Sasol Ltd Q4 FY2022 Earnings Call

Good morning, and welcome to the presentation of Sasol Limited's Annual Results for Financial Year 2022. Thank you for joining us today. Our speakers today are Fleetwood Grobler, President and CEO of Sasol, and Hanré Rossouw, Sasol's Chief Financial Officer. In today's presentation, Fleetwood will cover the business performance for the financial year, which also includes an update of our ESG progress and milestones. The financial performance will be covered in more detail by Hanré, with Fleetwood concluding with a brief update on our future Sasol aspiration. You will then have an opportunity to ask your questions in our Q&A session, which commences immediately afterwards. Before we begin, I'd like to refer you to our disclaimer, which is summarized on the slide. This contains important information regarding forward-looking statements that are made in this presentation. Please have a look at it in your own time.

Good day, everyone, and welcome to our 2022 financial results update. In the last two years, we have faced multiple challenges both in South Africa and abroad. The outbreak of COVID significantly impacted the global economy, and the world is still adjusting to major supply chain disruptions. The war in Ukraine, now entering its sixth month, has caused enormous upheaval in global energy markets, along with a devastating toll on human life. Inflation is soaring across the globe, and recessionary concerns are rising. In South Africa, the civil unrest of July 2021 and more recently, the torrential rainstorms in April this year, largely concentrated in KwaZulu-Natal, affected our ability to export products and disrupted our operations. Notwithstanding this backdrop, we remain focused on meeting our short-term targets while recording progress on future Sasol aspirations. In this period, we were successful in significantly strengthening our balance sheet through well-executed response measures without the need for the rights issue. We completed our strategy late and accelerated our asset divestment program. Today, I am pleased to announce the reinstatement of our dividends to our shareholders. As in the past years, team Sasol stepped out and delivered in a challenging operating environment. I express my sincere appreciation for our people's continued diligence, commitment, and support. I also want to thank the Board of Sasol for its continued guidance and support as we take significant strides towards a more competitive and sustainable future Sasol. In recent years, we framed our strategy to focus on the triple bottom line of people, planet, and profit. Sound ESG performance is fundamental to our business and integral to delivering future Sasol goals. Within this framework, I will start my presentation by providing a high-level review of financial year '22. Maintaining safe operations is our primary focus, particularly considering the tragic loss of five colleagues in the first half of this year. We will never rest in our pursuit of zero harm. We strive to eliminate work-related safety incidents to ensure our employees return home safely each day. Furthermore, our intent to be a force for social good is unequivocal and demonstrated in the many ways we positively impact the economies and support our communities in the regions where we operate. As our industry transitions towards greener solutions, the just transition towards that aspiration is foremost in our thinking. On Planet, our ambition to grow shared value while accelerating our transition was affirmed through our future Sasol strategy. We defined our concrete plans to accelerate the decarbonization of our business against two milestone dates, 2030 and 2050. As a reminder, we stepped up our 2030 greenhouse gas emission reduction target to 30% from a 2017 baseline and announced our ambition to be at net zero emissions by 2050. We are making significant headway on our 2030 GHG reduction pathway, as Sasol executes the first tranche of more than 600 megawatts of renewable energy in the next two to three years. This equates to a significant portion of our energy needs in Secunda and is on an unmatched scale in South Africa. On the last element profit, we achieved a step change improvement in our profitability this year. While some of this improvement was supported by higher prices, it is also underpinned by robust cost and capital expenditure performance. These benefits were, however, partly offset by operational challenges in our integrated South African value chains that led to lower production. I'm pleased to report that we have already improved our Synfuels plant output and coal stockpile situation. I will now unpack our financial year '22 performance further. The well-being of our people and maintaining safe operations is our number one priority in pursuit of our zero harm ambition. Let me again express our heartfelt condolences to the families and friends of the colleagues we lost: Themba Masilela, Moses Hlongoane, Takalani Masha, Gansen Naidoo, and Lebogang Lebepe. Any loss of life is unacceptable. Our grave concern for the deterioration in our safety performance was a source of significant introspection that further intensified our focus on safety intervention. These efforts saw an improvement in our performance in the second half of the year while we continued to strengthen our safe operation capabilities and practices. As a result, lost workday cases continued on a downward trajectory, while our recordable case rate stood at 0.27, marginally above last year's rate. We are also addressing several actions with a particular focus on operational discipline, training, leadership, and culture to deepen understanding of risks. I and my executive team are personally committed to leave no stone unturned as we pursue our zero harm objective. Another important safety metric we measure among many other things is the occurrence of fire, explosion, and release incidents. This year, we had 13 incidents with a decreasing trend with great ongoing effort to entrench process safety fundamentals. On balance, we are making good progress, but we can never be complacent, and we all recognize the need for relentless commitment to focus on safety. Our intent to be a force for social good is integral to our business strategy, while our purpose of innovating for a better world inspires our journey to realize measurable socioeconomic benefits for communities in our operating regions. Among a few key examples, we contributed over ZAR 58 billion in taxes and royalties, up 19% from the previous year. With South Africa being our largest tax jurisdiction, we remain one of the top corporate taxpayers in the country. Our total measured procurement spend was ZAR 55.8 billion, of which ZAR 33.6 billion was spent on majority black-owned businesses in South Africa. This is up 40% from last year, demonstrating our ongoing commitment to sustainable transformation and black-based economic empowerment. Our ZAR 1.2 billion investment in skills and development makes us one of the largest investors in South Africa. We continue to fund approximately 600 undergraduate and postgraduate bursaries in financial year '22 alone. In the U.S., we support several universities and elementary science, technology, engineering and mathematics, or STEM education, as workforce development pipelines are critical to our sustainability and diversity goals. Sasol remains a significant investor in our communities, and I'm very proud of the leading role we continue to play in driving positive socioeconomic change. Looking at the state of our wage negotiations, we have successfully concluded two-year wage settlement agreements with our trade union partners both in the petroleum and industrial chemicals sectors. Providing certainty to wage increases is very important to our people and assists with creating a more harmonious working environment. Wage negotiations in both mining and Mozambique are ongoing. We remain committed to continuing to work with our trade union partners in pursuit of amicable agreements. The plans for meeting our 30% greenhouse gas reduction target by 2030 are progressing well, which will be the real foundation for meeting our 2050 net zero ambition. Significant progress has been made in procuring renewable energy for both our Energy and Chemicals businesses. In South Africa, we have agreed to the key terms with independent power producers to secure over 600 megawatts of solar and wind power to start coming online before 2025. We aim to eventually procure 1,200 megawatts of renewable energy capacity by 2030. This represents one of the largest renewable energy procurement programs from the private sector in South Africa and will be a strong contributor towards South Africa's ambition to implement significant quantities of renewable energy. In Europe, we entered into several power purchase agreements for our German and Italian operations. This, together with the supply of CO2 neutral biomass-based team to Brunsbüttel, is expected to reduce CO2 equivalent emissions by up to 70 kilotons per annum. On gas supply, we have made significant progress based on our recent infill well drilling activity, where initial results indicate that we can optimize our supply profile from existing Mozambican assets to extend our plateau production until 2028. The production sharing agreement project is progressing well and remains within budget. We are also partnering to pursue adjacent exploration acreage to access more gas. This is a huge step forward and ensures that we have flexibility in our gas supply profile as we progress our 30% reduction pathway. We are advancing our negotiation on a term sheet for 40 to 60 petajoules of LNG from 2026 onwards. This strategy provides flexibility in our gas supply profile. Looking at other low carbon enablers, we remain committed to play a leading role in the green hydrogen economy in South Africa. In Sasolburg, the final investment decision for a green hydrogen project was taken swiftly, with the aim of producing the first green hydrogen volumes towards the end of 2023. I'm also pleased to report that we are assessing creative options for repurposing the Natref refinery. Here, we have completed a pre-feasibility study on a green hybrid refinery concept. This includes the introduction of bio-based feedstock as a sustainable pathway to transition the refinery to meet the country's steam fuels compliance standards and reduce greenhouse gas emissions. Together with our partner, TotalEnergies, we have developed and are implementing now a low-cost innovative solution that will produce clean fuels to compliant diesel towards the end of 2023. This is a very positive step for us and also towards energy security for South Africa. For our South African value chain, one of the key enablers to achieve our 2030 target is the eventual turndown of coal-fired boilers, which requires a fine coal solution for Sasol. We have recently confirmed the feasibility of a fine coal solution, which enables our integrated greenhouse gas and air quality improvements in our Secunda operations. The phase shutdown of our boilers cannot be done without the solution for the fine coal feedstock, which we use today to produce steam and electricity required in our operations. Sasol Chemicals, in a bid to procure more circular and sustainable products, produced the first sales of sustainability certified products from lower carbon intensity renewable feedstocks from our Marl site in Germany. In addition, we have achieved ISCC-PLUS certification at our three largest European sites, namely Marl, Brunsbüttel, and Augusta to commence the use of bio-based and circular feedstocks. We continue to make progress on our just transition approach, which includes leveraging existing initiatives and a collaborative approach with partners. Overall, I'm pleased with the progress made, and we continue to accelerate activity towards our 2030 target in a value-enhancing way. Looking at our environmental performance. In financial year '22, our greenhouse gas emissions reduced by approximately 7% compared to the 2017 baseline. This significant reduction is to a large extent due to lower production rates from our Secunda and Sasolburg operations. Taking into account the lower production this year, GHG emissions would be nearly 4% lower from our '17 baseline, showing some progress being made on our mitigation initiatives. Note that our 2017 baseline has been restated to account for the divestments and is in line with the World Business Council and Sustainable Development GHG protocol. The impact of divestments is not included in our 30% reduction commitment. Although GHG emissions will increase with higher production volumes in financial year '23, we expect continued improvement from existing reduction levels. However, the larger greenhouse gas reduction will only be realized after 2025 with the implementation of renewable energy, transition gas, and phased boiler shutdowns. Notwithstanding, implementing our reduction levers is not without risk. We understand these risks well. Our teams are working diligently to mitigate the potential impacts, which include key transmission infrastructure, potential short-term supply chain constraints for renewable energy, and gas affordability. Turning now to our operating environment. In the past year, we were faced with multiple challenges in the external operating environment. But true to the Sasol way, we managed these impacts with greater flexibility and collaboration across Sasol, testing the effectiveness of our new operating model introduced last year. In response, we continued to deliver our Sasol 2.0 transformation program to combat the effects of higher inflation and cost pressures. Following the heavy rainstorms in the KwaZulu-Natal province earlier this year, we shifted chemical products from rail to road transport where possible and looked at alternative loading areas. In Europe, we are evaluating the use of alternative energy sources to mitigate some of the supply impacts caused by the war in Ukraine. We are also continuously working to maintain supply chain channels and alternatives to Rhine River traffic, which is severely disrupted by the lower river levels this summer season. We continue to engage with all stakeholders in response to regulatory policy changes. Most importantly, the recent proposed amendments to the carbon tax regime in South Africa, which could significantly impact our business. Through these challenging times, we extended comprehensive support to our employees and communities to help employees manage various challenges owing to pandemics, natural disasters, wars, and other humanitarian crises. I will now touch on a few salient points regarding improvements we continue to report in business profitability. The energy business benefited from a recovery in fuel demand, post the COVID-19 demand impact. This was offset by lower production volumes in Secunda and Sasolburg operations following the feedstock and operational challenges, which impacted our South African value chain. Our mining operations experienced setbacks in the first half of the financial year, and our productivity and output are lower compared to last year. However, we saw improvement in the productivity in the second half, and the coal stockpile was restored to levels above those indicated at half-year-end. In Mozambique, we delivered a strong performance, exceeding our productivity plan and market guidance on gas volumes. Despite the challenges associated with the pandemic, the infill well drilling campaign is progressing safely within cost and schedule. The Chemicals business delivered a 21% increase in revenue this year, benefiting from a stronger average sales basket price. Overall volumes were 12% lower than the prior year, largely due to the divestment of 50% of the U.S.-based chemicals assets concluded in December 2020 and lower South African production. Sales volumes for our Specialty Chemical business divisions were higher as the U.S. operational ramp-up continues. Still in the U.S., we also completed a successful shutdown of the East cracker in the first half. I'm also proud to announce that we have completed the remaining divestments we targeted, namely the Canada shale gas asset, Ramco shareholding dilution to 20%, CTRG, and our European Wax business. In mining, in line with our zero harm ambition, we are making good progress in implementing our safety remediation program to address the findings from our previous high severity incidents. We are working to restore productivity and maintain healthy stockpile levels. This includes reaching targeted productivity levels across all mines through performance initiatives. Furthermore, we are executing coal quality improvement opportunities to support optimal Secunda production, including blending, improved mine section deployment, and reduced variability through integrated decision models. Coal quality generally deteriorates over the lifespan of a mine as operations move away from the higher-quality reserves, and this is no different in our case. Mine planning must adapt to cater for deterioration in quality to optimize the reserves. We are addressing our coal quality improvement through a combination of short and longer-term strategies. These strategies may include the procurement of higher-quality coal as a viable lever to balance the total quality considerations in the integrated margin of our Secunda product slate. Across our South African fuel and chemical operations, we are focused on improving the effectiveness of our shutdowns and pursuing technical options to improve the reliability of our key equipment. Looking at our international operations, the ramp-up of our Lake Charles specialty units is continuing as planned. The team is working closely with our JV partner in the Louisiana integrated polyethylene JV to ensure stable operations. We have also appointed a task team to respond to potential gas supply constraints in Europe, which could impact all producers in the region. This includes evaluating alternative feedstocks where technically feasible. Despite a challenging operational year, we saw a significant improvement in financial performance. I will touch on just a few financial metrics before handing over to Hanré, who will share more details. Our EBITDA increased by 48% to around ZAR 72 billion. The balance sheet was strengthened, ending with a net debt of US$3.8 billion at year-end, well below the target of US$5 billion. Core headline earnings per share increased by more than 100% to approximately ZAR 69 per share, supporting the resumption of dividends to our shareholders. This is a huge step forward for Sasol, and we thank our shareholders for their patience and support over the past few years. While some of the improvement is supported by higher prices, it also demonstrates our resilience and agility to adapt to a dynamic business landscape continuously. Our efforts under Sasol's crisis response and Sasol 2.0 programs have benefited us hugely during this time. On that note, I will now hand over to Hanré to take us through the detailed financial results for the reporting period.

Thank you, Fleetwood, and good morning, ladies and gentlemen. It's a privilege for me today to present Sasol's financial performance for the 2022 financial year. Having joined Sasol only in April, I'm briefly tempted to take credit for all the highlights of the results. I'd rather, though, give thanks to the Sasol team for welcoming me on board and also give credit to all the dedication and individual sacrifice made across Sasol over the last few years to navigate the company through some very difficult waters. Let me start the results overview by providing some detail around the macro environment, which was critical to the financial outcomes for the period. Perhaps the overriding takeaway is the level of volatility in the external environment affecting our business with highly significant moves in many of the key benchmark prices. We continue to enjoy the benefit of significant increases in the oil and other energy and chemicals prices. We saw Brent crude increasing by 70% to average $92 per barrel and polyethylene, up 38%. The Rand remained relatively flat for financial year '22, but the closing rate was 14% higher, which negatively impacted the translation of our U.S. dollar-denominated debt. Feedstock prices were impacted, with ethane prices up by 86% following the increase in natural gas prices. We expect to see ongoing concerns in the near term regarding the future security of natural gas supply. Looking forward, we expect tight global energy and chemicals markets with increased volatility and uncertainty from ongoing geopolitical events and the potential macroeconomic fallout from rising inflation and supply chain disruptions. Locally, the South African economy is facing multiple challenges, including high structural unemployment and fiscal constraints, which need to be factored into business planning. These challenges require continued agility and responsiveness in our business. We remain committed to delivering a competitive Sasol through our continued cost and capital allocation discipline and the Sasol 2.0 program. Turning to the financial results. We have seen a significant improvement in the profitability of our group compared to the previous financial year. We benefited from the strong recovery in prices, which I covered in the previous slide, as well as robust cost performance. These benefits were partly offset by a combination of operational challenges in our integrated South African value chain and supply chain disruptions, which Fleetwood spoke to earlier. Earnings before interest and tax for the prior year was impacted by non-cash adjustments most notably in the Chemicals America segment, which included the ethylene derivative impairment reversal and gain on disposal of our U.S.-based Chemicals business, as well as in the fuel segment, which included the impairment relating to the Synfuels refinery CGU. Non-cash adjustments for this financial year include unrealized translation and hedging losses of ZAR 5.2 billion and a net gain of ZAR 9.9 billion on re-measurement items mainly from our asset divestments. On an adjusted EBITDA basis, our profits of approximately ZAR 72 billion were an increase of 48% compared to the prior year, with the benefits of our diversified energy and chemicals portfolio evident in the profitability mix. Core headline earnings of ZAR 68.54 per share increased by more than 100% compared to the prior period, supporting the reintroduction of dividends to our shareholders, with a final dividend of ZAR 14.70 per share. This represents a cash return of over ZAR 9 billion to our shareholders. Return on invested capital normalized for aspects such as profit on sale and hedging losses increased to just short of 22%. We remain committed to delivering superior returns well above WACC, ensuring a profitable and sustainable business in the future. The management of risk remains key, and our stronger balance sheet will allow us to significantly reduce the need for hedging going forward. Let me now turn to the segmental highlights, starting with the Energy business. Our Mining segment benefited from higher export prices, resulting in a 3% increase in adjusted EBITDA compared to the prior year. This was partly negated by a combination of lower volumes following the operational and safety challenges mentioned earlier, as well as higher external coal purchases. Our gas segment made good progress with the Mozambican drilling campaign. Adjusted EBITDA was up by 2% compared to the prior year, supported by higher gas prices and higher production volumes. Our fuel segment delivered a strong performance with adjusted EBITDA increasing by more than 100% compared to the prior year. We benefited from higher crude oil prices, refining margins, and higher sales volumes on the back of improved demand. Turning to our Chemicals business, our Africa segment was impacted by a combination of production challenges at our South African sites in the first half of the financial year, as well as supply chain disruptions, which affected the export of products in the second half. However, the average sales basket price for the financial year was 29% higher due to a combination of improved demand, higher oil prices, and tighter global supply conditions. This resulted in a 44% increase in adjusted EBITDA. We have seen a strong ramp-up of our specialty chemicals in our Chemicals America segment as more products are being certified for use by our customers. Adjusted EBITDA increased by 72%, benefiting from the 58% increase in the average sales basket price. This was offset by lower sales volumes following the base chemicals divestments and the unplanned West cracker downtime in the last quarter of the financial year. As I've mentioned, ongoing geopolitical tensions, inflationary pressures, and increased recessionary risks will continue to impact our business, and the priority is to effectively manage the elements that are under our control. In terms of guidance for the 2023 financial year, we expect generally stronger performance in our Energy and Chemicals businesses. We anticipate productivity at our mining business to improve compared to financial year '22, as we focus on operational discipline and continue to prioritize the safety of our workforce. In our Gas segment, we expect higher production volumes as we start seeing the benefits of the exploration and infill well drilling campaign. Our South African liquid fuel sales volumes will increase to a range between 53 million and 56 million barrels on the back of improved operational performance and higher fuels demand. With the anticipated improvement in mining productivity and operational stability, Secunda operations will produce higher volumes of between 7 to 7.2 million tonnes. This includes the impact of the full shutdown plan for September of this calendar year. Turning to our Chemicals business, sales volumes for Chemicals Africa are expected to be between 6% to 12% higher compared to the prior year, following improved operational performance and recovery from supply constraints, which we experienced in the previous year. In Chemicals America, we expect sales volumes to be between 5% to 10% higher than the prior year, as Lake Charles continues to ramp up. Chemicals Eurasia, the sales volumes are expected to be up to 5% higher, mainly due to improved market demand. There is, of course, some risk to our Eurasia business forecast, as Fleetwood has highlighted. I'm pleased to share the ongoing progress we are making with our Sasol 2.0 transformation program, which aims to ensure that we remain competitive and profitable even in a low price oil environment. Looking at our performance for this year, we realized ZAR 4.2 billion in net sustainable cash fixed cost savings, well above our target of ZAR 3 billion. This was partially offset by higher costs as we introduced employee short-term incentives and other shutdown-related expenditure, which was not in our financial year '20 base. The benefit of these savings is evident in the income statement, as we managed to contain cash fixed costs to a mere 2% increase compared to the prior year. We saw a ZAR 2.6 billion gross margin improvement above our target of ZAR 1.5 billion through initiatives such as feedstock optimization and debottlenecking of our plants. Capital expenditure remained within our guided range of ZAR 20 billion to ZAR 25 billion in 2020 real terms. This was delivered through our risk-based capital allocation approach, which includes initiatives such as preventative maintenance and developing alternative low capital and non-capital solutions. I will provide more detail on capital spend on the next slide. Our working capital ratio was slightly above our target, mainly as a result of higher valuation of inventory and receivables following increased prices. If we extrapolate turnover for the last quarter of the financial year, though, the working capital to revenue ratio was up 12.3%. Given the volatility that has played out over recent years, we are revisiting the measure of the 14% working capital to turnover ratio at period end and considering embedding a more sustainable average throughout the year. As we enter the new financial year, we will continue to focus our efforts on strict cash fixed cost management and further increase our gross margin through operational improvements and realizing best practices through market-driven strategies. Based on the current pipeline of ideas and initiatives, we are confident that we will maintain momentum in achieving the 2.0 targets for the upcoming financial year and beyond. We continue to prioritize capital spend to enhance returns, protect our license to operate, and ensure that we have safe and reliable operations for our business. Our capital expenditure of ZAR 23 billion for the financial year was in line with guidance but higher than the previous year, as we deferred capital expenditure due to cash preservation measures. Looking at our capital forecast for the new financial year, our maintained and transformed capital will be slightly higher compared to this year but still in line with our capital guidance. This is largely due to the PSA drilling campaign gaining momentum and the planned full-year shutdown of our Secunda operations. As we progress our 30% greenhouse gas reduction program, we will start incurring more transformational capital. To date, spend has been limited to study costs. Here, we expect to spend between ZAR 500 million and ZAR 1 billion in financial year '23, with peak spending forecasted for financial years '25 to '27. Going forward, our key capital targets remain unchanged at ZAR 20 billion to ZAR 25 billion per year in real terms. The aggregate capital for our transformation roadmap of between ZAR 50 million to ZAR 25 billion up to 2030 is included in this annual spend guidance. Our capital allocation framework shared in 2021 is aimed at balancing the delivery of our long-term strategy, our climate change ambitions, and growing our shareholder returns. Our first and second order allocation principles ensure that we prioritize our maintained and transformed capital to continue operations well into the future, while the robust balance sheet will support a sustainable dividend based on a 2.5 to 2.8 times cover of Core HEPS. Growth opportunities, both organic and inorganic, will then compete with additional shareholder returns in a disciplined fashion to optimize risk-weighted returns on the portfolio. Our accelerated asset divestment program is now complete and delivered over ZAR 50 billion of proceeds. This has significantly contributed to our deleveraging success and reduced net debt to a more comfortable level for the business. Our hedge cover ratio has reduced significantly from financial year '22 to '23, and we now expect further reduction of the cover ratio as we have reduced the need for downside protection. To support our 2050 ambition and the new value streams being pursued throughout the business, we are in the process of establishing a small venture capital fund aimed at investing in start-up and early-stage technology in the green economy. This will also support our internal research and technology capabilities, through which we believe Sasol can make a significant global contribution to innovating for a better world. In conclusion, I would like to emphasize the great progress made towards our financial objectives in a very challenging environment. Our group profitability and financial position have improved dramatically over the last year. Favorable macroeconomics have helped us, together with focused and well-executed plans and a strategy that will preserve and grow long-term value. There is, of course, much more to do, but there is also little doubt that we have created a stronger platform. Our shareholders have been patient in foregoing dividends over the last few cycles, and today we are proud to announce the resumption of dividends on the back of a much stronger balance sheet. We are committed to maintaining a dividend that is sustainable going forward. We have a clear transition target to 2030, which includes a self-funded transition, and we have full confidence in delivering the first 30% greenhouse gas emissions reduction by 2030 through well-defined levers. Beyond this, we will balance capital allocation of growth projects, which make economic sense, with acceptable risk and shareholder return options. We will prioritize more impactful investments over time, which provide healthy and consistent returns that are commensurate with the risk. Thank you for listening, and I will now hand back to Fleetwood for the conclusion.

Thank you, Hanré. As we look to conclude the presentation of our year-end results, I will now shift focus to future Sasol. As we accelerate plans to meet our 2030 GHG reduction target, we built a foundation for achieving our 2050 net zero ambition. In this regard, we continue to progress the techno-economic studies on the pathways considered for 2050 with more detail being developed. Our GHG emission reductions will be achieved through transformational pathways that could also include conscious decisions to cut back production in parts of the business. We could, for instance, see our Secunda production slate shifting fundamentally beyond 2030, depending on demand profiles for energy products in the longer term. We are also playing a leading role in coastal green hydrogen export through the Boegoebaai opportunity. Through a memorandum of agreement with the Northern Cape Development Agency, we are leading the prefeasibility study to explore the potential of Boegoebaai as an export hub. Sasol ecoFT, which aims to provide sustainable aviation fuels or SAF and related feedstocks for chemicals using our own proven Fischer Tropsch technology, has seen significant interest in the recent period. SAF remains one of the most promising pathways for the hard-to-abate aviation sector to decarbonize in the future. The SAF drop-in offering is an attractive aviation fuel solution, and the market is expected to grow massively in the years to come. We are refining our go-to-market strategy and entered into multiple collaboration agreements with venture partners, feedstock suppliers, aircraft manufacturers, and other service providers to firmly position Sasol within the developing SAF market. The Lake Charles ramp-up continues to be a focus area in the short term. But beyond that, we believe the site provides multiple attractive opportunities through co-location and expansion as a sustainability app with partners. We are also bolstering our research and technology capabilities to support the development of emergent and new green technologies needed towards 2050. Green technologies will not only contribute toward Sasol's net zero plans but also play a critical role in the broader societal move to net zero through the application of our technologies. An example of this is the recent Sasol and LOTTE Chemicals collaboration to develop materials for electric vehicle batteries, where lithium-ion batteries are likely to be the key power source for electric vehicles in the future. As mentioned by Hanré, the venture capital fund we are establishing will facilitate funding for advancements of new technologies through start-up opportunities. Now looking ahead, there are several key areas where we must maintain our relentless focus to continue delivering on our ambition to grow shared value while accelerating our transition. First and foremost, we must achieve zero harm for our people. Also important will be to progress our climate change and broader ESG goals, which are fundamental to our long-term sustainability. We will build on the excellent progress made this year to drive further execution of our 2030 roadmap. In addition to this, maintaining operational stability and focused volume improvement will ensure that we maximize value from our well-invested assets. Moreover, delivering on our Sasol 2.0 targets will position us to be sustainably profitable and competitive in a lower oil price world. Delivery of these goals will enable the business outcomes to ultimately provide sustainable shareholder returns. This concludes our results presentation for today. Hanré and I thank you for watching. We will now take a 5-minute break before we commence with a question-and-answer session, which Tiffany Sydow from Investor Relations will facilitate. Thank you.

Good morning, and welcome to the question-and-answer session related to Sasol's financial results announcement this morning. My name is Tiffany, and I'll be facilitating the question-and-answer session today. With us in the room, we have Fleetwood Grobler and Hanré Rossouw. And on my right, we have the rest of the Sasol executive management team. Welcome to the session. Your questions can be posted online on the right-hand side of your screen; you should see a dialogue box where you can input your question. Please submit any questions you have via this. Alternatively, you can also dial in to Chorus Call and verbalize your question today. I'll be switching between the two during the session to ensure that all questions are adequately addressed. Turning to our first question for the day. Excited by Sasol's initiative to start a venture fund. Is there a capital target for the venture? And by when will the ventures start operating?

Thanks, Tiffany. I share the excitement. I think the venture capital fund that we are targeting gives us the ability to innovate also outside of Sasol, and I think it links nicely to the research and technology work that we do. I'm going to keep you in suspense. We are hoping to launch that later this year. We're finalizing the funding and governance aspects of that but hopefully share some more news on that before the end of the year.

Thank you, Hanré. I think sticking with the theme of financial results. Could you please shed some light on your oil price hedging strategy, given the risk that oil prices could come down in the event of a global recession from Richard Middleton at Excelsia Capital? And I think if we can go into the next question as well, what would be the criteria for Sasol to consider a blend of share buybacks and dividends going forward?

Thanks, Tiffany. I think the overarching aspect for both questions is the capital allocation framework and risk management structure that we have. And I've got to first just declare my personal allergies to hedging. It’s important to not look at hedging in isolation but to consider it as part of a broader risk management aspect of the business. To that extent, we had excessive hedging, you could say. And then the need for hedging given our previous significant debt on the balance sheet; if we go back to 2020, we had over ZAR 10 billion of debt. At that stage, we had around 70% cover of our oil production. Given the significant reduction in gearing, operational gearing has also improved. We now see a lower need for gearing or for hedging, rather. We have reduced the hedge cover of oil to around 45% for the 2024 financial year. That also has a slight change in approach where previously, we used the zero-cost collars; we are now using more put options, really just to buy downside protection in the event of a severe drop in oil prices, which could come from a global recession. In terms of buybacks and dividends, again, we reference the capital allocation framework. Really, thereafter, the allocation of capital to maintain and transform and paying the base dividend, excess cash then will go either to growth capital, as I mentioned, both inorganic or organic or be returned to shareholders. To that extent, we're happy to consider both buybacks and special dividends. We've not given any guidance yet on the balance of buyback and dividends through which we will consider, but we will consider that given the specific circumstances at that time.

Thanks, Hanré. I think moving over to operational and business outlook questions. I'm going to direct these next two questions to Fleetwood. The mining productivity guidance of 1,000 to 1,100 tonnes per CM per shift is well below my understanding of targeted levels of 1,200 to 1,300 tonnes per CM per shift. What is constraining the ramp-up in mining activity? The second question around LCCP, what was the capacity utilization at LCCP during FY '22? What will normal capacity utilization be? And when do you expect to reach those systems?

Yeah. Thank you, Tiffany. Thank you, Wade, for the question. Let me just position first that our mining productivity guidance that we've given at half-year-end was attained through the second half of the year. Our outlook now is building on that guidance. So I think what is underpinning our targeted mining productivity improvement is, first of all, our safety remediation program. That is the bedrock of our mining operation. I would be loath to indicate any higher numbers before we haven't solidified our safety foundation and that remediation program. Also, you can't send mixed signals to your mine workforce to say what is now the priority? Is it now first safety recovery? Or is it production productivity? The message is clear. We're going to remediate the safety, we're going to set realistic targets where we can build from over the last six months delivery and build from that going forward but in a very measured way, ensuring that safety is the primary focus during that ramp-up of productivity. As far as the second question with respect to capacity utilization of LCCP in the past year, from the outset, we have made it clear that the different sections of the plant will see different ramp-up targets. We are clear that our base chemicals portion of the 50% that we own now, as a result of the divestment, is a more commodity business, and the ramp-up will be through the period of three years, which is now being attained. There is capacity utilization of over 90% in the various units. I won’t go into the details, and we have had towards the end of the last quarter also some setbacks at the cracker where we had some equipment failure that has to be rectified. This is not unusual as you start up a new plant; you go through the bathtub of reliability issues. You sort that out and then get stable reliable operations. For the base chemicals part, I think we're tracking well. When we look at the other parts of specialty, we clearly indicated to the market that we will have a five-year ramp-up for our differentiated commodities and products. For example, most of the ethoxylation products, MEG, ethylene oxide, as well as the Ziegler products fall into that category, and we are on a five-year ramp-up. We are tracking very well in that. So I must say, overall, you can't put one number down. You need to look at the various products and their applications. But I am happy that we are tracking on that basis, and we can engage in discussions to give you more granularity as we unpack the results in the next week.

Thank you, Fleetwood. There are a few questions that are queued via Chorus Call. If I could move over to the operator, please, and perhaps we can start with the first two, Gerhard Engelbrecht from Absa and then moving on to Adrian Hammond from SBG.

Good morning. Is the line open? I hope you can hear me.

Yes, we can. Gerhard, go ahead.

Thank you. It's nice to, as you say, verbalize questions again. Thank you for that. I got three questions, if I may. The Synfuels production, I mean, let me start by saying that in FY '19, you had a 2-phase shutdown that you were producing at 7.6 million tonnes. So the Synfuels production guidance is way below 7 million to 7.2 million tonnes. Why so low? Is it just a coal quality issue? When do you expect the Synfuels to be producing at optimal levels again? Can you give us more detail on your procurement of LNG? The world of LNG has changed significantly since Russia invaded Ukraine. How are you progressing? Can you give us a sequence and timing of events that need to happen in terms of FIDs on the Synfuels additional need performance, the building of the recast facilities, etc.? And then just the last question: You increased your assumptions for RAND oil in your long-term assumptions that were present in the AFS by about 40%, yet your fuel producing businesses remain impaired. Does it mean you've included additional negative items to offset the increase in the long-term assumptions or why have you not reversed those impairments?

Thank you, Gerhard. Fleetwood, if you could start with the first two questions.

Yeah. Thank you, Gerhard. So the three questions. I will commence with the first two, and I'll also ask Simon and Priscillah to weigh in on that. And I think Hanré can deal with the last question. So first of all, the guidance that we've given for the Synfuels volume output is informed by several areas. First, we are recovering from our previous year. As I mentioned, with the mining productivity, we are on a trajectory to improve. The guidance must be seen in that light; it’s realistic building up a volume base going forward. The second aspect, which is the full shutdown, as well as a phase shutdown that we have in Secunda, is a rent that occurs nearly every five years. That adds an additional limitation on volume output in Secunda. So I will ask Simon also to weigh in on that. And then as for the LNG discussion regarding progression and where we stand, let me ask Priscillah to weigh in first and then Simon. Priscillah, please.

Thank you, Fleetwood. Good morning. It seems like every time we speak, myself and you, we speak about the total shutdown. Remember a day when we were in Secunda, and we had to put four bottles of water, and we're demonstrating how to do face and a total shutdown. So you indeed correct: this year, our guidance is related to that; we will be taking a phase total shutdown, which starts, coincidentally, this Friday. That will go on until around the 24th of September. The total portion of the shutdown should come back around 12 to 14 days. I think that guides how we then sing around 100 to 200 kilotons less. As you know, when we started the Murray campaign for FY '22, and pushing off '23, we did give guidance that we don't have as much gas as we would like to have. That also impacts around 100 to 150 kilotons. Taking all of that into account, I suppose post FY '24, we should be retaining during the phase times to around 7.6 million tonnes. When we have a total shutdown, we'll still remain between 7.5 million and 7.6 million tonnes.

Thank you. Priscillah?

Thank you. Hello, thanks for the question. So perhaps before I get into LNG, it's appropriate to just give an overview of where we are overall in our sourcing strategy because it's actually a portfolio of both our exploration and development projects, as well as LNG. It’s quite important as we move forward that we actually balance the two. We're making good progress in terms of our overall portfolio. You've seen earlier on we announced the extension of the plateau to 2028. That gives us flexibility in terms of how we bring LNG on board, yet at the same time maximizing the exploration and development of quite a few of our projects that we are already working on. In terms of LNG, we target to finalize the term sheet by the end of this year. Again, it's quite important that we reach the right commercial terms before we commit ourselves. We are in intense discussions and negotiations with our partners that will enable us to probably take about six to eight months to complete and finalize the FID so that we can start with construction. We are also discussing timing with them, particularly given the fact that we've got two more years to create some flexibility as we engage going forward. What is more critical for us is to ensure that the infrastructure in Maputo is actually built more than the actual contracting of the molecules. Hopefully, that gives you a good clarity of where we are.

Thanks, Priscillah. If I can jump in then just on the impairment or your question around whether the stronger oil prices in the assumptions could not have led to a reversal of impairment. There's detailed disclosure on the impairment assumptions in note nine of the annual financial statements. You're absolutely spot on that we did, of course, increase oil assumptions on the back of what could be short-term tightening of the oil market. In terms of our assessment of the carrying value of our assets, we did have to take into account that this potentially wasn't a structural change that could be long-lived. It's also offset then by other assumptions that have had a negative impact on the valuation. To that extent, we've highlighted carbon tax and the proposals as a measure that could detract value on that carrying value. On the basis of sensitivities, we've assessed that and concluded that there is no need at this point to reverse impairments. But of course, we will continue to do the assessment on an annual basis.

Thank you, Hanré. Sticking with Chorus Call, I think we had Adrian Hammond next in line. Adrian, please go ahead.

Unfortunately, Adrian's line has dropped.

Great, thanks. Can we move to Chris Nicholson, please? Hi, yes. Good morning. Thank you for the call in person again. I hope you can hear me. My question is around the European chemical business. I'm sure many are worried about what's happening in the European gas markets. Could you tell me what happens if Germany moves to stage three? What would the impact be on your European chemical businesses in Germany and Italy? And then also maybe just some guidance on where you see margins heading in that business? I mean, it would look from the scale of feedstock cost increases that they could be hitting negative. What are your options in that instance?

Thank you, Chris. I'm going to ask Brad to weigh in on that. Suffice it to say that we have a clear understanding of the levers we need to watch out for across different regions, with different gas supply implications. As for Italy, we are well placed to continue our operations as we have a portfolio of gas supplies, as well as liquid fuel options to support continuity of operations. For our large site in central Germany, they have announced their intention to restart a coal-fired power station, and we will adjust our gas consumption accordingly. While in Brunsbüttel, we are also working on liquid fuel options to ensure supply. However, margins are under pressure due to rising gas costs, and while we continue to engage with our customers to pass on costs, we are also looking for alternative supplies and sources of feedstocks. I think if there is continued upward pressure on gas prices, we will moderate our production rates which is why we gave guidance for fiscal 2023 that’s a bit wider than usual, showing zero to 5%.

Thank you, Brad. I'm going to switch back over to the online platform. There are a number of questions coming through on the operational theme. There are a few questions around Mozambique gas; I'll cluster those together. The first one comes from Adrian Hammond at SPG. If the plateau is extended to 2028, why is LNG still needed? Synfuels volumes were historically 7.6 to 7.8. What does Sasol envisage to return to this level? I think some of that has already been covered by Simon. What is the current bottleneck? And then also on gas, there's another question from an analyst addressing the sharply declining gas reserves in Mozambique: what solutions have you looked at, and how much CapEx is expected to be spent? Are these enough to fulfill Sasol's needs as the company transitions to green hydrogen?

Thank you, Tiffany. I think we have basically addressed the gas play in Mozambique. Priscillah has touched on that, so I can only add to say we will continue our efforts to look at opportunities in our fields that we operate and within our field. We had very good success with the infill well drilling campaign, and that informed the extension of the plateau. We will do more work and more drilling in that regard. Furthermore, we are busy with the PSA implementation project, which will also assist us to think about whether there is any excess gas that can be committed beyond the need for the Mozambican in-country power station, which would be the first taker of the volume of gas committed over the period. We also know that we have more gas, we have an opportunity to bring that gas to South Africa. We are busy finalizing those agreements with the Mozambican government, but they are willing to help us out on that basis. But I think the options for gas are a key focus for the energy team. Priscillah has indicated that they want to create optionality not only for our fuels but also the LNG and other adjacencies we may be harvesting in our area. That's a good summary of where we are.

Thank you, Fleetwood. I think the next question comes around the current maximum gas prices.

I think the situation, so thank you for that question. We have been engaging with NASA since the first quarter of this year to finalize within the framework of the maximum gas pricing mechanism to come through with a realistic price in today's environment, given that the maximum gas price would have been 270 Rand per Giga joule. We don't think that's realistic. We have proposed a different price level and engaged with NASAA. At this point, we haven't finalized that with NASAA; we have indicated that we will not implement this price announcement that we mentioned in August. We hope to resolve that, as in the end, they have the rationality test for a realistic price to evaluate that. Once we reach an agreement, we can take that forward with our customers. Our customers and Sasol are both in earnest waiting for that engagement so we have certainty for the rest of the year within the agreed pricing framework, which was already agreed last year with NASAA.

Thank you, Fleetwood. A couple of financial questions coming in Hanré, could you set the first one from Adrian on whether investment-grade credit ratings are detached from the sovereign rating? And then another question on the CapEx outlook, from Adrian: what is the group CapEx outlook in nominal terms for 24 or 25, please? And what is the future hedging ratio we can expect?

Thanks, Tiffany. In terms of investment-grade ratings, unfortunately, at the moment, the rating agencies do tie Sasol's rating to the sovereign. Unless there is a significant increase in offshore profits in the region of 50% plus, unfortunately, the sovereign's credit rating will always be the ceiling for the company. We have been engaging with the various rating agencies on that, but unfortunately, that's just how things work at the moment. In terms of group CapEx outlook, in nominal terms, you can safely apply a 4-5% inflation impact to the 20 to 25 guidance. We are very comfortable that the next year, as I've mentioned, we will be in line with that guidance, and certainly 24/25 as well. This will cover not only sustaining our business but also the transformation needed, the ZAR 15 billion to ZAR 25 billion that we've got to spend to 2030 to meet our greenhouse gas targets. The hedging, as I've mentioned, does come down to around 25% for financial year 24 in terms of oil, and we will continuously reassess that level. I think it is a function of the operational gearing we expect in the business and the financial gearing, particularly around our absolute and net debt levels. We do detailed Monte Carlo analysis of sensitivity to the various outcomes related to oil, rand-dollar exchange rate, as well as ethane and coal. In general, given the stronger balance sheet, we do expect the hedging levels to be lower.

Thank you, Hanré. While you are in the mic, another two questions around debt. One comes from Adrian Hammond again on the debt profile shows a spike of ZAR 2.8 billion in FY 24. Could you give me your current thoughts on future funding and refinancing strategy? Do you plan new bank loans or visits to the bond market as part of the strategy?

Thanks, Tiffany. I'd love to take credit for fixing the balance sheet, but I won’t claim any credit today. The balance sheet is in excellent condition. As we've noted, our net debt stands at US$3.8 billion, with gross debt just over US$6 billion. Most of our debt is in U.S. dollars. Our refinancing strategy focuses on converting more U.S. dollar debt into rand-denominated debt to align better with our cash generation. Regarding refinancing, we have ZAR 2.8 billion in financial year 24 due to a term loan and a U.S. dollar bond. Additionally, we have another billion-dollar bond that requires refinancing in November this year. We are confident in various options for refinancing, including utilizing our revolving credit facility as a bridge, existing cash flows, and exploring other instruments as alternatives. We are not concerned about the state of our balance sheet. Thanks for that question.

Thanks, Hanré. I'm going to move back to Chorus Call and take two questions from Alex Coma and session Lanka. Operator, can you direct the question, please?

I've got a couple of questions. First, just on this gas LNG situation with the LNG prices being very high at the moment. Is there a point at which you decide not to go down that route and just cut down production to meet your 30% target? Or are you determined to go ahead regardless of the economics? Second question: I see on your presentation, you talked about turning Natref into a green refinery. Has a decision been made to keep them open, and what level of CapEx will be required in order to meet the new fuel regulations? Finally, in terms of the dividend, the 2.5 to 2.8 times cover, how should we think about the levers to pull back down to the lower cover ratio?

Let's start with the dividend. As we've highlighted, the capital allocation framework incorporates our dividend policy, which relates to a 2.5 to 2.8 times cover of core HEPS. It's important to note that core HEPS excludes any hedging losses or gains. To that extent, we will aim for 2.5 times cover when the net debt levels drop below $4 billion. We will want to see that sustained over a period before lowering from the 2.8 to the 2.5 cover. Beyond that, excess cash will be returned to shareholders through metrics like special dividends or buybacks.

Thank you, Alex. I'm going to address the Natref question. We announced a couple of years ago what is the capital requirement for getting Natref clean fuel compliant, which was if I recall, over ZAR 4 billion at that time. We have achieved two things in the pre-feasibility study and operational review with our partner TotalEnergies. Firstly, we have come up with a very creative way to get Natref output clean fuel compliant for a very low investment. This is substantially lower than the previous Clean Fuels cost. We'll be ready towards the end of next year. However, I am reserved about providing specifics around the expected cost as it's still in pre-feasibility. So let’s leave it at that for the moment.

Good points, Alex. The simple answer is no, we won’t do it at all costs. But we are looking at a portfolio. We are targeting a blended price of gas going forward, which needs to break even against other options. We recognize that there will be some dilution, but it is critical for us to deliver the right returns to our shareholders. We are also mindful of the South African context because there are industries that will require gas going forward. We are hopeful that a predictable regulatory framework will ensure affordability over the longer run. We're mindful of the current market volatility but target a long-term contract that extends beyond the current cycle while ensuring infrastructure construction is prioritized.

Thank you, Priscillah, Hanré, Fleetwood. Sashank, if you could go ahead with your question, please.

On my first question. This was partially asked, so I’ll just follow up on what was mentioned. Fleetwood mentioned that the capital requirement for clean fuel compliance is expected to be much lower now. I'm curious what changed compared to earlier guidance and why you think it will be much lower now? My second question is on hedging. I understand that in FY '21 you hedged nearly 30 million barrels. Given retail prices are now close to $0.66 per gallon, which I’m sure is impacting margins in your U.S. business, what is the hedging strategy for FY '23 if you aren’t hedging at the moment?

We are excited about the creative solution for diesel clean fuel compliance that lowers our earlier estimate significantly. As we incorporate bio feedstock into the mix on a hybrid basis, the overall capital for full compliance is reduced compared to earlier guidance. Tracking this through our studies and operational reviews will yield more clarity in the coming months.

On the ethane hedging, we did hedge around ZAR 4 million last year. In terms of this year, the focus is primarily on operational stability. The U.S. business offers flexibility to obtain merchant ethylene as well. We are currently careful around locking in high prices given recent spikes in the ethane market, hence we did not hedge for '23. We will reassess the hedging opportunities based on market conditions, but I want to emphasize that hedging on ethane and coal is likely not as material compared to oil and other key hedges.

Thank you, Hanré, Fleetwood. Moving back over to the online platform, there are two questions around our strategy. The first one comes from Peter Cambridge at Emerging Markets: can you spell out how clean energy projects will be funded? The second question comes from Tao Matute at NPV Investments: on the integrated environmental roadmap at Secunda operations, is April 2025 the targeted compliance date? If so, what is the risk of implementation of the initiatives if some of them extend beyond April 2025?

Thank you, Peter, and thank you, Tao, for those questions. First of all, the capital allocation framework that Hanré explained will clearly guide how we approach low-carbon or clean energy projects as part of our transformation agenda. We have guidance from lessons learned from the mega project implemented in 2014 to 2019. We are committed not to invest more than 10% of our market cap, and we will continue applying that principle. One key requirement for investing in green hydrogen production, for instance, is certainty around off-take arrangements. We will not invest if we do not have stability around those commitments. Regarding the integrated environmental roadmap implementation, we have signaled that solutions around SO2 compliance are more complex. That risk remains, and nothing has changed there. We have a combined application in the regulatory framework to examine SO2 load-based compliance versus concentration-based compliance, which is now with the regulator. We hope to get clarity in the next year or so, and that will inform our risk profile.

Yes, I think Wade, thank you for the question. I think we were guiding for the growth of sales volumes versus prior year. We expect sales volumes for fiscal '23 to be 5% higher compared to fiscal '22, driven by recovery in several market sectors including automotive, where demand remains strong especially for emission control and process catalysts. So we are seeing some demand recovery, providing us with visibility on volumes as we seek to pass through costs to customers. However, we will continue to monitor this closely as maintaining operational effectiveness is paramount while also ensuring we do not build excessive inventory.

Thank you, Brad. I think that gives us a comprehensive look at the questions. That wraps up our Q&A session. We're grateful for your time and engagement throughout the discussion. If you have other questions, please reach out through Investor Relations. We appreciate your participation today.