2.0 Assets of the company
As Sasol Ltd. is the holding company for a group of companies comprised of diversified fuel, chemical and related manufacturing and marketing operations, complemented by interests in technology development, oil and gas exploration and production, would have enormous amount of current and fixed assets. (see Appendix 1)
2.1 Fixed Assets
One of the determining factors investors would look at is how Sasol is managing it’s assets comparing to it’s liabilities. According to the financial data, Sasol Ltd. has been increasing its Fixed Assets such as property, plant and equipment for the last 5 years. The areas in which the company operates requires heavy investments to sustain the development of each business unit.
1997 1998 1999 2000 2001 2002
Property, plant, equipment 13,163 14,981 16,048 18,798 28,035 36,667
Non-current assets 598 645 908 1,846 2,298 3,661
Current assets 7,231 7,893 7,300 9,021 19,742 23,529
Total Assets 20,992 23,519 24,256 29,665 50,075 63,857
(Figures given in millions)
It is noticeable that the amount of Fixed Assets contributes most towards the Total Assets. Compounding growth in Fixed Assets is 22.7% and 24.9% in Total Assets.
2.2 Current Assets
Sasol’s Liabilities were as well as Assets growing steadily. The table below will show how quickly they were rising for the same period of 5 years.
1997 1998 1999 2000 2001 2002
Shareholders equity 11,778 13,025 15,131 17,715 22,217 30, 070
Convertible debentures 1,028 1,028 1,028 - - -
Interest-bearing debt 1,146 2,145 1,123 777 8,454 10,612
Interest-free liabilities 7,040 7,321 6,974 11,173 19,404 23,175
Total liabilities 20,992 23,519 24,256 29,665 50,075 63,857
The 5 year compound growth in the Total Shareholder’s Equity is 20.6% and 24.9% growth in the Total equity and liabilities. It is worth noticing that the 5 year compound percentage growth in Total assets is the same as in Total liabilities. This demonstrates the ability of the company to generate earnings on a steady base, and also the ability to leverage the development taking the debt to equity ratio to 2.1x in 2002 compared to the 1998 figure of 1.8x.
3.0 Creditors
Types of long-term loans:
The Sasol borrowing powers are limited by its Articles of Allocation to twice the sum of the stated capital and reserves.
Sasol has two main types of long-term loans, secured and unsecured.
Secured loans are secured by foreign plant, equipment and inventories. They are also repayable at different times for example, some of the loans have to be repaid by July and August 2004, others would have to be repaid in semi-annual instalments, and others would have to be repaid in equal monthly instalments. Basically the main difference between secured and unsecured long-term loans is that secured loans are repayable in semi-annual instalments, whereas unsecured loans are repayable in 5 equal annual amounts. Sasol has 14 secured long-term loans, which are repayable in the different time. The total amount of secured long-term loans, which Sasol would have to repay, is: (the amount is for the end of 30 June 2002) £5664 millions.
On the other hand unsecured long-term loans have 9 different creditors. The total amount, which Sasol would have to pay, is £322 millions.
There is also a difference between secured and unsecured long-term loans. There are different interest rates. Every creditor in secured loans has its own interest rate, whereas not every unsecured creditor has interest rate. This difference of rates is caused by the different risk associated with the loans in case of default of the company on the payments.
4.0 Capital and Reserves
Sasol has investments and shares. It also has investments in shares, which have £258 millions.
For the financial year-end 30 June 2002 shares in issue were cost £666,9 millions, which have been increased from the year 2001 where shares in issue were cost £665 millions. (The information about shares values from 1998 to 2002 is available at ). The number of shares, which were repurchased, is £57,9 millions and the weighted average shares in issue cost the company £612,5 millions.
This company has limited liabilities and that means that Sasol cannot take capital from the public it can only take it from the shareholders and/or the owners of the company. That makes a big problem for Sasol because now it owns its creditors twice the amount of what it has been started from. (see Appendix 1,2)
5.0 Financial Overview
Sales increased by 49% to R61,6 billion (13% to USD 6,1 billion). Foreign and export sales amounted to 56% of total sales, resulting in a strategic objective that these should exceed 50% by 2005 being achieved three years ahead of schedule.
Oil prices were relatively stable for the first few months of the financial year but dropped after the terrorist attacks in America and only partly recovered in the first quarter of 2002, also because the lower economic growth in place has a lower demand for oil products. On average, they were significantly lower than in the previous financial year.
Although commodity chemical prices recovered early in 2002 after weakening considerably during the second half of 2001, they nevertheless were on average substantially below those of the previous financial year.
Operating profit increased by 38% to R14,9 billion (4% to USD1,5 billion). About 60% of the rand increase arose from the net benefit of a weaker exchange rate offset by lower oil and commodity chemical prices. The balance was realized from management initiatives and, more specifically, from synergies gained through acquisitions and productivity improvements.
During the year, international oil prices were about USD 23,24 per barrel and were 18% below those of the previous financial year. Similarly, commodity chemical prices in US dollars across the Group’s range of products were approximately 20% lower.
These positive results were achieved, despite negative pricing environment and the uncertainty in the markets, because of the following key factors:
- The weakening of the rand: US dollar exchange rate by 32% from an average of R7,65 in the previous financial year to R10,13.
- Capacity increases in various plants and the resulting beneficial impact on sales
lumes.
- Cost reductions, productivity gains and conversion efficiency improvements across the Group.
- The contribution of Sasol Chemie (previously Condea) for a full year, and its pleasing performance.
- The ability of those businesses trading internationally to influence well-established customer relationships and distribution channels in difficult markets.
Productivity improvement and renewal programs progressed through the year as focus on continuous improvement heightened and meaningful contribution to profits in various businesses was achieved. Simultaneously, ongoing safety and environmental management initiatives showed pleasing results.
Net working capital at year-end was slightly higher than anticipated because of higher inventories at Sasol Chemie and the need to build up stocks in advance of the Natref shutdown.
Following the acquisition of Sasol Chemie on 1 March 2001, and the pleasing progress made with its integration into Sasol, it was announced last year that Sasol was again alert to acquisition opportunities. Given the strong financial position of the company we believe it still had the financial flexibility to allow the company to take advantages of opportunities that will arise in its various businesses.
A long-term objective to acquire full ownership of Schümann Sasol International AG materialized during the year and this global wax business was incorporated as a wholly-owned subsidiary of Sasol with effect from 1 January 2002.
The Group’s share buyback program continued taking proper cognizance of Sasol’s gearing and expected cash flow requirements. The average price paid for all shares bought to date was R59,27.
Net financing costs increased from R276 million to R635 million primarily because of higher capital expenditure and the annualized impact of Sasol Chemie, partially offset by higher cash flow from operations. Financing cost cover at year-end exceeded 17 times.
6.0 Dividend Policies: Earnings attributable to shareholders divided by dividends paid.
(see Appendix 4)
An interim dividend of 140 cents per share (2000 – 83 cents per share) was paid on 26 April 2001. A final dividend in respect of the year ended 25 June 2001 of 180 cents per share (2000 – 137 cents per share) was declared on 3 September 2001. The payout ratio for the distribution of the dividend is approximately 33% of earnings. Dividends for the year increased by 100 cents per share. The average dividend cover over the last five years is 2,9 times. Dividends payable are recognised as a liability in the period in which they are declared.
Total dividend declared for the year of 450 cents represents a 3,4 times dividend cover and an increase of 41% over the total dividend of 320 cents of the previous financial year. The cover applied is within the targeted range of 2,5 to 3,5. Average dividend cover applied over the last 10 years approximates 3,0.
Interim dividend
– SA cents per share 200 c
– last date to trade cum dividend 5 April 2002
Final dividend
– SA cents per share 250 c
– date declared 6 September 2002
– last date to trade cum dividend 4 October 2002
– payable 14 October 2002
Dividend cover Attributable earnings adjusted for secondary tax on the final dividend declared, divided by the sum of the interim dividend paid and final dividend declared net income before tax.
Report of the independent auditors
We have audited the annual financial statements of Sasol Limited set out on pages 81 to 140 for the year ended 30 June 2002. These financial statements are the responsibility of the directors. Audit of accounts, the annual financial statements fairly present, in all material respects, the financial position of the Group and Company at 30 June 2002, and the results of its operations and cash flows for the year then ended, are in accordance with International Financial Reporting Standards and in the manner required by the South African Companies Act. KPMG Inc. Registered Accountants and Auditors Chartered Accountants (SA) Johannesburg 6 September 2002
7.0 Audit opinion
In our opinion, the annual financial statements fairly present, in all material respects, the financial position of the Group and Company at 30 June 2002, and the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the South African Companies Act.
An audit includes:
- examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements;
- assessing the accounting principles used and significant estimates made by management; and
- evaluating the overall financial statement presentation.
8.0 Conclusion
Since the event on the 11th of September, which had shaken all businesses over the last year, the prices for oil and commodity chemical have improved and have been showing an upward trend. The company has continued to invest in its areas of operations, and is still targeting growth. Sasol still has the financial flexibility to take advantages of opportunities in the markets. The company is surely in a position of expanding, but we believe there are numerous opportunities to invest in companies which have more focused activities. We believe that it would be better to target chemical companies if one wants to invest in the chemical industries such as Dow Chemical, Basf, Sabic, while we believe it would be more beneficial to invest in oil companies such as Shell, Bp, TotalFinaElf. Each of these companies invests in their own core businesses, while we feel Sasol is probably too diversified and cannot be as effective in managing the investments required.
9.1 Appendix 1 Balance Sheet
9.2 Appendix 2 Financial Review
9.3 Appendix 3 Shareholders Information
9.4 Appendix 4 Income Statement
10.0 Bibliography
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