/ 8 March 2010

Sasol first-half earnings drop

Sasol, the world’s top maker of motor fuel from coal, reported a 51% drop in first-half earnings, hit by a strong rand and lower crude oil prices, and cited the currency in its cautious outlook.

The South African petrochemicals company said on Monday headline earnings per share for the six months to end December fell 51% to R10,67, compared with its own forecast of a 50% to 55% fall.

Headline earnings are the main profit gauge in South Africa and strip out certain one-off, financial and non-trading items.

The company said the strong rand against the US dollar would continue to pressure its earnings.

The South African currency has risen about 20% versus the dollar since the start of 2009.

“Taking into account … the continuing challenging economic conditions and our assumptions in respect of crude oil and product prices, tight refining margins as well as the stronger rand/US dollar exchange rate, we remain cautious in our outlook for the full year compared with 2009,” it said.

Sasol said it would pay a half-year dividend of R2,80 per share, up 12% on the comparable period.

“The results show a significant decline, but looking at some of the progress that the group has made with respect to production volumes and costs and the ability to increase the dividend … those are some of the positives that are setting a base for an improving performance over the next six to 12 months,” a Cape Town-based analyst said.

Operating profit dropped 51% to R10,5-billion from the previous year when the company profited from an oil hedge that resulted in a net gain of R5,1-billion.

Sasol said the oil price had stabilised in the first half at between $70 and $80 a barrel. Oil extended gains toward $82 a barrel on Monday, buoyed by a weaker dollar and signs of an economic recovery in top oil consumer, the US.

Sasol said its pipeline of growth projects was progressing well, with R6,6-billion of capital expenditure during the six months. The company has said it plans R15-billion of capital expenditure this year and R17-billion next year.

The projects include a coal-to-liquids plant in South Africa and China, a gas-to-liquids plant in Nigeria, gas investments in Mozambique and a doubling of its wax production.

Its cash position remained strong, with fixed costs savings of R500-million.

“We are anticipating some improvement in overall production volumes for the full year,” Sasol said. — Reuters