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Sasol Limited Half-Year Financial Report Analysis

Overview

In its latest trading statement, Sasol Limited revealed alarming projections for the half-year period ending December 31, 2024. The company is expected to experience a substantial decline in earnings, prompting stakeholders to take note of the underlying issues contributing to this downturn.

Earnings Expectations

According to the company's public disclosure, adjusted earnings before interest, tax, depreciation, and amortization (adjusted EBITDA) is anticipated to fall between R22 billion and R25 billion. This is a marked decrease from the previous year's adjusted EBITDA, which stood at R28 billion. The projected decline rests around 11% to 22%.

Earnings per share (EPS) are estimated to drop significantly as well, expected to fall between R6.00 and R8.00, a stark comparison to the R15.19 EPS reported for the prior half year. This reflects an anticipated reduction of 47% to 61% which is likely to raise concerns among investors.

Similarly, headline earnings per share (HEPS) is predicted to range from R13.00 to R15.00, down from R20.37 in the previous period, indicating a 26% to 36% drop. These figures underscore the significant challenges confronting Sasol as it navigates the ongoing economic landscape.

Causes of Decline

The financial challenges faced by Sasol are attributed to several key factors:

1. Fluctuating Oil Prices: The company reported a 13% decrease in the average Rand per barrel price of Brent Crude Oil. This drop in oil prices directly impacts revenue streams and profit margins.
2. Refining Margins: There has been a notable decline in refining margins, which further exacerbates the financial strain on the company. The changes in fuel price differentials have also contributed negatively.
3. Sales Volumes: Sasol experienced a 5% reduction in sales volumes linked to lower production efficiencies and decreased market demand, as highlighted in their production and sales metrics released earlier in January 2025.
4. Non-Cash Adjustments: The company had to account for significant non-cash losses, including a net loss of R6.2 billion from remeasurement items compared to R5.8 billion in the previous half-year. This mainly pertains to impairments in the Secunda and Sasolburg liquid fuels refinery cash-generating units. In addition, unrealized losses amounting to R0.1 billion were recorded, contrasting with previous unrealized gains of R2.7 billion.

Despite these challenges, Sasol has managed to implement a stringent cost management approach and has experienced an increase in average chemical basket prices. These measures have provided some mitigation against the adverse impacts of the current market conditions.

Looking Ahead

Sasol's leadership remains committed to improving operational performance and will be detailing their improved strategies in their upcoming 2025 interim financial results presentation slated for February 24, 2025. This presentation will include an in-depth analysis of the financial results and future operational plans. Stakeholders and interested parties are encouraged to engage in the market call scheduled post-presentation, where CEO Simon Baloyi and CFO Walt Bruns will address queries.

Conclusion

The financial forecast for Sasol Limited presents a challenging outlook, with a significant decrease in key earnings metrics. Stakeholders must stay informed and responsive to the evolving financial landscape as Sasol navigates these complex challenges. As investors gear up for the February report, the anticipation surrounding the company’s recovery strategies and potential future performance will be crucial.