JOHANNESBURG, May 22, 2019 /PRNewswire/ -- Sasol has today
updated its guidance for LCCP following a review process to assess
the project costs and schedule.
- LCCP's schedule remains on track with the Ethylene
Glycol/Ethylene Oxide Unit due to achieve beneficial operation
within days. The only revision to the schedule is the Guerbet Unit
which will now be on stream in February
2020. As at the end of March
2019 project completion was at 96% with construction
completion at 89%.
- Sasol remains confident that the longer term EBITDA outlook for
the LCCP remains robust.
- The forecast total capital cost for the project has increased
to $12,6 – 12,9 billion, including a
$300 million contingency. The drivers
of the changes in capital costs are understood and a series of
mitigating actions are being taken to ensure delivery within the
revised parameters.
- Sasol's balance sheet is sufficiently robust and management
actions are focused on deleveraging the balance sheet, simplifying
the asset portfolio and executing our value based strategy.
BACKGROUND
In the Company's trading statement, released by the Stock
Exchange News Service on 8 February
2019, updated guidance was provided for LCCP's schedule and
capital costs, which were estimated in the range of $11,6 - $11,8
billion. Following this announcement a number of changes
were made to the management of 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
(LLDPE), 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 LCCP has
been revised to a range of $12,6 –
$12,9 billion which includes a
contingency of $300 million. The
principal factors that impacted the revised cost estimate to
complete LCCP are adjustments to the February 2019 cost forecast of approximately
$530 million and additional events
and remaining work impacting February
2019 cost forecast – approximately $470 million. A contingency of $300 million has also been included.
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 the underlying control weaknesses are limited to
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.
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 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.
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.
About Sasol:
Sasol is a global integrated chemicals and energy company.
Through our talented people, we safely and sustainably create
superior value for our customers, shareholders and other
stakeholders. We integrated sophisticated technologies in
world-scale operating facilities to produce and commercialise
commodity and specialised chemicals, gaseous and liquid fuels, and
lower-carbon electricity.