People in the know say David Constable’s most valuable contribution to the company, thus far, can be summarised in one word – focus.
Having joined Sasol in 2011, David Constable has made his role very clear to both the South African oil and coal giant and its shareholders — he was there to drive value.
“My primary mandate is to ensure that we maximise long-term shareholder value as measured by TSR (Total Shareholder Return), and that as a management team, the decisions we take now will stand the test of time and deliver outstanding results,” he said when addressing investors at a strategy day.
Constable’s more than 30 year career in engineering began when he graduated from the University of Alberta with a degree in Civil Engineering. He joined Fluor in 1982 and is a registered professional engineer. He is also a graduate of Thunderbird University’s International Management Programme and Wharton Business School’s Advanced Management Programme.
Prior to joining Sasol, Constable was Fluor Corporation’s president of operations, where he headed the multi-functional division including IT, project execution services, engineering, global procurement, project management, construction, industrial relations and risk management.
Among his many senior roles at Fluor he was the group president of power from October 2005 to March 2009. In that position, he took care of Fluor’s activities in the global coal, gas, nuclear and renewable power generation industries. This covered responsibility for emission control betterment, including carbon capture and sequestration technology solutions – a major focus for the carbon dioxide-heavy Sasol.
Sasol, with its massive focus on project development and execution, required a candidate with extensive experience in the heavy industrial engineering space to replace the outgoing CEO, Pat Davies. Davies was the product of a Sasol engineering bursary and joined the company in 1975. He spent all 36 years of his career, moving across the length and breadth of the organisation, thus the big task to replace him was not at all a simple one.
The Sasol Ltd board, under the chairman- ship of Hixonia Nyasulu, undertook a year-long search for a successor, where they considered internal and external candidates, as well as local and international talent. Specific criteria guided the board’s search and in announcing Constable’s appointment, Nyasulu said they were excited to find a CEO of Constable’s caliber and experience.
“His extensive engineering foundation has seen him take critical leadership roles across the world in both developed and developing economies,” she said.
Constable’s history with the Fluor Corporation is closely mirrored by Sasol’s long association with the large American engineering construction company. In 1975 Fluor was named as the managing contractor by Sasol, to provide engineering, procurement and construction management (EPCM) for Sasol II, now the complex and sprawling coal-to-liquids synthetic fuels plant in Secunda, South Africa.
Among the reasons Sasol is said to have selected Fluor as the managing contractor on Sasol II, was due to the company’s own expertise in synthetic fuel technologies, along with its ability to market Sasol’s coal conversion technology in the US.
Before Sasol II was completed, Sasol decided to build Sasol III and called on Fluor once again to programme manage the project. By maintaining continuity with trained labourers and craft workers, it was possible to shorten the building construction schedule on Sasol III by two months. Sasol was privatised in 1979, when it listed on the Johannesburg Stock Exchange. The end of apartheid in the early 1990s, created opportunities for Sasol to expand beyond South Africa’s borders, marking a critical step-change in the company’s development of new markets and technologies.
The appointment of a new Sasol CEO in 2011, came at a time when Sasol was seeking to accelerate the internationalisation of its portfolio, particularly through the deployment of its proprietary gas-to-liquids technology in North America. Constable, a Canadian, is the first non-South African to lead Sasol and the company faced the inevitable questions as to why the board sought to make an international appointment, rather than using locally-sourced talent.
“The Board made the choice of CEO with the cultural requirements of an international company. We believe that David Constable’s experience in many developed and emerging markets, together with his demonstrated people skills and diversity management in various global locations, will serve the organisation well,” Nyasulu said.
The focus that Constable is said to have brought to Sasol, appears to be the product of a three-phase approach adopted by the CEO. His first phase targeted goal-setting and consolidation. “In this phase we refocused the organisation on our common objectives and introduced streamlines and less bureaucratic structures,” Constable said.
Constable’s second step was around improved prioritisation, to enable the company to focus on the important and urgent. “We prioritised enhancing operational reliability and stability, we drive production efficiencies, particularly in our international chemicals businesses and we took a hard and skeptical look at our portfolio of projects,” Constable said.
Sasol’s most recent trading statement, issued in August, reported a 4% improvement of its production performance at its foundation business, Sasol Synfuels. This performance is encouraging, particularly at a time when the third phase of Constable’s approach is being brought to life - the ‘delivery and growth phase’. “Our dual-focused regional growth strategies are ‘nurture and grow’ in Southern Africa – where the emphasis is as much on maintaining and enhancing our existing asset base, as it is on growing in new areas, here, and most notably in power generation both in South Africa and Mozambique,” he said.
“Looking at North America, we speak of ‘expand and deliver’ as we set out to advance on several fronts.” This duel-focused approach will be of com-ort to some SA-based commentators, who have raised concerns regarding Sasol’s commitment to its home-base. Fears that Sasol may attempt an “Anglo American-style” move out of SA have been resoundingly dismissed by the company. Speaking to media at Sasol’s interim results presentation in March this year, Constable described Sasol as a “proudly South African company” with 66% of its total assets in sub-Saharan Africa. He said that after Asia, sub-Saharan Africa will be the second largest growth area at 5,4%, with SA contributing close to a third of the region’s GDP. “From our vantage point, South Africa is not only our home base but it is also a great entry point to one of the world’s largest growth areas,” he said.
Sasol operations in the region make a sizeable contribution to the group’s operating profit, contributing 88% in the first half of the 2013 financial year but the company is still ploughing the bulk of its capital investment into South Africa.
In the first half of the 2013 financial year, Sasol spent R10,4 billion on capital investment in South Africa, which equates to just over 72% of its capex for the period. In the 2014 financial year, two thirds of the group’s R35 billion capital expenditure, will be in South Africa.
“We are not going anywhere,” Constable said. “We have confidence in this country, which is why our SA strategy is focused on maintaining our large asset base. Equally importantly, these investments are being undertaken to enhance our operations in the region, over the long-term. We believe that with realistic policy choices and a supportive investment climate, the country could cement its position as a key player on the continent. SA is our home and will continue to be our home,” he said.
Sasol’s most recent financial year certainly indicates that the market is responding to the actions the company is taking. Over the 2013 financial year period, Sasol saw its share price increase from R342,40 at the start of the financial year, to close at R431,54, at the end of the cycle in June. This represents a 26% increase in the stock price. Sasol’s earnings remain highly sensitive to macro-economic factors, particularly currency and commodity price volatility, but strong operational results have certainly supported the positive sentiment.
Constable said Sasol was making progress on the delivery of its project pipeline and was entering a significant chapter in its history. “The strategic mega-projects we advance in the medium term will serve to enhance the company’s position as an international energy and chemicals player. We know that by focusing on the factors we can influence, and in the near term, we will set ourselves up for greater success in the years ahead.”
He said Sasol had moved its two plants in Louisiana forward to the engineering and design (FEED) phase, confirming its intention to invest up to US$14 billion in a gas-to-liquids complex plant and $5 billion to $7 billion on an ethane cracker and derivatives plant.
Far from just selling merchant ethylene into the market, Sasol will seek to enhance its offering to the market, with a range of high value products, off the back of the catalyst. Various alcohols, ethylene oxide, different types of poly- ethylene and co-monomers, mean Sasol should set itself apart from the standard ethane crackers in the US, against which it will compete. These US investments will be Sasol’s largest capital endeavours in its 63-year history.
Under Constable’s leadership the two US investments, together with projects in Uzbekistan and Nigeria, will increase Sasol’s international footprint. In addition, building on the success of its140MW Sasolburg power plant, which uses gas to generate electricity, it is also building a140MW power station in Mozambique in partnership with the country’s state-owned power utility, EDM. The final investment decision was taken at the end of last year. Site work is underway in Ressano Garcia and the project is well on track to be commissioned by mid-2014. Despite Sasol’s ambitious investment plans, investors don’t have to be concerned about a drop in their dividend payments. Constable has promised to maintain Sasol’s ‘progressive dividend policy’ throughout the investment period. Looking beyond just investors, Constable has also prioritised stakeholder relations during his tenure with Sasol. He is acutely aware of the need to avoid labour problems by addressing issues before they arise.
He addressed the subject in his interim results announcement in March, saying the country had been “rocked by social and labour unrest”, impacting not only business operations in the mining, transport and agricultural sectors, but also the country as a whole.
“We have been proactively addressing many of the socio-economic challenges faced by our workforce, our unions and the communities in which we live and work. Our efforts in this area began well before the Marikana tragedy at Lonmin’s platinum operations,” he said.
Constable said Sasol’s significant focus on skills transfer and community support to the local workforce, which includes basic and continuing education, skills development for local communities and infrastructure and com- munity development, were vital in maintaining credible relationships in the communities within which it operates.
Constable, with his management team, has brought specific focus to one particularly controversial area of the Sasol business, namely its polymer production facility in Iran. Increasing US and EU sanctions have forced Sasol to announce in late 2011 that it would be divesting its share in the Arya polymer plant. The divestiture has been slow but an announcement, to confirm the sale, seemed imminent at the time of going to print.
With complex operations taking place around the clock and across the globe, Sasol’s focus on safety remains integral to the business model. “Most importantly, safety remains a strategic imperative for us. We have by and large seen marked improvements and ended the half year with a recordable case rate, excluding illnesses, of 0,32,” he said, adding this was the lowest level achieved in the company’s 63 year history.
Sasol’s unenviable status as one of the world’s largest single-point emitters of carbon dioxide places it firmly in the sights of environmentalists. However, issues associated with water use, air quality enhancement and investments to achieve such enhancements, mean the focus also comes with a large price tag. Programmes to tackle air quality improvements, particularly delivering against Government’s Clean Fuels II (CFII) specifications in South Africa, require specific focus. Latest capex estimates to deliver against CFII come in at R11,8 billion.
In recent years, Sasol has been specifically linked to fracking potential for gas reserves in the Karoo. Currently, Sasol does not hold any license within the Karoo region. In late 2010 Sasol was awarded a Technical Cooperation Permit, in partnership with Chesapeake and Statoil, to conduct desktop studies to assess shale gas potential in the Karoo Basin. Sasol concluded an extensive technical study of the area and then decided not to pursue further exploration activities in the assigned TCP area. The decision was based on subsurface technical and operational considerations and was unanimously taken by the partnership.
The TCP subsequently expired in November 2011. Sasol has said that it continues to be very interested in the upstream oil and gas business landscape, which includes shale gas in the Karoo and elsewhere. “We continue to monitor these developments with interest and if new opportunities present themselves we will actively evaluate and pursue, if they are attractive from a technical and commercial perspective,” Constable said.
Sasol’s most recent trading update highlighted the key factors that continue to make this stock so popular with investors. Strong cash generation, low gearing and a solid financial positionare great building blocks. It appears that costs will remain a focus area and will see Constable and his management team continuing their review of how the business operates to ensure that its growth is sustainable.
As the company embarks on a growth strategy that will see it invest more than two thirds of its market cap in an ambitious growth path over the next few years, precision and focus will be paramount in driving the company forward – two characteristics Constable has demonstrated he has.