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Sasol’s annual financial results for 2020 (FY20) are characterised by a story of two halves. Despite the challenges we faced in the first six months, Sasol delivered a sound operational performance. The second half saw the Covid-19 pandemic cause a seismic shift in our operating context, underscored by significant volatility and uncertainty.
This year was our peak gearing period as we approached the near completion of the LCCP. Geopolitical dynamics in the latter half of the year saw the Brent crude oil price collapse to 21 year lows, while the onset of the pandemic placed even greater pressure on our balance sheet.
Sound operational performance
Our first half performance was satisfactory, however, we faced an unprecedented set of challenges in the second six months.
Mining improved production by 2%. Synfuels experienced an 8% decline in production, while Natref decreased by 34%, both due to South Africa’s national lockdown that started in late March resulting in a steep fall in fuels demand.
Despite these setbacks, we took advantage of some opportunities. We accelerated maintenance work at both Synfuels and Natref to allow continuous operations in FY21, while Synfuels swung production to chemicals in response to lower fuels sales volumes.
Volumes at our North American Operations were 29% higher as the new cracker achieved nameplate capacity and is currently producing at maximum run rates. The overall LCCP cost estimate is tracking US$12,8 billion as per our previous guidance. Our HDPE joint venture also continues to produce above expectations.
Production at our Eurasian Operations was marginally down by 2%, but partially offset by an increase in surfactant demand.
The challenging operating environment filtered into our financial results with cash flow from operations 18% lower, at R42 billion, due to lower oil and product prices.
Our self-help measures ensured cash fixed costs remained flat in a year where costs were ramping up in support of new assets. We improved working capital to 12,5% of turnover and reduced our capital spend through focused management actions. We also managed to maintain liquidity in very challenging times at US$2,5 billion, which is higher than expected.
With a revised long term outlook on our price assumptions, we booked R112 billion in impairments. This reflects the current depressed macro environment with a softer outlook on price recovery, which impacted most of our value chains across the Group, including the impact of fair value adjustments at LCCP given the announced partnering discussions.
Furthermore, despite severe macro-economic challenges we still delivered on our broad-based black economic empowerment commitments with expenditure of R26 billion with black-owned suppliers.
Balance sheet management
The pathway to deleveraging our balance sheet is on track and is underpinned by the progress made on our self-help initiatives and our asset divestment programme. In addition, we have progressed our Sasol 2.0 initiative to support our reset to be sustainably profitable in a low oil price environment.
For FY21, we will continue to execute against our response plan objectives to keep liquidity strong and bring our debt levels down.
The final major step on our deleveraging pathway is a rights issue to raise capital from our shareholders. We want to implement this when the amount required is well defined and when we can do so on the basis of a clearer and stronger financial position. To this end, Sasol is currently preparing to execute a rights issue in the second half of FY21.
Sustainability roadmap for South Africa
In line with our strategic reset, mitigating our climate risk is a cornerstone of our strategy.
The roadmap informs the path to achieve our committed minimum of a 10% reduction in greenhouse gas emissions by 2030, off our 2017 baseline. Our roadmap places us on a trajectory for greater reductions post 2030 and positions us to support the country’s energy transition.
Our 2030 roadmap sees us moving towards being less carbon-intensive. Various technology options have been reviewed, ranging from hydrogen to carbon capture and utilisation, for which evaluation is being progressed at speed.
The detailed roadmap will officially be launched later this month.