Sasol predicts up to 40% drop in headline earnings amid lower oil prices

Sasol's headline earnings a share (HEPS) are expected to fall between 29% to 40% for the six months to December 31 due to the lower oil price in rands, lower chemical prices and additional impairments.

The earnings forecast did not appear to be well received by investors on the JSE, as Sasol's share price declined 5.2% to R108.76 on Thursday afternoon, although the price is still well up from R81.78 a year ago. The JSE All Share Index was down 1.56% at the same time.

The coal-to-fuels and chemicals manufacturer said in a trading statement Thursday the decline in earnings was mainly due to a 17% lower average rand per barrel Brent crude oil price; a 3% decrease in dollar per ton chemicals basket prices; and impairments of R7.8 billion, compared to R5.7 billion in the prior period.

The decline in earnings was partially offset by a bigger than 100% increase in refining margin following improved fuel differentials, and a 3% increase in sales volumes supported by the improved operational performance.

The group's earnings per share was expected to be between 10 cents and 80 cents per share, well down from R7.22 in the prior period. Headline earnings per share (HEPS) was expected to be between R8.50 and R10 per share, compared with R14,13 previously.

Adjusted earnings before interest, tax, depreciation and amortisation was expected to be between R19bn and R23bn, or between 4% to 21% lower compared to the prior period.

Overall free cash flow generation was expected to improve despite the lower earnings, due to lower capital expenditure.

The impairments were the result of R3bn being capitalised on the Secunda liquid fuels refinery cash generating unit (CGU) and an impairment of the Production Sharing Agreement (PSA) development in Mozambique of R3.9 bn.

"While the total quantum of gas remains unchanged, a revision of the expected production profile has resulted in a deferral of gas monetisation. The strengthening of the rand against the US dollar also contributed to the impairment," Sasol's directors said.

The full interim results are expected to be released on February 23, this year.

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