Sasol Ltd (SSL) 2010 Q2 法說會逐字稿

Good morning and good afternoon, ladies and gentlemen, and welcome to the Sasol interim financial results conference call. Today's call will be hosted by Pat Davies, Chief Executive. Following the formal presentation by Sasol management, an interactive Q&A session will be available.

A copy of today's slide presentation and comprehensive additional information is available on www.Sasol.com. I would now like to hand the call over to Nerina Bodasing, Investor Relations officer. Please go ahead.

Good day, everyone, and welcome to the conference call. Pat Davies, our Group Chief Executive, is in the room with us today, and he will be running through the financial results for the six months ended December 31, 2009. And I hand over to Pat.

Thanks, Nerina. Nerina is a new name, and you will be meeting her either in Cape Town, Johannesburg, London, Boston, or New York in the next couple of weeks. So good morning and good afternoon to you, respectively.

We're delighted to see at the moment we have 45 participants in this conference. I am going to run through the slide pack fairly quickly to allow time for questions, so let's get started with that.

On the cover page, hopefully you've got it in front of you, we thought we would show you what Escravos GTL looks like in Nigeria, to save you the trouble of going all the way there, and to show you indeed that some progress is being made.

I guess the key messages for the financial results that we are reporting on for the six-month period are the following. First of all, operations are good. We've got volumes up and costs down despite what was going on in the world around us.

The results, of course they were hugely impacted by the fall in prices. And in our case particularly currency effects had quite an impact on us. I think this is not out of line with what you have seen from the results of other industry players in our industry recently.

Nevertheless we are, like they are, seeing more stability. We're seeing some recovery in prices, although I must say things are still well off the peaks that we saw previously, and things are pretty volatile still at this point in time. Our currency opposite the dollar is still particularly volatile, as again we've seen in the last few days.

If we can move on to the slide number 3, as I've got it, the dramatic decrease in commodity prices. This really just shows you what I've been saying in quantitative terms on the table on the right-hand side towards the bottom of that particular slide. If -- I'm not sure that it is moving on, but for those of you who've got it, it is slide number 3.

The point to make here is obviously, other than these dramatic decreases in prices, which I'm sure you are all familiar with, is the fact that the half that we are comparing against, that first half in '09, was a time when we were coming off the peak. So it was a particularly solid six-months result at that time. Obviously when we go to the next comparison we will be comparing off a somewhat lower base, something to keep in mind.

That -- good operations obviously was overshadowed by those macro effects -- and if we can go over to the next slide, number 4, on the salient features -- gave us the 51% reduction in operating profit and headline earnings, respectively. CapEx is pretty much on track at ZAR6.6 billion, and I will certainly be giving you some forward look on our CapEx spend. Dividend is up by 12%.

I think the next slide, hopefully -- we're still not sure whether we have a technical glitch and whether you are following us, but I hope you are. Slide number 5 indicates improved operating performance. I think this is something that we feel we have turned the corner on.

You will see their Synfuels production volumes up by 3%. Synfuel's unit cash costs declined by 5%. Mining volumes were up, for example, as well by 6%.

Olefins & Surfactants we will get to; doing very well. And then particularly pleased of course that we've got through this crisis, and we have got through it in a way which has allowed us to continue the pipeline of growth projects which is so important to us. We will get back to climate change matters.

The results on the next slide are really a summary of what we said already, so I'm not going to go through the slide entitled Results Reflect Market Conditions. It's there for you to see.

Let's pause for a moment and look at operating profit, the drop there of 51%. That slide, slide number 7, indicates a couple of rather large red bars which reflect the exchange rate effects, a lot of translation effects in there. Crude price obviously impacting us negatively. The fact that we did have an oil hedge in, in the previous period; but we don't have it in, in this period; significant impact there as well.

But then the green block on once-offs, that was to do with the fact that we gratefully didn't have the wax fine in this reporting period, the penalty there. And our Inzalo, that empowerment deal, share-based payment charges were a lot smaller in the most recent period.

If we on the same slide there can just have a look at the cost containment and volumes, they look like fairly modest slivers there, if you like. But in volumes -- meant against the comparable period ZAR700 million improvement. On the cost containment, again on a like-for-like basis with the previous period, it was ZAR400 million difference.

If we go over the page, we illustrate that a little further on slide number 8. You see that if we take out that penalty, on a normalized basis there we had a reduction in costs for the Group. So not only did we beat the 6.2% CPI inflation that we experienced here in South Africa during this period, but we had a reduction in costs.

We launched a very intensive cost-reduction program across our Group. In the last number of months, against what we had budgeted for this period, we have achieved ZAR600 million or close to ZAR600 million in savings; and certainly there's more to come in the second half. We are very pleased with the way our businesses and functions have responded to the call to improve efficiencies.

All right, moving on. Cash generation remains robust despite what was going on in the world around us. So I think this speaks to the resilience of the set of companies that we have.

Balance sheet is strong. Gearing low at 3.7% at year-end.

You can see the uses of cash there. I think something to highlight in particular though was we -- ZAR5 billion went into an increase in working capital.

Many of you will recall we signaled at the end of the last financial year that our ratio to turnover was 11%. We said that wasn't sustainable and that it would increase. Our target is around the 15% to 16% mark, and that's probably where we are at the moment and will remain for the rest of this financial year -- just in rough numbers at least.

So we need the strong balance sheet of course to fund the CapEx program that we will be coming to in a moment. So moving quickly on to the next slide, which is entitled Cluster Review, slide number 10. I'm not going to dwell on it. I think we all know that South African energy makes up the major part of our business.

But that's just to say on chemicals, that's ZAR 1.5 billion in operating profit for the six-month period. While not significant, at least it's positive. We didn't lose money in our chemical business, which we thought we might at one point in time. And if one looks around at the industry in general, then I think this again speaks to the resilience of our chemicals business and what it can do even under fairly trying circumstances.

SA energy cluster on slide 11, again not going through all the details. But the star performer there was of course, in terms of operations, was Synfuels at 3% higher volumes and a reduction in cash unit costs of 5%.

But the other businesses did well as well from an operational point of view. All of them of course significantly impacted by prices and currency effects.

Happy to see that our Oil business has turned around quite a bit from a lossmaking situation, given the volatility of the previous six months, at least back into the black here. Although refining margins, as everyone knows, remain very tight. So we are not going to see Oil restoring back to these very significant profits that we had two, three, four years ago. But nevertheless, operationally all of these businesses are doing a lot better.

Perhaps to focus on Synfuels a little more, given its importance in the portfolio of businesses that we have, the next slide gives a number of the management actions there. Just to reassure you that our gasifier jacket replacement -- you will remember this was one of the problematic areas that we had -- that's on track. We've replaced 63 of the 80 gasifier jackets. We are on track to complete this by the middle of next year. So that's a diminishing problem, as I signaled last time.

On the reforming side, more stable there but still something of a risk, as we have to go into a replacement program on certain equipment, on these bits of kit called reformers that convert natural gas into synthesis gas.

There, as recently as Friday the Board approved about ZAR1.5 billion to install a 17th reformer to help us smooth the valleys that are going to inevitably occur as we have unreliability. And this is a fast-track project which we would like to get in place in approximately two years. So that's all systems go.

Then as our MD of Synfuels says, he believes he is becoming a going concern again and not just a concern. You will see that production incidents have reduced by 40%. I think this is an important indication of the improved stability.

So we had a pretty good first half. We need to be cautious about how we signal for the second half though. Because at the beginning of this year we indicated -- and if we can first go to the next slide -- the baseline production level for Synfuels was 7.3 million tons. We expect in this year not to get quite to that level.

Now, I was hoping to tell you today that we probably would get to that level, but we in January had a tremendous rainstorm. It was one of those one-in-100-year rainstorms which the plant is not designed for. So we flooded our cooling water system, and it took us about a week to get half the factory sorted out and back online again. It's now up and running happily.

But the rain has been problematic, and that took about 0.1 million tons out of our annual production. Just the effect of the rain. So I think we'll stick with our guidance that we probably won't quite reach the 7.3 million tons for the full year.

But that slide also of course indicates, just to reconfirm, that the growth program is on track giving us an effective equivalent of 5% increase fully by 2013, as previously indicated.

Good. Moving on to the international energy cluster, this is obviously the cluster that funds all the growth projects from China to Uzbekistan to all over the place. Oryx is of course its producing asset; and there's some good news on Oryx and there is some not so good news.

Let's deal with the latter first. Oryx production for the period was down 13%, which is something of a surprise given that Oryx is performing really well. What happened there is we had a compressor which had suffered some blade damage. Like a jet engine it threw its blades; we're not sure why.

This is not a technology problem, certainly not a GTL technology problem. This is standard equipment, and the supplier is still investigating and owes us an answer as to why it happened. But that did give us a bit of a knock, took us out of production while we had to get new blades refitted to this particular compressor.

Since then, Oryx is running very well. We achieved record production in January of 29,500 barrels a day. As you know, our nominal nameplate is about 32,000, just over 32,000 barrels a day. So if you take at an operating rate of 80% to 90%, then we're doing pretty well on Oryx. That 29,000 barrels a day is well above that range.

The other good news on Oryx is that we are pretty sure we can debottleneck it or expand it by 10% fairly cheaply and fairly quickly. And we are busy with that process at the moment.

On SPI, there's no significant news there other than continuing to get more acreage in various parts around the world.

Moving on then quickly to the chemicals cluster on slide number 15 in my pack, polymers we are a bit concerned about it. Although sales volumes were up a bit, it was hugely impacted by prices and currency effects. We need to fill up that polymers value chain. We need to make sure it gets sufficient feedstock so that we fully utilize the capacity that we have installed there. So there's an area of improvement there, and we are certainly giving that our very serious attention.

The star performer of the chemicals cluster under these very trying conditions was Olefins & Surfactants, which is the business as you know we were trying to sell just a couple of years ago. I will get back to it in a moment.

But just generally on chemicals and how we are seeing things, prices are still 25% to 30% off the peak that we saw a year, 18 months ago. Demand in Europe is pretty flat. Things are looking better in Asia-Pacific, but it's not clear what proportion of the good news we are seeing is to do with restocking and what is to do with genuine recovery in demand. So it remains a little unclear at this point in time.

But let's pick up on O&S. We have just for interest's sake shown you on slide 16 some of the dimensions of that business, which I won't go into. But it is truly one of our global businesses.

And as I said I am very happy that we did not manage to sell it. Because rather than some private equity fund extracting the value for themselves, we have extracted the value for ourselves. This has come about as a result of a very rigorous and systematic turnaround program, the elements of which are given on slide 17 there. But from organizational restructuring; headcount reduction; head office costs coming down; to closing of assets around the world, where these were either nonstrategic or just nonperforming; some very clever and tough negotiations with our customers to make sure we have contracts that protect our margin through the cycle. And then just plain fixed cost reduction as you can there, 27% reduction in real terms.

So a lot of hard work was done there by the team and have given us an excellent result, as you see in the performance of O&S in the last six months. Of course it remains a relatively thin margin business compared to the rest of Sasol, so we will continue to keep a careful eye on it.

Right, changing gear a little, if I can go to slide number 19, which talks about cautious outlook maintained, and gives you a number of factors there which I've pretty much covered already. Regarding commodity pricing, obviously crude has improved but refining margins remain tight. Chemicals, we are not quite sure what's going on, but we are certainly a lot better than we were a year ago, and there are some encouraging signs there.

But this rand is the tricky thing to predict. It really has a huge impact on us. If I can give you the sensitivities while I am at it, a 10-cent move, ZAR0.10 move at current prices more or less gives us an ZAR800 million effect on operating profit. So we are hugely sensitive to that.

While I am busy let me give you the oil sensitivity, again at the typical currencies that we have at the moment. But the oil sensitivity would be for $1 Brent movement it's ZAR537 -- ZAR540, say, in rough numbers at the operating profit level.

So we are very sensitive, and therefore we remain with this cautious outlook given the volatility. And I'm not more precise than that.

I think also I would be not appropriate if I left you with an impression that the cost reduction that we saw in Synfuels, both in absolute terms but also in per-unit basis, would continue for the full year. That would be overly optimistic given that the coal price to Synfuels has gone up by 20%. And there has been a change to the electricity price tariffs and the electricity tariffs in this country, which will also have an impact.

So the guidance that we gave you on Synfuels' costs for the full year some time ago was that we certainly believed we would be below the double-digit level, significantly below the double-digit level. So I think we should for the moment stay with that. But the cost savings that we've achieved so far certainly run through for the full year; just coal and electricity are of a concern and spoil that happy picture to an extent.

Right, moving on then to slide number 20, and I won't dwell on this too long, but I need to say a couple of words on it. That is to assure you we have this huge focus and management imperatives regarding improving efficiency. I've indicated we have taken about ZAR600 million in costs out already, and there's more to come. There's clearly more value to be extracted there, and we plan to do just that.

We will continue the strong focus on profitability. We will close down businesses or sell them if they don't perform the way we think they should.

We saw that in O&S. We shut down one of our Nitro businesses in a place called Phalaborwa earlier on. So we will continue with that exercise to make sure that all our assets perform.

The growth we are very pleased with. The fact that we've got through this crisis successfully and we've managed to continue having the funds to proceed with the important growth projects that we have. And while we still allocate our capital very carefully and [sought] for highest return with reasonable risk, we have many opportunities. So that continues apace.

On sustainability, we continue to invest in skills quite significantly, despite this recession that we've been through. We have a huge focus on CO2 and climate change matters there.

Perhaps just to pause for a moment on that, because I know this is of concern to some of our shareholders, particularly with respect to our coal-to-liquids value proposition. But I would like to give you the comfort that we are very much alive to this. We are not the only game in town as far as coal is concerned, so we share this problem with the rest of the coal industry.

But we have some very clever and innovative people in this Company and many of them are working on finding solutions for CO2 ranging from smarter ways of achieving energy efficiency, where we have made some very good progress already, to finding out how we capture or store or how we find completely new uses for CO2.

The comforting thing is that there is a time frame. All governments including our own government have set fairly long-term time frames. And everyone accepts that CO2 will increase; it will then plateau; and it will be reduced.

We have then to 2020, to 2030 to find the kind of solutions that will make significant breakthroughs. And we are determined to do that.

It's fundamental to our value proposition. We're a technologically astute Company. We plan to make a business out of this -- in fact, to make money from it. That's our clear intention.

Then I would be remiss not to mention compliance and governance, critically important to any company. We had a very unhappy 18 months around competition law matters. We have completed our review, which was a huge effort in inspecting each and every business we have across the globe, to make sure that we are compliant, that we have the right levels of awareness, that we have the right levels of training and expertise being made on some very tricky matters to do with competition.

We have promised you that should there be any material new developments, we will inform you; and we recommit to doing that. What I must caution, though, is that we will from time to time have news flow arising out of matters where we have sought leniency and gained conditional leniency, or matters that are being investigated by the competition authorities into industries of which we are a part. And that news flow is likely to continue for quite some time. We had a little bit of that last week, in fact, in a case where we had been granted conditional leniency.

But I can assure you the Company has learned a huge amount from it. We have come out stronger and wiser and certainly a much more compliant and aware organization.

Moving on to the project pipeline, solid pipeline to feed our growth. I will start with a couple of projects in the implementation phase.

The Mozambican gas expansion into South Africa is still on track. Nigeria despite the picture I showed you earlier is under pressure, Nigeria being Nigeria; every day there's another story to be told.

So we expect the schedule is under pressure. We said completion by end of 2011; that is going to creep into 2012. But we will come back to you once we have greater definition around that. You will recall we have reduced our economic interest in that project to 10%.

Secunda growth, phase 1. The Board on Friday approved the last of the monies there, so we have a total of ZAR12.1 billion I think it is approved for that project now. 5% equivalent in volume growth, some in liquid fuels, some in electricity equivalent, if you like. But that doesn't sound -- 5% doesn't sound like a lot, but it is a rather large in the life of Synfuels and therefore Sasol.

A couple more projects to help Synfuels. More gasifiers coming in, in 2013; 17th reformer that I referred to.

Then of course there's a very exciting doubling of our hard wax capacity in South Africa -- or our hard wax capacity worldwide, because the only capacity we have in South Africa. But ZAR8.4 billion there; and the first phase of that comes in at the end of calendar of '12.

Rights, projects in feasibility. Uzbekistan goes apace; we will be completed the feasibility study by the end of this calendar year.

China CTL is the big one. That adds 25% to our synthetic fuels capacity. So as promised we submitted the project approval report to the Chinese; it is under review by them. That's for the CTL itself. The one for the mine hasn't gone in yet.

We still plan to complete the feasibility study, our own feasibility study into this by the middle of next year. And we will make the investment decision we hope in this calendar year still.

There has been a bit of noise with it. There may be some questions on -- there was apparently a Dow Jones report saying that there is a competing technology and there might be delays.

Well, we have always known there are competing technologies. That doesn't concern us. But we followed up on the noise around this one, and we get the assurance from our partners and from the province in which the place will be installed, that everything is on track.

I think one must expect from time to time there will be comments made by competitors and other people in a project of this size and importance. But should there be any change to that we will of course let you know. But as far as we're concerned the project is on track.

The good news on it is that though we had previously indicated a capacity of 80,000 barrels a day, the latest design indicates we should be able to get 90,000 barrels a day out of it. So that's the one to watch. That's the big one in Sasol's life for the next couple of years.

I think the other projects I'm not going to really go into, other than perhaps say a word on Project Mafutha, where we continue with the prefeasibility. We focus now on the mining of a significant sample of coal to go through to Secunda for testing.

We'll be starting environmental impact analyses and so on. So the work continues, but it's a huge project and obviously needs to fit in the priorities of the government's allocation of funds.

As you know we want government to be partners with us in this particular project. Perhaps we can go to the slide which shows you a picture of the mining operations, just to take a sample out of this -- we seem to have lost that one somewhere.

But it's a fairly significant hole in the ground. This is not a test tube sample, I can assure you. Those little dots that you can see or could see in the bottom of the pit there are huge trucks. So this is not a small operation that we are busy with there.

Good, happy to take questions on this slide later on, for those of you that have questions. The timescale on the bottom of the slide indicates of course these big projects take time.

And really Sasol's strategy is an organic growth strategy and it's in large chunks. It's a very chunky strategy, if you like. Perhaps with the exception of acquisition of gas reserves, everything is organic; and these projects take time to complete. But we're very happy with the progress that is being made.

Of course the pipeline of projects needs capital. The next slide gives you an indication of our capital spend. Where some of the committed money is already allocated is given in the table there.

We still expect our CapEx for this year to be about ZAR15 billion. It might creep to slightly higher than that. We have a few side bits on the go there.

It's interesting that the first half of the year was ZAR6.6 million. So why we speed up in the second half of every year I'm not quite sure, but we seem to do that each time. Perhaps our MDs think we're going to take their money away from them if they don't spend it.

Then the year after that is ZAR19 billion. That's quite a jump up from what we last signaled. I think we were in very much a prioritization mode when we had the last numbers out. So we have opened the taps a little there.

And the year after that we haven't give you a number, but it will certainly be into the ZAR20 billions for the 2012 year. So it's important that we have a strong balance sheet and this low gearing, because we are going to be needing significant funding as we go into year 2 and year 3 from now.

Moving on to the strategy, which I think you have seen many times before, so there's no change to that one. I'm not going to repeat it for the purpose of this discussion.

But move on to the next slide, which really signifies a change in the environment which plays into our favor in the area of gas-to-liquids particularly. And that is the development of what's happening around shale gas in the US and worldwide.

As you know, our gas-to-liquids value proposition works in the arbitrage between gas prices and oil prices. We take gas and we convert it effectively into oil. So the bigger the gap is, the more money we make.

We all know what oil prices are doing. But what has happened in the US is that gas prices have come down significantly, and you see that on this slide, which shows the multiple.

So the higher the multiple, the greater the differential is between the two prices obviously. And that's playing very much into our space.

Because if you go over to the next slide, you will see that LNG, which is of course liquefied natural gas, which is sold as gas in markets such as the United States, is selling into a depressed market now. And some of the LNG projects are not looking as good as they used to.

GTL products sell into a completely different market, into the middle distillates market, which is much larger and is related to oil prices. So that makes the owners of gas assets a lot more interested in looking at GTL than just sticking with LNG, which was the default position a number of years ago.

This is creating a lot of opportunity -- obviously coupled with the success of Oryx -- into our technology and will no doubt lead to significant additional deal flow for us in the years that come.

Good, let me summarize by saying to the last slide there, we have this competitive technology -- and certainly in gas-to-liquids it's becoming more competitive. The landscape has become more favorable. We have more and more growth opportunities. We have the cash flow and we have the gearing to be able to fund those opportunities.

But we should not neglect the existing business. We've managed to weather this economic storm very successfully. We generated strong cash from our existing businesses. And all the clusters, including even the chemicals cluster, under very difficult conditions still managed to get through the crisis quite successfully.

That has made us a better Company. The fact that we've been able to increase volumes, reduce costs in these difficult times has made us a leaner and more efficient organization of course which bodes well for us.

So as we look at things from our side obviously there's still a fair amount of uncertainty out there; but I think we can look to a good, bright future for ourselves and our shareholders. With that, I am very happy to take any questions that you may have. We now have 63 participants joining us this afternoon.

(Operator Instructions) Gerhard Engelbrecht, BJM.

Good afternoon, Pat, and thank you. I have got a couple of questions and maybe I will fire them one at a time. There's been some reports around feedstock availability near on, into the Arya plant, and that due to sanctions the feedstock units can't be upgraded. Can you maybe talk around that and tell us when you expect that facility to operate at an optimum level?

Thanks. We have no knowledge of constraints on feedstock, and I've got Andre de Ruyter here with me this afternoon, as the new head of the chemicals cluster. Andre is just confirming to me that we know of nothing new.

There was a fire in an upstream facility sometime ago, and that certainly constrained us a little for a while. But Andre, perhaps you'd like to comment.

Thank you, Pat. Gerhard, I don't know if you are referring to the fact that for a while for ethane availability was constrained in our feed to the Arya facility. That problem has now been resolved, as Pat referenced, the fire that took place and the repairs that subsequently were implemented.

We are now ramping up the cracker to its full capacity. We are experiencing some issues with reaching full capacity, but we are confident that these will be resolved pretty quickly.

Gerhard, I think if I can just add to that, the guidance that we gave last time is that we would be fully up by September or so. And my understanding, Andre, is that we are running at about 80% of the cracker availability, which is pretty much on track for the guidance and the startup plan that we had.

The two polyethylene units are 100% available. So things are pretty positive there.

That's good news. Pat, I see that you -- (inaudible) in the press conference this morning that there was mention that the CTL plant in China -- that you are now looking at 90,000 barrels a day and not 80,000 barrels a day.

I would just like to know whether this is improvement in technology, so that you can -- are you building bigger reactors or are you building more reactors?

Gerhard, no, that is correct. We can confirm that it goes from 80,000 to approximately 90,000. We wouldn't want to be too precise.

And it's not bigger reactors. It's an improvement to technology. It is in fact an improvement to the process flow diagram, if you like. I can't be really more specific than that.

So it's not anything that is going to cost us more. It's just a smarter way of doing things that our engineers have come up with.

Okay, thank you. Then just a last question. On all the cases before the competition commission at the moment -- and I'm specifically referring to polypropylene and wax. Did you apply for leniency in all those cases? Or are those cases where you think you might still get fined?

Gerhard, when you ask questions like that, it's always good to have lots of lawyers around. Luckily I do have a lawyer close by. I would rather just answer you generically, though; because sometimes the mere fact that one has a conditional leniency agreement in place is in itself confidential. And we have to respect that confidentiality.

So we are not really at liberty to say where these are applicable, other than the ones which we have already announced and that are in the public domain and obviously were done with the concurrence of the competition authorities.

What I can tell you, Gerhard, is that we have committed that we will transparently report to all of our stakeholders should there be material matters to report. I think we probably have to stay with that. I have Nereus Joubert with me. Nereus, would you like to add to that?

No, Pat. I think you've covered most of the aspects quite well. Obviously we will disclose when we have to disclose in terms of our obligations. And that's when we have reasonable certainty, and the matter is material, and within the context of our confidentiality obligations in terms of leniency agreements that we've concluded.

Yes. So Gerhard I think that obviously we're feeling a lot better about the whole situation than we were a year ago when we made the announcements in January of last year. And we will keep you updated.

Thank you, Pat, that's great.

Caroline Learmonth, Macquarie.

Hello, thank you. Please could you give me an update as to the selective catalytic cracker at Synfuels?

Secondly, can you give an update as to the replacement of Benny Mokaba, who resigned, in terms of an executive appointment?

Thirdly, can you give some more background about the rationale for a 12% increase in interim dividend? Should we read that as you being more positive in terms of outlook for the year versus your previous disclosure that earnings would be down for the year? Thank you.

Sure. Hi, Caroline. I have Bram de Klerk here who will help us with the SCC. But the number, Bram, that I have in my head is that since the shutdown, which we took to make some improvements, we are hoping to achieve about 75% of the availability.

But we are not quite sure whether we have reached that yet, because we have only been in operation for about a month or so since then. Can you add anything there, Bram?

No, no. I think that's the best information at the moment. Yes.

Yes, and then Caroline, we can say that there is no longer a technology issue associated with the cracker. It's more to do with reliability of equipment, which is far less of a problem than -- does the technology actually work?

So we are happy that it works. We actually think the supplier of this technology owes us a lot of money because we have got their technology to actually work. So it's looking better there, but we need to confirm that with a bit more operational experience.

Then on executive appointments, we don't really have an update. We have a fairly large executive team in Sasol. The portfolio has been well distributed between existing members.

Andre de Ruyter, who spoke earlier, has been promoted to our Executive Committee and takes over the chemicals cluster. Lean Strauss, who is well known to you and well experienced, has taken over -- in addition to his existing responsibilities, he is looking after our oil and gas business. And Bram de Klerk, who has just said a word or two, is looking after Synfuels at this point in time.

But of course we continuously look for new executives that would make a good contribution to this Company, and that's an exercise that we are busy with.

And your third question was on dividends. I think one should be guided in terms of outlook more by what we say -- not that we're saying an enormous amount about it, other than we are being cautious.

Rather than reading too much into dividends, particularly an interim dividend -- and I would take you back to the fact that our interim dividend of last year was somewhat unusual. So to use that as a basis I think is probably a little tricky.

So, Caroline, I think we've done what we believe is the prudent thing in giving a reasonably generous dividend, interim dividend, and given the fact that profits are down so significantly. But just remember the basis from which it is being compared.

Great, thank you very much.

Alex Comer, JPMorgan.

I've got a couple of questions. Firstly just on the polymers business, just looking at the fact book I'm just not quite understanding the production volumes. You talk about them being up for the half year. But when I look at the second half of 2009, it seems to me you are about 100,000 tons lower. So maybe you could explain what has happened there.

Secondly with regard to pricing, again looking at the prices that you quote in the presentation, this time last year you were significantly above market prices in terms of your average pricing per ton. Now you are below.

Is that largely to do with the change in the tariffs? Or is there a lag in that business in terms of your contracts with your customers? So that's the first couple of questions.

Hi, Alex. Let's start with the two that you have. On the polymers production tons, yes; we are down. We are up on sales tons for the reporting period, but we are down on production tons.

I suspect the major reason for that is the fact that Synfuels had its shutdown; and of course that immediately affects the amount of polymers or tons going through into the polymers business. So I don't think there's anything more to the answer than that. But perhaps off-line we can come back to you with a bit more of a detailed explanation, if that's okay.

Then on prices I think it's important to note that the prices that we quote in these graphs -- if those are the ones that you are referring to -- are not our prices. These are international prices taken from ICIC-LOR and various other international publications. So one should not look to the answers -- to Sasol for those prices. Those are international prices.

But again if you've got more detailed questions on our prices, and to the extent that we can answer them, we would obviously do that.

Then I just had a couple things. In terms of the cost-reduction plan, I notice you've taken out that 700 people in terms of staff. So is that something you are quietly doing going forward? Are you trying to take people out to reduce the wage bill, or are we looking at mainly efficiencies in the cost-reduction plan going forward?

Yes, the focus here is on cost reduction, but obviously sustainable cost reduction. Yes, we have reduced headcount in a couple of places, in Germany, some of our businesses there. We shut down our Phalaborwa site in the Nitro business, which led to the reduction of positions that we have.

But we're attempting to do this in a way which is sensible. Given that we are a growth company and we need skills, to be radical about this is probably not the wisest thing to do. So we have a measured approach, but we are looking at further rationalization.

Some of that does include looking at restructuring and reorganizing certain businesses. But we are keeping an eye on growth opportunities as well.

If there is an underperforming business that we have to sell or shut down, obviously then that is a step change that occurs. But even in the -- Andre can bear me out -- but even in the Phalaborwa closure, while we permanently reduced the number of posts that we have, the people were actually generally accommodated in the rest of the Group.

So that's our approach there. But a relentless focus on cost and certainly some more work on rationalization to come.

I'll ask one more question. Just with regard to the statement looking at shale gas in South Africa, as far as I understand your first application was turned down because Shell have already got one in for a substantial area, and that you've come back with an application for a different region. Is that correct?

Yes, that is broadly correct. I don't want to speak on behalf of Shell, but I think they had an application in quite some time ago on an area. We were interested in it as well. Shell got that award for an area because they were first in the queue.

But we have another application in for another area which we are quite comfortable with. But we don't know the outcome of that application, and it's likely to take a while. These awards are not made quickly. So that is the correct status, yes.

Okay, thanks very much.

Matt Lofting, Morgan Stanley.

Afternoon. Two quick questions, please. Firstly on China, I just wanted to clarify the timelines on the FID there. I think previously you talked about it following relatively quickly after the feasibility study in midyear. My understanding earlier on the call was that it looks like that's more likely to be loaded towards the back end of the year now.

Secondly on costs, you highlighted the ongoing cost-reduction opportunities through the second half of the year and efficiency gains. Can you give us a feel for one or two of the specific areas of the business and/or divisions that you see as key opportunities there? Thanks.

Hi, Matt. On China first, yes, I think that's accurate. We weren't particularly specific as to when we would take the FID. We would want to -- we had signaled we would like to do that fairly soon after the end of the feasibility study.

But these things are difficult to predict. They are always the subject of negotiation, and you can never pin down the outcome or the timing of the outcome of a negotiation. So just being realistic about it, I think it's likely to be closer to the end of the year than what seems to be assumed as to the middle of the year.

But there's no issue here at all. It's very much on track as far as we're concerned.

And then yes, it's tricky on the cost guidance side. I think we have done well, and I think the work that we have done so far is sustainable. So we see that cost reduction that we achieved in the first half certainly continuing through and growing into the second half.

I think as far as Synfuels are concerned I have signaled it will see this coal price increase, but of course that doesn't affect the Group because what Synfuels pays more for, the mining gets more money for.

Electricity is something of a concern. I don't have exact numbers for this year, but if we take it, say, in a year or two from now it's about ZAR1.4 billion difference to our electricity bill.

If you take impact of electricity on Synfuels, if my memory serves me correctly, then -- and Synfuels is a big electricity producer in the Group. That even given our additional generating capacity that's coming online in the next number of months, Synfuels' input costs, about 13% of our cash costs would comprise utilities; and the bulk of that is electricity. So that gives you an indication of the impact of electricity on us.

We have also -- yes, I think those are the major factors there.

But if I can give you it -- I spoke about ZAR600 million that we've taken out so far. I personally will be disappointed if we don't grow that ZAR600 million to about ZAR1 billion by the end of the financial year.

But in terms of overall guidance for the Group, happy at this stage to say we will certainly be in the single digits as far as cost increases are concerned. But I wouldn't really want to commit anything more precise than that at the moment.

Okay, thanks.

Campbell Parry, Investec Securities.

Thanks very much and good afternoon, everyone. You mentioned a record run rate of 29,500 barrels a day, I think it was, at Oryx in January. Pat, I know that over the last two or three reporting periods you continue to tell us that you are running it at a record rate.

You take it down for maintenance, or it goes through some sort of unscheduled outage; and then the average for that period is something far less than that. So in this period might be 22,000 barrels a day or something like that.

Following the upcoming shutdown in I think it's Q4 of this year, what do you expect you are to run this plant at, sustainably? Because quite honestly, we would like to see it running consistently at that type of rate now. That's the first question.

Then I just wanted to touch on Mafutha quickly and just ask your views of government's thinking on this project right now. Because clearly with priorities at Eskom and indeed with the adequate provision of water going forward, is there not some sort of pushback or inertia on government's part with respect to this project?

Hi, Campbell. Let's deal with Oryx first. Yes, obviously we're disappointed as well that the compressor threw some blades and that gave us an unplanned outage, which brought down what was proving to be a very nice run on Oryx.

It's running perfectly now. It's got to do the statutory shutdown now in the fourth quarter, as you indicated. But after that one would really expect it to run particularly well.

I think a gas plant of this nature one must expect would run at 80% or 90% of nameplate. And we certainly would be disappointed if does anything less than that. So that's -- to answer your question I can assure you that given the economics of this project, it makes a huge amount of money even when it does somewhat lower run rates.

So you would be surprised. You can probably calculate how much money it's making. It's doing enormously well, and we can only look to that improving in the future.

On Project Mafutha, we continue as I've indicated. But we are not going to do this on our own. We're going to do it only if government comes in as a full partner to us.

The messaging that we get out of government at this point in time is positive. But I think also as our Minister of Trade and Industry, my namesake Rob Davies, indicated not so long ago -- that I think it's going to be towards the end of this year before government gets its hands around all the priorities on these megaprojects, including ours. And then would be able to give a bit more of a steer on which ones they see as the national priorities.

So positive noises from government, but not any firm decisions at this point in time. And I think that's only fair. When the government -- we have a new administration in place. They've got to settle down, see what their priorities are, and then start giving the right signals.

I think it is only fair to give them a chance to go ahead with that process. And hopefully then later on in this year we would get a clearer signal as to how quickly we can proceed.

All right. Thanks so much, Pat.

[Gerard Geldenhuys], Deutsche Bank.

Good afternoon. Can you please comment on the significance of your own internal power production capacity going forward, with a view to possibly selling power to Eskom, and obviously securing your power demands for future growth prospects in South Africa? Thank you.

Sure, and my colleagues will help here. But directionally the additional, what, ultimately 280 megawatts that we see will take us up to about 50% of meeting our own requirements. So we will import only 50% of our power.

But that's designed to generate our own power for our own purposes. It is not designed to sell power to Eskom.

But of course what it does, how it helps Eskom, is it takes some of the burden off, saving the supply, so they can supply others.

Obviously we have to have an agreement in place because on a moment by moment basis there might be swapping of power; and we are in negotiations with that at the moment. But, Bram, longer term we have more opportunities that we're looking at but no specifics, yet (multiple speakers)?

Yes, we've got some good ideas but at this point in time not specific. It's in the idea phase. But the idea is to become more independent, but I think to be totally independent it will be a very long time.

Indeed. So did not cover it, Gerard?

Yes, thank you. Thank you very much, Pat.

(Operator Instructions) [Juros Holland], Deutsche Bank.

Gerard asked the question; I was just going to follow up on the same thing. So I'm fine for now. Thank you so much.

Thanks, David. We look forward to seeing you soon.

Gerhard Engelbrecht, BJM.

My follow-up question also had to do with the electricity. I was wondering what the Minister of Public Enterprises referred to when she announced that cogeneration agreements would be signed with the likes of Sasol and Sappi. But I guess you answered the question.

Just secondly, coming back to O&S and the great performance there, you talk a lot about fixed costs and cost reduction that has been taken out. Would you say if things don't change materially going forward that an 8% EBIT margin is a sustainable margin for that business going forward?

I am going to ask the architect of that turnaround program to answer the question, Gerhard. Andre?

I don't think I would be willing to sign my name in blood to 8%, but we've certainly seen our gross margins expanding, really because we have eliminated a lot of the lossmaking operations that dragged down our margins in the past. As a result of course of our reduced cash fixed-cost base we have seen our operating margins also expand.

The major point to keep in mind though, when you look at the margins of O&S, is that as Pat has referenced earlier we have really succeeded in becoming a fairly stable margin business. So compared to the position in the past, where we suffered from the swings and roundabouts of commodity pricing, we are now reasonably comfortable that our margin is much more sustainable.

So while we obviously aim to increase our margins by as much as possible and by as much as is sustainable also over the longer term, I think the message is that we are aiming for stability in margins.

Thanks, that looks great. Thanks, Pat.

(Operator Instructions) Tassin Meyer, Citigroup.

Good afternoon. Just a quick question on the polymers business. Clearly as you indicated it was a disappointing performance from that division. Can you firstly give an idea of concrete steps, things being taken to improve the profitability of that operation, which clearly has been one of the better-performing chemical operations in the past?

Secondly can you give an idea in terms of pricing for that division, Arya versus the rest of the operations, how those should progress into the second half of the year.

And then secondly just in terms of the Oryx operation, could you give me an idea --? I know you've mentioned the shutdown in the second half and clearly that January has been running well. Could you give an idea of what the full-year production numbers could look like and, secondly, going into 2011?

Right. I think I'm going to ask Andre, Tassin, to deal with the first questions around polymers.

Thanks, Tassin. I think the levers that we're trying to pull in terms of improving polymers' business performance are really just about everything that we have got. We are looking at increasing our feedstock reliability and availability. We are paying a lot of attention to getting our ethylene and propylene availability up into our polymer plants. That's a clear focus area.

We are also looking at improving the operational effectiveness of our plants. We are spending a lot of effort there into making sure that our plants are online for longer and are able to run at higher rates.

For that reason we also have one of the most experienced operators in the group, former MD of Sasol Synfuels, looking at that business. And he's making a great contribution to improving the reliability of our facilities there.

And then as Pat has indicated, cash fixed costs is one of the key areas that we're looking at. We are exploring ways which we will be implementing later on in this financial year into structurally reducing the cash fixed cost of our polymer business.

So we're really looking at every possible opportunity to improve the performance there.

As regards the question that you asked on pricing, I can't really comment on that because the polymer price internationally is what the polymer price is going to be. And we don't have too much of a role in making that price either way.

Of course the netbacks to our plants will differ, and that's a function of our cost position. It's a function of the logistics costs. It's a function of where we can best place these products into the markets. So that's more or less what I can divine on that question.

Andre, I'm not sure if you mentioned the fact that I think the annualized effect of the reduction in tariff was -- the first tranche in tariff reduction was about ZAR400 million per annum, which was announced quite some time ago.

Subsequent to that there's been a slight further reduction in the import tariffs, which obviously hasn't helped polymers' performance. But that is a fact of life and we have to take the steps that Andre has been saying, has been talking about, to mitigate that as well.

On Oryx, we have guided that the overall production rate for this year, given this unplanned outage and given the planned outage, we can't make up to improve the barrels a day that we achieved on average for last year in this current year. So we will be down as I think -- year to date or for the first half we will be down some 13%. And we can't make that up, so I can't really be too more specific than that.

Next year, next financial year will look a lot better. We're quite sure of that.

I've got to remain humble in this game. You never know what some -- what untoward thing can happen. But certainly we're very happy with its performance.

Catalyst life is looking better and better. The reliability of some of the equipment that originally worried us is looking better and better. So we can look forward to a sterling performance, I believe, in the next financial year.

Thank you.

I think, operator, we need to perhaps have one more question to allow people to move on to other things.

Alex Comer, JPMorgan.

A couple of quick things. Firstly I just wondered what benefit you were seeing in the US from lower gas prices on your cracker there, and whether that was having a big impact or whether you that's not impacting the business.

Secondly, just on the Wax expansion, it looks to me for the same money you could have basically made yourself almost independent of Eskom for electricity. I just wondered how close the decision was there in terms of whether or not it was really worth going forward with Wax; or whether you would have been better, in the likelihood of higher electricity prices going forward, to just contemplate on internal production.

I will start with the second one first, and Andrew can supplement. But it was an absolute no-brainer that the Wax expansion was far more lucrative than investing more in electricity generation. We had a view on fairly significant Eskom tariff increases at the time, and we were fairly accurate in our forecast anyway.

So the value add from our Wax business we are very comfortable with, opposite the alternative decision of investing more and more in electricity production.

You must also appreciate, Alex, that although we have a lot of natural gas available to us, there is a limit there, too. For us to get into the business of producing electricity from coal is a whole different ballgame. So there's a natural ceiling to the level at which we can effectively invest in electricity generation.

So that was not a difficult decision at all. Andre, do you want to tackle the first one?

Yes, it's clear that energy costs in the US have in fact gone down, and that has obviously had a positive impact on our variable cost of running our cracker.

It is, I think as you have pointed out, a gas cracker. Ethane cost has come down to a lesser extent than the cost of natural gas because the demand is still there. What we've seen is it has mostly been naphtha crackers in the US that have come under increasing pressure there on the higher end of the cost curve in the US.

So the ethane crackers have tended to do better. What we have seen is that there has been of late a couple of unintended shutdowns of crackers in the US. Fortunately we've been in a position to take advantage of that, so we are seeing ethylene margins in the US picking up quite handsomely.

Good. Thanks.

Thank you. I would now like to hand the conference back to Pat Davies for any concluding remarks.

Well, we think you very much for the interest in our results. Thank you for your questions.

We, myself and Nerina and the team, will be traveling around this country and the United States and Europe with some of the members of our executive team as well, and we look forward to engaging with you on a one-on-one basis. Thank you and good day.

This concludes the Sasol interim financial results conference call. Thank you for participating. You may now disconnect.