Sasol Ltd (SSL) 2010 Q4 法說會逐字稿

Good afternoon, everyone, and welcome to Sasol's results presentation for the 2010 financial year. If you're wondering about the advert, we are celebrating our 60th anniversary, and this was just to take you back in time to show you how far we've come as a group.

Just before we start with proceedings, in the interest of safety, I just want you all to take note of the exits at the end of the room, and in the case of emergency, please make your way through in an orderly fashion to the foyer, where a Sasol representative will assist you.

The agenda for today is Pat Davies, our Group Chief Executive, will provide you with a brief introduction on the results. Christine Ramon, our Chief Financial Officer, will then go through the financial and operating review, and Pat will close, followed by questions.

And I now hand over to Pat.

Good afternoon, everyone, and may I add my welcome. Thank you for coming in on this lovely spring day. As Nerina has said, we're really close to our 60th birthday, and to help us celebrate, we've organized a bit of cake outside for you afterwards; part of our birthday cake. We're going to hold back on the champagne this time, but maybe a bit early in the afternoon. I don't know about the financial community, but we don't allow drinking until 5 o'clock at least. But please help us celebrate.

The team is the usual team. Christine you know well. Leon Strauss you know pretty well. His portfolio's been added to a bit lately. He now looks after technology as well as new business development in addition to SSI and SPI, and he's been promoted now to the lofty title of Senior Group Executive. And equally, Andre de Ruyter, you probably know less well many of you, but Andre, up until not too long ago, a year or so ago, was running an Olefins & Surfactants business. He's now also been promoted to the same level as Leon, and he really looks after the vast majority of the operating divisions of Sasol; so something of a Chief Operating Officer, if you like. So I'm setting them up so that you ask them all the difficult questions, obviously.

All right. You will be familiar with the forward-looking statement. We won't tackle that in too much detail, and start with our presentation.

The economic crisis was obviously pretty tough for most organizations, including our own. Things are much better now; we see some recovery. Things are still very volatile. We're certainly not anywhere near the heady heights that we were pre-crisis. In our particular industry, we're all looking with some anxiety at the BP Gulf of Mexico saga as, clearly, in terms of deepwater drilling, that's going to have some impact on how this business is run. Probably will have the effect of pushing up the oil price, but might make business a little bit difficult, so we need to watch that space carefully.

But the actions that we took in response to the crisis, although they were pretty painful, have made us a far better organization. I've no doubt of that. We're much leaner; we're much more efficient. Our Company today is in good shape. You've seen the results. Costs are down, volumes are up; balance sheet is strong, gearing's at 1%; and this unique technology that we have has provided us with growth, as promised, and we'll see that later, but importantly, will continue to provide us with further growth.

And this, of course, has resulted in the results that you've probably studied pretty carefully by now, so I'm not going to go through them. Perhaps to comment on the strong balance sheet there. I don't think there are many companies around even in our sector that can boast of the low gearing. They don't have the freedom to respond to opportunities in the way that we have, so that makes us strong.

And then if we go to the last bullet there, I would hasten to add from the bit of reading that I've seen that we've probably beaten most expectations in terms of dividend with the 24% growth and total dividend of ZAR10.50. That's very much in line with our progressive dividend policy that we spoke about not so long ago, and I think it's a demonstration of our commitment to total shareholder return.

Of course, Sasol is impacted by the macro stuff, particularly the rand, as Christine will be talking about later. But the operating performance, the stuff in our control, was good. Sasol is always associated with its growth story, mostly because we talk about the growth story, but I'd like to draw your attention to particularly the importance of our existing businesses. These businesses are critical to the results, and the sustainable results that we see into the future. And we've had this volume growth, and we've had a remarkable, we believe a remarkable cost performance, despite that growth in volume.

The Chemicals clusters particularly come to the party. They have done a lot better on operations, they've done a lot better on marketing, chasing gross margin. The sales prices haven't done much for them at all, so we can't use that as the reason for the turnaround. So a lot of good management work has taken place, and you see that in the results.

And I think this is also a demonstration of the benefit of having a diversified portfolio. Pre-crisis, we always used to talk about the contra-cyclicality between energy and chemicals, and we're starting to see some of that coming back again. Good not to have all our eggs in the energy basket.

That last bullet there, interesting to see how significant our offshore investments have become, about 30% contribution to Group earnings, and I think this shows two things. Firstly, the benefits of having diversified across several geographies, particularly important in today's world; and secondly, it's a manifestation that the strategy of growing offshore, largely on the basis of our technology, is delivering.

And we have delivered in line with the key priorities that we've communicated to you several times in one form or another. We've done well on what we said we would do. We've delivered on what we've said we would deliver on. We have improved operating performance, and if you look at Synfuels, just below 4% increase in volumes there. We beat our own guidance in that regard, and despite that, costs only going up by 1%. I think this is quite a satisfactory performance.

I've spoken about the Chemicals cluster, but it really has been a remarkable recovery there. Oryx and Arya performing particularly well in the second half of the financial year.

Growth; the usual stuff to talk about, and we'll go into more detail on China and Uzbekistan, and so on, a little later in the presentation. Happy that the Mozambican gas pipeline capacity is complete, this phase of it in any event. And equally, the onshore exploration in Mozambique is progressing nicely, so happy with that.

I think the thing to dwell on a little bit, because there's been quite a lot of news flow and quite a few questions from you and others on this, is the gas turbine project in Secunda, and, again, we can come back to that a little bit, but the 200 megawatt is commissioned, and in fact is running a little bit better than 200 megawatts at the moment given that the temperatures are not too high as we go into summer.

And, as you know, the plan is to go from 200 megawatts to 80 megawatts as we convert this from an open cycle, recover the waste heat, and make it a closed cycle operation so we go up to 280 megawatts. And there are more plans on electricity generation. But let me not get ahead of myself. We'll come back to that later.

And then on matters of sustainability, of course, it can't just be growth; it must be sustainable growth and sustainable business. There, a huge focus on energy efficiency and clean energy, which we'll come back to. The low light, if you like, is around safety, because if we measure this according to recordable case rate, the RCR there, without illnesses we got to an RCR of 0.45, which is right up there with the best in the world, but we still had fatalities, and that's a problem. Any fatality we have is one too many, and this is of great concern and great distress to all of us, and we're giving this our very serious attention.

Happily, on mining rights, giving the news flow around that in the country at the moment, we're happy to tell you that all our existing operations have secured their mining rights at this time. Not everyone can say that, but we can luckily say that.

I'm going to end there for that matter and hand over to Christine, who'll chat a little bit about the year past and the outlook. Christine?

Thank you, Pat. Good afternoon, everyone. It certainly feels good today to be talking to the good set of results. We've delivered solid results for the past financial year, and as Pat just sketched the background scene, we are still in a recovering economy with still very volatile markets. Our focus in the past year on cost discipline and operational improvement has paid off. We've got a strong financial position, and we're a strong cash flow generator, and that does give us the competitive advantage in the current environment to respond quickly and effectively to opportunities that the current environment presents.

In sketching the economic scene for the past financial year, we note the gradual improvement in both chemical prices as well as oil prices. However, the average fuel products prices in the past year in dollar terms was about 5% lower than 2009. The 16% stronger rand has outweighed the benefits that we saw in the improved commodity cycle. And on a positive note, however, the strengthening of the rand resulted in lower inflationary trends in cash fixed costs for the past year.

As you know, we are sensitive to these economic variables, and for budgeting and forecasting purposes, and take note at the intersection that I'm giving you these sensitivities, at an $80 average Brent crude oil price and 7.75 rand/dollar exchange rate, we estimate that for every $1 change in the average crude oil price, that it will impact our operating profit by ZAR615 million, and it would have a similar impact on operating profit for every ZAR0.10, [since] South African cents change in the rand/dollar exchange rate. We do issue these sensitivities with a health warning, especially in the very volatile markets that we are currently experiencing.

Despite the negative impact of the macroeconomic variables that we've seen, we have delivered on an improved operating performance, and that is reflected in the healthy operating margin; we achieved a 20% operating margin for the past year; and we see it in the positive trends that we see both in [EPEs] and headline earnings per share.

Pat spoke about the delivery of our offshore investments, and it's important that we saw good earnings growth on both the Energy and the Chemicals businesses, and these geographic diversification in earning enhances the robustness of our business going forward.

The Oryx GTL plant in Qatar has made a noteworthy contribution to the current year's Group results, and with the prospect of improved production in 2011, we are confident that this contribution will grow.

Positive management actions enhanced the bottom line for the year. The improved production volumes had a ZAR1.9 billion positive impact on operating profit. The operating profit in the current year was not impacted by the once-off charges, the large once-off charges that we saw in the prior year, and those related mainly to the Competition Commission administrative penalties, impairments, and the Inzalo IFRS2 charges.

In addition, the lucrative oil hedge that we had in the prior year was not repeated in 2010 and, as of today, we have not made a decision regarding a new hedge for 2011.

On our cost performance, we've achieved a reduction in cash fixed costs in absolute terms for the year, and that is even after normalizing cash fixed costs by excluding the once-off charges. We've done this through business improvement plans that we've spoken about previously, and through initiatives, both on the functional excellence side, as well as operational excellence, and Pat will talk more about it later.

We drove down costs in our businesses on a sustainable basis, and we've achieved ZAR800 million worth of cost savings in the current year, and that's compared to the prior year; and we're certainly expecting more to come in the next financial year.

We certainly had a good cost performance, and that's in light of the inflationary pressures that we experienced in South Africa. And that's in particular with relations to the high electricity rate increases that we've experienced; we've experienced 27% in the financial year '10, and we experienced labor costs at double digit inflation. And although it will be challenging in the 2011 financial year, we aim to contain costs within inflation on a normalized basis.

Certainly, on the labor front, we do continue to invest in skills for growth, as well as to be competitive in [key] skills. And on the electricity side, where we experienced these very high cost increases, we currently generate nearly half of our own electricity, and with the additional Sasolburg gas engines that Pat will be talking about a bit later, we aim to generate about 60% of our own electricity requirements by 2012.

In addition, with the new power purchase agreement that we spoke about in December at the CFO conference call, we said that would be effective from July 1 this year, and that will certainly mitigate some of the electricity cost escalation in future.

We've delivered a robust performance across the Group, and that's with all businesses returning to profitability. We certainly saw a very strong performance coming through from the Chemicals cluster, which contributes, or which contributed 23% of Group profit and, proportionately, that was even higher than the percentage contribution that was made in 2008, which was a record year.

The South African Energy cluster remains the primary contributor to Group profitability and cash flow generation, and that was significantly impacted by the strong rand in the past year.

Synfuels does remain the largest contributor to Group operating profit, and we certainly were very pleased with the volume improvement, the production volume improvement that we saw in Synfuels in the past year, as well as the containment of cash unit costs, and certainly the improvement in volumes had a role to play, a significant role to play in that regard.

In terms of 2011, we're expecting Synfuels to maintain a targeted production level, and when I talk targeted, it's the baseline target that we've referred to previously of 7.3 million tons for financial year '11. And that takes into account the full factory outage, the one in eight year full factory outage.

The International Energy cluster continues to perform well. Oryx contributed ZAR1 billion to operating profit, and that certainly endorses the commercial viability of our proprietary technology. The plant operated at 90% capacity utilization on an average basis, and that excludes the impact of the planned shutdown in the second half of the 2010 year. For FY '11, I've referred to it earlier, we are expecting an improved performance from Oryx at planned operating rates.

The SSI funding and growth costs relate to the project costs in China, Uzbekistan and India, and Pat will be talking more about that in the project pipeline a little later. And certainly in terms of the prior year costs, that largely related to a once-off loss on the reduction of our economic interest in the Escravos GTL project.

In terms of SSI, we are on track with our onshore gas exploration in Mozambique, and Pat will be talking more about our ambition to acquire further gas assets which links to our GTL value proposition.

The successful implementation of our business improvement plans, together with the recovery in demand, reflected in the higher chemical prices, contributed to a strong performance by the Chemical cluster. Both solvents and O&S benefited from these improved margins as market demands recovered.

O&S delivered an exceptional performance of operating profit of ZAR2.5 billion, and that did include the partial reversal of the impairment of Sasol Italy's assets of ZAR348 million; and that certainly endorses the positive outlook for the business going forward.

The cash flow from our -- generated by operating activities remains strong. You will note the increase in the working capital ratio to 15.3%, and that was expected, we did guide to this, due to pricing and volume effects. The current level of working capital is then in line with our Group target, and we do expect to remain at these levels for financial year '11.

We continue with focusing on strengthening our working capital management across the business, and certainly, taking cognizance of the current economic environment, we continue to monitor our Group credit exposure and counterparty risks.

Our gearing at 1% remains low, and we also continue to maintain a buffer for funding and other risks related to the volatile macroeconomic environment. So given our very large capital-intensive growth plans, that is reflected in our project pipeline, we do expect to return to within our target gearing range of 20% to 40% within the medium term.

Following on from the previous slide, we see that capital expenditure then does rise over the medium term, and certainly, the estimate for the next two years in ZAR19 billion and ZAR22 billion respectively. We take note that sustenance CapEx has increased to 60% in financial year '10 from a normalized level of about 40%, and that was partly due to the capitalization of Synfuels major shutdown costs, as well as environmental and safety related capital expenditure.

In terms of full financial year '11 and '12, we expect the sustenance capital to remain at the 50% level. However, we are analyzing these allocations in more detail, and we'll keep you informed in this regard.

Just to re-emphasize, we continue to adopt a flexible approach to our capital expenditure program to ensure that our pipeline of growth projects is advanced, and with the focus on keeping our long term shareholder value proposition intact.

In terms of balancing investment with returns to shareholders, we aim to optimize our capital allocation to deliver on the return of invested capital over the cycle which is then 30% above the weighted average cost of capital.

We follow a robust process in terms of prioritizing our capital expenditure, applying criteria which includes competitive advantage, strategic alignment, financial returns and project risk. In line with our progressive dividend policy, we declared the 24% increase in total dividend, and this increase in the total dividend takes into account the overall improvement in market conditions, together with the strength of our balance sheet and current investment plans.

Going forward, we expect to grow our earnings and dividend over time, reinstating our past track record of dividend growth as a key component of adding shareholder value.

In terms of the outlook for 2011, we will continue doing what we are doing. We will continue improving on our operational performance by growing production volumes and containing the normalized cash fixed cost increase to within inflationary levels.

The macroeconomic environment remains uncertain and there's very little we can do about it. However, the rand strength is the single biggest factor that exerts pressure on our profitability and, therefore, we do remain cautious on the outlook, given the risk of a stronger rand, and the assumptions that we've made in terms of weaker refining margins in line with global trends, and some expected softening in the chemical demand and prices expected towards the latter part of this calendar year.

In summary, Sasol maintains a solid financial position which supports our operational and strategic priorities.

Decisive management actions have enabled us to improve profitability and ensure sustainable performance.

Our strong balance sheet and healthy cash flows position us well to respond to the opportunities and challenges that the current environment presents and ensure that we remain focused on enhancing long term returns to shareholders.

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

Thank you.

Thank you, Christine. So much for the year. Let's talk about where Sasol is going.

We have a new picture for you representing the strategy, but I must emphasize that the fundamental strategy of course has not really changed significantly. There are some enhancements.

If you look at the Group, you can split us into two blocks; foundation and growth. Foundation is obviously the people, the assets, the businesses that we have, and these are critically important. This is the engine that drives Sasol; that pushes out the cash flow. And we've improved the performance of those and will continue doing so.

On the growth, that's the accelerate GTL, focused coal-to-liquids growth, growing the upstream business particularly as it relates to gas, growing chemicals. Then we've added an emphasis on growing the technological lead. We're very happy with the way we've improved the basic FT, Fischer-Tropsch, value proposition over the last year or two as we go into these big China projects and so on. But this is really important that we maintain our lead; we stay ahead of the pack. So a lot of focus on that.

And then, of course, our develop and grow green energy. We call it the New Energy division within Sasol. And not only is this important to mitigate our carbon footprint, but also we believe a great opportunity to make a good and successful business into the future.

On the left hand side, we have these Group imperatives, as we call them. Call them initiatives programs, but these are the things that we use to drive continuous improvement across the Group.

Operations excellence we have been busy with for a couple of years. We've tackled some 32 individual facilities across eight of our business units; some substantial savings already been achieved, and more to come.

Functional excellence is this program that we have running to improve the efficiency and effectiveness of all our enterprise-wide functions; and there again, Christine's already mentioned a ZAR800 million saving, and there's more to come there too.

Values remain critical to us. Just thinking of that 1956 ad where it says, Sasol's purity is your protection. I'm not sure whether that's reflective of our values or not, but values remain important to us.

The new one we've added is called capital excellence. It's capital project excellence from conceptualization all the way through to execution and commissioning. Frankly, we've had a bit of a patchy record. We have some projects we would have liked to perhaps forget about. Others have been absolutely world class, if we think of Arya, Oryx and so on. But going forward with this huge capital spend that we have, and we can't afford to miss a beat; we have to be spot on in each of those big projects.

So we have a huge focus. A lot of outside help we're getting as well under Leon now and Willem Louw, the MD of Sasol Technology. We're making very serious work of this at the moment. So all of this put together to drive increasing our stakeholder value sustainably.

At the next level of detail, if you like, we will continue as part of this strategy optimizing our operating performance. The focus is on reliable, cost-effective operations and marketing; the whole buy, make, sell value chain that we've improved significantly. We must continue with those improvements. So it's all about costs. It's all about energy efficiency, on which we have a significant focus. Energy efficiency, of course, not only helps us with costs, it helps us significantly with our carbon footprint as well.

It has to be sustainable growth, and I'm not going to go through all of these again. We've spoken about the GTL, CTL, and so on, and I'll get to the project update in a moment. But also what I'd like to get to is a particular focus on natural gas. I think there's some significant developments in the world of natural gas which suit us quite nicely.

And then, of course, the electricity generation on gas. And there, as Christine alluded to earlier, we have this 200 megawatts. We can increase it by another 80 megawatts in Secunda. And we're getting pretty close to an investment decision where we're going to add another 140 megawatts in Sasolburg based on natural gas. We should by about March, April next year make the final investment decision on that. So you can see electricity generation on gas is an important part of our future growth.

And then on matters of balance sheet, on dividends, you know what our gearing is. We do expect it to rise, as Christine has indicated, over the next couple of years. Of course, that depends on what happens to the macro variables as well. But we certainly have -- we have some funding capacity, and we need that funding capacity as we go into the Chinas and Indias and Uzbekistans, and so on.

On the dividends, we realize that post the crisis, dividend flow to shareholders is pretty important. Shareholders give us that feedback. And I think if you look at the combination of our low gearing and what we believe to be a reasonably generous dividend, this, if we compare ourselves with our peers and mid cap oil and gas in emerging markets, I think we -- this sets us apart. This sets us apart amongst our peers, and we think our shareholders are going to start noticing this. We certainly hope so.

As usual then, an update on the project pipeline. I'm not going to go blow by blow through all of them. Very happy to answer questions that you have later. But the first remark to make, of course, is to see how many of these are in the implementation phase; moves right the way through the pipeline to here.

Many of these, as you can see, are in South Africa or Southern Africa, and we still believe we're the largest industrial investor in the South African economy.

If you look on the feasibility side, China and Uzbekistan of course are the big ones there. On China, we believe, we are told, that if this project does go ahead and we do make the final investment, which we're certainly planning to do, then this would represent the largest single project investment by a foreigner in China. And that's quite nice to think about. This country's stuck on the bottom end of Africa, and it's making the biggest single project investment in China of any foreigner. It shows you that this is not a small deal.

So where are we? We've submitted the so-called project approval report on schedule, as planned. The Chinese then called for a review of our technology against their own technologies and other technologies, by some 200 experts, Chinese experts, and we had them engaging with us in an intensive review. Very happy to report that we got through that with flying colors. They made a positive recommendation to the Chinese authorities on our technology, and frankly, we're now waiting.

We're now waiting for the central authorities, the Central Government in China to make up their minds. This is a large country so things take a little while. We would expect -- we were hoping for this year, but I suspect it's probably going to go into next year before we get the feedback on that project, and then we'll get closer to making the investment decision.

On Uzbekistan, we will complete the feasibility study by the end of this calendar year as promised. We then go into a series of commercial negotiations based on that before we can get closer to an investment decision on that one.

The big one in the pre-feasibility phase is Mafutha, of course, and there this is certainly in the country's interest that this project goes ahead we believe. We need to get a few things in place though from our side. We need to make sure that the coal does actually work and we're testing the 50,000 tons, which is not a small test tube of coal, you can imagine. 50,000 tons of coal are being tested in Secunda as we speak. We need to get the results to make sure that the coal, which is very different from Secunda coal, is in fact gasifiable.

And then, secondly, we have to find a carbon storage solution. Carbon capture's no problem, but CO2 storage is still an issue, and we are giving that our very serious attention.

And thirdly then of course, Government has indicated that towards the end of the year it will give an indication of how it ranks various big projects such as Mafutha, and we need the comfort on that, as well obviously knowing that we want the IDC, as they've indicated, to come in at a 50%, or close to 50% partnership on this project.

And then the idea phase, we have a whole bunch of them, and there are a lot more that we haven't really put into the public space yet, given the demand for our technology.

Gas, a special word on that. We continue with our exploration in various parts of the world there, but as you know, exploration takes a long time. You've got to explore, you've got to find, you've got to appraise, you've got to develop, and then you can start producing. It takes quite a long time.

So what we've done is put a renewed focus on the acquisition of gas assets. These could be producing assets. They could be discovered reserves. It depends on what we find. Many of you have known us for a long time and you know that pre crisis we were also looking at this, but then we put a hold on it because of the economic crisis. We now feel comfortable enough, given the strength of our balance sheet, to re-awaken that exercise, and we're very much busy with it at the moment.

I'll come back to natural gas in a moment more generically, but let's move on to that natural -- yes, let me move in fact right on to it now.

This is taking a step backwards to see why natural gas is becoming increasingly popular. In this exercise that Leon is busy with looking for gas reserves, he's finding that gas is not that cheap. And why? It's because it's popular. And why is it popular? It's because the macro drivers, at that level, there is a reasonable abundance of it, so people like the idea of security into the long term.

This arbitrage between the price of gas and oil, there seems to be that de-linkage that we spoke about last time has been sustained, so the bigger the gap between gas and oil, the better it is for us. The more interest there is in our technology, the more money we make. And we see that as being certainly sustainable and creating a lot of interest. That's what we do, of course; we take gas and we convert it into oil and then into diesel, etc.

GTL is still very much more competitive than liquefied natural gas. If you have gas remote from market, GTL is the way to go rather than LNG at this time, that's clear; again, fuelling the interest in the technology. And on monetization options for gas, of course, clean electricity is significantly important there; gas to liquids. Clean fuels, a premium we're getting such as in Oryx, for example; we saw that product. You saw the cleanliness of the product, the purity of the product in the ad earlier. It's very pure. We get a premium for it in Europe, for example, coming out of Oryx. And then, of course, gas can go via GTL into some chemicals, but it also can go directly into chemicals such as we have in Sasolburg, for example.

And the benefits are clear. This is an important one here. Carbon footprint of gas-generated electricity is about 30% of that of coal-based electricity generation, so people like natural gas for that reason.

We've spoken about the superior fuels, and energy security is becoming more and more of an issue for many countries. If you have huge amounts of gas available to you and you don't have oil, and there are countries that are like that, then obviously we can convert that gas into oil, helping with that particular problem.

So gas is an important focus for us, and will continue, and it plays very nicely into our sustainability strategy. And let me deal with that, and then I want to deal with a bit of news that came through on Friday regarding sustainability. But as you can see, because of gas into Secunda, for example, improves the efficiency of the whole process, it reduces our carbon footprint. We'll be focusing on that. We'll be focusing on waste gas, waste heat generally. We put a resource in place now; several people to drive this from a Group point of view to make sure that we get the benefits of energy efficiency. The best way of dealing with carbon is not to make it in the first place. This is what we're after here.

We need to find these particularly the carbon storage solutions for new CTLs. We won't go ahead with a new CTL plant, whether it's in China or India, or anywhere, unless we have at least a partial storage facility in [site]. So a lot of work going into that, on our own and with -- in partnership with other experts around the world.

And then our new focus on what we call New Energy, which is renewable and low carbon energy sources. We've started this division. We created it a few years ago. We've spent about ZAR200 million -- or about ZAR185 million, I think is the exact amount of money ZAR185 million on it so far in selective investments and getting the organization and resources up to speed. And we see a significant spend in the future, not just to mitigate carbon, but also as a business opportunity for us. So there's a big bunch of engineers and scientists in Sasol giving this their serious attention at the moment.

So it's not only growth, it's sustainable growth. And I think the seriousness with which we take that is evidenced by the fact that we had this good news on Friday. And I don't know whether we sent out a media release or not, to be honest; we've been tied up this morning. But you'll all be familiar with the Dow Jones Sustainability Index, this international measurement of sustainability. I'm not going to describe what it is, but there's some 1,390 companies worldwide that participate in this. And this year, 2010, Sasol has been ranked as the sector leader of the oil and gas producers. So we've competed against all the other oil and gas majors, and even there are a couple of super majors in there, and we've done better than they have.

We are the global leader for the oil and gas super sector. I'm not even sure what that one is at the moment, but it sounds good. So we're obviously delighted, because it's not just writing nicely, it's about the stuff that we've done that we could write nicely about. So the combination of the two has given us very substantial international recognition in this area of sustainability, so we're of course delighted with the work that the team has done there.

Not only growth, but sustainable growth, as I said. And as I wrap up, I'm going to speak only to the first bullet on that slide, and I really can't over-emphasize the importance of our existing businesses including, of course, the newest -- newer ones such as Oryx and Arya, the importance of these in delivering sustainable returns; this buy, make, sell. This is the engine of Sasol. This is what is producing the cash flow. We've improved these businesses; we've improved the engine, but there's more to go. There's certainly more value that we can extract out of the existing businesses.

And then, of course, coupled with that, there's growth. And the winning formula stated simplistically, of course, not for all the growth, but for an important chunk of the growth, is the following one. The green blocks, the world has significant hydrocarbon reserves; not just oil, gas and coal as well. There's a global drive for cleaner fuels. There's this huge need for energy security, particularly in the new normal, if you like.

India, which has significant reserves of gas and coal, is importing over 70% of their crude oil. They don't like importing over 70% of their crude oil. China is now -- when we first started was 30% of their crude. Now China's importing over 50% of their crude oil. So energy security is an issue, and this is of course where we can help.

Resource monetization; countries in the Middle East such as Qatar, for example; they have resources; they want to monetize them. They can do it via LNG, which they are doing. They can also do it via GTL, so the easy way of transporting, creating value in-country in transporting the gas to monetize it. Important; Qatar has a very large diversification program. GTL is part of that.

So the green blocks, coupled with our unique technology and operating experience, and that's really important. There are many people to claim to have technology like ours. Some of them even claim it's better than ours. We haven't found one yet, but that's what they claim. But it's making it work. Sustainability, sustainably over 60 years is what we can offer.

So the winning formula results in a great opportunity for us, it's a win-win situation for the country concerned in terms of jobs, ForEx, energy security, etc. So this formula is the reason why we have grown in terms of offshore investments, and why we're so optimistic about the future growth in this area on the back of the technology.

And the last slide says there are more of the same, but there are a couple of points that I'd like to re-emphasize, if you like. We believe the long term oil fundamentals are intact. Obviously, things are being affected by what's happening in the developed world at the moment, but things are pretty pedestrian there in terms of growth and demand for oil. But there's rising demand from the emerging markets, and we are very well positioned in those emerging markets, Middle East, China and India to come. So we're in the right spots for growth.

Shale-gas is important. The dynamics that we discussed last time and the opportunity that it opens for Sasol is pretty exciting stuff, and so that gives us this investment proposition of strong existing business, a competitive technology lead, feeding into the security needs. Well developed in -- well positioned in developing markets, and we've taken note of what our shareholders want. And obviously, we don't run the Company just for individual shareholder needs, but I think collectively we've seen short term returns are important, and that's why we had a good look at our dividend policy, announced the progressive policy, and hopefully have convinced you that we're on a path here that indicates a change. And as earnings grow, dividends will grow, and we expect that will get the attention of some of the people that haven't been particularly impressed with the dividend, particularly in the year that we cut it.

So we believe the story's a good and a solid one. We hope you do too, and we are very happy to answer any questions that you have. Nerina will remind me that we have people on the line as well, and we need to give them attention as well. But myself and the team are very happy to answer questions.

Sure. I think just before we open the floor to questions just state your name and the company that you come from.

Alex Comer from JP Morgan. I've got a few questions. Firstly, congratulations on the cost control. If I look at your wage bill in particular, I think your wages are around about -- or employee costs $66,000 a person, and that's up about 65% over the last four years, and the oil price is up just 20%. Now obviously, if that trend continues there are going to be problems. Now you've managed to cut your employee costs this year. Do you have any specific targets or plans to further control wage costs going further?

That's the first question.

Maybe also on costs, maybe you could quantify the benefits of your electricity deal with Eskom?

And one more question on the O&S business; maybe you could split down the profits between the US and Europe.

Thanks.

Thank you, Alex. I think -- Christine, can you just respond to --? I'm not sure that I agree with the escalation number. So I don't know whether we want to deal with that now, or whether we want to get back to Alex on that.

Yes, I can talk broadly about labor costs. Alex, I think you're referring to the detail that we show in the analyst book. I just need to point out that in the past year, so in 2009, the IFRS2 charge impacted quite majorly then on employee costs, as it would do the employee share option scheme then going forward would also be taken into account.

We did talk about to contain costs within inflation levels, the challenge is that labor cost is running currently above inflationary levels at around 7.5%, so that's what we can talk specifically.

In terms of the deal on the power purchase agreement, that's not in public domain, but I did say that it will mitigate some of the costs escalation coming in future.

If I can build a little bit on what Christine said, our headcount has come down. Where's Alex? There he is. And we are -- as we said, we are half way through with operations' excellence and functional excellence, so there's more to come and, obviously. some of that is going to reflect in labor costs as well. We prefer not to make particular targets in mind, but we're very aware and that's why I think we need to go back to Alex exactly on the cost trends, taking out the Inzalo deal, and so on, because I think the trend certainly has been far better in recent times.

But we're a growing Company, of course. You don't do new projects without new people, so we have to have that in mind as well.

Yes, and on the Eskom deal, it's a hell of a good deal for us. It certainly far exceeds our targeted rate of return. That's on the existing 200 megawatts. Andre, as we go into the other deal, we haven't finalized any further deals at this point in time but, obviously, they would have to be good deals, otherwise we wouldn't make these investments.

(Inaudible question - microphone inaccessible).

No, we're not going into -- it's a net off. We're still a significant importer of Eskom electricity, so the theory is that we sell this to Eskom and we continue importing. But from an accounting point of view, it's netted off, yes. It's a good deal for us, and it's a good deal for Eskom; it's a good deal for the country.

And then O&S; Andre, do you like to respond to that?

Yes, thanks. Yes, we don't concentrate too much on reporting O&S profitability by region any more, because that was one of the issues that led to poor profitability in the past. I can tell you that ethane cracker [and electrols] is doing quite well at the moment, as is the LAB business and our ethoxylation as well. In Europe, the bright stars are the Alumina business and also LAB in Italy has demonstrated a significant turn round, as is evidenced by the reversal of the impairment.

Thank you. Caroline Learmonth from Macquarie. Three questions; first of all on Project Mafutha. You've mentioned some of the issues around timing and where you require greater clarity. Should we assume that that is a relatively low probability project in terms of proceeding at the moment?

The second question is on China CTL, and you've mentioned that the next update on that has probably slipped into next calendar year. How -- can you update us on how that project is positioned versus China's own -- well, versus [Shenwa's] own CTL project?

And then just finally, the share buyback authority's been renewed. Can you comment on, given the strong balance sheet, and even with the dividend increase and the CapEx plans, what the likelihood is of any share buyback activity going forwards?

Thank you.

Let's take them one at a time. On -- let me deal with Mafutha and, Leon, you can speak to China CTL.

No, I don't think it's a low probability project; I think it's a matter of timing though. I think it's pretty hard to figure out when it might happen. So I believe, as I said earlier, sincerely believe it's something the country needs, and it should go ahead, but it's -- I think it's going to take quite a bit longer than we originally envisaged.

Leon, do you want to speak to China CTL and Shenwa's technology?

Shenwa is fully supportive of this project, our indirect liquefaction. Their own technology is direct liquefaction. They've commissioned that plant quite a while ago. They have had some various successes, but they're not planning any more direct liquefaction plants. So this is indirect liquefaction plant, and we compete against other indirect liquefaction technologies in the country, which was part of the review that just [they've] just currently [had].

And the crisp issue is that they've reviewed our technology and said we can go ahead using our technology, so that means it's a step ahead of anything else they had on offer.

And then, Christine, do you want to deal with the share buyback? You must -- Caroline must be referring to the original renewal.

Yes, [it was] 4%..

Yes.

Yes, and we -- that's what we're talking about. In the past year, we said we did not buy back any shares. But I think importantly is that it does allow us flexibility to assess whether we would want to do a share buyback going forward.

I think importantly is that we do have an ambitious capital expenditure growth program, as well as the rand strength is a significant risk for us, and so, clearly, I spoke about the buffer that we -- and we do some scenario planning into the future. So at this stage, I can say that we are taking cognizance of both capital growth program as well as our sensitivity to macro variables and, clearly, our aim is to grow cash dividends over time, and clearly then we also to take into account that in future should we believe that this should be excess cash at this stage, we're quite comfortable with those three priorities. I'd say then we would consider share buybacks after that.

We'll take one more question from the floor before we hand over to questions from the [bridge].

Good afternoon. Gerhard Engelbrecht, Renaissance BJM. Pat, just around the first phase growth project at Synfuels, as far as I understood, I expected a 3% increase in volumes in the 2012 financial year, but if I read slide 18 correctly, you say estimated beneficial operation 2013. Has this been pushed out? Will the growth only come through later?

Secondly, I'm just trying to reconcile the profits in the SSI business. In your joint venture report, you say GTL joint ventures had an EBIT of ZAR1.7 billion. In the slide -- one of the slides, you show ZAR1 billion -- slide 15 you show ZAR1 billion. I'm just trying to reconcile the difference there.

And then maybe lastly, just on China, now that you've completed the feasibility study, I wonder if you can give a little bit more detail around the time that it will take to complete a project like this; how long will it take you to construct it? Have you ordered the -- at what point do you order the long lead items? And maybe a little bit more detail around that.

Thanks, Gerhard. All right; I think, Andre, do you want to respond to the first one on Synfuels volumes?

Sure. It's our intention to grow by 2% by 2012, and then the addition of another percentage point in 2013. So it's just a question of timing around when the full 3% kicks in.

That's what we said last time too. It's consistent, yes.

But we are on track with the project; it's going well. So we think we're going to meet the target dates as set out.

Right, Leon?

First on China?

On China, yes.

Yes, maybe just a quick update. We were very pleased with the final outcome of the feasibility study. We confirmed the capital as previously indicated in the range of ZAR10 billion. Our Chinese partners still believe it could be significantly cheaper, but we do our economics on our own sums.

We had quite a few -- some upside surprises, if I can use those words. Energy efficiency of the plant is significantly higher than Secunda, 42%. Secunda is below 30%. Water consumption per barrel of product is 50% lower than Secunda. CO2 production is also significantly down. So -- and volumes also slightly up for the plant. So we were very pleased with the final feasibility study, and that confirmed our economics for the project.

The process they're following; the panel of experts have now reviewed the -- reviewed our technical offering. They've made their recommendation. The NRDC must now make -- which is the National Reform and Development Commission, must now review all the information they have about our project and competing technologies, and then they must make a decision and make a recommendation to the State Council. [It's better] indicate that we believe that will only happen during the next year.

If the State Council gives us a positive answer, then we have to register the Company and the joint venture with what they call MOFCOM, which is their commercial arm, and only once we've done that will we go ahead and start thinking about ordering long lead items, and so forth. So there's still an administrative process that they have to follow, which is clearly within the guidelines given by the Chinese authorities.

Christine?

I'll answer the question on Oryx. In essence what that was is a timing issue, Gerhard. There is a difference in terms of timing, in terms of the -- when the joint venture has accounted for the income. And when we actually -- we've actually made these provisions in the past, so in terms of the difference between the ZAR1 billion and the ZAR1.7 billion, that's really a timing issue.

If I can just follow-up with Leon, if you've completed all the admin around China, do you have an idea how long it will actually take to build one of these plants? I'm trying to figure out, you know, you've talked about India, CTL and Indonesia and Uzbekistan, GTL, I'm trying to figure out how these things stack up and how they stagger.

Well, let's say when we put the first shovel in the ground, you must give us four, four to 4.5 years before we will finish the plant.

Can we take questions from the bridge?

A question comes from Campbell Parry with Investec Securities. Please go ahead.

Yes, thanks very much. Good afternoon, everyone. Firstly, Pat, just with respect to your growth project. There's no discussion or plan there with respect to [Clean Fuel 2], and I know many of the multinational oil companies are now starting to discuss this in earnest. Could you give us some sense how much it would cost and how long it would take to get Natref and Synfuels plants output up to Euro 4 specification; obviously, a critical concern in the medium term?

Then just two quick ones. Coal gasification trials at the Synfuels plant that are underway at the moment, are they expected to impact the performance of the Synfuels plant in the next six months?

And then lastly, the North Field appraisal drilling program there, can you give us maybe some update on whether you've heard from QP about the status thereof?

Hi, Campbell. Now with pleasure, let's answer those. I think, Andre, you will come in on the first two, and Leon on the third one.

Sure. Thanks for that. On Clean Fuels 2, we anticipate that it will take three to five years for us once the specifications have been clarified. So there's still a process that's going on with the Government to clarify exactly what the fuel specifications will be. We don't think that it's necessary to go straight to a full Euro 4 or Euro 5 specification. We believe that we should develop something that is more appropriately suited to the needs of what we have locally and what the vehicle pool needs locally.

We're also in discussion with Government to finalize a cost recovery mechanism, and that is obviously a very important component of this Clean Fuels process. I think it's also important to mention that the big capital expenditure that we had for Clean Fuels 1, which, if you remember, related to the removal of lead from petrol, that was taken at Synfuels, and we envisage that the Clean Fuels expenditure at Synfuels will be relatively modest compared to the huge expenditure that we had with Clean Fuels 1.

For Natref, I think the expenditure will be similar to what we've seen elsewhere in the world, and also what is similar to what we can expect for other conventional crude oil refineries here in South Africa. But I don't think it's appropriate to give an estimate now.

We don't really know the answer to the number just yet, but it's certainly part of our planning. Good. Leon, do want to talk about the North Field in Qatar?

Just to say that the coal test for Mafutha will not impact on the production at Synfuels. We will not -- that's not going to happen.

The exploration of the North Field is continuing. The Qataris originally indicated a timeline of 2010/2011. The latest indication is that this will continue beyond that period; that they probably will continue with this process until 2012, so we don't expect an outcome of those results before 2012.

All right. Thanks, guys.

Thank you. The next audio question comes from Matthew Lofting with Morgan Stanley. Please go ahead.

Thanks. Afternoon, all. Three quick questions, please; firstly, just on the CapEx budget, which is obviously trending up over the next couple of years or so. I was wondering if you could give some color around to what degree or otherwise that budget includes projected spend on projects like China and Uzbekistan which are yet to reach the final investment decision.

Secondly, perhaps you could talk around the recent turnaround which I think has happened at Secunda and how that's gone from an efficiency and timeline perspective.

And thirdly, just around the upstream reserves acquisitions, or potential acquisitions. Is there a specific budget which Sasol have set aside for inorganic acquisitions, and is that inclusive within the CapEx budget, or is it additional spend on top of that budget?

Thank you.

Good questions there. Christine, do you want to speak to the CapEx trending?

Yes, the specific question was related to whether China and Uzbekistan is included. No, it's not. It'll kick in beyond this two-year timeframe.

So it's largely the --

The bigger part of the CapEx for China.

It's largely the projects on the slide. I can't remember the slide.

Yes, it's page 18. So these are the big projects included in this timeframe. I think certainly China, the big spend will kick in beyond 2012. And driven by then when we make the investment decision, that's when we'll start capitalizing. But the big spend is beyond 2012.

Andre, on a turnaround, or outage, maintenance outage at Synfuels?

Thanks. Yes, Synfuels turnaround started, or shutdown started on August 27. We shut down 50% of the factory, so it's a very major shutdown; one of the biggest that we've ever had. And this is because we've been inspecting various common systems that are required to be shut down, and we do this about once every eight years. It's gone exceptionally well. I think we are quite proud in particular of our safety record. We've only had a couple of minor cuts and bruise; nothing serious fortunately, so we're quite pleased with that.

But it was a very, very massive undertaking. Somebody did the calculation that this is equivalent to servicing 0.5 million cars in three weeks, just in terms of the effort that's gone into it. We are at the moment heating up the factory with steam so we intend to be back online fully in production by this weekend, so it's gone quite well.

Good. Have we --? What was the other one? Yes, do you want to -- one of you want to respond to that one? Leon?

Yes. No, there's a special budget for the upstream acquisition for resources. It's not included in any of the numbers that Christine has showed you. So this is on top.

That's part of the buffer that Christine referred to earlier, and it's a substantial amount of money.

Okay, thanks.

We'll take one more question from the floor before we wrap up.

Gentleman in the front.

Hi, (inaudible) from [Geddes]. You've probably handled a question like this many times before, but I'm a relative beginner on the Company. A Green Paper on carbon tax is due out. What are you expecting to find in that, and what are the implications for you at Sasol?

Yes, the Green Paper we understand is coming. We don't know what the quantum. We think there will be taxes, so we've taken that into our scenario planning. It's very difficult to predict what the level of those would be, so we have various scenarios which we've run. And it clearly will have an impact on us. We don't think it will be terribly significant, certainly not to start with. And our plan is obviously, as I indicated in that sustainability slide, is to work very hard on things like energy efficiency, reducing our carbon footprint to mitigate the impact of carbon taxes.

Carry on.

Maybe just -- come a little bit closer to sort of an estimate of how much is could affect you?

It's very difficult to do; it's very difficult to do because it's too early in the process. We just don't know. Treasury is being fairly quiet, understandably, with what they're working on. So we've worked on a range of scenarios which we've programmed into our planning and we just don't know.

We don't think it's a particular train smash. If we look at what happened in other parts of the world, we think we'll cope with it quite nicely. But it will have some impact.

Thanks.

I think, Jarrett, you wanted to ask one last question and then perhaps you can wrap up.

Sure.

Thank you very much. Good afternoon. It's Jarrett Geldenhuys from Deutsche Bank; just two quick questions. Just on the savings in Synfuels, there seems to be a step change, and perhaps a change in accounting policy for the maintenance CapEx that was capitalized. Can you give us some kind of number that we can work for on a modeling on EPS line?

And secondly, given the shale-gas dynamics that we do see, what is your appetite for perhaps entering into buying gas direct from the market?

Good. Do you want to deal with the first part, Christine?

I'll deal with the first question. Net impact on operating profit is about ZAR382 million for the shutdown costs, and clearly, that is net impact taking into account prior year costs for the convention change, and impact then on EPS about ZAR0.63.

Good. Next one?

Thank you for the question. As Pat has indicated, the GTL -- GTL has got a better value proposition, especially where shale-gas is prevalent. And, yes, we are in discussion with shale-gas producers for the purchase of gas, so that is very much part of our investigation at this stage.

Good. I think probably the afternoon drinks are calling. Please have a piece of birthday cake. I hope there's some left outside there for you.

Thank you very much for your interest, and we look forward to any other questions that you have, either here in South Africa, or anywhere around the world. And Christine and I and some of the other executives will be visiting Cape Town and Pretoria and London and New York, and all of those good places in the next couple of weeks.

Good. Thank you again.

Thank you. This concludes the Sasol year end results conference call. Thank you for participating, you may now disconnect.