Sasol Ltd (SSL) 2013 Q2 法說會逐字稿

Good morning and good afternoon, ladies and gentlemen, and welcome to the Sasol interim financial results conference call. Today's call will be hosted by David Constable, Chief Executive Officer; and Christine Ramon, Chief Financial Officer.

Following the formal presentation by Sasol management, an interactive Q&A session will be available. A copy of today's slides presentation is available on www.sasol.com.

I'd now like to hand the call over to David Constable. Please go ahead, sir.

Thanks very much, Kristen. Good morning, good afternoon and good evening, everyone. Thank you for joining us on the conference call. Joining on the call from Sasol are Christine Ramon, our CFO; Lean Strauss, our Senior Group Executive for International Energy, Technology and New Business; Andre de Ruyter, Senior Group Executive for Global Chemicals and North American Operations; Bernard Klingenberg, Group Executive for South African Energy; Nolitha Fakude, Executive Director, Sustainability and Transformation; and Riaan Rademan, Group Executive, Mining and Business Enablement.

Today, we announce the solid and stable financial performance. Given our South African and international concepts, this is no small task. Our results are testament to our ability to continue to be resilient in challenging times notwithstanding total economic uncertainty, social and political instability and commodity market volatility, we continue to deliver for our shareholders while advancing our growth projects in a measured and responsible fashion.

Turning to slide four on the presentation, which you have in front of you, let me start with an overview of what you're going to hear today. I'll begin by providing us some context to support how resilient we are notwithstanding the challenging global environment in the past four and a half years. We'll then spend some time highlighting the key milestones we've achieved in the first half of the 2013 financial year. Christine will go into more detail on the strong financial and operational performance of our businesses. I'll next talk to you about the advancements we have made on our growth projects; in particular, how we're approaching investment decisions on our strategic projects in the US. We'll wrap up the presentation by summarizing why Sasol remains an extremely compelling investment proposition and open it up to those on the call to ask us any questions you may have.

Let's turn to slide five. It's fair to say that since 2009 three key factors have been influencing the nature and extent of the investment decisions worldwide. Number one, a persisting global economic crisis; two, international socio-political instability and, number three, commodity market volatility. These factors have also had a chilling effect on economic growth, impacting, in large part, both the private and public sectors.

Despite significant global challenges, Sasol remains resilient as can be seen from the attributable earnings growth shown here. The graph reflects our earnings for the past 13 years. Over this period, we remained a strong performer with our earnings trending favorably upward. In 2008, we had one of our best earnings years followed by a sharp dip in 2009 at the start of the global recession. Notwithstanding this setback, we bounced back in 2010 and have continued our upward trajectory.

Slide six is self-explanatory. I will not talk to this slide.

Next, slide seven, reflects the positive contributions we continue to make on a number of fronts in South Africa and abroad. I will not talk of the specifics listed here; instead, let me just briefly talk to one issue. As you know all too well, South Africa's been rocked by social and labor unrest. The events of the past eight months have not only impacted business operations, primarily in the mining, transport and agricultural sectors but also the country as a whole.

At Sasol, we've been proactively addressing many of socioeconomic challenges faced by our workforce, our unions and the communities in which we live and work. Our effort in this area began well before the Marikana tragedy at Lonmin's platinum operations. [To try] and highlight some of our key contributions to education, skills enhancement, community upliftment and enterprise development in the first half of FY13. Importantly, these proactive efforts have effectively kept Sasol out of the fray, thereby allowing us to continue to run our operations reliably.

Moving on to slide eight, key milestones in South Africa in the first half. Let me just talk to the last bullet on this slide, specifically our electricity enhancement in Sasolburg. Our ZAR1.9b gas-fired power generation plant is producing 140 megawatts of power. That plant was commissioned last December. Traditionally, natural gas power plants are quicker to build taking between 20 months to 30 months. Our Sasolburg plant took only 16 months from starting construction to full commissioning, a resounding success which was made possible by the collective efforts of so many, including and the Department of Energy, our contractors and our New Energy team.

As a result of this and other projects, we're now able to self-generate up to 67% of our electricity requirements in South Africa and, as a result, we've reduced our carbon footprint dramatically. Natural gas plants are more efficient, they require less fuel input for the same amount of electricity generated, and they are less carbon intensive. Equally important, our self-generating power supply strategy makes us much less vulnerable to rising energy costs.

Next, moving us on to slide nine and what we delivered in terms of our global projects in the first half of the financial year. You remember on December 3, which is the same day of our last conference call at our facility in Lake Charles, Louisiana, we announced that we'll proceed with the front-end engineering and design phases for our strategic projects in the United States, a world-scale ethane cracker and derivatives plant and an integrated gas, liquid and chemicals facility. Our integrated project management team in the US will ensure that we adequately manage and suitably mitigate potential project execution risks. Long before taking our final investment decisions, the team will advise on the sequencing of the projects so that we can meet our gearing targets and our progressive dividend policy guidelines.

Turning to Uzbekistan, the FEED work for our GTL project is progressing according to schedule. The FEED phase is expected to be completed during the second half of this calendar year.

Finally, in Mozambique, and building on the success of our Sasolburg power plant, our New Energy business is developing a 140-megawatt gas-fired electricity generation plant in partnership with the country's state-owned power utility, EDM. The final investment decision was taken at the end of last year. Site work is underway in Ressano Garcia and the project is well on track to be commissioned by mid-2014.

Turning to our operations highlights on slide 10, the Sasol team delivered a solid operational performance. ORYX GTL continues to achieve new production records. For the first half of the year, the average production is once again above 90% of design capacity. At Synfuels, decisive management action and improved plant efficiencies have resulted in a production performance of 3.7m tons for the half year, this, notwithstanding a major phased shutdown last September. In Iran, Arya Polymers achieved a utilization rate of 84% despite a very challenging business and operating environment.

Most importantly, safety remains a strategic imperative for us. We have, by and large, seen marked improvement and ended the half year with a recordable case rate, excluding illnesses of 0.32. This is the lowest level achieved in the Company's 63-year history and includes an outstanding RCR of zero by ORYX GTL in Qatar.

Before I hand you over to Christine, let me move on to slide 11 and set the scene for her by summarizing our financial performance for the half year. Noteworthy was that Sasol Synfuels' production was up 10% compared to the prior period. Excluding once-offs, our operating profit was up 9% to ZAR22.6b. That's an operating margin of 26.25%. Headline earnings per share were up 2% to ZAR24.01 and cash flow from operations were up 6% to ZAR27.5b, enabling an interim dividend of ZAR5.70 per share, another solid result which remains aligned with our progressive dividend policy

Let me hand you over to Christine who will unpack our results in greater detail. Christine.

Thanks, David. And good morning and good afternoon, ladies and gentlemen. It is my pleasure to present another fine set of results to you today, which is well within the guided earnings range previously announced to the market.

Before I move into the detail of the results, I'd like to make a few introductory remarks. First, management's continued focus on factors within our control has resulted in production volume targets in our key businesses being exceeded, with Sasol Synfuels and ORYX GTL leading the way.

Second, we have demonstrated our commitment to our progressive dividend policy by maintaining our dividend despite significant impact of impairments and other once-off charges.

And, finally, we continue to demonstrate our resilience amidst a still volatile and uncertain global economic environment through our healthy cash-flow generation across our businesses, which underpin our strong balance sheet.

Moving to slide 13, the first half of financial year '13 was characterized by a predominantly favorable, although volatile, macro environment. The global economy struggled at a slow pace with signs of a recovery evident only towards the end of 2012. China slowed to a more moderate growth rate while weaker demand in Europe and lower growth rates in emerging markets in the US remain a concern. Although oil prices remained strong throughout much of the period under review, they were, on average, marginally lower than the comparable period, while the rand/dollar exchange rate was 11% weaker. Just to contextualize the overall impact on Sasol, a weaker rand is positive for Group profitability; however, it has a negative effect on cost inflation.

Average Henry Hub gas prices were also lower but trended upwards towards the end of 2012. Although lower prices have a negative impact on our Canadian operations in the short term, they remain positive for our long-term GTL value proposition as well as our chemical operations in the US which utilize gas ethane feed.

As expected, the chemical market remained challenging as chemical prices continued to soften on the back of weaker demand in downstream markets. Coupled with higher feedstock prices, the industry continued to experience margin squeeze/

We remain sensitive to oil prices and the rand/dollar exchange rate and we remind you of our sensitivity to each of these variables which we issue with a health warning in uncertain markets. We estimate that a 10 cent change in the annual average rand/dollar exchange rate will affect our operating profit by approximately ZAR860m, while a $1 dollar per barrel change in the average annual crude oil price will affect our operating profit by approximately ZAR621m.

Moving to slide 14, overall we delivered a solid operational performance with improved sales volumes and the 11% weakening in the average rand/dollar exchange rate offset lower commodity prices. The first-half operating profit was significantly impacted by once-off charges of ZAR3.6b, relating primarily to the partial impairment and translation losses of our investment in Arya. Excluding the impact of once-offs, operating profit would have been enhanced by 9% and the operating margin would have been 4.3% higher at a record 26.5%.

Our South African Energy businesses delivered another sterling performance and expanded operating margins. ORYX GTL, our GTL technology showcase, delivered an excellent operational performance in our international energy cluster. Our chemical businesses, however, continue to experience margin squeeze due to challenging market conditions. In addition, the partial impairment and translation losses relating to Arya offset the full profit contribution from our chemical businesses.

Overall, our international businesses, including the Mozambican value chain, contributed approximately 20% to Group operating profit, bringing good geographic balance to our portfolio, with Europe, North America and the Middle East being the main contributors.

Moving to slide 15, the first half of financial year '13 was challenging from a South African cost perspective, particularly in respect of labor, maintenance and electricity costs. South African PPI for the period averaged 5.1%, whilst CPI was 5.4%. Coupled with the weaker rand/dollar exchange rate, this contributed to a challenging South African cost environment. The impact of inflation, the exchange rate effects and electricity price increases, all uncontrollable factors, contributed 9% to the total increase in cash fixed costs. Growth and study costs added a further 2%, while plant maintenance and increased labor headcount costs combined added a further 5%.

Our main cost drivers are labor and energy, with labor comprising 60% of total cash fixed costs. Labor costs for the year are expected to increase ahead of PPI inflation with the wage settlement with the trade union for financial year '13 averaging at about 8% before adding growth-related labor costs.

Energy cost inflation in South Africa is likely to be in excess of 13%, although we are still awaiting revised industrial tariffs following Eskom's recently announced price hike. Our strategy to contain energy costs has seen us successfully ramp up our electricity generation capacity from 50% self-sufficiency to two-thirds of our own requirement in December 2012 when the 140-megawatt Sasolburg Gas Engine was commissioned, as David referred to earlier. Importantly, our investment in plant maintenance has paid off, delivering plant stability and improved volumes across our key businesses.

We remain concerned about the rate of cost inflation in South Africa and are focused on procurement and maintenance cost reduction strategy. In addition, we are currently expertly analyzing the drivers behind cost increases across the Group to identify opportunities where we can further reduce and contain our cost base sustainably with a greater drive for shared services across our businesses.

Moving to slide 16, the SA Energy cluster underpinned Group profits and cash flow generation contributing almost 90% to Group profitability. Operating profits increased by 24% and most of the SA energy businesses expanded operating margins. Sasol Mining's operating profit increased by 30% despite a margin reduction in production volume. Profits were supported by higher sales prices and volumes to Sasol Synfuels as well as the weaker rand. Sasol Gas benefited from improved sales prices and an 8% increase in sales volumes due to increased Synfuels demand supporting a 39% increase in operating profits and an expansion of the operating margin by 6% to 15%.

Synfuels contributes about three-quarters of the SA energy cluster's operating profit, maintaining an operating margin of 45%, benefiting from the higher average rand oil prices. As David said earlier, Synfuels continued to deliver an exceptional production performance, increasing volumes by 10% on the back of plant stability and the rollout of the growth program.

Synfuels's cash unit cost, however, increased by nearly 13% after realizing 5% operational efficiencies. The increase was mainly due to higher feedstock costs, which are largely internal to the Group, as well as increased maintenance and energy costs. Management is focusing on optimizing maintenance costs over the longer term.

Oil suffered a 17% decline in operating profit and some margin contraction. Production volumes at Natref were lower, following an extended planned shutdown and late startup of the refinery, offsetting higher marketing and refining margins.

Slide 17. The international energy cluster is our growth engine. As David's already mentioned, we've advanced into the FEED phase on a world-scale GTL project in the US, while FEED on Uzbekistan GTL project is progressing well with successful project financing being one of the significant conditions to proceed with this project.

ORYX is flagship for our GTL technology and, as David touched on earlier, its continued strong performance reinforces our GTL value proposition. ORYX is now the third largest contributor to Group profit behind Sasol Synfuels and Sasol Gas, contributing 9% to Group operating profit.

SPI recorded an operating loss for the period, despite higher volumes in Mozambique and Canada. Depreciation had a marked impact on our Canadian upstream profit, totaling ZAR803m for the period as well as the dry well write-off for Mozambique. Although the asset remains under pressure in the short term due to depressed North American natural gas prices, it remains cash positive for the period under review. We will continue de-risking and developing the gas field with three rigs and estimate development costs at around CAD500m for financial year '13. It is pleasing to note the positive trend observed in drilling plans and in drilling and completion costs which are now approaching our investment case numbers.

Slide 18. Our chemicals business performance reflects margin pressure due to weak demand and continued margin contraction. As alluded to earlier, the partial impairment and translation losses related to Arya have eroded chemical profitability in this period. This is not a Sasol-specific issue; there has been an erosion of profitability in the chemical industry in general with several companies; restructurings announced. As profits continue to decline, similar to major chemical companies, we have responded through concerted efforts to reduce costs and improve operational efficiency with a focus on business basics. We also remain focused on margin optimization activities and working capital management. Polymers was again the hardest hit business.

The South African polymers business recorded an operating loss of ZAR1.2b. This business is part of our integrated value chain and it experienced continued margin squeeze related to feedstock price increases outwighing selling price increases despite strong volume increases. We have commenced with the business turnaround program in our South African operations and are positive that this will begin yielding positive results. Both the EPU5 and C3 stabilization projects, which are expected to come on stream in calendar years 2013 and 2014, respectively, will improve the feedstock availability for the local business.

The international Polymers business contribution amounted to ZAR1.7b, excluding the impact of the Arya impairment and translation losses. Arya delivered a solid performance, achieving an average capacity utilization rate of 84%.

We are pleased to announce that we've completed a memorandum of understanding with an interested party regarding the disposal of Arya. With effect on February 28, the investment will be classified as held for sale and further announcements will be made once more progress has been made.

Sasol O&S remains the largest contributor to the chemical cluster's operating profit. The US operations continue to benefit from low US ethane prices. However, our European operations, although still profitable, remains under pressure due to lower demand and high feedstock prices. Despite a 6% decline in operating profits, the overall business maintained a healthy operating margin of 8.5%, well within our guided range of 7% to 11% operating margin through the cycle.

Slide 19. The solid operational performance has underpinned continued healthy cash flow generation across our businesses. Our strong balance sheet positions us uniquely to fund the steady advancement of our attractive growth projects and fund our progressive dividend policy amidst the still volatile and uncertain global economic environment without having to dispose of assets. We've maintained our capital investment estimate for 2013 of ZAR32b and increase the estimate for 2014 by ZAR1b to ZAR35b. Approximately 60% of these capital investments will be spent in South Africa over the next two years, while a large portion of future capital investments will be allocated to growth projects in the international energy and chemicals businesses, which is in line with our growth strategy.

We remain committed to delivering on our stated targeted returns when advancing our growth strategy and allocating capital in a way that delivers sustainable value to shareholders.

In addition, through our Capital Excellence program, we have implemented a more robust and streamlined capital governance process. We are pleased to note significant early gains, especially in terms of avoiding costs and improving project benefits.

Our balance sheet gearing remains low at 6.6%. We are comfortable that we will manage long-term gearing within our targeted range, taking into account the phasing of our unique growth projects, our progressive dividend policy, as well as catering for a buffer for volatility.

Our recently successful $1b US bond offering introduces flexibility into our funding plan. We may approach international bond markets on a regular basis to fund our growth projects in North America, in addition to project financing. At our planned Investor Day next month, we will provide further insight into our US growth project funding and our progressive dividend policy.

Slide 20. Despite a 13% decline in earnings per share, we have maintained the interim dividend in line with the prior year at ZAR5.70 a share. Our dividend yield of approximately 4.5% total shareholder return of 29%, as calculated in rand terms over the past five years, positions Sasol competitively with our peer group, reinforcing our commitment to consistently return sustainable value to our shareholders.

Slide 21; profit outlook. We expect the global environment and the South African economy to maintain a modest recovery into the financial year although the resolution of the European debt crisis and concerns regarding the US debt ceiling remains uncertain. We therefore remain cautious on the volatile and uncertain macroeconomic environment. This impacts our assumptions in respect of stable oil prices which have been range bound in recent months, volatile product prices, stronger refining margins and a weaker rand/dollar exchange rate sit against this backdrop.

Set against this backdrop, we continue to focus on factors within our control, being volume growth, margin improvement and cost reduction. We expect an overall solid production performance for financial year '13.

Synfuels remains on track to deliver between 7.2m tons to 7.4m tons of product, which is unchanged from previous guidance. Internationally, we expect ORYX GTL to maintain full-year utilization rates of between 80% and 90% due to a planned shutdown in the second half; with Arya, between 75% and 80% due to feedstock constraints; and in Canada we expect volumes to remain flat taking into account that we have reduced our drilling rigs].

However, the South African cost environment remains challenging. We expect normalized cash fixed costs to increase above South African PPI inflation as we incur costs to improve plant stability and due to the effects of the weaker rand and higher energy costs on our South African businesses. As detailed is some depth earlier, cost optimization and reduction is a key focus area for management. Expect more news flow in future.

In the recent Budget speech, the Finance Minister proposed a carbon tax of ZAR120 per ton with effect from January 1, 2015, increasing by 10% per annum for five years. CTL and GTL will receive a 60% basic exemption with additional allowances for emissions-intensive and trade-exposed industries. We expect an updated policy paper at the end of March 2013 and continue to engage with government in this regard. Until we obtain further clarity, we are unable to provide guidance on the impact on Group profits.

In our Chemical businesses we expect pressure on our South African Polymers operating margins to continue but we are positive that the turnaround program will begin to yield positive results.

Lastly, and as I briefly touched on earlier, the Arya divesture and the Iranian currency devaluation is likely to impact the fair value of the investment further.

In conclusion, management's continued focus on factors within our control has resulted in a solid operational performance in a challenging environment, delivering improved first-half profitability excluding the impact of significant once-off charges. Our strong balance sheet and healthy cash flows position Sasol well to the advance our exciting growth project and deliver attractive returns to our shareholders amid the still volatile and uncertain global economic environment. And we are comfortable that we will manage long-term gearing within our targeted range of 20% to 40%, taking into account the phasing of our US growth projects, our progressive dividend policy as well as catering for a buffer for volatility, allowing us to continue to consistently return sustainable value to our shareholders.

On that note, I'd like to hand back to David.

Thank you, Christine. We're just going through about five slide to close off here so looking at slide 23. To reach our overarching goal of delivering shareholder value sustainably, it's important we have a focus and advanced project pipeline. As you can see here, many of our projects have now moved into their FEED and EPC phases. I'll not go through the entire list. Rather, I'd like to provide you with an update on two of the projects.

First, our FT Wax Expansion project in Sasolburg. The commissioning of the new slurry bed reactor, which is critically important to the capacity expansion, is expected to take place at the end of this calendar year. Although phase one of the project is progressing, the original budget of ZAR8.4b is under pressure. We're assessing the capital cost of the entire project, both phases one and two, as well as other key parameters; and we'll provide you with a further update later this year.

Next, as you can see, from an upstream activity perspective, we're progressing on a number of fronts in Mozambique, Canada, Botswana, South Africa and Australia. I would like to highlight in particular one key development in Mozambique. The extended well test on the Inhassoro I-9 ZED well commenced in March 2012 as part of the production sharing area trading program. The aim of the extended well test was to establish sustainable flow rates from the oil rim in the Inhassoro light oil and gas field. The EWT has flowed successfully and has cumulatively produced over 200,000 barrels of oil at the end of January. We are now entering a two-year study period leading to a final investment decision on this exciting oil field opportunity.

Slide 24. As I mentioned earlier, at the end of last year in the US, we announced that we are progressing our world-scale ethane cracker and derivatives plant and a gas-to-liquids and integrated chemicals facility to their FEED faces. Over and above the project funding requirements, which Christine and her team are progressing, our investment decisions are guided by a rigorous business development and implementation gated process. To provide you with greater insight as to what informs our investment decisions at a high level, we thought it would be useful to review four of the key questions we ask ourselves in addition to ensuring that our projects will comfortably achieve their hurdle rates.

First of all, do we have access to a low cost feedstock that provides us with competitive advantage? Second, do we have a technology or manufacturing platform that is better than our competitors. Here, we look not only at the technology itself but also at the scale of the plant in question and whether we have the requisite operating know-how. Third, we assess whether we have the product or market position that allows us to be competitive. Finally, we evaluate whether we have the required project execution capability to recover the project in question.

Onto slide 25. When considering our proposed investment in the United States, we are very encouraged by the critically important answers to the questions we had posed. First question, do we have a leading low-cost feedstock position? The following key factors are relevant; first, the US has access to low-cost ethane and natural gas, which places us in an extremely favorable position when we look at both our Lake Charles chemicals and GTL projects; second, the rapid growth in gas supply and overall gas market dynamics support our US growth aspirations; and third, and key, there's strong arbitrage between diesel and natural gas prices, which play directly into our value proposition.

Turning to our second key question the following is true; number one we have an existing asset base in Lake Charles, which today is becoming a leading chemical hub with a competitive capital cost environment; two, we have an internationally recognized leading and proven gas-to-liquids technology; and three, as regards our cracker project, we have access to off-the-shelf cracker designs.

Next, turning to the third question, do we have a product or market position that provides a competitive advantage? First, we have an existing marketing position in the ethylene value chain based on our current business; two, looking at diesel and naphtha in particular, we are able to deliver superior product offering; and number three, we have a local and international market for our high quality products. In addition, being based on the US Gulf Coast, we also have easy access to offshore customers.

Let's take a look at the final question; do we have the required project execution capability? In response to this, first of all, we've adopted a phased execution approach with minimal project overlap between our ethane cracker and US GTL projects; secondly, we are putting a US-based integrated project management team in place, comprising both Sasol technical specialists and seasoned engineering and construction experts, with proven project control systems and local knowledge; thirdly, we will be appointing world-class contractors with strong track records of project delivery in the US Gulf Coast; and finally, we have developed informed and measured contracting strategies to mitigate both cost and schedule overrun risks.

Looking at the answers to the questions we considered, the management team and I are confident that, based on the information we have today and subject to the outcomes of the FEED work, our strategic projects in the US will deliver sustainable results for the benefit of both Sasol and our shareholders.

Slide 26, several commentators have asked how the rising production of crude oil in North America could impact our US growth strategies. For us, the key consideration is that we do not sell crude oil, but rather diesel and other products, which can be sold directly into energy and chemical markets or as blending stock to the downstream refining and manufacturing sectors. For this reason, with respect to GTL economics specifically, our pricing is not impacted by local US oil prices, but rather the price of diesel traded globally.

The slide shown here goes to the heart of what we believe is a robust value proposition, as it depicts average diesel prices in 2012 on a dollar per barrel basis worldwide. Despite disparities between West Texas Intermediate and Brent oil prices, the price of diesel remains linked to global diesel prices. We forecast that this will continue to be the case in the long-term.

As you know, our oil-to-gas ratio for viable GTL economics is 16 times. Note that this oil price is based on Brent crude plus the diesel margin. Obviously it goes without saying, when running investment models, this pricing assumption should be incorporated.

To my final slide; in closing, to build on our successes, we are focusing on optimizing our solid foundation businesses worldwide. In Southern Africa, specifically, we have embarked on an extensive nurture-and-grow strategy to enhance our existing asset base.

Looking at new growth opportunities, in North American in particular, we are well positioned to capitalize on low feedstock prices to meet America's demand for high quality fuels and chemicals.

Our growth strategy remains a compelling one. We have a focused and strong project pipeline with several strategic projects well down the track.

Finally, all that we do serves to create value sustainable. Here, our solid balance sheet underpins our ability to fund our sustenance and growth programs. Our highly cash generative business model allows us to pay progressive dividends and, over the long-term, deliver leading shareholder value. This is a truly significant period in Sasol's history and the decisions we take today are setting us up for success in the years ahead.

Before I hand back to the operator, I would like to personally invite you to join the Sasol team and myself at one of our upcoming Investor Strategy Days on either April 9 in New York or later that same month, on the 19th in Cape Town. Also in New York in April 9 we will close the stock exchange, to commemorate the 10-year anniversary of our NYSE listing. I will now turn it back to the operator for any questions. Kirsten.

Thank you. (Operator Instructions). Thank you, our fist question comes from Jarrett Geldenhuys of Deutsche Bank. Please go ahead with your question.

Hi, everybody, good afternoon, everyone and thanks very much for the opportunity. I have a few questions if I may. The first one relates to the dividend policy. As I understand it at the moment it is based on EPS, is there any potential that we could shift this to a cash-back model or an EPS number? What are your thoughts around the dividend policy going forward?

The second question relates to potentially one for Andre and just relates to the South African Polymers margins. Just with all [our spin] being equal, can you give us some kind of a margin upside which we could expect from the EPU5 plan and the C3 stabilization?

And then just the last question from my side is just on exploration, on slide 23 you've given us quite a nice breakdown of all the potential drill sites for the next couple of years. Can you just break down the costs as well as the timing, specifically in Mozambique and Botswana? Thank you very much.

Thanks, Jarrett, hopefully everyone can hear, it sounds like we've got some static on the line but we'll soldier through here. If Christine could take the dividend question first, please.

Okay, hello, Jarrett. I think firstly we are committed to our progressive dividend policy and to levering superior returns to our shareholders. I think quite importantly our dividend has always been based on EPS and I feel that going forward that we will maintain that. I think that with the progressive dividend policy, like we've demonstrated that we will at least maintain the dividend for the year, like we've actually done at the interim and will certainly assess it going forward. I think declaring the dividend based on EPS certainly does provide shareholders with a certain amount of predictability into what our sustainable earnings will be going forward and, therefore, we do not predict that we will actually change it.

Thanks, Christine. Onto EPU5, which is scheduled for completion this year, and C3 stabilization scheduled for completion in calendar year '14 delivery and benefits, Andre.

Thanks. David. Yes, just a quick reminder, what we're trying to do at EPU5 is to extract additional qualities of ethylene so that we can run Poly 2 and 3 in Sasolburg at full capacity. We are also investigating the opportunity with the chance for us to optimize some of our smaller and less efficient cracker assets along the way and this is part of the turnaround that Christine referred to earlier. So I can't give you a firm number to plug into your model, unfortunately; this is work in progress and within the scope of the turnaround that is in progress.

On C3 stabilization, again this is to introduce a measure of stability in the C3 value chain, it is intended to reduce flaring losses, which at this point in time was quite considerable. So we want to cut that down by building storage capacity for C3 feedstock into our polypropylene value chain. We anticipate that with the improved availability of both our polyethylene as well as our polypropylene assets that those assets will have a significantly enhanced return on investment capital.

Thanks, Andre. Next question is on drilling in Mozambique and Botswana. Lean, I know that Inhassoro, with the oil, where we're starting a field development plan over the next couple of years, so we're excited about that. Maybe you could talk a little bit about Sofala and Block A and then Botswana, the coal bed methane.

Yes, thanks, David. Yes, just back on Inhassoro, although we have 24 months to provide a development plan, obviously given the quite encouraging results we had with the test well we would like to accelerate that and bring that forward as soon as possible. Botswana, we're currently busy building the mine [core holes] and we would like to complete this during the first half of this year. Block A we're doing seismic and we'll also complete the seismic this year, after that we will take a decision if we will drill exploration wells.

Sofala, we have done the seismic in so far, but exploration will only happen during calendar year 24 -- 2014. And Australia, we have found that downward to [shale] and hopefully we will drill an exploration well during the second half of this year. Offshore -- South Africa offshore (inaudible) we're just building a technical evaluation there, so no decision yet on when we will do seismic.

Thanks, Lean. So with the next question.

Thank you. Our next question comes from Caroline Learmonth from Absa Capital. Please ask your question.

Hi, I hope you can hear me; there's quite a lot of interference. Oh, that's better. Okay, on US GTL, can you comment please on what you see as some of the key aspects of potential execution risk and, in particular, I'm interested in any technology risk in terms of what you're adopting or intend to adopt at US GTL versus existing GTL projects.

And secondly, can you give us any guidance on what tax incentives you are likely to receive on that project, in what areas and what magnitude?

And then, just finally, on cost inflation in South Africa, clearly it's a difficult target in terms of your PPI target, what is a more sustainable target or achievable target in your view in the longer term? Thank you.

Turning to US GTL and key aspects of execution risk, I'm going to ask Andre and Lean to chime in here. Certainly execution risks in the Gulf Coast, we will have to look at, first of all, finding world-class engineering and construction contractors to execute the work and at the same time have a management team in place that can control those contractors on the Gulf Coast and, as I said earlier, we're putting an integrated project management team in place to do just that. We've looked at other Gulf Coast projects over the past several years and have learned lessons from those projects, also on how to set up contracting strategies, to ensure that we have a good cost schedule certainty on the program. Including just one example, talking about contracting strategies, looking at going well through this front-end engineering process in an open book estimating approach and then converting to lump sum contracts wherever possible and sharing a lot of the risk with the contractors, obviously.

On technology risk, Andre or Lean, if you'd help.

I can comment on technology risk, we'd very much like to simply take the Oryx model, it's more of the same, the same GHHERs and the same build-up, work-up unit. But the GTL reactors will be the same GTL reactors in terms of size, but we're changing the internals a little bit, we're changing the velocity, we're changing the heat extraction but we're very comfortable with the tests that we've run in Sasolburg that we can scale-up the performance of the GTL reactors. For the rest, we're very much trying to (inaudible) the stock standard as per the Oryx GTL.

Anything else on that before we go to tax incentives, Andre, do you want to make any other comments on risks? The cracker of course is our own shelf technology.

I think it's fair to acknowledge that there is a risk that the labor market can get overheated and that there could be a skills shortage. I think what we try to do with regard to that is to modularize, as much as possible, the units that we intend to build on site, so that will reduce the congestion on site and it will also allow us to make better use of workouts in the surrounding area, possibly even importing some units and floating them in by barge right next to our site. So that allows us to make use of a low-cost country procurement approach.

Yes and just if I can interject, and you also get much better productivity in a controlled environment in the shop as well, so it adds a lot of benefits.

Then, I think David's referred to the [IP&P] I think what's very important here is that we are going to use contractors with proven systems and experience in the Gulf area. So that will, I think, play a significant role in reducing risk further. We have also negotiated a training facility to the tune of about $20m, which the state of Louisiana is going to build for us. We will use that training facility to not only train artisans and personnel that will dissipate and work in the commissioning and running of the facility once it's completed, but we will also use that facility to train up labor that will participate in the construction of these mega-projects.

Then lastly, I think one of the key lessons that Sasol's learned quite painfully over the years is that we have to do more engineering before we start construction, and this is one of the reasons why we opted for a phased approach on the GTL facilities and we think this will play a significant role, again, in mitigating the risks.

Then, Caroline, you asked about the incentives in Louisiana. I think that these have played a significant role in facilitating our decision. I think it's fair to say that without these incentives we are still easily exceeding our hurdle rates, so these are not prerequisites but they have played a significant role in enhancing project returns. These include industrial investment allowances; they include federal tax rebates, etc. We have not, at this point in time, disclosed the full magnitude of that as there are commercial sensitivities surrounding that.

Great, thanks, Andre, and then onto the cost inflation question and, as we all know, labor rates and salaries increase at well over PPI. Christine, can you talk through that question?

Yes, I think, David, Caroline would like to know what is our achievable target in the longer term. I think it would be fair to say that we would like to beat inflation in the longer term and I think factors that -- strategies that we're actually deploying at this point, in terms of improving the (inaudible) generation in the Group and looking at procurement and maintenance strategies is what we're actually focusing on at this point in time. And, in addition to that, we're driving more shared services across the Group. But I think (technical difficulty) more to driving behind these cost increases; we believe that there are some quick wins to take out certain costs as well, that we'll be able to put out a target to you in nearer term. At this point in time, given that there are some issues that we are still having to deal with in the financial year, we're still expecting cost inflation to be ahead of PPI.

Okay, thanks, Christine. Thanks, Caroline.

Thank you.

Thanks a lot.

Thank you.

Thank you, our next question comes from Gerhard Engelbrecht from Macquarie. Please go ahead with your question.

Thank you very much, good afternoon, I've got a couple of questions. Firstly, it looks to me like your salaries and wage bill has gone up by 15%, which is substantially above inflation and also above the rate that you negotiated with unions last year. I guess could you explain that please and could you maybe talk around issues that you have in retaining skilled people? That's the first one.

It's a number of years now that you've been talking about extraordinary maintenance at the Synfuels site, I think three or four years, when does this actually come to an end? It seems to happen every year that there's extraordinary maintenance and maintenance is higher than before.

And then what is normal for maintenance expenditures at Synfuels?

And then, lastly, it's now two years running that your fuel volumes that you sell in South Africa declined. Can you maybe talk around the increased competition from volumes in the new pipeline and your market share and what is happening there on that front?

Okay, we've got salary and wages up, we've got a maintenance question on Synfuels and fuel volumes, what's happening with the NMPP. So I think I'll turn to Christine about the salary and wages or about the negotiations.

Gerhard, maybe we need to have an offline on how you calculate your 15%, but I think, like we said, wage inflation has been set at 8% and we pretty much see that for the rest of the Group. I think where the difference is coming in is that we've had to increase the headcount in some of our businesses, like Sasol Technology, Sasol Petroleum International in particular and certain increases in SFI as well. And clearly we see this as gearing up for growth in supporting our proposed projects and this is key to our success going forward.

Okay, thanks, Christine. Onto maintenance at Synfuels and what we can expect there.

Thanks, David, hello, it's Bernard. Just in terms of the maintenance costs at Synfuels, we've said before that we're well into our second and third year of a very deliberate restoration program in terms of increased maintenance costs and, as Christine said earlier on, we'll move into a period in the next two to three years of optimizing again on that maintenance cost. So there was a deliberate attempt to spend more money on maintenance and we're seeing that coming through in greater stability in terms of volumes, but we do recognize that we now need to move into an optimization timeframe. And that was also driven a little bit in the last years by additional equipment, new plants (inaudible) and the additional plants that we have obviously do have a slight impact on the overall maintenance costs.

Thank you, Bernard.

Sorry, Bernard, may I just ask (technical difficulty)

(technical difficulty) we anticipate that the maintenance costs will stabilize and we'll look to reducing and optimizing maintenance costs a little bit.

Yes, so, Gerhard, we are fixing maintenance in the last year at past financial year, full year was about -- we guided around between ZAR3m to ZAR3.5m and so we see that as normalized maintenance going forward and (inaudible) about 2.5% to 3% of the equipment replaced value at Synfuels.

Thanks.

Thanks, Bernard, thanks, Christine. Onto fuel volumes and the concern around lower demand combined with the commissioning of the NMPP may result in increased competition in the inland market. Our estimation is that petrol demand was largely down less than 1% over the last two -- well, in fact diesel (inaudible) was positive and inland production from Sasol and our partner, (inaudible) supplies was 50% demand and the NMPP really debottlenecks the coast to inland logistics and it does not make Sasol product any less competitive or makes it uncompetitive.

Thanks, David.

Thank you. Our next question comes from Nishal Ramloutan from UBS. Please go ahead with your question.

Hi, yes, good day, guys, just a couple of things from my side. Just one thing just on Synfuels' production, if the annualized H1 production is still 7.4m tons, are you still keeping (inaudible) 7.4m, don't you think that it's a bit light considering that you did have that shutdown in H1?

And also what's the impact of these GHHERs to capacity, considering that you've already achieved the 7.4m tons annualized number? Thank you.

And then just toward that Inhassoro field in Mozambique, what's the potential of the field in terms of production of light oil and what are you looking at actually getting out of here?

And just on the Polymers cost savings program, maybe can you just provide some color in terms of what you're targeting? What cost savings are in this program to turning this business around?

So let me -- the first one is on Synfuels production and guidance, including the GHHERs and what we can see there for production guidance. I'll give that to Bernard to start with.

Thanks, David. Nishal, yes, to some extent you've answered the question with your commentary. In the first half of the year we had a shutdown which impacted the overall production at Synfuels and now we're busy with the first implementation of the GHHERs and, as a consequence, we've kept the guidance similar for the two halves of the year, because the GHHER certainly does have an impact. It'll depend eventually on exactly how long it takes us to get those plants, the GHHERs, up and running, but that's why we've kept the guidance essentially the same for the two parts of the year.

Thanks, Bernard, I think we'll go to the question on Inhassoro, I believe was the question.

We've only (inaudible) production to one well, it produced between 1,000 and 1,500 barrels per day. We believe that is sustainable. The good question is how many of these [loss] can we (inaudible) that's what we have to determine now and the work that we're going to do in the development program, but we're looking at least to put two wells into operation simultaneously, but I will let you know in the time to come, probably before the end of this year, how much we can expect from this field run as simultaneous production.

Thanks, Lean. Nishal, could you just ask your Polymers question one more time so we could hear that question again.

I just wanted to get some indication of what sort of cost savings (background noise) Polymers turnaround strategy and maybe can you give just a bit of color in terms of what exactly you're specifically trying to do?

Cost savings out of the business turnaround and then guidance there, or at least some comments on it first of all, and we'll start with that.

Okay, Nishal, I think it's a bit premature to go for a number, because I know in six months time you will ask me exactly what that number was, so I'll take the fifth on that one. But we are certainly targeting double-digit decreases in cash fixed costs in our Chemicals businesses. We believe that that's possible through a restructuring of our management as well as our operating structure. We also believe that with changes to our management information systems that we can enable significant savings to be brought about. However, we will of course have to spend some money in order to embark this value and this is part of the scoping process that's currently going on as we kick off the turnaround process, not only for Polymers but also for the rest of the South African Chemical businesses.

Okay, thanks, Andre. Thanks, Nishal, we'll move on to the next question.

Thank you, our next question comes from Alex Comer from JPMorgan, please go ahead with your question.

Yes, I've got a few questions if you don't mind. On Polymers you talk to the pressures in the business from rising feedstock costs and weak pricing, but if I look at the numbers it looks to me like your average Polymers selling price was flat, the basic fuel price was down a bit, so what exactly is going on there in terms of why it's possibly fallen so much? The first question.

And then on O&S, it looks to me like the lauric oil prices continue to fall, so I just wonder if you could comment on what's happened to European profits since the end of the quarter?

On costs, I'm slightly surprised that you comment on your analyzing of your cash fixed cost drivers to identify opportunities. If 60% of your cash fixed costs are labor, is it not fairly obvious where the opportunity lies, particularly when you look at the level of employment for the 5.5m tons that you're going to produce in the US, given what obviously we have in South Africa?

And then finally, regarding your CapEx target in the US and what you can do to control spending there, I wonder whether you'd considered linking the ultimate CapEx spend to senior management remuneration and bonuses? Those are my questions.

Okay, thanks, Alex, for all those questions. We'll start with Polymers and the pressure it's seeing and, Andre, could you walk us through some of that?

Hi, Alex, it's Andre. I'm not quite sure where you get your numbers from, the number that we use in terms of Polymers in rands per ton, if you refer to page 13 of the presentation that we showed earlier you can see there that Polymer prices did go up in rand terms by about 8%. However fuel products, which forms the basis of the fuel (technical difficulty) value, that went up by 13%. So hence the margin squeeze that we referred to. Maybe if you have different numbers then, when we meet, we can unpack the numbers and see --

Yes, I'm just taking your reported numbers divided by the number (technical difficulty).

Okay, all right, that's fine. Right then, O&S lauric oil, David, if I can continue onto lauric oil, the drop in lauric oil prices, absolutely right; that is continuing and we are now sitting, I think, under EUR800 a ton for that, which is very low compared to where we were a couple of years ago. Clearly that has had a depressing influence on the pricing of our synthetic alcohols, the (inaudible) alcohols that we produce in Europe. However as you know, we not only produce (inaudible) chemical alcohols in Europe at our Moers facility, but we also produce Ziegler alcohols, which we derive from ethylene. This includes a fraction, or a portion, of [nut cut] alcohols but it also includes so-called [win] products, which is your both lower and higher C number alcohols and these have been unaffected, obviously, because they are not changeable with the lauric oil alcohols. So yes, there has been an impact on the O&S European business, as a result not only of lauric oil prices but also as a result of continuing price increases of ethylene in particular in Europe, but that has been more than offset by the very, very solid performance that we've seen from our eastern cracker in Lake Charles as well as the downstream derivatives and, particularly, synthetic alcohols.

Good, thanks, Andre. Onto the cash fixed costs, yes, 60% of our cash fixed costs are labor driven and levels of employment in SA are sitting and will sit higher than what we see or what we will see in the US. We are focused on exactly not only supply chain and procurement redemption and maintenance reduction, electricity costs reduction as Christine has talked to, but we've a real drive in the Company to look at labor across all businesses and functions. We have an exercise ongoing right now, we're doing a cost optimization diagnostic, which the GEC is sponsoring, and we're looking at each business and each function and looking at span of control, levels of management and also looking out into the businesses into the operations as well. And some more to come on that, but we're leaving no stone unturned when it comes to labor costs in the Company. Christine.

I think that the last question that Alex had was CapEx targets in the US and linking senior management remuneration and bonuses.

That's it, I thought you were going to comment on fixed costs.

No, no, I think you've covered it, I don't think -- at this point in time I think it'll be preempting it. It's really the time that we're spending is also deciding what corrective actions we should be taking and I think that once we're ready we will actually come out with our strategy in that regard.

Okay, do you want to talk -- we'll talk a little bit about bonuses tied to CapEx. I think our short-term and long-term incentives there are structured effectively and I think, going forward, the way we have to do these projects will certainly reflect in management's scorecard -- annual scorecards and will feature prominently in how people are evaluated, how management is evaluated. Not only at the GEC level, down at the Managing Director level, at the functioning levels and into Sasol Technology where project execution is supported. So your point is well taken and we expect that those types of parameters will feature in scorecards going forward on the capital work. Thanks Alex.

Thanks, David.

Thank you. Our next question comes from Miss Tassin Meyer from Citi. Please go ahead with your question.

Thank you, good afternoon, everyone, just two questions. Firstly, given the volatility, or the rising volatility we've seen in crude prices in recent weeks plus Sasol's clear ambition in terms of CapEx spend in the next few years, can you give an update on how you view hedging crude and currency as well, I guess, if you consider that at this stage? Are you looking at redoing your current hedging policy?

And then the second question I have is just in terms of your Synfuels production, a very strong 10% improvement in the production over there. So just to get an idea of that breakdown, will any further gains in production come solely from your chemical feedstock stream, or could we see an improvement in refined product volumes as well from Synfuels? And within that contribution or that split between growth, can you give an impact -- an idea of an impact on profit possibility between refined products and chemical feedstock in terms of Synfuels?

Thanks, Tassin, the volatile oil price and hedging policy. Certainly hedging is a risk mitigation, a tool that we can use as required. We are deleveraging on the balance sheet so it doesn't feature too heavily right now, but Christine continues to monitor the spreads and the options that are available to us on oil price hedging and that's where we're at right now. We don't foresee anything in the near future on hedging again because of our strong balance sheet. I think that's where we're at right now and we'll continue to monitor to see if there's opportunity. We have done it in the past and been successful and sometimes not so successful, so it's something you don't go into lightly on hedging.

Synfuels production and the splits, as we increase our production out there and the split between refined product and chemicals, Bernard, do you want to take that one?

Thanks, David, I think as the volume for Synfuels increases the ratio of chemicals to fuels stays more or less the same, but with planning and optimization we do look to optimize where possible in terms of the values of the different product streams. And then the other comment to make is that most of our transfer pricing (inaudible) value, so that also talks a little bit to the optimization.

Thanks, Bernard, and thanks, Tassin. We're actually over time so we'll take one more question from it looks like Nic on -- we'll take one more question from Nic.

Thank you. Our last question comes from Nic Dinham from BNP Paribas. Please go ahead.

Hi there, thanks for (technical difficulty). It sounds like -- I don't know if everyone can hear me but it sound like you're broadcasting on shortwave somehow. Is that better, can you hear me? Hello?

We can hear you, sir, please go ahead.

Firstly, I've got a question on GTLs here, a couple of questions on GTLs, you classify GTL as a proven technology yet for the last three years you've been unable to predict your utilization rate at Oryx within less than 10% per annum and I don't believe that matches the definition of a proven technology. That's the first point.

The second question is subscribers, what happened there?

And thirdly, on Oryx, when are you going into a taxpaying situation at Oryx and what do you think the tax rates are going to be? It's been a very secretive question -- issue and I wondered if you could answer that for me. I've got some more questions after that.

Well, we've got time for -- one question but we'll try to answer all three of them. GTL, proven technology, Lean, certainly and any comments on that?

Yes, I think the technology is working actually very well for us, our conversion rates from gas to final product is as per our plan. Yes, you're right, I think our unit availability was not so good in the past, but I think we demonstrated running at 93% availability in the last six months and actually we plan to improve on that. So we're very satisfied with the way Oryx performs. As far as extra hours is concerned, RFC were ready for commission by mid-year and were returning to official operation by the end of this calendar year.

As far as our tax strategy is concerned, unfortunately that's commercial confidential information, I don't think we have made that public in the past and I think unfortunately that's to stay. I don't know, Christine, what we can do -- what I can say here to --

Yes, no, that's -- I would say that it's fair to say that there is a (inaudible) tax holiday that we factored in, so 2017 is the year that we would have to start paying tax.

Great, thanks, Nic, for your questions and thank you everyone for joining us on the call today. We all look forward to seeing you at the Investor Strategy Days in April, either in New York or down in Cape Town. Thank you again.

Thank you, ladies and gentlemen. That concludes today's Sasol interim financial results conference call. Thank you for your participation, you may now disconnect.