JOHANNESBURG, May 22, 2019 /PRNewswire/ -- In the Company's
trading statement, released by the Stock Exchange News
Service on 8 February 2019, updated guidance was provided
for the LCCP's schedule and capital costs, which were estimated in
the range of $11,6 to $11,8 billion. Following this announcement a
number of changes were made to the management of the LCCP, with
project accountability immediately reassigned to the Executive Vice
President of Chemicals, Fleetwood
Grobler and the strengthening of our project controls
organisation.
This team became concerned regarding the accuracy of the
project's cost forecast and, as a consequence, our third quarter
Business Performance Metrics announcement in April 2019 indicated that the LCCP's cost was
tracking the upper end of the range. Management also initiated a
full review of the costs and schedule until project completion with
input from independent technical and financial
advisers.
This review identified significant additional concerns related
to the LCCP forecasting process and a marked increase in the
projected total cost. The review also confirmed that the actual
project expenditure (as at 31 December
2018) amounting to $10,9
billion was accurate and complete. Weaknesses in the
project's integrated controls were identified and are being
remediated.
The Board has also commissioned a review to be conducted by
independent external experts. This review will cover the
circumstances that may have delayed the prompt identification and
reporting of the above-mentioned matters. Upon conclusion of the
review, the Board will take appropriate action to address the
findings.
Update On Key Project Parameters
- The first derivative unit, Linear Low Density Polyethylene,
achieved beneficial operation on 13 February 2019 and the
plant continues to ramp up in line with expectations.
- We have achieved beneficial operation of the Ethylene Glycol
unit (EG), with beneficial operation of the Ethylene Oxide unit
(EO) expected in the coming days.
- The Ethane Cracker is still expected to achieve beneficial
operation in July 2019.
- The remainder of the LCCP schedule for beneficial operation is
as previously indicated in February
2019 apart from the beneficial operation of the last
derivative plant (Guerbet unit), which is expected to be one month
later in February 2020.
- As of the end of March 2019,
overall project completion was at 96%, with construction completion
at 89% and capital expenditure on the project amounted to
$11,4 billion.
Following the review noted above, the cost estimate for the LCCP
has been revised to a range of $12,6
to $12,9 billion which includes a
contingency of $300 million. The
principal factors that impacted the revised cost estimate to
complete the LCCP are as follows:
1. Adjustments to the February 2019 cost forecast – approximately
$530 million
- Correction for duplication of investment allowances of
approximately $230 million.
- Correction for certain contracts and variation orders managed
by Sasol, outside the primary engineering, procurement and
construction contract, of approximately $180
million.
- Forecast improvements not expected to be realised and
adjustments for potential insurance claims and procurement
back-charges of approximately $120
million.
2. Additional events and remaining work
impacting February 2019 cost forecast
- approximately $470
million
Ethane Cracker, EO/EG and
Utilities - approximately $210
million:
- Work to correct previously identified defective carbon steel
forgings significantly impacted critical path activities with a
greater than expected cost impact. This included the removal and
re-instatement of insulation, instrumentation and cabling, as well
as post repair heat treatment.
- Replacement of the internals of numerous heat exchangers due to
corrosion.
- The completion of painting, insulation and fireproofing at the
Ethane Cracker and EO/EG was impacted as a result of the necessary
repair activities outlined above.
Remaining Work – primarily Low
Density Polyethylene and Ziegler / Alumina / Guerbet units -
approximately $260 million
- The review identified a significant increase in required
finishing activities such as heat tracing, insulation, fireproofing
and associated work as well as additional infrastructure
costs.
3. A contingency amount for items that could
impact the cost forecast - $300
million
- Worse than anticipated weather impact.
- Lower than assumed productivity and associated time
extension.
- A new risk identified relating to bolting materials that may
need to be replaced.
- Other unforeseen items impacting finishing and commissioning
activities.
Actions Taken to Date
This increase in the anticipated LCCP capital costs is extremely
disappointing. Executive management has implemented several
changes since February 2019 to
further strengthen the oversight, leadership for the project and
frequency of reporting. Actions include segregation of duties
between project controls and finance functions and assigning
a Senior Vice President to have responsibility for the LCCP
project controls. Initiatives to improve decision making,
transparency and documentation within the project management team
are also in progress. The new project leadership has been
instrumental in identifying and remediating these issues.
The reviews and investigations initiated by management to date
indicate that any impact on the underlying controls are limited to
the LCCP.
Financial Impact
The increase in the LCCP's cost does not alter Sasol's capital
allocation strategy. The plan remains to reduce balance sheet
gearing towards 30% followed by an increase in the dividend pay-out
ratio to 40% and remains on track to occur between financial years
2020 to 2023. Over this period the anticipated contribution
from the LCCP has been negatively impacted by a change in the short
and medium term pricing outlook. Operating costs for the LCCP,
although projected to be slightly elevated during start-up, are
otherwise still in line with previous guidance. As a result the
earnings before interest, tax, depreciation and amortisation
(EBITDA) for financial year 2022 of $1,3
billion have been revised to approximately $1 billion. The long term market pricing outlook
is still in support of a long term run rate EBITDA contribution
from the LCCP of $1,3 billion. The
short term market outlook for ethane and product pricing remains
volatile and estimates will be updated periodically.
In light of the increase in capital costs as well as the latest
market pricing outlook, the forecast internal rate of return for
the LCCP has declined from 7,5% to 6,0 - 6,5%. The larger part of
this move comes from the change in chemical pricing assumptions
given that a US10 cents change in ethane pricing impacts the EBITDA
by approximately $150 million per
annum.
The increased capital cost will result in the gearing level for
Sasol remaining elevated for 18 to 24 months. Based on current
assumptions, peak gearing is still expected to occur during
financial year 2019 with forecast net debt to EBITDA remaining
within the 2,0 to 2,3x guidance range. The Company's balance sheet
continues to be actively managed in order to maintain a robust
liquidity position and debt maturity profile. As part of this the
Company recently issued a $2,25
billion bond which was used to partly settle the
LCCP's project asset finance facility. The Company has been
successful in extending the maturity profile of the debt portfolio
over the last few years with the first significant repayment
due in 3,5 years (November 2022). Efforts to further to
optimise the maturity profile continue as the Company executes its
value based strategy and moves towards targeted gearing levels.
Retaining the Company's investment grade credit rating remains a
priority.
Several additional management actions have been identified and
are in the process of being implemented in an effort to conserve
cash over the following 12 to18 months. These actions are focussed
on further cash fixed cost savings, capital portfolio optimisation,
working capital improvements and asset disposals at value.
As previously communicated to the market, management has
substantially completed the detailed asset review programme. This
process forms a key part of the portfolio optimisation strategy,
and has now progressed to the stage where the disposal of larger
non-core assets can be accelerated. The Company will target the
disposal of assets which have an aggregate net asset value
exceeding $2 billion. The
safeguarding of value will be prioritised through this process, and
the financial metrics disclosed above do not rely on any asset
disposals. Relevant disposals will therefore further support the
deleveraging of the balance sheet, as well as simplification of the
investment portfolio and increased focus in executing our value
based strategy.
The financial information on which the LCCP update is based has
not been reviewed or reported on by the Company's external
auditors.
The Joint Chief Executive Officers will host two webcast
/conference calls on 22 May 2019:
https://www.sasol.com/investor-centre/lake-charles-chemicals-project/update-may-2019
The first call will begin at 08:30 (SA), 06:30 (GMT) and 01:30
(CST) on 22 May 2019
Conference
ID
|
3862023
|
Money Center and
Conference ID
|
Participant
Number
|
South Africa,
Johannesburg
|
+27 11 844
6054
|
United
Kingdom
|
+44 (0)330 336
9105
|
United
States
|
+1
323-794-2551
|
Singapore
|
+65 6320
9025
|
Moscow,
Russia
|
+7 495 213
1767
|
Toronto,
Canada
|
+1 647 794
4605
|
The second call will begin at 14:30 (SA), 12:30 (GMT) and 07:30
(CST) on 22 May 2019
Conference
ID
|
7019987
|
Money Center and
Conference ID
|
Participant
Number
|
South Africa,
Johannesburg
|
+27 11 844
6054
|
United
Kingdom
|
+44 (0)330 336
9105
|
United
States
|
+1
323-794-2423
|
Singapore
|
+65 6320
9025
|
Moscow,
Russia
|
+7 495 213
1767
|
Toronto,
Canada
|
+1 647 484
0478
|
Disclaimer – Forward-looking statements
Sasol may, in this document, make certain statements that are
not historical facts and relate to analyses and other information
which are based on forecasts of future results and estimates of
amounts not yet determinable. These statements may also relate to
our future prospects, developments and business strategies.
Examples of such forward-looking statements include, but are not
limited to, cost estimates and expected timing of beneficial
operation of LCCP, targets or guidance regarding our gearing ratio
and dividend pay-out ratio, net debt-to-EBITDA ratio, EBITDA and
internal rate of return for LCCP, as well as statements regarding
our future liquidity, credit ratings and non-core asset disposal
strategy. Words such as "believe", "anticipate", "expect",
"intend", "seek", "will", "plan", "could", "may", "endeavour",
"target", "forecast" and "project" and similar expressions are
intended to identify such forward-looking statements, but are not
the exclusive means of identifying such statements. By their very
nature, forward-looking statements involve inherent risks and
uncertainties, both general and specific, and there are risks that
the predictions, forecasts, projections and other forward-looking
statements will not be achieved. If one or more of these risks
materialise, or should underlying assumptions prove incorrect, our
actual results may differ materially from those anticipated. You
should understand that a number of important factors could cause
actual results to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in such
forward-looking statements. These factors are discussed more fully
in our most recent annual report on Form 20-F filed on 28 August 2018 and in other filings with the
United States Securities and Exchange Commission. The list of
factors discussed therein is not exhaustive; when relying on
forward-looking statements to make investment decisions, you should
carefully consider both these factors and other uncertainties and
events. Forward-looking statements apply only as of the date on
which they are made, and we do not undertake any obligation to
update or revise any of them, whether as a result of new
information, future events or otherwise.
Media Contact:
Feroza
Syed
Chief Investor Relations Officer
Direct telephone: +27(0)10-344-7778
investor.relations@sasol.com
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SOURCE Sasol Limited