Sasol Ltd Q2 FY2021 Earnings Call

Good day and a very warm welcome to our FY21 Interim Results Call. Thank you for joining us. I hope you and your loved ones are keeping safe during these unprecedented times. Today, I am joined by Paul Victor, our Chief Financial Officer, and members of our Group Executive. I would like to point out that our results for the six-month period ending 31 December 2020 were published on our website earlier this morning. For the purposes of this conference call, we will highlight the key salient features only. For the reporting period, COVID-19 continued to have a material impact on the macroeconomic environment and market demand. We also had to contend with the operational disruption caused by significant weather events in the U.S. Gulf Coast. Despite these challenges, Team Sasol demonstrated remarkable resilience by stabilizing the business and achieving a first-rate performance on our comprehensive response plan. Having already banked more than US$1 billion in cash conservation in our last financial year, we are well on track to deliver in excess of a further US$1 billion in this financial year, all without compromising safety, compliance, or asset integrity. As a result, normalized cash fixed costs were 10% lower against the prior period. Our capital expenditure of ZAR 8 billion was 65% lower. Our working capital ratio was 14.9% compared to 14.6% for the prior period. The significant progress on our asset divestment program, as well as a more encouraging macroeconomic outlook, has mitigated the need for us to do the rights issue. It is also most heartening to report that we had no workplace fatalities for the first six months of the year, and we are pleased with the positive trade we see in respect of the decline in high severity injuries and process safety incidents. We remain committed to reducing the impact of the global COVID-19 pandemic on our employees and operations. Therefore, we have taken a number of exceptional measures resulting in infection rates among our employees remaining below those of our regional fence-line communities. Against this backdrop of significant global downturn and market volatility, Team Sasol managed to deliver a strong overall operational performance. To highlight some of our operational performances; Secunda Synfuels Operations production volumes were 1% higher compared to the prior period, and ORYX GTL achieved a utilization rate above 100% in November and December 2020, as both trains reached full operational capacity. I am pleased to announce that subsequent to the LDPE unit reaching beneficial operation in November last year, the necessary licensor performance test runs have been successfully completed. This brought the LCCP to 100% completion, fully operational and ramping up as planned. Following the announcement of our joint venture with LyondellBasell in October last year, the Louisiana Integrated Polyethylene joint venture came into effect on 1 December 2020. Our North American Operations achieved 5% higher production volumes for the period, with the ramp-up of new assets unfortunately constrained by both Hurricanes Laura and Delta. You may ask what the impact of the recent extreme weather events in the Gulf Coast was, and I can report that after most units being down the past week, start-up operations commenced over the weekend and we hope that in the next seven to 10 or 14 days, we could be back online. Looking at our business performance, our base chemicals sales volumes improved considerably, with a 9% increase in sales supported by increased demand. Despite softer market conditions precipitated by COVID-19 restrictions, notably in the automotive industry, performance chemicals sales were only 3% lower. We recorded 11% lower liquid fuels sales in our Energy business as a result of the COVID-19 impact on transportation fuels, with jet fuel demand remaining under pressure. Turning now to our expanded and accelerated asset divestment program. We have progressed divestments to the value of US$3.3 billion since March 2020, and I am confident that we will receive up to US$3.8 billion of divestment proceeds by December 2021. These divestments allowed us to take a very significant step forward in deleveraging our balance sheet. Further updates on other disposals will be provided as and when appropriate. Central to Future Sasol and our strategy is progressing towards a holistic climate change response. We are pleased to share that our plans to deliver on our 10% greenhouse gas reduction target for our South African operations by 2030 are progressing well. Work is currently underway for the 2030 road map for our U.S. and Eurasian operations. Partnerships will be essential in our decarbonization ambitions, not just for Sasol, but also to enable South Africa's energy transition. We have already strengthened our existing partnership with Air Liquide to further reduce our greenhouse gas emissions at our Secunda operations. In addition, Sasol and Air Liquide will collaborate in the procurement of renewable energy. Together, we will procure 900 megawatts of renewable energy by 2030 in our Secunda complex, significantly increased from Sasol's original target of 600 megawatts. Gas feedstock transition is also progressing with the final investment decision approved for the production sharing agreement license area development in Mozambique. This project will entail Mozambique in-country monetization of gas through a 450-megawatt gas-fired power plant and an LPG facility. The balance of the gas produced will be exported to South Africa to address the near-term decline in our Pande-Temane gas fields and sustain our operations. We are moving with speed to make the chemicals and energy business much more effective by critically assessing them against the best-in-class and introducing changes where there are opportunities to do so. As we look forward, the pathway to a sustainable balance sheet, balanced capital allocation, and resumption of dividends looks increasingly within our grasp. But for now, we need to take one step at a time. I will now hand over to Paul to discuss the balance sheet and decision on the rights issue in greater detail.

Good afternoon, ladies and gentlemen. As Fleetwood said, this is really a strong set of results in the context of the headwinds we faced. It was the delivery on all of our response plan measures that really made the difference. Looking back to December 2020, I spoke about the need to deleverage the balance sheet and the bold steps we are taking to improve our position. The objective back in March 2020 was to try and generate around $6 billion from the response plan. It was an ambitious plan, but as you can see, we are well on track and without the need to draw on the final step, mainly the rights issue. Our net debt-to-EBITDA ratio at the end of the period was 2.6 times, according to the bank definition, which is well below the covenant of 4.0 times agreed with our banking group. Additionally, our free cash flow has significantly improved, and we have reached a cash flow inflection point in the first half. Looking forward to also quite positively with our cash flow rates, which we will speak to at prevailing macroeconomic rates. We are also well positioned to take advantage of the positive impacts at the current rate with regards to the remaining six months of financial 2021 results. This will also have a very positive impact on managing the debt levels down. Turning now to the key decision criteria for the rights issue that was set out in our Investor Update back in December. We set six main criteria for the decision. The first one, obviously, was our confidence in meeting and beating the covenant level of 3 times by June 2021. In fact, we were able to significantly exceed our own expectation by achieving this milestone down in December 2020, although we were helped by the translation of the U.S. dollar-denominated debt as a result of the strong closing exchange rate. Nevertheless, with a healthy safety margin by December, a strong run rate during the year, especially in the last six months, and the downside protection in place due to our hedging program, we are highly confident that things will improve towards June 2021. Our liquidity position has also improved considerably with our position now remaining quite strong throughout this very challenging time. We'll continue to actively manage liquidity as we've done thus far and also primarily now focus on our debt maturity profile over the next few years. In terms of the outlook, another key factor is the Sasol 2.0 program, and the confidence remains quite high that we will accelerate and deliver on those results. We're still very early in the program, but as Fleetwood said earlier, there is good traction to see the gains really start coming through this year and especially in the next financial year. Another factor to consider is the asset divestments, and we've already talked about those and the great progress that we've made so far. There is a little more to do until the end of the calendar year, but so far, so very good. It's also important to mention that after June, we do not expect the additional contribution from our asset divestments will decline significantly as we move back to our usual ongoing business portfolio. The final factor to consider is the macroeconomic outlook, and this is probably the area in which we have the most concern given the unprecedented circumstances over the past couple of months. However, given the positive momentum, the downside protection that we have in place to withstand the volatility, and an even more cost-competitive base on which we operate really gives us the confidence that the actions we've taken are sufficient to mitigate the need for a rights issue. In conclusion, we will, of course, continue to monitor the situation quite closely. But at this stage, I'm really delighted that we can focus all our attention now on delivering Sasol 2.0 and our ambitions with that while focusing on our core strategic objectives. Thank you, and we can now open the call for the questions-and-answer session.

The first question comes from Goth Barry at Netgroup, asking for more detail on the significant increase in working capital, the rise in receivables, and the decrease in payables during the period. He inquires whether we can expect these changes to reverse in the short term. The second question, from Chris Nicholson at RMB, addresses cash fixed costs for the second half of the year and into FY 2022. He asks whether the guidance for cash fixed costs, considering inflation in FY 2021, suggests a substantial increase, especially since cash fixed costs decreased by 10% in the first half.

Goth, thanks for the question. Firstly, let's look at the trend of working capital. As you will see in our Analyst Book, our working capital trend since 2019 has been around about 14%. At the end of the previous financial year, it did drop to 12.5%. What allowed us to reach 12.5% was due to the fact that the government in South Africa granted us a special dispensation in deferring some of the payments, especially on duty-at-source. These are quite significant payments, around about ZAR 3 billion to ZAR 4 billion per month. The government allowed us to pay those two months later than the due date, which created a rollover impact from June to July. You will see that impact on working capital. The second issue is that in our process of disposing of our assets, all of our assets held for sale also showed as current. In absolute terms, our working capital is actually 13.7% considering that. We believe that in the long-term, our absolute working capital range for the company should be between 13% and 14%. Over the past reporting periods, we have diligently driven it down to those 14% levels. It did create a disproportionate allocation to payables in the first six months, but nothing untoward in the way that we're effectively managing our working capital. Regarding the second point, Chris, I hope you're well. We ultimately had excellent value in terms of cash fixed costs for the first six months, as our normalized cash fixed costs did decrease by 10%. Looking at the next six months, one can distort the picture a bit, as a lot of what you've taken into account in our absolute guidance to the market is the payout of the severance packages and termination packages as a result of Sasol 2.0. This ultimately, from a cash flow perspective, will be reflected in the number, as well as the ECRs that are provided for at the end of the year. That in itself caused an imbalance between savings for the first six months versus the second six months. But I assure you that all the baseline improvements in maintenance costs, in labor costs, in other services, and cash fixed costs will continue. We may be a bit conservative in our guidance, and you can read into that as much as you want, but we feel quite hopeful that we will definitely include our cash fixed costs well below ZAR 60 million as an absolute number for cash fixed costs for the year, inclusive of those items.

Thank you, Paul. The next question is also for you. Could you please provide some more indication of the exit rate profitability for Base Chemicals and the Energy business? That comes from Thomas Wrigglesworth at Citi.

Thomas, that will be a very hard question to answer at this point in time. I think what we will try to do, as we optimize and finalize our targets on Sasol 2.0, is to provide you that guidance during the end of the year on year-end guidance in terms of what we expect from the business, most notably in terms of Chemicals and Energy. I think it's safe to say at today's run rate the end-to-end process sits at close to ZAR 1,000 a barrel, which does change on a daily basis. Our planning again is more towards the ZAR 700 a barrel. In January, our EBITDA run rate, especially in Base Chemicals, Performance Chemicals, and the Energy business stepped up quite considerably in what we've seen in October, November, and December. Our current run rates indicate a very strong EBITDA performance in the next couple of months as a contribution of Sasol 2.0, as well as the contribution from better macroeconomics. So the second half will be better as long as this continues. But towards the end of the year, when we put the outlook out, we will rather give you a better sense of where the actual run numbers are going to be in a $45 world for Sasol 2.0 for the following year.

Thank you, Paul. The next question is around the financial impact from the current cold snap in Texas. How long will it take for production levels to normalize? This question comes from Thomas again at Citi. We're going to ask Brad to answer that, please.

Thomas, thanks for the question. Yes, we did see an extended cold snap with really low temperatures that we haven't experienced in decades in Texas and Louisiana. As Fleetwood mentioned earlier, we did successfully keep our crackers running, including the JV cracker over that period, but we are still working to restore operations for the derivative plants. As Fleetwood said, we expect that to take place over the next seven to 10 days for some of the plants, but perhaps more over the 10 to 14 days for some of the more complex units where we do face challenges in trying to get them warmed up and assessed for any damages. It's too early to give indications on the financial impact, but we do expect to see production restored in the next 10 days or so.

Thank you, Brad. The next question requires a response from Fleetwood regarding Mozambique LNG. Will that be fully covered within the ZAR 20 billion to ZAR 25 billion CapEx program over the next few years? That question comes from Henri Patricot at UBS.

Henri, thanks for the question. I think Brad covered sufficiently the LCCT operations impact now with the cold weather. Regarding the Mozambique LNG, the short answer is yes, we have factored in this capital project in terms of our range that we've provided. Of course, that plays out over the next three to four years, and it's included in the guidance. So in the second part of your question, you referred to the point around how long it extends the plateau production. We are currently busy with infill well drilling. That well drilling will continue over the next couple of years, and we believe that will have a positive impact on extending the plateau. Additionally, the PSA would at least extend that plateau for another three years. We believe that gives us a sight of 2030 before the plateau then starts to kick in. That is our best estimation, and of course, this is all based on a mid-case of our gas – the gas assumptions rather than any other extreme side of the reservoir potential.

Thank you, Fleetwood. The next question from Gerhard Engelbrecht at Chronux Research. Can you talk about prices in Performance Chemicals? Are you seeing higher prices for your products? Can you identify weak market segments? Can you divert products from weaker segments into stronger segments?

Thank you, Gerhard, for that question. I'm going to ask Brad to comment on the more essential care part of the business. We are currently seeing price expansion in terms of our margin in our mid-cut alcohol range, primarily driven by PKO, which has increased in pricing over the last months. So yes, there we are seeing price increases. To some extent, we can focus on more profitable segments in terms of demand as it returns, specifically in our performance products area. The softer market segment at the moment is more in automotive, and I believe that as that returns, we will see stronger demand and therefore stronger offtakes in pricing. Brad, is there anything you would like to add?

Yes, Fleetwood, I think you covered it. In the essential care space, we are seeing continued very strong demand in the areas of detergents, home care, fabric care, personal care products. I think we are seeing prices buoyant, as you said, from the oil and natural oil prices. At the same time, we at Sasol are working to restore our production following the hurricanes, the freeze impact, etc. So we're hopeful to be able to see that materialize in the second half of the year.

Thank you, Brad and Fleetwood. The next set of questions is around financial EBITDA questions. I'll start with the first one for Paul. Can you please unpack the operating losses from LCCP? That comes from Bheki Mthethwa from Bateleur. Also a question from Alex Comer at JPMorgan. The second question is around how should we think about the timeline to LCCP reaching steady state EBITDA? And the third question is what is the guidance for the LCCP in 2021 for the full year? And do you still believe Secunda's asset life is to 2050? That's also from Alex Comer.

That's a mouthful of different questions. Let me tackle them one by one. We did tell the market that we are in the future going to disclose Sasol North America as a segment after the disposal of the 25% stake as well as the HDPE units. So I'm not going to provide specific guidance from LCCP. However, in terms of the core income earnings per share, we did give you an indication of how much we adjusted for return earnings as a result of the losses we experienced on the LCCP. Importantly, the LCCP complex or the North American complex has reached a point where all assets have now been completed and are in the process of gearing up to reach full run rate. I think that's where the whole issue lies, how much that is. We anticipate that we will be generating much more cash flows and positive EBITDA in the next six months as a result of the contribution from that investment. Prices in the U.S. look more positive. However, we must keep a close eye on the spread between ethane and ethylene prices post-hurricane and the Arctic weather storm. At this point in time, we are not providing specific guidance on the LCCP for the second half, but it is effectively ramping up. We plan to run the plants close to nameplate capacity on the PE side, and we anticipate that the trajectory is towards a run rate of at least $30 million per month at current spot prices, which should be achievable in the next couple of months. The question now is when do we get to the full run rate? We do plan that in the next couple of months as we get to full production. We do anticipate the run rates that we envisage between financial 2022 and 2023 to come to fruition. This guidance needs to be caveated by the volatility in the market. We are quite nervous about the volatility in pricing. If chemical prices go down next year, we will need to take this guidance into account. Regarding 2050, I think that is a very important question. At this point in time, based on our assumption of the future, there is no reason to believe that we will not include 2050. However, we are busy updating the strategy leading to the Capital Markets Day later this year. The evaluation of how we want to utilize the assets in Secunda and what the time frame will be is needed for our 2050 assessment. But at this point, there is no reason to change that.

Thank you, Paul. There are two questions from Adrian Hammond from SBG. The first one is what is the group's normalized sustaining CapEx? And the second one is around the U.S. CARES Act. Have you received any funds you provided for related to the U.S. CARES Act regarding special dispensation for COVID?

Hi Adrian, regarding sustaining capital, this year, financial 2021, we have provided the guidance that our sustaining capital spend will be in the range of ZAR 18 to 20 billion, which is partly in real terms when compared to previous years. This is because we have optimized the closing of the systematic pit stop shutdown in the previous year. Our guidance moving forward remains in the range that we set in Capital Markets Day, targeting between ZAR 20 billion and ZAR 25 billion of capital spend, mostly for sustenance compliance and environmental capital. We believe that will change for better or to higher, but we will keep you informed in time. In terms of the CARES Act, we have received the amounts relating to the CARES Act, and those have been deposited in our bank account.

Thank you, Paul. A question from Bheki Mthethwa at Bateleur Capital. How should we think about the Node marketplace opportunity in terms of product placement? If I could direct that one to Brad, please?

Sure. Thanks, Bheki, for the question. We're very excited about our collaboration with Node, node.com. This is a storefront marketplace opportunity for producers and sellers in the chemicals and related application space to really make connections for sharing of information, gathering of technical data and product data. Node has an ambition to convert that into an actual marketplace for transactions. They're supported by a very strong investor base, including Sequoia Capital. We continue to develop our relationship with them. If you take a look at Node.com and look at the Sasol storefront, you'll see thousands of products and applications and formulations, and the work that we're doing with our customers.

Thank you, Brad. The next question comes from Clarissa Westhuyzen at Fairtree. Could you provide a breakdown of the CapEx by ESG, carbon capture, if its maintenance and growth, both in this half and over the next two years? I could ask Paul to answer that, please.

Clarissa, we have disclosure in our Analyst Book. I believe that we provided enough detail in terms of our various capital components. In terms of sustenance capital, you can see most of the capital is sustenance capital, with a very small portion relating to growth capital. The growth capital is primarily detailed in the spending of the LCCP and the small amounts that we spend in Canada. The reason is mostly in mining centers, and we do provide a breakdown for that. I think the level of detail here is a little too much for us to share with you on the project level in the market.

Thank you, Paul. The next theme is around asset divestments. I'll start with perhaps two questions in this category, given its strategic value to your gas supply from Mozambique. Is there a possibility that you would consider not divesting ROMPCO? That comes from Goth Barry at Netgroup. The second question is, what other assets are for sale as per Slide 12 of the presentation? That’s from Adrian Hammond.

Yes. Thank you, Goth. I think we are far down the road with the ROMPCO asset in terms of our dilution of shareholding. We are not ready to make an announcement in terms of the details yet. That will be in the next month or three. It is far advanced in terms of the commercial discussions. Therefore, I don't want to preempt anything further. The dilution of our ROMPCO shareholding is far progressed. Regarding Adrian, with respect to the assets on Slide 12, I think there are a number of asset reviews we've looked at in terms of our focused strategy. They may be smaller, but we are also not ready to make any further detail available around those. So bear with us. We are coming to the end of our focused asset divestment program. We hope that by the end of the year, we'll be turning towards our normal asset reviews as part of running the ongoing business.

Thank you, Fleetwood. The next question is about the total amount of asset sales so far. How much cash is already received from those asset sales? How much? When will the proceeds be used to reduce gross debt? This comes from Alexandra Simonetti. The second question is about the holdup in finalizing the ZAR 8.5 billion in divestment proceeds from the ASU. That comes from Wade Napier at Avior.

Thanks for the questions, Wade and Alexandra. Let me take us back to 2017 when we announced the asset disposal program. Since 2017, 2018, 2019, and 2021, we have banked close to $3 billion in assets, including the two biggest sales, the LCCP disposal and the Gemini disposal. Also, there are other considerable assets such as EGTL, the Huntsman joint venture, and the Malaysian joint venture of polyethylene that we sold. Since 2017, with the margins focused in financial 2021, we sold close to $3 billion of assets. Moving towards the end of this financial year, the next couple of assets should likely be in the vicinity of another $700 million to $800 million. The Secunda assets will probably make up the largest share thereof. We have a couple of other smaller assets we are still pushing in that direction with good marketing efforts behind them. We feel quite positive about all the assets identified as part of the asset disposal program. They do contribute significantly in getting our debt balance down while helping the company focus on its key strategic objectives. Regarding the holdup with ASUs, we sometimes share the frustration of how we concluded the deal in America in a much shorter timeframe compared to the ASUs. Unfortunately, we are sitting with some regulatory hurdles that we need to complete. We have made our final submissions to the DTI, which will inform the Competition Commission process and hopefully by the end of March, we will be in a position to close this out. So hopefully not long to go, and we want to close this soon, along with the other disposals before the end of June.

Thank you, Paul. The next question is around the operational and LCCP topics. The first question being, please comment on the extended force majeure of the LCCP alcohol plants. That question comes from Goth Barry at Netgroup, to which we will ask Brad to answer, please.

Thanks for the question, Goth. Yes, Sasol regrets any time we have to declare a force majeure because it means we've run into some operational or supply impact requiring us to work with our customers to allocate products. The nature of the extension of the force majeure for alcohols in the U.S. relates back to the hurricane. We were busy with ramp-up, technical ramp-up, and operational ramp-up of the Ziegler Alcohols, Alumina, Guerbet plants. These are more complex plants. That's why we have described that the ramp-up plans for those are longer in nature. Setbacks from the hurricanes and the need to prioritize most of the other units resulted in the alcohol plants taking longer to get back to full stability. We hope to release the force majeure and the allocations within the next month or so, but it's too early for me to comment on the timing until we've fully assessed the units.

Thank you, Brad. We received a question on lessons learned from LCCP. The question is, what lessons have the LCCP delays taught the management team? Does this mean they would be too conservative going forward? Or how have capital allocation decisions changed? That question comes from Ricardo Michaels at Denker Capital.

Thank you, Ricardo. I'll start off. The first item we want to clarify is that the project and the size of LCCP; we indicated in 2017 that for such a large project with a high CapEx number, we prefer not to undertake it on our own, and we will seek the right partnerships to execute it. It is a complex integrated technology array of plants that we executed, which we have to remember during the commissioning and start-up phase. We got it right when we put the project on its final execution and start-up track since February 2019, and that worked well. We delivered the project within the cost guidance and made various commitments. We have taken all these learnings into account for future projects. We reviewed all the projects executed in the last five to ten years and have incorporated all the learnings into our capital projects started last year, including our clean fuels program and the PSA project. Many lessons were learned, but we also received good experience that we will apply moving forward. Regarding capital allocation, I'll hand that over to Paul.

Thanks, Ricardo, for the question. Fleetwood explained the need for partnerships and managing risk on significant projects. We have shaped that in 2017 and invested in what our thinking is about capital allocation. First and foremost, the way we fund ourselves now will prioritize reducing debt levels on the balance sheet while spending available money toward assessing this capital. This is our priority until our balance sheet sufficiently delivers the minimum dividend income or pays the 36% payout ratio of dividends. We will balance the available capital between further dividends and growing the company. A reinvestment in our future concerning growth projects will be essential, but we will be careful about our spending. We must ensure that the risk we take and the delivery we achieve from the capital invested aligns with our objectives in terms of capital returns. Going forward, we will be measured in our investments, seeking partnerships where necessary to utilize a sufficient incremental growth rate for our business. We are not going to invest in growth projects at the expense of the dividend. This was outlined in our capital allocation sequence, so sustaining capital first, dividends second, and growth thereafter.

Thank you, Paul. The next theme is around balance sheet management and the decision on the rights issue. I'm going to read maybe two questions at a time if that's okay. The first question asks what are the required conditions to reinstate the dividend? Would you reinstate dividends in June if net debt-to-EBITDA drops below 2 times? Is there a chance of restarting dividends before 2023 or 2024 as guided in December? This comes from multiple participants on this call, including Thomas Wrigglesworth at Citi, Adrian Hammond, Vladimir Dorokhov at AIG, and Sashank Lanka at BAML. The second question concerns whether, with a faster-than-expected recovery in the balance sheet, you could consider accelerating some of the initiatives required to achieve Sasol of the future with regard to dividends, IG credit rating, and value-accretive investments? This question comes from Wade Napier at Avior.

Thank you for the questions. All of them are certainly playing out at this point in time. Let me remind us that we haven't taken a decision to issue a rights issue where it does not place us. It puts us in a situation where we still need to pay a considerable amount of debt. Our debt is sitting now slightly lower at around $8 billion, with the additional proceeds from the rights issue and other assets targeting to reach around $6 billion by the end of the year. That is our immediate focus, but we are still at $6 billion of debt. At current run rates, this will allow the debt on the balance sheet to start dipping below 2 times net debt-to-EBITDA. Still, as we find ourselves in the industry, this may pose an upward risk. We're currently looking at a range of 1.5 times to 2 times net debt-to-EBITDA, considering absolute debt levels and assessing cash flows before we reintroduce the dividend. Having noted that, at current run rates, the pathway to deleverage the balance sheet seems much quicker, as does the benefit from Sasol 2.0. However, introducing the dividend must be sustained with a measured decision. When should we do that? Ultimately, as I mentioned, if we work with a scenario of ZAR 1,000 a barrel, the trajectory would be much quicker than one with ZAR 800 a barrel. Due to this, the scenario modeling your cash flows and balance sheet deleveraging forms that decision. For now, I cannot provide an affirmative date for when dividends will be reintroduced; we can consider this towards the end of the year. As we navigate beyond that, we can evaluate the condition of our balance sheet and perhaps consider rights issues that would sustain future growth without risking our balance sheet significantly. Value-accretive investments will remain focused; our immediate priority will always be to sustain growth within our capital allocation principles.

Thank you, Paul. A question from Stella Cridge at Barclays. I see the availability of the $3.9 billion RCF will fall in 2022 and 2023. What is the reason for this? What is likely to happen to this facility at maturity in 2024, could it be rolled over? The second question is, are there any circumstances that would cause Sasol to reconsider a rights issue? Are there significant debt maturities in the next 12 to 24 months? How will these be managed? This question comes from Peter Chromburg.

Thanks for the questions. Our current situation involves smoothing out the debt maturity without immediate risk within the next two years. We have a $1 billion bond that needs servicing by the end of next year, November, but we already have plans in place to address that. With the cash flows, we don't see that as a risk to honor. When we negotiated the RCF, we had a 5 plus 2 or 5 plus 1 plus 1 scenario negotiated with the banks, where we plan to reduce it down to $2.8 billion and effectively refinance the facility over the 5 plus 1 plus 1 years with either bank debt or longer-term fixed maturity debt, such as bonds. This is how these facilities typically work. As part of the negotiations with the banks, that trajectory has been negotiated. There’s nothing untoward; that’s how these facilities work. In the 2023, 2024, 2025 period, our focus will shift, as we will either go to the big markets over regular intervals to raise debt and refinance or we will use our cash flows to do so. Regarding conditions for a rights issue, we've factored in the need for rights issues to provide a new purpose in the long-term sustainability of the business. Our shareholders expect to see how this capital will provide value. In circumstances where an investment necessitates that the business sustainability is at stake, there's a justification for a rights issue. However, under foreseeable circumstances, barring any significant negative macroeconomic developments, we don’t foresee an immediate need for shareholders to raise capital simply to sustain the business.

Thank you, Paul. Our last question. Are there any covenants or further waivers we should be aware of? How long to get to below 2.0 on the current glide? This question comes from Jarrett Geldenhuys at Investec.

Our smaller debt agreements carry unique requirements, but most of our covenants link broadly to the corporate 3 times net debt-to-EBITDA. In terms of how long to reach the 2 times, hopefully very soon. At current run rates, as I noted, January EBITDA has been substantially more than what you've seen in November and December, and we expect February to be even better. With the current trajectory, we aim to dip below the 2 times covenant within the next eight to 12 months, assuming macro conditions remain stable. Anything above ZAR 900 a barrel would be beneficial for us to reach those levels going into the foreseeable future.

Thank you, Paul. We have a follow-up question from Stella Cridge at Barclays. If you could address this question along with another one after that. The follow-up is, you've said there's already a plan in place to address the 2022 bond; what is it? Then if I could ask for more insight into the cost incurred for carbon taxes, and what are the expectations going forward? That comes from Mish-al Emeran at Abax.

In terms of our plans addressing the SEC rules, I’m not obliged to share specific details. We will update the market following any debt issuance or refinancing decisions. Our Board has approved our refinancing and debt maturity strategy, and we will make announcements as needed. You can take comfort that we have a robust plan behind us. Unfortunately, we missed a couple of windows due to the late issuance of results amid market volatility in recent months. Our debt maturities would have been in a better state had we managed that well. As for our carbon taxes, currently, we face slightly over ZAR 1 billion of carbon taxes on an annualized basis. This is reflected in our modeling, and the tax is deductible, leading to an after-tax figure around ZAR 700 million on an annualized basis.

Thank you, Paul. I think we could move over to the next set of questions regarding our PSA FID approval. The first question is, could you provide further detail on the amount of surplus gas you expect to be available for export into South Africa from the PSA? This comes from Chris Nicholson. The second question is about what annual production rate you are looking for oil in Mozambique in 2024, and what are the breakeven costs? That question comes from Adrian Hammond. We’ll ask Priscillah to answer these questions.

Good afternoon, colleagues. Hope you're all well. In terms of the first question regarding the excess gas we expect to bring back into South Africa, we are looking at 292 BCF. As Fleetwood mentioned, this is based on our midpoint probabilistic use. There are different scenarios also likely to increase that going forward.

Priscillah, the second question is about oil production rates in 2024 and breakeven costs; if you could address that one as well, please.

For us, regarding oil as part of the PSA, we are expecting about 2 million barrels of light oil starting back in 2024 for the duration of the development.

Thank you, Priscillah. The next question is, regarding the new guided range of gas and oil reserves in Mozambique, are they much different from the previous estimates? Your previous signed reserve estimates were at the bottom of the expected range. Is there any new information here? That question is from Gerhard Engelbrecht of Chronux.

Thank you, Gerhard. We started this project around 2014, 2016. We had an initial fuel development plan for the PSA, which was submitted. We undertook further exploration drilling to validate what we had for the first development plan. This indicated that the volumes we targeted in the first development plan were much higher than we could commercially verify with the additional wells drilled. We resubmitted the fuel development plan that now adjusts to the ranges we provided, substantiated with our drilled wells and seismic work. These values are now validated with normal preproduction estimates.

Thank you, Fleetwood. Some questions concern themes we’ve already covered, so I’ll repeat something previously. Gerhard, are there projects excluded from the longer-term CapEx projections, such as sulfur emissions mitigation or Natref Clean Fuels? Paul, perhaps you could answer that, please.

Thanks, Gerhard. We've always recognized that Natref Clean Fuels CapEx is more associated with our 2025 volume-led capital assessment. The Clean Fuels work at Secunda is still ongoing regarding due diligence and evaluating the pathways for the Natref asset. We anticipate needing to make decisions in the coming months due to urgency. We've engaged with environmental affairs and regarding compliance in the climate conditions, those capital projects, except for one area, will be incorporated in our 2025 capital raise.

Thank you, Paul. A question about job cuts: You've cut 2,176 jobs. How many more are set to go? That question comes from Alex Comer.

Thank you, Alex. First, let’s provide context for the numbers. So we transferred about 1,000 employees out of our Base Chemicals to our NOx joint venture in the last calendar year. In December, we transferred about 400 from our U.S. operations into the new LIP joint venture. Additionally, we had standard turnover, not filling vacancies throughout our cash conservation program and crisis response plan, adding to over 500 positions. Hence, the numbers add up quickly. We have targeted a range of cash fixed cost savings of ZAR 8 billion to ZAR 10 billion. There are no specific numbers set for job cuts. We engage and negotiate with labor entities across the globe. The majority of cost savings we aim to deliver are not solely on labor but on various aspects. We have employed a comprehensive approach to effectively address our challenges and improve efficiencies.

Thank you, Fleetwood. The last question we received concerns the length of the off-take agreement applicable when you sell the Air separation units. That comes from Clarissa van der Westhuyzen at Fairtree.

The off-take agreement is 15 years.

Thank you, Paul. I see no more questions coming through the platform. We'll give you a minute or two to submit any further questions. If nothing is received, we will then close the call. Thank you, everyone, for your time and listening to the Q&A this afternoon. I will now close the call.

Thank you, everyone. See you next time. Bye-bye.