Sasol cuts more than 1000 jobs to survive lower oil prices

2015-03-22 17:00

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Sasol’s survivalist programme, sparked by “lower for longer” oil prices, has seen it cut more than a thousand jobs and delay a megaproject.

The petrochemical group’s results for the six months to December 2014 showed it approved close to 1?500 voluntary separations and early retirements – and more are being considered.

It also delayed giving the green light to its gas-to-liquids refinery in Louisiana, US – a project with an estimated price tag of between $11?billion (R135?billion) and $14?billion. It is going ahead with an $8.9?billion ethane cracker, the other half of the Louisiana complex.

The job cuts were largely in South Africa, where most of its 32?400 employees are located.

Thus far, the group has kept these job cuts at management level. But Paul Victor, Sasol’s financial controller (and acting finance chief during the reporting period) said there were plans to extend these to all occupational levels.

While the management restructuring had previously drawn the ire of trade union Solidarity, whose energy head Deon Reyneke said it was not consulted, Sasol said it had discussed the latest round of retrenchments with unions.

About 60% of its South African workforce belongs to a trade union. “Our group partnership forum is the primary platform through which we engage our union stakeholders on labour-related matters,” said Sasol spokesperson Alex Anderson.

“We have agreed with our union stakeholders in the group partnership forum that our bargaining unit employees will undergo redeployment.”

He said forced retrenchments would not apply in this redeployment process, which began in January and ends next month.

“This is based on the ability to reskill our employees for different roles, anticipated natural attrition at these levels, as well as the number of employees we anticipate we will require to safely and reliably sustain our operations.

“We are offering voluntary severance to our bargaining unit employees who will form part of this process.”

Solidarity and labour federation Cosatu-affiliate the Chemical, Energy, Paper, Printing, Wood and Allied Workers’ Union did not respond to requests for comment.

Thus far, the job cuts have not had a detrimental effect on operations, according to Sasol.

Anderson said there was strong performance across the group despite an extremely tough operational environment. Sasol made an operating profit of R28.5?billion for the six-month period, up R3.4?billion from the previous comparative period.

At first, investors appeared pleased with this performance, with the share rising 11% in intraday trading before settling at the R411 level after the release of results last week.

But strip out the numbers and a different story emerges. Had it not cut staff, the attendant salary bill would have seen profits at R25.1?billion, all else being equal.

This would have represented growth of less than a percentage point on the profit made in the previous period, halting just a half year of recovery after a 7.53% decline observed in December 2012.

The Sasol share continued its downward plunge after the slight recovery in intraday trading, declining to R387.33 by midday on Wednesday.

Sasol’s largest investors, according to its statement of beneficial interest, are pension funds. Some already appear to be cutting their losses.

The second-largest investor is Allan Gray, whose most conservative funds dumped some of their holdings.

Sasol made up 6.6% of the R101.1?billion Allan Gray balanced fund and 4% of the smaller Allan Gray stable fund by September 2014.

But three months later, after the oil price plunged and took Sasol’s share price with it, these funds’ holdings in Sasol were cut down to 5.4% and 3.6%, or R5.8?billion and R1.3?billion, respectively.

Allan Gray’s investment team was not available to comment, but the balanced fund fact sheet for February pointed to Sasol’s underperformance in the fourth quarter – compared with a 1.4% return from the JSE All-Share Index.

The Public Investment Corporation was more bullish. The largest shareholder on behalf of public servants, with a collective 95.3?million shares held through the Government Employees’ Pension Fund (GEPF), has added more than a million shares to the GEPF’s holdings since the end of March last year.

Sasol’s great hope, other than the cash conservation plan, is a shift in strategy that will see the group focus on growing volumes from its operating business units, improving margins, and optimising costs.

Volume growth is expected to come from recently completed projects and upcoming projects, such as the beneficial operation of a 175?megawatt gas-fired power station in the Mozambican border town of Ressano Garcia, which cost $246?million.

Other big-ticket items are the development of the Impumelelo and Shondoni collieries at a cost of R14?billion, which will ensure steady supply to the Secunda Synfuels operations; a R14.2?billion Secunda growth programme; and a R13.6?billion wax facility in Sasolburg.

The Lake Charles ethane cracker facility in the US – once up and running – is expected to add value in later years.

There are no immediate plans to participate in shale exploration in the Karoo Basin, for which Mineral Resources Minister Ngoako Ramatlhodi said licences would be issued later this year.

Although Sasol does not hold any licences in the Karoo, it is interested in the potential to process any oil or gas, including shale, found there, according to Anderson.

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