Sasol Ltd (SSL) 2009 Q4 法說會逐字稿

Good morning, and good afternoon, ladies and gentlemen and welcome to the Sasol annual financial results conference call. Today's call will be hosted by Pat Davies, Chief Executive, and Christine Ramon, Chief Financial Officer.

I would like to remind participants that we will be connecting to a live meeting in Johannesburg. Following the formal presentation by Sasol management an interactive question-and-answer session will be available. (Operator Instructions). A copy of today's slide presentation is available on www.Sasol.com. We will now pause until the live meeting begins.

We will take a moment and just ask you to consider the following slide, as we will be making forward-looking statements in our presentation today. Please consider that for the next second or two.

Following the presentation we will be delighted to take questions, both from the audience in the conference today as well as the conference call participants. With that, thank you very much and over to you, Pat.

Now that you have all read that thoroughly, I can move on. Good afternoon everyone, and good morning as well to those that are listening in from the United States. A very warm welcome to all of you as usual. Nice to see so many people here on this beautiful summer's day that we have. We seem to have skipped out on spring. It has gone straight from winter into summer this year.

A special welcome to our Chairman, Hixonia Nyasulu. She is sitting in the front here. She is sitting with us for the first time, so we are delighted. Hixonia, thank you for being with us. For those of you who think I am gender insensitive, she prefers to be called Chairman and not Chairperson or Chairlady.

I am also pleased to welcome Colin Beggs, who is the brand-new nonexecutive Director of Sasol. He has not only joined the Board recently, but also joined our Audit Committee. Thanks for supporting us today, Colin. And, of course, thanks to my team, the many members of management here to answer your questions later on.

We have a rocket launch as a follow on. For those of you that watched the rugby on Saturday, that is our man putting the long one over. In September last year we said that one of our bylines in the presentation was that we were a leading alternative energy company in a world of disruptive change. So we got the disruptive change right, but only in direction, not in magnitude. We had no idea of the huge disruption that was about to occur starting the following month.

But we are in good shape. I think we have responded well, and that is one of the key messages that Christine and I have for you today. The key messages are we believe we have responded swiftly and effectively through the economic crisis. That our financial performance is sound, despite the crisis. Our cash flow is strong. And we see this as an opportunity. We will emerge stronger and more competitive after the recession with our growth plans still intact.

Those are the results. I am sure you have studied the numbers fairly carefully by now. But I think that first bullet is important, which says that if we exclude the one-off charges, and we had a number of those as Christine will describe later, our operating profits stayed more or less the same. That we believe is a reasonable performance given the volatility that we have gone through.

But earnings have come down. Headline earnings down by 33%. Synfuel volumes were a bit lower than we wanted, but because of the performance of Oryx and Arya Sasol, our group volumes have gone up.

We have a very strong balance sheet because of our cash conservation mode and because of the healthy cash flow generation that we have enjoyed this year. Then lastly on that slide, we are happy to report that the Board decided on Friday that we would maintain our dividend policy as promised, which we have done and we've stuck to cash award. As you know, we were considering capitalization, but after a lot of feedback from our investors, we decided to stay with the cash award.

That short-term performance, of course, comes from the long-term strategy, which remains unchanged despite the short-term economic crisis [that we're through]. So I'm not going to go through it in detail. It should be familiar to most of you, but it is on the left hand side there. It is to do with our unique technology, giving us a competitive advantage to grow our liquid fuels business, our chemicals business and our upstream business, particularly regarding gas and coal, oil to a lesser extent.

We have made pretty good progress on all those red pillars in the middle there from transformation in South Africa to further sharpening our technology, all of course aimed at delivering on the targets of growth and the [term] that we have on the right-hand side to give us the sustained growth and profitability. The values down at the bottom of the slide still remain very important to us and the values are a foundation for everything that we do.

This is a good time to focus on the fundamentals, and this is what this slide depicts. We have substantial group-lead programs underway to reduce costs, enhance our profits, improve our competitiveness. Right at the top bullet there, our operation excellence is well underway. It focuses on the maintenance and operations of our plants, and I will be coming back to that. And it is already giving us pretty good results.

The second bullet is to do with the type of business turnaround that we have had in previous years on our wax business, what we achieved on our Olefins & Surfactants business and, for example, what we are busy doing with our solvents business in Germany.

We are asking each of our businesses now, not just those three, but all of them to come back to us with further plans on profit improvement. And we will be reviewing those next month and we expect some pretty tough targets for them.

The third bullet, functional excellence is a new program designed at reducing functional support costs at the same effectiveness, but improving efficiency at the head office here and throughout the group of companies.

If I could pause for a moment and tell you what some of this has achieved already, achieved in the last six months of this past financial year or so from January to June. Our focus on cash spend resulted in ZAR1.6 billion in savings. About half of that was permanent savings, as I guess half would be delayed expenditure. Another example, working capital as a percentage of turnover came down from 21% to 11%, liberating more than ZAR10 billion of cash for the group. So we have achieved stuff already, and we plan with those tough targets in future to do more in this current financial year and more in the following financial year too.

Competition law compliance has been a big issue for us. We have had a huge focus on it. We are using about 70 lawyers on all our businesses all over the world. We mentioned this morning it is costing us in the order of ZAR100 million to do this. This just shows our determination to make sure that all our business units are properly reviewed as far as competition law of compliance is concerned, and we will be complete with that process of review at the end of this calendar year.

And that takes us to growth -- there the focus on growth. The growth plan is intact. We believe the supply and demand dynamics long-term are very much still intact. We have the people, we have the cash, we have the opportunities to ensure as we grow substantially into the future.

I am going to speak to foundation, as you see on the bottom of the slide, the growth and sustainability in the next couple of slides. Starting with the foundation, and of course the most important part of the foundation is our synfuel business in Secunda. And this is a very simplistic process flow diagram. I hope we don't insult you, [Harlep] and others that understand our business very well. But it is to illustrate a point or two.

Our feedstocks into the synfuels business is coal. Obviously 95% of the feedstock is coal and 5% approximately of gas, natural gas from Mozambique. And we have had some instability. We seem to have some instability on the screen as well. I am not quite sure why. Instability in gasification and in our reforming business.

This has cost us particularly badly, because if you have problems here, you can pick up there and vice versa. But if you're having availability issues in both of them simultaneously it does constrain you. And that is one of the reasons we have had this decline in volume of 4% compared to the previous period.

The causes of the instability have largely been in the gasification area. There you can see 38% there; reforming less, 9%. The other is a range of Eskom power dips to instrument failures to odd leaks and things. One would normally expect a certain amount of instability in a large, integrated value chain such as synfuel.

But these are the two areas where we got a bit behind the curve in terms of maintenance replacements. I'm happy to report that in gasification we have replaced 58 of the 80 gasified jackets already, which is a substantial start. It takes [40] days to replace just one of those jackets, and it takes quite some time. You can't always do them all at the same time, you have to stagger the process.

And we will be finished with that process, if I can consult my notes -- in November 2010 we will have replaced the last jacket. So that is a diminishing problem. Reforming though I am afraid is trending worse, because there we have only just started with the replacements program, and we will only be complete with that in 2012. Luckily though, if I can flip back to the previous slide, that is of lesser importance because of the ratio of feedstock input into the factory.

More importantly, what have we done about it? What are we doing about it, other than the replacements obviously? We have strengthened management. We have improved the maintenance strategy overall for synfuels. We have increased the complement of experienced people, particularly. And we are deepening expertise through a lot of additional training.

We are happy that we are well on our way in synfuels. And this is somewhat reflected in this graph, which shows us the production in tonnes of synfuels over the years. 2004 was a very good year in terms of production. It may not have been a very wise year in retrospect, because it is a year in which we did very little maintenance, too little maintenance we believe in retrospect. But nevertheless that is something of a benchmark year.

We see here in later years when Project Turbo came in with clean fuel, we lost about 3 percentage points in volume because of Project Turbo coming in. So we believe the baseline going forward for normal years is 7.3 million tonnes per annum for synfuel. I can just add that is well above 50% of the original main place, but of course we have spent capital to get it from where it was to where it is today.

The normal year is 7.3, meaning the years where we do a full shutdown, which is every fourth year, it would be 7.2 would be the baseline there. Then you will see, and this is only an estimate for 2012, as the Secunda Growth program kicks in we see some growth occurring there. The green block indicates gas going into electricity rather than into fuels molecules. But the total equivalent would be 7.6 million tonnes per annum there.

Obviously with electricity prices being what they are, this is economically sensible for a certain extent anyway to be putting molecules into electricity rather than into fuel.

Third, what we are planning to do as well, and Christine will tell you more, is just to give you more regular updates on the synfuel volume situation, because we know how important it is for the modeling of Sasol's performance.

Good. Moving on to growth. Always nice to talk about. It is a busy chart, and obviously you know that this is not all of our projects in idea stage all the way through to production. We have many others -- other projects. This is a snapshot of the more important ones. I will show you some of the changes since we last spoke.

Syngas to chemicals is proving to be rather an interesting one for us. We have more and more interest, not syngas to fuel, but syngas to chemicals. So we, together with others in the industry, are playing around with some interesting ideas there. We are very happy that the Indonesian CTL continues. If I move to the prefeasibility side, and Mafutha of course is the big one. And there we have broken ground and started the mining process to get a substantial quantity of coal all the way through to Secunda, so we can test it in our gasifiers to make sure it is indeed gasifiable the way we expect it to be. That is an important step that we need to go through that we are busy with at the moment.

Up in New Guinea and Australia we are increasing our reserve base there. We will start drilling in Papua New Guinea next year.

I can move on to feasibility. Tetramerization on the top of that one is a new chemicals plant. 100,000 tonnes per annum of octene, which goes into the plastics industry, as you know. We are actually quite close to completing that feasibility study. And we're probably going to build it in the United States next to -- in Louisiana next to some of the facilities we already have.

China's CTL is going on nicely. The feasibility study will be complete as planned in the middle of next year. During the period between now and then we will be issuing, together with our partners, what is called the project approval report, which is the Chinese version of seeking approval for the project. So we're getting closer and closer to the investment decision on that particular project. Lean and his team are very excited about that. But nervous too, but very excited.

On to implementation. We have spoken a little on Secunda growth, that continues. And Escravos, we are on track for 2012. The construction site is looking pretty impressive now. We should have actually had a photograph for you. Christine will deal with some of the financial impacts a little later in the presentation.

And then on production you'll see that has diminished with the taking off of Oryx and Arya and so on that are already in full production. But we have brought on the Pande gas field in Mozambique and another small gas field -- a small oilfield in Gabon. So the pipeline of projects looks good, full, and it's moving forward.

On to sustainability. We can't just grow, we must grow sustainably. Safety is very important to us. We have reached a little bit of a plateau in terms of recordable case rate, so more effort is required here. I am happy to say though that we are down to 0.51 again as of last month.

Also important in terms of sustainability, of course, there is a whole question of CO2 carbon footprint. We are fine as far as GTL is concerned, but we all know that coal-to-liquids emits significant quantities of CO2, so it is critically important that we focus on this. And we are doing that partly via our new energy unit, which is growing in momentum. And they are focusing on energy efficiency through the group. We have targets there. They are focusing on carbon capture and storage with partners and other people around the world. We really do want to become world leaders or one of the world leaders in this. It is so important to our CTL value proposition.

Of course, we have targets, you can see here, on our existing operations to bring that by 2020 down by 15%. On our new CTL plants by 2013 we would like to see by improving the processes a reduction of 30%. Clearly tough targets, but we are committed to doing that.

Then the other part of new energy is focusing on lower forms of carbon energy or renewable energy. Of course, this is a small start, but we need to think about what in the very long term happens to us after the internal combustion engine when fossil fuels such as oil start running out. And as a responsible energy company we need to see where the future growth is going to come from.

So we have started to invest in things like thin-film solar, as you see on the slide there. We are looking at biomass. We are looking at algae. We have agreements in collaboration with several universities, both here and around the world. So we have given this a big push since we last spoke, and we feel comfortable it is the right thing to be doing.

I am also happy to report on sustainability before I close there and hand over to Christine, is that we were again -- we had made the world Dow Jones Sustainable Index, I am very happy to report. This is several thousand large global companies apply; only the top 10% get in. We improved from 74% to 75%. And we again one of three -- only three South African companies that made the list. I think this shows again that this is a company that cares about sustainability. This is a company that is well governed.

Having set the scene, I am going to hand over to Christine. Thanks, Christine.

Good afternoon everyone. It is good to see a full room here this afternoon. First of all, Sasol has delivered results in very volatile and uncertain times. And that was despite the impact of the economic climate that we experienced for three quarters of the financial year. The group delivered a substantial operating profit of about [ZAR385 billion].

The cash generated from operating activities increased by 39% to ZAR48 billion, and that was largely due to the proactive measures taken by management in response to the current economic climate.

As I go through our results it will reflect an overall sustained performance from the South African energy cluster and marked improvement in profitability from the international energy cluster, and the impact of the economic climate and competition fines on the chemicals cluster.

The cash conservation approach that we adopted at the onset of the economic crisis last October has resulted in a stronger balance sheet, which positions us very well in tough and uncertain credit markets.

Importantly, we will continue to adopt a flexible approach to our capital expenditure program, ensuring that the pipeline of growth projects that Pat spoke about is advanced and be about keeping our long-term shareholder value proposition intact.

In speaking of the economic scene for the financial year, we note that the second half is characterized by sharply declining fuel and commodity pricing trends compared to peak prices that were experienced in the prior year. With currency weakening, 24% weakening of the Rand, even though we have had an overall positive impact on our operating profits, it has had a negative impact in respect of higher inflationary trends that has been experienced in cash fixed costs.

We remain sensitive to these economic variables and for budgeting and forecasting purposes. And it is important to note at which point we give you the sensitivity. At a $70 average Brent crude oil price and as an ZAR8 to the $1 exchange rate, we estimate that for every $1 change in the annual average crude oil price, the group operating profit will change by approximately ZAR570 million. And for every $0.10 change in the Rand to dollar exchange rate, it will impact our operating profit by approximately ZAR760 million.

We do issue these sensitivities with a house warning, especially in current volatile markets, because we are also [assuming] that we are able to sell all our volumes. And as you'll see when we show you our chemical business results that demand destruction has been quite apparent in the business.

Our results do reflect the market conditions that we experienced in the current year. And as we saw on the previous slide, the impact of a sharply declining oil and chemical products prices, the positive impact of the weaker Rand partially offset some of that negative effect. However, the crude oil hedge helped our profits a bit. The crude oil hedge was ZAR5.1 billion and that did cushion the impact of the sharp decline in oil prices.

Pat spoke about the overall increase in crude production volume due to the additional volumes from Oryx and Arya. Overall we notice that turnover is up, but the gross profit and the gross margin was down. And in that you can see that we worked the margin squeeze that we have experienced in particular relating to our chemical businesses. Nevertheless, we do reflect a healthy operating margin. And excluding the once-off charges, our operating margins is 24%.

There we show the breakdown of the once-off charges. It did have a noticeable impact on operating profit, as you can see in these big grey blocks over here. And the breakdown of once-off charges is provided in the table on the far right. You can see competition fines, Inzalo [FSU] charge, and a large part of the remeasurement items are these EGTL provisions -- is the EGTL provision. And the new business and study costs that reflects increased growth in our project pipeline, the increased activities on the growth. And that includes projects like China, Mafutha and the Secunda Growth program.

The increase in cash fixed costs, excluding inflation and once-off charges, at 16% was well above inflationary levels. For the past financial year PPI and CPI was 9.1% and 10.2%, respectively.

In the past year there were three factors, three main factors, that contributed to the increase in cash fixed costs. We see the impact of the weaker Rand rates, [faster] (inaudible) impacts on cost, and certainly labor costs. We experienced part of the increase there. And the abnormal electricity increases, and that is expected for the next few years, had an impact on the increase in cash fixed costs.

Through our business improvement plans that Pat spoke about and the operational and functional excellence initiatives, we have taken responsive actions to drive down costs across our businesses. We continue to focus on improving operational efficiencies in our businesses, as well as investing in maintenance. From a labor perspective we will continue to invest in our skills base to support growth going forward. And we've had to be competitive as regards with trainings of these skills.

From an electricity perspective we currently generate nearly one-third of our own electricity, and our aim is to generate half of our own electricity by 2012.

The current economic climate has also presented opportunities to us to realize savings on the procurement front in the form of contract negotiations, as well as opportunities [to find] procurements to benefit from market conditions when ordering capital expenditure items. We have also optimized and cut unnecessary costs in the group without impacting the sustainability of our operations.

Pat mentioned that we have set tough targets for our businesses. And from a cash fixed cost target perspective, we expect to sustainably deliver on a reduction in cash fixed cost over the next two years. For financial year since we have set tough targets for our businesses, and thereby we aim to deliver well-contained increase in cash fixed costs for this financial year.

You note the improvements in operating profits from the energy clusters and the improvements in operating margins. As expected at the half-year, we note that the chemicals cluster has been under pressure, and we see the sharp contraction in the operating margin reflected. It is pleasing to note, however, the positive contributions that have been made by the international joint ventures, which include Oryx and Arya.

The South African energy cluster remains the primary contributor to group profitability and cash generation. Mining increased its profitability on the back of a weaker Rand, benefiting from export sales, despite lower sales volumes.

We have had some disappointing news from our BEE partner, Exxaro, with regard to the Igoda venture that we concluded in 2006, in that they will no longer participate due to the current economic climate and other financial commitments.

Importantly, however, mining remains in compliance with the mining charter and will meet 2014 targets as well. In mining we remain focused on building operational capacity within the mining sector, and continue to work very closely with Ixia Coal.

Synfuels remained the largest contributor to group operating profit, bearing in mind the profit includes the huge gain of ZAR4.9 billion. Pat spoke about the operational instability at synfuels in the past year and our plans to stabilize operational performance in line with the baseline target. And that will continue to receive the necessary attention, and we will be providing updates, very regular updates, to the market in this regard.

For the financial year since synfuels is expecting some [upliftment] in production volumes, although it is still expected to be below the baseline target of 7.3 million tonnes.

Our oil business was negatively impacted by stock effects and pressure on refining margins. And that was associated with sharply declining oil prices during the past financial year. Conversely in 2008 we will be (inaudible) from the sharply rising oil prices. But we are expecting oil performance to improve in the 2010 year with the stabilization of the expected crude oil prices. However, we are expecting refining margins to remain under pressure.

The oil business is in the process of implementing a business improvement plan, and we are expecting deliveries on the bottom line in this regard. So overall for the South African energy cluster we are looking forward to a more stable commodity price environment and stable production levels for 2010.

We are delighted with the performance of the international energy cluster with the operating performance -- or the operating profit for the cluster increasing significantly due to the improved performance from Oryx and a very strong performance from our upstream business (inaudible).

Oryx has been a success story with the daily average production more than doubling since the previous year. And as indicated on the slide, we are expecting some growth on the 2009 volumes.

SSI's results were negatively impacted by the EGTL provision of ZAR1.3 billion. And this related to uncertainty that has recently arisen from the fiscal arrangement for the project.

Pat spoke about SPI's continued growth plan in exploration and new business development in Mozambique, Nigeria, Gabon, Papua New Guinea and Australia.

As expected at the half-year results, the sharp downturn in the worldwide chemical market had a significant impact on the cluster's second-half performance. And we see a big decline, excluding the impact of the competition fines completed the previous year.

Like I said, the chemical cluster experienced demand destruction, which led to lower sales volumes, even though the chemical product prices, as well as stock effects, negative stock effects, totaling about ZAR4 billion.

The polymers business contributed about ZAR1 billion to operating profits and remained largely resilient due to the positive contribution from Arya Sasol, we managed to increased production and sales volumes by more than 400,000 tonnes.

The business improvement processes at Olefins & Surfactants and Solvents continued. And that has already resulted in long-term cost optimization, headcount reduction and has improved the robustness of the businesses going forward.

In the first few months of the 2010 financial year we have experienced some uptick in chemical prices, but we are expecting improved performance from the chemical businesses in 2010.

Now we see that our balance sheet is deleveraged, and we see a marked improvement in our cash position, which positions Sasol very well in the current market. In terms of gearing, we expect to maintain this low level of gearing in the short term. But given our very large capital intensive program, we do expect to return to within our targeted [value] range of 20% to 40% in the medium term.

As part of the measures that we have taken in response to the economic climate, we continue to monitor credit exposure and counterparty risks very carefully. And we -- as you can see here, we have focused on improving our working capital level, which is the lowest that it has been in the past 10 years at approximately 11%.

We re-prioritized capital expenditure. The focus has been on smaller projects of up to ZAR1 billion. And the forecast for the next two years is about ZAR15 billion per annum.

I reiterate the point that we will continue to maintain a flexible approach to our capital expenditure program, and we will continue our investments for growth. Pat spoke about the many effective of opportunities that we have to choose from.

We have maintained consistent returns to shareholders (inaudible) a dividend that is in line with our dividend policy. The final cash dividend of ZAR6 takes the full year dividend up to ZAR8.5. And that translates into the 2.8 times dividend cover.

Moving forward we do expect to maintain this dividend policy of 2.5 to 3.5 times dividend cover, as this does take into account the volatility and the uncertainty of current markets, the Company's growth strategy going forward, and it is in the interest of preserving long-term shareholder value.

In terms of the outlook for 2010, we are expecting a reduction in earnings. And importantly it is based on the following assumptions. We are expecting some stabilization in global chemical markets. We have assumed lower levels of chemical demand, as well as the oil and product [paralysis] that we saw in the latter part of the 2009 financial year.

We are expecting a significantly stronger Rand compared to financial year '08 in terms of the Rand/dollar assumption that has given ZAR0.90 to the dollar. And on the production front we are expecting some overall improvements in production volumes, and that includes synfuel, Oryx and Arya.

So in summary, our outlook is cautious, even though there has been some signs of economic recovery. However, at this stage we are uncertain as to whether to expect a slow incline or a [W] situation and (technical difficulty) for the coming period.

In summary, the financial performance for 2009, we have been profitable in uncertain markets. Our South African energy businesses have sustained performance. We have seen delivery on growth from the international energy cluster, and our chemicals cluster is focusing on business improvement plans. We have taken proactive measures in response to the global economic crisis, and this has resulted in exceptional cash flow performance and a stronger deleveraged balance sheet, positioning the Company well for growth. Our new businesses have performed successfully as we continue to progress our pipeline of projects.

Pat will now wrap up with some thoughts on the longer term.

Thank you, Christine. Looking at our performance over the last number of years, through a couple of cycles, we see that we have been able to deliver on both return on invested capital and on our earnings growth targets, given in dollar terms there on a three-year moving average basis.

Of course, what happens out here will depend on what recovery we see or don't see in the next couple of years in terms of global growth. But so far we have been hitting the targets, even on total shareholder return on a compound annual growth basis, a five-year period, comparing ourselves with the large caps like ExxonMobil, Shell, BP and so on, comparing ourselves with the midsize caps, [permanently offline] some of them, Marathon, Occidental, [Moll and those]. Chemical companies such as BASF, Dow, ACI, NOVA and so on in that category.

And you can see both in the reporting currency of those particular companies or converted to US dollars, we have done pretty well for our shareholders.

We believe our investment case remains very strong. We are the leading alternative energy company. We have a very strong set of existing businesses. We have done particularly well in very difficult times, particularly this last six months. And this is because we have this competitive technology, and in this world of disruptive change, it is still a very valuable technology to have.

Whatever your definition of new normal is, but it certainly must include deleveraged lower growth and so on. The fundamentals as far as oil is concerned are very much in place. In fact, we have increased our long-term price of oil for our assumptions, given the very little investment that seems to be going into oil capacity at the moment.

As we take the first two, this gives us that strong investment proposal. We are the only company in the world that has 50 years of experience in this particular technology. We are driven by technology rather than just by reserve replacement, as many of our peers are forced to.

But we are also growing our reserves, which we think is a very significant improvement to our reserve position opposite coal in China and India that we have access to. We even have an option on coal in other parts of the world.

And the work that Lean and his team have been doing to gather more gas reserves, particularly around the world, Papua New Guinea, Australia, more in Mozambique and so on, we are significantly growing our reserve base. That has been together with partners. That is part of our strategy, is finding the right partners to help us get more reserves.

If you think of Qatar Petroleum, if you think of Petronas, if you think of Shenhua and others, this is exactly how we are going about it. And it is an important growth point in our strategy.

This just demonstrates the interest in the technology that there is around the world. It shows where we are busy in terms of upstream asset portfolio, GTL projects, CTL projects. These are other parts of the world that want to do in their countries on their resources what we have so successfully done in this country. That is why we have this enormous interest, particularly now that Oryx is performing so well.

For the sake of completeness, I have just added our existing chemical facilities that we have around the world, existing facilities from the United States all the way through to China. Also a very important part of our business. Our global footprint is increasing.

Before I talk to the slide, the pictures that you have been seeing here look like our version of the rocket launcher, I guess, but that is the new synthol advanced reactor en route from Richards Bay to Secunda. For those of you that follow the tire industry you would be interested to note that we use there 380 wheels and tires in the process to transport this huge piece of equipment. Now I am happy to report it is safely in Secunda and it is being erected as we speak.

We, as management, can't do a lot about oil prices. We can't do a lot about currency. But we can focus on the operation.

We apologize for the pause in the presentation. Please remain on the line. The presentation will resume shortly.

(technical difficulty) investments that we are making, for example.

The answer with respect to inventory revaluations or it is actually more stock effects because it encompasses a whole lot of different effects, including revaluations in the group. I specifically mentioned that the amount for the chemicals class was ZAR4 billion for the past year.

And the other significant stock effect that was experienced was in the oil business. I don't have the exact number with me. Given ZAR0.5 billion in the oil business that we experienced, and this is expected and sharply declining oil and product class environment, so certainly with the uplift being fairly flattish for the coming year, we are expecting it to stabilize.

In terms of the EGTL provision, we have made a provision, and like I said, it is relating to uncertainties relating to the fiscal arrangements for the project. As management we have decided to be quite prudent in making this provision. However, unfortunately we can't make any further disclosure in this regard, as we've got to be cognizant of our other partners in this project. And clearly we still assume to proceed with our original base case assumption made on this project, so we wouldn't want to prejudice our position in that regard.

Another question from (inaudible). Can we just have the microphone there?

(inaudible). Just exploring synfuels a little bit more, you say that you have replaced 58 of the 80 gasifiers.

Gasifier jackets.

Or the jackets. Have you had any availability issues with the new gasifier jackets, where the gasifiers already have new jackets? Or is this all the old ones that are giving you the problems, and as you replace more the availability will improve, I think? And then how long will these -- I know this is a continuous process. How long do these things last and when do we go through the next round?

The other one is, I just see in your press release you talk about competition investigations and new additions level. It looks to me like polymers and waxes as well. I see you are investing -- adding that as well. Is there something that you have brought to the attention of the Competition Commission work in previous instance, and have you applied for the [EMC]. Were these complaints made by other people?

Then lastly in working capital at 11% of sales, the lowest in [10 years], is that sustainable? Is that a run rate for the Company going forward?

Let me start with the jackets. Now the new jackets are behaving themselves. This is purely to do with the old gasifier jackets. There is a completely new design. In fact, I could show you some sketches of that. So the new jackets are doing the job.

How long they will last, we have experimented with one for quite a considerable period, and I don't see the (inaudible) unfortunately, but certainly in excess of -- well in excess of five years, because the old ones tended to last five years. The latest round didn't last quite five years and that caught us out a little, but we would certainly be talking about five years plus.

As far as the competition matters are concerned, I don't know whether, Nereus, you want to respond to that. If you can pass, Dr. Joubert, our General Counsel on such matters legal.

Yes, the (technical difficulty) South Africa. I don't know exactly the [transmission for this]. The (inaudible) South Africa method is not related to -- it wasn't as a result of the leniency application. I [cited] also a number of other [polymers] that are (inaudible). I think it has been initiated by the Competition Commission, the investigations.

The [polymer has] run for quite some time now. It is not new news. It was reported on in our 20 years (inaudible) for some time. Good, and Christine, are you going to pick up the last one?

Yes, the sustainability at the low working capital levels, I think (inaudible) working capital last year was 21%, and the reduction has been due to the combination of the drop in prices as well as lower volumes in the group. Certainly we would like it to be sustainable, but it is unlikely as regarding the pricing side of it. But we are unable to give you at this stage exactly what we expect working capital to be. We've got to see, let's just say, idea in our minds, but be a little bit cautious about putting it (inaudible) at this stage.

I believe we have two questions from the conference call participants. Operator, could we queue those up please?

(Operator Instructions). (inaudible).

It is (inaudible) from Goldman Sachs. Thanks very much for a detailed presentation you have made today. And I have two questions, if I may. The first one on your outlook statement. You said that you expect 2010 earnings to decline versus 2009 fiscal year. And you said that you assume that the reduction in oil prices staying at the levels as seen at the later part of 2009, and significantly stronger Rand/US dollar exchange rate.

It would be great if you could give the numbers. What exactly do you assume on average oil price for 2010? And what is the assumption for Rand rate, which under your model and assumptions drives your net results down from 2009? So it is just trying to understand what is -- under what assumptions you arrive with decline in your earnings?

That is the first question. And the second question, with all this modernization that you're going through in fuels, what is your expectations on cost inflation for next year for 2010? Have you -- are you in a position to give some guidance on what will be happening on a cost per unit basis? Thanks very much.

Okay, thanks for the questions. In terms of the assumptions that we have made for the reduction in earnings, I think one would appreciate that it (inaudible) as well as volumes that play into the overall reduction that we have put out. So from an oil price point of view we have assumed $65 to $70 for the (inaudible) financial year. And from the Rand/dollar exchange rate perspective, ZAR7.90.

In terms of cost inflation, I prefer to talk overall in terms of the target that we have for the coming year. We do say that we expect for cash fixed costs to be well contained. And so when we say well contained we mean within inflationary levels, so clearly what CTI is expected to be for the coming year.

Thank you, Christine, I believe there is another question on the conference, following which we will take more questions from the floor.

Matt Lofting, Morgan Stanley.

I just wanted to ask two quick questions please. Firstly, I wonder if you could clarify for us your stance on oil price hedging for financial year 2010, whether it is good to assume that you're looking to go through the next financial year unhedged?

And secondly, was there sort of any update on the buyback program? I know that was suspended as part of the cash conservation policy. Would the base case remain that that suspended through 2010, even if we continue to see a pickup in oil prices from current levels? Thanks.

In terms of a (inaudible) for FY10, no decision has been made in terms of execution and usage for the financial year 2010. And that does take into account our risk management approach, as well as the cash conservation measures that we have taken in the past financial year.

If you'll recall, the reason why we do this is to secure the cash flows from our capital expenditure program for the coming year. And so -- and the other factor that has actually driven our decisions to date has been the current [huge] pricing level that has been available in the market. And so clearly this is something that we will monitor quite closely going forward.

In terms of the share buyback program, that is still where we stand at the moment, and that has [been rematched] into our cash conservation approach. But as we stand and now proceed we continue to plan prudently for the year ahead. We do expect to keep the share buyback program to where it is at the moment.

On the oil price, I think just for completeness, Hixonia would confirm that the Board has approved that we can push a hedge in place, should the pricing levels and should it make sense. The current pricing levels, the bands between any cap and collar floor and cap that we have is just too small. It just doesn't make economic sense. But as we know, the world changes quite quickly, so we are glad to put that hedge in place should it start making sense to do so.

Thank you, Pat. Can we take a call? There is a question there from Alex, please.

Alex Comer, JPMorgan. A couple of questions. I was wondering if you could maybe give out the utilization rates of Arya and Oryx and what the targets are for the coming year?

Also, I see on your projects and the feasibility, you've got this octene plant in the year. Is that because you're looking to do something with the ethylene from your crackers because you're worried about finding customers? I have noticed that [dyes], for instance, closed a lot of polymer capacity in the US. And it would seem that there may be a bit of a struggle for finding customers over there.

Good, I am going to ask my two cluster heads to -- Lean, do you want to take the first one? I thought there was Oryx and Arya. Well, let Reiner go first. We are not fussy. Reiner can deal with both the Arya and the octene plant (inaudible).

Let me first answer the Arya Sasol question. We are at this point in time lying between 50% and 60%. And we are ramping up, but we are not disclosing any specific numbers going forward. But we are very pleased with the progress here and also with the fundamentals -- the financial fundamentals of that joint venture.

Can you please repeat the question in terms of the octene?

I'm assuming this is to take methylene from your cracker and convert it into octene. I am just wondering whether you are concerned -- whether the reason for doing that is you're concerned that your -- there is going to be a lack of customers for making ethylene in US, given the significant amount of plant closures that we have seen?

No, no.

Can I start, and you supplement me? No, no, I have been around with the project for a long time. This is breakthrough technology that Sasol Technology has developed. It is a huge thing to be able to take C2 and ethylene and convert that into octene. No such other process exists.

So we are very excited about this breakthrough technology. And it is only going to the US because that is where the market is, and because we have very good infrastructure in that area. So that is why we think it is going to be going there.

It doesn't -- obviously it would help with soaking up some ethylene, but that wasn't the primary driver.

Absolutely. This is much more demand driven than feedstock driven.

Good. I think there was a question around Oryx's ramp-up. I thought it already ramped up, Lean.

Maybe just to say, we have seen the production, average daily production of 23,700 for this year. That was very pleasing. We are going to grow on that next year. But just to take note, we will have about a one month scheduled shutdown early next year. So production for next year will only be for 11 months, and that (inaudible) should impact on the total volume. Thank you.

Thank you, Lean. There is one more question from the audience, and then I think there is a final call (inaudible) question, please.

Tassin Benn, Merrill Lynch. Just a couple of questions on Secunda, if I may. Firstly, in terms of the -- you mentioned the maintenance shutdown now at Oryx at Secunda. When is the next major maintenance shut? And has the production impact been taken into account in your base when we look at the 2012 expansion?

Secondly, is just in terms of your breakdown of the operational instability, can you give a little bit more detail in terms of the once-off and then the other issues? Are those once-off items really once-off or are they going to impact again in 2010?

Sure. Secunda is just in a phased shutdown at the moment, so one of the smaller shutdowns. Maybe I admitted to do that in the presentation, but the base we said going forward is 7.3. Every fourth year when we have a full shutdown it will be 7.2. Now, Hubert, I need to ask you when the next full shutdown is, do you know offhand?

Not offhand (inaudible).

Yes, if you could. I can't remember exactly when that takes place.

As far as the instability is concerned, the big thing is the ones that I discussed, the gasification and the media downstream, together with reforming. The once-offs are once-offs. But you never know, they might be other once-off. This is a very large, complicated gas train value chain, so it is a complicated facility to run. It's operating rates are very high.

So I think once we've got the gasification issues behind us and the reforming issues behind us, we needn't be concerned about other once-offs. Those that will be lost in the noise -- in the history that (inaudible) all the years. A plant of this nature never runs 100% 24 by 7. It has a certain amount of inevitable instability, and I think that those would fall into that category.

With the steps we have taken, we are confident that we are on the right path going forward. And we will disclose to you, as we said, every quarter, what the volumes are and why if there is any deviation, positive or negative, why there were those deviations. Offer you a lot more transparency on this issue, so you can decide on your own trendline going forward.

Operator, can we take the last question from the conference call participants please?

Campbell Parry, Investec Securities.

I apologize if these questions are asked early in the session. We got cut off from the call for a couple of minutes. But just very -- two very good ones directed towards Christine.

Christine, you mentioned that you want to get your gearing back to target range in sort of around the 20% level, but you haven't really given us -- it obviously presumes a lot of capital expenditure in years three, four and five. And ZAR15 billion over the next two years is not going to really get you up in the context of your prospective cash flow. So what are you assuming in terms of getting your gearing up to that level? That is the first question.

And then, at March you guys mentioned that your study cost in respect of China CTL was about $150 million. How has that grown since then?

In terms of the gearing range, currently we see [on deliveries] were actually under-geared. And the forecast we gave is for the next two years, which we assume is the short term.

In terms -- so clearly beyond we said in the medium term we expect to get to within the targeted range of 20% to 40%. And that is taking into account our large capital expenditure program.

But clearly in the three to five year horizon, even before (inaudible) that we have shown quite a busy project pipeline, there are quite of few of those projects that we expect to advance in that period. For example, China, Uzbekistan, etc. -- the Secunda growth program that will all kick in in that period. And so that is when we actually expect to go up to within our targeted gearing range.

Yes, but what was your assumption of CapEx in the three to five year period?

We haven't disclosed that at the moment. We are obviously busy with lots of plans at the moment. We are obviously guided by a certain amount of uncertainty and volatility in the market. So rather than giving you a five year capital forecast and then being taken to task by you when we get it a little wrong, we would firm up our numbers first and then we will disclose as we go forward.

But the big picture is clear. We will be under-geared for the next couple of years. And we are very happy to be under-geared. This is not a good time to be running around looking for funding. But our gearing targets are going to be stretched, as you say, in years four and five particularly. As these are huge projects we are undertaking, so it is good to be -- have a little bit in the bank now in preparation for the future.

But we will certainly, as we go forward, and Christine's updates, and as we talk to you at the interim and we will give you more of a view of our future CapEx. But look at the project pipeline, make a few assumptions on what those projects cost, and you've really got the big answer.

As regards to the (inaudible) study cost it was $140 million that we put up in respect to the feasibility. And if you recall, that was with two projects. And subsequently it is now one project that we are focusing on in China. My latest information tells me that the estimate is the same for the feasibility.

Okay, thanks a lot, Christine.

There are no more questions on the conference call, so perhaps we can take a last question from the audience alternatively.

We are standing between them and their drink, I think. So thank you very much for your attendance and your questions. Mr. [Blighton], please join us for a drink.

That concludes today's conference call. Thank you for participating. You may now disconnect.