Sasol Ltd Q4 FY2025 Earnings Call

Good morning, and welcome to Sasol's Annual Results presentation for financial year '25. My name is Tiffany Sydow from Investor Relations. And on behalf of the Sasol Executive Management team, we are pleased that you could join us today, both in person and online. With me is Simon Baloyi, our CEO and President; and Walt Bruns, the Chief Financial Officer. The Group Executive is also seated in the front row and joins us today. Before we begin the presentation, I'd like to point out a few safety and housekeeping items. The emergency exits are located at the back of the room where you entered. In the event of an emergency, please exit the room and enter the reception area where the safety marshal will give you further instructions. The restrooms are also located at the same door to your immediate right. Please ensure that your cell phone is on silent for the duration of this presentation. And lastly, all the materials have been uploaded onto our website and are available for your perusal. The agenda today, Simon will begin the presentation with our business overview, followed by Walt, who will give an overview of the financial performance for this year. Simon will then conclude with a strategic update at the end. Online participants are then welcome to join our Q&A session, which will start immediately after the session. And you are able to then type in your question online or ask it in-person for our in-room participants. Thank you. I will now hand over to Simon.

Thank you, Tiffany. Good day, everyone. Thank you for joining us today, both in person and online. We value your time. At our Capital Markets Day a few months ago, I told you that we have a business with real potential to deliver significant shareholder value. However, we need to navigate a number of challenges to deliver that potential. We outlined focused initiatives that are underway to turn strategic ambition into actionable plans. Three months on, we fully remain committed to those plans. Today, it's all about the financial year '25 results. Furthermore, this is an opportunity to talk about how we are tracking against our CMD plans. To summarize the key themes that we'll cover today, let me begin with safety. Nothing matters more than making sure that every employee and every service provider goes home safely to their loved ones. Since mid-August 2024, I'm deeply grateful that we have not lost any team members. We know that when we put safety first, strong operations naturally follow. Our strategy is clear: strengthen the foundation, grow and transform the business. In Southern Africa, we are focused on restoring the value chain, and we are resetting international chemicals. I'll share more detail on the progress of our plans for financial year '26. We have achieved good momentum that we aim to build on in the next 12 months. Despite a challenging operating and macro environment, we focused on the controllables. As a result, we met most of our financial targets provided in February for the group. We also saw clear cash improvement performance helping to deleverage the balance sheet. Walt will unpack our financial performance in more detail later. Concluding today's session, I'll return to discuss how we are progressing against our broader strategic priorities to grow and transform our business with a focus on the implementation of the emission reduction roadmap, or ERR in short, and in particular, renewable energy. Overall, we remain confident in our plans, and now it is all about execution. We shared specific targets with you in Capital Markets Day in May 2025 and are committed to giving you regular feedback. We have started to implement our action plans, and I can report the following progress. Construction of the destoning plant is completed, and we are busy with start-up activities. We are on track to meet our commitment. The coal quality and gasifier availability challenges continue to impact Southern Africa value chain. Although we saw improved gasifier performance in quarter 4, the Secunda volumes ended marginally below target. Despite these lower volumes, the Southern Africa value chain breakeven price ended at $59 a barrel due to disciplined cost and capital management supported by the receipt of the Transnet legal settlement. This is in line with our previous target of below $60 a barrel. In our international chemicals, adjusted EBITDA increased by more than $120 million despite the prolonged downturn in the chemical market. This is also in line with the targets communicated at half year-end. On the balance sheet, we made progress on our key objective to deleverage and reduce risk. We closed the year with a net debt of $3.7 billion, excluding leases, achieving our target of staying under $4 billion. On the Grow and Transform front, our optimized ERR implementation, including our target of 2 gigawatts of renewable energy by 2030 is on track. We have secured more than 900 megawatts from power purchase agreements in South Africa, setting the stage for long-term decarbonization and energy resilience. I'll now highlight more specific detail around our performance for financial year '25. Starting with safety. In financial year '25, we had a tragic fatality and one of our colleagues did not go back home; however, we did see some progress in our safety efforts. Financial year '25 marks the first fatality-free financial year for Sasol Mining, a milestone never achieved before. We experienced no major process safety incidents during the year. Notwithstanding the higher hospitalization rate, the injury severity rate has decreased, resulting in our employees returning to work sooner. That said, we acknowledge that there is still work to do in meeting our commitment to send everyone home safely. This is aligned with our commitment to drive rigorous safety measures to prevent harm to our people, to our communities, environment and assets. In the last year, we have reinforced personnel and leadership accountability, and we've also deepened collaboration with service providers. Looking ahead, we are focused on strengthening risk management and further embedding a safety culture centered on continuous improvement. Our goal remains clear to ensure safety is prioritized, safety is integrated into everyday practices and safety is at the forefront of everything we do.

Thank you, Simon. Good morning, ladies and gentlemen, and thank you for joining us today. A few months ago at Capital Markets Day, I set out four priorities to deliver a robust financial framework for Sasol. These priorities included improving sustainable free cash flow; deleveraging the balance sheet; reinstating dividends when appropriate; and disciplined capital allocation. These priorities were underpinned by proactive risk management to ensure that we respond quickly to changes in our operating and macro environment to mitigate risks and accelerate opportunities. Today, I'll take you through our financial performance for FY '25, reflect on the first progress made against these priorities and previous targets communicated. I will also detail our targets for FY '26 with the aim to build continued credibility in our FY '28 plans that we communicated at Capital Markets Day. Turning to an overview of our FY '25 financial performance. We achieved the majority of our key financial targets previously communicated despite lower turnover and adjusted EBITDA as a result of a challenging macro and operating environment. This delivery was achieved with focus in our planning and discipline in our execution. Key highlights include containing cash fixed cost increases to just 1% below the inflation rate of 3% achieving capital expenditure of ZAR 25 billion, 13% lower than our target of ZAR 28 billion to ZAR 29 billion, reducing our net debt to USD 3.7 billion, the lowest levels since 2016 and 8% lower than our target of USD 4 billion. Lastly, we successfully completed our FY '26 hedge program ahead of schedule. Only our net working capital as a percentage of turnover on a 12-month rolling basis was slightly above our target of 15.5% to 16.5% and equal to 16.8%. This was mainly due to lower rolling turnover and an increase in inventory to manage supply variability during the year. Net working capital percentage as of 30 June 2025 was, however, 15.4% and slightly below target. This delivery is the first step in translating the plans communicated at half year-end and Capital Markets Day into tangible proof points that build credibility with you, our stakeholders. The macroeconomic environment in which we operated in 2025 was highly volatile, influenced by uncertainty around global tariffs and heightened geopolitical tensions. These dynamics have had varied impacts across our business segments. In our Fuels business, a 15% lower rand oil price and 68% lower refining margins had a significant negative impact on its results. Meanwhile, our Chemicals segments benefited from stronger U.S. ethylene margins and a 5% uplift in the overall chemicals basket price. Our response to navigate this volatility has been to focus on things within our control, including strict cost and capital discipline, maintaining robust liquidity, proactive hedging and continually optimizing where and how we place our products. This helped us in FY '25 and will continue to help us in FY '26, where we anticipate continued volatility as global market sentiment remains sensitive to changes in tariffs, interest rates, and geopolitical risks. Looking at more details in the group financial results, the most important metric is free cash flow, which increased to almost ZAR 12.6 billion, a 75% improvement to the prior year and despite lower adjusted EBITDA. The increase was driven by disciplined capital spend, lower tax payments, and the receipt of the Transnet legal settlement. Even after normalizing for the Transnet legal settlement, free cash flow increased by more than 30%, a solid performance considering the headwinds in the macroeconomic environment. Gross margin declined by 12%, mainly due to a 9% reduction in turnover as a result of the aforementioned lower rand oil price and a 3% decrease in sales volumes associated with lower production and weaker market demand. Cash fixed cost performance reflects the impact of our cost-saving initiatives, driven by reduced headcount from operating model changes and a vacancy freeze, better contracting, tighter scope control, and other optimization initiatives that are considered sustainable going forward. Total impairments were ZAR 20.7 billion, 73% lower than the ZAR 74.9 billion in the prior year and contributing significantly to the more than 100% increase in earnings. The largest impairments were ZAR 13 billion related to Secunda and Sasolburg liquid fuel refinery cash-generating units or CGUs, which remain fully impaired. The recoverable amount of these CGUs improved through management actions but was negatively impacted by lower forecast macroeconomic price assumptions. Additional management initiatives need to be further progressed before their benefits can be incorporated into the impairment calculations. As a reminder, the Secunda complex, including the Secunda Chemical CGUs, continues to have significant headroom when comparing the total recoverable amount to the net book value. In addition, impairments were recorded on Mozambique and Italy Care Chemicals CGUs, offset by the reversal of impairments for the China Care Chemicals CGU. Capital spend of ZAR 25 billion was 16% lower than the prior year due to a combination of lower feedstock replacement, compliance spend and discretionary sustenance spend, including focused cost-saving initiatives without compromising on safety or asset integrity. Net debt, excluding leases, ended the year at USD 3.7 billion, above our dividend trigger of sustainably below USD 3 billion, which we continue to target for between FY '27 and FY '28, in line with our CMD guidance. Shifting our focus to the adjusted EBITDA performance by segment. Our South African business continues to be the primary contributor to group adjusted EBITDA at around 85% with each segment in the value chain playing an important role. Mining EBITDA increased by 15%, while gas increased by 35%, driven by a combination of higher gas prices and sales volumes. Fuels declined by 38% on the back of the weaker rand oil price, lower Natref refining margins, reduced production volumes and higher feedstock costs. On the positive side, sales volumes in the higher-margin mobility channel increased by 5% despite a broader market decline. In Chemicals Africa, EBITDA declined by 32%, impacted by lower production volumes, a stronger rand-dollar exchange rate and higher feedstock costs. This was partially offset by a higher average basket sales price despite continued weak market conditions. International Chemicals increased its share of group adjusted EBITDA from 9% to 15% with an improvement across both regional segments, driven by a combination of improved U.S. ethylene margins, stronger palm kernel oil pricing, and further progress on our strategic reset initiatives.

In summary, our diverse portfolio, supported by targeted initiatives, is helping to balance earnings across different regions and enhance our resilience in a constantly changing global environment. We continue to adhere to the capital allocation framework outlined at our Capital Markets Day. To recap, first order capital is primarily allocated to ensure safe and compliant operations, while selective growth and transform capital focus on smaller, higher-return projects that align with our strategy. Although the framework is crucial, its effectiveness hinges on disciplined application. In FY '25, we made significant strides in our deleveraging efforts, surpassing the plan shared at CMD. We reduced net debt by 11% to $3.7 billion and also decreased gross debt by 10% by utilizing excess cash to lower financing costs through our revolving credit facility. We intend to build on this momentum in FY '26 and are targeting further reductions in net debt, aiming for a target of $3 billion between FY '27 and FY '28. Reaching this target is essential as it enhances our resilience and increases our enterprise value and equity share. Additionally, it allows for the reinstatement of dividends with a commitment to return 30% of free cash flow to shareholders once net debt is sustainably below the target. The remaining 70% of free cash will be allocated prudently to our second order capital according to our framework.

We remain well positioned to navigate ongoing macro volatility, supported by a strong liquidity position, a robust hedging program, and continued focus on cost and capital discipline. At the end of June 2025, we have more than USD 4 billion in available liquidity, which includes strong cash reserves, unutilized committed facilities, and no immediate debt maturities. In July 2025, we also successfully issued a ZAR 5.3 billion bond and received USD 300 million in exchange, supporting our efforts to diversify the funding base, reduce U.S. dollar debt exposure, and financing costs. This issuance, together with our June 2025 liquidity provides the flexibility to address upcoming bond maturities using available liquidity if required. From a risk management perspective, and as I’ve mentioned, we have completed our hedging program for FY '26. For oil, we achieved a 60% effective hedge cover ratio with an average floor price of USD 60 per barrel. For the exchange rate, we achieved a 30% hedge cover ratio with a range of ZAR 17.60 to ZAR 21.10 using zero cost collars. We will continue to manage these exposures while preserving optionality to respond to a dynamic external environment.

As we look ahead to FY '26, this slide outlines our key financial metrics that we are guiding on. Our first priority is to deliver on our volume targets that Simon shared, supported by focused interventions and execution across our business. Secondly, we will maintain our cost and capital discipline by keeping cash fixed cost increases below inflation, maintaining first order capital expenditure between ZAR 24 billion and ZAR 26 billion and net working capital percentage between 15.5% to 16.5% as guided at CMD. Thirdly, our aim is to continue to reduce net debt ahead of the CMD base plan, supported by continued free cash flow generation despite the uncertainties in the macroeconomic environment. Lastly, we will continue to manage risks proactively, including the completion of our FY '27 hedging program. In summary, FY '26 is grounded in delivery. Our plan is clear, and we're focused on the fundamentals to unlock value where it matters most. We are encouraged by our financial performance in FY '25, but remain humble and determined to build credibility through performance.

Thank you, Simon and Walt, for those presentations. We'll now begin the Q&A session where you'll have the opportunity to direct your questions to Simon, Walt as well as the executive team seated in the front row. We'll take two questions at a time. Before you begin Gerhard, if you could please submit your questions online on the Q&A platform to the right-hand side of your screen. Alternatively, you can also dial into Chorus call where you will have the opportunity to voice your question. We'll alternate between in-room and online questions to ensure broad participation of all. And I think to kick off, we can start with the questions in the room. Gerhard, if you can begin, please?

I have a couple of questions. First, regarding the CapEx, I'm curious why it came in well below the guidance. While this is a positive outcome, it raises some questions about how you managed to save on CapEx. Did you postpone maintenance or achieve efficiencies? Could you elaborate on that? Additionally, your CapEx guidance for '26 is quite similar to what you spent in '25, despite not having a shutdown. How do we make sense of that? And on the volume guidance for Synfuels, you're predicting 7 million to 7.2 million tonnes with no shutdown and the destoning being commissioned. In this context, I would have expected the volumes to be even higher. Can you clarify the benefits you anticipate from the destoning in FY '26 and how much impact the absence of a shutdown will have? Please elaborate.

It's Chris Nicholson from RMB Morgan Stanley. I have a question about the gas and the PSA specifically. This year, you're guiding gas volumes from Mozambique up by about 10%, but for your impairment calculation, I see that you've actually revised total recoverable gas volumes down slightly. Can you help clarify that? Additionally, could you provide an update on the power plant in Mozambique? I understand that the Mozambique gas volumes will depend on when CTT becomes operational. Lastly, I've noticed that condensate volumes seem to be increasing compared to gas from Mozambique, which often indicates that wells might be depleting. Could you comment on that? Is that included in the PPA?

Thank you. Walt will address the impairments, so he can go ahead with that. Victor will begin, and then he can also touch on the CTT questions regarding the duration and timing. Additionally, when Victor starts, he might as well cover the CapEx for Gerhard, but I'll come back to that shortly. Let’s begin there, and then we can address any remaining questions. Gerhard, you mentioned the CapEx, and we applied a rigorous approach to it. We are already guiding lower than before. The main factor behind this is the value-accretive ERR. We took out some associated capital debt. We also adopted a risk-based approach by deferring low-risk activities to the following year. This is why the CapEx for next year remains unchanged, even without a shutdown. Those low-risk items were deferred, and we also delayed PT5-C based on current conditions and optimizing CapEx. These actions have been beneficial for CapEx and align with next year's guided CapEx. Victor, you can also address the 7.2 question related to the impact of destoning, but to summarize for Gerhard, we just completed construction and are now in the start-up phase. Therefore, the current coal quality challenges and issues with the gasifier are still present. We won't delay Victor on that, but I'm sure he will confirm it. Let’s start with you first and discuss the impairment in Mozambique.

Thank you, Chris. As you mentioned, the volumes on the PSA did decline overall. However, I anticipate an increase leading into at least FY '26. The primary reason for the impairment was the change in the WACC rate in Mozambique, which is tied to an independently calculated country risk premium. We rely on a professional services firm for this calculation. The WACC rate for Mozambique is now above 18%, which puts pressure on the project. Nevertheless, we are exploring ways to optimize and enhance the NPV. Regarding PT5-C, we also recorded an impairment there, and we've temporarily halted exploration activities. We are not abandoning the project; rather, we are considering other opportunities to allocate capital and manage associated risks, as well as how to share some of that risk and potential benefits.

All right. Maybe I'll start off with CapEx. I think Simon kind of spoke to elements of our capital excellence program. And I think what I want to highlight is the benefits we are seeing on the CapEx portfolio, Gerhard, is really linked to a deliberate program of capital excellence, consisting of quite a few value levers that we've deployed and employed in the business in an integrated way. I think, key levers here is really to examine scope and to look for minimum technical solutions. And then, of course, to look for construction efficiencies. This is a program that we kicked off probably 2 years ago, just over 2 years. And we're starting to see the benefits roll out as we embed the program. In terms of future years, we don't plan CapEx on a 1-year basis. We plan CapEx on a rolling capital plan. And the benefits you are seeing are reflected in our rolling capital plan all the way up to 2030. And we continuously review our rolling capital plan twice annually to make sure that it's stood in line with our plans, and it's reflective of the risk levels that we want to manage. So it's a deliberate effort on the part of making sure that capital is efficiently and effectively deployed, and we manage capital within our affordability limits. Then I think when it comes to the volume guidance, I think a Secunda phase shutdown has an impact of about 100 kilotonnes. I think we will see that benefit due to the no shutdown. And I think this came about because we also improved our maintenance strategies for the Secunda facility, where a few years back, we moved from a 4-year turnaround cycle in Secunda to a 5- year cycle, which gives us the benefit of not having a Secunda turnaround in this particular financial year. Regarding the destoning plant, it will be a slow ramp-up. And what we will see is we will see, as I stated in CMD, an increase in yield, right? But I also indicated that, that goes with a recovery in gasifier availability, which will then be the multiplier in terms of our production volumes. And that's how we've picked it. I think the range that we've guided is the same range that we've guided during CMD. Moving on to Chris, your question about gas. I think the first thing to state is we've achieved ready-for-commissioning on the PSA project, particularly the integrated processing facility. That was achieved in June of this year. We're busy with commissioning activities on the IPF, and we hope to have beneficial operation of the IPF by the end of this year. Unfortunately, the CTT is delayed. It's significantly delayed due to various reasons, I think some of which you may know, a few storms that occurred during the construction time of the CTT, which damaged some equipment. And then, of course, lately, I think challenges with the engineering contractor and having to basically go out on a request for new engineering services from a different engineering contractor. That's going to require us to basically reassess the balance of scope with a new engineering contractor, estimating what's required for the work to be done. And that has caused some delays with the CTT. Despite that, our view is to work with our partners in Mozambique to continue operating the IPF, and we'll find commercial means in which we could enable that gas to flow. More importantly for Mozambique is really to deliver on the LPG requirements and the condensate that's required for Mozambique.

Thank you, Victor. I will now address some online questions primarily regarding our financial performance. The first question comes from Thabo at The Fund. It's encouraging to see the improvement in free cash flow, but how sustainable is our capital spending? Additionally, how does this compare to the commitments made at the CMD? I believe that part has already been covered. A follow-up question relates to the discrepancy between depreciation and capital expenditure due to historical impairments. Does this imply that Sasol is paying more tax than it would have otherwise? There are also a couple of additional questions from Sashank Lanka at Bank of America. The capital-related questions have largely been addressed, but he wants to know how our cost savings are tracking against the guidance for 2028. I'll pause there for you, Walt.

Thank you. I'll start with the first question regarding our capital commitments made at the CMD. We haven't changed the ranges we previously communicated, which are ZAR 24 billion to ZAR 26 billion. Although there's no shutdown, we have some capital-related delays in Mozambique due to political unrest at the end of the last year. We're comfortable with the situation. CapEx may increase again following the phase shutdown, and we also need to allocate additional funds for feedstock, particularly in coal, to ensure we have enough reserves for prolonged lower demand and increased volumes at Secunda. Regarding the effective tax rate, it is higher this year, nearing 37%. Some deductions were not allowed for tax purposes, including the derecognition of deferred tax assets in Italy after impairment. This means we’re paying a bit more tax, but we will optimize it across different jurisdictions. As for cost savings, our cash fixed costs are projected to be below inflation, which we calculated at a blended average of 3%, but we ended up at 1%. Total costs rose slightly on the variable side primarily because we needed to purchase more coal to ensure the quality of the blend and support production at Secunda. We expect purchases to decrease in FY '26, guiding around 4 million to 6 million tonnes for coal purchases.

Thank you. I would like to move to Chorus Call, where we have two callers waiting. Operator, please proceed.

I have a couple of questions for each of you. Simon, first, there have been some unplanned outages related to Eskom and the business in the past six months. How do you view these risks moving forward? Do you include them in your forecast? Also, what should we expect regarding coal purchases in the future? For Walt, do you have any plans for the ZAR 4 billion from Transnet specifically? Are there plans for further bond issuances? What are the risks if you're uncertain about the business situation? What options do you have? Lastly, Antje, could you share your perspective on the outlook for the chemicals basket?

Congratulations on the results. I have a few questions. First, could you elaborate on your plans for debt reduction? Which parts of the capital structure do you intend to prioritize for reduction? Additionally, I believe you mentioned issuing a local bond. What were the proceeds from these bonds used for? If you could provide more details on that, it would be very helpful. My second question is whether you have an estimate of your oil breakeven after your hedging program. Is it correct that your oil breakeven of $55 to $60 per barrel is before accounting for your hedging strategy? Those are my questions.

Yes, there are a few points to address. Regarding the Natref business rescue for PRAX, we were notified in July about the parent company's administration. Currently, PRAX South Africa, as the local shareholder, is operating with our support and assisting their funding group to maintain operations. We will keep a close eye on the situation with Natref. In terms of the debt reduction plan, our main focus is on deleveraging. We have guided a capital allocation of approximately ZAR 24 billion to ZAR 26 billion, with around ZAR 1 billion dedicated to selective growth and transformation for high-return projects. However, any excess cash is being utilized to reduce our balance sheet leverage and reach our USD 3 billion target as quickly as possible. As mentioned previously, we allocated nearly ZAR 13 billion into the RCF in FY '25, with proceeds from Transnet received on June 30 contributing to this. We will continue to add cash to the RCF to ease upcoming bond maturities, which provides us with added flexibility. Currently, financing costs for U.S. bonds are between 9% and 10%, which is significant. We aim to avoid this high cost by using our cash to decrease gross debt and enhance our net debt position. Regarding the oil breakeven, we achieved $59 per barrel this year in our South African operations. We have also added more details in the analyst book on how this is calculated for better transparency. Transnet did have a positive impact, adding roughly $4 per barrel to the breakeven, bringing it to $63 without it. Regardless, as I noted earlier, our free cash flow improved by more than 30% when normalizing for Transnet. This improvement stems from years of collaboration and efforts with both companies, leading to this favorable outcome, which we are pleased with.

Thank you, Adrian. I will begin with the outages, and then Antje will address the chemical basket. Hermann, I will start discussing coal, and you can elaborate. Regarding the outages we experienced this year, we conduct an assessment to determine whether there is a systemic issue or an isolated incident. We have identified the root causes of all significant incidents in our operations to ensure that the lessons learned are integrated by our teams. Therefore, we are confident that we can mitigate these outages. Coal purchases typically come in two forms. We need to view them as such: there is coal that we acquire due to our own productivity challenges or our decisions to mine higher quality areas. Additionally, we have a long-standing contract that was originally with Anglo, which has transitioned to Isibonelo. Currently, we source almost half our coal through this contract, while the other half is due to our productivity challenges. We intend to maintain the long-term contract, so that portion of coal might shift from Isibonelo to another supplier. Now, I’ll let Hermann provide a more detailed explanation regarding coal purchases and our perspectives on this matter.

Thank you, Simon. When we consider coal purchases, we focus on the balance between coal quality, coal volume, and the competitiveness of coal costs. Recently, we shut down certain sections due to quality issues and increased purchases to address this. With the commissioning of the destoning plant in the next six months, we will gradually redeploy the sections that were shut down to meet our commitment of supplying 12% sinks to the factory. Ensuring we provide the right quality of coal to Secunda operations remains our priority as we phase in more of our own production capacity. We are making significant strides in enhancing our operations by increasing drilling, expanding stonework capacity, improving machine maintenance, and adding new infrastructure. However, it’s important to note that it will take 2 to 3 years to fully realize the benefits of these improvements. As we evaluate our coal purchases, these decisions have been driven by quality up to now. As the destoning plant is phased in, we anticipate primarily purchasing coal for volume purposes, which will decrease as we start up more sections. We are also creating flexibility through improvements to increase our capacity by 2 or 3 additional sections, which will help reduce purchases. Ultimately, our buying decisions will depend on the competitiveness of coal prices. If we can procure coal from certain sources at lower rates than what we would incur from our more expensive sources, that will guide our purchasing decisions.

We'll move to Chorus Call in a minute. If before we hand over to Antje, there is another follow-up question relating to the same topic, if I may add. From Sashank Lanka at Bank of America. Your chemicals EBITDA guidance for the international chemicals is assuming which recovery or what kind of recovery in prices. I think that speaks to the view on the basket price as well. Please, Antje.

Thank you, Sashank, for your questions. Last year, the chemical basket price increased due to higher ethylene margins, particularly benefiting us in the U.S., along with rising palm kernel oil prices. All categories in International Chemicals experienced higher market prices, except for alkylates, which saw lower prices due to decreased kerosene prices. When we prepared the budget for 2026, we made some assumptions that indicated lower ethylene margins and also lower palm kernel oil prices for that fiscal year. For us, a crucial factor in enhancing our EBITDA margin is the product mix, prioritizing value over volume. In categories like alkylates, we have pass-through prices with our customers, so we need to incorporate a shift in our budget towards more resilient products in the differentiated market compared to the base chemical market, along with improved customer contracts. Additionally, we implemented many self-help measures aimed at asset improvement and optimization for more reliable assets in fiscal year 2026. In fiscal year 2025, we faced outages due to a fire at our East Cracker until November, followed by an unplanned outage of the West Cracker, which prevented us from fully capitalizing on the higher ethylene prices throughout the year. For this year, we have planned for more reliable assets and also lower feedstock prices.

Thank you, Antje. There are a few more on the International Chemicals portfolio. I think let's address those now as well from online. Jesse Armstrong from Fairtree, and a few more from Sashank as well. Your underlying assumption of the ethylene and ethane prices in the U.S. going forward and volume for the U.S. and Eurasia. That's one theme. I think secondly, also, are you seeing an increase in demand in Europe in this quarter versus previous quarters and the basket price as well. Historically, there was a close link to palm kernel oil prices, but this seems to have diminished somewhat over the last few quarters. If you can comment on that, please?

Yes. Let me start, Tiffany, and Antje can add on. I mean the downturn, I mean, this is a prolonged downturn in the chemical market. We all think you'll only have very, very gradual and slow recovery up to the 2030s. And Antje and the team, and she allude to that now is more focused on the self-help measures. So what can we do to make sure that we ride through the downturn. I think, Antje with that, you can take the rest of the questions.

Yes, thank you, Simon. We do not consider any recovery in the market's geopolitical situation. Trade flows are shifting, and Europe, in particular, remains under pressure; we have not seen an increase in demand in our region over the last quarter. The improved results are partly due to a different mix of products and better access to certain categories. The connection to PKO is still present, along with coconut oil and similar derivatives, which has not decreased over time. We are working to limit our exposure to fluctuations in raw material prices across all traded products in the market.

Okay. Thank you, Antje and Simon, I'm going to ask if there are any questions in the room? Can we give the mic back to Gerhard?

When we spoke at the CMD, you mentioned a significant cost reduction program in the South African value chain, which was still a work in progress at that time. Can you provide more clarity on the specific cost items you are targeting and perhaps some examples of how you plan to reduce these costs? Additionally, how is this affecting your staff morale, given that they have experienced cost reduction programs for many years? I would also like to touch on the volume guidance and pricing in the international chemical business. There appears to have been a shift in your disclosures over the past year regarding production and volumes across many of your businesses, which seems to have affected the overall understanding of the business. Can you explain what has led to this change and share your thoughts on why you are disclosing less information instead of more?

Let me begin with the change in our disclosure. On the international chemicals side, we have removed the volume guidance but provided EBITDA guidance and EBITDA margin disclosure, which we believe offers more value regarding the earnings potential of that business. We will continue to report volumes and prices as before, but we will illustrate the trajectory of our EBITDA performance over time. We may not provide Q1 EBITDA specifically, but we will give overall guidance on whether we are on track to reach $450 million or $550 million. We still need to finalize the internal reporting on a quarterly basis. While it’s less disclosure, it is designed to be more meaningful for understanding the business. Antje often reminds us that it’s about value over volume, and we are aligned on that messaging. Regarding the cost reduction program, Victor can elaborate further. There isn’t just one area we are focusing on; however, we did achieve a 1% reduction in cash fixed costs despite lower internal power generation this year. Last year, we produced a significant amount of power ourselves, but due to production interruptions this year, we had to import more power, which has increased costs significantly. You will see in the analyst book that Eskom tariffs rose by 12% to 14%. We are working hard to return to our own power generation and are pushing for quicker adoption of renewable energy, which is more cost-effective than relying on Eskom. Additionally, Victor mentioned the need to tighten external spending. We are considering what is essential rather than over-specifying projects. Our internal philosophy of “fit for purpose” means we aim for a balance between Sasol specifications and industry standards.

On the labor side, we saw a 3% reduction in our workforce. We have made some changes in our operating model and implemented vacancy freezes. Natural attrition is occurring, and we are being more selective about which positions we fill and which we do not. We are gradually working through the necessary organizational structures. Victor, would you like to add more to this?

No, thank you, Simon. Walt, I think, had sufficiently covered. I think the only thing I would add, though, is I think Gerhard, you spoke about staff morale. And here, we do measure. We measure on a quarterly basis, what we call our pulse survey. And our most recent engagement survey delivered quite promising results, confirming that our employee base is fully engaged in supporting the transformation program that we've embarked upon. Then I would guess it's really about the mindset. I think when it comes to innovation, it's continuous, it's perpetual. And we have primed our organization to view our transformation program from an innovation point of view, continuous improvement point of view. And I think that kind of shows in our engagement survey results. I'll stop there. Back to you, Simon.

Thank you. If I could switch to Chorus Call. There's one question queued.

I have a few questions. Looking at the write-downs for Secunda, you mentioned volumes reaching 7 million tonnes by 2030 and 6.4 million tonnes by 2034. It seems we start at over 7.4 million tonnes in 2028, then decrease to 7 million tonnes and further down to 6.4 million tonnes. Is there any forecast in your model for volumes beyond 2034, for example, for 2040? Also, regarding the sensitivities you've provided for oil and refined products, I noticed that the sensitivity to oil has increased from $35 million to $40 million for every $1 change, but it's surprising that the sensitivity to refined products has decreased per barrel move, especially since you expect volumes to rise at both Secunda and Natref. I would have thought that increased volumes would lead to a higher sensitivity of EBIT to refined margins. I'm curious to know what I'm missing there.

Yes, so let me start on the sensitivity. So I think, first of all, in terms of oil volumes, sensitivity has increased. I think some of that is related to the movement in the price environment. So, you're right, for every $1 movement in oil price, we see a $40 million impact on our performance. I think on the refined products, I think what you're missing is, as we produce higher volumes, our manufacturing expenses will be stricter. This gives us power to be able to optimize our margins more efficiently through some of the new energy-efficient plants we've been putting in place. So as we've operated higher volumes and as we've increased production, we have seen, yes, the numbers go down per barrel; but because of our overall strategy we've put in place, our income isn't going down in the same way. So it’s an optimization on our path to production that we're focusing on. But we aren’t typically hedging refined products. So a lot of that comes through out of the integrated approach that we have to our business. But let me check the analyst book and I’ll get back to you, Alex, on the volume discussion and the models that we've put in place longer-term.

I have a couple more questions. When you mentioned on the call, have you already issued a local rand bond, or is that planned for fiscal year 2026? Also, how much of the expected Synfuels production is already hedged for fiscal years 2026 and 2027? What is the current amount hedged? Those are my last two questions.

Yes, sure. We have already issued the ZAR 5.3 million bond through a private placement, which is listed on the Frankfurt Stock Exchange. In exchange, we received $300 million, and it falls under Sasol Financing International. This was completed in July. Regarding the expected Synfuels production that is already hedged, it's approximately 60%. This includes both Synfuels and a portion of the ORYX output, but the total hedged is around 60%. As I mentioned in previous calls, we do not hedge all chemical volumes because this year, for example, oil prices fell by double digits while chemical basket prices increased by 5%. I know there are many questions about the relationship between chemical prices and oil prices, but currently, due to the demand-supply dynamics in the chemical market, they are more decoupled from oil prices, so we are not hedging those volumes. For fiscal year 2027, we have just opened up our hedging program. Fortunately, we have received a mandate from our Audit Committee to hedge the entire fiscal year 2027, whereas typically we do this on a rolling quarter-by-quarter basis. We are exploring different instruments, keeping in mind that oil is currently trading in the mid-60s. We aim to target a hedge level around 56 to 57 on a net basis, though this may not always be achievable. As you will see in our analyst book, we have initiated some put collar options to start this process in the first quarter.

Thank you, Adrian. I'll begin by discussing the outages, and then Antje will address the chemical basket. Hermann, I'll provide some insights on coal, and you can elaborate further. Regarding the outages we've experienced this year, we conduct regular assessments to identify systematic issues or one-off events. We have analyzed the root causes of all major incidents to ensure that the lessons learned are incorporated by our teams. As a result, we feel confident in our ability to mitigate future outages. When it comes to coal purchases, they typically fall into two categories. First, there is coal we buy due to our own productivity challenges or decisions to mine higher quality sections. Secondly, there is a longstanding contract with Anglo, which has transitioned to Isibonelo. Currently, this contract accounts for nearly half of our coal purchases, while the other half is related to the productivity challenges we face. Moving forward, the long-term contract will remain in place, and we may shift our coal supply from Isibonelo to another source. Now, I’ll turn it over to Hermann to provide a broader perspective on coal purchases and our overall views on the matter.

Thank you, Simon. When we consider coal purchases, we always evaluate the relationship between coal quality, coal volume, and the competitiveness of coal prices that we send to Secunda operations. In the last quarter, we informed you about shutting down certain sections due to quality issues and increasing purchases for that reason. With the commissioning of the destoning plant in the next six months, we will gradually redeploy those sections. We plan to do this in a phased manner to ensure we meet our commitment of supplying 12% sinks to the factory. Our priority remains ensuring we provide the right quality of coal to Secunda operations while phasing in more of our production capacity. We have also made considerable progress in implementing improvements related to drilling, stonework capacity, machine maintenance, and additional infrastructure. However, I would like to remind you that, as mentioned during the Capital Markets Day, it will take 2 to 3 years before we see the full benefits. As we decide on coal purchases, our focus over the last quarter has primarily been on quality. As we phase in our destoning plant, we expect to mainly purchase for volume needs, which should decrease as we start up more sections. We are working on creating flexibility through these improvements and ensuring we can expand our capacity by 2 or 3 sections to lessen our purchases. Ultimately, our purchasing decisions will depend on the competitiveness of coal. If we find cheaper rates from selected sources than what we can mine from our more expensive sources, that will guide our coal purchase decisions.

Thank you, Hermann. So we are making good progress on the supply chain. There's a lot of excitement. We are firing on all cylinders. We're looking at the whole supply chain. As we continue this journey, we will expect good results. I want to thank the team involved across all our projects. Our principle about people as a bedrock to this business remains true. Our people are excited; they are people-focused. Together we are going to ensure that we can transition effectively with you.