including foreign exchange contracts). The valuation impact of the
stronger closing exchange rate for the period under review negatively impacted earnings by approximately
R1,46 per share.
-
The impact of the once-off prolonged strike action at our Secunda mining operations resulted in an
additional net cost of R1 billion or R1,06 per share.
-
The reversal of a provision of R2,3 billion (US$166 million) or R3,77 per share in the prior period based on a
favourable ruling received from the Tax Appeal Tribunal in Nigeria relating to the Escravos Gas-to-Liquids
(EGTL) project.
HEPS, normalised for these once-off adjustments and translation effects, amounted to R18,62 per share,
which is 4% higher compared to normalised HEPS for the prior period of R17,96.
* All comparisons refer to the prior period for the six months ended 31 December 2015. All references to years
refer to the financial year ended 30 June. Any reference to a calendar year is prefaced by the word "calendar".
Except for earnings attributable to shareholders and the RP cash conservation measures, all numbers are quoted
on a pre-tax basis.
We have seen a steady and continued recovery in global oil and product prices during the period under
review. Average Brent crude oil prices moved higher by 2% and since December 2016 have moved to the mid
US$50/bbl range, which will positively impact our results during the second half of 2017. Our refining margins
decreased by 32% to US$8,42/bbl, however, we have seen some recovery since the lows of October 2016
which will positively impact on our results in the second half of 2017. Despite the soft commodity chemical
prices experienced during the first quarter of 2017, we have seen a steady increase in demand and resilient
margins in certain key markets during the second quarter of 2017. Despite the volatile macro-economic
environment, the average margin for our speciality chemicals business remained flat, except for
our ammonia business, where margins were squeezed as a result of oversupply in global markets.
Overall, Sasol delivered a strong business performance across most of the value chain. Secunda Synfuels'
production volumes increased by 1% and our Eurasian operations increased production volumes by 5% on
the back of stronger demand. Natref's production volumes were down 7% mainly due to plant shutdowns
during the period under review. Normalised sales volumes increased by 11% for our Base Chemicals business
and 2% for our Performance Chemicals business compared to the prior period mainly on the back of stronger
demand and improved plant stability. Liquid fuels sales volumes decreased by 2% due to the Natref planned
shutdowns and more volumes from Secunda Synfuels Operations (SSO) being allocated to the higher margin
yielding chemical businesses. ORYX GTL achieved an average utilisation rate of 95% with the run-rate of
production in line with our previous market guidance.
Our Secunda mining operations experienced a challenging six months with the onset of a protected strike
action, which commenced in August 2016, by the Association of Mineworkers and Construction Union
(AMCU). Notwithstanding a 16% decrease in mining production volumes resulting from the strike action,
Mining continued to deliver our full coal supply commitment to the integrated Sasol value chain through
external coal purchases and increased gas consumption at Secunda Synfuels Operations. The profitability of
the mining business was significantly impacted by the R1 billion net additional cost as a result of the strike.
We continued to drive our cost containment programme and managed cash fixed costs well below inflation
in nominal terms, when compared to the prior period. Excluding the impact of inflation, our cash fixed costs,
including the mining strike costs, reduced by 1% in real terms compared to the prior period. The strong cost
performance was achieved by sustainable delivery of our Business Performance Enhancement Programme
(BPEP) and Response Plan (RP).
As part of the BPEP, we delivered sustainable cost savings of R4,9 billion, exceeding our December 2016 exit
run rate target by R0,2 billion. We are confident that we will meet or exceed our targeted sustainable savings
at an exit run rate of R5,4 billion by the end of 2018.
Our comprehensive low oil price RP, focusing on cash conservation to counter a lower-for-much-longer
oil price reality, has continued to yield positive cash savings in line with our 2017 targets, despite margin
contraction and difficulties experienced in placing certain product. The RP realised R17,8 billion of cash savings
for the period. We have increased our full year cash savings target from R22 billion to R26 billion, mainly due
to the reprioritisation of our capital portfolio. The RP places the company in a strong position to operate
profitably within a US$40-50/bbl oil price environment. We expect our sustainable cash cost savings from our
RP to be R2,5 billion by 2019, in addition to the R5,4bn sustainable savings from our BPEP.