Sasol Set for Its Biggest Decline Since 1998 on Writedowns

(Bloomberg) -- Sasol Ltd. was set for the biggest decline in more than 17 years after saying fiscal full-year profit will drop by as much as 30 percent following writedowns.

The South African fuel producer reported impairments totaling 11.5 billion rand ($770 million), citing the collapse in energy prices. The shares sank as much as 13 percent in Johannesburg, which would be the largest slump on a closing basis since October 1997. They were down 12 percent at 425.65 rand as of 4:17 p.m. local time.

“The volatile macroeconomic environment, in particular lower crude-oil prices, has had a significant impact on earnings,” Sasol said Monday in a statement. Headline profit will fall by 10 percent to 30 percent in the year through June from 49.76 rand a share a year earlier, it said. Analysts surveyed by Bloomberg had estimated a 26 percent slide to 36.58 rand.

Sasol impaired its share in the Montney shale-gas properties in Canada by 7.4 billion rand in December. It will now recognize a further writedown of about 4.1 billion rand because of lower natural-gas prices, which have fallen 12 percent since July last year. Brent crude, to which the producer’s revenue is linked, has dropped 20 percent in the period.

The Johannesburg-based company will give a further update on operational and financial performance in early August and is due to report full-year results Sept. 12.

Market Volatility

Sasol has implemented programs to conserve about 75 billion rand of cash through 2018. The company expects production volumes and cost reductions to be better than previous forecasts, it said Monday, adding that energy-market and exchange-rate volatility may further affect results. 

The company has delayed a decision on whether to build a gas-to-liquids plant in the U.S., which would have cost as much as $14 billion, but also raised the projected cost of a chemicals complex in Lake Charles, Louisiana, to as much as $11 billion from about $8.9 billion amid construction delays.

Expected returns from the chemicals project, which will convert ethane into plastics and other products, have been reduced. Sasol now sees returns at around its weighted average cost of capital, which stands at about 10.6 percent, data compiled by Bloomberg show.

The company has already invested $4.5 billion in the Lake Charles development, with more than 40 percent of the project completed. It expects the ethane cracker to reach “beneficial operation” in the second half of 2018. 

“The change in the return profiles of the project have caught us a little flat-footed," Mohamed Kharva, a research analyst at Nedbank Group Ltd., said by phone. “It’s slightly negative and I think the share price has responded in that fashion."

To contact the reporters on this story: Ana Monteiro in Johannesburg at amonteiro4@bloomberg.net ;Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Amanda Jordan, Ana Monteiro

Copyright 2016 Bloomberg News.

WHAT DO YOU THINK?

Click on the button below to add a comment.
Post a Comment
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

Related Companies
Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE



Most Popular Articles

From the Career Center
Jobs that may interest you
State Income Tax Counsel/Tax Advisor
Expertise: Accounting|Financial Analyst
Location: San Ramon, CA
 
Project Cost Controls Specialist
Expertise: Cost Engineer|Project Controls
Location: 52723
 
Gas and Electric Field Operations Manager Job
Expertise: Budget / Cost Control|Operations Management|Refinery / Plant Operations Supervisor
Location: Evergreen, CO
 
search for more jobs

Brent Crude Oil : $47.35/BBL 3.18%
Light Crude Oil : $45.93/BBL 3.25%
Natural Gas : $2.99/MMBtu 1.01%
Updated in last 24 hours