Sasol Ltd. shares dropped the most in five months after the fuels and chemicals producer said the poor performance of South Africa’s state-owned companies has affected its business and is expected to result in lower earnings.
Government-run firms “have constrained our supply chains and resultant sales volumes,” Sasol said Monday in a trading statement ahead of 2023 annual results. Disruptions on state rail company Transnet SOC Ltd.’s network have caused delays and an influx of trucking that clogs roads, while the most industrialized nation on the continent experiences frequent blackouts as power utility Eskom Holdings SOC can’t meet demand.
The prices Sasol charges for its products are based on the value of crude oil, which declined later in its financial year ended June 30, the Johannesburg-based company said. Basic earnings per share are expected to have dropped by as much as 84%, according to the statement.
Transnet has struggled to recover from widespread corruption at the company, which has been compounded by continued theft and sabotage across its operations. That’s crimped supply chains and sales for Sasol, along with miners Exxaro Resources Ltd. and Thungela Resources Ltd.
The shares fell as much as 6.1%, the most since March 15. They were 4.9% lower by 1:02 p.m. local time, while South Africa’s benchmark equity index dropped 0.7%.
Sasol also booked a 35.3 billion rand ($1.9 billion) impairment on the Secunda liquid fuels plant as a result of “cost assumptions and a revised production profile” based on its plans to reduce pollution from the site. The company has set a goal of cutting emissions 30% by 2030 through the use of natural gas as a feedstock instead of coal.
The writedown taken for the complex provides a signal “around management’s view of future cash generation potential,” Morgan Stanley analysts in Johannesburg wrote in a note. “We have also recently explored the possibility that Secunda’s future production runs at below historical values.”
Sasol’s bid to have the plant exempted from South African sulfur-dioxide emissions limits to be imposed in 2025 failed last month. The company wanted to have the concentration of the pollutant in its emissions measured using an alternative method to the one adopted by South Africa’s environment department. It has since appealed the decision.
“Sasol has made notable progress” with the implementation of its plan — known as the emission reduction roadmap — and will share more detail when it announces 2023 financial results on Aug. 23, it said.
--With assistance from James Cone.
(Updates with background and analyst comment from fifth paragraph)
