FIFI PETERS: This time last year was a dark period for Sasol, which reported a huge loss as oil prices crashed because of the Covid-19 lockdowns that shut down demand for oil from motorists to airlines as many of us worked from home. But today is a much brighter day for Sasol, which has reported a return to profit in the six months ended June. Sasol CEO Fleetwood Grobler joins us for a review of the numbers.
Fleetwood, thanks so much for your time. I must tell you that I filled up my tank just last week, and now it costs me R200 more to do so as a result of what has been happening with oil prices. But, given your active involvement in the sector, can you just give us an understanding of the oil market and what kind of prices motorists should be bracing for?
FLEETWOOD GROBLER: Fifi, thank you so much for the question and the context. We are really in a very volatile macro environment. As you can imagine, the Covid pandemic is driving this volatility. The Opec producers are trying to make sense of it – the global economic recovery – and are trying to see how the oil price and other economic factors play in it. So there’s a whole raft of things playing into the oil price outlook. For us it is very difficult to make any prediction. What we are looking at is to say we have to be robust in a lower oil-price environment going forward.
We believe that the oil price could play out this year between $55 and $75 to the barrel. Today we are just under $70. There was quite some reduction and we know that your political factors played in over the weekend.
We also have seen the pandemic muted in China, closing down some ports; that may curb economic activity, which will curb the demand for oil. So they are so many factors playing out. It’s very difficult to give you a number. Suffice it to say that at Sasol we try to be very robust in a low- and a high-price environment.
FIFI PETERS: Well, I think we as motorists would love $55/barrel; but I think your shareholders are quite happy with the $70/barrel that we’re currently sitting at.
Fleetwood, because many cars were sitting in their garages and in carports at home because of the whole work-from-home phenomenon, we did see reduced demand for petrol and oil-related products at fuel stations, which in turn resulted in a number of fuel stations across the country having to shut down. What are demand levels looking like for your oil, and what’s the situation at your garages?
FLEETWOOD GROBLER: In terms of that context, when I compare the three main fuel components let me start off with diesel. Now, you know that South Africa is heavily dependent on road haulage to distribute our products and to get our products to export markets. So there I’m pleased to report that we are now seeing diesel demand and sales are just a wee bit above pre-pandemic levels.
As far as petrol sales go, we are slightly below; we are in the range of 90-100% of pre-Covid levels.
But the biggest impact that we haven’t seen return or normalise yet is jet fuel. There international air travel is still muted in that sense, and there we are seeing anything between 70 and 80%, even lower than before the Covid pandemic levels. So our outlook is to live with that. We don’t think jet fuel is going to recover this year to pre-Covid levels, but we do see that both petrol and diesel are starting to normalise, and that’s our outlook.
FIFI PETERS: Notwithstanding perhaps less demand from the aviation sector as a result of fewer flights, it has been a good year for Sasol. You’re no longer making a loss; today you’re reporting a profit. Just talk to us about some of the things that have been good for the group from an earnings perspective and what businesses are looking like going forward.
FLEETWOOD GROBLER: That’s a very good context to ask the question in. Over the past year there are at least three areas that played into our positive results and the position that we in.
First of all, it was the reset of the balance sheet that we announced today in terms of our asset-divestment programme, and of course also our operational performance. If I put those two together, the cash that we could get from our operating activities – that R45 billion over the past year, plus the asset-divestment programme – enabled us to repay about R81 billion of debt. We reduced our US dollar-denominated debt by around $5 billion, and now on a US dollar bank debt we are just below $6 billion. We want to reduce this further, because that is where we would like to see an absolute debt level of below $5 billion in our US dollar debt. That’s where we think the current run rate of operational activities and the conclusion of our asset-divestment programme may get us towards the end of this financial year.
The other factors that have played in positively are of course the oil price increase since the middle of last year to where we are now; that also bolstered our cash from operating activities. But also in the past financial year our chemicals business contributed around 60% of our Ebitda, and our energy business around 40%. So the chemicals business is looking good.
And then the third element is our reset with respect to the Sasol 2.0 transformation programme. We have made huge strides in the progress. We’ve implemented our new operating model. We have set targets which we communicated to the market in December last year. We are making solid progress on the delivery of those targets. And, as we indicated today, for the financial year 2022 we are targeting to deliver about a R3 billion improvement on cash fixed cost and R1.5 billion on gross margin initiatives.
That is all building up to the 2025 actual outcome, where we would improve our position vis-à-vis last year, 2020, where we would make headway against cash fixed cost to deliver an R8-10 billion improvement in gross margin, R6‑8 [billion] in working capital, to achieve our 14% sustainably, and to keep our sustenance capital in the range of R20-25 [billion] without compromising the integrity of our assets.
So that’s positioning us well to be resilient in a lower oil-price environment that we’ve just talked about. And I think our whole drive, Fifi, is really to be robust in a lower oil-price environment.
FIFI PETERS: Just lastly, out of curiosity, how closely do you use Transnet? A number of clients have complained about not being able to get their products out on time to export markets because of inefficiencies at our ports operator. Is this a concern or a challenge for your business?
FLEETWOOD GROBLER: So Transnet was also impacting on our side. We have two ports that we export through. Most of our container sort of solid materials like polyethylene and so on is exported via Durban. Our liquid is mostly exported via Richards Bay. And so, yes, we were impacted, but I must say Transnet made a very commendable effort in addressing, firstly, the unrest situation which was playing into our ports in Durban specifically, the road impact, but lately [also] this ransomware attack that they had to deal with. I think they’ve recovered well. We were impacted for about a week, but things are starting to normalise at this stage, and we are seeing that we can move our products through our ports to export markets.
FIFI PETERS: Good to know. Fleetwood, we’ll leave it there. Thanks so much for your time, as always. That was the Sasol CEO, Fleetwood Grobler.