Sasol Ltd (SSL) 2014 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 Paul Victor, Acting Chief Financial Officer. Following the formal presentation by Sasol management, an interactive Q&A session will be available. A copy of today's slide presentation is available at www.sasol.com. We would like to draw your attention to the forward-looking statement on slide 2 in the pack.

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

Thank you, operator. Good morning, good afternoon, good evening, everyone. Thank you for joining us on the conference call today.

Joining me from Sasol here in Johannesburg are Paul Victor, our Acting CFO; Bernard Klingenberg, Group Executive for South African Energy; Riaan Rademan, our Group Executive for Mining and Business Enablement; and Ernst Oberholster, Group Executive for International Energy, Technology and New Business Development. Also dialing in from our North American head office in Houston is Steve Cornell, Executive Vice President for International Operations, and connecting from our Hamburg office in Germany, Fleetwood Grobler, Group Executive for Global Chemicals.

Today, we announced another excellent Group-wide performance. To contextualize the half-year and before we run through the presentation you have in front of you, let me start by reflecting on the recent past.

As a company, we've come a long way in the last two and half years. Looking back, for us at Sasol, FY2012 was all about goal setting and consolidation. During that time, we carefully assessed our areas of competitive advantage and where we could do better.

We drove operational improvements and focused on safe, stable and reliable operations. We refined our strategic agenda and narrowed in on two broad regional strategies; first, our nurture and grow strategy, primarily here in Southern Africa where we seek to enhance our strong position in the region; and secondly, our expand and deliver strategy, which is underpinned by our North American aspirations, and specifically our US growth program.

At our results announcement in September last year, I told you that our 2013 financial year would be a watershed for Sasol. After all, in FY2013, we consciously moved away from coal-to-liquids growth and stepped up our gas-to-liquid ambitions. At the same time, we accelerated our low-carbon power generation initiatives and drive safer and more efficient operations.

As part of this step change, we reprioritized our project pipeline to deliver tangible sustainable value. And crucially, we focused the entire Company on a single set of priorities, which included the urgent need to address our cost creep. To ensure that we are a more effective organization, the management team signed off on a redesigned operating model with simplified structures, streamlined decision-making layers and fit-for-purpose functions.

Now, turning to FY2014, from July last year to date, we have been laying a solid foundation across the organization for what will be a new era in Sasol's history. The hard work of the past several years is already paying off, although in management's view this is only the beginning. The full benefits of the new Sasol will only be realized from our 2015 financial year onward.

The strong results we announce today are testament to our ability to leverage our unique value proposition, optimizing the macroeconomic impacts while managing the factors within our control. Here, through deliberate interventions, we are increasing volumes, driving business performance enhancement and moving forward on our strategic growth projects.

Turning to slide 4, let me start with an overview of what you'll hear today. I'll begin by providing you with a snapshot of how we are creating long-term shareholder value. Next, under the heading of delivery and growth, I'll highlight the key milestones we achieved during the first half of the 2014 financial year. What is most notable is that we continue to deliver strong headline earnings growth, notwithstanding a still very uncertain and to some extent volatile macroeconomic backdrop.

I'll then update you on the progress we are making with our business performance enhancement program. Paul will then go into more detail on our financial and operational performance. I'll then come back on to talk to you about the advancements we've been making on our key capital projects, before opening it for any questions you may have.

Moving on to slide 5, the true measure of our success is our ability to create value for our shareholders and in turn our stakeholders. If we look at the graph you see there in front of you, over the past 20 months from July 2, 2012 to March 7 of this year, Sasol's share price increased by 71%, from ZAR340 to ZAR582.

We acknowledge that given our business model, we are impacted by the move in crude oil prices, the rand/dollar exchange rate and country and continent specific factors. To some extent, these factors influence the results of companies worldwide and are not unique to Sasol. It should also be borne in mind that macroeconomic factors do not only positively impact an organization's results.

In analyzing our Company's performance over the last 20 months, the weaker rand and a slight improvement in chemical product prices supported our earnings growth, while on the flip side crude oil prices had a slightly negative impact. In addition, and particularly within our South African environment, above inflation growth in labor and maintenance costs and ongoing electricity price hikes also adversely impacted our numbers.

In calculating the effects on our share price performance, we've taken both the positives and negatives into account, as illustrated by the second bar on the graph. In instances where macroeconomics support a company's value proposition, management can easily become complacent. However, being a consistently successful business is all about leveraging the positives and limiting the negatives, whatever the macroeconomics.

At Sasol, being complacent is not an option. The lighter blue bar to the right of the graph highlights the role played by decisive leadership in managing the factors under our control, including optimizing volumes, enhancing organizational structures and systems, executing on our capital projects and continually driving our business performance.

Looking at it differently, if we consider the contribution of these controllable factors on our performance, from July 2012 to the end of December 2013, we added an additional ZAR3.7b to our operating profit. This equates to an increase in our headline earnings per share of 10%, on top of a previous record earnings base. The value created here is due to the contributions made across the Group, most notably through an improved operational performance over the period.

Going forward, and as depicted on the right-hand side of the graph, we see even more upside, as we secure additional business performance improvements and execute on our growth program. Here, our US cracker along with its derivative units is first up.

In addition, we are confident that our growth ambitions will continue to be underscored by our progressive dividend policy. You saw this again today, with our announcement of record interim dividends.

Looking at slide 6, record financial results aside, we fully recognize the direct link between top-class business performance and a higher purpose. As the slide is self-explanatory, I'll not talk to the specifics you see listed here.

Let's instead move on to slide 7, which highlights our key milestones for the first half of the 2014 financial year. Safety remains our number one priority and is a strategic imperative for our sustainable operations. We have, over the last two years, seen marked improvements and ended our half-year with a recordable case rate, excluding illnesses, of 0.3.

Over the period, our star safety performance was the ORYX GTL joint venture in Qatar. By the end of February, the facility completed over 11m exposure hours, equating to 919 days, without a recordable incident. In addition, the plant had over 17m hours worked without a lost time injury, here totaling 1,528 days. This is a remarkable achievement in the industry.

Turning next to our operational performance, in September our Synfuels team successfully completed the facility's largest ever shutdown with more than 155,000 activities executed, utilizing an additional 36,000 people on site daily. In turn, our flagship GTL joint venture, ORYX, set a further noteworthy production record. Over the period, the plant recorded an average utilization rate of 94%, as it benefited from a shutdown early last year.

As part of delivering and growing sustainably, this past half-year we advanced a number of key projects and initiatives. Last month, we were granted an extension of our Secunda mining rights to 2040. This approval was critical, not only for our mining operations but, more importantly, it will go a long way to ensuring an uninterrupted supply of liquid fuels and chemicals for several decades to come in South Africa.

In January, and with the support of our keynote speaker Mr. Rob Davies from the Department of Trade and Industry, we successfully inaugurated our ethylene purification unit in Sasolburg. The project was completed on time and within its approved budget, and will increase ethylene volumes for our polyethylene plants by 47,000 tons annually. These volumes are a key input for the local plastics industry.

Turning to our ongoing technologic advancements, at the end of last year we were proud to launch our Sasol Turbodiesel 10 part per million product. This is the lowest sulfur content diesel offered on the African continent, moving South Africa closer to international clean fuel specifications.

Turning to slide 8, in terms of our overall half-year FY2014 results, Sasol maintained a strong operational performance across the value chain. Here, it was encouraging to see the chemicals businesses contributing significantly to the Group.

Also noteworthy was Sasol's Synfuels' ability to deliver sustainable volumes, notwithstanding its largest shutdown ever. Having achieved 3.7m tons over the period, normalized production volumes at Synfuels were up by 3%.

As we incur costs to ensure plant stability and the weaker rand continues to exert pressure on our South African businesses, we were pleased to maintain our normalized cash fixed costs below South African PPI of 6.4%.

Excluding once-offs, operating profit was up 33%. Headline earnings per share, off a record base, was up by 26% to ZAR30.19. Cash generated from operations was up 50% to ZAR28.1b.

As a result of the Group's strong performance, an interim dividend of ZAR8 per share was declared. This is a record interim dividend, up by 40%, and well in line with our progressive dividend policy.

Moving on to slide 10 (sic - "slide 9"), and before I hand over to Paul, let me provide you with a quick update on our business performance enhancement program. Since launching the program in 2013, we've made significant progress in right-sizing and repositioning Sasol. Having finalized the design of our new Group-wide operating model, including the top management structures, we are on track to implement our new platform on July 1.

By the end of June, we will have reorganized the majority of our senior management structures and refined our financial reporting processes. This reorganization will significantly reduce the Company's top management decision-making layers.

By way of example, we have reduced the number of Group executive subcommittees from 57 to 9, an 84% reduction. In addition, we have reduced the total number of meetings within our governance structure from 580 per year to 160, a 72% reduction.

The management team intends on using this extra time wisely, focusing more specifically on enhancing the productivity of our existing operations and on driving our strategic growth ambitions.

Together with the implementation of our new management structures and related corporate governance framework, we are introducing key system and process changes. The new operating model will also result in simplified and fit-for-purpose functional support to the business. The first tranche of bankable savings has been driven by optimizing our external spend.

Our FY2014 savings are trending above ZAR200m. The overall program charges are in the region of ZAR1.2b for this financial year. This includes project costs, charges associated with the reconfiguration of our ERP systems and restructuring expenses.

Last year, we confirmed that we expect to generate annual savings of at least ZAR3b. Based on our current analyses, we are confident that we will exceed this target, with 30% to 40% of the savings realized by the end of FY2015. The full benefit of our management interventions will be evident from FY2016 onward, whereafter cash fixed cost trends are expected to follow inflation.

Let me now hand it over to Paul, who will unpack our results in more detail. Paul?

Thanks, David. Good morning and good afternoon, ladies and gentlemen.

I am delighted to present the 2014 financial interim overview to you today. The Group has delivered another set of record results, well within the guided earnings range previously announced to the market.

Before I move into more details on the results, I would like to make a couple of introductory remarks.

First, management's continued focus on factors within its control has resulted in a strong overall business performance, with overall improved volumes ahead of internal production targets. We have also contained the increase in normalized cash fixed costs to within inflation, despite a very challenging South African cost environment.

We continue to demonstrate our commitment to our progressive dividend policy through a record 40% increase in our interim dividend.

And finally, our strong balance sheet remains resilient on the back of strong cash flow generation, which continues to position Sasol quite well to fund our attractive growth projects, deliver on our progressive dividend policy, as well as provide a sufficient buffer for volatility.

Moving on to slide 11, the macroeconomic environment remains volatile and uncertain. The average rand/US dollar exchange rate was 19% weaker compared to the comparable period, with a relatively flat average Brent crude oil price, improved chemical prices and a strong increase in Henry Hub prices.

The Sasol business remains sensitive to significant movements in the oil price and the rand/US dollar exchange rate, and we remind you of our sensitivities 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/US dollar exchange rate and a $1 change in the crude oil price will affect our profit from global operations by approximately ZAR936m and ZAR702m, respectively.

Moving on to slide 12, before I move into details of the results, I would like to highlight that with the adoption of the new consolidation accounting standards, changes are made in how certain of our investments are accounted for in our financial results. All prior year numbers have been restated accordingly. For further details, I refer you to our full results announcement.

Overall, we delivered a strong Group operational performance with improved sales volumes, supported by a weaker rand/dollar exchange rate and improved chemical prices. This translated into a 26% increase in headline earnings per share to a record ZAR30.19 per share.

The first-half operating profit was significantly impacted by once-off items of ZAR5.7b, relating primarily to the ZAR5.3b impairment of our Canadian shale gas assets. Excluding the impact of once-off items, the increase in operating profit would have been enhanced by 33% and the operating margin would have been 6% higher at about 26%.

Our South African energy businesses delivered a strong performance, expanding operating margins by more than 2% compared to the comparable period, mainly as a result of higher production volumes, tight cost management, as well as favorable rand product prices.

ORYX GTL also delivered another excellent operational performance in our international energy cluster, with production performance exceeding our own expectations.

Our chemicals businesses have delivered improved volumes and benefited from chemical prices.

Moving on to slide 13, as previously mentioned by David, our current normalized cash fixed cost inflation is within South African PPI inflation trends of 6.4% for the first half of the 2014 financial year. This is despite a challenging South African cost environment, driven by high labor, maintenance and electricity costs.

Although overall we benefited from a weaker rand/dollar exchange rate, the impact of a weaker rand added a further 4.9% to our total cash fixed costs. Growth and study costs added a further 0.4%, while the implementation costs of our business enhancement program amounted to a further 0.4% or ZAR190m.

Labor, maintenance and energy remain the main drivers of our cost base, with labor costs comprising approximately 55% of our total cash fixed costs. Labor costs per head for the year are expected to increase ahead of PPI inflation.

Energy cost inflation in South Africa is likely to be just over 7% for the 2014 financial year, based on the Eskom increase announced by NERSA. Our strategy to contain energy costs has seen us successfully ramp up our electricity generation capacity in South Africa to approximately 70% of our own requirements.

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

And lastly, strides taken in our business performance enhancement program also contributed to this positive trend in cost trends.

Moving to slide 14, operating profit was supported by a mostly favorable macroeconomic environment during the first half of the 2014 financial year. The weaker rand/dollar exchange rate was the largest contributor to the increase in operating profit, boosting operating profit by 37%. Improved product prices added a further 7%.

It is extremely encouraging to note the positive impact of increased sales volumes of 7% across the Group. This is on the back of a 7% increase in sales volumes for the 2013 financial year. The total increase over the last 18 months amounts to ZAR3.7b in real terms, on a record 2012 earnings base.

However, operating profit was negatively impacted by once-off items of ZAR5.7b, as well as yearend adjustments such as the provision for share-based payment expenses, and higher depreciation charges relating to our Canadian shale gas assets, shutdowns and statutory maintenance, as well as new plants.

Moving to slide 15, the SA energy cluster continues to underpin the Group profits and cash flow generation, with a 28% increase in operating profit.

Sasol Mining's operating profit increased by 4%, despite higher operating costs. Profits were supported by higher sales prices to Sasol Synfuels and the weaker rand.

Sasol Gas' 34% increase in operating profit includes a gain of ZAR453m on the disposal of our investment in Spring Lights Gas. Excluding remeasurement items, operating profit increased by 11%, supported by a 5% increase in sales volumes and marginally improved sales prices.

Sasol Synfuels remains the largest contributor to the SA energy cluster's operating profit. Operating profit increased by 30% and operating margin expanded by an impressive 6.4% to 51%, the highest level since 2009. Profits were driven largely by the weaker rand, as well as better than expected production volumes, despite the largest shutdown in Sasol Synfuels' history. Management's ongoing efforts to contain costs, coupled with improved plant stability, resulted in cash unit costs increasing by 6.9%, in line with inflation.

Sasol Oil's operating profit increased by 22%, benefiting from improved refinery and sales margins. Sasol Oil's cash fixed costs were also contained to within inflation. Production volumes were 12% higher, largely due to the postponement of a planned shutdown at Natref to the second half of the financial year.

Moving to slide 16, focusing on our international energy cluster, Sasol Synfuels International's operating loss decreased by 4%. Growth and study costs, previously expensed, declined significantly with the US GTL project moving into FEED. This benefit was partially negated by once-off items incurred by the SSI business.

ORYX GTL recorded a 10% increase in operating profit, driven by the increase in volumes and a weaker rand. The facility achieved a year-to-date average utilization rate of 94%, which is 4% higher than our previously guided range. ORYX GTL is the flagship for our GTL technology and its continued strong performance reinforces our GTL value proposition.

Sasol Petroleum International recorded a disappointing operating loss of ZAR6.1b for the period.

In Africa, Mozambique and Gabon performed well, delivering 6% higher volumes. And we are making good progress with our growth programs in Mozambique, which David will provide more color on. Although Gabon's oil production is slowly declining, we are maturing additional volumes to sustain the life of the asset.

Our Canadian upstream assets generated an operating loss of ZAR6.5b, impacted by a ZAR5.3b impairment, coupled with a depreciation charge of ZAR1.3b. Although the asset remains under pressure in the short term, due to low North American gas prices and high depreciation, cash flow generated from this operation still remains positive. We continue to execute our approved production program in conjunction with our now new JV partner, Progress Energy, and will be able to ramp up activities once we see an increase in the gas prices.

Moving to slide 17, in November, Talisman announced that it reached agreement to sell its 50% share in the Montney shale gas assets to Progress Energy. As previously indicated, Sasol took a decision not to exercise its right of first refusal in respect of this asset.

Talisman's disposal, coupled with a further decline in the conditions in the North American gas market, prompted us to take an impairment review of our 50% share in the Montney assets. As a result of our evaluation, we impaired our Canadian shale gas asset by approximately CAD550m (sic - see slide 17 "CAD540m"), or ZAR5.3b, to a carrying value of CAD1.1b. In our impairment review, we have used a more conservative gas price outlook compared to what we use in evaluating our potential GTL and chemical investment opportunities.

I want to reemphasize that, despite this impairment, we believe that our Canadian shale gas assets continue to provide a strategic hedge for our GTL plans.

Moving to slide 18, we have seen an overall recovery in sales prices and volumes in our chemical businesses.

The focused business turnaround plan in our South African polymers business has yielded positive results. Polymers reduced its operating loss to ZAR351m from ZAR1.1b in the comparative period. This is mainly attributable to a 7% higher production volume increase and improved margins.

The EPU5 plant commissioned in October 2013 has brought significant stability and financial benefits to our C2 value chain. The C3 stabilization plant, which is expected to come on stream middle of the calendar year 2014, is expected to further improved feedstock availability to the local business.

Our international polymers businesses contributed a profit of ZAR194m. This excludes a final loss on disposal of ZAR198m from our Arya Sasol Polymers company in Iran. Effective August 16, 2013, Sasol no longer has any investments in Iran.

Solvents delivered a strong operational result, despite a challenging economic climate. Improved sales volumes, tight cost control and a weaker rand supported the increase in operating profit to ZAR358m.

In December 2013, we signed an agreement to dispose of most of our Solvents Germany assets. This resulted in an impairment of ZAR466m. The disposal is still subject to the approval of the European antitrust authorities. Once approved, it is expected that the loss on disposal will be recorded in the second half of the current financial year.

O&S remains the largest contributor to the chemicals cluster's operating profit and the second largest contributor to the Group's operating profit. Operating profit increased by 75% to ZAR2.7b, or an increase of 40% in euro terms. Operating margins expanded almost 2% to 10.4%.

Our US business continues to benefit from improved margins on low US ethane prices, coupled with higher production and sales volumes.

Focusing on operating profit in our other chemical businesses, Wax increased its operating profit by 24% on the back of higher volumes, favorable prices and a weaker rand. Overall, the operating profit of this segment decreased by 34% on the back of the challenging market conditions in our fertilizer and ammonia businesses.

Moving on to slide 19, our continued strong cash flow generation from our foundation businesses is evident from a 50% increase in cash generated by operations amounting to ZAR28.1b. This, together with our deleveraged balance sheet, which reflects an un-geared position of 0.8% at half-year, positions us uniquely to fund the steady advancement of our attractive growth projects and deliver on our progressive dividend policy.

We have spent ZAR20b on capital investments in the current financial year to date, in line with our expectations, of which approximately 54% was in South Africa.

We have maintained our capital investment estimate for 2014 of ZAR42b and ZAR50b for 2015. Approximately half of these capital investments over the next two years will be spent in South Africa. A large portion of our future growth capital investments will be allocated to our mega growth projects, which is in line with our growth strategy.

Turning on to slide 20, taking into account our record headline earnings per share, the ongoing strength of our financial position, the current capital investment plans and our progressive dividend policy, we have increased the interim dividend by 40% to a record ZAR8 per share. Our dividend yield of approximately 4% and our total shareholder return of 122% in rand terms over the past five years, continues to position Sasol competitively with our peer group, reinforcing our commitment to consistently return value to our shareholders.

Despite our recent strong share price performance, we remain confident in our ability to return further value to our shareholders through sweating our existing current asset base, executing on our growth projects, achieving our business performance enhancement program targets, as well as delivering on our progressive dividend policy.

Moving on to slide 21, we expect macroeconomic conditions to remain volatile. In the near term, we anticipate stable oil prices, slightly improved US natural gas prices, a progressive recovery in chemical product prices and flat refining margins. We assume a slight strengthening in the rand/dollar exchange rate from its current levels.

We expect an overall solid production performance for 2014 financial year. Sasol Synfuels' volume guidance remains unchanged, to be between 7.3m and 7.5m tons. Internationally, ORYX GTL to maintain full-year utilization rate of above 90%. And in Canada, we anticipate marginally decreased production due to reduced drilling activities and fewer new wells coming on stream.

We expect normalized cash fixed costs to increase slightly above South African PPI, as we incur costs to ensure plant stability.

In the recent budget speech, the Minister of Finance announced that the implementation of carbon tax would be postponed by a year to 2016. We continue to engage with government on the draft carbon tax legislation. Until we obtain further clarity, we are unable to provide guidance on the impact of carbon tax on our Group profits.

And lastly, we expect a significant improvement in polymers' profitability below our previous guided range for the 2014 financial year.

Moving on to slide 22, I would like to expand on what David touched on earlier in respect of our business performance enhancement program. If you look at the graph, it provides a summary of our cost savings realization timeline included in the program.

As David stated, and based on our future analysis, we expect to generate sustainable annual savings of more than ZAR3b from financial year 2016. Up to 40% of these savings will be achieved by the end of our 2015 financial year, with the balance realized by the following financial year, 2016. We will communicate any potential upside to these annual savings once we have embedded our new operating model and effected the related structural and process changes.

We expect implementation costs for the 2014 financial year to be approximately ZAR1.2b. This will increase somewhat in FY2015, when the program reaches its peak, and will taper off in financial year 2016 as we finalize implementation. We expect that costs will follow PPI trends from financial year 2016.

In conclusion, management's continued focus on factors within its control has resulted in a strong overall business performance in a challenging environment and delivered record first-half profitability.

On that note, I'll hand back to David.

Thanks very much, Paul. I've just got a couple of slides to go through before we get to questions.

Looking at slide 24, the focus here is on our key capital project milestones. We continue to progress the front-end engineering and design of our US growth program, which includes our world-scale ethane cracker complex and a GTL facility in Louisiana. It's anticipated that we'll reach the final investment decision for the cracker project within this calendar year, with FID for the US GTL plant to follow 18 to 24 months thereafter.

Turning to Uzbekistan GTL, we are in an extended FEED phase on the project. The majority of the technical FEED activities have been completed. FID for this project is dependent upon securing project funding and signing up a new partner to take up 19% of our current stake in the venture. We anticipate reaching financial close during the second half of the 2014 calendar year.

In Nigeria, the Escravos GTL project is in startup. Beneficial operation for the first train is expected before the end of June.

In South Africa, our ZAR1.3b C3 stabilization project in Secunda remains on track, and is expected to be in operation by the middle of this calendar year.

In Louisiana, we have successfully commissioned our first-of-a-kind 100,000 ton per year ethylene tetramerisation unit for the production of co-monomers. We expect the plant to be fully operational by the end of this financial year.

Looking at our drive to develop further low-carbon power opportunities, we are completing the development of a 140-megawatt gas-fired power plant at Ressano Garcia, Mozambique, in partnership with the country's state-owned utility company. Beneficial operation remains on track for the middle of this calendar year.

Now, before I close, I'd like to provide you with an update on our upstream projects in Southern Africa.

Over the past 10 years, we developed the Temane and Pande stranded gas fields in Mozambique, through strong in-country partnerships and our technical expertise. Over this period, together with our partners, we committed approximately $3b in capital investment, which includes the development and expansion of our central processing facility and natural gas fields in Southern Mozambique, the construction of the Mozambique/Secunda pipeline and the gas-to-power project in Ressano Garcia I just mentioned.

Looking at our future investments, in November, we declared a notice of commercial discovery of hydrocarbon reservoirs in a production sharing agreement, or PSA, license area. Here, we are on track to submit a field development plan to the Mozambican authorities in February 2015. We are also investigating the upside potential of additional resources in the current producing license, the petroleum production agreement, and completed a 2D seismic campaign in onshore license Area A.

In addition, we have formulated a portfolio of downstream gas commercialization options to match our resource estimates. We believe that the gas discoveries in the north of Mozambique are large enough to support significant additional gas monetization options outside of LNG. These options include power generation, chemicals and piped gas, which all align with the government drivers specified in the draft Mozambique gas master plan.

Next, looking at our upstream activities closer to home, we recently converted an offshore technical cooperation permit to an exploration right for the Durban and Zululand Basins. The exploration right has an area of 82,117 square kilometers, in water depths ranging from 50 to 3,200 meters. This is a 100% Sasol venture and was approved in August 2013 by the Department of Mineral Resources.

From this slide, you can see that we have an extremely busy period ahead of us.

To the final slide, slide 25 highlights why we believe Sasol remains a compelling investment proposition. This slide summarizes what Paul and I have already covered this afternoon, so I won't run you through the pillars. Suffice it to say that as much as FY2013 was all about prioritizing the important and the urgent, FY2014 is all about setting the stage for our future success. You know we've done our homework and we are now repositioning Sasol.

With that, I'll turn it back to the operator for any questions that you may have. Thanks.

(Operator Instructions). Jarrett Geldenhuys, Investec.

Hi. Good afternoon, everyone. Just one question on operations and then one question more on just the balance sheet. The first one, on the operations, I'm just a little bit concerned about volume losses in Natref in the second half of the year, as well as in mining -- external mining sales; if you can just comment on the percentage decline derivatives to 1H.

And then the second, the strategy question, just really relates to, I suppose, your US capital commitments. Are you still very much comfortable with your CapEx guidance for both the ethane cracker and second of all for the GTL plant? And really, where this is coming from is effectively Shell just basically pulling out of GTL in the US, with their initial capital estimate up 50% to 60% being the main reason, so just a comment on that, please. Thank you.

Thanks, Jarrett, for the questions. I think first, on the volume losses at Natref, that's kind of a put and take, with the shutdown last year and the percentages I think were up to 77% this first half. But, Bernard, why don't you take on Natref, please?

Jarrett, it's Bernard here. Talking about the second half of the current financial year, we've moved the shutdown from --

The first half of this financial year, yes.

First half of this financial year, shutdown has moved out. That's why the second half will look a little bit lower than the first half. Otherwise, as David said, the facilities are running quite well.

Mining -- the question on mining was around, did you say volumes, or -- Jarrett? Volumes?

Yes, volumes, please, David.

Riaan.

Yes. Hi. Good afternoon, Jarrett. If we compare the forecasted second half to the first half, we had -- in the second quarter of financial year 2014, we had labor issues which have now been solved. Number one and number two, we had some issues with the development, specifically with some tough areas geologically, and we believe that's been solved.

And thirdly, now, the Tweedraai mine expansion at Syferfontein Colliery, that's the expansion into the high wall, that will come online, we hope, in the next two to three weeks. We are just waiting for some permitting issues to be solved. So we are quite comfortable that the volumes will pick up and we don't see any supply issues [to come through].

Thank you.

Thanks, Riaan. And onto capital commitment and specifically in North America, generally the cracker -- as you can see from our results, the existing cracker in Louisiana is certainly printing money for us with the low ethane feedstock costs, and we are looking forward to getting to an FID decision on the new cracker and derivative units here in calendar year 2014. So that's full steam ahead on the cracker. We want to expand that production capacity as quickly as possible and are looking forward to moving forward on the project.

The GTL, also, from our perspective and our technology, numbers still look very robust, doing lots of homework. We've kicked off the FEED in Italy with Technip, looking at different options for over-the-fencing certain capital to our suppliers, industrial gases, possibly co-generation. So, still lots of work to be done on the front end before we can nail down the capital estimate on the GTL, but so far, so good, and we are very comfortable with the decision.

On Shell's part, obviously, they are pulling back their CapEx in a number of regions in the world, the Arctic, Australia, in the US, specifically Louisiana, and elsewhere, as they are challenged with other things going on on their side. So, if you just compare our two technologies, we are very comfortable with, for example, our reactor intensity and our ability to scale up our reactors. In comparison to the other technology we are competing against it's superior, and we are, like I say, still very bullish on the GTL plant in the US.

Next question. Thanks, Jarrett. Next question.

Gerhard Engelbrecht, Macquarie.

Good afternoon and thank you. David, now just a couple of questions around Phoenix. Now that you are well into the project, can you maybe give us some guidance as to what the optimum headcount levels in the organization is? And how much of the ZAR3b saving costs would you say are labor costs and what are the other costs that you've been taking out of the business?

And I guess from Paul's chart it looks like it's about ZAR4b, ZAR4.2b worth of costs for the project. How much of that would be deductible from tax? Maybe if you can give us some guidance on that.

And then just, maybe, I was hoping that the permits for the Lake Charles facilities would come through by the end of last year. It doesn't seem to have happened yet. Can you give us an update on where you stand with the permits?

Okay. A couple of questions. It's actually four questions. So, Phoenix, on headcount, what I can say, yes, we are into the project, Gerhard, primarily in our top management structures. We are working hard at the GC1, GC2 and GC level. So all the way down to three levels below the GC we will have in place by July 1, so that we can start up the new operating model and the new reporting -- financial reporting requirement.

So still -- as far as what the headcount will look like for the entire program, too early to say. But again, as I said earlier, we are very comfortable that there's quite a bit of upside to the annual ZAR3b savings that we are targeting in FY2016.

And again, I'll just have to say more to come with respect to workforce transition, but we are working that properly. We have, through our Group partnership forum, been in detailed discussions with all of our stakeholders, including the union, who have all signed up on our workforce transition policies and how we'll be moving forward, and so we don't see any issue there. And that's very good news for us, to go forward in obviously a respectful and fair fashion as we move through this process.

The split between the ZAR3b savings -- more than ZAR3b savings and how much is labor and how much is spread across other parts of the line items, we've got 10 different streams that drive these savings, from the new operating model which drives the different management structure, which of course drives headcount. But you've also got inbound supply chain cost savings; you've got fit-for-purpose functions that'll be much more cost effective. So you've got operational productivity out in the field, big savings coming from improving our productivity in our operations.

So I will just quickly check with Riaan, but I don't think we've released or -- I haven't seen those numbers myself, put it that way. So, again, more to come on that front as well.

This one's for you, Paul, the ZAR1.2b, approximately. I'm not sure if we'll get to that amount, but over ZAR1b in costs for FY2014 for Phoenix; looks like Gerhard has done some measurements of our graph there. But (technical difficulty) discussed the tax opportunities for deduction of this cost.

We haven't discussed that. Currently, what we also have signaled is that the makeup of that cost basically is the implementation of changes to our ERP system, restructuring costs, and also the implementation assistance that we obtained from our managing consultant. So, obviously, all three layers we do treat differently from a tax perspective.

We obviously believe that over time we will be able to deduct the tax. However, the treatment and how quickly you can deduct it, meaning what's income by nature, whether you can deduct it in one year or over a period of years, we still need to finally firm up, but we believe that most of the costs will be, over time, deductible.

Thanks, Paul. Then the final question, on permits in the US, there's two key permits there; the air and water permit with the LDEQ, Louisiana Department of Environmental Quality, and then the wetlands permit that's sitting with the core of engineers, all overseen by the Federal EPA, or Region 6 EPA out of Dallas. Right now, there's no issues that we see, Gerhard, but it is taking longer. There's a lot of paperwork involved. And I think the latest for both of the permits to be approved is in the May to June timeframe.

Steve Cornell, Steve, you're on the line. I'm not sure if you've got anything additional to add to that, but I think that's where we are at right now.

David, you said it well. The process is progressing as we hoped. It's a collaborative process with the relevant agencies. And all the signals are positive and we do expect that by hopefully June, or earlier, we will have all permits required.

Thank you.

Thank you very much.

Thanks, Gerhard, for the question. So we'll move on.

Nishal Ramloutan, UBS.

Yes. Good afternoon, everyone. Just on your cost-reduction program, that ZAR3b target, can you just indicate is that a real reduction in cash costs, or is it a saving from the business-as-usual trend?

And could you just clarify; I think, as Gerhard said, it works out to ZAR4b, but can you just indicate exactly what's the amount in FY2015 and FY2016 in terms of cost to implement this program?

And just the last thing, in terms of Canadian gas fields, you've had a chance now to discuss with new partners there. What's their aim with the gas fields in terms of ramp up and also the end demand for the gas?

Great. Thanks, Nishal. I think I'll give the first two to Paul. The first one is the Phoenix ZAR3b savings, real versus savings from business-as-usual, Paul.

Yes. Nishal, the ZAR3b is a real reduction. So, obviously, as you normalize it into FY2016 or FY2015 values, it will be different. So you can take it as a real reduction.

The cost to implement the program, we are currently not disclosing it. For the first year, we are obviously busy with putting focus on management and workforce transition. We are focusing on ERP system implementation, and for that we have really got our minds around the ZAR1.2b. There obviously is a lot more work that we need to do post day-one implementation on July 1. And once we confirm and wrap up the costs for FY2015, we will then communicate that when the appropriate time for that is.

Thanks.

Then, finally, on the Canadian gas new partner, very pleased to have Progress Energy on board, whose parent organization Petronas is a good partner of ours in various plays around the world. So it's good to have a strong partner on board with us. And they also are the -- if you will, the big dog in Western Canada shale gas.

They have the most acreage and the most -- in fact, I think they've got 28 drill rigs north of us operating right now. And they are operating a much more -- I think up to 25% lower drilling and completion cost, which we want to take advantage of as well, to learn from that. So we are excited about them coming on board.

Their play north of us is for the LNG facility that Petronas is working on, over on the cost of British Columbia, so that gas will go that direction. But this play into our field gives them additional optionality, and we'll be working on -- as they get on board, I think the deal finalizes on Wednesday, when we can actually start talking to them seriously about what the plans look like going forward.

But again, very positive partner for us and I'm sure we'll be aligned on the field development as we proceed, and with low gas prices that means keeping the rig count at a reasonably -- fairly low level.

Ernst, anything to add?

Nothing, David.

Thanks, Nishal. Question?

Alex Comer, JPMorgan.

Hi, guys. My first question is, it looks like you've kept your CapEx forecasts the same for this year and next year, and yet if I add up the coal tar and the VOC and the tank and the wax, amongst other things, about another ZAR2.5b on there, and obviously the currency has weakened. So how confident are you in your CapEx forecasts in the face of that?

And then maybe, also, looking at the ethylene cracker, I think today [Shunitzu] came out with an announcement on a project. The world and his brother wants to build crackers on the US Gulf Coast. The wage rates are already going up. There's a fair chance that we are going to see some CapEx inflation. Could you maybe just compare or contrast the issues locally and in the Gulf Coast, and how you intend to bring down the CapEx inflation in both areas? That's my first question.

Then, also, if I look at the US profits, about ZAR270m, so if I multiply that up on the size of your cracker for the new project, I get to around about ZAR2b. Is that your expectation, roughly, for run rate on the project? Yes, those are my two questions. Thanks.

Okay, great. Thanks, Alex. We'll start with the CapEx and our confidence in those numbers, when taking into consideration coal tar and VOC. Paul's going to take that. Thanks, Paul.

Thanks, Alex. So basically, for FY2015, we do believe that we're still comfortable with the ZAR50b. Also, you have to bear in mind that the capital expenditure and cash flow associated with those projects will be still [doubtful] in FY2015, and most will actually be spent post FY2015. Also, FY2015, there's a couple of projects that fall off your list and some that comes on your list. So, evaluating our preferred portfolio, we do believe that the ZAR50b still reflect the views of the preferred portfolio, despite these increases in capital costs that we currently see.

Thanks, Paul. On containment of CapEx inflation, maybe myself and Steve will take the Gulf Coast and I'll look to Ernst to talk locally.

Alex, in the most recent discussions with our colleagues in the US and also with our contractors, it seems like the big heating up in the market, hyper-volatility in the marketplace on the Gulf Coast, has not taken place as we originally thought it would, or as the industry was projecting, for manpower loading and the billions of dollars that are going to be FID'ed there in LNG terminals and crackers and our GTL in the future. So we don't see that pressure materializing on wage rate at this moment.

Again, knock on wood that the permits come in here in a timely fashion and we get into the field and get the plant built by late 2017. Then we feel we'll be ahead of that curve. And like I said, they all seem to be pushing out in time, which is helpful.

So, Steve, anything to add on inflation, cost inflation, CapEx cost inflation on the Gulf?

Yes, let me add. I think you are right that what we are seeing is that the big petrochemical major projects are phased enough that we are not seeing the rapid increase in wage rates. The other thing I think to our favor on that is that most of the big refining expansions have wound down and completed. So it looks like the supply/demand is still in okay shape and we are not seeing anything unusual in terms of the wage areas.

And just to add, one of the things we are doing in our contracting strategy is really focusing on cost certainty. So, not getting into too much detail, but we absolutely are focused on making sure we have cost certainty going into and coming out of the project.

Thank you, Steve. Ernst, a little closer to home, any comments on interest and inflation, and we are coming into wage season as well, but --?

Cost inflation and lower productivity remains the issue, but we are focusing on our capital excellence program, so our planning and our engineering and the work that we do upfront. Doing order proper, delivery later, that is the key focus from our side. But cost inflation and productivity remain the issues which we have to follow closely and focus on in South Africa.

I think also in our subsidiary noard discussions, Alex, we've come across something that's done elsewhere in the world. Bernard can probably help me out here on some of these more challenging projects. We are looking to start some modularized facilities, so you can -- some of our CapEx work at Secunda, and put that work into workshops where the productivity is much better than out in the field.

And Bernard, any -- just the price we were thinking about that on, and I think we are looking at it very positively.

Alex, it is particularly in the cost optimization space where you [couldn't stay] congested in such accomplished brownfield projects, where we've looked to modularization and moving construction offsite as an opportunity, and there's actually a real benefit for us in doing that.

Thanks, Bernard. Last question, [multi] question, let's go with the ZAR2b, the profit and the run rate.

Alex, basically, we don't disclose our operating profit that we are going to generate from those assets. However, what we've indicated previously is that we still believe that this asset returns sufficient returns to justify the Company's hurdle rate requirements on invested capital of 30% above the weighted average cost of capital. We also indicated the range of production output that we can expect from this plant to deliver.

So, basically, all of those two will culminate and ultimately will also have a positive impact in the cash flow generation going forward from our US businesses, but will also apply in the funding of our GTL projects. So, again, it's a project that makes good sense at this stage.

Thanks, Paul. That was the cracker we were talking about. I didn't clarify that. Good. Thanks, Alex. We can take another question, looks like from Tassin.

Tassin Meyer, Citigroup.

Good afternoon, everyone. Just a couple of questions. I guess the first one from me is if we look at the performance of Secunda, which was clearly exceptional in H1, can you maybe go through the thinking behind your 7.4m ton level of production you guide to? Is this going to be raised? Are we still comfortable?

And then, linked to that is if we look at H2 and going forward, what kind of cost performance do we expect, again, given how strong the performance was in H1?

The second question I have is just relating to the ethane cracker. We've heard you speak about the Canadian asset as being uneconomical, or a feedstock hedge for future feedstock requirements in the US. Can you explain for me where we are in terms of feedstock arrangements for things like the ethane cracker in particular? How far along are we? How is Sasol going to look to manage those feedstock requirements going forward?

And then, finally, if you could just give some more clarity perhaps on the profitability of the South African polymers business into the second half, as you see it at present.

Thanks, Tassin. Let's start with, Bernard, Secunda, great first (inaudible), great first half, taking into consideration that largest shutdown ever and great performance on volumes guidance. I think we are still where we were at the start of the year.

Yes. The guidance, we still haven't committed to 7.5m. We have some work that we want to do towards the end of the period on the second GHHER, if the current planning -- if it goes according to our current plans. That's why we are still in the 7.3m to 7.5m range for that. And remember, if we take out the impact of the total shutdown, on an annual basis this really talks to a number that would normalize in the 7.4m to 7.6m range. So we are comfortable with that.

I think the second question was about --

Cost performance in the second half.

Paul can answer that one.

Okay. So basically what we've also indicated in my voiceover is that we do expect to spend more money during the second half of the financial year to ensure further plant stability. A lot of these funds will be spent in the Synfuels business. And also, the PPA with Eskom falls away in the second half of this financial year, which will obviously, on a year-by-year basis, increase the cost. So, in essence, what we signal, that the costs for the second half of the financial year for Synfuels will be moderately higher compared to PPI.

Thanks, Paul. Next question is on ethane cracker feedstock and the contracts that we are looking at. It's a great time to be buying ethane, obviously, in the US. And the way we look at that is we take -- we are going to be taking about 80% on term contracts, Tassin, one to three years, three to five years, and then the other 20% will be spot. We've identified all of the feedstock required and I think -- and actually we've got a second option that may even bring us additional competition into our contracts.

So that's going well. I'm not sure if they're all signed up yet. I can either ask Ernst or Steve to comment on how things are going on the contracts themselves.

We are progressing well and we're --

(Multiple speakers).

Steve, go ahead.

Yes. So the negotiations are very close to complete. As you said, we had some different options that we were pursuing and they are getting very near the finalization on that.

Ernst, you may want to add something to that.

Happy with that.

Great. Okay. Last one, profitability of SA Polymers. It's a good news story, that since last time we spoke to all of you things are going extremely well. The ethylene purification unit has been just a great addition to the kit. So, Paul, any other words on those?

Absolutely. It's contributing to growth significantly. We also see the benefits of the business turnaround program of management that's been implemented over the past 12 months but, again, we expect a very good certainly six months from polymers.

Yes. Thanks, Paul.

I think that's it for today. I want to thank everyone for calling in and thank you for your interest in Sasol. And until we speak to you again, please stay safe. Thank you.

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