Sasol Ltd (SSL) 2014 Q4 法說會逐字稿

Good morning and good afternoon, ladies and gentlemen, and welcome to the Sasol yearend financial results conference call. This call will be hosted by David Constable, President and Chief Executive Officer and Paul Victor, Acting Chief Financial Officer. Following the formal presentation by Sasol management an interactive Q&A session will take place. A copy of today's slide presentation is available at www.sasol.com. As a reminder please take note of the forward-looking statements on slide 2.

I would now like to turn the call over to David Constable. Please go ahead, sir.

Thanks operator. Good day, everyone, and thank you for joining us for Sasol's yearend results conference call today. Joining me here in Johannesburg from Sasol are Paul Victor, our Acting Chief Financial Officer; Bernard Klingenberg, Executive Vice President for Southern Africa Operations; and Steve Cornell, Executive Vice President, International Operations.

As you would have seen from our results announcement today this past financial year the Group posted another outstanding all around performance against our financial and operational targets. Underpinned by ongoing operational efficiencies, we outperformed our previous best efforts.

Turning to slide 4, let me start with an overview of what you're going to hear today. First of all, we'll highlight what we mean by a new era for Sasol, as a repositioned, restructured and focused organization and here we'll be providing you with a three-year overview so that you can better understand the magnitude of our achievements. I'll then talk to you through the single key ingredient to our global growth drive which is natural gas. Next, I'll update you on our business performance and asset program which is delivering operational efficiencies and driving cost discipline across the Group.

Paul Victor will then go into more detail on the financial operational performance of our businesses. As part of summarizing why Sasol remains a very compelling investment case, I'll then provide you with more color on our Lake Charles Chemicals Project in Louisiana and we'll open it up for any questions you'd like to ask us.

Moving on to slide 5, the necessity for change, first identified at the end of 2011 arose out of the management team's commitment to sustain our strong operational and financial performance. And through the implementation of our Group-wide change program in 2012 we started to reposition the organization by driving a single set of priorities across the Group with safe, stable and efficient operations at the core.

In 2013, to ensure greater focus across the organization, we prioritized our project portfolio which included the clear articulation of our near= to medium-term strategy centered on two key regions, Southern Africa and North America.

In parallel, from 2012 to 2014, we restructured the Group and introduced changes to our top and senior management layers and corporate structures and cemented our longer-term strategic direction. These changes culminated in the rollout of our new operating model on July 1 when we implemented our revised structures and processes.

Next, slide 6 highlights a few noteworthy aspects of how we repositioned ourselves over the past three years. I'll not talk to the specific callout boxes but as you can see from the slide, Sasol has strategically repositioned itself to advance our gas-based growth programs concentrated largely in Southern Africa and North America.

So what is the net result of all of this? Looking at slide 7, first, our headline earnings per share have in the last three years increased by 78%. Second, Sasol has increased dividends per share by 65% over the same period. And third, this performance has contributed to our share price increasing by 78%. In addition, total shareholder returns of 103% in rand terms were achieved over this period, certainly a very healthy position to build on.

Turning to slide 8, in looking at our growth programs one ingredient is constant and that is natural gas. From 2008 to 2013 nine of the 17 largest gas discoveries in the world have been in sub-Saharan Africa. Two of the top three gas discoveries have been in our neighboring country of Mozambique and we are no strangers to Mozambique having first entered the country in 1999 and now, 15 years later and with most of the required infrastructure in place, we have been processing and transporting gas for just over a decade.

Over this period we have steadily increased production and as a consequence our share of the gas produced in Mozambique has increased by 13% year on year to 116m gigajoules. Increased production will not only allow more gas to be brought to South Africa but it will also enable greater in-country gas utilization in Mozambique.

Here at the end of the last month we inaugurated Mozambique's first permanent 175 megawatt gas-fired power plant in Ressano Garcia which will serve to provide electricity to 2m Mozambicans or 23% of the current power demand.

In tandem, we're expanding the required pipeline infrastructure to facilitate the transportation of additional gas to Southern Mozambique and then into South Africa. This loop-line running in parallel to the existing line for the first 128 kilometers will come on stream in the next two months.

We're also looking to expand our production efforts from the production sharing agreement area. Here we are planning to submit a field development plan next February, an important step in reserve development.

To help assess the potential of the large gas reserves in Northern Mozambique, earlier this year we announced a gas-to-liquids pre-feasibility study together with our partners ENH and Eni.

Closer to home, we're also exploring for gas in the Durban basin off the KwaZulu-Natal coast. In June we signed a conditional 40% farm down agreement with Eni to explore and develop this block. The seismic survey has been completed and the data is being processed.

In addition, we are planning to drill on onshore concession Area A which will facilitate further evaluation of this underexplored portion of the Mozambique basin.

Moving on to slide 9. After a detailed diagnostic and to achieve our strategic objectives, at the start of this past financial year, we officially launched a comprehensive business performance enhancement program which cut across the entire organization. Our leadership structures are now complete and have in FY14 resulted in voluntary retrenchments and early retirements amongst the most senior layers of the organization. The restructuring process will be concluded in FY15.

The catalyst for our restructuring was the development and introduction of our new operating model which is organized along an integrated value chain. This new operating platform was effective from July 1, the start of our 2015 financial year.

The consolidation and right-sizing of our corporate and legal structures were a crucial building block of our Group-wide restructuring, particularly here in South Africa. This has resulted in a more effective and efficient decision-making and governance framework.

With new structures, systems and processes now in place we're confident that the program will deliver sustainable cost savings of at least ZAR4b annually from 2016 onwards. We've already banked ZAR469m of cost savings in FY14 or ZAR700m annualized, which was mainly achieved through voluntary retrenchments and reduced external spend.

Looking ahead at our performance enhancement program, we'll continue to improve our operational productivity while benefiting from a more effective, simplified and tailor-made operating model. In FY15 we expect cost savings of approximately ZAR1.5b or ZAR2.2b annualized.

In repositioning Sasol for a new era, a key feature of our license to operate is the broader contribution we make to society. Slide 10 provides a few highlights of our South African contributions in FY14 as well as combined totals for the last three years. These important points are self-explanatory.

Turning next to slide 11 and to our FY14 performance, it's clear that our solid operations underpinned our excellent results. At our Synfuels complex improved plant efficiencies drove production up to 7.6m tons, the highest output in a decade.

In Qatar our flagship GTL joint venture, the ORYX GTL plant, continues to achieve new production records coupled with an impressive safety record of a case rate of zero over the past three years.

In terms of our financial performance and through the efforts of our business performance enhancement program, our normalized cash fixed costs were 1.8% below South African PPI. Headline earnings per share were up 14% to ZAR60.16, another new record high. Attributable earnings were ZAR29.6b up 13% year on year, another all-time high. Cash generated from operations was up 26% to ZAR65.5b enabling a total dividend of ZAR21.50, another record which remains well-aligned with our progressive dividend policy.

With that let me now hand over to Paul who will unpack our results in a little more detail. Paul.

Thanks, David. Good afternoon, ladies and gentlemen. I'm delighted to present our 2014 full-year results to you today. We have, once again, delivered record earnings. Our reported earnings are at the mid-point of the guided range provided in our recent trading statement.

Before I move into the details of the 2014 results I would like to make a couple of remarks. First, management's continued focus on factors within our control has resulted in excellent underlying business performance with improved volumes ahead of internal targets.

Second, our continued focus on cost control, coupled with the early successes of our business performance enhancement program, has seen us contain the increase in normalized cash fixed costs to well below inflation despite the very challenging South African cost environment.

And finally, our robust cash flow generating ability and ungeared balance sheet allows us to deliver superior returns through our progressive dividend policy whilst still position Sasol well to fund our attractive growth program and to provide a buffer for volatility.

Moving to slide 13. The macroeconomic environment remains volatile and uncertain. The average rand/US dollar exchange was 17% weaker compared to the prior year with a flat average Brent crude oil price and a progressive improvement in chemical prices. The Sasol business remains sensitive to significant movements in the rand/dollar exchange rate and oil prices and we remind you of our sensitivities to each of these variables. We estimate that a $0.10 in the annual average rand/dollar exchange rate and a $1 change in crude oil prices will affect our profits from global operations by approximately ZAR860m and ZAR750m respectively.

Moving to slide 14. As mentioned in our half-yearend results presentation, we adopted a new suite of consolidation accounting standards resulting in changes in our [assessment] of our investments accounted for in our financial results. Prior-year numbers have been restated accordingly. For further details I do refer you to our full results announcement.

Overall the Group delivered an excellent business performance supported by a weaker rand/dollar exchange rate and a progressive improvement in chemical prices. Headline earnings per share increased by 14% to a new record of ZAR60.16 per share.

Operator profit of ZAR41.7b was up 7% despite remeasurement items of ZAR7.6b related mainly to the ZAR5.3b impairment of our Canadian shale gas asset and the ZAR1.4b impairment and loss on disposal of our Solvents Germany asset.

Our South African Energy cluster delivered an overall strong performance driven largely by the better-than-expected production performance from Synfuels despite the largest shutdown in its history and favorable rand product prices.

In our International Energy business ORYX GTL again delivered a stellar operating performance ahead of our own expectations achieving a record annual average utilization rate of 97%. While in our chemicals cluster both improved volumes and higher product prices boosted profitability.

Turning to slide 15 we are very, and extremely pleased with our cost performance with this year. The increase in normalized cash fixed costs has been contained to 1.8% below the South African producer price inflation of 7.3% from the 2014 financial year.

Sustainable savings from our business performance enhancement program amounted to ZAR469m for the financial year. And net cost savings identified assisted us offsetting the impact of a ZAR534m penalty relating to the polymers tribunal fine.

Although overall we benefited from a weaker rand/dollar exchange rate, the impact of the weaker rand added 5.2% to the total cash fixed cost base. Cash implementation costs of our business performance enhancement program added a further 1.3%.

Labor, maintenance and energy remains the main drivers of our cost base with labor now comprising approximately 55% of our total cash fixed cost base. We have concluded wage settlements with the trade unions in the mining, chemical and petroleum sectors for the forthcoming year at increases averaging between 7.5% and 8.5%.

Our strategy to contain energy costs has seen us successfully ramping up our electricity generating capacity in South Africa to around 70% of our own requirements. We caution that cost pressures may be experienced as a result of higher-than-expected electricity price increases for the 2015 financial year.

Our investment in plant maintenance over the recent years has successfully delivered plant stability and improved volumes across our key businesses.

And finally, cost reduction continues to be one of the critical focus areas for management and through our business performance enhancement program we aim to beat the constraints by means of focused business structural changes and process efficiency improvement.

Moving on to slide 16, the weaker rand/dollar exchange was the largest contributor to the increase in operating profit this year boosting operating profit by 28%. Improved product prices added a further 3%.

Yearend adjustments include a substantial increase in the provision for long-term employee share-based payment expenses of ZAR3.6b following a 47% increase in our share price over the financial year. Furthermore, additional remeasurement items of ZAR1.3b partially offset by the impact of the Sasol wax fine refund of ZAR2.5b had a negative impact of 16% on profit from operations, joint ventures and associates.

Higher depreciation charges in respect of new plants as well as shutdown and statutory maintenance adversely affected operating profit by 6%. However, it is extremely encouraging to note the positive impact of the increased sales volumes of 7% across the Group for 2014. This is on the back of a 7% increase in sales volumes for the 2013 financial year. The total increase in sales volumes over the last two years amounts to ZAR4.5b in real terms on a record 2012 earnings base.

Moving to slide 17. Our SA Energy cluster continues to underpin the Group's profitability as well as cash flow generation, contributing [90%] to the Group profitability. Sasol Mining's operating profit increased by 11% benefitting from increased sales prices to Sasol Synfuels and a weaker rand. Normalized mining unit cost increases were successfully contained to only an increase of 7% for the 2014 financial year.

Sasol gas operating profit increased by 7% mainly as a result of the 7% increase in sales volumes and, again, of ZAR453m on the disposal of our investment in Spring Lights Gas.

Sasol Synfuels continues to underpin the Group's profit delivering an increase in operating profit of 15% and operating margins at 49%. The increase in profits were driven largely by the better-than-expected production volumes and a weaker rand. Production volumes increased by 2% to 7.6m tons and, a record for the past decade despite the largest shutdown in Synfuels' history. If this shutdown is excluded production would have increased by 4%,

Cash unit costs increased by 10.6% due to higher feedstock prices and energy costs. Management continues to focus on cost management and improved plant stability.

Sasol oil's operating profit decreased by 18% with lower refining margins offsetting a 5% increase in sales volumes. The increase in sales volumes was against a backdrop of a relatively flat SA retail market growth rate.

Moving on to slide 18 we turn to our international energy cluster. Sasol Synfuels International recorded a 6% improvement in its operating loss to ZAR935m for the year, driven largely by lower study costs. Our ORYX GTL joint venture delivered an exceptional performance on the back of a record annual average utilization rate of 97% as well as the weaker rand. Our share of the income of our ORYX GTL joint venture increased by 52% to ZAR4b. ORYX GTL's strong performance continues to reinforce our GTL value proposition.

Sasol Petroleum International recorded an operating loss of ZAR6b for the year. Excluding Canada SPI yielded an improved performance with an operating profit of ZAR1b compared to an operating loss of ZAR71m in the prior year.

In Africa, Mozambique and Gabon performed well delivering a 9% increase in production volumes. We are also progressing well with our [ground breaker] in Mozambique, which David expanded on earlier.

Our Canadian upstream assets generated an operating loss of ZAR7b which includes the impact of the ZAR5.3b impairment and a depreciation charge of ZAR1.9b. The impairment, as announced at our 2014 interim results was mainly due to the decline in North American gas prices.

We continued to execute on our approved development plan in conjunction with our now new JV partner Progress Energy. Drilling activities will increase once we see an improvement of the gas price. With our joint venture partner, Progress Energy, we aim to further reduce drilling and completion costs to below our original business case assumptions.

Moving to slide 19. WE have continued to see an overall recovery in sales prices and volumes in our chemicals business. Our polymer business is returning to profitability with a 5% increase in sales volumes. The operating loss of ZAR35m after excluding one-off items of ZAR732m reduced from on operating loss of ZAR1.5b in the prior year. Plant efficiencies were mainly brought about by the commissioning of the EPU5 plant in October 2013.

Solvents' 76% increase operating profits to ZAR200m was due to the negative impact of the sale of our Solvents Germany assets. On May 31, 2014 we disposed of our Solvents Germany assets totally ZAR1.4b in impairment and disposal losses. Adjusting for the sale of assets, operating profit was increased by 54% boosted by overall improved plant stability as well as a weaker rand.

O&S continue to delivered strong earnings underpinned by constant and reliable operations delivery and a weaker rand. Operating profit increased by 49% to ZAR5.3b or 21% in euro terms, while operating margins expanded by 1% to 9.5%. Our US business continues to benefit from low ethane prices; however, our European operations are still under margin pressure on the back of softer demand coupled with higher petrochemical feedstock prices.

Our other chemicals business recording an operating profit of ZAR3.6b compared to ZAR123m operating profit in the prior year. This increase was largely the result of a ZAR2.5b payment received in respect of a reduction on our 2009 fine paid by our Sasol Wax business to the European Commission. This decision can still be appealed. Our infrachem and nitro business continued to experience challenging market conditions.

Turning on to slide 20 I would like to expand on what David touched on earlier in respect of our business performance enhancement program. We have increased our savings target and now expect to generate sustainable annual savings of at least ZAR4b by 2016 from a 2013 cost base. We have already achieved a ZAR469m savings, or ZAR700m on an annualized basis in the 2014 financial year and expect to generate an additional ZAR1.5b or ZAR2.2b annualized in the 2015 financial year with the balance realized by 2016. Further potential upside to these savings targets will be communicated in due course.

Project implementation costs of ZAR1.3b were incurred for the 2014 financial year and are expect to peak at approximately ZAR2.1b in our 2015 financial year before tapering off in the 2016 financial year as we finalize implementation. We expect cash fixed costs to follow inflation from 2015.

Moving to slide 21. Taking into account our record earnings, the ongoing strength of our financial position, as well as our current capital investment plans and our progressive dividend policy, we have increased the final dividend by 1.5% to ZAR13.50 per share taking the full-year dividend to a record ZAR20.50 ( sic - see slide 14 "ZAR21.50) per share, which is a 13.2% increase from the prior year.

Our dividend yield of approximately 3.4% and our total shareholder return of 184% measure over five years in rand terms continue to position Sasol competitively within our peer group. A compounded annual growth rate over the last three years of 18% in dividend, supported by a 21% per annum growth rate in headline earnings per share, demonstrates our commitment to consistently return sustainable value to our shareholders.

Moving to slide 22. We continue to deliver strong cash flow generations across the Group as evidenced by the increase in cash we generated from operations of 26% to ZAR65.5b. This, together with the a deleveraged balance sheet which continues to reflect an ungeared position of 6.3% at yearend, positions us uniquely to fund our growth program as well as to deliver on our progressive dividend policy.

We spent ZAR40b on capital expenditure in the current financial year of which 57% was spent in South Africa. We maintain our capital estimate for 2015 of ZAR50b and estimate capital expenditure of approximately ZAR65b for 2016. A substantial portion of our capital spend over the following two years will be towards our growth projects as we execute our gas-based growth strategy.

Moving to slide 23. We expect macroeconomic conditions to remain volatile and uncertain which may impact our assumption in respect of the economic variables. Our oil price and rand/dollar exchange rate views for now remains relatively unchanged but we do want to highlight the increased risk of financial market volatility. We continue to focus on the factors within our control, that being volume growth, margin improvement and cost reduction.

We expect an overall solid production performance for the 2015 financial year. Sasol Synfuels volumes are expected to be between 7.5m tons and 7.6m tons. We expect ORYX GTL average utilization rate of about 85%, taking the statutory shutdown into account. In Canada we expect our gas throughput to be at similar levels compared to 2014 and incremental volume additions expected in our natural gas, ethylene and propylene value chains.

We expect normalized cash fixed costs to follow inflation although we do want to caution that cost increases might bring pressure due to higher than expected electricity price increases.

In conclusion, as we embark on a new era we are very well placed to consistently deliver sustainable value to our shareholders.

And on that note I will hand back to David.

Thank you, Paul. And I'll now direct you to slide 25. In North America the shale gas revolution along with the wide differential between oil and gas prices and the abundance of low-cost ethane have set the stage for attractive growth opportunities in the US as you well know. This forms the basis of our gas-based growth program on the Continent.

In pursuing our US growth program the key consideration was how to unlock maximum value for our shareholders over the long term. Looking specifically at our Lake Charles ethane cracker project here are a few salient points to note. First, the front-end engineering and design work for the chemical complex is nearing completion with the project economics remaining robust.

Second, we have concluded term-based ethane feedstock supply agreements and have secured sufficient ethane transportation capacity utilizing various pipelines.

Third, and crucially important, the air, water and wetlands permits for both the cracker and the gas-to-liquids facility were issued without any challenge or objection, which highlights the positive views our stakeholders have of these projects.

Fourth, and in parallel, we are making very good progress on the cracker financing.

And fifth, our well-defined contracting strategy mixed fixed price and reimbursable contracts. This will limit undue cost contingencies and the related risk.

Based on the significant progress made to date we are confident that a final investment decision on the cracker will be taken before the end of this calendar year.

To my final slide, slide 26, and to summarize, Sasol remains a compelling investment proposition and this assertion is illustrated in the three columns you see on the slide.

First, looking at our existing asset base, our foundation businesses are delivering record results. Due to our proven technologies and flagship plants in South Africa and Qatar continue to achieve impressive gains in throughput and efficiencies. Supported by a new operating model and cost discipline through the Group our foundation businesses provide us with a solid platform to springboard our expansion efforts. As you heard today from Paul, our businesses remain highly cash generative delivering strong cash flows.

Next, our growth opportunities remain attractive. Here our ambitions are based on harnessing a mix of key factors including delivering on our near term incremental growth project in Southern Africa and also abroad, developing our gas-based growth programs in Southern Africa and North America, and getting ready to take a final investment decision on the first component of our US mega projects, the ethane cracker.

Finally, Sasol continues to create value. A solid balance sheet and healthy cash flow generation continue to support our progressive dividend policy and the funding our growth plans. Coupled with our dividends and through our share price performance Sasol continues to create long-term shareholder value.

With that we'd now be happy to open up for any questions that you may have. Operator.

(Operator Instructions). Jarrett Geldenhuys, Investec.

Hello, everyone, thanks very much for the opportunity to ask a few questions. Just two questions on Canada please and the shale gas and then just one on the CapEx. Just looking at the Canadian shale gas depreciation it seems to have rolled over quite significantly in 2H relative to 1H. I wonder if you can just give us some kind of guidance for what we can expect for the depreciation there on those Canadian gas assets.

And then if you can give us also some kind of an indication of what the book value of those Canadian assets are sitting at, at, the moment. That's the first two questions.

And then just the one on CapEx, I'm just wondering if you could break down that ZAR65b FY16 forecast for us just a little bit in terms of whether the ethane cracker whether that's in those numbers or not and what actually relates to potentially Mozambique as well. Thanks very much.

Thanks, Jarrett, for the three questions. And I think Paul is going to get all three of them. I could take a stab at the book value, but I'll let you do that.

All right, let's get the easy one out of the road. The book value is approximately CAD1.1b. Basically the depreciation charge, Jarrett, you have to view that over the financial year, very difficult to break it down on one half versus the second half. So typically the way that we look at it is roughly between CAD200m and CAD230m as a range that you can use for the 2015 financial year.

Your capital estimate was for 2015, the ZAR50b in terms of its makeup.

He said on ZAR65b for that question.

Okay. So basically the ZAR50b in terms of the makeup of 2015 is ZAR20b in any given year for the next two financial years relates to our sustenance program, of which the majority will be spent at Sasol Mining and Sasol Synfuels.

In terms of the growth cost the large portion of the growth charges will primarily be spent in the US, specifically on the cracker project and also on the FEED costs for the GTL. There will be also a portion being spent on the rigs that we currently have active in Canada, and then also a portion relating to the PSA development in Mozambique.

And for 2016 as well?

For 2016 it's pretty much the same in terms of the ratio, so the ZAR65b, again ZAR20b will be spent on sustenance capital with the majority then being spent on the cracker and then on the FEED costs of the GTL. Those will be the two big projects which we then -- to execute in the next two years.

Thanks, Paul. And thanks, Jarrett. Operator?

Caroline Learmonth, Barclays.

Thank you. Three questions please. First of all on the cost savings and the ZAR4b sustainable cost savings you're now talking about, can you give us any breakdown in terms of what the key components of those savings are? You mentioned, for example, in the savings you've already achieved some impact of people costs and reduced external spend. But can you give us any idea on the ZAR4b number?

And then secondly on the ethane cracker, you talked a bit about your contracting strategy there, so are you concerned about CapEx inflation that we are seeing in North America at the moment. And what do you think the acceptable level of risk in terms of exposure to that inflation is for you in the ethane cracker project?

And then just finally, if I read it correctly, I think you suffered five fatalities this year, and if you could tell us about those and what your plans are to reduce that level going forward. Thanks.

Okay, let's start with cost savings. Caroline, as you heard we've -- thanks for the questions. As you heard we've increased the business performance and hazard programs target to at least ZAR4b annually starting in FY16. And we think there is also upside to that as well.

We did -- the breakdown of the various pockets I think you need to look at some headcount reduction. We had workforce transition in the upper levels of our management structures, the top four levels of the Company where we have transitioned primarily through voluntary retrenchments and voluntary early retirements. Those activities are ongoing and they will run though this financial year in other levels of the organization and in -- out in our facilities as well.

But I will say that we do not expect to make any forced retrenchments of our monthly salaried personnel. Based on the numbers that we are expecting to transition, based -- if you look at the fact that we've frozen hiring and filling vacancies and attrition that we have in the Company that voluntary retrenchments, voluntary early retirements will take the vast majority of the workforce transition process.

Looking at other pockets of savings, again headcount is just a small portion of that. We need to look at occupational productivity. That's going to be a big driver of the cost savings. That's one of the bigger buckets that you'll see along with inbound supply chain spend. A huge amount of savings will be driven by our supply chain group in reducing our external spend.

And then I think the other big bucket that you can count on is based on the new operational model and the structure of the Company where we are reducing our businesses down from [16 down to 16]. We are also streamlining our functions, so we going forward we will have fit-for-purpose functions supporting the businesses, and we expect to see a lot of the cost savings coming from the functional groups as well.

On CapEx we are in the final throes of the estimates on the cracker over in the US. And like I said we are looking at taking a final investment decision here before the end of the year. And I think I'll ask Steve Cornell, who is here with us today, to comment on your inflation question and how we are looking at that with respect to cost and schedule on the mega project on the cracker, Steve?

Caroline, certainly we have seen cost pressure as the other companies building similar type projects in the Gulf Coast have seen. We've got a number of actions that we've implemented to try to make sure that we are mitigating that. The mixed contracting strategy is one of those as David has said.

We are also making good use of the local Louisiana contractors. We have the luxury of being in the Louisiana area and not necessarily right around the Houston area, so we have the ability to lock in a higher percentage of local contractors.

And we do assume in our cost estimate that we'll continue to see some of the impact of the heated market and wage rates. But really the view generally is it's not as bad as we once thought. We are seeing some pressure, and we've allowed for some of that in the cost estimate. And we've done quite a bit of benchmarking on what our costs are in the different areas and we've benchmarked really well.

So we've got a lot of confidence on this. We've gone out for firm bids on a significant amount of the cost elements. So I think we are going to feel very good as we go forward to the Board for final approval before the end of the year.

That's great, thanks, Steve. On the last question on the fatalities I'll give you some color on those first and then talk a little bit about the way forward. Of the five -- and just remember this is coming from some numbers that were quite a bit higher in previous years.

So we have been -- in the last three years been able to get down to four fatalities, five fatalities, four to five fatalities in the last three years, and we obviously are driving to zero harm going forward and continue to -- it is our number one value in the Company, obviously safety is first and foremost on top of all of our minds at all times.

Of the five fatalities, two were I would not say directly operationally related. One was due to extreme weather that a wind storm had knocked a crane over after hours, and unfortunately we had one fatality with that crane that it buckled on us. And one was a car accident of a sales executive in our oil business who was out on the public roads.

The other three, one was in Synfuels at the boiler station where we were maintaining a boiler. And unfortunately we had some coal dust fall and that caused -- resulted in a fatality. And finally, we had two surface mining incidents at Sasol Mining, one involving a reclaimed bucket, a rotating reclaimed bucket that caused the fatality and then finally a conveyor incident. So those were the five.

Again we are focused on zero harm at the company. And we are not only focused on our safety of personnel individually but also we have a large strong push on process safety, because process safety management is extremely important and that's where you can get very large incidents that can cause great numbers of fatalities.

Our process safety management and our risk-based approach to safety is gaining good traction. And in fact we've just reviewed with the Board that risk-based safety approach on how we plan to roll out the top risks in safety across the Group into the businesses. And from there have them work through each of their specific top safety risks in each of the operating hubs and businesses. And make sure we have not only the preventative controls in place for each of those types of incidents, but also the corrective controls on the backend as well.

So a lot going on in safety as it always has in Sasol. And we continue to up our game. And we believe that that risk-based safety approach is, as we are told, best in class and right up there with the best industry peers, major peers in oil, gas and petrochemicals. So thanks for those three questions. And operator we'll move on.

Gerhard Engelbrecht, Macquarie.

Is that better?

Go ahead.

Good stuff. Just coming back to the CapEx, the CapEx guidance for the next couple of years, could you maybe just indicate if that -- what of clean fuels 2 project that includes and where do we stand with that project.

Secondly, I guess I have to ask this question around Synfuels production. You've had the big shutdown and still you are fairly conservative on production next year. Why is that if the shutdown doesn't repeat? And I guess for me the ultimate question is then what is Synfuels sustainable production in the long-run?

And then lastly, I see a picture of a head office in Houston, are you building a new head office in Houston as well?

Thanks, Gerhard. Let's start with CapEx guidance and then I'll ask Bernard to talk to the Synfuels production and not having a total shutdown this year and how that -- how we are thinking about that. And I'll be happy to answer the Houston question for you. So, Paul, on CapEx?

So basically, Gerhard we are providing capital guidance as usual and it's for two years going out. Specifically with regards to your question on clean fuels 2, as you know it has been postponed. And ultimately we are currently also assessing what the impact of that is on our capital plans. We have included a very small amount for clean fuels in the next two years estimate.

Okay? And Bernard we are guiding 7.5m to 7.6m tonnes in FY15, we did 7.6m in FY14. So can we talk a little bit more about what we are seeing out there?

All right thanks, David. Gerhard, it's Bernard. As you know, since 2011 we have had an unrelenting focus to create a stable and predictable platform and to deliver on the 3% growth promise. And this has been achieved and we've seen the volumes go from 7.1m to 7.6m tonnes last year notwithstanding the total shutdown.

You'll remember that in this year we still have a big shutdown, although it's only a phased shutdown. But notwithstanding that, we have created the new norm on the new platform if you like which is the band between 7.5m and 7.6m. And the primary focus now is to maintain the stability and the predictability that we've been able to achieve over the last five years, or three years.

And we also want to support and produce a plan philosophy which will look to optimize the fuel chemical mix as we move forward and also respond to the 95 demand in the 95/93 debate. Over the next year or two we'll establish the new bottlenecks for this new norm, this platform that we have now, and that will inform the guidance going forward. But for now we -- it's important for us to maximize throughput without chasing production records and to utilize the stable and predictable platform that we've created.

Thanks, Bernard (multiple speakers).

Thanks. Can I just -- sorry can I just ask on that, so the conclusion of the natural gas growth project we don't see any real benefits from that in the immediate future then?

Gerhard, I think there may be upside potential but we'll evaluate during the next cycle to see what other bottlenecks have been created by running at these levels, because we are running at really high levels for the unit.

Thanks.

Great thanks, Bernard. On the question of the head office in Houston, if you take a look at slide 5 there, Gerhard, we have put the titles in on the pictures as Sasol's global headquarters in Johannesburg and Sasol's North American head office. So clearly our global headquarters are being built here in Sandton that will be able to take 3,400 people. We are consolidating 17 buildings into one to be much more efficient and productive and looking forward to moving into that global headquarters here in Johannesburg in late 2016.

So over in Houston that's our head office. That's where Steve works out of and that's going to be our new head office in Houston. That will currently house about 350 people and ramp up to approximately 600 or thereabouts as we go into our growth program and build up the projects there. So that's the answer on Houston. Thanks for the questions. Operator?

Thank you.

Nishal Ramloutan, UBS.

Hi, yes. Good day, everyone, and thanks for the opportunity to post our questions to you. Just two things from my side, the one is just you talk about your strategy focusing on Southern Africa and North America. Can you maybe just chat about how Uzbekistan fits into that? Maybe just give us an update as well on Uzbekistan? I see you've been pretty quiet on the result commentary on that.

And just the second thing, just on the cost savings it seems to be a bit of a moving target. Previously you were talking about ZAR3b and some upside to that and now ZAR4b and further upside to that. And my understanding is a lot of the upfront work and even the new operating structure is in place. So when will you have this confidence to actually give us a final number in terms of what that cost savings would be?

Great, thanks, Nishal, for the questions. I'll take Uzbekistan and maybe you can talk about how we plan to go forward on the Phoenix cost savings?

As we talked about in our presentation today we've had a two-pronged dual-regional strategy of the Company focusing on Southern Africa and then North America and expanding the current business activities in Louisiana.

Uzbekistan UGTL is, as you know, we are looking for another equity partner. We are taking our share from 44.5% down to 25.5% and the joint venture is looking for another partner for that 19%. There is discussions ongoing as we speak.

And that potential is still there as a possibility. The FEED package, all the technical aspects of the project are basically complete. The estimates are done, have an EPC contractor ready to go. But it's a matter of finding this additional partner and also closing financing on the project.

So that's where we are at on UGTL right now. And I think we'll probably have more to say about that later in the year and into -- probably later in the year I would think. So that's where that stands.

On cost savings and how that's coming along, we continue to see positive savings flowing through. Paul, how do you want to answer that?

Nishal, we basically, at half year indicated that at least ZAR3b and we will update the market once we get better confirmation. As you can appreciate this project is a three year project. And as you move through the different stages of which not only management is one stage. There are various projects that we are focusing at that contribute towards the ZAR4b.

We are currently now in the phase of confirming all the different process improvements and changes required on this change for productivity improvements as well as the inbound supply chain. Those are big streams in the overall benefit delivery. And in a couple of months we'll get clear confirmation on that, and then we will -- that will put us in a position to communicate to the market.

I think what you also have to bear in mind, and I have stated it this morning, that there is some uncertainty with regards to electricity price increases going forward in South Africa. And we also want to get a view on that and ascertain how that will affect our savings plan before putting out a final number in the market.

Surely the market can appreciate the step change to ZAR4b which we believe is a real stretch to the organization. But once we've got better clarity we will definitely communicate further upside savings to the market.

Thanks, Paul, thanks, Nishal. Operator, we've got time for a couple more questions.

Alex Comer, JPMorgan.

Hi, a couple of quick questions please. Was I right in understanding that you said there were going to be no compulsory retrenchments? I find that slightly surprising out of 3,000, 4,000 people. Maybe you could explain how that works when you've indicated you're going to contract down the number of business and divisions that you've got. And what happens to people if their job no longer exists within the new structure? That's the first question.

Secondly, just perhaps you could elaborate on how some of your term contracts for the ethane cracker what sort of shape they might take. And just to confirm one other thing, I think you said the dividend was ZAR20.5 and in the text I think it's ZAR21 so maybe just confirm -- sorry' ZAR21.5 confirm what the dividend actually is. Thanks.

We can clear that last thing up right now. I'm sorry if we said ZAR20.5, it is ZAR21.50, up 13% on ZAR19 last year. That's the -- we definitely want to get that correct.

Let's talk about -- just to clarify for you, Alex, the workforce transition process. A large part of our focus in workforce transition has been in the staff -- in the home offices and on the staffing side. Manage -- primarily like I said the top four levels of the Company is what we've been working on so far. We are now down into the GEC4 level so that's five levels down and we are working on that now.

So most of the retrenchments, and again we follow voluntary retrenchment, voluntary early retirement and last line of defense if you will is forced retrenchments which is what you're speaking to. We have not seen a lot of those yet. And my comment was specific on no forced retrenchment, specific to our union labor employees.

Based on the demographics of what we see here in South Africa with more than 2,500 of our union colleagues above the age of 55 we are going to see quite a bit of voluntary early retirements in that space and probably more than what we need to transition. So we need to be very careful from a retrenchment standpoint to keep our colleagues gainfully employed where we need them to be employed.

We are also going to be doing quite a bit of redeployment in the monthly salary employees or the union colleagues. We'll be able to move them around into different parts of the business as well, where as you know we have a moratorium on hiring, we've frozen hiring since January 2013. So the vacancies are still there and we have quite a bit of attrition in the Company that has been building up since we started Phoenix, since we started the enhancement program.

So I think from that standpoint the comment was specific to forced retrenchments at the union colleague level. So hopefully that answers the question.

Yes, thanks, David, it does.

Over on the term contracts for ethane, I think right now we've got 70% of our ethane requirements under term contracts. I'll ask Steve to give us a little more color on spot percentages and what's outstanding and left to be signed up on the term side. And also talk a little bit about transportation in the various pipelines we've got so that we can play the suppliers off and make sure we are getting the best deal for ourselves.

Alex, we need about 100,000 barrels a day of ethane to supply the 1.5m tonne ethylene cracker. As David said, we have term contracts in place for 70,000 barrels of that. Those are three to five year terms. And most of the contracts are tied to an opus price for ethane. A small amount is tied to -- actually to a natural gas Henry Hub posting.

We do plan to put up 30%, to give about 30% or 30,000 barrels a day on spot. And due to the liquidity of the market in the Gulf Coast that gives us the ability to play the market and take advantage of the volatile nature of the market at times.

And we have also contracted for storage capacity so that we can store some for both shutdowns and to take advantage of attractive pricing. And that transportation, we've got firm transportation to allow us to get the ethane all the way from Mont Belvieu over to the cracker. So I think we are in great shape in terms of both the transportation needs and actually the molecules themselves. Okay, thanks.

Thanks, Steve, thanks, Alex.

Sorry, can I just ask one further question? When you say it's tight to the opus price you basically mean that is pretty flexible then, it's not a fixed price contract?

That's correct. The majority of it is an opus price; it's not a fixed price.

Okay, thanks for that.

Okay, I think we've got time for the last question please from Citi.

Johann Steyn, Citi.

Hello, guys. Thanks for this last question. Just a quick one on how you weight up the opportunities to use GTL in Mozambique and GTL. You seem to be pretty optimistic about the US, etc. I guess it will in time become either/or as you probably won't have the financial power to go for both. So, how do you think about the timing of pushing either/or of these projects forward?

Great, thanks, Johann. We obviously right now are focused on the US GTL which is the furthest along; it is in FEED, front-end engineering and design right now with one of our main GTL contractors.

And the way you can look at it and think about timing is we still expect to take a final investment decision on that US GTL plant, call it 96,000 barrels a day plus up to 10% additional capacity 24 months after, 24 months after we take the cracker decision. So you can think about late 2016 before we take a US GTL decision. And obviously that will take into account the macroeconomics at that time, and the cost estimates and schedules that we'll be developing over this -- during the FEED phase.

In addition to your Mozambique, you've added -- talked about the Mozambique GTL, you'll remember that we also have a feasibility study completed on our Canada GTL so it also features in this mix. It also has good economics and is in the pipeline to be considered in the early part of the next decade.

So I think as we get later into the decade and we start seeing what the prefeasibility study in Mozambique looks like with our partners over there plus with the government and with Eni we'll take a look at that and go through our prioritization process.

Look at the rolling capital plan and as you say we'll have to carefully consider our gearing and our CapEx requirements and the buffer for volatility, and our progressive dividend which we continue to focus on and take decision on all the GTL opportunities later in the decade. So I think that's how you should look at it in that order.

With that, I want to thank everyone for joining us today and I look forward to visiting with many or most of you during our upcoming investor and analysts road shows over the next few weeks. So thanks again, and we'll see you soon.

This concludes today's conference. Thank you for your participation.