CFO Paul Victor on Sasol's strategy and rand hedging programmes

Sasol's CFO explains what any good CFO can learn from American football: defence and offence.

It’s been a busy couple of years for Paul Victor since he took the reins as Sasol CFO in 2016. The oil price bottomed out just as the company was facing a R2 billion overrun on the Lake Charles Chemical Cracker Project in the United States. His reaction has been to implement a cash conservation strategy and a rand hedging programme, while still keeping shareholders happy. The secret, he says, is playing it like American football. 

Paul says that if he were explaining being a chartered accountant to a young person who wanted to join the profession, he wouldn’t talk about debits and credits.

“I would say that it’s a picture of a business problem that needs to be solved. You bring the know-how and apply it to the problem. I very much visualise issues, try to see the pain points and focus on finding sustainable solutions. Please don't bombard business with debits and credits or complicated accounting speak. Put yourself in their shoes and try to see solutions from a broader perspective than just your own view.”

Finding workable solutions to business issues has been Paul’s focus since he took the reins as CFO.

As an example, he recalls when oil prices fell to $30 a barrel in the midst of Sasol's operating model redesign. 

“Oil prices were low, we had to deal with a $2 billion overrun on our Lake Charles Chemical Cracker Project in the United States. It was essential for us to further look at business opportunities and financial risk mitigation measures to keep the balance sheet in good health as well as progressing our Lake Charles project. Being a rand-hedged stock results in shareholders sometimes not preferring an extensive hedging programme, but we had to mindfully look at all relevant business solutions to protect the balance sheet against market volatilities and keep cash flowing in the organisation.”

He says this was not an easy feat. “If you don’t do things the right way, you can expose the company to unnecessary risk and with that lose trust with shareholders and stakeholders. We implemented a very focused cash conservation programme and with regards to managing our financial risk we basically started from scratch in building a robust hedging programme which we believed effectively protected the balance sheet, thereby ensuring a sustainable operating cash flow to complete the Lake Charles capital programme and keep paying dividends to all our shareholders.”

The chemical and energy company’s reaction to prevailing market forces saved it from the worst outcomes.

“Our hedging programme was implemented in a prudent, transparent and thoughtful manner. We’re currently dealing with 23 global banks in executing the programme. At first, shareholder buy-in was not easy. A rand-dollar exchange rate hedge for example was new to our shareholders, and we had to be respectful to their views but needed to change their mindset that our aim was to protect the balance sheet. Our board needed to ensure that balance sheet protection was a core focus and played a significant oversight role with regards to the hedging policy formulation and in setting clear mandates within which we executed the programme. In times like this, a board's effective oversight is absolutely invaluable to management and shareholders.”

Today, Sasol’s shareholders are very pleased that the hedges have already been earning their keep by protecting the company against the rand’s losing battle against the dollar since March this year.

“Shareholders are now very much in support that this was best for the company,” Paul says.

Paul believes that any good CFO can learn from American football. 

“As a CFO you need to know what your offensive and defensive strategies are. CFOs can underestimate when they need to play defensive and end up with an overly geared balance sheet which may limit a company's flexibility in executing its growth strategy. There are many examples of how a poor defensive strategy can stop value creation for shareholders in its tracks for years.” 

On the other hand, he says, a company's capital allocation framework needs to support the company's strategy in order to deliver a quality growth rate and hence growing enterprise value in measurable and mindful steps.

He believes it was essential for Sasol to refine and refocus its strategy last year, so that investors were clear about where the company wanted to grow, what strategic investment choices had to be made and how this would be executed within its disciplined capital allocation framework.

“It took a lot of hard work to reach agreement on what it is what it is not. Investors now understand that we want to focus more on growth in global performance chemicals with a growing footprint in southern Africa in terms of retail fuels and gas development. We do believe that we have a balance sheet that would allow us to invest and return value to our shareholders.

“There has to be a good interplay between an offensive and defensive strategy so that you don’t idle in the same spot for too long. We’ve learnt our lesson over the past couple of years when we were too ambitious in terms of large capital investments. Now we’re looking at more digestible, focused projects, and are building our portfolio more carefully.”

He adds that Sasol had to have a dividend policy that pays out returns to shareholders through the cycle. “Shareholders in oil and gas get tired of big projects. The lead times to cash flow are long, so we have to find ways of returning value to shareholders faster.”

"Sasol also aims to support government by creating jobs and being a responsible corporate citizen. It is very encouraging to see how our new president is really trying to transform our economy for the greater good of all South Africans and we are right behind him.”

Sasol is looking to diversify its sources of earnings, to reach a point where 50 percent comes from South Africa and the other 50 percent from the rest of the world. Paul says that they want to play in three areas: becoming a global performance chemicals company and, in South Africa, delivering gas to power and gas to chemicals, and providing retail gas.

“We’re already a global chemicals company, making commodity chemicals, pipes, food packaging, fertilisers but we want to move more into specialist chemicals – lubricants that make engines perform better, for example – to provide specific value for customers to improve performance and demand a higher margin for investment. We believe we can add so much more value to the global chemicals business in America and Asia. We need to extend our business and manufacturing footprint into China and the rest of Asia, and it is the next focus for us. The population is growing in India and China, and there will be a great and growing need for performance chemicals in those markets.”

In South Africa, he says that they are focusing on finding more gas in Mozambique and creating an integrated value chain between the two countries. “If South Africa moves more into gas to power, we believe we can play a key role in creating a nation that’s more environmentally friendly and less dependent on coal.”

And finally, they are looking to create more Sasol-branded fuel stations. “Although we are small compared to some of our competitors, our brand is voted the best brand in fuel retail. So we want to increase our footprint and be much more prominent in terms of fuel retail stations. We are looking to increase the service offering, with known brands, and bringing in technologies to use data technologies to look at behavioural patterns. We have the service offering in terms of products and services, and there’s a lot of money to be made in forecourts, so we believe we have the recipe for that success.”

Paul says that heading up finance in a company like Sasol keeps him interested and stimulated. 

“I am fascinated by how Sasol crafts its way in a global energy and chemicals context, how the business model works in different industries, how it makes money and what role finance can play in that. As an accountant, I’ve asked myself how I can merge myself to understand business value while still staying relevant as an accountant. Sasol is one of the few companies that’s really top notch, and has really tapped into the world of accounting to be a trend setter rather than a trend follower. I get such personal satisfaction from being up to speed as an accountant – that’s what’s kept me in Sasol, along with the people and the culture. I have a formidable team and really cherish every moment with them. Team work is at the core of everything we do. Your success is their success and vice versa.”