Sasol Limited: Navigating Market Challenges in H1 2024

Sasol Limited, a leading global energy and chemicals company, has released its trading statement for the six months ended 31 December 2024, providing insights into its operational performance and financial results. The company faced several challenges during the period, including lower volumes, reduced chemical product prices, and inflationary pressures. However, Sasol Limited demonstrated resilience and adaptability, achieving notable operational improvements in the last quarter.



Sasol Limited's adjusted EBITDA for the six months ended 31 December 2024 is expected to be between R55 billion and R60 billion, representing a decrease of approximately 18% to 23% compared to the previous corresponding period. The key factors contributing to this change include:

1. Lower volumes in the first half, primarily due to operational challenges and maintenance activities.
2. Lower chemical product prices across all regions, driven by global market conditions and increased competition.
3. Inflationary pressures, which increased input costs and reduced margins.
4. A strategic reset in the international operations, which led to temporary disruptions in production and sales.

Despite these challenges, Sasol Limited achieved notable operational improvements in the last quarter of the financial year. These improvements were underpinned by targeted interventions and are reflected in the following key performance indicators:

1. Turnover: Revenue of R275.1 billion was 5% lower compared to the prior year, primarily due to lower volumes in the first half, lower chemical product prices across all regions, and inflationary pressures. However, the strong performance in the second half, supported by the improved operational performance and cost mitigation measures, contributed to this improvement.
2. Adjusted EBITDA: Adjusted EBITDA declined 9% versus the prior year, but the strong performance in the second half helped to mitigate this decline.
3. Free cash flow: Free cash flow before discretionary capital spend and dividends was R8.1 billion, 60% lower compared to the prior year. However, the improved operational performance and cost mitigation measures in the second half contributed to this improvement.

Sasol Limited's dividend policy update links dividends to free cash flow, which is defined as before discretionary capital spend and dividends paid. The revised policy is based on 30% of free cash flow generated, provided that net debt (excluding leases) is below USD4 billion on a sustained basis. This change in policy aims to support balance sheet deleveraging and sustainable shareholder returns.

The implications of this update are as follows:

1. Balance Sheet Deleveraging: By linking dividends to free cash flow, Sasol ensures that it maintains a healthy balance sheet. If net debt exceeds the USD4 billion threshold, no final dividend is declared, as seen in the 2024 results. This approach helps Sasol manage its debt levels and maintain financial stability.
2. Sustainable Shareholder Returns: The new policy focuses on sustainable shareholder returns by ensuring that dividends are paid from cash generated by the business. This approach helps maintain a consistent dividend payout over time, rather than relying on debt financing or asset sales to fund dividends.
3. Alignment with Performance: The dividend policy now aligns with Sasol's operational and financial performance. As the company generates more free cash flow, it can distribute a larger portion of it as dividends to shareholders, reflecting the company's success in managing its capital structure and generating cash from operations.

In conclusion, Sasol Limited's trading statement for the six months ended 31 December 2024 highlights the company's resilience and adaptability in the face of market challenges. Despite lower volumes, reduced chemical product prices, and inflationary pressures, Sasol Limited achieved notable operational improvements in the last quarter. The company's dividend policy update links dividends to free cash flow, promoting balance sheet deleveraging and sustainable shareholder returns. As Sasol Limited continues to navigate the dynamic market landscape, investors should closely monitor the company's progress and performance.