The operating profit of petrochemical giant Sasol fell by 22% owing to the strength of the rand, the company said at its annual results presentation on Tuesday.
Attributable earnings fell 24% and turnover was down 7% for the year.
The negative effect of the rand was cushioned by the beneficial high oil prices and management initiatives to streamline the business, Sasol chief executive Pieter Cox said.
”Sasol has very little it can do to influence foreign currency … but we can do something about our operations,” Cox said.
If currency effects could have been taken out of the equation, operating profit would have been up by 28%.
Cox said the strong rand had a net adverse impact on operating profit of about R6-billion.
”The associated impact on attributable earnings was R4,2-billion or nearly 700 cents per share.”
The average exchange rate during the financial year to June 2004 was R6,88 to the dollar, which was 24% stronger than the previous year.
But Cox was confident the rand would not play such a detrimental role in the future, predicting that the rand would remain fairly strong, while oil prices would remain high.
”We are confident of material improvements in earnings … and not at the expense of a weakening rand,” he said.
This sentiment was based on the results of the second half of the 2004 financial year. These showed a 39% improvement in earnings from the first half of the year, although the rand had also strengthened in the second half.
Sasol was able to streamline its costs by R890-million, while increasing productivity in some areas. Underperforming and non-core chemical businesses were closed down or disposed of, adding a net profit of R207-million.
Dividend per share for 2004 was 440 cents.
”The rand-dollar exchange rate that applies today is what it was in 2000. Then the dividend was 220 cents. Now it is 440 cents,” said Cox. ”Therefore the dividend growth was 20% per annum in compound terms.”
Investors in Sasol’s New York listing have seen a 60% return on investment and a 32% increase in dividends since the company listed in July 2002.
The sectors where operating profit was most reduced included synfuels, down 26%, and solvents, down 69%.
This area was ”particularly hard-hit by the strengthening of the rand as it is mainly export business”, Cox said.
Polymers showed a 9% increase in operating profit and according to Cox will be a ”major growth business of the future”.
The results presentation began on a sombre note with a minute’s silence for the seven workers killed in last week’s gas explosion at a Sasol plant in Secunda, Mpumalanga.
Cox said Sasol will go to all lengths to determine what had happened and why it had happened, adding: ”We will do everything in our power to prevent it happening again.” — Sapa