Sasol Ltd (SSL) 2017 Q2 法說會逐字稿

Good morning, and good afternoon, ladies and gentlemen. Welcome to the Sasol interim financial results conference call. Today's call will be hosted by Stephen Cornell and Bongani Nqwababa, Joint Presidents and Chief Executive Officers; and Paul Victor, 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 on www.sasol.com. Today's conference is being recorded.

I would now like to turn the call over to Stephen Cornell. Please go ahead, sir.

Thank you, operator. Good day, everyone, and thank you for joining us for Sasol's 2017 half-year results presentation. Before we begin, I'd like to refer you to the safe harbor note on forward-looking statements, contained on slide 2 of the presentation.

Today, we are pleased to be announcing another resilient performance for Sasol, notwithstanding ongoing market volatility. We believe our performance is attributable to the discipline we have displayed in keeping our costs in check, conserving cash, and being astute in how we allocate capital. This is why we're earning reliable, efficient, and safe operations and continuing to sharpen our focus on business and capital excellence.

Let's turn now to the key messages you will hear from Bongani and I today. Despite the continued market volatility during the reporting period, we delivered strong results and progressed the execution of our key capital projects.

For the six months to December 2016, we recorded a resilient business performance across most of the Sasol value chain, reflected by notable gains in production volumes across key assets.

We continue to improve our approach to capital allocation, in order to drive total shareholder return. Here, our goal is to optimize how we allocate capital across the Group to ensure we deliver maximum sustainable value to our shareholders.

As you would know, our near-to-medium-term strategy encompasses a largely dual-regional focus on Southern Africa and North America. To this end, we continue to strategically position ourselves to advance our [gas buy] (inaudible) programs. This is specifically through the Lake Charles Chemicals Project in North America, and the field development plans for the production sharing agreement license area in Mozambique. Both these value-based growth projects are progressing well, and we look forward to them coming on line in the not-too-distant future.

Paul will, of course, go into more detail on our financial and operational performance for the year. Then after that we will open up the session for any questions you may have.

Thank you for that introduction, Steve. Good afternoon, and good day, to you, wherever you are calling from.

Our revised operating model, introduced on July 1, 2014 transitioned Sasol from a product-based operating model, to one premised on our value chain. Since then, we continue to derive benefits from our new operating model. This is through streamlined management structure, business processes and systems.

You should also be aware that we continue to drive a strong focus on maintaining and enhancing our existing asset base across the world. This has ensured that our foundation businesses are safe in running both reliably and efficiently.

Operational excellence is ingrained in how we manage our facilities. Given the unpredictable nature of the current macroeconomic environment, we have taken proactive risk management measures to protect and strengthen our balance sheet. Here, you may recall that we have entered into hedges against the downside risk in the crude oil price, while not keeping upside potential in the price.

Furthermore, we ensure our diverse and integrated portfolio of chemicals and energy businesses remain profitable throughout the cycle.

Looking ahead, and in line with specific attention being paid to refine our long-term strategy, we will continue to identify value-based broad opportunities.

Looking at our operational and financial performance for the half-year, our Group safety recordable case rate, excluding illnesses, remained solid at 0.27.

We did, however, experience the most unfortunate start to the new financial year as we tragically lost three Sasol colleagues in two separate incidents.

Overall, Sasol delivered a strong business performance across most of the value chain. Secunda Synfuels production volumes increased by 1%; and our Eurasian operations increased production volumes by 5%.

Normalized sales volumes increased by 11% for our base chemicals business; and 2% for our performance chemicals business. This was mainly on the back of stronger demand and improved plant stability.

Liquid fuel sales volumes decreased by 2%, due to the Natref planned shutdown, and also more volumes from Secunda Synfuels operations being allocated to the higher margin-yielding chemicals business.

We continue to drive our cost containment program and managed cash, fixed costs, well below inflation in nominal terms. Excluding the impact of inflation, our cash fixed costs, including the mining strike costs, reduced by 1% in real terms. Our strong cost performance was achieved by sustainable delivery of our business performance enhancement program, or BPEP, and also, the response plan. Paul will provide more specific details on these two critical interventions.

Over the period, headline earnings per share were down by 38% to ZAR15.12 per share. Our earnings per share were up 19% to ZAR14.21.

Taking into account the current volatile macroeconomics environment, our capital investment plans and the current strength of our balance sheet, the Board declared a gross interim dividend of ZAR4.80 per share.

Let us now unpick our drive to optimize capital allocation across the Group to ensure we deliver maximum value to our shareholders for the period up to 2020 with a clear focus on Southern Africa and North America.

Here, the Mozambican PSA and the US-based LCCP are the major capital projects being executed. For the longer term, we are further refining our strategy. This is to ensure we have a robust set of principles to drive our future growth and investments, irrespective of the macroeconomic environment. We will share our refined, long-term strategy with the market later this year.

As part of this work, we'll also entrench a robust capital allocation approach. In essence, our goal is to optimize capital allocation, so we are able to generate as much sustainable value for our shareholders as possible. This is a topic Paul will provide more color on.

We'll also be driving specific interventions to close the current Company valuation gain. The Company valuations are influenced by a wide variety of factors. These include the performance of the Company, but also broader macroeconomic and sociopolitical environment.

It is our considered view that Sasol's current trading multiples, relative to our peers, do not reflect the Company's intrinsic values. To address this, specific interventions will be implemented. These include sharing the Group's refined, long-term strategy and improving our focus on capital allocation.

In terms of our balance sheet, we maintain a pipeline of opportunities that provide us with strategic flexibility. We also manage our capital portfolio to remain within our capital budget and gearing rate.

Turning our attention now to North America, overall construction on the LCCP continues on all fronts with most engineering and procurement activities nearing completion. As of December 31, 2016, capital expenditure amounted to $6 billion.

Overall project completion was 64%, with the startup of the first units forecasted in the second half of 2018 still on track.

The modular approach we are following to build the various plants has ensured that overall construction is progressing well and site utilization has been optimized. Large laydown areas that can accommodate procured material and equipment have been established. This is positively influencing our synchronized work-phase planning.

Fabrication of the modules and piping [scope] pieces is well advanced with critical site, civil and concrete work nearing completion. Overall construction progress is now around 25% complete.

This, together with the detailed ongoing assurance processes, results in a high degree of certainty for achieving end of job cost and schedule targets. The total forecasted capital cost for the project remains within the approved the $11 billion budget.

The project's contingency, measured by industry norms for this stage of completion, is still considered sufficient to effectively complete the project to beneficial operation within the approved budget.

As we still have approximately 18 months of construction ahead of us, unplanned, event-driven risk may still impact the execution of the project. We are, however, confident that the remaining execution in business-readiness risk can be managed within the approved schedule and budget.

We consider the LCCP a value-based investment that will return sustainable value to our shareholders for many years into the future. The project returns are still forecast to be above the weighted average cost of capital.

In Mozambique, we remain committed to our growth plans. This is despite the current financial challenges the country is facing. We will, therefore, continue to partner with the Mozambican Government and other institutions on projects that will help stimulate growth to improve the quality of lives of Mozambicans.

Despite these recent challenges, we are confident that the economics to develop the PSA remains positive. We are pleased to report that progress on the PSA development is on track and within our approved budget and schedule.

Four wells have been drilled and completed during the reporting period. Specifically, we drilled two gas wells in the Temane reservoir and two oil wells in the Inhassoro reservoir. The tests conducted thus far have produced encouraging results.

During the course of drilling the second well, we encountered previously unknown accumulations of hydrocarbons within the development and production areas. This indicates the presence of both gas and oil. We have issued a notice of discovery to the Mozambican authorities and will continue to -- our evaluation of the data. We expect to complete our technical well drilling program at the end of next year.

Since 2004, at the time of the initial investment by Sasol and our partners in Mozambique, over $2 billion has been invested in developing the country's hydrocarbon industry. This included wells; a central processing facility; gas pipelines; as well as investments in expansion, sustenance and growth projects.

Phase 1, tranche 1 of the PSA licensed area development will see Sasol invest a further $1.4 billion. Between 2004, when the gas project first came on stream, and 2016, more than $1 billion was delivered to the Government of Mozambique. This includes corporate taxes, royalties and social investments, as well as profit share and dividends paid out of state on enterprises.

During the same period, goods and services to the value of $831 million were procured from Mozambican suppliers. Our ongoing investment affirms that Mozambique is critical for Sasol's 2050 strategic forecast for Southern Africa, given the (inaudible) of securing gas feedstock for an integrated value chain

A related project, Loop Line 2, on the Mozambique to Secunda pipeline, reached beneficial operation ahead of schedule in November 2016. The project come in at a cost of at least 25% lower than estimated, which is a significant achievement.

The Loop Line 2 project also delivered a commendable safety recordable case rate of zero.

Paul will now take you through the detail of our financial and operational performance. We'll then open up the session for questions. Thank you.

Thank you, Stephen and Bongani. Good morning and good afternoon, ladies and gentlemen. It's my pleasure to present the 2017 interim results to you today. Our results are slightly above the mid-point of the earnings range provided for in our recent trading statement.

Moving to slide 11, solid safe business performances across our value chain set the base for our resilient results. Despite what has been a continuation of global market volatility and uncertainty, the strength of the rand to levels of below ZAR13.80 to $1 since November 2016 negatively impacted our half-year results, and will continue to do so at its current levels.

Our continued focus on factors within our control resulted in another stellar cost performance, with operational stability and high volume throughput remaining key deliverables. Our cost and cash savings initiatives have allowed us to protect the balance sheet and to ensure sufficient liquidity headroom, as we drive our value-based growth strategy.

As mentioned by the Joint CEOs, we are increasing our focus, to improve Sasol's capital allocation principals and processes, as a catalyst to enhance high total shareholder returns. I will unpack this in greater detail later in my presentation.

Turning to slide 12, we have seen a steady and continued recovery in global oil and product prices, but more especially during the second quarter of the 2017 financial year. Oil prices have moved up to the mid-$50 per barrel range, following the December OPEC decision to cut production. At these levels, it is anticipated that it will have a positive impact on our second-half results.

Unfortunately, refining [margins] were down [32%], and despite a recovery in margins [since November 2016], it has had a significant negative impact on our earnings.

(Inaudible) volatility with the exchange rate has had an adverse impact on our half-yearly results. The continuing strengthening of the rand is a concern, with regards to the earnings performance during the second half of the financial year.

Financial (inaudible) mitigating strategies will enable us to continue to protect and strengthen the balance sheet, even in a strong rand environment.

Sasol's business remains highly sensitive to significant movements in the rand/dollar exchange rate and oil prices. We estimate that a $0.10 change in the annual average rand/dollar exchange rate will affect our profit from global operations by approximately ZAR740 million, whilst a $1 change in the Brent crude oil price will have an impact of approximately ZAR730 million.

Base chemical prices remain soft in the first half of the financial year. However, we have seen a steady increase in demand, with margins remaining resilient in some key markets. We expect the recent increase in oil prices to drive base chemical prices higher.

Our performance chemicals margins remain flat, and continue to demonstrate the resilience of this business segment. The PC basket price was cooled down by lower ammonia prices, due to the oversupply in global markets. We are, however, encouraged by the recent upper trend in prices for our chemicals and energy businesses, and anticipate a better second-half base price and margin performance.

Turning to slide 13. Overall, we delivered a strong operational performance across most of the value chain, with sales and higher production volumes being achieved at Secunda Synfuels, as well as from our European assets.

Profit from operations of approximately ZAR13.7 billion was down 8%, largely as a result of the stronger closing rand/dollar exchange rate; weaker product differentials and refining margins; the impact of the prolonged mine strike; and softer base chemical prices. This decrease was partially negated by the results delivered by our cost and cash reduction programs and operations excellence initiatives.

Headline earnings per share decreased by 38%, to ZAR15.12 per share, whilst earnings per share increased by 19% to ZAR14.21 per share.

An interim dividend of ZAR4.80 has been declared, in line with our dividend cover of 2.2 times to 2.8 times headline earnings per share. This equates to an average 36% annualized payout ratio.

Capital expenditure, dominated by the spend on the LCCP, decreased to ZAR30.2 billion, due to mainly the strengthening of the rand.

Turning to slide 14. I will be now taking you through the items impacting the change in operating profit compared to the previous financial year. The translation impact of the stronger closing rand/dollar exchange rate at the half-year contributed 15% to the reduction in operating profit. Lower crude oil and product prices experienced, during the first half, adversely affected profit by a further 16%.

Operating profit was positively impacted by the following once-off and period adjustments. First, a net ZAR5 billion positive variance, due to the partial impairment of our Canadian shale gas asset, as well as the reversal of the Nigerian tax division, all accounted for during the first half of the 2016 financial year.

This was partly negated by a net ZAR2 billion cost of once-off items accounted for during the first half of the 2017 financial year, and consists mainly of a ZAR1 billion cost impact associated with the mine strike, as well as increased rehabilitation expenses relating to our Sasolburg operations.

Contributions from our cost and cash savings initiatives positively impacted profit. The continuous focus on operations excellence and volume stability led to an overall 1% increase in the Group's sales volumes.

Turning to slide 15, our cost and cash containment programs continue to deliver against [stretched] targets, which is underpinned by an entrenched culture of delivering high-performance results and sustained value to our shareholders and stakeholders.

Normalized cash fixed costs were down by 1% in real terms for the period, despite the increasing costs from the mining strike action in Secunda.

Our business performance enhancement program, as well as our low oil response plan target, have been exceeded whilst resulted in a 2.7% reduction in our cost fixed cost base. The mine strike increased fixed costs by approximately 2.1%. Restructuring and other once-off costs were 0.9% lower compared to the prior period.

On a macro level, the South African producer price inflation increased costs by 7%. The impact of the slightly weaker average rand/dollar exchange rate during this period had a rather muted impact on cost.

Moving on to slide 16. Delivery against our low oil price response plan is forecasted to achieve the upper end of the ZAR65 billion to ZAR75 billion range. This program, until now, has delivered cash and cost savings totaling ZAR54.9 billion.

We have, therefore, banked approximately 75% of the maximum target over the last 24 months and we still have 18 months to go. We have increased our savings target for FY17, to realize savings of between ZAR22 billion and ZAR26 billion.

Turning to our BPEP program, sustainable savings during the period amounted to ZAR4.9 billion We are now on track to deliver financial year savings of ZAR5 billion, representing an exit run rate of ZAR5.4 billion.

Turning to slide 17, let us now focus on the operating business units.

Mining's operating profit decreased by 35% to ZAR1.5 billion, mainly as a result of the increased costs associated with the three-month mine strike at our Secunda mine, as well as increased costs to ensure improved operation stability at our Sigma mine. Increased coal purchases, although at much higher price, ensured uninterrupted supply to our downstream units. We are refocusing our efforts to ensure that the increase in cost of this magnitude does not reoccur.

Stockpiles are also in the process of being restored. Our export coal business benefited from the high international coal prices; and as part of our financial risk-mitigation strategy, which I referred to earlier, we have hedged our export coal prices for the remainder of the financial year, at an average price of $82 per ton.

Exploration production international recorded an operating profit of ZAR204 million, through focused management interventions to return this business to sustained profitability.

Our Mozambican operations recorded the profit of ZAR1 billion compared to ZAR437 million in the prior period. The increase was mainly as a result of a 3% increase in production volumes, and positive translation impact.

We continue to de-risk our Canadian shale gas asset, and focus on completing already-drilled wells. We currently have no drilling activity, and our drilling campaign will only commence once we see a sustainable increase in gas prices.

The performance of our Gabon assets improved significantly, reducing their loss to ZAR41 million, as a result of several management interventions taken.

Moving on to slide 18. The chemical business continued to provide resilience to the Group's overall earnings in a low-oil-price environment, with a combined contribution of 47% of the Group's profitability. The average dollar basket price for our base chemicals was 6% lower. Average margins for performance chemicals remained resilient across product lines, despite global market volatility and depressed ammonia prices.

On a normalized basis, the PC operating profits increased by 9%. This strong performance is largely as a result of resilient margins in our European organics business, as well as increased US ethylene sales prices.

Our Eurasian operations reported another exceptional performance, with a 5% improvement in production volumes, following on their record performance last year.

Normalized operating profit in base chemicals remains flat, despite a 6% lower product basket price. Sales volumes were up 11%, as a result of improved production stability and the delivery of additional C3 volumes after the commissioning of the C3 expansion project.

The strong closing rand/dollar exchange rate has had a significant negative impact on this business year-on-year results, in negative translation effects if approximately ZAR900 million. As a result of the stronger rand/dollar exchange rate, we are now forecasting normalized operating profit for the full year for this business segment to be between ZAR4.5 billion and ZAR5.5 billion.

Moving on to slide 19. Our energy business delivered a fair set of results, relative to the current macroeconomic environment, as evidenced by the 38% and 12% decline in petrol and diesel differentials. Liquid fuel sales volumes from our Secunda operations were 2% lower, following a decision by management to move to a more -- to move more molecules towards higher-yielding chemical businesses.

The South African energy portfolio was further impacted by the stronger closing rand/dollar exchange rate. However, management's focus on factors within their control resulted in a 2% reduction in nominal cash fixed cost.

Our ORYX GTL venture contributed ZAR344 million to the energy business. This [block] achieved an average utilization rate of 95% over this period, and we are confident that the (inaudible) we will be able to deliver against an average utilization rate of above 90% for the full year.

In Nigeria, the maintenance turnaround of the EGTL plant is expected to be completed during the first quarter of the 2017 calendar year, followed by a planned ramp-up towards design capacity and stable operation.

Moving on to slide 20. We are increasing our focus to improve Sasol's capital allocation principles and processes, in pursuit of delivering maximum sustainable value for our shareholders and stakeholders. Our aim is to drive the process that is disciplined in the way that it is executed, whilst being transparent, so that internal and external stakeholders are clear as to how we allocate capital.

The two key over-arching objectives are, firstly, to protect and strengthen the balance sheet, and then to focus on value-based capital allocation. Protecting our license to operate, and ensuring the integrity and reliability of our asset is our first priority.

Following this, we remain committed to a dividend payment of at least 2.8 times headline earnings per share cover; or the 36% payout ratio, provided that we can maintain our investment grade credit rating.

Our next priority will be a trade-off between the three value levers, which can drive the most value for our shareholders. They include, first, value-based growth delivered from our portfolio project, which may include merger, acquisition and disposal transactions.

Second, value returned to shareholders through targeted and increased dividend payout ratios; however, still remaining within our 2.2 times to 2.8 times range.

And lastly, value return to our shareholders through special dividends and/or focused share buyback programs. It's very important to note that these levels -- levers will be competing equally for capital.

As we consider these trade-offs between the value levers, we are guided by the key financial risk-and-return metrics, such as our gearing liquidity levels, and the return on invested capital, in making decisions with the ultimate objective of delivering maximum sustainable returns to our shareholders. More details of this process will be shared during our Investor Strategy Day, later this calendar year.

Turning to slide 21. Our capital expenditure for the period was ZAR30.2 billion. This includes capital expenditure for the LCCP, amounting to ZAR17.4 billion, or $1.2 billion. Our 2017 capital estimate has decreased by ZAR9 billion, to ZAR66 billion. Our 2018 forecast remains at ZAR60 billion, largely due to the impact of the stronger rand, as well as refinements to the LCCP spending profile.

I would like to reiterate that these revised estimates do not impact the current cost and schedule delivery of the LCCP. We estimate that the capital expenditure of the LCCP to be approximately $2.9 billion for financial year 2017; and $2.5 billion for financial year 2018.

We have based that forecast of a ZAR14.15/$1 exchange rate for financial year 2017; and ZAR14.50/$1 for financial year 2018.

Further rand strength will have a positive impact on these estimates, as the bulk of the expenditure over the next two years is dollar-based, relating to the LCCP and the PSA in Mozambique.

I would like to remind you that the LCCP is a dollar-based project, funded by dollars generated from our offshore operations and dollar-denominated debt facilities. No ZAR funds will, therefore, be used to fund the LCCP.

While we continue with the execution of these projects, other projects, such as our FTWEP Expansion Project, as well as our Gemini high-density polyethylene joint venture with INEOS, only to name a few, are currently nearing the end of construction or reach beneficial operations shortly. These projects will add further value to the earnings and returns prior to the start-up of the LCCP.

Moving on to slide 22. The current market volatility and stage of execution of our growth program requires from us to proactively protect the balance sheet and ensure that it's got sufficient liquidity available.

This will be achieved through the continuous contribution of our cash and cost savings program; the sustained performance of our diversified global assets; implementation of several risk-mitigation strategies, such as our oil and currency hedging programs; as well as putting facilities in place to ensure that we've got sufficient liquidity headroom.

Since quarter 2 FY17, the management team guided by our current hedging policy put hedges in place to mitigate the risk associated with a low accrual and a stronger rand-dollar exchange rate, in addition to the coal swaps, which I referred to earlier.

We have interest in the crude oil put options for a further 22.4 million barrels at an average net fuel price of approximately $47 to the barrel. This represents a 75% hedging cover ratio of the production for the six months ended June 2017.

Our current net debt to equity ratio which increased to 25% is towards the bottom end of the 25% to 35% guided range. This provides an additional headroom compared to our original estimate.

We remain confident that we will not exceed our self-imposed gearing ceiling of 44% and will manage our net debt to EBITDA to below 2 times.

Our credit ratings remain a critical focus area for us and we will strive to maintain them at investment grade levels. We remain confident that in debentures already flagged, we'll ensure that we navigate a volatile environment safely, while continuing to deliver to our shareholders' value by paying dividends in line with our current dividend policy.

Move on to slide 23. Even though we anticipate continued oil price and exchange rate volatility, we expect a solid second half performance, leading to an overall strong business performance for the 2017 financial year. However, I need to stress that the stronger rand may negate some of the improved fundamental performances of the Company during this period.

We expect our mining business to return to full production with a strong focus on improving production costs. We project our South African liquid fuels sales volumes to be approximately 61 million barrels with ORYX GTL utilization rate averaging above 90%.

Base chemicals sales volumes are expected to be between 4% and 6% higher, with dollar prices recovering. We are confident that our Gemini project will reach mechanical completion by the middle of this calendar year.

Performance chemicals sales volumes to be higher with margins remaining resilient.

We expect to see the full benefit of the Wax Expansion Project in the 2019 financial year. We expect cash and cost savings contributions to continue to track towards the revised targets.

Also, expect our balance sheet gearing to reach levels of between 30% and 35% and net debt to EBITDA to be below 2 times.

In closing, we continue to drive operations and capital excellence to ensure a strong business performance, despite the volatile macroeconomic environment.

Maintaining a focus on factors within our control is a key imperative, as we sharpen our focus on driving discipline and transparent capital allocation in pursuit of delivering maximum sustainable value.

On that note, I'll hand back to Steve, who will open the floor for the questions and answer session. Thank you very much.

Thank you, operator. We'll open the floor for questions now.

(Operator Instructions). Gerhard Engelbrecht, Macquarie.

I've got a couple of questions. Firstly, you talk about prioritizing the capital spending and it looks like you're shifting CapEx at the [LLCPE] to later years. Can you unpack that, give a little bit more detail why does it -- why doesn't it impact the schedule firstly? And, do you have some scope to do some more of this? That's number one.

Two, can you maybe give some detail on the 20% cost capital cost escalation at Gemini? It sounds like you are citing the same reasons that Conoco recently cited for the capital overruns at their project.

My worries and questions are around the read-through for the LCCP. So, if you have the same problems at the LCCP as you have at Gemini, will your contingencies be sufficient?

And then maybe just lastly. We see some trade literature reports that fatty alcohols prices in Europe and the US, they have increased quite significantly. It hasn't come through in your numbers yet. Is there a lag? Have you seen prices rise for those products in the beginning of this year? And how do you see the outlook for these products?

All right, thank you for the questions. We'll start with the capital spin on LCCP. Paul, do you want to take that?

Thank you, Stephen. Good afternoon, Gerhard. Yes, you have a good point. We have revised our capital instrument. But (inaudible), quite important to note that (inaudible) instruments do not change the shape of the cost performance of the LCCP.

Just to give you a flavor, the LCCP safety profile will be about $300 [million] per month. Effectively, what we have done since November, we have completed all the details with regards to our control (inaudible). That, ultimately, will result in an [updated] and, also, optimized capital [ceiling] profile.

That update has then resulted in us updating our capital profile numbers. But, still, it hasn't changed the performance of the cost and potential of the program.

Now, Stephen, later on can -- will also provide more detail in terms of engineering migration, how far we've progressed in terms of the material ordering, and [all systems and] construction. But if you look at all of those elements, and given all of this, and specifically with regard to the uplift of the (inaudible), over which we have received assurance from insurance providers that the capital profile will triple the execution of the cost and the schedule within the current trends [and big shifts] in the market.

Thank you. We'll move next to Gemini, Fleetwood.

Thank you, [David]. This is Fleetwood Grobler. Yes, the reason that we have overrun on the Gemini spending, at this point in time, is because of poor weather and adverse weather conditions, similar to what we had in Lake Charles on the LCCP, as we communicated to the market in September of last year.

But the biggest two areas that impacted us was [work craft] and productivity. Of course, the extension of time also led us to incur additional owner's cost, as we were ready for this plant to start up all our owner's preparations, in terms of rail cards, etc., was ready earlier. Now, with this delay, it gives us additional owner's costs that also rakes up in terms of this additional capital.

With respect to the [alco] prices and the outlook, if I may say, the (inaudible) prices were over $1,600 a ton, it came back quite a bit over the last weeks. Our synthetic [alco] prices are not directly tied in the market to the prices of natural [alco] prices.

There is only a certain percentage of our alco prices that is directly tied. Therefore, this outlook is really playing out in the market, but it's not impacting us in the majority of our alco volumes that we're selling to the market.

Thank you. Can we move on, operator (multiple speakers)?

Just -- sorry, just one part of the question. If you have the same problems at the LCCP as you have had at Gemini, will your contingencies be sufficient?

Gerhard, good afternoon, this is Stephan Schoeman speaking. I think we need to distinguish between the two projects in the sense that there were significant changes that we made after learning some lessons on LCCP.

We also have a greater degree of modularization on LCCP, and it's going better than expected there; as well as some of the current productivity that we see, or as anticipated in our CBU.

So, there are many structural differences that were implemented on the LCCP. And, yes, similar to the example you cited earlier, those projects were structurally different and ended up, at the end of the project phase, now with the complication of productivity.

So, I think, of course, if we have significant issues on LCCP, the contingency will not be sufficient. But that is -- that is definitely not anticipated and also not seen currently in what we are achieving, in actual fact, with above ground [level].

Thank you.

[Sean Unger], [Arcan] Capital.

Three questions. Just in terms of your commentary around intrinsic value not being reflected relative to peers. Do you mind just commenting a little bit more on that?

And then, just on your improved capital allocation strategy, there's a mention of M&A. Could you comment whether you have actively looked at any deals in, say the last six to nine months? And then, just linked to that, whether Sasol would be prepared to lift the gearing ceiling of 44%, and net debt to EBITDA limit of 2 times?

And then, just on performance chemicals. Could you comment a little bit more about pricing and margins. I know that in the slide pack there was a commentary around margins being resilient, maybe you could just chat a bit more about that across organics and [wax]? Thanks.

Thanks, Sean. Let me take the first one on the value gap.

What we look at generally is the enterprise value divided by EBITDA. If you compare a broad range of typical companies, mid-cap companies, oil companies and look at the range that they're trading in, then what we see is something roughly in the 6 to 8 times multiple. We're currently at 5 times or below.

The point being we believe that there's upside in terms of the multiples, especially with the addition of chemical production coming on at the LCCP.

So, that was the comment that we highlighted and just wanted to point that out in terms of our view of the market.

Thank you, I can talk to the issue of capital allocation, M&A's, and gearing. In terms of what we are looking at, we are obviously evaluating our options, because as we have briefed you previously, that our gearing will peak to a maximum of 44% in FY18. But thereafter, when the LCCP comes onstream, our gearing, it starts coming down quite significantly.

At the moment, the forecast is spreading our imagination, not spending our cash, as my colleague Riaan Rademan would call it.

So, we are forecasting on making sure that we develop our option, so that come the opportunity, we execute those options having done a lot of thinking and analysis, instead of having the risk of overpaying, because we have not analyzed the matter in detail.

As to whether we evaluated any opportunities in M&A, yes, we did consider the Chevron assets when they were put onstream, but our evaluations were different to what they thought. As a result, we are not part of that process; another party is a part of that process, so we'll continue to watch that space.

Finally, as far as gearing is concerned, -- sorry.

Sorry, Bongani, just on that, I should, actually, mention, have you guys got any M&A in the US specifically?

No, definitely not, as I said, we are working on options, we're not actioning yet, because you know that we are constrained on capital yet, and we are not in a hurry to look at it -- these issues. But as long as strategically we are clear what our direction.

Finally, on gearing, we have no intention whatsoever to breech the 44% gearing limit, because operational flexibility is important, and as I mentioned earlier that post-LCCP we start getting a lot of flexibility.

In the event, there are some very good options, some of them might pass, because I think discipline is rather important that you do not end up over-paying and not sticking to your principals.

Sean, I think you may have had one last question on our PC margins, and the resilience there, Fleetwood, maybe you could respond?

Yes, sure. In the PC business, we've communicated that if we normalize for the once-off events and the impact on our ammonia part of the business, then our performance has really increased 9% year-on-year.

That is primarily driven by our alcohols [ethoxylates], aluminas, and ethylene business really performing well. Without going into further details there, those were the product groupings that really were resilient at offsetting the negatives that we've seen on the ammonia and phenolic's part of the business.

Okay great, thanks.

Chris Nicholson, Morgan Stanley.

Two questions. The first question is really on the mining and cost inflation which we saw come through in this half. Two questions on that -- well two sub-questions.

Am I to understand that this is -- looks like a once-off re-basement higher, as you're now guiding towards returning to normalized cost inflation levels, i.e., it's [not] kind of one-off costs in here?

And the second thing, how would you explain this in light of I guess some new mines that have come on, that I think we were maybe expecting to see improved productivity, or lower costs from? That's the first question.

Then just a second question is around, I saw some comments coming out of Davos where you were looking at and talking about growth options potentially within China again. I see that you've authorized a new project involving some expansion of the ethoxylate capacity in China. Is this the first step, how should we view this in context of your plans there? Thank you.

Thank you, Chris. Paul, do you want to address the mining?

With regards to your question on the mining costs, you're absolutely right that we have seen a substantial increase in our mining, compared to what we've been used to over the past two years.

I think the important thing is to say that there is a very large contingent, and I would say most of the increase, whether it be related to the mine strike, or whether it's related to operations, including at Sigma, that was really once-offs, and we don't anticipate seeing that again. So, that cost will be with us for this financial year.

What the team is focusing on is ensuring that, specifically for next year and for the remainder of this financial year, that we get our productivity levels at the right level, because if your productivity is not where it should be, then, ultimately, you cannot, actually, achieve your unit costs at the most efficient level.

We also don't want to give any of the benefit away that we worked very hard to obtain over the past couple of years, since the start of the BPEP and the response plan.

We, actually, feel quite comfortable. It's a very strong management team. Unfortunately, we had to deal with these two big issues over the past six months. Without doubt, their focus is to restore back to, let's call it, normal operations. It normally takes us time to get there, but we anticipate from next year onwards that we'll be back, if you exclude the once-off items, to be back in line by following inflation.

Also, the latter part of your question was relating to old mines and new mines. Yes, we had communicated before that the old mines, from an efficiency perspective, is probably not as efficient; and the new mine starting up is, also, probably not as efficient.

So, both (inaudible) need to work towards the most optimum and efficient level, and that's where the productivity comes in.

We believe that -- we looked at our productivity numbers, and in terms of the flexibility of the mine site, and work areas available, [it means] we believe we can get the cost of production back in line with inflation as from next year.

Chris, your third question was around China, and, really, a follow-on to an interview in Davos.

The interview in Davos; the question was related specifically to the feasibility project we had for coal to liquids in China. I made it clear at the time that we don't have any plans to pursue coal to liquids outside of Southern Africa.

That's due to a number of factors. It's due to the greenhouse gas impact that comes along with coal to liquids. Also, the efficiency of which both capital and operating, to build on our success for gas to liquids that we currently have around the world.

So, our plans going forward in gas to liquid -- in this space would be gas to liquids not coal to liquids.

The other part of that question was around do we plan to expand in China, just in general. Yes, given the size of the market in China, given the chemicals demand in China, we very much are looking at China and all of Asia as to how we go forward.

The recent decision around a new plant in China is related to an existing ethoxylate plant that we have. That's a bit older technology and has some issues in which what we're going to do is expand by building a new ethoxylate plant, basically, to replace the majority of the older plants. So, that's currently what's in the works and we continue to evaluate how to address our plans in greater Asia.

Thank you very much, guys.

Alex Comer, JPMorgan.

I've got a couple of questions. Firstly, on the basic chemicals business. You've got it as ZAR4.5 billion to ZAR5.5 billion, it's quite a bit lower than previously. What petrochemical prices or basket price have you assumed for the second half, bearing in mind prices moved up a lot?

Just on Gemini. You've talked about mechanical completion. I wondered when we might see the plant, actually, reach beneficial completion or start-up.

Just back to this point on the performance chemicals business, if your prices are not tied benchmark fatty alcohol prices, do you have some form of ethylene-plus contracts within the business? I'm just trying to work out how we might model that.

And then, just extending the life of your plant in the US to double, maybe you could comment on the impact that has on depreciation and, also, on return on capital on the project? And whether or not those accounting changes are included or not included in your remuneration target?

Thank you, Alex. Good to hear from you again. In terms of the chemical prices, PKO prices and also Gemini beneficial operation, Fleetwood, can you take those?

Alex, Fleetwood here. The Gemini beneficial operation date target is September of this year. That's the (inaudible) on the beneficial operation.

In terms of performance chemicals and alcohol pricing, so you're right, we have a mix. Some of our business is related to PKO market and that is the existing [lifetime] directly of our businesses. It's potentially a very good thing.

The others is when you choose an ethylene price and the [add-on]. I think there was some recent occupations where an independent knowledgeable person commented on that, in terms of binding houses, market (inaudible) [put together], and I think that's as we see the market as well.

Thank you, Fleetwood. The depreciation on LCCP?

Alex, let's say, basically, as far as (inaudible), we have to evaluate the [useful] life all of our assets annually and, also, during half-year (inaudible).

Now, we have defined some data banks where (inaudible) to between [37] years. Why are we doing 37? Also, we're also [restating useful life] (inaudible). But, actually, [despite] (inaudible) we look at does the asset, based on accounting perspective (inaudible) technically our long (inaudible); we look at the environmental requirement; we have to look at the market de-stock availability; and also, [your] point of view with your current (inaudible) strategists will allow you to operate long for extended period of time.

And when we looked at 25 years, it seemed very short compared to the benchmarking that we've done and when we're looking at some of our peers and the life of these plants can be anything between [30] and even 100 years. Our experience of some of our process facilities is, actually, that it can operate much longer than 25 years.

We are, surely, aligned to the fact that it can -- if you can extend it for a longer period of time, it can impact the return and I will get to that just now.

So, from accounting and from an auditing perspective, we look at these factors. We engage with a lot of technical advisors on this. Basically, based on the outcome, to say that there's no restriction preventing us to operate this plant safely and continuously for a 50-year period. You can go longer than that, but we pegged it, actually, at that level.

Our auditors also did their investigation and they were quite comfortable that the principle that we apply is, actually, consistent in terms of what we've done before, also in terms of market practice, and also in terms of IFRS. It means they also signed off on it and we reported it to the Board.

It will have an impact in terms of lower depreciation on our earnings. However, we are actually quite sensitive to the fact that when we quote IRRs into the market, we will effectively focus still on the 25-year period.

The NPV doesn't get that much affected by this at the tail end, beyond 25 years, in terms of its value contribution. However, we are still, from a prudency perspective, going to limit our return communications rather to 25 years.

Then ultimately, in terms of our return on invested capital measure, it does follow the earnings over the invested capital. So, the change in depreciation policy will definitely filter through in that measure in itself.

Alex, you had one more question I think regarding the basket of prices for second-half 2017.

Yes.

I will ask Paul to comment on it, but I will caution it's a forward-looking statement, so be cautious in how you respond.

So, basically, Alex, in terms of principal on base chemical commodity prices, what we normally said in the past is that if you look at the IPEX index, there's normally a 50% correlation between where base chemical prices move relative to oil prices. So, you need to have a view on oil prices and we did issue our guidance to say that we see oil prices moving to between $50 and $55 to the barrel.

Normally, your base chemical prices, what we've seen from history, is following that 50% recovery either on the up or down side when oil prices start to move.

You also need to, obviously then, look in terms of supply and demand and we must say, in terms of the polymer, we still see, in terms of our propylene, a business still healthy. We still see our solvents picking up in terms of demand globally and these are published numbers, in terms of Asian, and European, and North American markets, and South African markets.

We believe that the higher oil prices will definitely be a catalyst for the base chemicals. We can't give you the exact price, but we can give you the guidance of 50% either on the up side or the down side, because that's what we've seen in the history playing out, in terms of the commodity pricing in the sector.

Okay, thanks. Thanks, guys. That's my questions. Thanks very much.

Thank you. Operator, I think we have time for one more question.

(Operator Instructions). Adrian Hammond, Standard Bank.

A couple of questions on two aspects. First on Mozambique and then just briefly on the cracker. In Mozambique, when do you think you'll be in a position to declare a reserve on the PSA and perhaps could you just remind us what tranche 1, phase 1 is in terms of production? Or is that under review?

And then on the cracker, for our modeling purposes, is it fair to assume that you will be straight-line depreciating the full ZAR11 billion over 50 years, or could you maybe perhaps give us a quantum of depreciation, which would make more sense?

And then on the CapEx guidance that you've provided on page 14, it a bit contradicts what Paul said of the guidance of FY17 and FY18, ZAR2.9 billion and ZAR2.5 billion; it doesn't add up there. Could you confirm whether that includes the working capital amount or not, because I sum it to ZAR11.5 billion? Could you just clear that up for us? Thanks.

Yes, quick answer just on the working capital; we do not include working capital in the numbers that we quote.

Let me start on the Mozambique, and then I'll ask Riaan to follow. The PSA, phase 1, tranche 1 is to drill 12 hydrocarbon wells that are both appraisal and developed wells. We have drilled four: two gas, two oil; we're currently drilling the fifth. So, it's both in appraising and then we'll [go into more of the development phase from there.

But, Riaan, can you take us through that?

No, that's exactly -- good afternoon, it's Riaan Rademan. So yes, that is exactly correct.

We hope to be completed with a lot of the assessing work in the next six months or so. Then, for tranche 2, we would like to go to our limit at the Board in early in 2018.

As a matter of fact, the Board has approved some funds for further [homework] in tranche 2. We believe, we have done enough thus far, in terms of tranche 1 seismic works, specifically to start with the [homework] in tranche 2. So, we will be ready for tranche 2 with the FID to go to the Board in early 2018.

Thank you, Riaan. And Paul, can you answer the LCCP depreciation?

Yes, again, so basically, Adrian, you're right. We will write-off ZAR11 billion over a straight-line -- or [applying] the straight-line methodology. This is not following the mine model of unit of production, and it's also consistent with our other processed facility where there's not a feedstock [constraint], where we write-off over a timeframe.

To give you a sense of how much that then equates, it will be $230 million per annum of depreciation starting from year one of the production.

Yes, just to follow-up on that, is that -- surely though, you depreciate different aspects of the project, or the plant, over different time frames?

Yes, you can. What we normally do is when we look at the assets, and we can also maybe take it offline, we are looking, obviously, in terms of the parts of the asset that has different useful life.

So, if you sit with, let's say, a different component that can only last four years or five years, you'll definitely strip that bit out on your asset register. But for the larger component of this asset, the anticipation is that it will operate 50 years, and for that larger component you will definitely write it off over a 50-year period, then -- ultimately, culminating into a number of $20 million/$30 million per annum.

But I can maybe spend more time with you to explain the detail intricacies. But that's a general rule of thumb, yes.

Great. Thanks.

Operator, I think that's all the time we have.

Then that concludes today's question and session. Mr. Cornell, at this time, I'll turn the conference back to you for any closing remarks.

Yes, so again, thank you all for joining us for the review of our 2017 first-half results. We look forward to talking to you more in the future. Thank you for your time.

That will conclude today's conference. We appreciate your participation. You may now disconnect.