South Africa's Sasol to offset output shortfall through prices

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  • Output shortfall could stabilise by June, CEO says
  • Sasol to continue cash generation, debt reduction
  • Lower debt could help reinstate dividends

JOHANNESBURG, Feb 21 (Reuters) - South Africa's Sasol Ltd (SOLJ.J) will be able to mitigate the impact of a production shortfall on profit and cash generation for the full year through high crude oil and chemical prices, its CEO said on Monday.

The world's biggest producer of fuel products and chemicals from coal reported earlier that core profit for the six months ended Dec. 31 had tripled, thanks to a surge in crude and chemicals prices.

It had flagged in December that production at its biggest facility in South Africa - the Secunda operations (SO) - would be hit due to availability and quality of coal.

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Sasol had revised its year end target for production from SO to 6.7-6.8 million tonnes, down over 8% from its earlier plan.

Investors were concerned that this would impact the company's target to reduce debt and increase cash flow, which could impact reinstatement of dividends suspended for two years.

However, CEO Fleetwood Grobler told Reuters that despite lower volumes, Sasol would be able to generate cash and cut debt due to strong crude oil and chemical prices.

This could also help the company to start dividend payments, he said, although he did not say if that would happen in June.

"I think our focus on cash generation and free cash flow is paramount for the next six months, and not only because we want to reduce net debt, but also to trigger dividends," he said.

Its dividend payments trigger when net debt reaches 1.5 times of its earnings before interest, tax, depreciation and amortisation (EBITDA) and absolute debt comes down to $5 billion.

As of Dec. 31, net debt to EBITDA stood at 1.3 times but its absolute debt was at 109.2 billion rand ($7.2 billion).

Its shares were down almost 2% in early trade on Monday.

Battling massive debt, Sasol faced a heavy blow in 2020 when the pandemic saw fuel demand and chemicals prices plummet. But a slew of restructuring efforts coupled with recovery in fuel demand turned its fortunes around.

Its core headline earnings per share (HEPS), which strips off some items such as the impact of non-recurring costs and the effect of hedging, rose to 22.52 rand for the six months ended Dec. 31 from 7.86 rand posted in the same period a year earlier.

($1 = 15.1377 rand)

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Reporting by Promit Mukherjee; Editing by Christopher Cushing, Sherry Jacob-Phillips and Emelia Sithole-Matarise

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