Sasol is set to begin employee dismissals from mid-August in efforts to cut costs in a new strategy aimed at boosting its balances. This comes after the company was battered by the general decline in oil prices as a result of the worldwide COVID-19 pandemic.
According to Fin24, in a letter to its employees dated 18 June the company says it was under considerable financial pressure and that unless stringent and emergency actions are taken, it would not survive the year.
The massive petrochemical firm, employer of 31,000 people around the world, continues to estimate that its financial position will remain under “severe pressure” due to the depressed prices on oil.
Based in Johannesburg, Sasol says that its “…financial position continues to be under severe pressure, especially with anticipated lower for longer international crude oil prices”.
Oil prices plummet in the US
When it became absolutely evident that the COVID-19 pandemic would become a global crisis, the price of benchmark oil in the US crashed to the extent that an empty barrel of oil was of a higher value than the oil it would have been filled with. While this crash was short-lived, holders of US oil were left with no buyers and no-where to store the oil.
With this crash came the fall of Brent crude oil, and while it has since recovered some – at just over $41 a barrel Brent crude is still some 45% off its 2014 high.
Sasol’s strategy to keep afloat
Sasol says that processes of the dismissals will be determined via a diagnostic phase. Proposed criteria include the first in – first out system, as well as employee-specific skills and competences. It is not yet known how many people stand to lose their jobs.
With a debt burden of over $7 billion (R121 billion), Sasol came up with a cash conservation strategy which included disposal of assets of up to $2 billion, as well as a reduction in external expenditure and salary cuts for executives, for a limited period.
Sasol says that even with these measures, it may not be able to rein in its debts. The company says that a large chunk of its income goes towards debt and salaries, and as such employees will have to be cut.
The company is expecting a full-year earnings dip of as much as 20% in 2020.