Sasol maps out its future

Just a few years ago Sasol was fighting for its survival, lambasted for being one of the dirtiest companies in SA due to its coal mining operations and manufacturing fuel and chemicals from that coal. A lot has changed since then, and since Fleetwood Grobler took over as CEO.

The first few years were spent placating creditors and shareholders, and a bit on defending Sasol against accusations of environmental harm from all quarters. Management repeatedly asked for a bit of patience, trying to explain that a strong financial foundation is a prerequisite to enable Sasol to make a meaningful change on the environmental front.

The ‘green’ message slowly became stronger and goals related to reducing harm to the planet became more ambitious as Sasol’s fragile balance sheet recovered and capital expenditure at the huge Lake Charles Chemical Project (LCCP) in the US tapered off.

On Wednesday, Sasol sent the strongest message yet to stakeholders that it is changing and adapting to a new reality, in a world that is starting to look at the use of resources differently.

The future Sasol – dubbed Sasol 2.0 by management – will be a futuristic company far removed from coal and its harmful emissions.

Ambitious new targets

“We are delighted to share our vision for Future Sasol and our plans to get there,” said Grobler in his welcome to stakeholders, who logged in to the group’s capital markets day event. He immediately shared ambitious new targets as far as Sasol’s transformation is concerned.

“First, our future ambition is to be at net zero emissions by 2050. We are committed to accelerating our transition to a low carbon world in support of the objectives of the Paris Agreement.

“In aligning with this 2050 ambition, we are immediately stepping up our 2030 greenhouse gas emission reduction target for our SA operations, from the initial target we set last year to reduce emissions by 10% by 2030, to reducing it by 30% compared to the 2017 levels,” said Grobler, adding that the plans will leverage known solutions and technologies that can be delivered with optimal capital investments.

A bit further into the presentation he noted that Sasol will stop all development and all capital expenditure on new coal-based projects.

The plan is to switch over to natural gas, which is cleaner and better for the environment. Renewable energy is to play a bigger part in the new Sasol, as well as hydrogen which will be produced by environmentally friendlier processes.

“As a global society, we cannot maintain the planet’s ecosystems or continue to function as we currently do,” said Grobler.

It won’t be all plain sailing

“Sustainability is the defining topic of the current period,” he added.

“In recent years, there has been a clear step-up in regulatory and financial pressures and a significant increase in capital flow towards sustainable technologies.

“While the trajectory and urgency to reach global net zero emissions is clear, the pace and the economics of this transition remain uncertain and will depend on factors difficult to predict.

“In particular, there is uncertainty with regards to future technology breakthroughs and the global community’s ability to cooperate to set consistent and effective policy and regulations,” said Grobler.

He reiterated that Sasol aims to transform into a new-age business in a manner that is financially sustainable.

“We expect to continue delivering competitive and sustainable returns, above our cost of capital, as we progress on this journey.

“Our Sasol 2.0 transformation programme, which is already well under way, aims to unleash the full potential of our business through enhanced customer centricity, operational excellence and innovation.

“This will enable our assets to be highly cash-generative, providing the financial headroom to self-fund our strategy, restore dividends and fund investments in growth, focused on low carbon prospects,” he said.

Opportunities

“I am confident that the energy transition will offer unique opportunities for Sasol: opportunities to grow, to generate additional sources of revenue, and to make the company relevant for the future,” said Grobler in his clear, unhurried way of presenting facts.

“We will need to reinvent ourselves, and as we do, we will not lose sight of what has made us successful: our ability to innovate, lead in challenging times and bring relevant solutions to the market.

“Our proprietary Fischer-Tropsch technology, in particular, is well suited to play a meaningful role in a low carbon future and offers attractive new and emerging value proposals.”

Focus

Management admitted that its ambitions will impact on all spheres of the business.

“It all starts with our customers. We will continue to place customers at the centre of all we do, ensuring we deliver a best-in class customer experience and invest in building leadership where it matters, leveraging our unique competitive advantages, to enable a differentiated value proposition,” noted Sasol in documents presented during its capital day discussions.

In short, Sasol alluded to the fact that change is inevitable and the only way to preserve the value of the current business is to adapt to the new reality to ensure that the existing income-producing assets are “future-proofed”.

“To unlock new opportunities, we need to reinvent ourselves over time, investing in new sustainable businesses and accessing attractive future value pools,” said Grobler.

Uncertainty, adaptability

He warned that there are uncertainties and that Sasol’s strategy needs to be adaptable and able to respond to changes in the external environment and the needs of customers, who face their own challenges in moving to a greener future.

“We have developed a set of plausible scenarios for how fast the industry shift could take place and we are carefully monitoring signposts as these could trigger different strategic choices along our journey,” said Grobler.

“There is no question that the energy transition is going to be disruptive.”

He said the US International Energy Agency’s goal of net zero by 2050 means:

• The global energy sector will be based largely on renewable energy;
• The majority of cars will be running on electricity or fuel cells;
• Planes will be relying on advanced biofuels or synthetic fuels; and
• Industrial plants will be using carbon capture and green hydrogen.

He added that Sasol’s traditional (and highly profitable ) liquid fuels business in southern Africa will decline over time as alternative vehicle technologies ramp up, although it will still be a big part of the group until 2030 and probably for several years thereafter. Chemicals will be forced to come up with more sustainable solutions.

Read: SA aims to bring pilot carbon capture project online in 2023

Money matters

Sasol has set out on this new path with a financial plan to match.

CFO Paul Victor, outlined the financial implications to stakeholders.

“Our financial framework is underpinned by our refocused strategy and drive to grow shared value while accelerating our transition. We aim to achieve both our ambitious climate change targets and attractive, resilient and growing financial returns.”

Victor reiterated that the first step was to “reset” the balance sheet.

“We are nearly there now. We are also well on track to improve our cost competitiveness and so increase our cash flow generating ability even in our low-oil scenarios.”

Sasol has for years dwelled on being able to work in a low-oil-price environment and launched plan after plan to reduce costs and capital requirements. Victor listed a host of successes and continuing projects that will reduce costs by billions of rand every year.

“The capital required to achieve our first key step of reducing greenhouse gas emissions by 30% by 2030 is moderate and manageable. It does not come at the expense of improved financial returns.

“We plan to continue to reduce debt and restore the dividend [soon], achieve investment grade metrics by the 2023 financial year, fully deliver Sasol 2.0 by 2025, and increase ROIC [return on invested capital] through the period to 2030 alongside achieving our broader sustainability objectives,” said Victor.

While both Grobler and Victor mentioned that the future is uncertain and that plans can change, it looks like the future silently arrived for Sasol during the last few years.

Sasol’s big changes were and are necessary, and came about quite quickly.