NATIONAL BUSINESS NEWS - Not only did Sasol warn shareholders that they can expect headline earnings per share (Heps) to decline by at least 20%, it also warned that the results for the six months to December 2019 may be further affected by adjustments due to the closure of its books at the end of the reporting period.
“This might result in a change in the estimated earnings. This trading statement only deals with the comparison to the prior period,” reads the trading update. “A more detailed trading statement will be published as soon as more certainty has been attained with respect to the range of the decrease in [Heps] and EPS [earnings per share].”
Investors will immediately think of the possibility of more adjustments relating to Sasol’s huge Lake Charles Chemicals Project (LCCP) – and indeed, Sasol does refer to it again.
Management said that it pursued steps to enhance its liquidity position with debt expecting to reach a peak during 2020 with the final completion of the huge project. Sasol has taken a number of actions to fulfil its commitment to balance sheet flexibility, access to liquidity and maintaining an optimal funding mix, according to the latest statement.
Sasol has reiterated that the LCCP will change the company totally. It is set to grow foreign earnings significantly, as well as increase the contribution by the chemical division to reduce the exposure to the mainly SA fuel-manufacturing businesses.
Management also repeated the message that gearing will peak in 2020 in accordance with the original planning of the project, but will be somewhat higher than estimated.
After final commissioning towards the third quarter of 2020, debt levels are expected to drop rapidly.
While Sasol reassured shareholders in the trading statement that the latest funding activities should not affect its net debt position, management disclosed that lenders have agreed to relax the understanding that Sasol maintain its net debt to earnings before interest, tax and depreciation at three to 3.5 times until June 2020.
This seems to indicate that operating profit is expected to take another hit during the six months to December, and also in the following six months.
Shareholders did not seem fazed by the news and the share price on the day ended steady at around R280, up from its recent low of R252 at the beginning of October.
A look at Sasol’s figures over the last few years shows that shareholders are well aware of the decline in profits since 2015, when work on the Lake Charles project started in all earnestness.