10-03-09 The volatility and uncertainty in global markets have prompted petrochemicals group Sasol to slash its capital expenditure programme forecast for the next three years by 40 % to R 28 bn.
With no end in sight to the unfavourable market conditions Sasol has taken a cautious stance as it has several projects in the pipeline. Sasol CEO Pat Davies said the downturn was different from those experienced in the past.
"The storm is far greater," he said.

Speaking at the release of the company's results for the six months to December, Davies said Sasol was "reviewing and reprioritising" the R 70 bn three-year capital expenditure programme forecast because of the global market crisis.
"It is not business as usual. We must take extraordinary measures to conserve cash. We do not know how long the crisis will take. We do not expect the oil prices to increase in a couple of years. In that scenario it is prudent to conserve cash," Davies said.

The adjustment in the capital expenditure programme would result in some of company's projects being put on hold. But he would not indicate which projects would be affected, saying the company was still working on that. Davies said it would not be the first time that the group suspended projects.
"We did it with the Oryx (gas-to-liquid) project when we felt the oil prices were low." Davies said that despite the review of the programme, the major projects would continue.

Sasol's project pipeline includes plans for the construction of a coal-to-liquid plant in India. Davies announced that the project had proceeded from the so-called idea stage to prefeasibility stage. This comes after the Indian government granted Sasol and its partners in the project, Tata Group, rights to a coal block in that country.
The company's other projects include exploration in Mozambique and Papua New Guinea, the inland coal-to-liquid plant Project Mafutha, a coal-to-liquid plant in China, the expansion of the Secunda facility and the Oryx gas-to-liquid plant.

Davies said the group would proceed with the prefeasibility and feasibility studies relating to the big projects.
"The message is that Sasol's project pipeline is still intact," he said.

In the six months to December Sasol benefited from relatively high oil and chemical product prices and a weaker rand. Headline earnings a share increased 51 % to R 21,92 a share. Operating profit increased 53 % to R 21,5 bn. The R 3,7 bn European Commission fine for Sasol's role in a paraffin wax cartel in Europe reduced the increase in operating profit. Sasol is appealing against the fine.
The group declared a dividend of R 2,50 a share, down from last year's R 3,65.

The company has suspended its share buy-back programme. The suspension and the cutback on expenditure have led to a reduction of Sasol's gearing from 20,5 % to 2,3 %. Since the inception of the buy-back programme in March 2007, Sasol has bought back about 6,4 % of its own shares. Davies said that in response to the financial crisis, the group had lowered its targeted gearing from 30 %-50 % to 20 %-40 %.
The group said the deleveraged balance sheet positioned it well to execute its medium-term capital expenditure programme.

"Sasol's deleveraged balance sheet, cash flows and liquidity position place the company in a favourable position to weather the global crisis," Davies said.
Sasol has said it expected its earnings for the year to June this year to fall, compared to last year. It has attributed the expected decrease to a combination of lower crude oil prices, product prices and demand.