Sasol unveils strategy to drive future value-based growth
Thursday, Nov 23, 2017
Capital Markets Day 2017, Johannesburg, South Africa – Sasol today unveiled its refined corporate strategy, which sets a clear path for sustainable growth and accelerated shareholder returns.

Joint President and Chief Executive Officer (CEO), Stephen Cornell says: “In developing our strategy, we considered both the opportunities and risks we face, informed by developments in the external environment.  It is clear that megatrends influential to our business will result in greater demand for chemicals and energy products in key markets we serve.”

Key megatrends and assumptions informing Sasol’s strategic choices are global population growth and further urbanisation, the move to even greater efficiency and performance, in all aspects of business, supported by digitalisation and sustained volatility in both oil prices and exchange rates.

“Against this backdrop, our value-based growth strategy is premised on further enhancing our foundation businesses, leveraging our core strengths in specialty chemicals, exploration and production (E&P) and retail fuels, underpinned by increased discipline in capital allocation,” says Cornell.

Sasol’s foundation businesses, which are already cash positive at a US$40 per barrel oil price, provide a robust platform for long-term growth and delivery of ongoing value to shareholders.

Joint President and CEO, Bongani Nqwababa says: “Our delivery track record – evidenced in recent years by significant volume improvements at key facilities, our competitive cost position and global portfolio of highly cash-generative, diversified assets – places us in a strong position to realise greater value from our foundation businesses.  Here, operational excellence, continuous improvement and digitalisation programmes, as well as rigorous asset reviews, will enable us to become a more resilient, efficient and effective organisation.”

To date, Sasol has completed reviews on more than half of its global assets, underpinned by the company’s drive to improve asset performance, not liquidity requirements. Thus far, the reviews have confirmed that the majority of the company’s assets will be retained and clear improvement actions have been defined for each.

The reviews conducted to date did, however, identify the Canadian shale gas asset as being non-core.  In this respect, Sasol will commence a structured divestment process involving Progress Energy, the partner in this asset.

With reference to the clear choices made to drive value-based growth, in Sasol’s Chemicals Business the company will progressively grow its portfolio of high-value specialty chemicals in attractive growth sectors.

“Our existing application know-how and strong product portfolio in a broad range of specialty chemical products, gives us confidence we can deliver in this area,” says Cornell. “Our push into specialty chemicals is further supported by the benefit of the scale and cost advantage we enjoy through our investments in commodity chemicals in South Africa and North America. We will take full advantage of these large, cost competitive facilities to grow our specialty chemicals portfolio.”

On the upstream front, the company will pursue progressive, disciplined growth in E&P both in Mozambique and in selected countries in West Africa, to expand production levels with a bias to liquid plays.

“To win on the African continent, we will leverage our current upstream expertise, while continuing to strengthen our E&P capabilities given the larger role we envisage for Sasol Exploration and Production International going forward,” says Nqwababa.

Regarding Sasol’s Energy Business, Nqwababa adds: “To ensure we drive more of our own liquid fuel production through Sasol’s retail network, where we enjoy higher margins, we will continue to aggressively grow our liquid fuels retail footprint in Southern Africa.  We will capitalise on our strong brand and existing cost advantage to achieve our retail fuels growth aspirations.”

On Sasol’s financial framework, Paul Victor, Chief Financial Officer says: “We will apply increased discipline in our capital allocation approach, focused on delivering improved cash flow generation through the cycle, adopting a balanced approach to shareholder returns and a capital structure that is fit for the future.”

Translating Sasol’s strategy into measurable value for shareholders will comprise two distinct phases.

“From now until 2022, Sasol will focus on delivery of the Lake Charles Chemicals Project (LCCP) in the US and the Production Sharing Agreement in Mozambique, while extracting further value from our existing portfolio of diversified assets.  In this period we are targeting an improvement in return on invested capital (ROIC) of at least 2% on our financial year 2017 base.  This will be achieved through continuous improvement that will encompass various initiatives across our value chain,” says Victor.

He adds that successful delivery of these initiatives will drive earnings growth and greater efficiency and effectiveness, which in turn, support the earlier delivery of returns to shareholders through an increase in Sasol’s dividend payout to 40% or 2,5 times cover by 2022.

“Beyond 2022, we will focus on building an investment portfolio of smaller to medium-sized organic and inorganic opportunities, in the range of US$500 million to US$1 billion.  This will be directed towards our growth focus areas in specialty chemicals, exploration and production and retail fuels,” says Victor.

“In the longer term, we will leverage our investment base with flexibility for greater growth that we will drive through partnerships. In the 2022 plus timeframe, we are confident that we will be in a position to progressively increase the dividend payout to 45% or 2,2 times cover.”

Victor concludes: “Based on our scenarios and modelling, we believe we can deliver at least 12% ROIC and 5% earnings before interest and tax (EBIT) growth through the cycle, in the medium to longer-term.”

Sasol has also made several key decisions in areas where the company does not believe it can maintain a leading position or deliver strong returns.

In this regard, one of several important decisions is that Sasol will not invest in further greenfields gas-to-liquids (GTL) projects.  This decision means the company will no longer pursue its proposed GTL project in the US.   In January 2015 Sasol announced it was delaying a final investment decision on the project to conserve cash in response to lower oil prices.

“While our current GTL assets are generating good returns and cash flows, the value proposition for Sasol to build new GTL projects is uneconomic against a volatile external environment and structural shift to a low oil price environment.”

Cornell adds Sasol will maintain its industry-leading position in Fischer-Tropsch (FT) technology.

“We will continue to work on opportunities to optimise and improve our existing facilities in regard to catalyst performance, product yields and energy efficiency. We also see further opportunities to high-grade the value from our GTL molecules through base oils extraction, and we will continue to license and support our FT technology,” says Cornell.

Sasol has also decided not to invest in any additional crude oil refining capacity.

“This decision was informed by the large investments that will be required to meet changing fuel specifications in South Africa and a lack of any clear competitive advantage for Sasol outside our existing position in Secunda,” says Cornell.

“We have also made an important call on commodity chemicals,” says Nqwababa.  “While we have a solid foundation business in commodity chemicals and the world-scale LCCP under construction in the US, the risk profile to execute such projects alone, in the future, is larger than what Sasol wishes to undertake. Such investments in feedstock-advantaged locations may still be considered, but we will not entertain wholly-owned investments in similar mega-projects, such as the LCCP, going forward.”

In line with enhancing its robust foundation, Sasol will continue to invest in extracting further value from its chemicals facilities in the US and South Africa, while also pursuing commodity chemicals investments where this can support the company’s desire to grow its specialty chemicals portfolio.

“Our strong foundation competitively positions the company for ongoing value creation and future growth, underscored by a clear, focused strategy that taps into our core strengths and exploits potential in key growth markets,” says Cornell.

“We will be executing our strategy in a phased, disciplined and progressive manner.  Our growth ambitions will, of course, take into account our balance sheet, our earnings flow and ability to successfully execute our plans to ensure we deliver superior returns to our shareholders,” concludes Nqwababa.

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