Sasol Ltd (SSL) 2012 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 is being recorded.

Today's call will be hosted by David Constable, Chief Executive Officer; and Christine Ramon, Chief Financial Officer. Also on the call today will be the following members of the Group Executive; Andre De Ruyter, Lean Strauss and Bernard Klingenberg.

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 David Constable. Please go ahead, sir.

Thanks very much, Corinne. Good morning, good afternoon and good evening, everyone, and thank you for joining us on the conference call today. We're pleased to be announcing record interim earnings today at Sasol, which continues our strong track record of delivering superior shareholder returns.

Turning to slide 5 of the presentation which you have in front of you, let me start with an overview of what you're going to hear today. First of all, to our financial performance, we will be announcing record interim earnings; it's always encouraging to have a positive story to tell. Our record earnings are due to the fact that we have delivered a solid operational performance supported by the macroeconomic trends.

Next, we'll highlight our strategic agenda, which continues to serve us well. In terms of our growth, the energy market dynamics continue to be supportive of our GTL value proposition as the need for energy security and energy diversification prevails globally.

Here, our project pipeline offers significant opportunity, and is gaining traction as we continue to move projects along into the implementation phase. And finally, the Company remains an extremely compelling investment proposition.

To frame our key messages, I'll begin with some high level introductory remarks, followed by Christine, who will go into more detail on the financial and operational performance of our businesses. I'll then review Sasol's strategies and initiatives going forward, and open it up for any questions you'd like to ask us.

So let's turn to slide 6 and start with the broader environment and how it's shaping our priorities at Sasol. Most people would agree that despite cautious optimism in 2011, it is evident that the world's economies are still limping along, and clearly, this has an impact on the petrochemical, oil and gas sectors.

In the short term, the global downturn, which is now in its fourth year, has reduced demand, but over the longer term, the trend is increasingly upwards. Driven by industrialization in the developing economies, global energy demand will continue to rise and will be approximately 30% higher by 2040. The most widely used fuels will remain oil, coal and gas and, over time, natural gas will grow dramatically versus oil.

The shift to less carbon-intensive sources like natural gas, and the quest for improved energy efficiency will shape demand. Energy trends will also be influenced by an increasing demand for power. And, by 2040, it's expected that approximately 30% of global electricity demand will be produced through natural gas. 30% of global gas production will be through unconventional sources like shale gas. It's clear that gas will continue to shape our future in more ways than one.

Sasol is well positioned to benefit from this demand in growth, as we move into this golden age of gas. First, we already serve many of the large growth markets in Africa, Asia and the Middle East. Second, we are the world's largest producer of synthetic fuels. Third, for more than six decades, our growth has been premised on our technical expertise in converting gas and coal into liquid fuels and chemicals.

Finally, we recognize that a real and informed commitment to sustainable development is integral to achieving our long-term strategic objectives of the Company, with gas being a clear bridge to the future.

I won't dwell on slide 7 and 8 of the presentation. These slides are self-explanatory and reflect in summary terms, the positive contribution Sasol continues to make on a number of fronts in South Africa and abroad. Instead, let's go straight to slide 9, pursuing responsible growth and ensuring sustainable operations.

Safety improvement remains a strategic imperative for sustainable operations. After a record setting 18% improvement in our 2011 financial year, we have maintained a low recordable case rate for employees and service providers of 0.43 for the half-year. This is comparable to the recordable rate of 0.42 at the end of the previous financial year. The implementation of business unit specific safety improvement plans are beginning to deliver positive outcomes, and every effort is being made to ensure that this trend continues.

Energy efficiency is obviously a top priority for Sasol, and we continue to make good progress. We're on track to achieving our target of reducing energy consumption by 15% by 2015. We're also making good progress on increasing our self-generated power capacity, which is expected to be at 60% by 2013.

Towards the end of last year, Sasol worked with the South African Government and other stakeholders as an active member of Team South Africa to ensure that COP17, the international climate change negotiations, were successfully hosted in Durban. Through our participation in various events, we were able to build awareness of the issues we face in responding to climate change challenges.

We also showcased the progress Sasol has made in moving towards a lower carbon and a more climate-resilient economy. In particular, we were able to highlight the role of gas as a bridge to a lower carbon economy, and our progress with respect to improved energy efficiency. Going forward, we will continue to engage the South African Government and other stakeholders on climate change-related policies and initiatives to find workable and sustainable solutions.

Turning to our operations highlights on slide 10, and as I said earlier, Sasol delivered a solid operational performance, despite some challenges. Our international operations delivered improved production performance with Arya Polymers ramping up to design capacity, and ORYX GTL achieving 89% utilization.

New to our operating results is a contribution from the recent Canadian upstream acquisition. The shale gas assets produced 6.7 billion standard cubic feet of natural gas over the period. And our chemicals cluster continues to maintain a strong contribution to Group operating profit.

At Synfuels, production was impacted by a three-week long industrial action and two plant incidents. These events were dealt with swiftly by our people, who managed to contain a decrease in Synfuel's production to 1.3%, compared with the prior period.

In terms of our financial performance, summarized on slide 11, our operating profit was up 70% to ZAR20.5 billion. Headline earnings per share were up 81% to ZAR23.50, a new record first half performance for Sasol.

Cash generated by our operations was up 50% to ZAR22.7 billion, enabling an increase in the interim dividend of 84% to ZAR5.70 per share, which is aligned with our progressive dividend policy. Our strong balance sheet supports this dividend and allows us to fund our future growth aspirations.

Let me now hand over to Christine who will unpack our interim results in more detail; Christine?

Good morning and good afternoon to everyone online. It's certainly my pleasure to present an excellent set of results to you today. But before I get into the details of the half-year performance, I'd like to make the following three observations.

Firstly, proactive management actions to contain costs, as well as operational and business improvement strategies, have boosted profitability and contributed to strong cash flow.

Secondly, our strong balance sheet has already enabled the advancement of our growth plan, and continues to position us well to fund growth, amidst the still volatile and uncertain global economic environment.

Finally, our record interim dividend, which beat market consensus views, reinforces our commitment to provide consistent attractive returns to shareholders, in line with our progressive dividend policy.

In setting the economic scene for the half-year, we move to slide 13. We see that the period under review was characterized by a predominantly favorable macroeconomic environment. Oil and commodity prices were strong, and the rand/dollar exchange rate was 7% weaker than the comparable period.

As the period under review progressed, chemical prices continued to soften, due to lower demand in downstream markets. Softer market conditions are expected to continue for the rest of the 2012 calendar year, as the developed economies are expected to start recovery towards the end of the year. The recovery in the European markets is only expected in 2013.

You will note the low Henry Hub gas prices in the top left section of the graph, reflecting the ever increasing disconnect between gas prices and crude oil prices in the US. Although this has a negative impact on our Canadian operations in the short term, in the longer run this is positive for our GTL value proposition. In addition, the low gas prices are also positive for our chemical operations in the US, which utilize gas ethane feed.

South African PPI, which is more relevant to our operations, was 10% for the past period. This, together with the weaker rand/dollar exchange rate, contributed to a challenging cost environment. We continue to remain sensitive to oil prices and the rand/dollar exchange rate, and we remind you of our sensitivity to each of these variables.

We estimate that for every [ZAR0.10] change in the annual average rand/dollar exchange rate, it will impact our operating profit by nearly ZAR1 billion. And for every $1 change per barrel in the annual average crude oil price, it will affect our operating profit by approximately ZAR670 million.

Moving onto slide 14, we saw strong growth in our Group operating profits, on the back of an overall solid Group operational performance, and a favorable macroeconomic environment, as reflected in the 7% expansion of the Group operating margin to 25%, just 1% short of the operating margin achieved in 2008, a record earnings year.

The improvement in operating profit was achieved despite a reduction in Group volumes. As David mentioned, plant incidents and an industrial strike action negatively impacted volumes in South Africa. In some of our global operations, production was purposefully reduced to match lower demand and optimize margins.

Production increases at ORYX GTL and Arya Sasol Polymers compensated for lost growth margin in value from Synfuel's lower production. This reinforces the robustness of or geographic and portfolio diversification strategy, which brings good balance to our portfolio, both from an operations and markets' perspective.

Our international operations contributed 28% to Group operating profit, with the US, Europe, the Middle East, and Mozambique being the main contributors at this stage.

Through our international energy cluster, our investment for growth is delivering attractive returns, contributing 6% to Group operating profit for the half-year. In particular, we saw a strong performance from Chemicals, which continue to sustain a strong contribution to the Group's operating profit, at 21% contribution, despite increased oil-related feedstock costs.

Included in the ZAR1.5 billion contribution from Other is the positive impact of mark-to-market gains on the Canadian dollar forward exchange contracts of approximately ZAR1 billion, of which ZAR750 million is unrealized.

Moving onto slide 15, we see that the past year was challenging from a cost perspective, with cash fixed costs reflecting a 3% increase in real terms, including the 1% impact of growth costs. The impact of inflation added 8% to our cash fixed costs, with the weaker rand, extraordinary plant maintenance, and increased energy costs adding a further 4%.

Our main cost drivers are labor and energy costs. Labor costs for the year are expected to increase by between 8% and 8.5%, and energy cost inflation in South Africa was about 25% for the past period. It was announced recently that the average electricity price increase will be reduced to 16% with effect from April 1, 2012 until March 31 next year.

With electricity increases still being well above inflation, one of our key strategies to contain electricity costs in future is to become more self-sufficient by generating more electricity for our own requirements. We remain on track to increase our electricity generation capacity from the current 50% to 60% in 2013, as David said earlier.

In addition to improving production reliability, further cost savings will be achieved through our functional excellence program, which is in a stabilization phase and has to date delivered in excess of ZAR1 billion in cost savings with more savings to come.

Further sustainable savings will be achieved through the standardization and consolidation of our SAP systems in the Group. Adequate time is being invested to ensure that a SAP system is ultimately designed and implemented to take cognizance of our diverse business requirements before we proceed.

Moving onto slide 16, we see that the SA energy cluster remains a strong profit and cash flow generator, contributing about two-thirds to Group profitability.

Sasol Mining's operating profit of ZAR1 billion was up 42% after excluding the once-off Ixia coal share-based payment of ZAR565 million in the prior year, on the back of increased production volumes of 2% and higher US dollar coal export prices, as well as increased selling prices to Sasol Synfuels, which together with the impact of the weaker rand resulted in significant operating margin expansion to 20%.

Sasol Gas' operating profit improved mainly as a result of higher prices and higher volumes, which were boosted by additional pipeline capacity since November last year.

Sasol Synfuels contributed three-quarters of the SA energy cluster's operating property. Synfuels benefited from the higher average rand oil prices and delivered an impressive operating margin of 44% despite lower production volumes. Cash fixed costs per unit increased by 13%, largely as a result of extraordinary maintenance and increased energy import due to plant instabilities and lost production.

Sasol Oil benefited from higher wholesale margins and the weaker rand, and that was despite lower production in sales volumes due to Natref's extended plant shutdown and an industrial strike action.

Moving onto slide 17, we see that the international energy cluster is our growth engine and we continue the investment for growth in the form of feasibility studies and exploration expenditure.

Oryx remains our showcase for our GTL technology and drove the significant increase in SSI's operating profit on the back of higher volumes and higher oil and product prices. Oryx GTL delivered a strong performance, achieving average daily production of 28,700 barrels a day, and achieving an average utilization rate of 89%, which is at the upper end of our target range.

The decline in SPI's operating profit resulted primarily due to the newly acquired Canadian operation. Although we are delighted with the additional volumes, about 6.7 billion SCFs produced from our Canadian shale gas venture, profit from this part of the business was negatively impacted by depressed natural gas prices in North America, coupled with negative foreign exchange translation effects and depreciation on the recently acquired gas assets.

The depreciation had a material impact and added ZAR400 million to SPI's total depreciation. The current depreciation charge is high due to the carry arrangement of our partner's capital expenditure.

We are pursuing various avenues to optimize productivity and reduce both the cash and non-cash costs in our Canadian shale gas developments. David will speak more about our Canadian assets a little later.

Moving onto slide 18, Chemicals delivered a 26% growth in operating profit and, as testimony to our farmed business model, expanded margins marginally, despite tight markets and rising oil-related feedstock costs.

Our Polymers business was the hardest hit by poor gross margins. The average margin above oil in the fourth quarter of 2011 for the Asian polymer basket was $381, way below the trend value of $600. The global polymer industry is under severe stress due to the oversupply. And Asian ethylene crackers based on naphtha are experiencing negative cash margins.

Sasol Polymers saw a strong contribution from the international operations, while the local business was under pressure as a result of low international polymer prices, while margins were impacted by higher oil-related feedstock costs. In addition, local production declined by 6% due to feedstock unavailability.

Both the EPU 5 and C3 stabilization capital projects, which are expected to come on stream at the end of calendar years 2012 and 2014, respectively, will improve the feedstock availability for the local business.

The international operations contributed ZAR937 million to Polymers' operating profit.

Arya Sasol Polymers ramped up to demand capacity during the period under review and reported an average year-to-date capacity utilization rate of 81%.

As announced last year, we have entered into discussions with a view to potentially divesting of our stake in the Arya Sasol Polymers' business. Although this operation's contribution is significant to Polymers, it is a relatively small contributor at Group level, at less than 5% contribution to Group operating profit, with carrying value of assets of about ZAR4 billion. Further announcements will be made once sufficient progress on this divestiture has been made.

Solvents had a great year, with operating profit increasing by 153% to ZAR1.1 billion and the operating margin expanding by 7% to 12% compared with the prior year. This is mainly due to prevailing product prices and a weaker rand, which negated deteriorating market conditions. Production volumes, however, reflected a decline compared with the prior year, as a result of outages at production facilities as well as production cutbacks due to market constraints.

Sasol O&S remained the largest contributors to the Chemical cluster's operating profit at about a 38% contribution and increased operating profit on the back of strong volumes, particularly during the first half of the period, with the business reflecting a healthy operating margin of 9%.

Our other Chemical businesses' operating profit increased by 21% to ZAR1 billion compared with the prior year. Higher double-digit margins were achieved in the nitro value chain, despite lower fertilizer sales volumes due to (inaudible) exiting the retail fertilizer business.

The improved operating profit was supported by the weaker rand and includes a once-off profit of ZAR120 million, resulting from the sale of Sasol Nitro's Phalaborwa operations and certain of its downstream fertilizer businesses.

Moving onto slide 19; cash generated by operations was up 50% to ZAR22.7 billion and underpins our strong balance sheet giving us the flexibility required in uncertain credit markets where the cost of funding has increased. In the current climate, we continue to focus on strengthening working capital management and monitoring credit exposure and counterparty risks.

Our gearing remains low at 7.2% and excludes cash restricted for use of ZAR7.8 billion. We have sufficient headroom in our balance sheet to provide a buffer against volatility, fund selected growth opportunities, as well as grow dividends to shareholders.

Capital investments for the period totaled ZAR14.5 billion. We have revised our capital investment down -- apologies, we have revised our capital investment estimates down for 2012 to ZAR29 billion from ZAR31 billion in line with the revised schedule in Canada. The 2013 capital investment estimate remains unchanged at ZAR32 billion.

Approximately two-thirds of these estimated capital investments will be spent in South Africa and a large portion of future growth capital investments will be allocated to growth projects; about 25% to the international energy business, which is in line with our strategy to grow the upstream business to enable accelerated GTL growth. Further potential gas acquisitions will be on top of these estimates.

In line with our strategy, we are growing Chemicals based on feedstock and/or technology advantage and we see growth in the capital allocation for Chemicals in this regard.

Moving onto slide 20; dividends continue on an upward trajectory, with a new record interim dividend of ZAR5.70, up 84% from the prior year. Our dividend yield of about 4% positions us competitively with our peer group and reinforces our commitment to deliver superior shareholder returns. This is also endorsed by our total shareholder return of 77% as calculated over the past five years.

Moving onto slide 21; in terms of the outlook for the rest of the financial year on production guidance, Synfuels remains on track to deliver between 7 million to 7.2 million tons of product, which is in line with our production guidance given last November.

Internationally, ORYX GTL is expected to achieve full-year utilization rates of between 80% and 90% of nameplate capacity, while Arya Sasol Polymer Company will exceed 80% utilization. We will be growing our volumes in Canada, despite initial production delays.

Although the cost environment in South Africa remains challenging, our aim is to contain normalized cash fixed cost within inflation.

Amidst a still volatile and uncertain macroeconomic environment, we expect to benefit from strong oil prices. There is likely potential upside to the oil price, given the geo-politics.

The Chemicals division is expected to maintain solid operating margins, despite softer demand and prices.

Finally, the strengthening of the rand remains a risk. However, we are well positioned to deliver increased earnings for the 2012 financial year.

In conclusion, we have taken proactive measures to grow profitability and ensure sustainable performance that are delivering results. Our strong balance sheet and healthy cash flows continue to provide a buffer against the still volatile global economic environment, whilst positioning the Company well to fund selected growth opportunities, and deliver attractive returns to our shareholders.

Thank you for your attention; and back to you, David.

Thanks very much, Christine. On to slide 23; this is a familiar slide to most of you, the Group's strategic agenda.

Our current strategic agenda remains unchanged, as it continues to serve us well in the near to medium-term. Sasol's sustainable growth will continue to be driven through upstream feedstocks, downstream alternative fuels, chemicals, and new energy opportunities.

However, with a view to updating our long-term strategy, towards the end of October last year the Sasol management team held its annual long-term strategy conference. Together with other delegates, the Group Executive Committee discussed how to best optimize our businesses, and how to manage the exciting growth prospects available to us. We also discussed adjacencies for growth beyond our current portfolio of technologies and businesses.

Turning now to how we execute our strategic agenda, slide 24 depicts our project pipeline. Let's look at the first row, accelerating GTL and focused CTL growth. We are continuing to evaluate our strong position in the GTL market space, as we enter the golden age of gas. We're currently conducting studies for GTL facilities in Canada and Louisiana. As previously guided, these studies will be completed in the second half of 2012, and calendar year 2013, respectively.

In Uzbekistan we're making good progress with the front-end engineering and design for the 38,000 barrel per day GTL plant. You should expect more news on this project next year.

Turning to the second row, growing Chemicals on the basis of technology or feedstock advantage. Last November, we approved a feasibility study for a world-scale ethane cracker in Lake Charles, Louisiana. We subsequently kicked off the work and are planning to conclude the study during 2013.

Also in Lake Charles, construction began in December with site preparation for our ethylene tetramerization unit. Our R&D teams are looking at other opportunities to commercialize this unique and profitable technology.

Turning to our FT wax expansion project in Sasolburg, the beneficial operation date for phase one now schedules for June 2013.

Looking at new energy in the third row, our new energy business is progressing various alternative energy studies, which include solar, hydro, and underground coal gasification. In addition, Sasol New Energy is partnered in a Mozambique gas-fired electricity generation project, which is currently in the feasibility phase for a 140 megawatt plant in Ressano Garcia.

During the period, and similar to the Mozambique power plant, New Energy began construction of a 140 megawatt power station in Sasolburg. The plant will also utilize natural gas as its feedstock, and is scheduled to reach full capacity during the 2013 calendar year.

Turning to the fourth row, improving and growing our existing asset base, a final investment decision has been made on our C3 stabilization project in Secunda. This project will improve the extraction of propylene for high value chemicals purposes, and will smooth out supply fluctuations in the value chain. Beneficial operation is scheduled for calendar year 2014.

Another very important project currently in implementation is our Secunda growth program. Our Synfuels team has successfully commissioned a tenth fast reactor, and a sixteenth oxygen train, which is delivering to expectations. Construction on the gas-heated heat exchange reformer projects continues.

In related projects, the first of four new gasifiers was commissioned successfully, with the commissioning of the seventeenth reformer expected in the second quarter of the 2012 calendar year. If all goes according to plan, this will allow us to uplift Synfuels' baseline to 7.4 million tons per annum during the 2013 financial year.

Now I'd like to highlight the activities of Sasol Mining as they enter a very important phase of their history, to the replacement of three of their five mines in Secunda. Progress has been made during the period on extending our reserves at Sasol Mining.

The construction of a mine which will support the long-term coal export market continues to progress, with an anticipated completion date towards the first half of the 2013 calendar year. The construction of a further two collieries at a total estimated cost of ZAR9.8 billion, is expected to be completed in 2015 and 2016, respectively.

Our ethylene purification unit project in Sasolburg will yield additional ethylene to allow our polymers plants to run continuously. It is expected to be in operation during the second half of the 2012 calendar year.

Looking to the bottom of the slide and our upstream business, we are pleased to report that the expansion of our central processing facility in Mozambique has been successfully completed. This will now allow for gas production ramp-up in Mozambique to 183 million gigajoules.

I would also like to add that we will be doing exploration drilling offshore Mozambique in our M-10 license area towards the middle of this year. This remains a strategic part of our upstream portfolio.

Finally, I'd like to provide you with more detailed feedback on our Canadian upstream assets; let's turn to slide 25.

Despite experiencing some cost and production challenges in developing our shale gas field in the Canadian Montney basin, we've managed to achieve a peak rate of 107 million standard cubic feet per day of production at Farrell Creek on December 27. We're also encouraged that Cypress A continues to produce well above expectations.

Our development plan for 2012 has been curtailed to respond to the current low gas prices, but this allows for further appraisal activities. The medium and long-term ramp-up profile will be fully in line to feed our GTL aspirations, and our assessment of the gas reserves in Montney remains intact.

Turning to slide 26, it always makes good business sense to diversify a company like Sasol's portfolio. Extracting additional value from related businesses, such as Chemicals, is vital. At Sasol, our Chemicals business currently accounts for over 21% of operating profit, and we've gained strong positions in many of our Chemicals markets.

By making the most of the entire suite of products and optimizing integration opportunities, risk is spread, and value is maximized. Our Chemicals initiatives diversify our portfolio, and provide balance to our Alternative Fuels technology efforts.

To my final slide, and in closing, clearly, Sasol remains a compelling investment proposition. To ensure that we continue to build on our successes into the future, we are focusing on optimizing our foundation businesses, and on maximizing our growth opportunities. We have proven over six decades that we can operate and continuously improve large scale synfuels facilities.

As you have heard today, our businesses remain highly cash generative, supported by our focused delivery on cost containment, and excellence in all we do.

Our growth strategy is a compelling one, with our project pipeline clearly playing to our strengths. There continues to be a growing need for countries to secure a supply of energy. For many countries, particularly those with stranded coal and gas reserves, in-country conversion of these reserves into liquid fuels not only improves energy security, but also improves the country's economy.

Sasol's technologies can monetize these hydrocarbon resources, producing liquid fuels and chemical products which stimulate further downstream manufacturing. We've demonstrated our ability to develop, commercialize, and improve our technology. ORYX GTL in Qatar is a perfect example of this. And we're well positioned in emerging markets, which is where global growth and demand for liquid fuels will come from.

Finally, we deliver superior returns. Our solid balance sheet underpins our ability to increase capital expenditure to grow the Company by investing in our areas of strength. Our highly cash generative foundation businesses allow us to pay attractive and progressive dividends. Sasol continues to deliver market-leading results.

As Christine mentioned, total shareholder return over a five-year period, assuming dividends are reinvested, is 77% in rand terms. Moreover, our dividend yield of over 4% compares very well with the market of 2.6%. Clearly, Sasol is a company that offers a compelling investment proposition, and has over the years repeatedly delivered results. Together with the management team, we are very excited about the opportunities which lie ahead for Sasol.

With that, we'd now be happy to open it up for questions from those of you on the call. I guess we'll turn it over to the operator; Corinne?

(Operator Instructions). Gerhard Engelbrecht, Renaissance Capital.

I have a couple of questions. Most of them are around the production at Synfuels. Production was down about -- just over 1%, but Christina also alluded to feedstock availability issues on the polymer side. I guess my first question is does this signal that the cracker -- the SCC cracker is not operating the way that you were expecting it to operate?

Secondly, just following on the strike that you had earlier in the period, I gather you struck a one-year deal with the labor force. And, if memory serves me correctly it's the first time that you've lost production due to a strike. What's the outlook for labor action in future? Are you close to these developments?

And then lastly, I think some of the projects in Secunda, like the gas heated reformer and the water recovery projects are pushed out to 2013. When do you expect to get volumes at the facility up to around 7.5 million tons?

Great, thanks, Gerhard, for the questions. Let's start with the production at Synfuels and also the feedstock on the polymer side, Bernard?

Gerhard, it's Bernard, thank you. We were down, as Christine said, 1.3% in the first half. The SCC ran well until we took a shutdown in December; the shutdown was done according to plan. And, in fact, the SCC runs according to plan, as we speak. So I don't think SCC is the key issue.

David, do you want me to talk about the labor as well?

Sure, please, on the strike as well and what happened there last year with solidarity and the --

On the strike, as you've managed, Gerhard, we did last year have quite an extended strike and eventually took down the plant for a short period and had an impact on production. We don't have a multi-year deal, so we anticipate to get into some fairly tough discussions again this year, as an industry. We can't say yet exactly what will happen. It would be difficult to pre-empt that, but we don't have a multi-year deal.

And then maybe follow up on certain projects being pushed out and the question around volumes, and when we'll be getting 7.5 million tons?

Right, in terms of the last aspect, the GHHERs are on schedule to be done later this year. We anticipate the 7.5 million tons being achieved at the end of the next financial year or, at the beginning of financial year 2014, the baseline of 7.5 million tons should have been achieved.

Thank you very much. Just maybe a follow-up. Why was there not enough feedstock then for polymers if production was down only 1% at Synfuels? Where in the system do these problems lie, if I may ask?

Andre, please?

Gerhard, it's Andre. I think the answer lies in the highly integrated nature of the Synfuels and polymers facilities. The fact that when there's an upset upstream of the polymers plants, we don't necessarily always have the storage capacity to absorb the additional feedstock or to make up for shortfalls. And that is the reason why we are pursuing EPU 5, as well as the C3 stabilization project. It's precisely to cater for this eventuality and to build in a bit of a buffer capacity to give us more of a breathing space in the event of a production upset.

Thanks, Andre.

Thank you.

Jarrett Geldenhuys, Deutsche Bank.

Just a couple of questions, the first one just on Arya. If you can just update us on what you intend to do with the new cash that comes on to the balance sheet from this disposal? I see the restricted cash on the balance sheet to JVs is up to ZAR5 billion, so I'd just like an answer there if possible.

And then just to follow on from Gerhard's question regarding Synfuel's volumes. If we assume that you are going to get the upper end of your 7.2 million tons full-year guidance that means almost 3.8 million tons for the second half, so annualized that's 7.6 million tons. Is this a number that's -- that's a number that's higher than that 7.5 million tons, which you guided to in two years' time. So if you can just explain the differences there.

And then just, lastly, if you can just comment on your growth strategy in the US. If I look at -- which projects are you guys more excited about? Is it more the ethane cracker or is it more the GTL land? And how do we think about capital allocation between the two projects?

Thanks, Jarrett. Maybe I'll ask Christine to talk us through the cash at Arya and what's happening there.

Yes, I think, as you know now, we do have the cash ring fenced in separate bank accounts both offshore in South Africa. But your question was more relating to what we will do with the proceeds.

As you know that there is a process underway and we're talking to potential buyers for the asset or for the operation as such. And I don't really want to pre-empt the outcome of what we decide to do with the cash. I think it'll be assessed at that point in time. You're very well aware that we're pursuing a very ambitious growth strategy and we're pursuing further gas acquisitions. And, clearly, depending on the size of that, we'll need to assess at that point in time what we do with the cash.

Great, thanks Christine. Jarrett, on Synfuel's volumes, in the second half Synfuels looks very strong. After coming out of shutdown in October, they've been performing extremely well. So our guidance of -- to 7.2 million tons is looking like we'll be in that range.

And, Bernard, do you want to add anything to that?

No, I think the important thing is we have seen the last three months, for example, have been very positive. But we really want to stick to our guidance of between 7 and 7.2 million tons for the rest of the year.

I think your question is is 7.2 million tons possible? We've given guidance between 7 and 7.2 million tons, and I think we really need to stick to that. We're seeing positive signs, but we continue to look at our plant every day, and carefully analyze and work on the challenges that we have and opportunities.

Thanks, Bernard. Jarrett, growth strategy in the US, GTL versus ethane, we're extremely excited about both of those projects and are focused on moving them down the field in parallel. So at this point, we're still waiting to see the feasibility study results, so that we can get a better handle on what it looks like and get into more detail on capital costs, and schedules and rates of return. But they both look very strong to us and we're very excited about both of them.

And, Lean, do you have anything else to add?

No, just to echo what you've said.

Okay, thanks very much, Jarrett.

Caroline Learmonth, ABSA Capital.

Can you comment on Arya in terms of the period until you dispose of the business in line with your plans? Can you explain to us any issues, financial or otherwise in terms of carrying on operations in Iran in the current sanctions environment?

My second question is on South African polymers. So it looks like that part of your polymers business is significantly challenged in the current environment. Can you talk a little bit about the sustainable profitability you see for that business and how you can get back to those sorts of levels?

And then finally, on costs and you talk quite a bit about potential cost savings and continuing cost savings. Can you give us any -- and you talked a bit about your SAP project, etc., can you give us any specific examples of where you can still get cost savings out of the businesses? And how much that could be for that specific example? Thank you.

Thanks, Caroline. First to Arya and the period up until disposal. So, Andre, do you want to try that?

Yes, that's fine. At this point of time, the plant's running well. I think you would have seen that we achieved some pretty good utilization rates and the plant is running at high capacity.

We are being extremely cautious and careful in how we procure spares and suppliers for the plant, and we are very sure that we do so in a compliant manner. And we will continue to do so in a way that makes sure that we stick to the requirements of US, UN and EU sanctions.

At this point in time, it is still entirely possible to do so. And the team on the ground that we've got there, [and actually] are doing a great job at keeping the plant running in some challenging conditions. So we are still keeping the faith, in terms of running the plant well.

In terms of South African polymers, sustainable profitability, yes, you're right, we have experienced significant margin pressure, as Christine has explained during her part of the presentation.

It's really a bit of a bit of a perfect storm that we're experiencing in Polymers. Besides from the margin pressure, we have also experienced a spike in our fuel alternative value feedstock pricing to this business unit. Of course, Synfuels derives the benefit of that in its margins, so on an integrated value chain basis, the situation is not as depressing as the South African Polymers numbers in and of themselves would seem to suggest.

We are taking a very long and hard look at how to improve utilization of our polymer plants, and for this reason, we are pursuing the EPU 5 and C3 stabilization projects. We're also looking at further cost savings opportunities in the Polymers business and we have launched an initiative to critically examine our margins and our netbacks, and these efforts have already started to yield some pretty impressive results.

So the ship is turning; it's a big ship, it won't turn immediately. But I think polymer producers everywhere, particularly those that are linked to an oil-related feedstock, are experiencing similar difficulties. In fact, we're not worst off in the world, and Christine alluded to the Asian polymer producers that are sitting at negative cash margins. So we are hanging in there.

Thanks, Andre. The last question Caroline had was around cost savings and, certainly, cost containment within inflation is our definition of victory with respect to cost, and we're certainly not leaving any stone unturned. And the budget process is coming up here in April and we'll be taking a very close look, certainly from a headcount perspective, staffing level perspective to make sure we're in line and are being as productive as possible.

But maybe Christine could add some other color on SAP and functional excellence.

Okay, thanks, David. I think specifically relating to costs, I would like to reinforce the commitment that we do say containing cash costs within inflation on a normalized basis. I think quite importantly, why we use the word normalized is because we are a business that's investing for growth. So once-often growth costs will actually be shown separately and so costs from a normalized perspective would be costs compared on a like-for-like basis year on year.

So, certainly, from a growth perspective, we do expect growth costs to increase and, typically, that would relate to the Canadian operation and businesses like SSI and SPI where we are investing for growth and increasing headcounts in those particular businesses as well.

When it comes to functional excellence, I spoke about the cost reductions or savings that we've achieved, ZAR1 billion, and we're certainly expecting to see further savings in future. I wouldn't like to indicate at this point in time what they are; I'd like us to deliver them first and then talk about it. But certainly what's important is that these savings will be achieved then on a sustainable basis going forward. So I think that is what we can actually capitalize from.

On the SAP project; there is a lot of front end loading that's been done at this stage, so there are some once-off costs that are incurred. But the biggest part of the costs will still come in future. And a large part of that will actually be capitalized and amortized over an appropriate period of time. But I think quite importantly is that we are driving for standardization and consolidation in the Group so that we can optimize on costs and the number of heads in future. So that's actually quite important.

I think, clearly, what I also spoke about is the increased electricity generation and, certainly, that is going to help us contain costs in future. But other strategy in the Group is also stability which ties in, not only from an operational perspective in producing more volumes, but certainly it reduces the need for doing this extraordinary maintenance. And we saw the impact of that on costs in the past period and will also reduce the need for further imported electricity into the Group. So I think you will see that double impact coming through.

And, certainly, we're very tough contract negotiators and, certainly, as we renegotiate contracts that expire, we certainly look at containing costs from that perspective as well. So hopefully it gives you a bit of color around what initiatives we're taking to reduce costs in the Group.

Thanks, Christine.

Thank you.

Thanks, Caroline.

Campbell Parry, Investec Securities.

Just wanted to go back to Canada a little bit and talk about you've previously provided some guidance for us in terms of your production or gross production in the Montney (inaudible), and I just wondered whether you might do that again for us for the calendar year, or the fiscal year, whichever you like, on the basis that Talisman scaled back rig program there.

And then also just Andre is in the room and, Andre, I wonder if you can just quickly talk about the O&S business, specifically the Lake Charles cracker versus the Surfactants business. How are the two performing and how has that profitability at Lake Charles been impacted with the gas price?

Thanks, Campbell. We'll start in Canada where I think in our last guidance, the CFO letter was guiding 75 to 80 million SCFs per day of a rate there in Canada, and I think we're running at 95 -- we were running at 95 million SCFs per day at the end of the year, so up above our guidance, Campbell. And I think you heard in my talk that we had a peak rate of 107 million SCFs on December 27.

But Lean, do you want to add anything to that?

Just to confirm that we were -- we got our supplies to the upside for the last month, so things were looking better. But obviously in line with low gas prices, we are also curtailing production for the New Year.

So that number's a gross production or net?

The 6.7 billion SCFs David quoted were net to Sasol, but the SCFs per day were gross for the field.

Okay.

And then, Campbell, on your O&S business, Lake Charles cracker, Andre, please?

The Lake Charles cracker is a fully amortized asset so it's pretty competitive, also on a cash cost basis. As you know, ethane pricing in the US is fairly depressed at this point in time. Ethylene margins are still holding up as a result of a fairly substantial portion of the US ethylene market still being supplied by naphtha crackers. So crack spreads for ethane crackers are particularly good.

The Surfactants business is also doing pretty well. What we find is that our differentiation strategy, where we are deliberately trying to move as far away as possible from the commodity side of the business, where we do not have a competitive advantage, that has been paying dividends. So increasingly, we find that we are able to penetrate those markets, particularly in an ancillary recovery and also gas field chemical supplies where the margins are pretty attractive.

Thanks, Andre.

Alex Comer, JPMorgan.

A couple of questions. Just on the Chemicals businesses. At the time of the CFO letter, when you asked how things were going at that time, the comments were that Chemicals was still roughly 30% of profits and that specifically, the O&S business was making double-digit margins. Now clearly, the profits have come down to 21% and O&S is around 8.5%. So the inference would have been there was a complete collapse in December.

So in light of that, I just wonder how are you doing in terms of the Chemicals businesses at this present moment in time in terms of performance?

And then my second question relates to Canada. The CapEx I think was something like ZAR540 million in the first half. Now, as far as I can ascertain, that doesn't seem to be able to have been entirely spent on wells. I wonder how much of that was infrastructure CapEx. And also, could I just confirm that you are depreciating all of the CapEx at the moment despite the fact you only own 50% of the assets over there?

Okay, we'll start with Chemicals performance. Andre, if you could please? Thanks.

Yes, the Chemicals division's had a tough December. I think that was an industry-wide phenomenon. In a couple of businesses demand indeed suffered a very precipitous decline during the month. What we saw in January was a slight recovery in demand inching upwards, however, prices are still down and again oil-related feedstocks are up. So margin squeeze definitely puts our profits under pressure.

What we're doing about it is we are, obviously, containing our cash fixed costs as much as we can. We are continuing with planning and optimization initiatives to make sure that where we have multiple outlets for our molecules, that we place them in that part of the business that yields the best total gross margin for us.

And I've already referenced the marketing excellence initiative that we've launched that is starting to pay dividends, particularly in terms of ensuring that we get the best overall net back for our business.

In addition to that, we're obviously keeping a very tight handle on our inventories to make sure that should there be any further price shocks, that any stock effects will be limited as much as possible.

Great, thanks, Andre. Canada and depreciation, Lean, do you want to take that one?

Yes, Alex, field development, roughly 70% of the total capital that we have spent, the rest relates to various sorts of infrastructure from the gas processing facilities to pipelines, etc.

You're also right; we're also depreciating the carry portion that we pay for Talisman, and at this stage, the depreciation accounts for more than about 75% of the total cost of Canada.

Okay. Can I just ask one further question? Just in terms of your CapEx estimates, I think it says in the fact book there's ZAR600 million signed off for this calendar year for Canada. Do you still stand by that, because that does seem to be slightly higher, materially higher than what Talisman has indicated. And given the pull-back in drilling, is that still a relevant number for the 2012 calendar year?

Yes, for the calendar year, the parties have both agreed the development plan, and this is the agreement that we have. This is approved by ourselves and by them. But obviously, as the year develops, we will take a close look to the market, but that is the approved budget.

Thanks, Alex.

Tassin Meyer, Citigroup.

Just two questions; the first one is, if we look at the announcement or the indication in the numbers is that you've taken an additional stake in the Uzbekistan GTL plant. Can you just maybe give us some rationale behind that?

And then secondly is could you just take me through what's included in your cash fixed costs number; and then also try and explain the 22% increase in cash costs at Secunda? That does seem a little high. Could you give me an indication of what that's expected to be in the second half, where they are now? Obviously, [Sap] that we've experienced, yet no strikes, etc., expected, so your cash unit costs at Secunda, and then just Uzbekistan GTL increase.

Additional stake in Uzbekistan GTL, Lean?

Yes, after the feasibility study was completed, Tassin, Petronas indicated that going forward, they want to reduce their shareholding. At that stage, we were one-third each. And after discussions with ourselves and our Uzbek partners, we agreed that we will increase our shareholding to 44.5%; so did Uzbekneftegaz. And they are now at 11% and we're quite satisfied with the arrangement.

Thanks, Lean. And then on cash fixed costs, the 22% at Secunda, the large part of that during the feedstock costs and mining, Christine?

Yes, it's actually the cash unit costs that increased by 22%, so clearly that has been driven by the higher feedstock costs. But as part of that, 8% of that is actually internal, because the upside one would actually see in mining due to the transfer pricing.

The other cash cost is about 7% relates to labor and routine maintenance and utilities; and 5.2% of the cash unit costs have been attributable to instabilities. So the higher maintenance as a result of these unforeseen incidents and the lower volumes had about a 1.3% impact on unit costs.

In terms of how are we going to -- how do we see the costs unpacking for the remainder of the year, I won't like to be specific on that, but it talks to the point that I mentioned earlier. I think stability, and in the second half of the year, certainly, expected. And that will then have a positive impact on the imported electricity in the second half, and it will obviate the need for the extraordinary maintenance. And certainly, that will talk to a positive cash fixed cost on a unit basis.

Thanks, Christine.

Hootan Yazhari, BofA Merrill Lynch.

Just a couple of questions, please. I'm going to take you back to Canada. You've alluded to the fact that lower gas prices in the United States have been -- or North America, in general, have been a key reason as to why the development program there has slowed down. Can you give us an indication as to what level of gas price you would like to see before really spurring on, and whether there's further possibilities of delays here? Or are you looking to develop these assets at any cost so that you can underpin a GTL project?

And then the second question really going back to Uzbekistan; can you give us an indication on when we should really start to see the CapEx impact coming through the numbers for this one? Thank you.

Thanks Hootan. In Canada on the gas prices, Lean, do you want to give us some color?

We've never been specific on our side from Sasol to quote any numbers on -- and gas prices versus returns, but I'll quote you a number given by Talisman. Talisman has stated publicly to achieve a 10% return on Montney they need a gas price of $4.50. And they calculate their numbers very accurately, so that's the point on that.

As far as Uzbekistan is concerned, David has indicated 2013 is a big year for decision making, so CapEx flows look towards 2013 for that.

Yes, I'd just like to flesh it out a bit. Given that Uzbekistan is already in feed, the costs are already being capitalized, so we already see quite a big uptick in financial year '13 about roughly ZAR1 billion in financial year '13 for Uzbekistan CapEx. But, clearly, when we make the investment decision, it's going to tick up quite significantly beyond that.

Understood. Thank you very much.

Thanks, Hootan.

Nic Dinham, BNP Paribas.

Just one or two questions. Firstly, on the mining side, the cost of coal, or the revenues that Sasol Coal received from Sasol Synfuels went up by nearly 20%, yet your costs have only gone up by, I think, somewhere between 10% and 12%. So my question is, is this related to having Ixia as shareholders, as a result of the Ixia transaction having [BE] shareholders who want a decent return?

Nic, is that your only question?

Well, no. I have a few more, but I'd just like to space them out a little bit.

Okay. The 20% -- the increase in transfer price on mining to take care of the CapEx over there and make sure they get their hurdle rate, Christine, do you want to just give some color on that?

Yes. I think the point I'd like to make is that these discussions and negotiations are done on an arm's length basis, and so Ixia doesn't really have an influence with relation to that doesn't really have an influence with relation to that. And so I'm quite comfortable that it is market related, and that's why you saw those increases coming through. And like David, like you said, it is actually to pay back to meet the hurdle rate on the capital.

Exactly.

Okay. Just following that, it does still look uncomfortable that you have shareholders in a very crucial part of your supply chain, separate shareholders with separate objectives. Is it realistic to expect that those shareholders would be brought up into the Sasol mother ship -- as a shareholder, to trade up?

No, not that we can foresee. That's not going to be happening.

Okay. My second question was about the Sasol pipeline upgrade, the Mozambique pipeline upgrade, which we see in the accounts. Two years ago, there was a discussion about [Rosanagosia], the compressor station being built, and as we understood, to spec. I see in the latest set of accounts, not the 2011 accounts but the 2012 accounts, that there's a lot more money has gone to it. Could you explain what is happening there?

Comments on the compressor station?

To be honest, I don't quite understand the question. Could you repeat it?

Okay. So the original allocation for capital was about ZAR500 million, and it didn't reappear. We thought that the upgrade was complete. In this set of accounts, we see a far larger number dedicated towards the pipeline expansion program. It's now talking about ZAR1.5 billion-ish, and just wondering have you had a change of scope there? Are you taking over responsibility for the investment on behalf of ROMPCO as well?

I think we are not getting that question; perhaps we can deal with that offline. We'll have to move on, perhaps last question.

Okay, maybe I have some more detailed questions, but let me -- could you may be open the door for a little bit of philosophical review about Mozambique, which we have heard so much about in the last 18 months and certainly a lot of activity. And I know that you have been involved in the peripheries of getting gas from that project, but there are other good projects in Australia as well. Could you bring us up to date about your thinking about how you could or if you would get involved in Mozambique?

Lean, do you want to talk about Mozambique and Australia?

Yes, we continue to do exploration as David already indicated, we're going to drill offshore Mozambique. We've got block A. We've got Sofala. We are doing seismic on them. So, we're going unabated with work to find gas in Mozambique. So we've also recently awarded a block in Australia; so we continue with our activities in acquiring acreage in the Australia area as well.

Okay, sorry, the question wasn't well put then. Mozambique there's been a big find up in Pemba. Are you in and around that or thinking of considering of acquisitions -- direct acquisitions in those types of deposit as opposed to shale gas?

We don't own any acreage in the northern part of Mozambique or some part of Tanzania, but it's definitely in our radar screen and we are in discussions with gas owners there about potential cooperation but, at this stage, there's nothing concrete.

Thanks very much, Nic.

Thank you.

The last question, pleas.

Nishal Ramloutan, UBS.

Just you talk on the reduced demand for wax, and maybe just how this defers from your assumptions with respect to that wax expansion that you're doing in Sasolburg? That was the one.

And then the other one is can you just talk a bit more about the production cut back that you spoke about because you mentioned that you cut back with regards to the market demand being softer, on what sort of areas, were those more on Chemicals and more on international Chemicals?

And maybe just finally, I think you did allude to it as well, I see you say that imports of electricity did increase, can we allude from that there were problems with the gas turbines at Synfuels?

Well, as far as the wax price is concerned we're quite comfortable with the markets that we will be seeing as that project goes to beneficial operation in the middle of 2013. And, in fact, we are looking to expand it further, phase two by 2015. So we're very comfortable with the economics on that plant. We're very excited about bringing that plant on line based on the markets, the market that we see for the product.

Other question, did you get the last one on gas, sorry.

I think the other question related to market demand, whether it was in the international Chemicals space, and the answer is yes.

In respect to wax?

No, no he said international chemical.

Broadly speaking, Chemicals we expect to come back not this financial year but certainly by the end of FY '12 and into financial year '13. We believe Chemicals will strengthen for us, so it is a bit of a softening here that we see, and due to some decreased demand, certainly out of China. But further down the road, calendar year '13 specifically we see chemicals coming back for us.

And there was one more question on, I didn't hear it, on gas turbines and -- could you repeat the question on the gas turbines please?

Well, as you mentioned that there was an increase of electricity in part at Secunda, and I'm just enquiring whether there were problems with the gas turbines in Synfuels?

No, there is -- do you want to talk about it Bernard?

It's Bernard. The increase in electricity was a consequence of boiler maintenance for the boiler maintenance program. The two gas turbines in fact, the generated turbines have run quite well in the last year, so it wasn't as a consequence of the turbines, no.

Okay, thanks.

Very good.

Thank you.

Corinne, thank you. And for those of you who are left, thanks for your interest in Sasol and we look forward -- Christian and I look forward to seeing you, as many of you as possible in the coming weeks on the road show -- investor road show. So thanks very much.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.