Energy and chemicals group Sasol expects its capital expenditure (capex) to rise to R75-billion in 2017 and its balance sheet gearing to increase to between 25% and 35%, following the upward revision to the budget of the Lake Charles Chemical Project (LCCP), in the US, to $11-billion, from an initial forecast of $8.9-billion.
Sasol’s 2017 capex estimate is an increase of R2-billion on previous guidance and its 2018 forecast now stands at R60-billion, largely as a result of the increased LCCP capital estimate and the impact of the weakening rand.
The group’s gearing increased to 14.6% in 2016, from an ungeared 2.8% position in the prior year. However, it remained below its market guidance of 20% to 40%, owing to a stronger than anticipated rand/US dollar exchange rate and delayed capex on a number of projects, including the LCCP.
“To manage the impact of price volatility and the lower-for-longer oil price environment, the Sasol board of directors temporarily lifted our internal gearing ceiling to 44% until the end of the 2018 financial year,” the company said in a statement.
The group, which reported a 55% drop in earnings attributable to shareholders to R13.2-billion in 2016, from R29.7-billion the year before, expects capex on the LCCP to be $3.4-billion during 2017 and $2.2-billion in 2018. The Louisiana project is 50% complete.
Sasol reported a 17% drop in headline earnings a share in 2016 to R41.40, despite a 25% weakening in the rand oil price during the period.
The result was supported by record production volumes at Secunda Synfuels Operations, in South Africa, as well as savings achieved through its Business Performance Enhancement Programme (BPEP) and its Response Plan (RP) to the low oil price.
Through the BPEP, Sasol aims to achieve sustainable savings of R5.4-billion by the end of the 2018 financial year and, in 2016, it achieved sustainable cost savings of R4.5-billion, exceeding its R4.3-billion target.
The RP, meanwhile, realised R28-billion of cash savings for 2016, exceeding the upper end of Sasol’s target of R16-billion.