Sasol Ltd (SSL) 2026 Q2 法說會逐字稿

Good morning, and welcome to Sasol's interim results presentation for financial year 2026. My name is Tiffany Sydow from Investor Relations. And on behalf of the Sasol executive management team, we are pleased that you could join us today.

With me is Simon Baloyi, our President and CEO of Sasol; and Walt Bruns, the Chief Financial Officer. The group executive management team is also present and will join for the market call, which follows directly after the presentations. A reminder that the presentation and all supporting financial materials are available on our website.

Turning to the agenda for today. A reminder that our strategy follows a two-pillar approach. Firstly, to strengthen our foundation business, where Simon will begin today's presentation with our business overview, then followed by Walt, who will take us through the financial performance for the half year. The second pillar addresses our pathway to grow and transform the business in the long term, where Simon will conclude and provide an update on our progress.

A market call will then follow immediately after the presentation where you can submit your questions via the webcast or join in the teleconference facilities. A reminder that the presentation contains some forward-looking statements and more detail is reflected on the slide in front of you.

I would now like to hand over to Simon to commence his presentation. Thank you.

Good day, everyone. Thank you for joining us today. We value your time. The business environment remains volatile and the challenges are here. Our priorities are clear, and our execution is improving.

Our strategy shared at Capital Markets Day in May 2025 remains unchanged to strengthen our foundation business while positioning Sasol to grow and transform. Today, I'll take you through the progress we are making on the journey, the areas where we're seeing traction, and where our focus lies for the second half of the financial year.

Let me start by framing the key themes for today. Firstly, safety. Nothing is more important than ensuring that every employee and every service provider returns home safely to their loved ones. While we are seeing encouraging improvements in leading indicators, the tragic fatality in September is a stark reminder that we are not yet where we need to be.

Secondly, operational delivery in Southern Africa. Our focus on coal quality, reliability and disciplined maintenance is starting to restore stability across the entire value chain. Thirdly, International Chemicals. The reset is progressing. Markets are, however, tougher than we anticipated, but the action within our control are delivering structural cost improvements and positioning the business for recovery.

Fourthly, cash flow and balance sheet resilience. Despite challenging macros, we generated positive free cash flow by executing on the levers within our control. And finally, we continue to advance our Grow and Transform strategy in a pragmatic, value-accretive manner, which I'll cover towards the end of the presentation.

At Capital Markets Day, we made clear commitments to strengthen the foundation business. What matters now is delivery. I am pleased to say that we are delivering against most of those commitments. The destoning plant reached beneficial operation in December on plan and is already improving coal quality and supporting more stable operations at Secunda.

Our Southern Africa value chain cash breakeven price ended around USD53 per barrel, ahead of our full year target range of USD60 to USD55 per barrel. This reflects higher production and sales volume together with disciplined cost and capital management.

Given softer chemical pricing and a stronger rent outlook, we are maintaining our guidance range. In International Chemicals, adjusted EBITDA improved year-on-year despite challenging markets, supported by early benefits from self-help measures. While our self-help measures are progressing and will ramp up in the second half, we have revised our full year adjusted EBITDA and margin guidance, which I'll talk through in more detail shortly.

Net debt ended at USD3.8 billion, and our continued focus on cash generation and cash flow resilience remains central to our deleveraging pathway. Walt will unpack the key drivers in more detail. Finally, supporting the Grow and Transform pillar, we secured an additional 300 megawatts of renewable energy, bringing the total to more than 1.2 gigawatts on the path to 2 gigawatts by 2030. This reinforces an important point. We are focused on the value drivers. We understand the challenges, and we are executing with purpose.

Turning to safety. The fatality in September 2025 was unacceptable and deeply regrettable. Our investigation into this incident identified some gaps in risk awareness and inconsistent adherence to safety rules. In response, we have taken decisive action. This includes strengthening both leadership and personal accountability, reinforcing standards, intensifying our focus on high-risk activities and finally, improving service provider safety management. These actions are strengthening competence, rigor and ownership where it matters most, at the front line.

While there's no room for complacency, we are encouraged by improvements in leading indicators, including fewer hospitalization and lost workday cases, lower injury severity and most importantly, no major process safety incidents over the past 18 months. Safety is the foundation of everything we do. We will continue to embody the learnings, strengthen our safety culture, and hold ourselves and our partners accountable to ensure that every person returns home safely every day.

I'll now touch on a few highlights of our financial performance. Despite a challenging macro environment, overall, team Sasol delivered a robust performance in the areas within our control. We improved margin realization, reduced cash fixed cost and optimize capital spend, whilst protecting reliability and integrity. Adjusted EBITDA for the group was lower year-on-year, reflecting weaker macro conditions. However, our cash flow levers were effective and free cash flow ended positive. This is exactly what we mean by disciplined delivery in a very challenging environment.

Turning to the business updates. Let me first start with mining. As mentioned, the destoning plant reached beneficial operation on schedule and within budget. We are already seeing improvements in coal quality with average things now around 12%. External coal purchases remained elevated in the first half during the destoning plant ramp-up.

While coal purchases will continue in the second half to supplement our own production, it is expected to be lower than the first half and to normalize in financial year '27. The focus is now on firmly increasing our own production volumes, reducing external purchases and improving cost competitiveness in support of a more resilient value chain.

Gas is an important part of the Southern Africa value chain and broader regional economy. The plateau extension projects are progressing well and remain on track to ensure a stable supply profile to financial year '28.

In Mozambique, start-up delays at the CTT gas-to-power project have affected the timing of the PSA volumes. To manage this, approved sub gas arrangements are ensuring continued gas flows to South Africa while the CTT project progresses. Total gas volumes are unchanged. However, a revised gas production profile has deferred gas monetization. Together with a stronger rand-US dollar exchange rate, this has resulted in a PSA impairment.

We are working on optimizing the gas production profile through ongoing performance testing and potential infrastructure improvements in the coming months. Sasol's methane-rich gas bridging solution remains on track, while past applications for the period FY27 to FY30 submitted to NERSA for approval.

At the same time, we are developing longer-term gas optionality through LNG. We are working closely with our strategic partners to advance gas to power options. We are managing our gas portfolio deliberately, protecting near-term supply while keeping value-accretive options open to sustain profitability over time.

Across our Southern African business, we are seeing tangible progress in restoring performance. Secunda production increased by 10% year-on-year, supported by the absence of a phase shutdown, improved coal quality and gasifier availability. At Natref, operational performance also improved and the commissioning of the last low-carbon boiler supports reliability while advancing our emissions objectives. Commercially, we will continue to prioritize higher-margin fuel channels.

Following Prax SA interim business rescue, we stepped into the capacity and maintained stable Natref operations. This is to ensure that there is reliable supply to South Africa and OR Tambo Airport. Our priorities for the second half are clear: sustained reliability at our operations through disciplined maintenance and stable operation and leverage the increased capacity at Natref to optimize product placement and maximize value for the group.

In Chemicals Africa, our focus is to ramp up sales supported by stronger production performance, while maintaining benchmark price levels in a softer global market.

International Chemicals continues to execute on our recent priorities outlined at Capital Markets Day. As previously stated, EBITDA increased by 10% year-on-year despite challenging markets. Our margins came under pressure due to a softer global demand, higher feedstock costs and persistently elevated European energy prices. These conditions have weighed across the entire industry. However, delivery on the actions within our control is progressing well.

Cash fixed costs declined by 6% year-on-year or 10% when normalized for exchange rates. Asset optimization and variable cost initiatives are starting to deliver benefits with most boring actions completed or nearing completion across the portfolio. Commercial excellence initiatives, including continued focus on value over volume are underway. While this takes time to flow through our earnings, we expect benefits to increase in the second half.

Given the weaker-than-expected market conditions and unplanned JV ethylene cracker outage at the end of the last year, we have revised our full year adjusted EBITDA guidance from USD375 million to USD450 million. We also revised our margin outlook to a range between 8% to 10%.

Importantly, our reset phase extends beyond financial year '26. Innovation across the value chain and broader portfolio optimization initiatives are being assessed. These are aimed at further improving competitiveness. This, together with our current actions support our FY28 target of USD750 million to USD850 million EBITDA.

Sasol continues to make a meaningful contribution to society and the communities where we operate. In the past six months, we invested about ZAR200 million in social programs aimed at uplifting communities across various sectors and regions where we operate. We invest in multiple education initiatives to address the shortages of critical skills needed in the workplace. We spent around ZAR75 million on batteries, skills development and education initiatives. We continue to invest in community infrastructure in our neighboring communities.

For example, the upgrade to the Doane and Pande Health Centers in Mozambique will help strengthen healthcare delivery, benefiting over 25,000 community members. In South Africa, we've also supported the successful B20 and G20 events during 2025 with sponsorship and embedding resources to support the execution of the events. These initiatives reflect our belief that long-term value creation for shareholders is inseparable from positive social impact.

With that, I'll now hand over to Walt, who will unpack our financial performance.

Thank you, Simon. Good morning, ladies and gentlemen, and thank you for joining us today. I will take you through the financial performance for the first half of FY26 and how it reflects tangible delivery against the commitments as we set out in our Capital Markets Day.

The macroeconomic environment remains challenging, and the earnings reflect the external pressures. What is important is that we respond on the levers that we control, tighter cost control, disciplined capital allocation, and better operational execution across the portfolio is strengthening our foundation business and showing up in improved cash flow generation in support of our deleveraging pathway.

Turning to the macroeconomic environment. Volatility and uncertainty persisted through the first half of FY26. The Brent crude oil price was down 14% year-on-year and together with a stronger rand exchange rate resulted in a 17% decline in the rand oil price. The oil market remains in surplus with supply growth and inventory builds outpacing demand.

Given ongoing geopolitical uncertainty, we expect oil price volatility to persist in the near term. The strengthened rand against the US dollar weighed on earnings given the dollar-linked nature of much of our pricing. While this created pressure on the income statement, the stronger closing rate provided balance sheet support by reducing the rand value of our US dollar-denominated debt.

Refining margins were a notable positive, supported by improved diesel differentials and stronger operational performance at Natref, helping to offset some of the oil price pressure in the fuels business.

Chemicals remain the more challenging part of our portfolio with continued global overcapacity, softer demand, and tariff uncertainty weighing on pricing and margins. While conditions remain subdued, the pace of decline is slowing. Selective end markets are stabilizing, and industry rationalization is accelerating, offering cautious optimism for recovery rather than near-term rebound.

Against this backdrop of continued macro pressure, our focus remains firmly on the levers within our control. Starting with volumes. We delivered 3% higher sales volumes in the first half of FY26, supported by improved production, while a better sales mix into higher-margin channels improved price realization. In the second half, the focus remains on sustaining volume delivery, while continuing to optimize channel mix as markets evolve.

On costs, we have not only contained inflation, but reduced overall cash fixed cost by 2%, driven by lower labor cost and reduced external spend. We will continue the strict cost control into the second half, while also reducing external feedstock purchases.

Capital expenditure was 43% lower than year-on-year, mainly due to the absence of a Secunda phase shutdown in the period, lower PSA spend in Mozambique, and reduced environmental compliance capital as these programs near completion. We are also optimizing our capital spend without compromising on safety or asset integrity.

As a result, we have revised our full year capital guidance ZAR2 billion lower to ZAR22 billion to ZAR24 billion for the year. Importantly, the ZAR2 billion is not a deferral and not rolling over into later years. We saw a temporary increase in net working capital in the first half of FY26 due to a timing lag between the higher production and sales with opportunities available to reduce working capital prior to financial year-end.

On the balance sheet, liquidity headroom remains robust with more than USD4 billion available. We will continue to actively manage our balance sheet, including our debt maturity profile as we prioritize sustainable deleveraging.

Finally, we have and will continue to execute our hedging program, which I will unpack further on the next slide. Hedging remains a key component of Sasol's approach to managing macroeconomic volatility. We have completed the FY26 hedging program with the FY27 program underway. Given prevailing market conditions, we have utilized a broader range of instruments to maintain appropriate downside protection while being mindful of cost and retaining upside participation.

During the first half of FY26, foreign exchange losses, translation losses were largely offset by gains on derivative instruments, demonstrating that our hedging program is working as intended, especially in a stronger rand environment. For the second half of FY26, the oil price risk is hedged at an effective hedge cover ratio of 55% to 60% and an average floor of approximately $59 per barrel.

On the exchange rate, 25% to 30% of our rand-US dollar exposure has been secured primarily through zero-cost collar structures within a range of approximately ZAR18 to ZAR22. We plan to complete our FY27 hedging program by the end of FY26.

All the self-help measures that I've mentioned play into our deleveraging pathway, which remains our primary focus. We have made good progress in reducing both gross and net debt over the last 18 months, supported by a disciplined capital allocation framework with gross debt ending 9% lower compared to the prior year. We also improved the regional mix of our debt to better match the underlying cash generation of our assets with the rand for US dollar bond issuance in July.

For the first half of FY26, we ended with a net debt of USD3.8 billion. While slightly above our full year target, we remain on track to achieve net debt below USD3.7 billion by year-end with second half cash generation expected to be higher through the management actions I mentioned earlier. We remain committed to the debt reduction trajectory as set out at CMD, which showed us reaching the net debt target and associated dividend trigger of USD3 billion between FY27 and '28 under different macro assumptions.

Given the current macro outlook, the net debt target will likely be achieved in FY28. That said, given the progress we've already made and the head start we have created, we will continue to press and expand on the levers within our control to mitigate the macro headwinds and achieve the target as soon as possible.

Turning to more details on the group financial results. The key highlight is the positive free cash flow as defined in our capital allocation framework in the first half of a financial year for the first time in four years and a more than 100% improvement from the prior period. The absolute amount will continue to increase as we further progress the implementation of our plans.

Gross margin declined by 6%, reflecting the impact of a 17% lower rand oil price and continued pressure in chemicals pricing as well as higher variable cost. This was partly offset by stronger refining margins and higher sales volumes.

Earnings before interest and tax decreased by 52%, mainly impacted by non-cash remeasurement items. This related to impairments of ZAR7.8 billion compared to ZAR5.7 billion in the prior year. The current period includes an impairment of ZAR3 billion on the Secunda liquid fuels refinery, CGU, which remains fully impaired.

The recoverable amount of the CGU did improve through management actions but was negatively impacted by lower forecast price assumptions and a stronger exchange rate. As a reminder, the overall Secunda complex, including the Secunda Chemical CGUs, continue to have significant headroom when comparing the total recoverable amount to the net book value.

On the Mozambique and PSA gas development, we recorded an impairment of ZAR3.9 billion, reflecting the revised gas production profile as outlined by Simon, and the impact of the stronger rand-dollar exchange rate. Furthermore, a delay in the start-up of the CTT gas-to-power project in Mozambique and the higher end-of-job cost estimate resulted in the full impairment of Sasol's equity accounted investment of ZAR0.5 billion.

Looking at adjusted EBITDA by segment. Performance across the portfolio reflects different market and pricing conditions but also highlights the benefit of diversification. Starting with the Southern Africa value chain, Mining EBITDA was lower, mainly due to the phaseout of export coal sales during the period. This was partly offset by redirecting volumes to Secunda operations, which benefits the broader SA value chain. We also realized additional income from leasing our Richards Bay Coal Terminal capacity.

Gas EBITDA declined due to lower volumes as well as the stronger rand-US dollar exchange rate. We expect higher sales volumes in the second half of FY26 as the PSA ramps up. Fuels EBITDA increased, supported by higher refining margins and product differentials. This was further supported by higher sales volumes on the back of improved operational performance at Secunda and increased utilization at Natref. In Chemicals, both Africa and America EBITDA generation remains under pressure, reflecting lower prices, weaker margins, and soft demand in global chemical markets.

Eurasia saw margin improvement, reflecting the benefits of our value over volume strategy and higher palm kernel oil pricing. Overall, the portfolio supported by targeted strategic initiatives seeks to balance earnings across sectors and geographies, further improving our resilience in an ever-changing global landscape.

In closing, our financial priorities for Sasol are clear and unchanged. We are focused on improving sustainable cash generation, disciplined capital allocation, deleveraging the balance sheet, and proactive risk management. These priorities have been translated into plans with the key financial metrics for FY26 included in this slide and largely unchanged versus what we told you before.

We aim to deliver on our volume targets that Simon shared, keep cash fixed cost increases below inflation, maintain first order capital within the revised target of ZAR22 billion to ZAR24 billion and manage net working capital between 15.5% and 16.5% as guided at CMD.

We remain committed to reducing net debt to below USD3.7 billion by the end of the year despite the uncertainties in the macroeconomic environment, while continuing to manage risk proactively through the completion of the FY27 hedging program.

Ultimately, credibility comes from delivering what we say. We started the journey of delivery at the end of FY25 and built on that momentum in the first half of FY26. We cannot control the macroeconomic environment that we operate in, but we can control how we respond with decisiveness, discipline, and a clear bias for action. This is our commitment to you and underpins how we will continue to create sustainable value for our stakeholders.

With that, I will now hand back to Simon for his closing remarks and look forward to engaging in the Q&A session later. Thank you.

Thank you, Walt. Let us now turn to a brief update on our Grow and Transform strategic agenda and the key progress made in the last few months.

Our approach to decarbonization remains pragmatic and value accretive, reducing emissions while safeguarding energy security and affordability. The principle remain. We will scale solution in line with market demand, leverage our existing assets and only pursue pathways that are value accretive for Sasol and the shareholders. Since Capital Markets Day, we have made good progress across renewables, carbon offsets, and sustainable fuels, all aligned with clear commercial logic.

In renewable energy, we have now secured more than 1.2 gigawatts in South Africa, moving steadily towards our 2-gigawatt target by the end of 2030. We have now contracted approximately 9 million tonnes of carbon offsets over the next three years, securing around 60% of our offset requirements.

Following the piloting of renewable diesel at our Natref facility, certification is nearing completion and is planned for the second half. These position us well to compete in this market.

Renewable energy is a good example of moving from strategy to delivery. As mentioned, we've now secured more than 1.2 gigawatts of renewable energy in South Africa. This was achieved by securing a further 300 megawatts of renewable energy being a solar and battery storage project that reached financial close this month and is expected to be online in 2028. Execution is also progressing well with 180 megawatts already operational and 740 megawatts under construction.

In December 2025, we received our renewable energy trading license from NERSA. This trading license will enable us to manage excess generation and with flexibility to use the supply where it exceeds our own demand. As the portfolio scales, we can, therefore, progressively build a stand-alone power business.

Commercially, since launching Ampli Energy with Discovery Green, demand has been strong and the offering has been oversubscribed. Overall, renewable energy is already lowering our cost base, reducing emissions, and creating a scalable platform that opens access to new markets over time.

Looking beyond 2030, our focus is on sustaining value across the group and ensuring the business remains resilient over the long term. Our priority is to protect the strength of our existing businesses, maintain flexibility as markets and policies evolve, develop new sources of value where there is clear commercial logic. Across our energy and feedstock platforms, long-term supply options are progressing. These alongside initiatives in the Gas value chain that extend optionality and support continued market participation.

From a carbon regulatory perspective, allowances are in place through 2030. The proposal for carbon tax recycling has been submitted and engagements continue. This will help us to manage transition costs and support value-accretive reinvestment in South Africa.

In International Chemicals, the business is being reset to improve competitiveness and profitability, unlocking future value. At the same time, we are building new businesses, sustainable businesses, including renewable energy trading and sustainable fuels chemicals, creating additional pathways for growth and value creation over time.

In January, a EUR350 million Grant was secured by Zaffra, our joint venture with Topsoe for an e-SAF project in Germany. This disciplined approach supports a business that remains resilient through the cycle and capable of delivering long-term shareholder value.

To close, I'm confident that we are on the right path. We are strengthening the foundation, executing with discipline. We are laying the groundwork for future growth. There's still work to do, but we have the right strategy, we have the right focus, and the right people to deliver on our commitments. My executive team and I look forward to further engagement in the Q&A sessions. Thank you.

Thank you, and welcome back to the Q&A session where you'll have an opportunity to direct your questions to Simon, Walt and the rest of the executive management team.

Joining us on stage today, to my left, we have Victor Bester joining us, he's the EVP of Operations and Projects in Southern Africa; Antje Gerber, the EVP of International Chemicals; and to my immediate left, Sandile Siyaya, who's the EVP of our Mining business.

In addition, we also have other GSE members present in the room today for support to our Q&A. Vuyo Kahla is our EVP of Commercial and Legal; Christian Herrmann is our EVP of Marketing and Sales for Energy and Chemicals, Southern Africa; Sarushen Pillay ,who's the EVP of Business Building, Strategy and Technology; and Thabile Makgala, the EVP of People, SHE, Risk and Corporate Affairs.

We urge you to please submit your questions via the online Q&A platform on the right-hand side of your screen. Alternatively you may also dial-in via our Chorus Call link, where you will have the opportunity to voice over your questions. I will alternate between the two platforms to ensure a fair participation of all. Thank you.

We'll begin now. If I could turn over to Chorus Call, please first two callers who are queued.

Gerhard Engelbrecht, Absa CIB.

Gerhard, could you hear us? Can you voice over your questions?

Adrian Hammond, SBG Securities.

I have three questions, if I may. Firstly, for either Simon or Victor. Let's talk about your Secunda volumes, if I may. And looking towards the next financial year, you've achieved annualized run rate in the second quarter of about 7.6 million tonnes. Notwithstanding you'll have maintenance scheduled next year again. It looks like that you might achieve your top end guidance sooner than expected.

Could you comment on that? And perhaps Victor can elaborate with some progress on the refurbishments of the gasifiers.

And then secondly, just your view on this carbon tax suspension that's been proposed by the minister and whether you think that will play out or not? And then lastly, on the MRG pricing submission. Does this pricing that you've submitted preserve revenue and EBITDA as it currently is for this gas business? And perhaps you can elaborate on how many years this bridge gap will be in place for and how much the CapEx may be for that?

Thank you, Adrian, for the questions. Simon, would you like to kick off?

Yes. Let me start then I will hand over to Victor on the guidance of Secunda. Then I mean, I'll deal with the carbon tax and I mean, I'll also deal with the MRG.

I mean, firstly, on the Secunda volumes, I mean, you're right. If you check where we ended at H1 and you multiply it by 2, I mean, you will get a number, that's on the high end of our market guidance. I mean, however, Victor will go into the details.

I mean, for us, it's a combination of both, I mean, coal quality and gas fire maintenance, and Victor can explain the intricacies of how those two work. And we have to go through that program before we can give any indication contrary to the guidance that we've given. So Victor will go into those details.

On carbon tax, yes, we've seen the newspaper articles on the minister's view on carbon tax -- maybe not his view, but what other people said. They were proposed out to scrap it. From a Sasol point of view, I just wanted to step back a bit and remember that carbon tax was instituted in South Africa to deal with the CBAM, because if you don't have carbon tax in your country, then you import into Europe. CBAM will then takes you there unless you have a carbon tax in your own country. So our country, I think correctly moved in that direction to protect themselves.

However, the implementation, and that's where Sasol is coming from. I mean, our focus in how this must be implemented and our firm belief is that carbon tax has to be implemented with the ability -- with a correct mechanism rather than a stick, so it shouldn't be a punitive tax.

And to that end, not only us, but us and the entire business community in South Africa, we are proposing a carbon tax recycle mechanism where the carbon tax is recycled and it allows us and others like us who are busy with the transition to put that money into transitioning the fossil fuel sector because in the long time, I mean, 15-, 20 years, that work needs to be done, and we'd rather use the carbon tax now for that transition work.

Your final question was on the MRG. I mean, firstly, from the pricing point of view. I mean, that we've submitted our pricing with NERSA. I think that should become public soon. I mean, you'll see that, yes, MRG based on the input cost is -- will be slightly more expensive than the current gas, but that's a NERSA process. And I would just like to allow NERSA to continue with that. And the CapEx for the bridging solution for MRG is not significant, and all of it is included in our CapEx profile.

So Victor, maybe you can go deeper into why we're not adjusting the guidance yet.

Well, thank you, Simon. I guess, Adrian, it's -- we are quite optimistic about our performance and our results that we are seeing at Secunda. But we need to look at it with a bit of moderation. And as I said in CMD, we're following a specific ramp-up curve towards FY28. And just to give you a sense, the gasifier restoration program is going well. To date, we have seen 25% of the fleet, and we hope to see 40% of the fleet by the end of this financial year.

And until we've seen the entire fleet, it would be, I would say, a bit of a guess in terms of just multiplying our year-to-date performance to get to a sustainable number. We really want to be sure that we understand the scope of the work and the restoration that needs to be done in our gasifiers.

But the results year-to-date in terms of the 25% that we have seen is really promising. And we've also reduced our geo durations from the high numbers that we have seen in the previous financial year to the numbers that we are seeing this time around. So I can confidently say that we are well on track in terms of achieving our ramp-up towards FY28.

Thank you, Adrian. Moving to the next caller, please.

Gerhard Engelbrecht, Absa CIB.

Sorry about earlier. I hope you can hear me now.

We can hear you. Go ahead, Gerhard.

I just have a question around your de-gearing guidance. Firstly, you say you're looking to reduce net debt by the end of the financial year. We're sitting in an environment in the second half where the rand is already much stronger, refining margins have come down, chemical prices are lower. You're guiding CapEx much higher in the second half. If I look at your guidance range and what you've spent, and then there's the uncertainty around volumes that Victor has just spoken about.

So I guess my question is how do you then (inaudible)

I have a second question just around CapEx. You say you haven't deferred any CapEx that's used. But does this impact your longer-term CapEx guidance as well? Do you expect to revise that lower? And just looking at the numbers, your guidance points to second half CapEx almost 60% higher than the first half and 30% higher than the second half of last year. How should I interpret that?

And then maybe just lastly, I see you posted some medium-term notes. I would have thought now is a good time to buy dollars to prepare for debt repayment. What was your thinking around the repayment of the notes? And may I just say, I was pleasantly surprised by your cost as was the case last year.

Sorry, Gerhard, we lost you a little bit on the last part of your question. Could you repeat the third question that you had around the -- I think it was around the medium-term notes?

Yes, I'm sorry. I was just going to say, I just thought that now with the rand is strong, a good idea to rather buy dollars and to prepare for the debt repayments that are on the horizon with the rand so strong. So I was just curious as to why you decided to repay the medium-term notes?

Okay. Thank you. Thank you for those questions. Simon, would you like to kick us off before we head into the financial questions? Would you like Walt to take all of them?

Yes. So, on CapEx. All these questions are financial. But let me -- maybe just say on CapEx overall. In terms of the deferral, Gerhard, the big delta between the two is because we didn't have a phase shutdown. And we also saw the end of the major programs like the PSA coming to an end. And our own capital efficiency levers that we've pulled towards the end of last year financial year, then coming into H1.

So that's where we are on CapEx. I mean, we're using a risk-based approach to make sure that the integrity and stability of our assets can be maintained. I think with that, Walt, you can just deal with the three financial questions.

Yes, sure. Thanks, Gerhard, for the questions. I'll try and there were quite a few in there. So let me go through them kind of systematically.

On the de-gearing guidance, yes, so we are guiding that we will still be below USD3.7 billion by the end of the year on net debt. So that obviously implies that we will generate free cash flow in the second half of the year.

Pricing does remain a bit of a wildcard. I mean, if you look at the current oil prices, and there's a wide range of estimates out there and at times it by the current exchange rate, I see the rand oil pretty similar to what we've had for the first half. But there is a scenario that plays out that it does reduce.

I think from my side, volumes will be slightly higher. We did have a bit of inventory build over the first half of the year. So you'll see some working capital unwind as we better match the sales and production to that. I think we'll continue to keep our cost discipline.

And then CapEx, we do see an increase in the second half of the year. There are some projects that are -- we're in front-end loading that are now will progress through the gates in the second half, particularly in our mining space as we continue to invest there to ensure that we can increase own production and reduce the external purchases. There's also some non-phase kind of shutdown capital in Secunda, but we will look to continue to optimize that spend.

I think Victor and the team and the projects and engineering team are doing a lot of work to analyze our capital spend and not just the scope of the work that we do, but to reduce the absolute cost. In terms of the CapEx for the RCF, we're not adjusting the guidance for -- at this point in time. But the important message there wasn't to say this ZAR2 billion rolls over into next financial year.

So the guidance that we gave of around -- I think it was ZAR28 million to ZAR30 million in terms of the first order, excluding the selective growth, we'll retain that. But we are looking to see whether or not we can reduce that further, but I'd rather do that as we get closer to FY27 and we finish some of the scoping work.

On the dollar, we did buy quite a lot of dollars. You would have seen in the first half of the year, we bought almost $0.5 billion and paid that into the RCF. So that was from the issuance that we did, the bond, the ZAR for US dollar bond issuance we did in July. And then we moved some excess cash into the RCF in the first half, too.

On the DMTN, it was a relatively small around ZAR800 million that was maturing. So we decided to make that payment. But we'll continue to optimize on that capital structure. I mean, I think there'll probably be a lot of questions around our -- what are we going to do with the '26s and '27s that are maturing. We take a very proactive kind of disciplined approach to our capital structure. We like the Eurobonds. We still think they are an option that's available. But at least we have options available now.

We've got a lot of liquidity, more than USD4 billion sitting there. And we did the deal in July. And so that just gives us options to manage those immediate maturities. And now we're looking more at kind of the medium-term refinancing and just assessing all of our options.

Thank you, Gerhard. Thanks for that set of questions. Also just want to echo a similar question from Sashank Lanka from Bank of America around the driver for the second half uplift in capital. So I think you've addressed that. Thank you, Walt.

I'm going to move to the online questions now. There's quite a number of questions around the balance sheet and capital allocation. If we can start with those. I'll maybe take two or three at a time and then move on.

Starting with a question from Lorenzo Parisi from JPMorgan -- sorry, that question has also been addressed around the repayments. A question from Stella Cridge at Barclays. Do you see the current cost of borrowing in the US dollar bond market as more attractive than prior?

And then I think a follow-on question from Kay Hope from Bank of America. Do you have any FX targets for your debt going forward? For instance, are you looking to increase local currency debt and decrease USD-euro obligations, which you've partly addressed earlier? Well, but I think what is the proportion of euro and dollar debt today? And how does this compare to your revenues?

I think the last question, I'll just end off with on CapEx. The CapEx expenditure classification policy as the CapEx appears to be more like repairs and maintenance. If classified as an expense, the EBITDA number will reflect the realistic performance. And that's a question from [Heinrich]. I'm not sure what company he represents.

I think we'll take that set to start off with.

Okay. So I think -- thanks, Stella, for the question. I do see -- I think the current cost of borrowing in the US dollar bond market is more attractive than maybe where it was 6- to 12 months ago. Almost all of our longer bonds are trading at a yield below -- I mean, below 9%. And so that does -- that is more attractive than some of the numbers we were seeing earlier.

We would, however, have to continue to look to see how we optimize that cost. I mean, if you look at some of the bonds that are maturing at sort of a much lower cost of borrowing, so there is a differential, but we do see the current cost is more attractive than it was before.

I think let me answer Kay's question then around the FX targets for debt going forward. I think, Kay, the size of the South African market and the amount of debt that we need to refinance, it's just not able to absorb that type of issuance. You would have seen we've increased it to just over 12% now. Our ZAR debt as a function of the total debt. We'll continue to look for opportunities to do that.

Currently, if I look at the mix, just -- and we had that on one of my slides with regard to the EBITDA delivery per region, you would have seen 84% of our earnings still comes from our Southern Africa business and 16% from the International business. That has improved over time. That split was probably closer to 90%-10%. This time last year, it was 87%-13%. So we continue to see an increase in the contribution from our International business. And so doing, try to better match the debt and the earnings across the portfolio.

I think the question on the CapEx classification policy. So we follow IFRS standard IAS 16. So we look at our significant components. If we modify or replace them, we would capitalize them, and that's what we continue to do. Obviously, if it's not significant on smaller components, that's when we would expense it through the income statement under the repairs and maintenance expense.

Thank you, Walt. Before I let you go, there are two more questions on capital guidance. A question from Anton from Nolo. For the lower capital guidance, how much of a factor was the stronger rand in reducing equipment import costs? And then another question from Lorenzo Parisi from JPMorgan. How are you thinking about refinancing the longer-dated notes from 2028 in terms of timing?

Okay. Yes. So I think no doubt, I mean, the stronger rand, and I think that's the balance at Sasol. The stronger rand hurts us on the income statement, but does help us on the balance sheet. I would say the low CapEx guidance, there was a portion of it related to the stronger rand, but it's not a material portion or significant. So it's really around looking at our cost and how do we optimize scope and spend.

And then on the longer-dated bonds, as I mentioned, we continue to take a proactive approach to this. We are looking outside the window and at the maturities of our different bonds, and we'll assess our options as the market develops. And as we go on this roadshow, too. I think we're spending some time also in Miami with some of our debt investors, and we'd like to understand from them how they see our credit going forward, too.

Great. Thank you, Walt. I'm going to move on to International Chemicals business. There are two questions from -- the first one from [Tabo Pato from Katalyst Partners]. More and more chemical plants in Europe, especially Germany, are closing down due to the high energy costs and unsupportive operating environment. What is Sasol's view on its operations in Europe?

And the second question from Sashank Lanka from Bank of America. Is there a risk to your FY28 EBITDA guidance of $750 million to $850 million provided at the CMD given that the EBITDA guidance is cut for this financial year '26?

Yes. Thank you, Tiffany. Let me start, and I'll ask Antje to weigh in. Firstly, on the EBITDA guidance, you remember at CMD, Sashank, we indicated three buckets across which we said there must be, improvement for us to meet our target. I mean the first one was, as I said, of the uplift we said should be coming from a market.

Then third was on cost optimization. And the last, third, was the commercial excellence or the value over volume approach and the renegotiation of contracts. So that was broadly how we framed, how we are going to uplift that business.

And I mean, if you go through our results, you will see that on the factors within our control, we've done well. However, what we've seen playing out in the market was not as to our expectations. So for now, we will double down on what we need to do, and that is why we're keeping -- I mean, that guidance, but we will keep on watching the market.

And I think the same goes for Tabo, I mean, your question in terms of -- I mean, other people are closing, but our focus is on what we can do to improve the business. And with that, I want to hand over to Antje.

Yes. Thank you, Simon, and thank you, Tabo and Sashank, for the good questions. Maybe starting, first of all, with the chemical plants or the situation of the chemical industry in Europe, which is in a tough spot at the moment. So it remains a challenging operating environment in Europe, given the structurally weak demand, overcapacity, high and also volatile energy costs and the increased regulatory complexity.

Our strategy at Sasol does not assume a fast recovery of these issues. We are operating on, as Simon has said, value over volume basis in Europe. And while we do that, we actively optimize as well our portfolio. Our portfolio of our offerings, products, but also how we operate in Europe. And while we focus more on specialty and contracted positions and volumes, we can also then earn acceptable returns, and you've seen that in our current results.

On the other hand, where the assets do not meet our hurdle rates, we will also continue to take decisive actions and Europe must perform on its own merits. So we do not invest in hope. And that goes as well to the guidance of fiscal year '28.

And to your question, Sashank, we are still confident that we can meet that guidance, which we have laid out on the CMD because two-thirds of those deliverables will come from our self-help measures. And we are here executing on identified actions and not aspirational growth assumptions going forward. Two-thirds, as I've said, are self-help measures. And I mean, some of the turnaround actions you can see already bearing some fruits. And we are very clear that they kind of here will also accelerate going forward in the next two years. We are just in year 1 of our turnaround.

Thank you, Antje, Simon. If we could move back to Chorus Call, there are two more callers. Could we get the questions, please, operator?

Chris Nicholson, RMB Morgan Stanley.

Yes, I've got two questions. Just the first question is, could you just go into a little bit more detail on what's happening with the Gas from the PSA? You've downgraded guidance for Gas this year. Obviously, we understand the PPA assets is just rolling off. But you downgraded guidance and you've also put through this impairment of lower expected volumes from the PSA asset.

Is that an absolute volume? Or is there something around the link to the amount of volumes that are kind of capped into the CTG gas to power plant? So a little bit on that.

And then could you also just talk to the agreement that you've managed to strike with Prax and the current business liquidation there? How long are you able to utilize their share of the Natref refinery? And do you share the full 33% of those benefits? Or does that all flow to your bottom line?

Thank you, Chris for those questions. Simon, would you like to start this one?

Yes. Let me start on Prax and the PSA. And Victor, you can just, I mean, close it out if I leave anything out. Yes, firstly, on Prax. Chris, they're under business rescue, so we can utilize that portion of the volume, as long as the situation remains.

There is -- however, someone is running an M&A process, which means by December. So we'll see how long that process takes. There might be a new owner that comes in and then takes over that 33%. We'll see how those mechanisms play out.

But in the meantime, we've got access to it. Of course, we're not running the whole 33%. The refinery can go to 620, 650. We're running around 500 mark, 480 to 500 depending on our ability to place those volumes. So that then flows directly to us. But of course, it does have working capital considerations because now we must carry the crude for the finished products or components for the entire refinery.

The PSA or the gas from Mozambique. Like we said, the volumes are intact. What you've seen in the impairment, the impairment was driven primarily by two key factors. The first one was the rand-dollar exchange rate, which is about 40% of what you see in that number of 3.9, which means if we go back to the assumptions, you could easily reverse that.

And the second one was due to the fact that you couldn't flow all the gas. So the volumes are there, but you couldn't flow all the gas because we do have a swap gas arrangement. So it's the timing of when you can get the gas. We're working at doing high performance test runs and we might do a small mode to enable that flowing of the gas. So that's where we are on the PSA.

I think, Victor, maybe you can handle the final question in terms of why we revised our guidance of gas volumes down, but it might have to do with the fact that the CTT is not running. So there was also a component of gas that was supposed to go there.

Thank you, Simon. I think perhaps just to add to what you've said, Simon. I think the impairment is basically linked to two components. The CTT power plant is delayed. That has implications in terms of the impairment. Then secondly, Chris, as you would know, we commissioned and achieved RFO, ready for operations, on the PSA asset in the second quarter of this year.

And as we are running the unit, I think we realized certain physical restrictions in the unit that limits the unit in terms of its throughput of excess gas to South Africa. The unit is still subject to a performance test run that will be done. And that performance test run will give us an indication of what options we have in terms of removing that physical restriction.

What that simply means is in terms of the impairment, it's a delay in the gas profile that we can process through the unit. And we believe that post this particular high load test run, we will have a view in terms of what needs to be done. And we suspect it will likely be low or no capital solutions that we will deploy to basically increase the unit's capacity to process the gas. And we will have a review on that later in the financial year.

In terms of the revision of the gas guidance, it's really linked to demand. And there are three components to it really or maybe two. It's our external customers, lower demand, as well as Secunda operations producing more gas, pure gas from our gasifiers also displaces natural gas. And that -- those two factors have basically contributed to lowering our guidance.

And maybe there's a third one. I think, the floods in Mozambique, recent floods in Mozambique, but also the performance of our wells in Mozambique, where we need to do some work related to making sure that the licensing gets done in time and these wells are commissioned as the PSA comes on stream.

Thank you, Chris, for your questions. We can go to the next caller, please.

Alex Comer, JPMorgan.

Can you hear me?

Yes. Go ahead, please, Alex.

Yes. Just a couple of quick things. Just in terms of the grant for the project in Germany, what volume of e-SAF is that designed to produce, that $350 million? Maybe give an explanation there. Is that a CapEx grant? What exactly is that for and volumes do you intend to get out of that? And so timing of when you expect volumes to be produced?

Is that your only question, Alex?

Yes. And then just a little bit of how I get from the EBITDA to the cash generated from operations? There seems to be quite a big gap there.

Great. Thank you. Thank you for that. Simon?

Yes. I think on the grant. As for the project development, Sarushen, you can add more. I mean, just to remind the audience, Zaffra is a joint venture between us and Topsoe to develop SAF, especially in the EU. So we are pleased with the award of this grant, which will then allow us to study this. Of course, it will ultimately be anchored by offtakes before you take an FID. But Sarushen, you can give more color on the timing and the CapEx for the project.

Thanks, Simon. So the plant, Alex, it's a small plant. I mean, we're looking at about 2,000 barrels a day. That translates to about 40,000 tonnes of SAF. And as Simon said, we will now move into feed or the detailed feasibility and then feed, but it will be anchored on offtake, right, before we take FID. But if all goes according to plan, we expect first production around 2030 for that plant.

All right. Thanks. I mean, Walt, you can take the EBITDA.

Yes. I think -- I mean, Alex, I think the team have sent you a reconciliation showing the movement between the adjusted EBITDA and the cash. I think just -- it's safe to say there are some non-cash movements in the numbers, and we welcome to share that. I think they've cross referenced it to the different parts of our analyst book and also on the interim financials. So I think we'd rather take that offline.

Great. Thank you, Alex, for your questions. I think if we can move to the -- sorry, also just to acknowledge a question from Sashank Lanka, similarly on the Prax timing and opportunity set there, which we've already covered in the previous question.

If we can move to some of the questions on the SA ops. The first one coming from Tabo Pato from Katalyst Partners. Stripping out the absence of the shutdown in Secunda, how does this production compared to 1 half '25? And in addition, it has been two months since coal destoning has reached BO. At what percentage capacity is the plant operating? And are you seeing an improvement in the production, which we should expect to come through in the Q3 results?

I think then coming back to the Natref agreement, a question from [Jesse Armstrong from Fairtree]. How much of the total net working capital build in the first half was related to funding with Prax working capital? And how much Chem Africa volumes already produced but not sold may roll over into the second half? Is the lower sales volumes versus production more logistics driven or demand or US tariff based?

I think I'll pause there.

Yes. I mean, thank you for the questions. The Secunda one, the impact of a shutdown is between 80- and 100 kilo tonnes. So I think you can just subtract that from our number, then you can compare with last year's number. Then the destoning plant it is done and it's running, it's up to speed. Sandile, you can give more color on that. I mean, Sandile is with the Mining operations. You can give more color on where we are on the destoning plant. But I think it's all done.

And then, all that's remaining now is exactly what Victor has said. I mean, the first step was coal quality, then it was progressive step to repair our gasifier fleet of 84 gasifiers and we've done 25% of the gasifiers. But Sandile, you can give more color on the destoning plant.

Thank you, Simon. And just the response to Tabo's question. So, as Simon has indicated, the destoning plant is done. And as you recall, with the CMD commitments, we had committed that the output from the destoning plant, we will be looking at supplying coal at below 12% to SO. However, for this year, we committed that it will be between 12% and 14%, and we are achieving those numbers. In terms of capacity, we are at full capacity. We will, however, continue to optimize the operation of that STP plant.

Thanks, Walt. You can deal with the working capital.

Yes. So thanks, Jesse. So it's about ZAR1 billion impact in the first half of the year related to the Prax working capital and how we're managing that. Do you want me also, Simon cover on chemicals?

Yes.

And then on the Chemical side, I would say it's not a demand. We can still place the products. We have seen some demand weakness in some -- in certain products, but it's not broad-based. So I think it's a case of more timing, the logistics, to be fair, to transmit. We are seeing improved performance vis-a-vis the base that we were on.

But we're filling up the supply chain. We're sending our product regularly via Richards Bay and Durban to our different customer locations. And now it's just a case of converting those volumes into sales sooner rather than later. And so that's part of what we see supporting our second half kind of improved earnings and cash flow generation is that unwind of some of that inventory into sales. I'll leave it at that.

I think a follow-up question also on South African ops from Gustavo Campos at Jefferies. Do you expect the EBITDA in South African value chain to continue to decline in the second half? Do you expect the stronger rand in the second half to have no impact on your profitability given the hedging program? And you also achieved that SA oil breakeven of $53 per barrel. Where do you expect this to be in second half '26?

And then I think going -- following on from the hedging element, there is a question from [Siam Bata] at Old Mutual. And she wants to know a little bit more about the hedging strategy for crude and the exchange rate? And can we talk through some thoughts on using puts only versus zero cost collars as well?

So I think we'll start with the SA ops question first on the EBITDA performance and then move to hedging, if that's okay.

Yes. So I do -- I wouldn't say we expect a significant decrease in EBITDA in the South African business. As I mentioned, I mean, the pricing will come under pressure depending on what rand oil price that you use. But we do see the sales volumes improving. I think in terms of -- it's difficult to say we don't expect any impact of -- on profitability from the stronger rand.

I mean, we hedged 25% to 30% of our rand-dollar exposure on the income statement. So you will see some impact of the stronger rand, particularly when you look at how you translate your chemical prices back into rands. But we do try and manage that as much as possible through a combination of the instruments I mentioned earlier, but also the foreign exchange contracts that we take out on a more transactional level.

On the breakeven of SA, I mean, $53 a barrel, we're very happy with the trajectory of that. But I wouldn't say that's the new sustainable level. If you look at the Secunda phase shutdown, we didn't have that in this year. And so that's probably about a $4 per barrel impact on an annual basis. So we will continue to reduce that amount, but I don't want to set that as the new base.

And I think that's why we also haven't adjusted the guidance for FY26 from the $55 to $60. Obviously, we think it will be closer to the lower end of that range, but a lot of that depends on the exchange rate, which does have an impact on how we calculate this. In terms of -- sorry, Tiffany, I'm just trying to -- was that the main one --

Yes. On the breakeven price, I think you've covered that and then the hedging instruments and what and which instruments have been covered.

Yes. On the comments on the hedging instruments, so historically, we've used just puts or vanilla puts on oil and zero cost collars on the exchange rate. The challenge for us right now is just getting them at the levels that we would like. So ideally, oil at a puts of $59 per barrel, you're going to pay north of $4 to $5 per barrel premium. That's quite rich, especially if we're trying to hedge out 22 million barrels, 23 million barrels.

So what we've done is expanded the instruments. So we use a combination of put spreads. So we limit the downside, but we don't protect 100% of the downside, and that's in a range of around $59 to $40 per barrel.

And then we've also introduced some butterflies, which means that we can get the hedge floor of $59, but we give up a little bit between a certain cap on the upper end, and that we try and limit that range as much as possible. So I think my comment in my script around managing the risk but also finding an optimal level between cost while retaining some upside participation.

And then we've done something similar on the rand. I think we extended our hedging program this time last year. Normally, we hedge just 12 months out. We extended it to 18 months in January of last year. And right now, obviously feel very comfortable because we've got zero cost collars between ZAR18 and ZAR22 for this period. So we're certainly in the money at the moment on our hedges, given the rand is trading close to ZAR16.

Moving forward, we've had to expand our instruments there because we try to target a slightly higher floor price of where we currently are at ZAR16, and that's where you'll see some more butterflies being introduced there or potentially some put spreads. But we'll continue to look at it, trying to manage cost risk and upside participation.

Thank you for the question. Thank you, Walt. (Event Instructions)

Just want to check with the Chorus Call operator, are there any further people queued on Chorus Call?

At this stage, we don't have any further questions from the lines.

We have one follow-up question on International Chemicals. from Jesse Armstrong at Fairtree. Are you still confident on bringing fixed costs down by 15% by '28 versus FY24? And what percentage of restructure costs, mothballing and SAP implementation has been completed? Or do you foresee this to be completed or rolling over into FY27?

Yes. I mean, Jesse, thank you for your question. Yes, we are confident. You remember, we already started with the piloting of the SAP in Italy, and that was completed. And in July 1, we will start with the implementation. Around 1 July, we will start with the implementation in Germany, and then we'll follow on through that and follow our program to do the US one. So that will allow us to further reduce our cost for International Chemicals.

So that program is ongoing. You can see the progress that we've made. And yes, we're confident that we'll be able to do that. If you ask about the percentage between restructure, mothballing and if you put SAP in there, I'll say, SAP cost, it does drive especially the restructure costs. I mean, it's the lion's share of that, maybe around 60%, I mean, 40% to 60% and then the balance will be the other ones.

Great. Thank you. I think there's one final question from Thobela Bixa at Nedbank. How much did you receive from leasing your RBCT allowance? And was this leased to one or multiple operators that's in terms of coal exports?

Yes. So it's more than ZAR1 billion on the export side, and it's about ZAR0.5 billion, give or take, on the leasing entitlement.

Great. Thank you. Just want to double check if there are any more questions.

Confirmed, there are no further questions from the telephone lines. Thank you.

One last question from Gustavo Campos at Jefferies. What is the nature of the short-term and long-term financial assets? Why are they not included in net debt calculations? And why not liquidate them to reduce the leverage further?

I'll take that. So there are a combination of different items. Some of them relate to also our insurance captive that we have offshore. We've historically not included -- and then we've also got some embedded derivative assets relating to our oxygen supply contract with Air Liquide. I think -- and some restricted use. So we don't have the full availability to access these, and therefore, we don't include them in our net debt calculation.

Great. I think there are no further questions online. No further questions from Chorus Call. So that wraps up our Q&A for today. Thank you very much to all who have joined and participated, and we wish you well and a pleasant day forward.

Thank you.