Sasol CEO outlines transformation strategy & keeps rights issue on hold

Sasol, a global integrated chemicals and energy company, today provided investors with a detailed update on its Sasol 2.0 transformation program, outlining a strategic overhaul aimed at resetting the company for future success. In a bid to unlock cash flow and secure sustainable profitability amidst volatile market conditions, Sasol CEO, Fleetwood Grobler, shared key points of the transformation process in an interview with CNBC Africa. The overarching goal of the program is to free up between 21 to 30 billion rand in cash flow from the company's FY20 baseline over a period of three to four years, culminating by FY25. Grobler highlighted four key areas that will contribute to the cash flow optimization. First and foremost, Sasol intends to reduce cash fixed costs by 15 to 20% of the FY20 baseline. The company also aims to enhance its gross margin by 5 to 10% through volume pricing and cost efficiencies. Moreover, Sasol plans to align its capital expenditure with global benchmarks and peer group standards, particularly focusing on sustenance capital to maintain operational efficiency. Lastly, the company aims to reduce working capital to a sustainable 14% level in accordance with industry norms. Acknowledging the tumultuous oil price environment, Grobler emphasized Sasol's commitment to ensuring profitability at a $45 per barrel level. Despite the recent fluctuations in oil prices, Sasol is positioning itself to weather market uncertainties and deliver long-term value to its stakeholders. While addressing concerns about a potential rights issue to manage leverage, Grobler underscored that the decision regarding a rights issue will be evaluated in early 2021, taking into account the progress of the transformation program, macroeconomic conditions, and the impact of the ongoing pandemic on global demand. In response to questions about Sasol's oil price assumptions and risk management strategies, Grobler reassured stakeholders that the company is actively hedging its exposure to oil prices to mitigate financial risks. By hedging oil prices up to the last quarter of the next financial year, Sasol aims to establish a financial safety net and protect its business operations against market volatility. Grobler defended Sasol's $45 per barrel assumption as a realistic and prudent target, in line with industry trends and global forecasts. As Sasol continues to navigate the evolving energy landscape and economic challenges, the company remains focused on driving operational efficiency, reducing costs, and enhancing profitability. The Sasol 2.0 transformation program represents a strategic pivot towards sustainability and resilience, positioning Sasol for long-term growth and value creation in the energy sector.