Sasol back in takeover mode – even considering a move back into China

Judging by this rare interview with the South African multinational Sasol’s joint CEOs, the group is about to re-emerge from a lengthy period of consolidation.

I caught up with Bongani Nqwababa and Stephen Cornell in Davos and had the opportunity to talk about the changing strategy of SA’s most popular retail stock.

Sasol is transforming rapidly, betting heavily on its chemicals division to reduce its dependency on the Rand oil price. It is also back on the expansion trail, seeking out suitable acquisitions. And considering re-entering China from which the group exited so publicly (and expensively) a few years back. – Alec Hogg

Well, I’m here in the Congress Centre with the two heavyweight CEO’s of Sasol, Bongani Nqwababa and Stephen Cornell, good to have you guys here. Have you been to Davos before, Bongani?

No, this is actually our first experience and it’s been great.

Do you come here to learn, do you come here to teach?

I’ve come here to learn and integrate, but the big learning for me is that the bilateral meetings with our customers and industry peers probably were more valuable than some of the sessions.

Yes and you get to see people here in one place, Steve that perhaps will take you ages to line up meetings with.

Yes, either one-on-one meetings where you don’t have to travel between continents or in some cases we’ve had industry-wide meetings, oil and gas have gotten together with 20, 30 people that we’ve been able to talk to together, so it’s really convenient and very helpful.

Probably a far more uplifting atmosphere, I mean the oil and gas sector, than it was a year ago.

Sure, I think everyone’s still a bit nervous in trying to decide where things are going. I think we’ve all agreed, the one thing that will happen is we’re going to continue to have volatility, so how do you plan in the midst of that volatility is really what’s on everyone’s mind.

Bongani, from your perspective, when you talk to particularly the government people here, I know you had some pretty pressing questions for them on this radical economic transformation, do you think they listened?

It’s a journey, but it’s obvious that we need to engage more because its business, by definition it’s certainty, so the last thing you need is people interpreting words differently, so we need to engage with them more because they were not always available for each other, that is not very helpful.


Sasol joint CEOs Bongani Nqwababa and Stephen Cornell

That interpretation, just give us the line of approach that you would have when engaging with a government person in that way?

Because we talk a lot in South Africa about radical economic transformation, in reality what it simply means is inclusive growth, but if it was called inclusive growth, I don’t think anybody would be bucking at it, but because it’s called radical economic transformation, it means different things to different people.

Yes, we’ve been pushing the inclusive growth line from a South African perspective for ages, Pravin Gordhan being one of the protagonists of that here in WEF, but the two of you are joint CEO’s, how does that work, Steve?

Well, we think it works well, you know. We have a little saying between us that we’re very comfortable with it; it’s very natural for the two of us. Everyone else seems to be fascinated and worry about it and want to know how it’s going, but for us it’s going well.

What we’ve done is, we’ve set up a structure so that we don’t divide the company, you take this half, I take that half, we both take it all jointly, severally and what we do is we work with our executive team underneath us and we split their portfolios.

So if someone has three or four different things that they’re responsible for as an executive vice President, half of them Bongani will take the lead, the other half I’ll take the lead, but that person has to work with both of us, so we stay together on what’s going on and we don’t’ drift apart. To us the key is try to keep it together and try to keep it as efficient and simple for everyone as we can.

You need a lot of humility though, to be joint CEO.

Absolutely, the persona is very important. Obviously, to get to this position, you need a bit of ego, but it needs to be a bit manageable because ironically, when the board was going through this process they were not looking for joint CEO’s, they were looking for a CEO, but we happened to be the top two candidates and then when they looked at our psychometrics it was complementary based on that, but in reality it has proven to be true because we got on pretty well together, but more importantly we save the company. It’s more about Sasol, less about us.

You say you served the company, but how well do you serve each other, how do you complement each other?

I think we do it pretty well. If you look at Bongani’s background, extremely strong on the finance side of things, that’s the organisation that he kind of came up through. He’s also worked with Eskom, he’s worked in mining. On my side, I came through the operations side, some sales and marketing of petrochemicals, so if you look at what Sasol does, we cover it really well.

What we try to do, no matter where we are in the world, we schedule a weekly call, so we can stay in touch and if we’re in Johannesburg in the office together, we usually try to sit down and have lunch together, stay connected and then of course we have our scheduled meetings with our teams in terms of reviews with both of us at the same time.

So the two of us, you know, we find it very comfortable. It seems natural and so far I don’t’ think we’ve had any issues that people have complained about, or that we have complained about.

Well, you certainly have remained a lot less high profile than your predecessor, has David Constable’s influence now left Sasol?

I’m not sure what you mean by that, but he did good work and we are continuing. When you talk about profile, some of it is deliberate because I was very clear to our media people that before we go around sharing our strategies and everything, we need to make sure that our people are clear about our vision, our strategy, and our purpose.

Meaning internally?

Internally, because I said if I was an employee I would find it very awkward to be hearing it via the media rather than from my employer. Once we have done that, then we can go externally, so it’s been pretty deliberate. You will see a slight change half a year from now.

What I mean by the Constable legacy, if you like, is the American investments into the Shell gas investment and then of course the Louisiana investment, the biggest foreign investor in the US, certainly at this point until Steinhoff gets in there and those are weighty bets.

If I can comment on that end, Steve will complete, the Shell gas was actually acquired before David was appointed as CEO and as for the Louisiana chemical project, the business decision was made during his tenure, but certainly, I would claim 70% of the work had been done before he joined, over to you, Steve.

Yes and the fundamentals, especially in Louisiana are still extremely sound. If you look at where everyone in the industry is investing in order to make petrochemicals, in particular polyethylene and ethylene-based, it’s pretty much  in the gulf coast of North America because the feedstock availability and the feedstock cost, there, or the Middle East were the two lowest-priced areas where you can get our feedstock, so it makes great sense.

We’re very supportive of the project, the project’s moving ahead, it’s on schedule, it’s moving forward on the revised cost estimate that we put out, so we’re very happy with that, the board’s happy with it and now we just have to execute it, get it up and running and now we’re looking at it, where next do we go post-LCCP, which we still have two plus years before beneficial operation, but that’s not so long in terms of trying to decide where we go after that.

Donald Trump is apparently pro-business, apparently pro-infrastructure, he was inaugurated this weekend. Has he given you a call yet, as the biggest foreign investor in the US?

No, I haven’t gotten a call; I don’t think Bongani’s gotten a call. We really don’t think his administration’s going to have that much of an impact on what we currently do around the world, especially, say North America.

If you look at what we do, it’s a Dollar-based project, we’re using Dollar funds that we have to support it, we’re not really importing anything, and we’re actually exporting, so good for the US balance of trade, so you know it’s hard to see where we could get crossed wires with the administration? We’ll all wait and see where he goes, but we really don’t see much risk right now.

Elsewhere in the world, your project in Qatar, for instance, is that going pretty well?

The project in Qatar is going pretty well. We were there in December and working very well with our partners, Qatar Petroleum, but we would love to grow there. As you know, the air gas moratorium, which for now they wanted to leave as is, so for growth in terms of GTL it will have to be other addresses for now, but for the Qatar investment, it’s going great.

It’s interesting to hear you talking about growth already because last time Sasol’s head was above the parapet, it was all about how do we cut back on costs, how do we adjust to a new lower oil price environment?

It’s a combination of both because actually the whole cost reduction and the cash conservation, the cost reduction started before the December slump in price and then the response plan which is more cash conservation came after, but the good legacy we have inherited from our predecessor and our colleagues obviously, who worked on it is a simplification of our organisation because in over 60 years it was too complicated an organisation and doing business with itself, so all that is gone and we are in a good place.

It’s not either/or, it’s actually a need to do both and then because the question we’ve been asked is, “The oil price is trading up, are you going to slow down on your cost reduction, are you going to slow down on your cash conservation?” The answer is, “No, we will continue even if the oil price goes to $100, we’ll continue doing what we need to do because it’s the right thing to do for the business, but at the same time we need to prepare for a platform for growth and growth is not necessarily new projects, it has to be M&A as well because the reality of the matter is that we need to rebuild credibility in project execution so the bridge might be mergers and acquisitions.

Another part of the Constable legacy was the withdrawal from China. Sasol spent an enormous amount of investment, time, and human resources in getting into China in the first place. It now looks like China could be quite a good place to be a friend with going into the future. Are there any regrets, is there any way that you could kind of reverse that?

The first thing to clear up is that because of the reality of climate change matters globally. It was not sustainable to continue developing coal to liquids technology. As a company we’ve been clear that yes, our legacy assets will keep until 2050 at least, but we do not intend building any more coal to liquids. We’ll however, build gas to liquids.

So does China not have lots of gas as well?

Not yet.

No, really and very vast coal reserves just beginning in terms of trying to get gas and they’re engaging with a lot of the IOC’s to help them develop the Shell Gas reserves that they’re starting to prove, but no, they don’t have that much gas, which is why you see so much coal fire power and some of the issues in terms of climate in China in the big cities around the greenhouse gas effects.

So, the decision to pull out was more a question of coal, or dirty carbon emissions than anything to do with the Chinese adventure to that point?

Oh, absolutely. Asia’s still a big objective for us. If you look at petrochemical demand, it’s going to be above 50 percent in just a few years in terms of world petrochemical demands, so it’s a place where we want to play.

We’re actually in China, but we’re in China in a somewhat small way and one of the conversations we’re having is, okay, how do we attack Asia in a bit more aggressive fashion coming forward, is that China, I’m sure we’ll do something there, India, so we’re in that conversation right now, but certainly no desire to withdraw from China.

A new head office is an interesting topic in that you are denuding Rosebank and making, or consolidating your team in Sandton. It makes a lot of sense I’m sure, financially.

It certainly does. We are in 17 different buildings, believe it or not, in Johannesburg, owned most of the properties on Baker Street in Rosebank, but we were tenants, we were not owners and we then did the business case, which, believe it or not is R1bn positive.

Slow down, that’s a lot of money, even for Sasol.

Yes, so it’s quite a big benefit.

Is that a billion per annum?

No, present value, the total increment life of the project, so it’s quite a great benefit but there are other non-financial benefits, which means people work more efficiently and then you build cultural development more easily.

Gautrain must love you.

More importantly our people love that proximity to the Gautrain, because we have colleagues coming from Pretoria and Midrand, so it’s great. There is quite a buzz at the office. Not all people are used to open plan, but it will come with time.

A couple of tricky questions to end off with, the one is the decision by the South African government to get rid of its strategic oil reserves, were you ever brought into that conversation?

Certainly not and I read about it in the papers, as you did. I wonder have they gotten rid of it or were they doing a replacement?

No, they got rid of it. They sold it out at, I think it was $10 a barrel in a contango market, so everybody who understands the oil market says it was absolutely insane, or that there was something funny going on there and that’s why I’m asking, if you were going to get rid of our strategic oil reserves, surely you would talk to the oil players in your own country.

No, certainly, we were not consulted.

No, not at all.

The other thing is really the future of oil and the future of coal to oil. You touched on coal to fuel a little bit earlier, is it sustainable, the Sasol business model, at the moment as it stands?

Sure, as Bongani was saying for Secunda, which is our only real existing coal to liquids platform. We’ve laid out a plan that we’ll be able to continue that operating to 2050 with enough coal supplies and enough reinvestment in terms of sustainable operation, but we’re looking elsewhere on how we grow more gas-based, so we’re looking at gas to petrochemicals, gas to power, and really trying to expand, or even moving more into some inorganic chemicals as well.

So what you’re going to see is a shift. We’re going to continue to make petrol, continue to make diesel, continue to supply South Africa, maybe a little bit more into Southern Africa, but the real push is more chemicals and a gas-based chemicals company if you go up kind of on the broad spectrum.

The whole shale gas explosion that we’re waiting for in South Africa, you were involved initially and then you removed yourselves from that process, where is it now, are you still able, given what your strategy is, are you still able to participate?

We want to wait and see in terms of that, there are other international big players who are more active than us, but the big issue really is the regulatory matter which needs to be resolved and up to now it’s not resolved. It might be dealt with in the next few months, but until that is resolved there is unlikely to be any meaningful exploration and production expenditure in the country.

Just to unpack that a little bit further, the Head of Business Leadership South Africa, Jabu Mabuza, who is here said that the first order of business when he gets back is that regulation MRDPA, is there anything in the current regulation as it currently stands that would entice you to explore, in fact, to start investing?

Yes I think let me be clear on a few things, having a free carry is nothing odd in exploration and production, but what is odd is that they can buy off all your shares over time and then it’s not clear at what price, so that’s what spooks people, so clarity on that would be very important.

Yes and just for clarity for those who haven’t been following the story, the government can take a free carry and on top of that, they can actually decide to take 100 percent of your investment, the money you’ve put in at a price that they determine. I mean it just doesn’t make any sense does it?

Which is why no one’s going to go forward until there’s clarity. So that’s what we’ve said. The messages we continue to send, business has to have certainty to make investments. If you do not have certainty, you’re not going to be able to present a business case to your board that’s going to be approved, so in any of the regulations the thing that we’ve tried to signal the most, certainty and clarity, that’s what the business environment is really wanting.

This might be a surprise to you, but the most accessed stock market page of any company on the JSE is Sasol. You have many shareholders and they’re very engaged and very interested. Before we leave here, Davos that is, what would you be taking from here that you can implement back in your business that could make shareholders think that it was actually money well spent to come here?

I think a number of things; one of course is what we’ve talked about, the digitalisation and how we can access that into our own company. Many people only see what there is on the street and that sort of thing, where obviously a big company and trying to be efficient in trying to use that digitalisation processes, the interaction with our colleagues in terms of, we spoke to Total, we spoke to Shell, and we spoke to some of our suppliers like ABB.

We probably, like I said, would have spent a lot more money on air miles, hotels, and traveling between continents where we were able to have more than a dozen one-on-one meetings with leaders of companies that we do business with and we were wanting to continue to operate with them in one place and I think that’s one of the real advantages in addition to what the WEF puts on, which his very informative, insights from business leaders, world leaders.

Personally, I got to listen to David Cameron, Theresa May, you know that sort of insight into where the world is going, and we find it invaluable.

So you’re going home more optimistic about South Africa, seeing the way that the government delegation collaborated or seemed to do? We seem to be waving one flag this year, which I can assure you from years gone past was not always the case.

Certainly, but as you know we have the ANC leadership elections at the end of the year, so that’s going to be a key event and how the process evolves will be key because it can either be the high road or the low road.

So lots of noise and buckle your seatbelts.


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