Investment to meet growth in demand was an important theme in the chemicals and oils sector over the past year.

A year ago, most of these companies were viewing the strong rand as a major challenge. Little more than a year ago, trading margins were under intense pressure in some areas and companies were struggling to adapt. Now the emphasis is on positioning for growth.

For Sasol, by far the dominant player in the sector, the upswing in commodity prices and, particularly, the oil price has brought record profit and greatly stimulated international interest in the group's synthetic fuels technology.

In the domestic market, the group is benefiting from strong demand for fuels, in an economy showing sustained growth. Refining margins, as well as margins in the group's petrochemicals activities, have improved markedly.

In the year to June 2005, Sasol's operating profit jumped by 56%, to R14,5bn, of which the two largest contributors were synfuels (52%) and liquid fuels (13%). Most of the remainder came from mining (8,6%) and the group's various chemicals activities.

Favourable market conditions have had a huge impact on group cash flows and boosted its capacity to fund its large investment programme in both synfuels and petrochemicals.

Several other developments over the past year will have an important bearing on the group's longer-term future. These involve key management changes, moves to meet BEE requirements and progress with new synfuel plants elsewhere in the world.

A new senior management team, with Pat Davies as CEO and Trevor Munday as deputy CEO, took over from July 1 last year. The previous CEO, Pieter Cox, succeeded Paul Kruger as chairman.

Early this year, the group faced a setback with its BEE plans when the competition tribunal blocked a proposed merger between Sasol's liquid fuels business with Engen, a refining and fuels retailing company whose major shareholders include Petronas, the Malaysian state oil company, and Worldwide African Investment Holdings, a BEE company.

Last year both government and the Public Investment Corporation criticised Sasol for its perceived slow progress with BEE.

However, the group can cite recent progress in this area. This includes new board appointments, including three executive directors. Hixonia Nyasulu as nonexecutive director; Benny Mokaba heads Sasol's energy businesses in SA ; Nolitha Fakude runs human resources and strategy; and Christine Ramon is chief financial officer.

Sasol Mining formed an empowerment venture, Igoda Coal, with Eyesizwe Coal, a black-owned mining company. In addition, the group appointed Rand Merchant Bank to advise on its BEE equity ownership strategy and further empowerment deals.

Sasol is passing major milestones in its investment programme. Among the most strategic of these is the US$950m Oryx GTL (gas-to-liquids) plant in Qatar.

This project, a joint venture between Sasol Synfuels International and Qatar Petroleum is Sasol's first international GTL plant. It reached the commissioning stage in the first half of this year, and commercial production was planned for the middle of the year.

Elsewhere in the sector, Afrox, whose core businesses are now in gases, welding and related products, has faced cost pressures because of the high oil price but has produced growth in earnings.

Headline EPS from its industrial activities grew by 16% in the year to September. In the six months to March this year, reported headline EPS for the industrial business were up 27%. CEO Rick Hogben says growth was bolstered by strong demand for industrial products and strong sales in the medical business, special gases and exports.

The bulk gas business continued to do well, despite shortages of argon, carbon dioxide and nitrogen. It held market share and, says Hogben, is entering an "exciting growth phase", having won and renewed several long-term gas contracts.

The group has an intensive investment programme, with planned capex at R600m. This will include new gas producing plants, upgrading of manufacturing facilities and replacement infra-structure to maintain and grow market share.

Work has also started on a R100m expansion of the group's gases operations centre in Germiston, a project announced before Afrox completed the disposal of its health-care activities last year.

High oil prices have also led to cost and other pressures for AECI, but in the year to December it increased its profit from operations other than property by 16%. The group has not been firing on all cylinders. African Explosives faced declining gold mining activity and margin pressure in SA, but it did well elsewhere in Africa and marginally improved its overall performance.

Speciality chemicals producer Chemical Services maintained its strong record, with a turnaround in automotive coatings and exceptional returns in polyurethanes. Sans Fibres, which has been particularly vulnerable to the strong rand, improved its margins on US$-based sales and better production. The coatings business, Dulux, also did well, with volumes up in SA.

The biggest boost to the group's performance came from Heartland, the property division, whose operating profit rose 35% to R185m. That's not expected to continue this year, as unresolved issues regarding the Gautrain will restrict availability of land for sale at Modderfontein.

CEO Schalk Engelbrecht says strategic developments expected this year include further acquisitions by Chemical Services, which is pursuing an international expansion in Brazil; investment in new factories for African Explosives; and, at Sans Fibres, efficiency improvements and adjustments in the product range, with emphasis on more technically demanding products.

Omnia, which makes products for the chemicals, mining and agricultural sectors, did well in the year to March 2005, as it continued to bed down its merger of several years ago with Protea Chemicals. Its revenues rose by 30%, to R4,26bn, and operating profit by 19%, to R394m. Later in the year, however, it was buffeted by adverse conditions in several markets, particularly agriculture.

In the half-year to September, fertiliser sales were hit by the large maize overhang in SA and late summer rains. In the group's plastics division, margins were squeezed, in part because of difficulties with sourcing product from international principals. Shortages were caused by international demand and supply problems resulting from hurricane Katrina. The effects on group finances were severe. Cash flows slumped and funding requirements increased sharply. However, this group has long been accustomed to seasonal swings and volatile profits.

In these conditions it gained some resilience from the diversification of its activities. Its mining division, a supplier of bulk and packaged explosives to the mining industry, contributed half the group's interim operating profit, up from 36% a year earlier.