Sasol Ltd (SSL) 2020 Q4 法說會逐字稿

A very warm welcome to all for joining this call today.

The full set of results was published earlier this morning on our website. And for the purposes of this conference call, we will highlight the key salient features only. Our full year results are characterized by a story of 2 halves. Despite the challenges we faced in the first half of the financial year, Sasol delivered a sound operational performance. The second half saw the COVID-19 pandemic caused a seismic shift in our operating context, underscored by significant volatility and uncertainty.

This financial year was also our peak-gearing period as we approach the near completion of the LCCP. Geopolitical dynamics in the latter half of this year saw the Brent crude oil price collapsed while the onset of the pandemic placed even greater pressure on our balance sheet. These external shocks impacted Sasol dramatically, requiring us to act swiftly to stabilize the business in the short term through decisive actions.

One of the early decisive steps we took was to conserve cash in the order of USD 1 billion. We exceeded this target in less than 4 months. Regrettably, we experienced 6 tragic fatalities this past year. Investigations into every fatality of my priority with the aim to fast-track these investigations to quickly establish the root causes and implement corrective measures. Core to our safety focus is the world-class processor systems and tools we use to embed these as second nature in the hearts and minds of our people.

The focus on safety became heightened with the spread of the coronavirus globally, and we promptly put measures in place to curtail its streak within our business. This includes revised shifts and work schedules to support social distancing and de-crowding at all our operations; increased screening; disinfection and contract tracing and enabling people to work from home. Furthermore, we converted hospitals into quarantine and self-isolation facilities for recovering employees and contractors in Secunda. Also, we supported communities in SA and Mozambique with the donation of sanitizers and other aid.

Turning now to our operational performance. Despite the unprecedented challenges experienced in the second half of the year, mining improved production by 2%. Our Secunda Synfuels operations experienced an 8% decline in production while nitrate decreased by 34% due to the drop in fuels demand in South Africa. At our North American operations, our production volumes were nearly 1/3 higher as the cracker achieved nameplate capacity and is currently producing at maximum run rates. At our Eurasian operations, production was marginally down by 2%, but was partially offset by the increase in surfactant demand.

Looking at the LCCP, I'm pleased to report that the construction is now complete while the restoration work to the LDPE unit is progressing well and is expected to be online in October this year. Capital expenditure on the LCCP is still within guidance. And despite the impact of lower product prices, the positive EBITDA was realized in the second half of the year compared to a loss in the first half. The fallout in the oil markets led to a 37% drop in the Brent crude oil price in the second half of the year, partially offset by the rand weakening against the dollar by 13%. Our cash fixed costs remained flat, which is remarkable in a year where costs were still ramping up in support of new assets.

We also improved working capital and reduced our capital spend through focused management actions. We did, however, booked ZAR 112 billion in impairments, reflecting the current depressed macro environment with a soft outlook on price recovery. Our expanded asset divestment program has yielded good interest in relation to a number of our assets despite the macro environment uncertainty. We progressed transactions to realize approximately USD 600 million, which includes the sale of the air separation units located in Secunda to Air Liquide, a 51% share in the explosive business to Enaex, as well as the sale of our interest in the Escravos GTL plant in Nigeria to Chevron.

In terms of the partnering discussions at our U.S.-based chemical assets, the process is well advanced. So I hope that we can provide a more detailed update very soon. I believe we are on track to deliver disposals consistent with our March 2020 objective of beyond $2 billion. We also aim to improve the bottom end of this target significantly by the end of financial year '21. For financial year '21, we will continue to execute against our response plan objectives to keep liquidity strong and bring down our leverage.

The final major step on our deleveraging pathway is the rights issue to be executed in the second half of the financial year. We want to implement this when the amount acquired is well defined and we can do so based on a clearer and more robust financial position. In addition to this, it is crucial that we reset the organization to be sustainably profitable in a low oil price environment, therefore, our Sasol 2.0 initiative. This initiative will enable our longer-term ambitions of a future Sasol. We plan to share more detail of these Sasol 2.0 targets, et cetera, at our Investor Update by November this year.

So what does the future Sasol look like? Future Sasol is streamlined, focused and positioned to succeed. Sasol will be an attractive investment by delivering good returns, which are underpinned by low cost, higher margins, strong capital discipline and business sustainability. This will allow Sasol to deliver better for all its stakeholders, including taking into account the important role that we have to play in South Africa's energy transition to a lower-carbon economy. Our business portfolios are distinct and customer-centric, responsible for their own profit and loss and supported by a leaner center, a simple and more agile organization where people are energized and enabled to realize their full potential. Our strong technical engineering and marketing capabilities will enable Sasol to deliver better solution to our customers.

Lastly, delivering on people, planet and profit outcomes will see us enhance our employee value proposition, foster stronger relationships with stakeholders and return value to shareholders. As a first step towards repositioning the business, we reviewed and updated our strategy to bring focus to the 2 distinct and core businesses, chemicals and energy, where we currently have strong market positions and capabilities. For chemicals, we will transition towards specialty chemicals over time where our differentiated capabilities and strong market positions will position us to grow. The energy portfolio will consist of the entire Southern African value chain. The key focus will be to improve cash generation through cost efficiencies, higher margins and advancing our greenhouse gas emission reduction plan as well as air quality goals.

We are proud to provide a glimpse of our 2030 emission reduction road map for our South African energy value chain. This road map shows the path to achieve our committed minimum 10% reduction in greenhouse gas emissions by 2030 of our 2017 baseline. And it also sets us up for greater reductions post-2030. This further supports the country's energy transition.

The successful delivery of future Sasol will be a challenging journey, and we have highlighted a few key deliverables required to achieve this in our presentation. The past year has been very challenging for Sasol, but we can reflect with some satisfaction on what has been achieved. For LCCP, we have delivered against our revised targets of scheduled in -- and costs set in 2019. Second, we delivered on the self-help measures announced in March 2020. And thirdly, through future Sasol, we are resetting for Sasol to be a profitable, sustainable and resilient business in a low oil price environment. I believe this is a credible record of the delivery through a very challenging period. As we move to the next phase of delivery, we remain focused on our actions to stabilize the business and create a clear pathway to a deleveraged balance sheet.

And on that note, I'm going to hand over to Paul. Paul?

Thank you, Fleetwood. Good afternoon, ladies and gentlemen.

Today, we outlined a set of results that were delivered during a volatile and challenging economic environment. Though oil price collapse and the COVID-19 crisis came at a time when our balance sheet was already at a peak at gearing, placing a significant strain on our liquidity position while oil prices have since recovered to about $40 to the barrel, the pricing outlook for energy and chemicals indicates a low for longer environment going forward. And this, together with all the fair value adjustments that we had to book in the records resulted in impairments totaling ZAR 112 billion.

Since March of 2020, we then also took immediate steps to implement a comprehensive response plan to stabilize the business in the short term, targeting to raise up to $6 billion by the end of financial year 2021 to repay our debt, which I'm sure we will talk about in a couple of minutes. I'm also pleased to report that we exceeded this 2020 response plan target for self-help measures, conserving cash well in excess of $1 billion. The ultimate target achievement was around about 25% higher than the $1 billion. We also intensified our focus on cost containment and successfully managed to keep our cash fixed costs flat in nominal terms for the year at $58 billion. And in build terms, the reduction was around about 5% on a year-on-year basis. This is despite the 10% first half increase. So effectively, we've reduced that in 6 months' time and also nullified the inflation impact in the last 6 months.

We also successfully engaged our lenders to waive our covenant at gearing as well as lifting the December 2020 covenant from 3x to 4x net-debt-to-EBITDA to support our balance sheet with some flexibility as we navigate towards deleveraging our balance sheet. Very important to note that our asset disposal program has delivered, at this point in time, more than USD 1 billion of asset sale since its inception in November 2017. So this also then -- the $1 billion also takes the ASU that we announced recently into account.

Let me then provide a quick recap of the salient items of this set of results. As we did mention, our adjusted EBITDA decreased by 27%. And this is really largely as a result of a 40% decrease in oil and -- product prices. We normally look at oil prices or ramp per barrel prices that indicates a close to 20% decline, but we can't forget that in all product spectrums of chemicals as well as our refining margins and product margins, we saw a significant decrease. And with this, we also saw some demand disruption as a result of COVID and as we communicated to you before, and LCCP start-up losses, which we mostly incurred during the first half of the financial year.

We also delivered a stellar cost and robust cash performance, and we reported a 14% increase in sales volumes, mostly in the chemical businesses due to the ramp-up of the LCCPs -- LCCP, and that was in accordance with the guidance that we provided. And as such, the decrease in cash generated by operating activities was despite these headwinds limited to 18% as a result of decisive cash cost working capital and capital management, as we earlier indicated as from the 17th of March to you in terms of those measures that we are willing to take, and we did achieve on all of those.

Earnings were also negatively impacted by the increased LCCP depreciation and interest charges now charged to the income statement as a result of the LCCP complex being operational. So most of the interest now flows through the income statement. With all the LCCP units mostly online, we do expect a much better match between the revenue, costs and cash flows for financial year 2021. And as of the end of -- the middle to end of the second 6 months, we have started to see the cash inflection of positive EBITDAs flowing from the LCCP. Our core headline earnings per share was ZAR 14.79 per share, which was for these reasons provided, still 61% down on the previous year.

Let's now focus on the balance sheet. We took these decisive actions, as I've mentioned, and we maintained a strong focus on cash during this reporting period with strong EBITDAs of free cash flow. And a free cash flow, excluding growth capital, then realized a level of ZAR 8.5 billion for the second half compared to ZAR 2.6 billion in this first half and, again, show you kind of the level of how we impacted our cash flows positively and proactively in the second half. We've also managed to maintain our cash inflection point that we reached in January 2020, which we spoke about. And actually, in our Analyst Book, you will find a very useful analysis of the cash inflection point at the back end, I think it's on Page 42, where you specifically can see that virtually in the second 6 months of the year, we maintained to stay cash positive and most of the cash negative outflows then related to the first 6 months of the year.

We're also pleased with the improvements that we made to stabilize and improve our liquidity position throughout the various self-help measures. We currently have a liquidity buffer of $2.5 billion to allow us to withstand further macroeconomic volatility. I also want to refer you to slide -- or to Note 17 in the annual financial statements because the $2.5 billion is a combination of $2 billion of pure cash and $500 million in terms of committed facilities available at our disposal. Our hedging program will remain in place to shield the balance sheet against any further market exposure, and we'll continue to hedge the book on a continuous basis. And we can also provide you with some updates on that as well. And we do remain committed to manage the balance sheet to lower gearing levels, especially net-debt-to-EBITDA. We are making very good progress on the asset disposal program, and we do remain committed to selling these assets at their base value. Given these efforts, we still hold a view that the rights issue of up to $2 billion is needed to reset a long-term capital structure of the company.

Now again, we have received many questions and again, we'll talk about that quite a bit in terms of the rights issue. But the rights issue has now been scheduled for the second half of the year. We did say in the past that it will be the last results that we will consider. But if we take into account the self-help measures as well as the quantum of asset disposals, we do believe that there are a place for rights issues in a $45 long-term world to assist us to reset the capital base to sustainably manage the company going forward. I think the Board will really consider before we indicate the final size of the rights issue, which really need to be fit for purpose.

And we're very sensitive towards the quantum of this that at this point in time, we've got a good sense of the self-help measures. The macroeconomics are improving. They are much higher today as what our forecast indicates, but we know the world is volatile. COVID-19 is not over yet. Our demand disruption is not over yet. So we'll keep on closely monitoring the macroeconomic development in our results. And it will also give us a sense of not only how the U.S. assets, but the whole spread of assets that we are progressing towards disposals plans out towards the end of the year before we have to make a final decision. This is rather, in our view, giving us a position of strength to really kind of position the rights issue according to the rights size after we've taken all of these factors into account. Only then, the Board will make that decision. I acknowledge and I think Fleetwood as well that this may cause some overhang for us for a couple of months, but we do believe that this is the most prudent option. We have considered it in many different ways. And we would rather want to go in this kind of a step-by-step approach before we make a final decision on the rights issue. And of course, the smaller, the better. But ultimately, all these data points need to inform the final decision point.

Looking beyond then and as the shorter measures, we've also agreed a framework for future Sasol, which Fleetwood did cover. And this will really position us in addition to all these measures that we spoke about to really have a sustainable business with a strong investment case in a low oil price environment, but more details will be shared at our planned Investor Day later during this year. We do -- will provide you with all the necessary information on that day, so you can get a sense of how value will be created in Sasol 2.0 and future Sasol when we speak to you.

Let me just lastly focus on the outlook for financial year '21. The impact of the COVID-19 pandemic, as I've mentioned just now, and the macroeconomic swings are expected to continue and they may still weigh in, in this forecast that we provide to you now. So ultimately, please state the forecast without warning. We do believe that we've been reasonably conservative in our forecast, but I think it's always important that one always takes into account the volatile times that we operate in.

Mining is expected to ramp up to its targeted production levels with really a focus on continued safety and operations efficiency. We have been pleased with what we've seen thus far, but more to go. The South African liquid fuel sales volumes are all expected to range between 54 million and 55 million barrels. And that Secunda Synfuels production is expected to be between 7.7 million and 7.8 million tonnes. And hence, you can make the deduction that Natref will be used as a swing producer in reaching these outlook volumes. ORYX GTL utilization rate is between 75% and 80% as train 2 still resumes operation in the second quarter of financial year 2021. Good results from train 1 after the shutdown, but train 2 still needs to start up. Performance Chemicals sales volumes are also expected to increase by 3% to 5%. And excluding the LCCP, the volumes are expected to remain flat for our global assets. Base Chemicals sales volumes are expected to increase by 3% to 5% as well. And excluding the LCCP, we also expect that our foundation business will be able to add between 1% and 2% of actual volumes.

We also are targeting the balance sheet debt paydown of up to $6 billion by the end of financial year 2021. And that is taking the self-help measures, macroeconomic developments, asset disposals and a fit-for-purpose rights issue into account. Through our comprehensive response plan, we are focused to manage our net-debt-to-EBITDA to below covenant levels, and our covenant level for December of 4x can be achieved through these asset disposals and self-help measures alone. I think it's also on the questions that you raised. But again, we can talk about that a little bit more.

In conclusion, we continue to face significant challenges, as Fleetwood mentioned, as a business. And with our focus on the key actions required at this time, we are really confident that we can steer the ship through a very difficult time going forward. We had to make the tough decisions. We made those. And we are very much on a better footing compared to 2 months ago.

And on that note, I'll hand back to the team, who will open the conference call now for the questions and answer. Thank you very much.

Thank you. Thank you, Paul and Fleetwood.

We have a number of questions that have come through on the webcast facility. The first set of questions I'll deal with relates specifically to the rights issue. And broadly, it's around the rationale for the rights issue as well as the size and timing. I'll just run through a few of the specific questions we received.

The first one is from Harsha Pappu from HSBC. And the question is the subtext on the rights issue has gone from last resort to a worldly rights issue in the second half of FY '21. Can you please detail what has changed? And why management feels that the last resort is now the base case?

The second question again into the rationale of the rights issue is from Herbert Kharivhe of Investec. And the question is, do you still need a rights issue if you are expecting to receive ZAR 79 billion from assets held for sale if you -- people tell you it's around USD 6.8 billion, and that's both in working capital and asset disposals. So is the rights issue more about accelerating the deleveraging process to restructure the company to -- sorry, the deleveraging process to restructure the company towards Sasol 2.0?

Also around the rationale from Chris Nicholson of RMB. And the question is, it sounds like Sasol will be doing a rights issue regardless of the result of the asset sales process. It's just the amount that remains uncertain. Is there a set of outcomes in the resets that you will need to do a rights issue?

That's just the rationale. And then let me just conclude on size and timing. There is a question here from Henri Patricot of UBS. And again, rights issue, how it will be determined? Or in other words, what sort of targets are you targeting post the rights issue?

And lastly, from Tom Wrigglesworth from Citibank. When will Sasol provide an update on the potential contract activities?

I'll leave it there for all the questions related to the rights issue.

All right. Let me deal with the rights issue. I'll try to kind of provide some context in a way that we are thinking about the rights issue. So to Harsha's point, Harsha, we did highlight on the 17th of March kind of the order in which we think about the rights issue. And at this point in time, we still feel very comfortable with the self-help measures. I think the big decider here will be to say how big the asset disposals range can be. We did provide a range of between $2 billion and $4 billion. And it will also depend exactly how the U.S. play out. The U.S. will of course be sizable in this decision.

So based on our assessment of the rights issue -- sorry, our assessment of the self-help measures, the sizing in anticipation of what we can kind of deliver in terms of the asset sales, it did inform ultimately most part of our thinking in terms of whether we need a rights issue or not as a last resort. But also quite importantly, we need to look at the debt levels in terms of Sasol 2.0 to say in a $45 world, effectively, how will kind of -- what debt levels can we actually maintain, manage? How will value be delivered? When can we retain or return to a dividend-paying scenario? And we've also taken that into account.

So the combination of both, which then also kind of touches a little bit on Chris' question, is the sense of the rights issue must be able and position us to sustainably add value going forward to weather the storm and to leave us with a debt level and a set of assets that can ultimately drive value for shareholders over the medium to long term. So that, I will say, is probably the weighting factor was 2.0 in a $45 world to really shape that balance sheet that's needed to ultimately operate a sustainable future.

Again, I make the point to say that this can, however, very vastly change when macroeconomics turn out to be better than what is expected. And we have seen our assets being super sensitive to higher oil prices and especially rand to dollar prices. Hence, the point is to say, give us 6 months to see how the macroeconomics plan out. Today, the macro sits at around about ZAR 800 a barrel. We've planned more towards the mid-to-low ZAR 600 a barrel. So it's quite significantly different. And it can provide much more cash in a very much shorter period of time that will impact the shaping of the rights issue. So ultimately, we do, at this point in time, given all our realistic assumptions, unless the world all of a sudden changed to $60 long term, which we don't think the scenarios at this point in time, so given those assumptions, we do believe that the rights issue is needed. And ultimately, the size, as I've said, will depend on that.

Herbie, I think your question, it's very much -- again, when you make your kind of your calcs, you do assume a certain outcome on asset disposals. I cannot comment on that assumption. I think we have to take our assumptions into account and what we see, which may differ from your values. And I think if you adjust your values, then ultimately, you may come to the same conclusion as we do.

Last, in terms of is there any scenario that the rights issue can be avoided? Chris, ultimately, time will tell. Again, what we say is a rights issue of up to $2 billion. We are sensitive to the size thereof. And again, we have to look at macroeconomics. We have to look at the other assets coming in for disposal and whether we can get the real value for that. But there's a very strong process that ultimately will define what that ultimate value may or may not be. So we are very sensitive to this point. We are shareholders ourselves. And we will ultimately will -- only issue that rights issue to the size where it makes sense in our future capital structure.

Fleetwood, I don't know whether there's anything you would like to add to this as well.

No. Paul, I think you summarized it very well. And so I think we are going the responsible way to exhaust all options we, as management have, before we tap into shareholders. But I do think we are following a trajectory that is well-thought through and that will be calibrated towards the end of the year.

Yes. The one last, but if I can just add that Henri asked, if you may allow me. Henri asked what level of gearing are we targeting with this rights issue. Henri, I think that's a fundamental question. So ultimately, our objective is, firstly, to get to the below 3x covenant because that is our immediate priority as at the 30th of June of financial year '21. And a rights issue and the shaping of the rights issue will focus on that, but also to kind of get us reasonably below that level. So for us to pay dividends, I think we want kind of the covenants more closer to 2x, and we're still a long way away from that. So ultimately, we do want to kind of go for extended periods of time below that 2x covenant over the medium to long term. And the rights issue will also inform that thinking to say, how long will it take us, how can we get there and what is the pathway of the rights issue in taking us specifically there?

And I think Harsha, also coming back to your point earlier, what has changed is really kind of that thinking of 2.0 and that gearing level of below 2x, that will also kind of where the rights issue will also play into that. We really have one option and one time to really position the balance sheet now well in order to have a sustainable balance sheet and also a company that can add value going forward.

Thank you, Paul. I'm going to move on to the -- again, to move on to the next set of questions. And these specifically deal with the balance sheet, both covenant and liquidity.

On the liquidity side, first question is from Gerhard Engelbrecht. The question is, your South African banking facilities have been lowered from $12.3 billion at the end of the first half. It's currently $9 billion. Why is that?

The next question is from Sashank Lanka of Bank of America. And the question is, how do you break down the $2.5 billion in liquidity? Since we're into your cash flow, I'd like clarification on the remainder. Also if we have any underdrawn lines at this stage. And if so, what are the maturities on those?

And then a few questions relate specifically with the covenant. The first one is from Faisal. And the question is, concerning the first half FY '21 covenant, are you planning to move most of the CapEx in the second half? Working capital in the meantime is at a 3-year low while oil prices bottom most likely behind us. So what are you planning to do to achieve additional cash savings on the front in the first half of FY '21?

And then next question is from [Sandler]. Without further asset sales or cost savings at current oil prices and this dollar exchange rate, are you concerned that the December debt covenant maybe at risk of a breach?

And the last question is on the covenant, and this is from Stella HE of Barclays. There was a note in the financial statements that certain conditions in relation to the covenant waiver required a further classification of $1 billion of short-term debt on top of the $1 billion assets held due in June 2021. What debt does this additional $1 billion relate to? And why is this the case?

All right. Thank you. Thank you very much for that spread. I will do -- Fleetwood, the service to do with those details, but he's eagerly waiting to answer more of other questions. And hopefully, we'll get there just now.

On the South African bank facility, yes, Gerhard, you are right. We did -- it did reduce from $12.3 to $9 billion. As you can appreciate during this whole covenant renegotiating process, the South African banks also had kind of their concerns and credit committees in evaluation of our credit lines. I can say that safely, where we find ourselves now is that all but one banking partner was coming to the fold and assisting us with maintaining our credit lines, helping us to kind of get the covenant to where it was going.

Unfortunately, one bank, a South African bank, unfortunately had a review of our credit profiles to the subject -- after the credit downgrade and decided to cut the facility online by ZAR 3 billion. We had to disclose this to our banking group internationally at the time that we renegotiated the facilities. The banking group will be quite comfortable that the rationale and the reasoning was for this bank to do this was based on their assessment of risk and not something that other banks are missing. So yes, it is sitting at $9 billion. We are actually quite comfortable at early -- at the early onset of oil being kind of below $20 to the barrel. We were concerned that in the South African banks that we may be utilizing these commitments.

Today, where we stand is we've paid back all our kind of facilities that we've used from our South African banks. So we have no -- we haven't tapped into any of the facilities. We operate the company through our cash buffer. And we actually now kind of saving up to make sure that we service our syndicated facility that's due for -- in May of next year. That much, our liquidity position has improved over the last 2 months. So this is really one bank going down in terms of the facility, but we are very much okay with it. And the rest of our banking group is also in agreement with what has happened here. We can talk maybe tomorrow a little bit more in detail if you want to share more details.

Sashank, I'll try to answer your question in my feedback to say the $2.5 billion liquidity, $2 billion cash, $500 million in committed facilities. These facilities are ZAR facilities that we have with the remaining ZAR banks. But again, as I've said, as our liquidity position starts to improve on a month-to-month basis, we actually anticipate this to even further improve over time. I think it's quite important that we don't want to sit on cash too long because we have the syndicated facility. And what we are now busy doing is starting to pay off the $1 billion syndicated facility because we don't want to pay unnecessary interest and actually have cash on the books. So we will kind of start to manage our $42 billion cash and cash equivalents down to more -- to around about $1 billion of committed facilities and cash and use the remainder to pay the $1 billion facility down in May. And then as we have extra cash, we'll start to pay that down on the RCA. I think that's very important. And we are fortunately at that point in time.

The other question that comes on covenants and whether we will move capital. I think the one positive thing is on this one, Faisal, is that we actually moved our shutdowns on Secunda and Natref into this previous financial year, as we mentioned. So most of our sustenance capital goes towards the shutdowns in the first half. We don't have those. So by virtue of design, actually less sustenance capital will flow in the first 6 months as what we are usually -- used to. Usually, 60% to 70% more flow in the first 6 months. And now it's more a matter -- manner of 50-50 between the 2 halves of the financial year, if I can mention that.

And then ultimately, yes, our working capital is at 3-year lows. And it can be seen as the bottom of the cycle, but we've been very, let's say, on a sustainable basis, aggressive to manage our working capital down. And we will continue to do so. We will continue to look for opportunities. The team has really improved their work process on this dramatically over time. When the 12.5% is sustainable target, I will be the first one saying no. I think more 14% is a good level for us. But give us time again over half year, it will be something that's high on our agenda. And our additional cash savings, we believe that there's further opportunities to be levered to deliver that $1 billion savings target.

Stella asked a question at today's macroeconomics and asset disposal assumptions, can we achieve our debt covenant? Absolutely. We can do that. And then in terms of the AFS, the conditions and the short-term debt, we -- when we renegotiated our covenants, we also had to renegotiate as we sell assets, how those, the asset proceeds, will be used to service our debt commitments.

So of course, in terms of order, the first cash flows that we get from our asset disposals in agreement with the bank goes off against our committed debt facilities. The $1 billion syndicated facility goes first. Secondly, the $3.9 billion RCF facility goes second. And then thirdly, the bank term loan facility of $1.7 billion rounded goes first -- goes third. As we pay down those debt facilities and based on our forecast of our asset disposals, we are going to service those debt facilities in financial year 2021. And because it's 12 months ahead of us, we have to reclassify them from fixed -- sorry, from long term to short term. So it's really a manner of as we sell the assets, the RCF will be paid down. It's that component of the RCF which we believe will ultimately be serviced for asset disposals and also the $1 billion debt facility. And that's really what's behind that. Nothing more, nothing less. I think I've answered all the questions. Elton?

Yes. Good.

Okay. Thank you.

If I could, Paul, go through the next set of questions, they largely relate to asset disposals. The first question, could we please get an update on the asset sales process by asset in LCCP and ROMPCO, as specifically mentioned, and also to provide the potential time lines. And the question here makes the point that ORYX was not mentioned in the asset disposal program and whether this is in fact up for sale. Then around the financial impacts, also under -- broadly speaking, under asset disposals, what is the expected EBITDA and earnings per share impact from all the disposals you have announced so far? And can you give us the EBITDA/earnings per share impact by asset, if possible? And that's from Sashank.

And then Adrian asks, how will the sale of the air separation units and of ROMPCO impact EBITDA?

Then from Herbert, when is the held for sale, NAV, the amount of money expected to be received? And then the last question, when can we expect I guess the large portion of the asset disposals to be completed?

Okay. Thank you, Elton. I will start off with the update on the disposal program. And with respect to the financial impact, I'm going to -- Paul -- ask Paul to weigh in there. So we have indicated that we are well advanced with our base chemical U.S. asset partnering process. This is the case. We had a very strong international interest, both inside and outside the U.S. I think we've indicated that we were in -- at the moment, in final commercial discussions. We don't want to allude to anything more than that. Suffice to say, that we believe we would come to in a conclusion not months from now, but rather weeks from now. So if that could calibrate the timing, it is probably still within the next month that we would come back to market and really announce where we are with that program.

With respect to ROMPCO, that is also a process that's unfolding as we have expected. So it is also not months, but maybe within a month, we will come to some decision-making in that asset. And now you need to always take into account that these things may swing a week or 2, that there's always complications with respect to some of the final terms and conditions. But not -- nonetheless, we've got a very focused team, various teams running these divestment programs in parallel. Yes, we haven't put everything on the list. We've done a very, very complete and focused asset review program. So we've got a long list that we've prioritized those in terms of complexity impact as well as ROIC and other measures. So there are a number of asset disposals that's running still in parallel that may be not at this point in time visible. ORYX, yes, that's still on the cards. I just think we don't see it as a current priority to really push for that one hard, but it's still on the radar, and we will still continue to focus on that. A number of others that we haven't really highlighted, but we're also making good progress with some of the smaller divestments, for example, our phenolics business in the U.S. and the like. So I think pretty much still working the program per the base of our asset review.

All right. Then the question that's been asked, I'm not going to give all the details. I think on some of the details, I'm going to hold back in terms of the impact of these asset sales, and I will tell you why as well. Let's just quickly get a sense of -- and I'm just going to give you the EBIT impact. I'm going to ask for those out because there shouldn't be anything sinister about these assets that we sold in the past.

To give you more of the details on the working capital, the capital impact because you cannot only look at the EBIT impact, you must actually look at the total impact that ultimately flows through into our free cash flow when we sell these assets. But the ones that we sold and the ones I'm going to refer to now is Sasol Huntsman; the explosive business, Escravos; as well as Sasol [Vollmer] Industriesinhina. Those were the 4 assets that we sold. I'm not going to talk about the Petlin optimal joint ventures because those relate to the previous period, and we've already spoken about those. So we -- let me speak about these 4.

Ultimately, for financial year '21, it will have a positive impact on our earnings. It's not a lot, but the positive earnings is around about ZAR 500 million to ZAR 600 million. And why is that? Ultimately, the investment enhancement as well as the Vollmer had positive impacts on our EBITDA that will -- on EBIT, which we'll effectively lose next year. But the explosive business as well as EGTL in terms of the forecast that we had ultimately had a negative impact on our EBIT. And the combined impact of that is, I would say, roughly ZAR 500 million to ZAR 600 million positive on our EBIT next year. These ones exclude the U.S. chemical business that we are busy disposing, the air separation units and ROMPCO.

So I'm not going to provide you details on those 3 assets, the last 3 that I've mentioned, just because of the nature of the negotiations that we are busy in. I do commit that once we complete every asset, so let's say, when we complete the air separation units, we will provide an update on our website to give you a sense of what the implication of that transaction is on EBIT, on working capital, on capital so that you can get a proper sense. Because specifically with things like air issues and ROMPCO, I think you need to kind of get your minds really around that because it's going to be a little bit changing the nature of the flows of your earnings because the asset remains. It's only when we sell the asset on such as the chemicals business in the U.S., which we will then provide you with an EBIT working capital update in terms of that. So on those last 3 assets, which can be quite significant in terms of how they play out, we will rather provide you with an update on an asset-per-asset basis as we complete, but around about EUR 500 million, ZAR 600 million of positive EBIT as a result of the assets that we sold thus far.

Thank you, Paul. Thank you, Fleetwood. I will go to the next set of questions, and this is really dealing with the self-help measures. The first two questions are both from Chris Nicholson at RMB. And the question is, the first one at least, I understand that this may be hard to determine at this point. But at a high level, what percentage of cost reduction do you think are possible or achievable or necessary for the South African liquid fuels value chain to remain competitive? Chris' next question, also dealing with self-help. So on the response plan, how much of the cash fixed cost savings component should we expect to be sustainable over the long term? Or will it eventually reverse? Similarly, on the working capital savings, how much is sustainable, how much will reverse? And Chris is saying, yes, I would expect inventory, for example, has helped by -- has been helped by lower prices.

And then the next question from Faisal Al Azmeh of Goldman's. As per the release, cash fixed costs was flat year-on-year despite a 10% increase in the first half of FY '20. What were the measures you enacted and how to -- how does some have the risk of reverting back next year?

And the last question on self-help measures, this is from Adrian Hammond, Standard Bank. How do you intend achieving a 15% cost savings target by 2025 for SSA, that will be Sasol South Africa?

Thank you, Elton, and thank you for the questions. I will just kick off the various topics that was raised in terms of the questions. So I think we are very clear as a management that the measures that we've indicated for our self-help in terms of the $2 billion cost savings that there are some of those that is not sustainable on its own. So for example, we've had salary sacrifices. We had no salary increase. We had no bonus payments. So that is not sustainable. So we have to think differently about how to make it sustainable. And therefore, when we did make the announcement of those targets on the 17th of March, we did indicate at the same time that we have to fundamentally reset the business in Sasol 2.0 to make those savings sustainable.

And how do we think about that? So we are not yet ready to give you specific targets or specific percentage of cost reductions, but it's important to be mindful that we will have a very holistic approach to Sasol 2.0. And it will look at fundamentally, the cost bucket, it will look at where we can improve gross margin. It will look at how we can deal with sustenance capital and how do we think about working capital to be more sustainable. So if you look at the cost bucket, of course, it is about operating cost, labor and other operations costs; but it's also about our spend. Our procurement on our products and services and how can we reset that in the future Sasol. There are opportunities.

I definitely think when I look at our peer group and how the top quintile is performing in terms of cost improvement, we can follow suit. There are opportunities there. There's also opportunities to improve throughput and gross margin through digitalization. I think that would be a key part of what we will be able to leverage in Sasol 2.0. And as I've said, sustenance CapEx, predictive maintenance, all of those play into an area that you can improve yourself. And is there a specific ratio? I think we think of all 3 of these main buckets as equally important to realize our targets. And those targets, we would not mention in much more detail.

As we get to the November date, we will give you our update. Suffice to say, the program is well underway. We are having consulted with organized labor. We have now reached the point where we're going to announce that the next level of the group structure this week, and then there will be a cadence of 4 to 6 week following to the point where we in November target to go live in our new operating model. And therefore, we're well on track to get into the Sasol 2.0 and Sasol future -- Sasol of the future as we sit here today.

Paul?

Thanks, Fleetwood. There's a couple of questions that requires color, and I think Fleetwood did indicate that some color will be provided more towards November as we work through it. I think again to reemphasize the point that Fleetwood made is that in March and April of this year, we have been quite diligent in identifying plans to make the cash, to solve the cash issue for us in terms of the self-help measures for '20 and '21. That, we feel very comfortable with. So even if we don't give increases or we do give increases next year, all of those have been planned into our plan. So we feel very comfortable that the $1 billion that we -- or more than $1 billion that we achieved and the $1 billion that we plan to achieve this year can be achieved.

We have received our July results. And our July results is ahead of our run rate. And again, that gives us reason to believe that if we can just sustain this, that will bode quite well for us from all dimensions: capital, costs, gross margin and so on and so forth. Yes, the world is volatile. It can change on us quite quickly. And I think I've said it in the outlook, we are very kind of vigilant about the fact that the world is not normal yet. So hence, we do need to stay close to these items, but we do believe to deliver the $1 billion for financial '21 will be very much achievable, and we have provided you those guidance on EBIT and EBITDA as well as capital in the Analyst Book as well for financial year '21.

The other point that Chris makes, which I think is a very important one and, Chris, you've asked this question a couple of times, to say what is that improvement that the South African value chain requires to be kind of cash positive going forward and also competitive. In the past, during Phoenix in response plan, we did indicate that we want that kind of breakeven level at the lower end of $30 so that in a low oil price environment, you can actually kind of sustain profits. But we know that there are severe cost pressures on us going forward. So our sense is in Sasol 2.0, we use $45 as the turnover line.

And so in a $45 world where refining margins and petroleum diesel margins will remain under pressure, how must -- at what level of profitability and free cash flow generation must the South African value chain operate in to give us a certain rate of return on our assets? That's the thinking process. So ultimately, that should give you the comfort that we will then design a structure that solves for that and targets that. And the details thereof will then be shared with you in November but hopefully, you can get the sense that that's very much top of mind for us in the way that we want to approach that.

And Adrian, on your question, I'm not 100% sure what you're asking, 15% cost saving 2025 for SSA. I guess, again, when we talk to guys in November about realistic and also the BU energy and chemical deliverable targets, we will be addressing this aspect. I think we're very much alive to the fact that SSA because of its Khanyisa link need to be very profitable to serve that debt through dividends going forward, and that will be part of our thinking when we approach you in November.

Thank you, Paul. The next set of questions deals with CapEx, and these come from Henri and Adrian. I'll just read one of them out because they are quite similar. So CapEx, is the $19 billion as guided for FY '21 the new level of sustenance/maintenance CapEx? Or are you still postponing some spending into FY '22? And then any indications on CapEx for FY '22 would be helpful, especially around your greenhouse gas emission reductions.

So basically, $19 billion is at this point in time, for us, the marker for financial year '21. We put in a lot of effort to make sure that this number is kind of representing our plans. It does take into account some deferrals, as I've indicated, and it will not take into account our long-term sustainability efforts towards a 10% CO2 reduction. But also the $19 billion, that also does not take into account the impact of asset disposals going forward. So Henri, that's why we are super sensitive not to provide a target yet to financial year 2022. We have to complete our asset disposal program, we need to kind of get all the details sorted on our sustainability road map on CO2 as well as our data on environmental compliance project and as well as greenfields, too. And the combination of that would put us in a much better position to ultimately provide meaningful targets for you for financial year '22 to '25 when we do speak to you at the Capital Markets Day. These targets don't need to be robust, but they need to kind of ensure business sustainability. So we'll provide more details. Hopefully, you can understand that. At this point in time, the financial year '21 number is where we feel very comfortable with to share that with the market.

Thank you. Thank you for that response, Paul. I'll move on to the next set of questions. This relates specifically to LCCP. The first question, very similar from both Faisal and Tom Wrigglesworth. So what is the current long-term run rate you're expecting for the U.S. EBITDA? And what about the U.S.-based chemicals business? Then under status of operations just on tariff. At the end of the first half, you guided that the LCCP cracker would be operating at nameplate capacity, but you only achieve 80% in Q4. Are there operational issues impacting production and ramp-up?

And then from Tom Wigglesworth, are there any longer-term contract prices in the organics business? And then lastly also from Tom, do you see any raw material benefits in the period for Performance Chemicals or Base Chemicals that have not unwound? Thank you.

Thank you, Elton. I'm going to start off, and I'm also going to ask Brad to talk to the one on organics business that Tom asked. But let us recap a bit where we are with LCCP. So what we know is that we had a very, very strong ramp-up in the last quarter or 2 where we have the indication that the cracker ran for the last quarter at 80% and above. It was driven more by the merchant ethylene demand rather than anything else. So as of July, we -- when demand picked up a bit, we are running above nameplate capacity on the cracker. Our LL unit is running above a nameplate capacity.

So I think all our other units are running at targeted plan. So overall, we are very satisfied with the throughput of the major and the big commodity units in Lake Charles. And therefore, all of those are really going as planned. Now you asked us why don't you -- can't we give you a guidance. I think it is very sensitive period right now when we're into the discussions on the partner in concept. So rather than give you an indication now and you read something in there that could be good or bad or indifferent in terms of those discussions, let's rather just wait for that.

But what you can take is that we do not see any impediment to still continue the ramp-up, as we've indicated in our initial plans, that means to be fully at nameplate capacity consistently over a period of 2 years for our commodity units. And we see very, very clearly, we're making good progress on that. As I've mentioned, LL and the cracker is running above nameplate.

The question is you need to do it consistently throughout the year. And therefore, we indicated the 2-year ramp-up to the 100%. But I think we are seeing everything remains on track to just achieve that. So if I reflect on the question with respect to the LD business, the LD plant, we are seeing that we are basically through the remediation process. As far as construction go, we've started with pre-commissioning, commissioning activities. So I think we're still very much on track to get that unit back by latest the month of October if everything in dollar wings go as it now is, it could even be earlier than that. So I'm very excited that we will have that unit back into the fold very soon in the next month or so.

So I think I'm going to stop there and just ask Brad to go in. And then maybe, Paul, if there's anything finally that you'd like to add.

Thank you.

So with regards with the organics business, I would -- I'm sorry, I'm getting a little bit of feedback. I might need to mute for a second. For the organics business, we have a mix of short, medium and long-term contracts. And those are all then based on prices according to those products in those particular markets. So most of the time, we have them tied directly to some indexes that relate to the underlying cost elements for those product lines. And then, of course, the rest of the pricing is built on the market needs for that pricing. So if the question is around do we have the ability to recover and do we follow the pricing trends, the answer is yes, we do have that. And so none of them are tied to a long-term pricing that we would then be exposed positively or negatively to the volatility. Thanks.

Thank you. Thank you for that response, Brad. Can we move on?

Yes.

All right. The next set of questions relate to sustainability and that covers gas supply. First question is from Gerhard. Have you made any progress in prolonging this cloud gas into your South African operations? Can you give more detail? Why increase the long-term gas price assumption in the impairment calculation by 46% in U.S. dollars?

Our next question is from Alex. And his question is with regards to write-downs. Have we assumed a higher price to procure gas and heavily written down Sasolburg? And when do you expect your upstream supplies of gas to Sasolburg will be depleted?

The next two questions relate to carbon, also in -- under a theme of sustainability, and this is from Henri. Lower carbon growth options, what do you have in mind here?

And then also from Alex, I'm surprised by the relatively small write-down at Synfuels. Compared to that of your other assets, what carbon price are you assuming? Are you still assuming an asset life to 2050? Do you think a 2050 asset life assumption is attainable for the world's biggest emitter of CO2? Given an increasing shift to net 0 assumptions amongst your peers, how does your auditors feel about the 2050 asset life assumption?

Okay. Thanks for those questions. I'll start off with gas and the low carbon. And then I think the other questions relate more on the financial side and how that was looked at. So Paul will deal with those. So Gerhard, with respect to the gas, we have structured already in 2019 a group to look at the alternative gas supply into South Africa. Of course, we are actively busy with our own exploration of gas in Mozambique, and that activity continues. But we're also realistic to say if we are not as successful as we may be aiming to be in Southern Mozambique with respect to our own exploration, we also need to be live and planning for how else can we get gas into our value chain. And there, we've done a lot of work.

We've got quite a good result in terms of how we developed and interacted with all the relevant parties from stakeholders in Rovuma to general suppliers of LNG to people that want to invest into LNG and set up kit in terms of Mozambique and other places. So I can give you assurance that we have had quite a number of activities that we have scrutinized and looked at. And we've got a pretty good understanding how that may play out and have got clear targets in the next year of how we want to progress those options that we have. Suffice to say, we believe that LNG will play a role in the period up to 2030.

In the longer term, I think it's clear that we must look at how can we monetize further through infrastructure development the Ravuma gas field and how can that be brought in terms of affordable gas into Southern Africa and Mozambique because it's in the interest of both countries to do just that. So that also is very much underpinning and informing our greenhouse gas road map not only to 2030, but our ambition beyond 2030. Of course, those details, we will make available in the Capital Markets Day in 2021. However, I do believe that the 10% that we will give the details of the road map. When we publish that now by the end of August, we'll also give you a much better understanding how do we think about that.

And with respect to the lower carbon growth options. So the moment that you look at carbon and you compare growth between a coal-based feedstock option and you look at a gas-based feedstock option, there is a lower carbon in the equation. So we will not look at replacing probably all of our feedstock with gas. I think we see gas as a alternative and a complementary feedstock to our mix in our South African value chain. But however, notwithstanding that, we also think long-term about hydrogen. We are the biggest hydrogen producer today, but it's not green hydrogen.

So the question is, how do we develop the trajectory to get more into the green hydrogen space? You have noticed and so did we that there's a lot of focus on hydrogen economy and hydrogen activity not only in Europe, but globally where people are accelerating developments to enter into that. So when we talk about mobility in a lower carbon business, it will include -- in terms of our retail and our thinking around fuels, it will include options like electricity, hydrogen and other mobility options of the future. And therefore, I think we are well positioned if we talk about looking at the lower carbon business which can comprise all of those elements.

I'm going to stop there and ask Paul to look at the financial part of those gas questions.

Thank you, Fleetwood.

Gerhard, yes, your question is super valid. We -- when we looked at our gas landscape, there is a plateau curve and then a depletion curve that we need to consider in terms of the PPI and PSA in terms of gas feed to Secunda and more so in terms of Sasolburg. We know that the current pricing dispensation cannot be sustained with new volumes required to run these facilities until 2050 and 2034 for that part of the gas mix. And hence, we considered a kind of a suite of alternatives in terms of gas pricing, either you explore more, you have more gas fines, you look at LNG. So we really considered a suite of options and that kind of give us kind of also a range of gas prices, which effectively, to your point, which I think is a very good catch, is that the gas prices then did increase quite significantly. And then ultimately, that had an impact in terms of the present values of the assets. Of course, as we develop our gas studies and plans, road maps, as Fleetwood indicated, we'll get better clarity. And these assumptions will need to change in terms of that. I think it would have been wrong to assume that the current gas price concession continues in future. We know that cannot be the case. And hence, this is purely based on that assumption of the various options defining a range and then use that as an assumption.

The question that Alex asked, Alex, that's a mouthful of questions. But again, I think the one thing is to say that our base assumption at this point in time is that coal will be part of the mix until 2050. It will be of course much reduced, and we already started to talk about that. But ultimately, those reserves will be, in some shape or form, part of our future until 2050. So in that, we say until 2050, it doesn't mean no coal.

And to your point as are the auditors happy, ultimately, they need to take comfort in terms of we've got a reserve base. There's no indication that you have to stop operating on coal, but that even in scenarios where you need your -- you get your LNG and even scenarios, we have to potentially turn down Secunda, coal is still part of the mix. And hence, the useful life until 2050 for Secunda then holds from an assumption perspective.

I do take your point on single-point emitter. I think we all get that. But ultimately, in terms of conforming to the CO2 targets in terms of what we know today, coal is definitely part of that assumption. And hence, no reason to change your useful life assumption at this point in time.

In terms of the carbon tax, again, on the carbon tax, we didn't only assume the current carbon tax dispensation. We know that kind of -- it's very unclear what will happen in 2 years from now. But we did take other global assumptions in terms of carbon tax pricing into account in terms of our modeling for Secunda. And hence, that does give us a answer on NPV, which I will get to just now. But again, we've taken more aggressive CO2 tax assumptions into account longer term.

I think the one thing where you may be right and I was also on that page in reviewing the impairments on the energy business or Secunda is we have to stick to external pricing when we do the evaluation of our revenue side when it comes to oil pricing. So we use the price deck of IHS. We used the price deck of Wood Mac in terms of longer-term pricing. And that may be different to our $45 world of pricing that we've taken into account for Sasol 2.0, but we have to, from an SEC perspective, rely on their price decks. Those price decks are a little bit more higher than what we expect oil prices to be and is -- I guess that's also one of the reasons why this impact is smaller than what you expect. Of course, if they update that lower, there may be some future pressure in terms of that, but that's the assumptions that we have to use to be consistent with our SEC regulations. Hopefully, I've addressed all your questions.

All right. Thank you. Thank you for that feedback and the responses, Fleetwood and Paul. The next set of questions, we're going to theme around Sasol 2.0. The first one from Tom Wigglesworth. Any update as to how executive management compensation will change with the new structure?

Then from Herbert Caribe, what is the time line to execute on Sasol 2.0? And the last one under 2.0 is, what is the difference between future Sasol and Sasol 2.0?

Sorry, there -- yes. Sorry, there is another question that's come through. Will you report the results of the old structure of Sasol in tandem with the new Sasol structure for the new financial year to allow comparisons? Thank you.

Okay. Thank you. Thank you, Elton. So I'm going to deal with a couple of questions, and Paul will deal with the reporting one. So Tom, with respect to the question on executive management compensation, I think it is a Board agreement. But the Board will take into consideration a couple of factors. First, I think that it's always a matter that we will have to calibrate our peer group with respect to executive compensation. So I'm aware that the Board is reviewing that regularly, and it will be reviewed because the Sasol of the future will perhaps look into a comparison of a different peer group. So that is first and foremost.

Secondly, incentives will also be more representative of the sustainability portion of what we need to deliver on. And I think there would also be some further clarifications and announcements towards the end of the year when that will be very clearly articulated in terms of how do we get also balanced incentives, addressing the sustainability road map and the implementation thereof. So when we revert to the question around what is the time line for Sasol 2.0, basically, there are 2 phases to it.

And let me also address what is the difference between Sasol of future or future Sasol and Sasol 2.0. Basically, you have to see it that Sasol 2.0 is the program that will deliver Sasol of the future. So Sasol 2.0 is about what are the targets we need to achieve, how are we going to achieve it, how do we implement it and when will we reach that? So we've indicated that Sasol 2.0 will comprise all of those targets. It has already commenced in terms of the conceptualization, the definition and the creation of what the targets are.

We've started with a structure already. As I've said, we will announce the next layer of the structure now this week. So Sasol 2.0 has already commenced in the design and some phases of the execution. That will continue through the period of 2024, '25, which we have said is the full delivery when we see steady state. And so Sasol of the future will be really the continuous running what Sasol 2.0 have delivered in the next year or 2. So that's how you need to think about that or that's how we thought about it. Instead of calling the program Phoenix, like we did in 2014, we call the program in Sasol 2.0, it will define the targets. And we will then pursue it and then hopefully get to future Sasol. So that's how we think about it. And the go-live date of when we will run the operations in that form and fashion is targeted for November of this year. And I think we're still on track to deal with it by then.

I think that addresses then questions. Maybe on the reporting, Paul?

Yes. On the reporting, the way that we want to approach this is twofold. For this forthcoming half year, we're going to stick to our old model. In March of next year, we will present you with the updated restated numbers for Sasol 2.0 or future Sasol, as Fleetwood just explained, and we will also provide you with the old numbers. So you will have 2 sets to compare. Back in the day, when we did Phoenix, you will recall that we issued a document, a separate document, which we call the -- a segmental overview document where we wrote kind of all the rules up, gave you all the disclosure documents.

And the IR team, I'm looking at them right now, we are absolutely focused to doing exactly the same because that helped us quite a bit in making sure that the external market understands the change in our numbers and how it will be reported. We will try to do it before we release the results to give time for you to work through the numbers. So very much the same process that we followed with Phoenix, we will also follow that in this regard, numbers ahead of time, give you time to work it through. But ultimately, half year still in the old numbers. And from then onwards, we'll update the new restated numbers and then give you time to work through it before we get to year-end, which will then be effectively the new Sasol 2.0 results.

Thank you, Paul. I'll move on to the next set of questions. They're not themed under any specific area. The first one, is Sasol uncertain about the ability to operate as a going concern? The next question, it's very optimistic to believe that oil price will remain about $45 per barrel. What happens if it falls back to $35 or lower? And then the last question on -- in this section, the issue at hand is that Sasol should never have found itself in this highly leveraged position. What is being done to ensure that future governance has improved to ensure similar projects such as LCCP do not threaten the viability of your company?

All right. So ultimately, as you can appreciate, in terms of the uncertainty about our ability as going concern, that was probably one of the most critical items that the Board and management had to consider over the past couple of months. And I can assure you and Fleet can also testify to that, the Board appointed their own independent advisers, EY, to make sure that ultimately that the going concern assumptions and the basis on which we derive it is in line with what EY has experienced in other companies globally going through the same circumstances, that the assumptions that management has taken is reasonable and suitable. EY was also throughout the whole process independently looking over our shoulders when we negotiated with banks, the discussions and agreement of banks on covenant levels, the asset disposal process to review the robustness thereof.

So the Board really ensured that they are comfortable that, yes, in the first instance, the company is a going concern for that immediate legal requirement. But then also as we move towards Sasol 2.0 and future Sasol, it is by virtue of the principle of going concern needs to be designed to be a going concern going forward. And hence, we do believe with our analysis of 2.0, taking a $45 world into account, that's definitely going to be kind of addressed, and we do see ourselves as a going concern going forward on the principle of that. Later on, we also want to add a lot of value going forward.

I guess the second question being asked is it optimistic that the oil price will remain about $45? And what if it happens to fall back to $35? In the short term, we do believe that the volatility is large enough for the oil prices to go back to $35 to the barrel. Hence we, have worked off of ZAR 600-plus a barrel, which, again, if you then take a $35 world will get you a certain rand-dollar exchange rate, which is not too far off from what you've seen today. So ultimately, we are ready if oil prices do go back to $35 to kind of sustain our operations. We have been effective in putting hedges in place. We're obviously completing quarter 3 in terms of our hedging program, and we are targeting $37 net. So even if oil prices fall to $35 to the barrel, on the oil price exposure, we want to cover that out at $37.

Once we complete that with quarter 3, we'll immediately go to quarter 4. And we want to go ASAP to a $37 net kind of coverage for financial year '21. Obviously, what happens after that, we'll keep on with the rolling hedging program. If oil prices sustainably going to $35, we don't see that world. And a lot of analysis has been done in terms of that not only by us, but will we be able to sustain those shocks, I think that's a critical bit. And our sense would be even in a $45 world, if oil prices go for a 24 months to a $35 period, i.e., a future recession, that our operating model and business structure will be able to stomach that.

So we are definitely looking at that in terms of our analysis, which rolls through the next question that Fleetwood will answer in terms of capital allocation because that's ultimately if you have a prudent capital allocation and your business competitive thesis properly set in a $45 world, you should be able to actually manage your business effectively going forward.

Thank you, Paul. So with respect to the decision on big and similar projects and how to avert that, so first of all, we have already made that decision in 2017 at our Capital Markets Day when we said we will never do a size like the LCCP project on our own or a big single investment like that to expose the company to. So at that time, we also said we will follow a very strict capital allocation framework, which will be biased towards making sure that we don't have a outcome like we have had in -- when we made the decision to invest in the LCCP in the size and in the time and within the business assumptions that was prevalent at the time.

To have a much more robust capital application framework where we would look at many more scenarios in terms of macros, et cetera, that is part and parcel of our refocus of our framework since 2017. And I think you would agree with us that we haven't made any large announcements and we will also not -- we will stick to our commitment there and look at bite-size chunks that is commensurate with the size of company and the risk that we will be able to take. So I think that gives you the sense that we have already made that decision and governments is -- governance is already in place to address that.

Thank you, Fleetwood and Paul. We're near the end of our contracted time. So we have 2 more questions that we'll take at this time. The first one from (inaudible) at Standard. How does trading activity in SSR in energy compared to pre-COVID levels? Has there been a material recovery? And if so, has production been able to ramp up to meet any increase in demand?

And then our last question for today, can you please quantify the impact of COVID-19 on your FY '20 EBITDA? Is your targeted cash breakeven per barrel -- sorry, what is your targeted cash breakeven per barrel for FY '21? And that's some from Wade Napier at Avior Capital Markets. Thank you.

All right. Thanks, Elton. These would be the last questions that we now take. I think we need to look at COVID-19 impact in the South African value chain through 2 lenses. One lens is, has there been any impact to run our operations because of our own people being impacted by COVID-19? And we can say without a doubt that this financial year, we've concluded that there was no impact to run our operations because of our own people being impacted by COVID-19. We have done all the proactive and precautionary measures to ensure site working practices at work. And therefore, that one is good.

We have seen commensurate with the pickup in terms of the month of July and August, we have been impacted on the mines with respect to some of the sections there. We run at any point in time 62 mining sections. We had an impact to be able to run that of 6, 7 sections. But we've immediately mitigated it through bringing in hired labor and also to buy in more coal. As we've seen, the numbers coming through in the last couple of weeks, well, actually the last 10 days, we've seen the plateau and the decrease in the COVID cases, also very in line with what we observed in South Africa. So I do believe we do not see any immediate further risk with COVID-19 impact on own workforce to be able to run our facilities.

Now let me revert back to the question in terms of COVID impact on demand in South Africa. And there, we had been throttling synfuels for just under 2 months to take care of demand impact. And we also did the same by shutting down Natref just over 2 months to be able to mitigate the demand impact. We've started up those facilities. And Natref, we are running per market demand.

So we do not run at the moment at full capacity. We have to take cognizance of jet fuel that has not fully recovered. So that is an area that we supply into market demand, specifically with respect to jet fuel, which is one of the areas that we need to monitor very closely. But with respect to synfuels, we've ramped up fully to the potential we have. And we can place all of those products both on fuel and on chemicals since the end of the year, since we've started up and ramped up our production. So we're running our facilities as planned, mainly informed by market demand at this point in time.

Okay. Well, yes, you ask a detailed question on the EBITDA side in terms of COVID. And I guess it's going to be very difficult to quantify because what part of COVID brought the oil price down and what part of the kind of the trade wars that bring the oil price down and how do you translate that into the chemical pricing. I guess it's super difficult to give you like a exact answer, other than to say that kind of the near fact that oil price has just moved from the $50 to the $20. That $30 move that it did for those 2 months were quite dire. And I think on the sensitivities, you will be able to calculate that. Then there was a bit of relief on the rand dollars side because -- obviously, because of the risk, the rand kind of bottomed out and then provided a bit of relief. So it's very difficult for us to kind of say puristically what is the COVID impact for EBITDA for financial year '20 in terms of that. Hopefully, you'll forgive me for the -- for not being able and volunteer to give you a specific answer on that one.

On the targeted breakeven level per barrel for financial year '21, specifically, I think Chris also asked me this question a couple of times. So ultimately, after our $1 billion cash self-help measures been introduced for financial year '21, we will be able now to sustain a breakeven level for the Secunda integrated value chain on a free cash flow basis, meaning after you've taken sustenance capital into account of, let's say, around about $35 to the barrel, even maybe lower. This is a number that we are continuously working at to get us as low as possible through, I will say, a myriad of nonsustainable measures measured in '21 terms and then later on sustainable measures as 2.0 kicks in.

So we will be relatively quite robust to sustain oil prices in the $30, $35 level for -- over a year period for financial year '21, if we just look at breakeven levels. But we'll also update you more on that in November, but a lot has been done to make sure that we are quite agile. And you probably have seen in our numbers for financial year '20 how quickly we can actually manage our cost structure down. We do believe that with those measures that we've taken for '21 on a free cash flow basis that we've actually been able to get that level of $37 that I've spoken before to get that much lower in financial '21. But like I say, a combination of short-term and medium-term type of sustainability impacts.

Okay. Thank you, Paul. And I would also like to thank you for your participation in the call and also for all your questions. We look forward to engaging further with you in the coming weeks. Also note that any residual questions that remains from this call will be dealt with through our IR team, and you can expect that they will be engaging with you to clarify.

So with that, thank you, operator. We can now close the call.