Chairman’s Statement

It is indeed a pleasure to announce the Group’s financial results for 2001.

Attributable earnings of R7 025 million were 72% higher than earnings achieved in the previous financial year. Earnings per share rose by 81% from 620 cents to 1 120 cents.

Operating profit of R10 773 million was 71% higher while sales of R41 289 million increased by 60%.

The Group’s excellent performance stems from high product prices and refining margins, a weaker rand, productivity improvements and cost reductions in most businesses and the expanding portfolio of value-added chemicals.

Trading environment impacted by high oil prices  Global oil prices were high during the year and ranged between US$25 and US$35 a barrel. The average price for the year of US$28,38 a barrel was US$4,35 a barrel or 18% higher than in the previous financial year. The high oil prices, however, negatively impacted on feedstock costs in many of the Group’s chemical businesses and margins experienced severe pressure.

A very high proportion of the Group’s sales are dollar denominated, or linked, resulting in sales being positively influenced by the 20% weakening of the rand during the year. At the same time, however, various imports, both of feedstocks and other materials, were adversely affected.

While the weakening of the rand has a net favourable impact on Sasol’s financial performance, the continuing weakening of the currency is considered neither to be in the Group nor national interests because it continuously erodes the wealth of the country and its people. With the Group’s adoption of International Accounting Standards, it is considered prudent also to monitor performance in US dollars and steps in this regard have been taken. Attributable earnings of US$917 million were 41% higher than the US$652 million achieved in the previous financial year.

Global economies have been slowing down in recent months. Although consumer spending in America continues to bolster the performance of that economy, and unemployment seems to have stabilised and reached a high from which a recovery can be expected, it is not clear when stronger growth will materialise. Furthermore, the reduction of American imports has had a significant effect on the regional economies of both Europe and Asia-Pacific. With regards to the former, Germany is considered to have entered recessionary conditions, while most economies in Asia-Pacific have lowered their expected growth rates for 2001.

While economists are forecasting a recovery in global demand to be triggered by an improvement in the American economy from the first half of 2002, it is noteworthy that various economic fundamentals required for a recovery have to manifest themselves before a global recovery can begin with confidence.

Certainly, while demand in Sasol’s major markets – including America, Asia-Pacific, China and Europe – is expected to be under pressure, all businesses are confident in their ability to market products because of their highly efficient distribution and marketing channels, as well as their commitment to servicing their customers.

Notwithstanding the beneficial impact that the acquisition of Condea (now Sasol Chemie), together with the Group’s other chemical businesses will have on hedging of oil price movements, oil prices remain the key value driver affecting Sasol’s financial performance. In the year ahead it is expected that oil prices could on average be US$3,50 lower than in the past year. Continuing extraction of synergy in various operations and further productivity improvements are confidently expected to counter the adverse effect of a lower oil price.

Business environment  Initiatives by the South African President, Mr Thabo Mbeki, to again revive the economic performance of countries in Africa, and in particular the Southern African Development Community (SADC), are applauded. The international investment community’s prevailing dim view of Africa’s prospects needs a drastic revision and we fully support the President in his laudable actions to reposition Africa as a respected economic entity with growth potential.

Obviously, the sociopolitical situation in Zimbabwe remains a cause for grave concern, with potentially serious socioeconomic implications for the whole of Southern Africa.

Sasol is continuously investigating new opportunities for investment on the African continent and in neighboring states, including Zimbabwe. We are prepared to make significant investments, including in the retailing and distribution of fuel, as long as socioeconomic stability and financial discipline prevail in these markets. Presently, the Group has to delay some of these planned investments because of current circumstances. The recent stance taken by President Mbeki on the Zimbabwe crisis, and his subsequent acknowledgement of the shortcomings of quiet diplomacy, are welcomed.

We wish to express our full support for the Government’s strong continuing commitment to its Growth, Employment and Redistribution (GEAR) policy. Together with social stability and reduced crime levels, adherence to the sound principles of GEAR will play a major role in persuading investors to locate their operations in South Africa rather than elsewhere.

Government, and particularly the leadership, are congratulated on their management of various change processes during the seven years that have elapsed since the successful transition of South Africa to a democracy. In the corporate world we know that successful management of change is a most complex process.

Furthermore, their appointment of talented and effective people from previously disadvantaged groups to senior positions in Government and parastatal organisations, is appreciated and respected. It is apparent, however, that appointments further down the line have not always been as successful. The demise of various services and institutions (eg hospitals), are testimony to this. We look forward to capacity and skills being built, and competent people being appointed, to correct this unfortunate deterioration where it has occurred.

The developed nations are encouraging the lowering of global tariff barriers under the auspices of the World Trade Organisation. It cannot be disputed that the world’s developed economies have succeeded in establishing robust industries in past decades, behind the benefits of tariff protection. It is, therefore, a concern that the developing and underdeveloped nations are now expected to embrace the concepts of global free trade, which will obviously deny them the same advantages in terms of developing new industries and markets.

In most developing economies, tariff protection is granted to industries to enable them to develop, grow and achieve world-scale competitiveness. Thereafter, it becomes easier, and perhaps necessary, to gradually lower levels of protection. The levels of protection for most industries in South Africa are low by international standards. While Sasol considers its businesses to be globally competitive, we are concerned that the extent to which tariffs have been lowered has had adverse implications for job-creation. The textile industry is cited as an example of a potentially significant job-creating sector that is presently under siege because of a lack of suitable protection and other export incentive programmes.

It is also unacceptable that the developed economies of the world continue to subsidise various industries and thereby make it extremely arduous for developing economies to compete in their markets.

Antidumping and countervailing legislation, especially in the USA where the purported transgressor is deemed guilty until proven otherwise, constitutes blatant protectionism. The developing economies should enter the coming Johannesburg World Summit on Sustainable Development with circumspection to avoid subscribing to global agreements, which may not be in their interest. (At Sasol we fully support responsible sustainable development policies – see later in this review.)

We encourage the South African Government to move forward with prudence and a suitable sense of balance between the need to support global trade trends and the need to promote job preservation or creation in South Africa.

The continuing problem of crime, which adversely affects the national psyche, is a major contributor to people immigrating to other countries. It also causes hesitancy in the minds of (particularly) foreign investors when considering investments in South Africa. In this respect, a recent announcement by the Government that consideration is being given to increasing the police complement in our country is welcomed. The Government is encouraged to advance this initiative with expedience and resolve.

The increase in industrial unrest harms South Africa’s international image and is cause for concern. In this regard, we deplore recent protest action against Government’s privatisation initiatives. We fully support Government’s unrelenting stance on this issue. Our country’s perceived work ethic will also influence investors’ views. Demonstrating a national resolve that favours continuous improvement and a will to increase productivity will impress investors rather than an image of entitlement and mass demonstration. In competing with other countries for direct investment funds, it is critical that South Africa is seen as an attractive destination that offers sustainable and rewarding opportunities.

An admirable aspect of Government’s performance in recent years has been the exemplary manner in which it has managed the country’s fiscal and monetary affairs. The responsible Government ministries and the Governor of the Reserve Bank have together forged much improvement in the country’s financial status and are to be complimented for their successes. They are, however, encouraged to continue their efforts to reduce inflation, as well as real interest rates, in order to stimulate investment and subsequent job creation.

Government is strongly encouraged to abolish exchange controls as a matter of priority. The South African economy needs globally competitive businesses. It is, however, extremely arduous for businesses to expand and achieve global positions from a domicile with restrictive foreign exchange policies. Sasol remains a proud South African company and has no intention of relocating its corporate domicile, provided it is not disadvantaged by local forex regulations and restricted access to global capital markets. The future growth and success of Sasol’s business depends on its ability to competitively raise funds internationally for investment in strategically selected opportunities .

In this connection, reference is also made to the current competition laws in South Africa. While they efficiently manage the abuse of dominant positions by companies, they often do so at the expense of businesses being able to merge and achieve world-scale status and afford new investments. Competition laws that hamper reinvestment and the subsequent creation of jobs will in the long term adversely impact on our country’s ability to perform to its full economic potential. Again, achieving a prudent balance between encouraging local competition and ensuring that South Africa’s businesses are able to grow and compete with confidence internationally, from a South African base, must assume higher priority.

A most pressing social issue facing South Africa is clearly that of HIV and Aids. Sasol is encouraged by the recent initiatives taken at national and provincial levels to mitigate the spread of this pandemic. From the Group’s viewpoint, a series of non-intrusive and proactive measures to educate and protect our employees from this disease have been taken. Policy guidelines for employees affected by life threatening diseases, including HIV/Aids, have been introduced. We believe it is desirable that an environment be created in which employees living with HIV/Aids are able voluntarily to divulge their status without fear of discrimination or retribution.

Environmental and social issues driven by sustainability  Sasol has adopted a triple bottom-line management approach that focuses on environmental, social and financial issues in a manner that supports sustainable development and therefore responsible corporate citizenship.

The Group continues with an active environmental management programme and further significant successes have been achieved during the year under review. These were reported in the Sasol Safety, Health and Environmental Report 2000 issued during the year.

Complementing these activities is a strong financial and emotional commitment to honouring our role as a major corporation by generously supporting various South African social investment programmes, especially those that build human capacity and dignity.

Positive profit outlook  As a result of the commissioning of new production capacity and ongoing cost saving measures and productivity improvements throughout the Group, some earnings growth off the high base, resulting from the splendid performance achieved during the past year is expected in the year ahead, despite the predicted lowering of oil prices and the slowdown in global economic activity.

Acknowledgements  I would like to express my sincere thanks to all Sasol’s customers, suppliers and business associates, both locally and internationally, for their continued support. I also thank all employees of the Group for their loyalty, dedication and hard work. I feel comfortable knowing that Sasol’s future is in the hands of such competent people. I also extend a warm word of welcome to all our new employees, particularly the Sasol Chemie employees, who are already contributing to the Group’s global success.

I take this opportunity of thanking my fellow non-executive directors for their collective and individual contributions in the governance of this exciting and rapidly-expanding group of companies.

I also extend a warm welcome to Trevor Munday who has been appointed to the board as an executive director. I would like to congratulate the executive management, under the leadership of deputy chairman and chief executive Pieter Cox, on an extremely successful year, and the excellent progress made in taking the Group forward as a global leader in its field.

Paul Kruger
Chairman