Oct 22, 2010
Strong rand restrains profit marginsBack
© Reuse this
However, despite the strong performance of the local currency and global markets still being volatile, following the economic crisis, the company posted solid financial results for the 2009/10 financial year ended June 30, with all its business clusters returning to profit.
Ramon, the youngest member of Sasol’s executive council, says that the 16% stronger rand outweighed the benefit of improved commodity prices and improved production volumes, impacting on the company’s turn- over and operating profit negatively.
However, the strong rand also benefits the company, owing to reduced cash fixed costs brought about by lower inflationary trends. “We do, however, remain sensitive to economic variables on the global market,” she says.
The company reports that, for every change of one dollar in the average crude oil price, its operating profit is impacted on by about R615-million and a similar situation is seen in every 10c change in the rand:dollar exchange rate.
She says that, although there has been a gradual strengthening of the oil price over the past year, it is still 5% down on the price for the corresponding period last year.
Sasol’s local energy business is the primary contributor to the company’s profitability, although hampered by the strong rand. The chemicals cluster contributed 23% to the group’s profit, which is proportionately larger than its 2008 ‘record year’ performance.
“Despite these negative impacts, we have delivered on an improved operational performance, reflected in the company’s healthy operational margins of about 20%. Management’s continued focus on operational performance and cost discipline has boosted the bottom line,” Ramon reports.
The company also benefited from a lucrative oil hedge last year, which was not repeated this year. Ramon says that no decision has been made on an oil hedge for 2011.
Further, Sasol has managed to reduce its absolute cash fixed costs on a sustainable basis, by about R800-million, compared with figures for last year.
Meanwhile, offshore investments have shown growth within both the energy and the chemicals businesses. Ramon reports that the company’s strategy of geographical diversification has enhanced the robustness of the business.
In Qatar, the Oryx gas-to-liquids plant has made a noteworthy contribution to current results and has the potential to contribute even more in the coming year. “Oryx continues to perform well at 90% capacity, despite a maintenance shutdown, as well as an unforeseen technical shutdown. During 2011, we plan to realise planned operating rates,” Ramon adds.
With regard to the electricity tariff increases being implemented by State-owned utility Eskom, and labour costs rising above the consumer price index, the company reports that it has had a good cost performance. “We aim to contain rising costs within the inflation range,” she notes.
Sasol currently generates about one-half of the electricity it uses. The company reports that it plans to increase its own-generation capacity to about 60% by 2012.
Further, Ramon reports that a power purchase agreement with Eskom, effective July 1, will mitigate further electricity cost increases in future.
During 2011, Ramon expects synfuels production to maintain the 7,3-million-ton baseline production, taking into account a one-in-eight-year full factory outage.
Further, Sasol reports that it expects its total capital expenditure (capex) to rise steadily during the next two years. The company plans to spend about R19-billion on capex during 2011, and a further R22-billion during 2012.
“Our strong financial position and cash flow gives us a competitive advantage in the current environment to respond quickly and effectively to new opportunities,” Ramon concludes.
Edited by: Brindaveni Naidoo© Reuse this
To subscribe email email@example.com or click here
To advertise email firstname.lastname@example.org or click here
Other Energy News
Recent Research Reports
Construction 2016: A review of South Africa's construction industry (PDF Report)
Creamer Media’s Construction 2016 Report examines South Africa’s construction industry over the past 12 months. The report provides insight into the business environment; key participants; local demand; geographic diversification; corporate activity; black economic...
Energy Roundup – February 2016 (PDF Report)
The February 2016 roundup covers activities across South Africa for December 2015 and January 2016 and includes details of a Government Gazette notice that confirms Cabinet’s decision to move ahead with the 9 600 MW nuclear procurement programme; State-owned power...
Energy Roundup - December 2015 (PDF Report)
The December 2015 roundup includes details of State-owned utility Eskom’s application to claw back R22.8-billion; South Africa’s ranking as an investment destination for renewable energy; and a nuclear expert’s thoughts on reactor designs for South Africa’s nuclear...
Water 2015: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2015 Report considers the aforementioned issues, not only in the South African context but also in the African and global context in terms of supply and demand, water stress and insecurity, and access to water and sanitation, besides others.
Input Sector Review: Pumps 2015 (PDF Report)
Creamer Media’s 2015 Input Sector Review on Pumps provides an overview of South Africa’s pumps industry with particular focus on pump manufacture and supply, aftermarket services, marketing strategies, local and export demand, imports, sector support, investment...
Liquid Fuels 2015: A review of South Africa's liquid fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2015 Report examines these issues in the context of South Africa’s business environment; oil and gas exploration; fuel pricing; the development of the country’s biofuels industry; the logistics of transporting liquid fuels; and...
This Week's Magazine
Lifting, transporting, installing and ballasting solutions provider Ale has expanded its global fleet of trailers and invested in the latest range of widening trailers that can be mechanically widened from 3 m to the desired width for any project. Ale ordered 48 axle...
The market for the BMW 7 Series in South Africa differs quite significantly from the rest of the world. China, the US and the Middle East almost exclusively buy the long-wheel-base version, using the German manufacturer’s luxury high-end sedan as a chaffeur-driven...
January new-vehicle sales fell by 6.9%, to 48 615 units, compared with the same month last year. Statistics released by the Department of Trade and Industry show that the domestic new passenger-car market declined by 6.1%, to 34 936 units, compared with 12 months ago.
Information technology (IT) equipment and infrastructure multinational Dell is providing open infrastructure systems for clients so that they can use any systems, including innovative new systems, that suit their business needs, says Dell Europe, Middle East and...
South Africa’s State-owned defence industrial group, Denel, has set up another international partnership, based in Hong Kong. This new subsidiary is Denel Asia and it is a joint venture (JV) with South African private sector company VR Laser.