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| Executive reports | ||
| Chief executive’s report |
| Chairman’s statement Pages | 1 | 2 | |
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| Record financial results, significant progress on several fronts | |||
The group delivered record financial results and significant progress was made on several key fronts, notably safety and transformation. |
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| I wish, in particular, to commend Pat Davies and his new executive team for their effective leadership of the group. I also acknowledge, with appreciation, the valuable guidance provided by the non-executive members of Sasol ’ s board. Warren Clewlow and Trevor Munday retired from the board in December 2006. On behalf of the board, I extend our appreciation to both Warren and Trevor for their significant contribution to Sasol over many years and wish them well. I am pleased to welcome Henk Dijkgraaf and Tom Wixley to the board, appointed as nonexecutive directors in October 2006 and March 2007 respectively. | |||
| Henk brings extensive international experience in the oil and gas industry to the board, and Tom a wealth of specialist financial and accounting expertise. | |||
| Sustaining our financial performance | |||
 Our record financial performance was achieved in a macroeconomic
environment similar to 2006. Favourable crude oil prices and a
weakening rand benefited our energy businesses, and despite
the higher oil-related feedstock costs, our chemicals businesses
improved prices and margins. For the financial year ending
30 June 2007, attributable earnings per share rose 63% to R27,35.
Headline earnings per share, which in 2006 excluded the effect
of the R3,2 billion fair value write-down in respect of Sasol Olefins
& Surfactants (O&S), rose 10% to R25,37.In March 2007 we announced the termination of the planned divestiture of Sasol O&S. A comprehensive restructuring initiative is underway and will be completed over the next three to five years. The board is confident in the ability of the new management team of Sasol O&S to restore profitability and acceptable returns despite challenging market conditions. The group’s operating cash flow remained robust, allowing for strong dividend growth, the reactivation of our share repurchase programme and a reduction in gearing despite capital expenditure of R12 billion. We project capital expenditure of about R50 billion over the next three financial years, 50% of which is expected to be spent by the South African energy businesses. Our gearing at year end of 22% was below our 30% to 50% target range. Giving effect to our growth strategy and the planned 10% Sasol Limited black economic empowerment (BEE) transaction should bring the gearing back into our target range within the next two years. The board declared a final dividend of R5,90 per share, bringing the total dividend for the year to R9,00 per share, a 27% increase on the prior year. The dividend cover was 3,0 times, falling within our target range of 2,5 to 3,5 times. |
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| Improving our safety performance | |||
| Safety remains a foremost priority for Sasol. Sustainable financial and
operational performance must never be at the expense of our employees and the communities in which we operate. Following
the extensive intervention in 2005 and 2006, entailing the review
and restructuring of our safety management processes, safety
performance improved materially during the past year. Regretfully this improvement was overshadowed by four fatalities. This is unacceptable, given our zero tolerance approach to fatalities, and we will continue to search for ways to eliminate them. On behalf of the board, I extend our condolences to the families of the men who died. |
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| “Investing in our people goes hand in hand with effective capital investment.” | |||
| Investing in South Africa’s growth | |||
| South Africa has benefited from a prolonged upswing in the global
commodity cycle fuelled largely by demand from the Asian economies.
The government’s fiscal policy has proven effective in positioning
South Africa favourably among the emerging markets, and the
country has found favour with global investors. The ambitious initiatives
introduced by the government to stimulate and grow the economy on a
sustainable basis are adding impetus. As these initiatives grow in stature
and momentum builds, the country’s GDP growth rate is expected to
approach the government’s target of 6% a year. South Africa posted its eighth year of solid GDP growth in calendar 2006, touching 5% for the year. This extended boom has helped to create jobs but has also put pressure on the country’s infrastructure. Interruptions in power supply have become more frequent, road and rail networks are under strain and the demand for liquid fuel products now exceeds the country’s refining capacity. A number of sizeable infrastructure development projects, such as the Gautrain rapid rail project and 2010 Fifa World Cup stadiums, are also driving up the cost of construction and skills. Sasol has an important role to play in relieving this pressure. We are expanding our own power generation capacity to free up capacity on the national grid. Over the next nine years we will increase liquid fuels production by 20% at Secunda. We also continue to work closely with government on a potential new inland synthetic fuels refinery to serve the future energy needs of South Africa’s economic heartland. It was pleasing to note the decision of the National Treasury not to impose a windfall tax on profits earned by synthetic fuels producers. We welcome the grounds for this decision based on government’s clearly stated aim to provide a climate of certainty for the liquid fuels industry and to establish a sound basis for investment and growth. As the country’s largest liquid fuels supplier, private investor and tax payer, Sasol has a significant impact on the economy. We employ over 27 000 people locally and our direct and indirect contribution to South Africa’s GDP is around 3% annually. Of the over R50 billion in capital we have invested over the past ten years, three-quarters has been in South Africa. Investing in our people goes hand in hand with effective capital investment. Sasol’s key research and development facilities are based in South Africa, comprising the largest team of research scientists in industry in Africa, including some 200 PhDs. Our leadership in developing and commercialising technology is a major competitive advantage for Sasol, but is contingent on continuously improving our skills base. Adding to our many education and training initiatives, we announced a R140 million investment in an industry-wide artisan skills development programme, in cooperation with our government and organised labour. Our focus is to deepen the national skills pool, thereby supporting fixed capital formation and future growth. We will also continue to channel considerable resources into improving the teaching of maths and science at school level. This is critical to improve, over time, the competitiveness of our labour resource in a technology-driven global environment. While all our initiatives are designed to enable Sasol to maintain its competitive advantage, we are cognisant of the need for all stakeholders to invest in creating additional capacity for the country as a whole. |
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| Transforming our business | |||
| Our desire to be a national champion drives not only our economic
contribution, but also our desire to make a commensurate impact on
developmental priorities, including the transformation of South Africa
to an equitable economy and society. A primary component of building
a sustainable democratic South Africa is meaningful black economic
empowerment (BEE), to which Sasol is deeply committed. We are
committed to BEE in its most broad-based form and over the past year
have continued to advance employment equity, preferential
procurement, skills development, enterprise development and
community involvement. Following the BEE transactions at Sasol Oil and Sasol Mining in the prior year, subject to shareholder approval, we intend undertaking a significant Sasol Limited BEE ownership equity transaction in 2008. The transaction will entail the sale of a proposed 10% of Sasol Limited’s issued share capital and will be the single largest broadbased BEE ownership transaction to date in South Africa. Besides demonstrating Sasol’s commitment to meeting the objectives set out in the Department of Trade and Industry’s Codes of Good Practice for Broad-Based BEE, gazetted in February 2007, the transaction is designed to generate benefits for both Sasol and South Africa on a sustainable basis. Besides the size of the proposed transaction, it is also groundbreaking in its overarching ambition to create a legacy of skills development and capacity building in the local economy. |
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| Confronting major socioeconomic issues | |||
| We continue to allocate resources to managing HIV/Aids though our
integrated Sasol HIV/Aids Response Programme (SHARP), launched in
September 2002. This initiative focuses on reducing the rate of HIV
infection of our employees in our South African operations, and
extending the quality of life of infected employees by providing
managed healthcare. Business units, trade unions, community
representatives and independent experts all contributed to the
design of SHARP. In the last year we extended the provision of
our HIV/Aids services to include on-site service providers and
Sasol franchisees. Crime remains a serious concern for all South Africans, and has a high profile within the international community. In the most recent global competitiveness index published by the World Economic Forum, South Africa fell six places to 46th, with crime cited as a main constraint to the business environment. As sobering as this may be, over the past year I have been impressed by the willingness of government and business to engage frankly on this issue, and by the constructive partnerships that have been formed to marshal resources. Sasol is active in a number of ways in the drive to make South Africa a safer place, notably by partnering with Business Against Crime, a non-profit organisation mandated to support government in the fight against crime. The organisation plays a pivotal role by harnessing the resources and skills of business, and aims to facilitate a close working relationship between government and industry bodies. It also ensures the alignment of business-wide and other relevant NGOs’ crimefighting initiatives. On balance, we need to recognise how far South Africa has progressed as a young democracy with pressing socioeconomic issues and facing unyielding competition from other developing countries. The confidence needed for local and foreign institutions and corporations to continue investing in South Africa must be preserved, particularly as the country’s top leadership changes over the next year. Ongoing statesmanship and disciplined leadership will be required to ensure good stewardship going forward. |
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