Sasol Ltd (SSL) 2007 Q2 法說會逐字稿

Good morning and good afternoon, ladies and gentlemen, and welcome to the Sasol Interim Results Conference Call. I would also like to remind participants that we will be connecting to a live meeting in Johannesburg. Following the formal presentation by Sasol management, an interactive Q&A session will be available. A copy of today's slide presentation is available on www.sasol.com. [OPERATOR INSTRUCTIONS]. Please stand by; the presentation will begin shortly.

Good afternoon, everyone. Welcome. I'm delighted to see so many of you here. Light shining in my eyes, I'll just change that a little bit. I'd like to introduce you to two of our new Group Executive Members to you, if we can do that briefly. First of all, we have Bheki Khumalo, who joined us recently. And Dr. Reiner Groh, who used to head up our Solvents business and now is heading up the entire Chemicals cluster, just that you know what he looks like. And the rest of us you should know pretty well by now. If you don't, please ask us.

Good. Well, I'm sure you don't want to be here for too long with the markets doing what they are at the moment. I was hoping that the rugby would be good enough news to settle the JEC down a little bit, but it doesn't seem to have been the case, so we'll be out of here as soon as we possibly can.

I'll do a couple of introductory slides and then Christine will take you through the financials and I'll end off with a couple of words on our strategy.

Starting off, then, this is something of an agenda. Safety is first because we like to emphasize its importance and our safety record is improving, thankfully. The operating profit up 12%, you're familiar with that. Synfuels' volumes are down by 7%, mainly due to the very large shutdown we had during the reporting period, but more of that in a moment.

And we are very pleased to be able to say that Oryx GTL is on track. It's produced its first product. That first product, some 30,000 tons will be put into the marketplace during this month if all goes according to plan, so we're absolutely delighted, but more on that in a moment as well.

A couple, only a couple fortunately, of our big projects are still taking strain on schedule and we'll go through the details. But I'm sure you're aware by now that this is not a Sasol issue only, this is a South African issue and in fact it's a global issue, that over the E&C contracting world it's somewhat overheated and that's having an impact on costs and schedules throughout the globe.

For the future, growth impetus from new projects and I refer there specifically to Oryx making a contribution in the next financial year. It'll make a slight contribution this year too. Oryx, the polymers, doubling of capacity and of course the continuing growth of our gas chain is where we're going to be seeing that growth coming from. And when Christine's done, I'll talk a little bit more on the strategy.

Safety; a moment on this. We are improving, we say with some humility. We set ourselves some very tough new targets which include all our service providers, safety statistics. It includes occupational illnesses. So we've got work to do here to get to those very challenging targets we see down there. More work to be done in this area but happily we are seeing some results from our efforts.

The financials, by now you know pretty well. Headline earnings per share up by 7%, lower than the attributable at 14% because of some capital effects which Christine will take you through. Major capital projects, ZAR6.1b in the half year, 57% of that in South Africa. We remain committed investors in this economy. Gearing down, interim's up -- interim dividend's up by 11%.

Talking about some of the big impacts on our results. Obviously this is Synfuels' volume's been down. And this was largely, as I said, due to the fact that we had, it wasn't really a total plant shutdown, that's a bit of a misuse of terminology, it was half of Synfuels was down for quite a period, for a statutory shutdown, a planned one. We do this once in every four years. And in the corresponding period there was no shutdown, so that's quite a harsh comparison and hence the volumes being down quite so considerably.

This obviously has had a knock-on effect. We've had to keep the markets wet. We've had to import fuels as well as optimizing what we do at both Natref and the rest of Synfuels. We've been able to do that quite easily, fortunately, but there has been cost impacts. And then, when Synfuels is down for a shutdown, obviously Polymers and Solvents and the other facilities downstream have a shortage of feedstock and so we can see the impact of this in their results too.

Another impact not listed there is the one of cost impact. Obviously having a large shutdown in this period does impact on our costs. These were budgeted costs, we planned for them. In fact Synfuels' cost structure -- costs are very much in line with our budget, in fact a little better than our budget. So it's not unplanned stuff but it has had an impact on the year-on-year comparison. Good. I suspect you might have a question or two on that later.

What we are really pleased about, as I mentioned, is Oryx, the fact that the technology has run. It works, it produces products on specification. This is the product, the real McCoy, all the way from Ras Laffan; many of you have been there. And probably other couple of samples you can have a look at, you can smell it, you can look at it, you can even taste it as long you don't drink too much. I see Leon shaking his head there. He's worried having a lawsuit that will come from the runny tummies. But it's a very good product. We're delighted that we were able to market that starting this month, some 30,000 tons.

And I think the other bit of good news is that Oryx won't make too much of a contribution but it certainly will be making a contribution to operating profit in this financial year still. I don't think there are many billion dollar projects around that make a contribution to operating profits in the first couple of months of operation. So this is really a defining moment in this rollout of Sasol's strategy. It's probably also a defining moment in the growth of the new gas to liquids industry that we've been talking about for some time.

Yes, we have had teething problems and we still continue to have a couple of teething problems, but in terms of the ramp-up schedule I think we're pretty much on track for a facility of this size and complexity. Perhaps a thought on this one as well is that what differentiates Sasol is that we do new technologies. We take the technology risk. The upside is that we develop industries where nobody else has developed industries and we do so successfully and we make a lot of money. The downside is that we take some risk and sometimes taking -- being on the cutting edge, sometimes on the bleeding edge of technology, means that we have a few teething problems before we get the technologies away.

We had a similar situation when we started up Sasol II. Eventually got that going very successfully and we're very happy with the progress that we're making on Oryx at this time. Our technology, our risk taking on our technology, is an effective barrier to entry for other entrants into this gas to liquids game. Very good on paper; it's not so easy to do in practice. Good. So happy with progress on Oryx.

Less happy with Project Turbo. We have had some highlights there in terms of getting the polyethylene plant away and meeting its guarantee runs there successfully, as we see on the second bullet. The new polypropylene plant PP2 is suffering from the same issues around engineering and construction that a number of global projects are, and that is expected now to start by September of 2007, which is pretty much in line with what we disclosed in December.

But the issue is around the SCC, the catalytic cracker in Synfuels. It has been up and it has run reasonably successfully a couple of times. But it is underperforming, we're not happy with its performance. So we've taken it offline now and we're working very hard with KBR, the technology suppliers. You'll remember this is not our technology, this is supplied -- technology supplied by KBR. We're working very much with them to make some modifications to make sure that we get this operating exactly where we want it to.

Moving on to Arya, the other big polymers plant. There, there has been slippage in terms of the dates that we indicated to you previously. You'll recall we discussed the fact that the utilities were problematic. I'm happy [we're still] supplied on that side by others to us, an enormous site well worth visiting one day, but those utilities are now in place. They tend to be a little unreliable, which has certainly affected our schedule. You can't start up a plant without cooling water or without steam and we've had quite substantial delays as a result of that. Then we've also had our own delays in terms of finishing off construction.

So we are happy to report the cracker and the H -- the high-density plant are complete as far as construction is concerned. We're busy with pre-commissioning and those are the dates that we see there. Cost wise, we're within a couple of percent of the budget and the numbers that we indicated to you last time.

So this ticker box at the bottom, there are a couple of projects that we have to keep a careful eye on because of this global problem resulting in delays and increased costs. And I'm very happy, perhaps in question time, to give you a few more statistics on this issue.

Another key item for us is the windfall tax. You'll appreciate that there's not too much we can say at this stage. We are studying, as I'm sure many of you had this 180-page document that's quite complicated. We need to understand it very carefully and we will be engaging with Treasury, as has been indicated publicly by the Minister, during the course of March. And then we'll get into a discussion. I think important to note that these views that have been put forward are the task team's views. They are not necessarily the Treasury's views at this point in time and we will establish what their views are, obviously, as we go into discussions with them. We're very happy, though, we can engage with them and we hope to finalize this as soon as we possibly can.

Right. Then, to start setting Christine's presentation up, let's have a look at the key drivers to our profitability. Exchange rates, if we look on the half-year on half-year comparison, was 11% favorable to us. Brent crude was up 9%. Refining margins were down 3%. Similarly, on the chemical side polymer basket up 19%, solvent basket up 12% and ammonia down 6%. Important, though, that these aren't necessarily our prices. These are international prices given by [inaudible] law. For example, in the case of the polymer basket, FOB, the Middle East, those are not necessarily the sort of prices that Sasol obtains.

Good. That brings us onto my last slide on this section, which just shows you the development of operating profit through the cycle on a half-yearly basis over the last number of years. Good. Christine.

Thank you, Pat. Good afternoon, ladies and gentlemen. As Pat has just shown us, we've achieved record results for the half year with operating profit up at ZAR12.2b and reflecting a pleasant increase of 12%. Just bearing in mind that our operating profit, and therefore our earnings, benefited by the increase in oil prices and the weakened currency, and if we could bear this in mind as we move through the income statement.

As you can see here, turnover increased by 22% compared to last year. And just to note that two-thirds of our turnover is generated from operations in South Africa, whilst 80% of our turnover arose from production in South Africa. The operating profit benefited to the extent of ZAR3.6b from the currency and the oil price effect, and this was partly offset by the impact of the shutdown at Synfuels and lower volumes at Synfuels' polymers and solvents. The operating profit was also offset by the inflationary impact on costs, which I will show later on as I go through the divisional review. O&S has been classified as a discontinued operation, as you can see there, and that was done as at June 30 and our focus will be on continuing operations going forward.

Looking at profit from continuing operations, we can see the increase of 16% there to ZAR8.3b, and that was before adjusting for minority interests and the effect of capital items. Minority interests increased with the sale of 25% of Sasol Oil to Tshwarisano and the 25% sale of ROMPCO. The capital items mainly comprise the net effect on disposals, amounting to ZAR720m, and that relates to a profit of ZAR315m realized on the sale of the 25% of oil to Tshwarisano and ZAR346m relating to the sale of ROMPCO.

Moving on to earnings from discontinued operations, you can see discontinued operations, being the O&S business, reflects a loss of ZAR97m before adjusting for the effects of capital items. The capital items mainly comprise a fair value write down here of ZAR420m, which arose due to an accounting quirk, as I call it. It relates to IFRS 5, which prescribes the treatment that we no longer recognize depreciation on an asset held for sale. So the ZAR420m write down approximates the depreciation for the year. It's important to note that the net asset value of the O&S business remains unchanged from that disclosed at June 30, 2006.

The SA energy cluster dominated Group operating profits, increasing by 10% to ZAR10.9b, and the SA energy cluster contributed 89% of the total operating profit of the Group. The SA energy cluster also contributed 74% to the increase in the operating profit for the Group. I will be going through the detail of each of these businesses in the divisional review.

So, moving on to the international energy cluster, it reflects a small loss of ZAR14m, with SSI reflecting increased project activity and SPI reflecting a good growth in profits.

The chemical cluster was overall stable but affected by lower volumes, which impacted by 2%. A 2% decline was shown on our operating profit of ZAR1.2b for the year.

Moving on to the divisional review, and we start off with mining. Mining was impacted by reserve optimization, which resulted in the decrease in production. The Anglo deal relating to Isibonelo added five years coal supply to Synfuels and a postponed CapEx. We see that mining's operating profit was down 38% and that was mainly impacted by lower sales volumes and higher unit costs. The cash cost sales per ton in mining increased by 24%, and this mainly related to the higher planned coal purchases from Isibonelo, lower own production. There was an unexpected strike in December and an inflationary impact on costs.

Just running through the impacts quickly, the inflationary impact on costs amounted to 7%. The purchased coal amounted to 4% impact on costs. And the lower sales volume amounted to 4%.

As we said earlier, our Synfuels business benefited from the higher product prices, resulting in a 14% increase in operating profit. Pat already spoke about the decline in the production output at Synfuels by 7%. And I would just like to concentrate more on the increase in the cash cost per ton. The cash cost, so that's the unit cost per ton, was up by 28% and it was largely made up by the impact of the shutdown. As Pat also mentioned, this shutdown occurs once every four years and it impacted negatively on our costs by 10%. Inflation impacted negatively on our costs by 7%. And we had start-up costs relating to the Synfuels expansion project, the 20% expansion project, which impacted 6% negatively on the rand cash cost per ton.

We do expect the operating profit for the second half to be lower than that of the first half and that is linked to lower refined product prices. However, Synfuels does forecast for production volumes to be marginally lower for the full year, so therefore they will be making up the volume deficit in the second half of the year on more stable operations. What I would also like to point out is that included in the operating profit for the year is the effect of the Synfuels oil hedge, amounting to ZAR293m for the half year.

Moving on to oil, we see that oil's operating profit was impacted by the lower refining margins, there was a 3% reduction in the refining margins, and due to increased fuel imports. The retail network at oil grew by 5% since June and our current retail market share is 8.4%.

Gas, the gas business reflected good growth with an increase of 50% in operating profit. The operating profit of course includes the ZAR346m profit on the sale of ROMPCO. However, gas reflected higher sales volumes. As a matter of fact, pipeline gas sales increased by 12% to 58.2m gigajoules for the half year. Operating margins at gas were 62% from the 51.1% last year.

SSI's costs reflected the increased project activity and Pat will elaborate later in the presentation on that project activity. And we expect a positive contribution in our second half result from Oryx GTL.

Moving on to SPI, which reflected a 33% growth in operating profit, and that was due to higher prices and volume as well as the positive impact of the currency effect. The natural gas sales reflect an increase of 8% on the previous year. Just bearing in mind that the first half includes a 70% equity stake in [CPS] compared to the 100% that was included for the nine months of the previous year. SPI now reflects a healthy operating margin of 51.8%.

As I said previously, polymers was impacted by lower volumes. The operating profit was down by 34% on the previous year. Sales volumes at polymers was down 4% to 587m tons and its operations were impacted by the knock-on effect of the Synfuels shutdown. Whilst margins were squeezed during the first four months of the period, excellent margins are currently being experienced and therefore we expect the operating profit for the second half to be higher as normal operating conditions resume.

We had a solid performance from solvents, with the operating profit before capital items increasing by 27% on the previous year. And this resulted due to higher selling prices, although this was partly offset by higher oil-related feedstock costs. Polymer -- solvent sales volumes declined by 8% to 889m tons. We do expect prices to soften in the second half of the year as the oil prices decline, but we expect that our margins should remain at the same level.

Nitro's operating profit increased by 7% and that was mainly due to higher fertilizer sales, which increased by 46%. Our market share in the fertilizer market for the first half was at 24%.

Wax surpassed expectations with a 300% increase in operating profit, and that mainly resulted due to improved product margins and an increase in sale tonnages by 8%.

Going through the key financial ratios, we see the operating margin at 32.4%. Although lower than the first half of last year, it's in line with the full-year margin -- operating margin achieved for June -- at June 2006 and we expect operating margins going forward to remain at similar levels.

Our gearing reduced some 29% at the year end to 21%, and we expect the gearing to reduce with the proceeds expected to be received from O&S, as well as some strong cash flows generated by our businesses.

The net debt at the end of the period is ZAR12.1b, which includes ZAR6.1b in cash, and 83% of the debt is long term. 43% of our debt is rand denominated, whereas 35% is denominated in euros and 20% in U.S. dollars.

We comfortably held our credit ratings, reflecting the stable cash flows of our businesses, the strong balance sheet and our exciting growth strategy.

The interim dividend for the half year was increased by 11% to ZAR3.10, maintaining the same interim dividend cover of the previous year, of 4.2 times.

Finally, we have a strong balance sheet that supports our growth going forward, taking into account that we expect robust oil prices to continue. Our gearing is set to be lower by June 2007. We expect to maintain our dividend cover. The target is 2.5 to 3.5 times on continuing operations.

And our capital project expenditure for the financial year 2007 is expected to be ZAR13b. We expect capital expenditure over the next three years, including 2007, to be ZAR44b with approximately 60% of this spend in South Africa. If we had to include the rest of Africa, the capital spend would exceed 75% over the three-year period. 75% of the capital expenditure is energy related.

In conclusion, with the financial year '07 Group profit outlook, we expect satisfactory earnings growth for the full financial year on attributable earnings from continuing operations, and that is assuming slightly lower oil and commodity chemical prices and a marginally stronger rand. So we do expect earnings in the second half to be marginally lower than that of the first half.

Thank you. And back to you, Pat.

Let's end off with a quick discussion on our strategy. Obviously not the purpose that this be a comprehensive discussion on it, just more of an update. Strategy is more or less unchanged. I think the key drivers you know very well from all the previous presentations, so at least we're consistent.

We believe this is the right strategy for us. It's obviously based on our technology, the enormous interest that the world, the energy world, has in our technology. And we expect the interest will continue to grow, particularly as Oryx continues to run and prove to the world that it's not just Sasol talking, this does actually work and is commercially and economically a very attractive thing to do.

So we will grow both our chemicals business and our energy business, and this will be in South Africa and globally. I don't have a slide specifically on initiatives in South Africa, but just to assure you that our planned expansion of the existing Synfuels capacity by 20% by the year 2014 is very much on track. Most of that will be fuelled by gas more than we originally anticipated. It's obviously a better way of de-bottlenecking the existing Synfuels capacity, it's cheaper.

And then, of course, we continue to grow our gas value chain from Mozambique. We've told you previously about the excitement we have around the gas reserves that we've found there, so we've seen an upping from the basic project of 120m gigajoules per annum to 183m by 2008. So that's positive growth in the South African region again, Southern African region at least.

And then, of course, we're looking at doing a Greenfield coal to liquids facility; call that Project Maphutha. We must warn that this is pretty early days. We're continuing to have discussions with government. We've been doing some technical work to figure out what the costs are going to be. But we would certainly like to go ahead. You all know about the shortage of fuel that's emerging in the inland market, particularly over the next couple of years. So it seems to be a win/win for us and for the country, and we'd like to be a part of it but we obviously need to study it to make sure that this is an economic proposition for us to go ahead.

Right. This is somewhat unusual in a presentation like this, but I thought I'd just mention to you, very briefly, a couple of the very important Group-wide initiatives we have, that we need to make sure we're successful on to ensure the success of the organization and the wonderful growth plans that we have.

We're doing -- our results are good; we think they can be even better. We need to focus a lot more on operational excellence and business performance to improve the stability of our operations and to materially reduce the unit cost of production. This is a new challenge for us -- or it's not a new challenge, but it's a new focus on us and we'll be looking at it very hard in the years to come.

Transformation in South Africa, a critical part of our strategy. We're doing well but obviously more to be done.

Talent management, this is something foremost in the minds of chief executives and management teams in the energy industry, particularly around the world. I was recently at the annual meeting of the World Economic Forum and that's one common theme that came out, that everyone is concerned about the level of skills that are available in the industry. So we're doing a lot in this area but no time to deal with it today. I'm happy to answer questions on it.

Values-driven leadership and organizational culture, an interesting topic and again one I can't do justice to do today, but I think you will appreciate Sasol has very good people. We're blessed with really talented people in our organization. Otherwise we wouldn't be the successful organization that we are today.

But as the world changes, so is our workforce changing. And the workforce for the future is going to be more diverse, it's going to be younger, it's going to have different drivers. People like myself, the old baby boomers, are fast disappearing. We need to keep our culture of being tough on performance, giving challenging projects for people to do, challenging assignments. But we need to have a culture that is going to attract and retain and inspire and motivate the workforce of the future. So a lot of work's going into that, which I think is particularly important and of course it's linked to the talent management one.

And then, on the environmental side, our sustainable development, sustainability as we've called it here. A lot more attention on improving our energy efficiency and reducing our carbon footprint, and in fact our total emission footprint. A lot of energy going into that. And we've changed the structure of the top of the organization at executive committee level to give effect to some of these initiatives.

GTL ambitions being realized. I don't think there's been much of an update there. We've already spoken about Oryx and how pleased we are with the success there and the importance of that in the rollout of our strategy. That's going to sell a lot of the other projects to host governments and reserve owners.

Nigeria's very much on track. Spain dates being indicated there. This time I think the new bit of information that was made public a couple of weeks ago, I think it was now, that we have entered a feasibility study in Australia, together with -- through Sasol Chevron, obviously, with the Australian business unit. And that's on its way. There are a couple of commercial terms that needs to be finalized, so we're not completely out of the starting blocks on that one yet, but looking very promising.

Algeria, there has been some change to the bid parameters which are positive for us, so we're looking at that with renewed interest.

Coal to liquids, we're busy, as you know, in China, India and the United States. Work is ongoing in all of these. Not really much to report at this point in time. I think as we hit significant milestones we'll let you know what the progress is there.

Olefins and surfactants disposal is taking a while. You know I planned to wrap this up by the middle of this year. We've had a lot of questions from the media, particularly this morning. It appears that they think there might be something wrong with the process and why is it taking so long. There isn't; the process is very much on track. It is taking a long while. There's an enormous amount of information associated with a global business of this nature. The proposed purchasers wanted that information and so we go through lots of cycles of information flowing backwards and forwards between ourselves and the prospective buyers, and that's taking more time. But it is very much on track and we look forward to that being [inaudible] as soon as we possibly can.

Obviously we're not covering in this short presentation other growth in the chemicals business but you're aware of [inaudible] three projects coming on later this year. You're aware of our plans regarding MIBK, the new solvents facility.

Upstream business, doing particularly well. Happy to report that the cyclone that hit exactly onshore where our facility is, the eye of the cyclone passed right through our facilities. We had no production interruptions. We had damage to a couple of buildings. Unfortunately, we can't say the same of the communities around us. They were very hard hit and we're doing whatever we can from a humanitarian point of view to alleviate the suffering that those people have.

Seismic program is ahead of schedule. We managed to get hold of the right equipment and the right vessels to be able to start with that, so that's underway. And we will wrap that up by June, which leaves me very optimistic about what we might find offshore and that can add another whole quantum of gas availability for South Africa and for markets in Mozambique as well.

Nigeria, also good news. We've been talking for some time about these blocks that we wish to enter in Nigeria. Well, we've signed off now on all the formalities on three of those blocks. And these are not just exploration plays, we already have oil discoveries on those blocks, so we look forward to good cash flows coming out of those in the years that lie ahead.

Gabon, we continue to expand the capacity there with some new fields as the first field declines somewhat, new fields. The Avouma field is on track. We plan to develop the Ebouri field. So we've made a lot of money out of this particular part of the business, which we're very grateful for.

Empowerment's an important part of any strategy and, of course, more than just equity, although we've done quite a bit on the equity side, as we see from the list there. And you're familiar with all of this. But we are looking at a substantial new equity deal and we're not ready to talk about that just yet. We'll make some announcements later in the year. Of course Empowerment comprises many other things that we're giving a lot of attention to and I'm happy to say in some of these areas we're already ahead of the requirements of the code, the guidelines of the code. In other areas we've got some work to do.

Our diversity, for example for managerial, professional and supervisory staff, now stands at 45% from designated groups, so good progress is being made there.

What's the strategy yielding? You're familiar with our targets in terms of growth and EVA, so I'm not going through the definitions with you. But suffice to say that, as far as growth in dollar terms is concerned, we're meeting the targets despite tougher and tougher targets as we re-jig the baselines on the three-year moving average basis. EVA is looking pretty strong and, of course, that's coupled to the fact that the gearing, as Christine has indicated, is down to 21%.

Last slide. Conclude by saying that safety is improving but we will keep our focus on this very much. Solid results despite that 7% knock in the Synfuels volumes. Some plant instabilities that we had are not expected to recur in the second half. Transformation in South Africa doing well but more to go. The issue of global energy security provides us and our shareholders obviously with a wonderful opportunity to add value, really quality growth opportunities that we're blessed with here, and obviously we're going to exploit those to the full.

You see the GTL [project happen] and then growth from the new projects that I mentioned in the beginning. Oryx coming in, the polymers capacity coming in, the gas business growing, amongst others.

So doing well and we continue to look forward to a great future. And with that I'll be very happy to answer any questions you might have, together with my colleagues here, many members of our executive team and several of our MDs are here to answer the questions you might have. We have a microphone and we'll take a couple of questions from the floor and then we will go to the people that have joined us by telephone conference. Caroline, yes?

Operator, could you just please queue the questions on the telephone call?

Caroline Learmonth from Macquarie First South. A couple of questions on expansion into the next few financial years. You mentioned [technical difficulty].

[OPERATOR INSTRUCTIONS].

Synfuels.

And then secondly, on the polymers, significant increase in capacity over the next few financial years. At what point do you anticipate that those in South Africa and in Iran, the new capacity, will be up and running at full capacity?

And then, similarly for Oryx, you've mentioned the start-up but when do you believe that the Oryx plant will be running at full capacity?

Thanks, Caroline. Leon, if you can answer the last one. And, Benny, would you like to speak to the first one about the growth project at Synfuels and whether that's on track?

Yes. The growth project, as you know, as Pat indicated, is going to be based on gas and that gives us an ability to get it much quicker than if we were going to go only on coal. So it's two phased. The first phase is going to be on gas and the second phase obviously is going to be looking at the options of trying to put in fine coals technology. However, there are other options of improving our productivity. It's about the availability of our plant. As you know, the flexibility of our plant or rather the response for profitability of our plant, is likely driven by what the price of crude is. And if we can drive the volumes when the price of crude is high, then we make more money. The second part of it is about the [cost of] product.

So the two things that we're going to be driving at the moment is trying to make sure that the plant is available. You will also know that in the past we've had several problems with our gas suppliers and about the longevity of their operations. As I speak, we are looking at introducing a different type of technology on our gas suppliers that has got a better life and therefore are much more reliable. So while we are growing in the next 10 years includes the gas growth, there are other efforts that we are putting in to ensure that the plant availability is retained.

Thanks, Benny. And in short, the shutdowns and the impacts that we've had are not expected to continue impact on those growth plans. The second question was regarding the additional polymers capacity. Reiner, would you like to speak to that? Have you got a microphone?

Thank you, Pat. So, in a nutshell, Caroline, from Turbo we are expecting in the fourth quarter of this calendar year to come up with production. The same applies also in terms of Arya, but there we have to take into account that the whole supply chain has to be filled as well, and we are planning to go to the market beginning of next calendar year. Thank you.

Thanks. Leon?

Thank you, Pat. Caroline, the Oryx plant is currently in a ramp-up phase. Obviously we will use all our experience and knowledge to accelerate as much as we can. But this is a complex facility that needs a lot of integration to reach maximum capacity. Our experience has shown in the past, you know the Secunda plant and other international plants of this nature, it can take anything up to 18 to 24 months to reach maximum capacity. That's our challenge, is to improve on that and we're confident that we'll improve on that but it will take us some time to get to maximum capacity.

Leon, I think we can do a bit better than 24 months but there's a challenge for him, yes.

Good afternoon. It's Edward Westlake at Credit Suisse. You talk about the engineering and contracting capacity of the industry is quite tight. Would you be prepared, like Exxon for example, to defer or delay projects to make sure that the costs are absolutely right or do you want to -- or do you feel you can proceed? And, to be more specific, when you look at the list of projects such as Algeria GTL, Australia GTL or China, when realistically do you think you can come to market with a project and [FRD]?

That's a difficult question to answer because it seems to me that the situation in the E&P industry is trending worse rather than better at this point in time. But our philosophy is to proceed with the projects as long as they give us the hurdle rates that we -- the investment return that we require meets our hurdle rate. So we're not deliberately delaying anything in the hopes the E&P business is going to improve.

Rather than that, we're looking at ways such as staffing up our own project management capacity so that we can bear probably more of the risk and get better prices from the contracting world, so that we can proceed on these. We're also developing our long-term relationships with several of the engineering companies and suppliers to make sure that if we roll out X number of GTL plants that we have a preferred relationship with them, which also is a way of driving costs down.

So, no, we're not planning to hold back on anything. We will proceed as fast as we possibly can. Because these projects are pretty robust, we believe they will meet the hurdle rates that we are looking for there.

Have I picked up most of the question? Thanks very much. Gerhard -- Karl, then you, Gerhard.

Yes, Karl Rasmussen from Avior Research. Pat, can you comment on the impact of the development of the GTL industry of the cancellation of Exxon's Qatar project?

It's difficult for us to comment on a competitor's state of play. We got the news, as you did, a couple of weeks ago. For those that don't know, Exxon also had an ambition like ourselves, and as Shell has, to build a GTL plant in Qatar. In fact, Exxon Mobil was around there when I first went to Qatar many years ago. They were mooting a project at that point in time.

It comes as no surprise to us that they're not going ahead because when we were keeping an eye on their developments and whether they were running their test facilities or whether they weren't, and it seems that they weren't actually doing much in the development of GTL in the recent time. Frankly, we believe ours is the most cost-competitive technology. We think our competitors' technology is more expensive than ours and probably that, combined with the high capital cost of projects of this nature at this time, they've decided it wasn't something they wished to do.

We don't think it's a reflection on the GTL industry. This is something we've been doing for 50 years. Exxon Mobil has a 300-barrel-a-day test facility in Baton Rouge, which I don't think they've run for many years. So we're in different leagues as far as we're concerned and we're convinced that we can make this -- we know that we can make it commercially viable, as we're doing with Oryx at the moment. And despite the higher capital costs we will make future projects viable as well. That's about all I can say, I guess, Karl. Gerhard?

Thank you. Gerhard Engelbrecht, Citigroup. Pat, I've got a couple of questions. Firstly, you've again increased your provisions in the SSI division. Are these provisions related to the performance guarantee that you've given at Oryx? And, if not, what are they related to?

We mentioned this last time, Gerhard, that we have in the light of this being a new technology, in the light of us giving certain performance guarantees actually many years ago in terms of the throughput of the plant, in terms of the catalyst performance, these were given many years ago. And obviously we've continued to study the technology at our R&D facilities. And on the basis of that we think, while there's nothing that will materially impact the economics of these projects, in terms of performance guarantees we think it's prudent to increase the amount of provisioning that we've done.

But let me emphasize, no issue in terms of the viability of the projects but just because we're the technology supplier and all technology suppliers have to provide performance guarantees, we believe that it's wise to up our reserves in this area, our provisions in this area. Leon, would you like to add?

No, Pat. I think that's a good explanation of it.

Thank you. And secondly --

Sorry, after you now, Gerhard. Please go ahead with your next question. Then we need to take some international callers. Thank you, Cavan.

Would you venture an opinion as to whether the incentives and tax suggestions made by the windfall tax [inaudible] team are actually sufficient for you to go ahead with Project Maphutha? Does it make economic sense within the parameters as they have [suggested]?

Gerhard, it's too early to tell what the, first of all and on the one hand, what the windfall tax situation is because we're still busy there studying that fairly lengthy report. And we need to take a view as to what that report is saying to us and it's too early for us to do that. And on the other hand, as Benny will tell you, Project Maphutha is at a very early stage of development. We honestly don't even know what the capital cost is with any degree of accuracy at all. So that has to go through its own economic hurdles. But obviously the more a project is taxed, the less likely it is to be viable, so directionally I'll not make that comment.

I'm optimistic though and Benny, please, come in behind me here. I'm optimistic, though, that if we have a win/win situation between what we can do in terms of new liquid fuels capacity and the country's requirement, that in the discussions that we're going to be having with Treasury and government in general that we will find a win/win situation in that [corner]. Benny, would you like to add?

No, I think you've covered that, Pat.

Thank you.

Operator, could we have the questions from the conference call, please?

Thank you. The next question comes from Mr. Bernard Picchi from Wall Street Access. Please state your question, sir.

Yes, good afternoon, Pat and Cavan, Christine. A question for you on GTL outside of Qatar. You mentioned, Pat, that you have a couple of -- there are a couple of commercial terms that still need to be worked out in Australia but yet you're obviously close enough that you made the announcement with Chevron. Could you talk about what needs to be done yet and the timeframe in which you hope to resolve those remaining issues?

And then also just do a kind of around the world tour of GTL that you do, what's happening in Algeria and other places as well.

Hi, Bernie. Good afternoon to you. Yes, we'll certainly do that for you but I'm going to ask Leon Strauss to do that. I'm sure you know Leon well.

Yes. There is some commercial closure still needs to be done on Australia GTL. And it's mostly linked to the gas supply and the conditions for gas supply and gas supply to subsequent expansion projects. And we'd still like to finalize that as soon as possible. It's difficult to put a timetable on that but we're negotiating with our partners, so at least we're in regular contact.

Leon, some of the other projects around the world, would you like to comment on?

Firstly EGTL, the Nigerian project. KBR, our contractor, has moved on site. We have started construction. This is a specifically difficult time of the year. We're having elections in April of this year. But so far we've dealt with it in a safe manner, which is the most highest priority for us.

Our CTL projects we are doing, in all of them are in study phases, in China. We're still opening up our office, which was a high-profile event, in October of last year. We've subsequently opened a small representative office in India. Just maybe mention on that there was a question this morning, one of the conditions we need there to be met is for the Indian government to allow the use of coal in the manufacturing of coal to liquid products. And I was very pleased to see last week when the Minister of Finance during his budget speech has announced that cabinet will now approve this soon. In America the studies are still in a very early stage.

Bernie, I hope that answers you?

Well, just a little bit more granularity, as they say, with regard to the gas supply. I know that that's obviously the big issue but if you could provide a little bit more specificity, what exactly are the issues? Is it the set aside that the Western Australian government wants on that gas? Is that the primary issue? Because you're talking about negotiating only with Chevron, there's no other vendors, no other gas providers involved other than Chevron, so I don't quite understand what the problem is.

One of the advances we've made as far as the GTL project in Australia is concerned is that previously the gas was owned by a consortium of companies. Now Chevron has managed now to retain the sole ownership of the facility that we're talking about, so the discussion of the first tranche of gas through that facility only lies within the ambit of Chevron. We can later on bring in some more parties but right now it is -- we are having the discussions with Chevron. Obviously we cannot disclose the content of commercial discussions. We'd like to do that and once we've reached agreement I think that we'll make a public announcement.

Bernie, I think that -- so you know what the issue is then, it's to do with the partner negotiations, nothing to do with the government. And secondly, we'll certainly give you a shout when we finalize those last commercial aspects. I think it's important to know that we are continuing with the feasibility study. We wouldn't be doing that if we were so far apart on a particular issue or two that it wasn't worth us going ahead with the feasibility study [at the time].

Operator, any more questions?

Good. Shall we take a question here in the audience?

I'm Jonathan. It's Jonathan Kennedy-Good from Deutsche here. Pat, just there's been some pretty wide guidance on when Qatar Phase I will be at optimal operating capacity. Can you perhaps give us an indication in the shorter term of the expected tonnage that you expect to ship over the next three to six months?

And then also you mentioned about the cost-competitive nature of your technology. Phase II of Qatar, do you have any indications, indicative ranges that you could express in terms of a CapEx cost per barrel that would give us an idea of the cost experience -- inflation you're likely to experience?

Yes, they're both tricky questions to answer. In terms of the Oryx ramp up, that's really whether you ask it in terms of barrel or [time] percentage throughput, it's the same question. And we're reluctant to give that exactly. We're in a ramp-up stage. We can say we budgeted for a certain ramp up over a fairly extended period of time. Obviously we had to communicate this to the banks and to the project [finance] of the project. And we are happy to say that as far as that ramp is concerned we're pretty much on target.

Are we going to reach full production in the next couple of months? Probably not. Is it going to take us two years, as Leon said? It's definitely not going to take us two years. So somewhere in between there is the answer. And what you might find is a reasonably quick ramp up to fairly close to full load and then maybe it takes us a little longer to get it fine tuned to get to the full nameplate capacity. And that probably is the best guidance we can give you at this point in time.

The second part of the question, forgive me, Jonathan, I'm --?

Just related to possible CapEx costs, estimates.

Leon, I think it's too early days, but please would you like to address that?

Pat, the same question was asked last time, so maybe I can just repeat what we said last time, is that the Oryx I capital cost's in the region of $30 per daily barrel. We have done subsequent studies, obviously not in detail, but we have seen a [certain] increase that has come with market development in terms of the increase in the cost of steel and related labor costs. And we estimated that if we have to replace the plant, it'll probably be at least 50% higher than what we could have produced for that at the time. But this is very much in line with some other indexes, Pat, I think you detailed this morning.

Yes, perhaps we can do that. I'm sure you all know [Sierra] very well. Sierra has published some indices that say in 2002, if capital costs in the upstream business was at 100, then in 2005 it is 160, so that's 60% up and they're expecting it to go to 180 in 2008. So we're still seeing an upward trend, certainly as far as upstream CapEx is concerned, and I think the same can be related to the downstream CapEx costs.

Good. Any --?

Operator, any questions?

Thank you. The next question comes from Mr. Alex Comer from JP Morgan. Please proceed with your question.

Hi. I noticed in the windfall tax document there was a suggestion that the government should favor biofuels investment over and above coal to liquids. I just wondered, given your statements previously with regard to biofuels, whether or not you would seek to make further investments in that area.

Yes. Thank you, Alex, good question. We are planning a biodiesel facility, 100,000 tons per annum, in partnership with our government. Obviously we looked with interest at the wording in the windfall tax report and we'll have to see how that impacts the project. It's tough, with the current incentives that are in place for biofuels, it's tough to make it work, to be honest, but we are very committed to wanting to make it work. I think it's very important that a company like Sasol is involved in renewable energy as well, but clearly we need to make sure we do this at reasonable rates of return.

So, depending on how -- what flows out of the recommendation in the windfall tax document and how those incentives look, we would certainly be very keen to proceed with our biodiesel projects.

Okay, thanks.

Operator, is there another question?

Thank you. The next question comes from Mr. Campbell Parry from Vunani Securities. Please proceed with your question.

Thanks very much. Hi, guys. Just with respect to Iran, it seems to be obviously one of the more critical projects for you in the near term and unfortunately it seems to be one of the more murky ones as well. We've all heard about logistical constraints and lack of skilled labor and things like that, but we're starting to hear of gas shortages in the Gulf region generally. We're also obviously very critically aware of the political situation that's very tenuous there. In your mind, Pat, maybe give me some color on what is the worst-case scenario with respect to Iran? You probably have more insight than we do, so what's your view on that?

Sure. Let me do the best I can. I think, as far as the general infrastructure is concerned, we're happy how that the utilities are in place. A lot of the problems we've had have been a function of the fact there have been an enormous number of chemical facilities coming on line at the same time, in the same geography. It's right in the southern tip of Iran, called Assaluyeh. It's quite an impressive complex. But that seems to be pretty much in place now, so it's up to us to get those plants commissioned and on their way.

As far as gas shortages are concerned, no, we -- this is a very large gas field and I think just a day or so ago the Iranians announced some further massive developments of the gas field, and so there's clearly no shortage of gas. We've certainly been approached with several other opportunities in Iran which are also gas based, so I don't think that's an issue in Iran. Certainly in Qatar, because of the ramp up on LNG, that has been more of an issue.

As far as the political situation is concerned, obviously it's [intense]. I think important to note that we made this investment quite some years ago, or made the decision for this investment quite some years ago, and the temperature wasn't quite as high as it is at the moment. Also it's important to state that we're investing in the plastics industry, not in the nuclear industry and certainly not in the upstream oil and gas industry, which is politically a lot more sensitive.

So we're watching it carefully but we're optimistic that where we're located and as long as the country remains reasonably stable then this is not going to impact on our business. In case we don't believe there are any sanctions that have been mooted that would target plastics products, polymers products, so we don't believe that's an issue, although there's a meeting of the International Atomic Agency at the moment, as we speak, to decide what they're going to do as far as Iranian sanctions are concerned.

What's the worst case for us? We have about a 20% equity in this project, so that's about EUR200m. We have certain agreements in place that, should things go wrong in Iran, that there are certain undertakings that we would get the repayment of that EUR200m that we've sunk into that business. How valid those assurances are under whatever scenario you care to choose might be, I don't know. But that's the extent of our exposure. It's more obviously no one wants to write off money in the case of a worst-case scenario but you would agree this is not going to sink Sasol. It's more of an opportunity lost. We're optimistic, though. The world must find a solution for Iran. It has enormous oil reserves, the world needs those oil reserves but politically at some stage or other we believe a solution is going to be found.

All right. Thanks, Pat.

Any more questions from the conference call?

Thank you. The next question comes from Mr. James Twyman from UBS. Please proceed with your question.

Yes, I've got two questions. The first one is on China. Can you give us some idea about the timing on when you expect to make a final decision on a CTL plant there?

And secondly, on the polymer side, there was obviously a very big fall in profits but volumes actually didn't seem to fall very much and I'm just wondering what the reason for the fall in profit was, other than just volume?

Thank you. Leon, do you want to talk to China and we'll ask Reiner to respond to the polymers one.

We are currently -- we've signed a second cooperation agreement in June of last year and we set ourselves a target to finish the feasibility study, the commercial phase and the technical phase, during the second half of 2008. So the next milestone to take a decision to proceed would be during 2008.

Reiner, would you like to speak to the --?

Yes. Thank you, Pat. As Pat and Christine were already referring to, we had a first half year in the fiscal year on the polymers side basically influenced on the margin side and on the volume side. So starting with the volume side, depending and as a consequence of the Synfuels shutdown, we had lower volumes, as we explained already. On the margin side, we had a difficult start into the year with pretty low margins at the beginning in the first three, four months, as Christine was referring to, but then a nice recovery on the margin side. So, overall, if you compare the turnover, we had higher prices, as was also shown, so you don't see necessarily the volume effect in the turnover. But again, in a nutshell, it's basically lower volumes compared to the previous reporting period.

There's time for one more question from the floor, then we'll have to wrap up. Any more questions?

Good. Apart from the [inaudible].

Nothing else from the overseas.

Good. Well, thank you very much for coming and thank you for all your questions. I'm sure you'll have many more and we'll be standing by to answer them. And thank you to my team as well. A pleasant afternoon to all of you.