Sasol Ltd (SSL) 2011 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; and Christine Ramon, Chief Financial Officer.

Following the formal presentation by Sasol management, an interactive Q&A session will be available. A copy of today's slide presentation is available on www.sasol.com. I would now like to hand the call over to Pat Davies. Please go ahead sir.

Good morning and good afternoon to everyone. Thank you very much for joining us. We look forward to talking through the presentation, which I trust you have, and then answering the questions that I trust you will put to us too.

As you've heard, Christine is with me here this afternoon, as it is in South Africa. But I also have Andre de Ruyter, Nereus Joubert, and Lean Strauss, who are all members of the Executive Team of Sasol to give us a hand with the answering of the questions.

So without any further ado, I'm going to start the presentation, and you will see hopefully on the cover page a couple of interesting pictures there. The left-hand one is particularly interesting in that that is a drilling pad in Farrell Creek in Canada, where we've recently made the gas acquisition, which we'll obviously be chatting about a bit as we go through this.

We also have a slide there which is, I see, numbered number 2 on recent achievements, which we discussed with the media this morning, speaking to our progress around black economic empowerment in South Africa.

But, also significantly, a couple of international awards that we've achieved in this past period, Research and Development awards, an international one. We're the global leader of the oil and gas sector on the Dow Jones Sustainability index, which means we must have beaten the super majors and majors that would have also participated in this index. So we think those, and a couple of other awards that you are given there, show that we are putting ourselves on the map, particularly in terms of sustainability and sustainability reporting.

But without further ado, onto the presentation itself, slide number 3 talks about delivering on our priorities through focused actions. And we would hope to persuade you that we have, indeed, done just that during the course of this presentation.

So we have improved the operating performance of the Group, and we see that, despite the significant shutdown, planned shutdown that we had in Synfuels, which brought its volumes down, the rest of the Group's businesses performed very well, in terms of volume growth. We see the stellar performance of the Chemicals Group, 29% of operating profit coming from there, and Christine would particularly talk about the successful cost management that we've had. That's the first bucket.

If we can go on to the next one which is growth, and particularly technology-driven growth, we have the shale gas acquisition that we made, but that's all to make GTL happen faster. And we talk about accelerated GTL of growth in our strategy, which I'll come back to later. And this is a fine example of just that.

But it's not just gas to liquids technology; we have technology skills in other areas. The second bullet there on tetramerisation is an example of that. Tetramerisation produces octane, which is a comonomer which goes into the plastics industry, and the unique way we do that is a tribute to our Sasol engineers and scientists. And this is an investment decision that we made for building such a plant in North America.

On to sustainable growth, of course, all growth must be sustainable growth. We're giving our very focused attention to improving safety across the Group. We're targeting 420 MW of additional electricity generation, this time on gas. We already have 200 MW, and we have plans to increase that as we indicate there; and quite a lot of work going into new energy, or greener energy, lower carbon forms of energy that we've been working on, but more of that later.

So those plans in those areas have delivered the results that we see on the next slide, number 4. And I'm not going to go through the numbers, I'm sure you are pretty familiar with them all now. I would highlight only that Group cash fixed costs are down in real terms, and this is a result of all the work that we have been doing; dividends up in line with our progressive policy -- dividend policy; strong balance sheet, of course, and then local -- both local and international investments, are going to be driving growth.

A point that we make in South Africa, particularly, as there's a lot of talk about jobs here; but jobs don't come without investment. And we, I believe, are the largest industrial investor in the South African economy, and, hence, play also not to our own agenda, but also to the country's agenda.

So with that I'm going to hand over to Christine to take you through her part of the presentation.

Thank you Pat, and good morning and good afternoon to everyone on the line. Before I move through my part of the presentation I'd just like to pick up on the following theme.

Firstly, we do continue to deliver solid results, and that's still amidst a recovering and still volatile global economy, and that we continue to monitor, and we also plan for quite carefully. Secondly, and that comes through Pat's part of the presentation as well, is that we have taken strong and decisive management actions, which have underpinned the Group's solid performance. And last, our strong financial position, as well as our strong cash flow generation, allows for flexible capital allocation with the aim of enhancing returns to our shareholders through growth, as well as through increased dividend.

So moving over then to slide 6, and setting the scene for the half year, we do note the gradual recovery of the rand commodity prices. And then we also note that improved oil price and chemical product prices have outweighed the effect of the stronger rand compared to the prior year. And on a positive note, we note that the strengthening of the rand is reflected in the lower inflationary trends in cash fixed costs.

Importantly, we remain sensitive to these economic variables, and for budgeting and forecasting purposes will provide you with the sensitivities that, for every dollar change in the annual average crude oil price, it will impact our Group operating profit by approximately ZAR670 million. And for every [ZAR0.10] change in the rand/dollar exchange rate, it will impact our operating profit by approximately ZAR550 million.

Moving on then to slide 7, we see that the overall improved macroeconomic environment, as well as our focus on cost containment and a good operational performance, has boosted the bottom line. We note there that Group operating profit has increased by 15%, and that is despite the large maintenance outage at Synfuel, whose lost volumes were compensated for by other business units. And that certainly demonstrates the robustness of our Group.

We achieved a healthy operating margin of 18%. We also note the large impact of once-off costs. And if you exclude these once-off charges, the operating margin is 20%.

Moving on to slide 8, our overall cash fixed costs remain relatively flat in nominal terms, and, as Pat stated, it's down in real terms. And that's taking into account the South African CPI and PPI, which averaged at between 4% and 6% -- sorry 4% to 6%, for the period under review. You will see that we achieved cost reductions of just over ZAR700 million, which reflects the benefit of management actions, as well as the PPI agreement with Eskom, after their successful commissioning of our open-cycle gas turbines in July 2010. Pat mentioned this that we are on track to increase our electricity generation capacity to 60% by 2012, and that will certainly help us further contain the abnormal electricity cost increases in South Africa.

We're also expecting further cost savings, and that's following the full implementation of our functional excellence initiative, as well as further business improvement planned; so watch this space, there are more savings to come.

Moving on to slide 9, which shows the cluster review, you see that we've delivered a robust performance across the Group, with all our businesses delivering healthy margins. We saw an exceptionally strong performance from the Chemical cluster, which contributed 29% of Group profit. And this is quite noteworthy with the rising oil-related feedstock costs. Our International businesses now also contribute substantially to Group profit, which is aligned with our objective to diversify our earnings geographically, and it does compliment our robust business model.

Moving on to slide 10, we note that the SA Energy cluster has delivered a robust performance, and contributed 62% to Group profitability and cash generation.

Moving on then to the individual businesses; Mining's profit, excluding the impact of the Ixia BEE charge, increased by about 315%. And that was on the back of higher coal export prices, and increased selling prices to Synfuels. However, Mining's volumes and unit costs were impacted by Synfuel's maintenance outage. I think, quite importantly, you know that we concluded the Ixia coal BEE transaction at the end of September in 2010. And so we remain focused on building operational capacity within the Mining sector, and we continue our work with Ixia coal in this regard.

Gas delivered improved volumes and that was supported by the start-up of a new compressor in Komatipoort, which is on the border of South Africa and Mozambique.

And then moving on to our Synfuel's business, the highlight there is that, despite the maintenance outage, which resulted in our decline in production volumes, the cash unit cross increase was well contained at about 3.9%, and that was in addition to the power purchase agreement with Eskom, and was also due to efficiency and cost savings coming through there.

Oil's profit was impacted by the rand's strength, but importantly there was an improved operating performance at Natref as well as improved sales volumes, and higher wholesale margins.

Moving on to slide 11, we see that the International Energy businesses has more than doubled its contribution to Group profits, and that's despite the growth and exploration expenditure.

Oryx contributed 7% to the Group operating profits. And, in terms of production levels, averaged at about 27,300 barrels a day for the past six months, achieving about 84% of nameplate capacity. And that is well within the 80% to 90% utilization rate for a gas plant. The debottlenecking at Oryx is on track, and that will add about 10% to volumes in phases by 2013. Importantly, the stable operating performance at Oryx endorses the commercial viability of our proprietary technology, and that does bode well for the advancement of our GTL growth strategy.

Moving on to SPI, we are expanding our on-shore gas production facilities in Mozambique, looking to increase our annual production capacity to 183 million gigajoules by 2012. And Pat will talk more about this when he talks through the project pipeline.

Pat will also give you more of a flavor around our Farrell Creek acquisition in Canada, which has certainly been a highlight during the period -- the past period. And we have ambitions to further advance our gas acquisition and our GTL growth strategy.

Moving on to slide 12, the robust demand has been reflected in higher chemical prices and improved margins, and that resulted in the exceptional strong performance by the Chemical cluster.

The Polymers business remained resilient, largely due to the positive contribution of Arya Sasol in the Middle East, where production volumes have increased by 26%, with the expected ramp up of the facility. The local Polymers business, however, experienced tight margins, and it is in the process of restructuring and implementing fixed cost reduction.

Both Solvents and O&S have benefitted from robust demand and improved margins, and that's been through a continued focus on cost containment and further business improvement plans. O&S' exceptional performance has contributed almost half of the Chemicals cluster's operating profit, and it delivered a double-digit operating margin of about 11%.

Moving on to slide 13, we see that healthy cash generation supports our growth, and certainly enhances our return. So we say the cash flow from operating activities has remained strong, and that has underpinned our strong financial position. I think certainly our low gearing allows then for the advancement of selected growth opportunities; and it also gives us the opportunity to enhance returns to shareholders, through increased dividend.

We also continue in the current volatile economic climate, we continue to focus on strengthening our working capital management across the Group, and the target there is 15% to 16%. And we continue to focus on credit risk management.

Importantly, in the volatile economic environment we are still cognizant of maintaining a buffer for volatility of -- relating to macroeconomic variables. You would also see on the chart that we do still contribute substantially to the taxman, and that does make Sasol the largest corporate taxpayer in South Africa.

Moving to the right-hand side of the graph, we've put out the revised capital and acquisition estimate for 2011 and '12, which is ZAR23 billion and ZAR31 billion respectively. And just to emphasize it, it does include the Farrell Creek acquisition.

Importantly, we are expecting to return to within our targeted gearing range of [about] between 20% to 40% in the medium term, and that takes into account our large capital intensive growth plans, and our gas acquisition strategy.

Moving on to the next slide, slide 14, we aim to balance growth and competitive returns to our shareholders by focusing on capital portfolio management, which is aligned to our strategy. And we do apply criteria including strategic fit, risk management, and financial returns, in order to sustainably deliver on our targeted ROIC, which is 30% above our weighted average cost of capital for growth projects.

If you refer to the graph on the left, you will see that we have delivered on our ROIC target through the cycle. I think also, quite importantly is we continue to prioritize our capital expenditure, and the aim is to optimize our portfolio returns, and to ensure that our resources are allocated optimally and that the capital is utilized effectively.

As part of our capital excellence initiative, which is one of the strategic initiatives that Pat will go through in the strategy we are in the process of capital scrubbing, which is already delivering benefits, and through this we ensure that sound governance and proper processes are followed.

Moving onto the progressive dividend policy, and in line with that we've declared an 11% increase in our interim dividend. And that certainly takes into account of aligning earnings with dividend growth, and it takes into account the current environment, including the improved market and economic conditions, with a caution on the rand strength, together with the strength of our balance sheet, and our current capital investment plans and growth strategy.

So lastly, on the outlook for the remainder of the year, we talk about improved operational performance, but uncertain macroeconomic variables. So our focus is on the controllable factors, and in the second half of financial year 2011 we will continue to further improve our operational performance by growing the production volumes at Synfuels to achieve the targeted 7.2 million tons for the full year.

At Oryx and Arya we expect to maintain the half year's operating rate for the full year. And certainly on the cost side we've demonstrated that we've got costs under control, and we aim to contain the normalized cash fixed cost increase to within inflation level for the full year.

On the macroeconomic front, we have seen improved commodity price fundamentals, and that's reflected in the improved demand and in the increased chemical product prices. You are aware we are strongly geared to the oil price and the rand, so the increased oil prices are supported by geopolitical factors in the Middle East and North Africa, and we do not believe that the full supply risk has been factored into the current oil price. We are also experiencing weaker refining margins in line with global trends.

We note the rand strength thus far, which has been offset for the half year by the increase in commodity prices. However, it remains the biggest risk factor exerting pressure on our profitability in the short term. However, in the longer term we certainly see ourselves as a good rand hedge.

So in summary, before handing over to Pat, I'd like to make two points. Firstly, we've shown that we've undertaken decisive management actions that have improved profitability, and we will continue to focus on this to ensure sustainable performance in our businesses. And secondly, our strong financial position makes us competitive in advancing our growth strategy, with the objective of enhancing sustainable returns to shareholders.

Over to you, Pat.

Let's talk a bit about the strategy. It will come as no surprise to you that the strategy is pretty much as it was before, with a couple of tweaks to it. It's a good strategy; it has served us well. I'll highlight a few of the areas in which we're delivering in terms of that strategy.

Perhaps before I do that, if we look on chart 17, on the left-hand side we have these things called Group imperatives. Now, we're not a holding company, so we drive these initiatives throughout all of the businesses to improve performance from operations excellence, to functional excellence, which has really been a re-jigging of the whole way we supply HR, information management, supply chain services throughout the Group; it's being re-done, modernized, to make them more effective and more efficient.

Capital excellence is a newish one. Given the very significant investments that we are making it's important that we execute our projects in an excellent way, and that's what that imperative is aimed at doing. All, of course, based on our values.

If we look at the foundation column there, the bottom one talks about delivering on the South African transformation agenda. Not too much on that today, but it's nice that, as I indicated earlier on that first slide, the Inzalo shares -- empowerment shares, have been listed on the Black Economic Empowerment Board of the Johannesburg Stock Exchange. This is a first, and we were instrumental in getting it there; we're pleased with that.

The Ixia mining empowerment deal is in place now, and we are a level 4 contributor in terms of our codes here in South Africa, and that's obviously important for us.

If I can move to the next slide, which deals with continuous, improve and grow existing asset base, and then go -- immediately deal with that on slide number 19. And it's a fairly simplistic chart, which deals with the main elements of that. But if I start with plant stability, we've really had very good performance, in terms of stability, coming out of our operations excellence imperative on, for example, Oryx. Our Natref refinery is running better that it's run for years; further improvement there.

Now all our facilities in fact, in Sasolburg have been performing exceptionally well. Synfuels are part of the big planned shutdown and, certainly, is currently running very nicely; very pleased with its performance. Now obviously, this has an impact on volume throughput, and Christine's already mentioned the volume impact coming out of the other businesses.

And we've had significant margin improvement, particularly in the Chemical space, and that's going to be the next Group imperative. In fact, we're already busy with it, to see how we can leverage the best practices in terms of marketing excellence throughout the Group, and from the best businesses in the Group, and make sure that they are implemented throughout the Group, so more on that in the future.

Cost management, I'm not going to dwell on again. I think the message is clear. We have delivered there, and we will continue to deliver there. As Christine has said, there's probably more to come.

Moving on then to the next bucket, on accelerate GTL and focused CTL growth. If I can do something of a deep dive there, on slide number 21 and talk a little bit about this acquisition that we made recently in Canada.

Shale gas is clearly a game-changer in the US, and is changing the dynamics -- the gas market dynamics in North America. If you look at the chart, on the left-hand side there, we see how much shale gas is produced in a relatively short period of time, coming from the basins indicated there.

The right-hand chart on that slide, number 21, shows just how quickly shale gas, which is the gray wedge, has grown and is projected to continue growing into the future. And as a result the percentage of conventional gas, as a percentage of the total that is, is expected to decline in the manner indicated there.

Another way of looking at that is on the next chart, number 22, which shows you the number of rigs used for horizontal wells -- I beg your pardon, on vertical wells has declined dramatically, the dark blue on the slide there, whereas the horizontal wells, which are now used for shale gas extraction, have increased dramatically there. The next trend, in fact, was more on horizontal wells going into unconventional oil, such as shale oil as they're talking now, so that's the next phenomenon that is being experienced at the moment.

But the result of this is that it's, in North America in any event, is going to keep gas prices reasonably low for quite some time to come. And that's important to us, because we're doing this not for the sake of just growing the upstream part of Sasol, but it's to do the GTL, to accelerate gas to liquids project, and that is the plan obviously in Canada.

The arbitrage between lowish gas prices and high oil prices, and I think everyone accepts the current spike, because of the political unrest in various parts of the world, will go away. But at reasonable oil prices and these reasonably low gas prices, the arbitrage is just fantastic for us. This really has played right into our hands, and is making the interest in our technology more and more prevalent.

So, over the page, we did the deal, on slide 23. And we did it very quickly as well. You will recall we signaled this six months or so ago, that we were looking at gas acquisitions, and only a week or so ago we announced that the deal had been closed, completely.

I'm sure there might be questions if they haven't already been answered in some of the other communications that we've had, but it's a fairly large reserve; contingent reserves of 9.6 trillion cubic feet. It's a good quality reserve. It has access to water. It has access to pipeline and gas, obviously, which is important. It is proximate to a large market to absorb our GTL diesel.

And we believe -- and obviously there are issues around shale gas and the environment, but we believe after doing the due diligence that we have, that Talisman is a very good operator. They do their work very responsibly, and it can be done. The technology provides that the shale gas can be extracted in a responsible way, from an environmental point of view.

So the story is basically that the GTL calling card, if we can call it that, has worked for us. There were other bidders for this particular reserve. We won. We don't believe we won it on price; we believe we won it, because we had GTL to offer as a monetization option. There are a lot of other shale gas reserves being developed in North America, competing for this space there.

We won the bid there. And obviously, around the world we think the same GTL calling card will also serve us well. I think also that we've demonstrated the ability that we can move quickly. And in that light, just as we signaled six months ago or so that we were going to be looking at gas acquisition, we signal again today that we'll be looking at further gas acquisitions. And we certainly have the balance sheet to be able to do that, and we believe the GTL calling card, as I put it, is very much helping us with that strategy.

The next slide, number 24, dimensions for you, some of the figures on this; I don't want to dwell on it for too much. But, suffice to say that our 50% at 600 million standard cubic feet per day at full ramp up is double what we currently have. Obviously the plan is to supply into the pipeline network in Canada to start with, and then as we develop, as we believe we will, the GTL facility, and the feasibility study which we're busy with, then we will divert that gas into a GTL facility -- a 48,000 barrel per day GTL facility. And that will grow our Synfuels volumes for the Group by 25%.

And then below, I won't deal with it, but you'll see a bit of guidance on the current calendar year given that these are already producing assets.

The last thing on the strategic agenda I'd like to deal with is slide 25, and going straight on into slide 26. In the sustainable growth bucket is developing our new energy opportunities, addressing our carbon footprint. And while this is still in its infancy, we have more than 70 very experienced Sasol people that are leading the charge for us here, some very clever scientists and engineers, and business people.

We are looking at investments in solar, in heat transport, in hydro electricity even, but more of those details as we go forward.

What we have done in this space is to start generating electricity on our own natural gas, and our aspiration, as I mentioned earlier, is to take that right up to 420 megawatts over the next couple of years. And that, obviously, impacts our carbon efficiency. And, in addition to that, we will be giving energy efficiency as a concept on its own very serious attention. We have a central group here at Sasol Limited that is driving that for us.

And so there are a number of other initiatives, and obviously this is quite important given that COP 17, the next big environmental conference, is taking place in our country at the end of this calendar year.

Moving onto the project pipeline, but let me first deal with slide number 27 which speaks to how we prioritize. We produce a lot of cash. We plan to spend a lot of money on capital projects. Obviously, we need to convince you and all our stakeholders that we spend this money sensibly. So let's spend a moment on exactly how we do this prioritization. And I'd like to do that by way of three recent investment decisions.

Firstly though, as you'll see from the heading of that slide, capital projects must sustain competitive advantage and low cost position. Obviously, they must play into competitive advantage, and because we're pretty much a commodity producer we need to be at the bottom end of the cost curve. So projects have to get through that hurdle first.

Then you will see, in the first column on the left-hand side, strategic fit, words that you will recognize such as grow technological lead, grow chemicals based on feedstock etc., grow the upstream, accelerate GTL. Now the examples I've taken are the tetramerisation facility planned for the United States and the wax expansion in South Africa, as well as then the shale gas acquisition. And we would argue all of those meet the criteria -- the strategic fit criteria that we've given -- set for ourselves.

All three projects more than meet the hurdle rate applicable in those particular geographies. But, of course, it's not all about return; it's about minimizing risk as well. And you'll see we very carefully look at the risk of each project, such as off-take arrangements, such as backward integration, such as Brownfield rather than Greenfield sites wherever this is possible, to obviate the burden of getting certain regulatory approvals and that type of thing.

So this gives you an indication of how we would seek to prioritize, and I can assure you many projects don't make it, they don't make the first filter. Some of them then don't make the second filter in terms of the strategic fit. And then those that do make it there still are ranked, and I think Christine referred to that earlier in terms of prioritization. We have a number of projects that would fall off, because they're not the top priorities. We are very lucky; we are blessed with an abundance of opportunities, as we see on the next slide, number 28.

And again, I won't dwell on this too much, because there may be questions on some of them. But the bottom line is here that the project pipeline is looking good. It speaks very much to our strategy of accelerating the GTL shale gas, and so using our technology to help us grow.

Secunda growth phase 1 is very much on track, with another 2% going to be added in financial year '12, and another 1% again in financial year '13. Wax expansion, ZAR8.5 billion project in South Africa; we're the world's largest producer of hard wax, and this will ensure that we maintain our lead, a very attractive business for us. Mozambique, a great investment, original investment, which we've progressively grown, and the latest expansion will be complete by the end of this calendar year.

So, on we go. The tetramerisation unit is optimistically aimed for the end of calendar year '13 for completion there, and so we can go on; all supporting the strategy.

Under feasibility, I'm not going to talk again to Canada GTL; I think we've covered that. Uzbekistan, we're wrapping up the feasibility study there in the near future.

China, there was a bit of news flow this morning around China. We'd heard that the Environmental Ministry had given their approval from an environmental perspective on the project. I don't think we should get too excited by that, because it is one of many tracks that need to be progressed on the project. And ultimately, as we've indicated before, the State Council has to give their approval to this, because it is such a large foreign investment on a single project, even for the Chinese. So it's a question of wait and see, I'm afraid, in China. We're as anxious to get on as anybody else, but we just have to wait until we get that approval.

On pre-feasibility we have a number of GTL opportunities that we're looking at, because people are seeing how successful Oryx was in the Middle East, or how Oryx is in the Middle East. And Christine gave you the numbers there of how we're producing. It's a very attractive investment, and there's no reason why we can't replicate, duplicate, several times what we've done in Oryx.

It's exactly what we planned effectively to do in Canada, but, of course, in Canada we have the added advantage of having the upstream gas ourselves as well or at least a share of that; so lots of opportunities there.

In the idea phase equally, some chemical opportunities there, given our strong technology position in chemicals as well and new energy ideas, which I've mentioned too.

And then the last column, on the right-hand side, is on exploration, with a focus on gas. Not only further acquisitions are possible there, but we continue with exploration in the traditional sense in Mozambique, in Papua New Guinea and in Australia; so pipeline looks good.

Let me end off by talking to investment case, which, of course, we believe remains strong. Of course, we would believe it remains strong. But if we look at the columns there, on slide 29, I think the technology is what has brought us to where we are today. We have a great set of existing assets. We have a great set of hydrocarbon reserves, which we're growing, not the least of which is through this acquisition that we've made.

We continuously improve, and this in a world that's pretty volatile at the moment. We believe, despite the spiking in oil price, and consequences of that, the long term fundamentals of oil remain in tact; it's driven by emerging market growth there, obviously.

The North American shale gas dynamics have changed, as we've indicated, and that's spreading, and will spread in time, to other parts of the world. There's a lot of shale gas exploration in Europe, in China, in Saudi Arabia, and even some mooted here in South Africa too.

The arbitrage looks good. As I said, gas prices versus oil prices look great for making our technology a very valuable proposition. And that gives us this unique investment opportunity. It's our technology that differentiates us. It's our technology that's going to enable us to outgrow our peers in the same sector, and we've got the balance sheet to do that.

So I think in summary I can say we have a great set of assets; they're performing really well. We have strong cash flow from them to allow us to grow. We've got really excellent people in this Company. We've got the technology, both in energy and on the chemical side, which is going to set us aside and allow us to grow. We've got this GTL calling card, which is really working for us. And I hope we've demonstrated the ability that we can, with the right opportunity, we can move quickly.

So I think we've been rewarded to some extent with the share price -- you've been rewarded, should I say, you shareholders, the share price moving up, which it has. It's certainly outperformed most on the sector, but we sincerely believe -- and if you look at the multiple even today, there's a way to go.

With that, I'm going to end, and Christine and I, and my colleagues, will be very happy to answer any questions.

Christine just wants to say something before we go over to Q&A. Operator, if you could hold for a second.

Yes, I seem to have swapped around the sensitivities on the -- that I gave you earlier, so I'd just like to restate them.

For every $1 change in the annual average crude oil price, it will impact our operating profit then by approximately ZAR550 million. And then for every $0.10 change in the rand/dollar exchange rate it will impact the operating profit by ZAR670 million.

Thank you.

Good. Thanks Christine. Good, we're ready for the questions.

(Operator Instructions). Gerhard Engelbrecht from Renaissance BJM.

I've got a couple of questions, if I may and I'll fire them off now. Firstly, in your capital plan in the analyst book, you talk about needing to evaluate liquids at the Inhassoro site in Mozambique. I presume you've made a liquid discovery there. Would you mind giving some details around the potential size of that discovery and how commercial it is?

Secondly, if you achieved 7.2 million tons of production at Synfuels this year, it presumes quite a strong second half, which then suggests that your guidance of normal production of 7.3 million tons might actually be low -- be on the low side. Quite curious as to what sustainable production at Synfuels is.

Lastly on the project pipeline, I don't see your growth Phase II project at Synfuels on the pipeline. What's the status of that? And if it has fallen off the list, what do the returns look like for growth Phase I?

Good, let's go -- Lean Strauss is with us here, Gerhard, he'll deal with the first one and then Andre the other two.

Good afternoon, Gerhard, Lean here. Yes, the discovery of the liquids in Inhassoro, Mozambique happened quite a long time ago. It's actually a very small discovery. So during this period is a drilling campaign. We have got to the rigs inside; we'll do a horizontal well, to see if we can extract any liquids from the well. But it is very small; it's not a major discovery. So at this stage, we don't want to put a number to that.

We've been producing condensates out of some of the wells in Mozambique for many years now. Right, Andre?

Right, thanks Gerhard. Yes, we, certainly, are having a very good run at Synfuels at the moment, and we've been able to sustain it for quite a while, so we're reasonably optimistic that we will be able to achieve the guided tonnage. The question as to what the true capacity is is, of course, dependent on how we -- how well we're able to integrate the various operating units of which Synfuels consists.

We're paying a lot of attention to improving our operational excellence in that unit; obviously, because the rewards are high if we get it right. It depends on large number of variables, but I think that, as time goes by, we are getting more and more close to a point where we believe we can perform consistently at relatively high rates.

Apart from that, I don't want to make a firm promise, but I can give you the assurance that we're working very hard on utilizing that money-making machine as best we can.

If I can add to what Andre is saying, I think let's just stick with the guidance, of a -- in a non-major shutdown year, it's 7.3 million tons. In a big shutdown year, it would be 7.2 millions. The growth phase will give us -- and it deals a bit with your second and third question, was, I think we indicated 2% in financial year '12 and another 1% on top of that in financial year '13. So let's just stick with the guidance for the moment. As you know, when you start pushing your luck a little bit, you sometimes are humbled and we don't wish to be humbled, Gerhard.

As far as the Secunda growth Phase II is concerned, Andre. It's dependent on gas out of Mozambique. And frankly, we need to find a significant quantum of additional gas in Mozambique before we'd be comfortable to proceed ahead with the growth II Phase, so that's where we are with that one. Andre, that's correct?

Yes, Pat and of course, as you mentioned in -- when you made the presentation, the growth Phase II has to compete with other projects in our pipeline, in order to give the maximum return.

Exactly.

So all of our projects will have to compete with one another, and the growth Phase II is no exception to that.

Pat, I think just to answer the question on the IRR for growth Phase I, it does meet the hurdle rate in South Africa of 7.25%.

[17].

17 -- sorry, 17.25%.

Thank you.

Gerhard, I then -- good, thanks very much for your questions as always.

Alex Comer of JPMorgan.

I've got a few questions. Firstly, you talked about the economics -- future a little bit in the US. Oryx has now been running for a relatively long period. I was wondering if you could give us some guidance on what the cash costs there are, excluding the gas.

Secondly, if I look at the O&S business, it looks to me like we've seen some fairly big increases in pricing. I understand you won an anti-dumping case in Europe. I just wonder whether you thought the price increases were sustainable going forward.

And then you made a comment on the South African Polymers business. Clearly, it's not making money at the present time. Maybe you could elaborate a little bit on what you actually intend to do, in terms of your restructuring actions.

And then one final question, I just wondered -- we're talking a lot about shale gas. How far away do you think you are from maybe drilling for shale in South Africa?

Good, well let's start with the last one first. I -- Lean, you can probably help me a bit here, but it's going to be quite some time. The regulatory authority there's put a bit of a moratorium on the granting of licensing. I think they've had a rush of interest there and they need to just figure out what they do with that. So we're not planning on any time soon. We just think it's a good long-term opportunity; wouldn't factor that into any of your modeling at this point in time.

Perhaps Andre you want to speak to the South African Polymers business.

Yes, Alex, you are right that the polymers business in South Africa is not doing as well as we would like it to. We have already embarked on a fairly rigorous restructuring program. We have changed the business structure, eliminating some business units, and also in the process, of course, reducing our headcount in that business unit.

We have taken steps, as you will have seen from the announcement that ethylene purification unit number five, with ZAR1.9 billion investment that we making there, in order to improve the availability of feedstock to our polymer assets. We're also pursuing a project to improve the feed of propylene to our polypropylene plants.

We have used those opportunities to improve the production in our South African polymer assets and that's gone up in the period under review by 9%, so that's quite a significant improvement over the comparable period and it shows the focus again on operations excellence.

The last lever that we are pulling is on the margin optimization; really making sure that every ton that we make and every ton that we sell is sold for the best possible price. And this may sound counterintuitive in a commodities market, but I can assure you there is quite a bit of money that can be added to the bottom line. So we remain confident in this business. We remain confident that it will deliver and it will improve.

Lean, do you want to talk, picking up on the first couple of questions.

Yes, the one on Oryx, the third one I remember (inaudible). Unfortunately, we haven't given guidance on the cash fixed cost on Oryx. But just to say, obviously, on a unit basis, it's coming down quite rapidly, because of the increase in volume, so we're seeing some good improvement there.

Alex, we're quite sensitive about competitive information and sharing of that obviously, given that we're not the only game in town, even in that country. As you know, there's a big brother that's building a project very close to Oryx, so we'd prefer to not be too specific on that one.

Have we missed one?

O&S.

Thank you. Andre, go ahead, please.

Alex, we have seen some price increases, of course, but we've also seen a commensurate increase in feedstock prices. So this is not so much a question of pushing through price increases and taking short-term advantage of opportunities, but it's more of a question of being able to pass through feedstock price increases, while maintaining our margin.

We have been, of course, favored by increases in oleochemical alcohols on the back of feed price increases, and that has driven up the prices and, therefore, so the margins of our synthetic alcohols, particularly those based on the integrated cracker in Lake Charles in the US. But certainly, we are reasonably comfortable with being able to maintain margins in the O&S business moving forward.

Okay, so you don't see any threats from capacity coming on stream in the immediate future?

No. We think that people got burnt fairly badly in the 2008 financial crisis and, therefore, we think capacity increases are likely to be subdued and be limited to debottlenecking and the like.

Okay, thanks guys.

Thanks Alex.

Campbell Parry of Investec Securities.

Just two things, following on on the Chemicals business, in particular. Andre, you spoke about the monomer of supply at Safripol or issues to do with propylene supply. And I know with the latest sanction in terms of propylene supply to Safripol, there's been some change in the way that you have to price your monomer to the market. How is it likely to impact the business going forward, if at all?

And then secondly, just turning attention to Arya, when can we expect a better operating rate from the integrated complex because right now, obviously, it is constrained in upstream unit, but just wondered when we can expect that to be resolved.

Campbell, yes, you are right, that it's part of the settlement agreement that we have reached with the Competition Commission, and subsequently endorsed by the Tribunal that we have had to renegotiate our supply agreement to Safripol. We don't anticipate that there will be a material change in the profitability of those agreements, given that the nature of the contravention and question was more on the basis of sharing pricing information, rather than on the absolute level of the price. So, the pricing mechanism has changed so as to avoid the exchange of information which caused offence.

Dealing with Arya, we are in the process of repairing the tray in the demethanizer column, which has been the constraint on the cracker. The equipment is already on site. We aim to have installation of that repair complete, hopefully, by the end of this financial year. As you know, the unit has been operating at a rate of about 80% and we will then be able to go up to a rate of 100%.

There have been some interruptions on the downstream polymer plants as well. One was a shaft on a compressor which sheared, and this is not an off the shelf piece of equipment that you can go and buy; it had to be manufactured specially for that. These things, unfortunately, happen in a plant of this nature. We don't think that this is something that will be repeated. So all in all, the picture looks good for the coming financial year.

Okay, thanks Andre.

Caroline Learmonth from Absa Capital.

Could I ask on Escravos, if you could give us a bit more of the background as to why there's been an impairment, and whether there's any risk of further impairments? What the factors were behind the impairment?

And then secondly on competition issues, now we touched on the Polymers settlement earlier, but can you give a flavor of the various industries that seem to be under investigation at the moment by the competition authorities. Which investigations are most active? Where might we, in the short term, see some resolution? For example, I think there's a polymers issue still outstanding.

Thirdly, China CTL, you did mention that there'd been a little bit of news flow earlier today. Are you still comfortable that that project is likely to proceed, or are delays making it less likely?

And then just finally on the CEO's succession planning, can you give us any update on when we might hear, in terms of who the next CEO will be?

In our Company we do a sort of a fair value assessment of all our assets every six months. Those of you who might have followed (inaudible), they have made an announcement. On EGTL, there's been an increase in capital costs and also a delay in the start up of the project. The beneficial operation is now only targeted for the middle of 2013. And these factors all have attribute to our calculations and have led us to introduce an impairment, in terms of fair value of just over ZAR121 million on EGTL.

Good, I'll -- you talk -- Nereus will help me on the competition matters there if necessary.

Let's start with the Polymers one. It is as correct; as you say, we've settled the horizontal issue, which was to do with the contract that Andre had referred to here, earlier. The irony of that one is that that contract and that arrangement was approved by the previous Competition Board many years ago, so it's a very long, outstanding thing. But nevertheless, the new authorities had a new view and we, in the best interests of the Company, decided on that settlement.

However, there is a vertical issue. They, the authorities, are not happy with our pricing into the market. We don't agree with them, so we'll have to see how that one plays out in the coming months and so on.

And then, the other big one that we understand is underway, and this is from questions that we've been asked into the oil industry, but I'm afraid that we can't really give you any further information on that. We haven't -- there's no formal step that we're aware of that is planned on that one. That's correct, Nereus?

Yes, that's correct, Pat.

So, I think that further, there's not much more that we can add, other than to say we've had a difficult couple of years, where we've had to put a lot of these legacy issues behind us. I think we've done so successfully in the interests of our shareholders. And we've upgraded our compliance training and awareness enormously in the Group to make sure this sort of thing never happens inadvertently or in any form at all into the future. We're not completely through with it yet, but certainly we've got most of it behind us.

I just want to get back to the Escravos one, Lean, if I can just add, I think it's safe enough to indicate that we've -- in the arrangement that we have with Chevron, we've kept our exposure to ZAR6.5 billion should there be further increase in cost of that project. So just to give you, as our shareholders, some comfort that we don't have an uncapped exposure in terms of further capital expenditure overruns on that.

China, CTO, Lean, you want to have a stab at that?

Yes, but just to say that the environmental assessment approval is one of various steps that we have to go through. We have made our submission in December 2009, the project application report with our partners. We updated during last year, and we had a favorable review from the experts in China. And our application now sits with the authorities and it's now up to them to review it and make a decision.

They're currently busy finalizing the five-year economic plan, so hopefully it will become transparent through those announcements if CTL forms part of their strategy going forward. But we have done everything from our side that we can do at this stage, so we have to wait.

We need a Board member, other than myself to talk about the CEO succession, I guess. Caroline, you'll appreciate this is being driven by the Board and not by myself, it wouldn't be appropriate for me to be an integral part of the process. So it's really for the Board to update you.

But just let's repeat these dimensions around it, that I've indicated that I'd be very willing to stay on until March of next year, to ensure that a smooth succession takes place, if it's necessary for me to stay that long, and I'm very happy to do that.

I suspect that the -- I know the Board is busy with this, and I think they're making good progress, and I would imagine they'd give you an interim update on this in the fairly near future, just so you know what's going on. But I don't think they're quite ready to make a final announcement at this point in time. I know that they are charged with the process. So it's all proceeding according to plan.

Good, have we covered all your --?

Okay, thanks.

Thanks, Caroline. [Tom]?

Tassin Meyer, Citigroup.

I had a similar question on Escravos, so I think that's been asked.

Just a quick question on Natref, there was obviously, a very strong performance coming out of that operation. I'd just like to know how sustainable that is, and what was the driver behind that improvement in Natref for this period?

Second question I have is in terms of mining. You just indicated in the results that there were some issues geologically. I'd just like to know how sustainable that is and what was the driver behind that improvement in [naphtha] for this period?

Second question I have is just in terms of mining. You did indicate in the results that there were some issues geologically. I'd just like to know, has that -- is that going to be a sustainable issue? Has it impacted on volumes in any way going forward, or is it something that was just an issue for this first half, this year?

Sorry, could you repeat that last question, please, Tassin? So, the line is a little dodgy on this side; we can't really hear you? We've got the first one, which is on Natref. We don't have the second one on mining?

So, I just -- you indicated in the results some issues with -- relating to mining volumes from geological issues, just like to know if that is going to be an issue going forward? How it impacted on the mining results, or if it was simply something that impacted on the first half results?

Yes, I think I've got it now, thanks very much. Andre, do you want to talk to Natref?

Tassin, you're quite right that we have seen Natref performing consistently at the target rate of 720 cubic meters per hour. We've also seen a very strong improvement on the safety performance of this plant. White product yield at the refinery is at its highest level ever, in excess of 91%; so, all-in-all, a very strong performance. We do feel that this is a sustainable level that we have demonstrated.

Obviously, there will be shutdowns, there will be turnarounds, there will be investments that need to be made for clean fuels, but all in all, we are comfortable that this asset can run like this for the sustainable future.

On the mining question, the main reason that we referred to for the decline was to do with Synfuels' outages; obviously, no point in producing the coal if it's not being used in Synfuels. So the geological reference that was made is not a material one, and we don't see it being significant going forward.

I think we have time, operator, for two more, and then I'm afraid we'll have to sign out from this point, if you don't mind.

Jarrett Geldenhuys, Deutsche Bank.

Just regarding China CTL and your accelerated GTL growth programs in North America. At what stage do you consider stepping away from China CTL and redeploying that capital into a more assured progress of gas acquisitions and GTL growth rate?

And the second question really revolves around the hedging policy, and what's your take on hedging oil forward in this environment of over $100 oil prices?

Good. Lean, do you want a go?

Well, as you've indicated that we put in our project application for the project. We felt it's a good project; that it could meet our targeted returns. And at this stage, we're still awaiting the approval of the authorities.

In terms of the acquisitions that we're looking for gas, we've got a robust balance sheet, and we've got a specific budget for gas acquisitions. So we're not making any changes in terms of our capital allocation at this stage. We still reserve the money for the China CTL project.

I think we're blessed with this optionality. If China goes away, we hope it doesn't go away, but if it does it's not a train smash. We have plenty of other opportunities, one of which is the one that you allude to, doing more in North America. So that is a happy position for us to be in.

Christine, are you going to deal with the hedging?

Yes, that certainly looks interesting at the moment. We are considering making consideration -- taking into account the wider spreads that are available in the market, and the tightening supply risk. And clearly, if that should dissipate anticipate what the impact of that would be, so I guess we're still considering that.

All right, thank you very much.

Thanks, Jarrett. One more, and then we really have to sign out. We're over time; thank you for your patience, everyone.

Nishal Ramloutan, UBS.

Just a couple of questions from my side. The one is just on Farrell Creek. Can you maybe give us some capital guidance in terms of field development? I know there is a shaft there, but can you give us some figures?

I think the hedging one has been answered. And then just, could you talk about this decrease in foreign taxes, which lowers the tax rate? Can you maybe give us a bit more color on that?

Yes. Thanks, Nishal. Well, let's -- Christine, are you going to deal the -- let's do the Farrell Creek one, first?

I'm not sure what is in the public domain. Christine, could you just give me -- can you give me some help here on what we've put in the public domain on Farrell Creek?

In terms of the development cost?

Yes. We've put out the CapEx estimates for FY '11 and FY '12, so that's as much as we can release at this point in time.

Are those the numbers that are in the --?

Yes, the numbers are for FY'11 it's about ZAR3.2 billion; so that's the acquisition including the development costs. And for FY '12 it's ZAR5.5 billion.

But there's more to come, obviously which we --

More to come, clearly, after that period.

Let's do a bit more homework, and then we can think about disclosing those numbers.

Okay. I think, specifically, the decrease that we referred to in foreign tax rate, it really relates to tax incentives that have been utilized both in Qatar and Arya, and that -- overall, it reflects a decreased rate compared to the prior year.

Good. Well, I think, operator, we're done from our side, I'm afraid; we have other commitments. And we thank you all very much for your interest and your questions. And of course, we're available to you to pick up one on one questions with you over the telephone. You'll direct your enquires, I'm sure, through to our Investor Relations department, and we'd be very happy to answer them.

And of course, most of you we will be seeing as we progress around South Africa, and the UK, and the United States in the coming weeks, and we look forward to seeing you there.

We're very happy with the results so far, and we're more than happy with the growth strategy, and we hope you are too. Thank you.

Ladies and gentlemen, this concludes today's Sasol interim financial results conference call. Thank you for participating. You may now disconnect.