Sasol, Ltd. ADR SSL
Q2 2013 Earnings Call Transcript
Transcript Call Date 03/11/2013

Operator: Good morning and good afternoon ladies and gentlemen. Welcome to Sasol Interim Financial Results Conference Call. Today's call will be hosted by David Constable, Chief Executive Officer, and Christine Ramon, Chief financial Officer. Following their formal presentation by Sasol management, an interactive Q&A session will be available. A copy of today's slide presentation is available on www.sasol.com. I'd now like to hand the call over to David Constable. Please go ahead sir.

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

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

Turning to Slide 4 of the presentation, which you have in front of you, let me start with an overview of what you're going to hear today. I'll begin by providing with some context to support how resilient we are notwithstanding the challenging global environment of the past 4.5 years. We will then spend some time highlighting the key milestones we've achieved during the first half of the 2013 financial year. Christine will go into more detail on the strong financial and operational performance of our businesses. I will then talk to you about the advancements we've made on our growth projects; in particular, I'll highlight how we're approaching investment decisions on our strategic projects in the U.S. We'll wrap up the presentation by summarizing why Sasol remains an extremely compelling investment proposition, and open it up to those on the call to ask us any questions you may have.

Let's turn to Slide 5. It's fair to say that since 2009 three key factors have been influencing the nature and extent of the investment decisions that are taken by corporates worldwide. Number one, a persisting global economic crisis; two, international socio-political instability; and number three, commodity market volatility. These factors have also had a chilling effect on economic growth, impacting in large part both the private and public sectors.

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

Slide 6 is self-explanatory. I will not talk to this slide.

Next, Slide 7 reflects the positive contributions we continue to make on a number of fronts in South Africa and abroad. I will not talk to the specifics listed here. Instead, let me just briefly talk to one issue. As we know all too well, South Africa has been rocked by social and labor unrest. The events of the past eight months have not only impacted business operations primarily in the mining, transport and agricultural sectors, but also the country as a whole.

At Sasol, we've been proactively addressing many of the socioeconomic challenges faced by our workforce, our unions and the communities in which we live and work. Our efforts in this area began well before the Marikana tragedy at Lonmin's platinum operations. The slide highlights some of our key contributions to education, skill enhancement, community upliftment, and enterprise development in the first half of FY '13. Importantly, these proactive efforts have effectively kept Sasol out of the fray, thereby allowing us to continue to run our operations reliably.

Moving on to Slide 8, key milestones in South Africa in the first half, let me just talk to the last bullet on this slide, specifically our electricity initiative in Sasolburg. Our ZAR1.9 billion gas-fired power generation plant is producing 140 megawatts of power. The plant was commissioned last December. Traditionally, natural gas-powered plants are quicker to build, taking between 20 to 30 months. Our Sasolburg plant took only 16 months from starting construction to full commissioning, a resounding success, which was made possible by the collective efforts of many, including the Department of Energy, our contractors and our New Energy team.

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

Next moving on to Slide 9, and what we delivered in terms of our global projects in the first half of this financial year. You remember on December 3, which is the same day of our last conference call at our facility in Lake Charles, Louisiana, we announced that we’ll proceed with the front-end engineering and design phases for our strategic projects in the United States; a world-scale ethane cracker and derivatives plant, and an integrated gas-to-liquids and chemicals facility.

Our integrated project management team in the U.S. will ensure that we adequately manage and suitably mitigate potential project execution risks. Well before taking our final investment decisions, the team will advise on the sequencing of the projects so that we can meet our gearing targets and our progressive dividend policy guidelines.

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

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

Turning to our operations highlights on Slide 10, the Sasol team delivered a solid operational performance. The ORYX GTL continues to achieve new production records. For the first half of the year, the average production was once again above 90% of design capacity.

At Synfuels, decisive management action and improved plant efficiencies have resulted in a production performance of 3.7 million tons for the half year, this, notwithstanding a major phased shutdown last September. In Iran, Arya Polymers achieved a utilization rate of 84% despite a very challenging business and operating environment. Most importantly, safety remains a strategic imperative for us. We have, by and large, seen marked improvements and ended the half year with recordable case rate, excluding illnesses, of 0.32. This was the lowest level achieved in the Company's 63-year history, and includes an outstanding RCR of zero delivered by ORYX GTL in Qatar.

Before I hand you over to Christine, let me move onto Slide 11 and set the scene for her by summarizing our financial performance for the half year. Noteworthy was that Sasol Synfuels' production was up 10% compared to the prior period. Excluding once-offs, our operating profit was up 9% to ZAR22.6 billion, passing operating margin of 26.5%. Headline earnings per share were up 2% to ZAR24.01, and cash flow from operations were up 6% to ZAR27.5 billion, enabling an interim dividend of ZAR5.70 per share, another solid result which remains aligned with the progressive dividend policy.

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

Christine Ramon - CFO: Thanks, David, and good morning and good afternoon, ladies and gentlemen. It is my pleasure to present another solid state of results to you today, which is well within the guided earnings range previously announced to the market. Before moving to the detail of the results, I'd like to make a few introductory remarks.

First, management's continued focus on factors within our control has resulted in production volume targets in our key businesses being exceeded, with Sasol Synfuels and ORYX GTL leading the way. Second, we have demonstrated our commitment to our progressive dividend policy by maintaining our dividend despite the significant impact of impairments and other once-off charges. Finally, we continue to demonstrate our resilience amidst a still volatile and uncertain global economic environment through our healthy cash flow generation across our businesses, which underpins our strong balance sheet.

Moving to Slide 13, the first half of financial year '13 was characterized by predominantly favorable, although volatile, macro environment. The global economy struggled at a slow pace with signs of a recovery evident only towards the end of 2012.

China slowed to a more moderate growth rate, while weaker demand in Europe, as lower growth rate in emerging markets and the U.S. remain a concern. Although oil prices remained strong throughout most of the period under review, they were on average marginally lower than the comparable period, while the rand/dollar exchange rate was 11% weaker.

Just to contextualize the overall impact on Sasol, a weaker rand is positive for Group profitability. However, it has a negative effect on cost inflation. As we've shown, we have – gas prices were also lower, but trended upwards towards the end of 2012. Although, lower prices have a negative impact on our Canadian operations in the short-term, they remain positive for our long-term GTL value proposition as well as our chemical operations in the U.S., which utilize gas ethane feed.

As expected, the chemicals market remained challenging, as chemical prices continue to soften on the back of weaker demand in downstream markets. Coupled with higher feedstock prices, the industry continued to experience margin squeeze. We remain sensitive to oil prices and the rand/dollar exchange rate, and we remind you about sensitivity to each of these variables, which we issue (without) warning in uncertain markets. We estimate that a $0.10 change in the annual average rand/dollar exchange rate will affect our operating profit by approximately ZAR860 million, while a $1 per barrel change in the average annual crude oil price will affect our operating profit by approximately ZAR621 million.

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

ORYX GTL, our GTL technology showcase, delivered an excellent operational performance in our international energy cluster. Our chemical businesses, however, continued to experience margins decrease due to challenging market conditions. In addition, the partial impairment and translation losses relating to Arya offset the full profit contribution from our chemical businesses. Overall, our international businesses, including the Mozambique value chain contributed approximately 20% to Group operating profit, bringing good geographic balance to our portfolio, with Europe, North America and the Middle East being the main contributors.

Moving to Slide 15; the first half of financial year '13 was challenging from a South African cost perspective, particularly in respect of labor, maintenance and electricity costs. South African PPI for the period averaged 5.1%, while CPI was 5.4%. Coupled with the weaker rand/dollar exchange rate, this contributed to a challenging South African cost environment.

The impact of inflation, exchange rate effects and electricity price increases, all uncontrollable factors, contributed 9% to the total increase in cash fixed costs. Growth and study costs added a further 2%, while plant maintenance and increased labor head count costs combined added a further 5%. Our main cost drivers are labor and energy, with labor comprising 60% of total cash fixed costs. Labor costs for the year are expected to increase ahead of PPI inflation, with the wage settlements with the trade unions for financial year '13 averaging at about 8% before adding growth related labor costs.

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

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

Moving to Slide 16, the SA Energy cluster underpinned Group profits and cash flow generation, contributing almost 90% to Group profitability. Operating profits increased by 24% and most of the SA Energy businesses expanded operating margins.

Sasol Mining's operating profit increased by 30%, despite a marginal reduction in production volume; profits were supported by higher sales prices and volumes to Sasol Synfuels as well as the weaker rand. Sasol Gas benefited from improved sales prices and an 8% increase in sales volumes due to increased Synfuels demand, supporting a 39% increase in operating profits and an expansion in the operating margin by 6% to 50%.

Synfuels contributed about three-quarters of the SA energy cluster’s operating profit, maintaining an operating margin of 45%, benefiting from the higher average rand oil prices. As David said earlier, Synfuels continued to deliver an exceptional production performance, increasing volumes by 10% on the back of plant stability and the rollout of the growth program. Synfuels' cash unit costs, however, increased by mid-13% after realizing 5% operational efficiency. The increase was mainly due to higher feedstock costs, which are largely internal to the Group, as well as increased maintenance and energy costs. Management is focusing on optimizing maintenance costs over the longer-term.

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

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

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

SPI recorded an operating loss for the period despite higher volumes in Mozambique and Canada. Depreciation had a marked impact on our Canadian upstream profit, totaling ZAR803 million for the period, as well as the dry well write-off in Mozambique. Although the asset remains under pressure in the short term due to depressed North American natural gas prices, it remained cash positive for the period under review.

We will continue de-risking and developing the gas fields with three rigs, and estimate development cost at about C$500 million for financial year '13. It is pleasing to note the positive trend observed in drilling times and in drilling and completion costs, which are now approaching our investment case numbers.

Slide 18, our chemicals business performance reflect margin pressure due to weak demand and continued margin contraction. As alluded to earlier, the partial impairment and translation losses related to Arya have eroded chemical's profitability in this period. This is not a Sasol specific issue. There has been an erosion of profitability in the chemical industry in general, with several companies’ restructurings announced.

As profits continue to decline, similar to major chemical companies, we have responded through concerted efforts to reduce costs and improve operational efficiencies with a focus on business basics. We also remain focused on margin optimization activities and working capital management.

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

The international Polymers business contribution amounted to ZAR1.7 billion, excluding the impact of the Arya impairment and translation losses. Arya delivered a solid performance, achieving an average capacity utilization rate of 84%. We are pleased to announce that we have concluded a Memorandum of Understanding with an interested party regarding the disposal of Arya. With effect from 28 February, the investment will be classified as held-for-sale and further announcements will be made once more progress has been made.

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

Slide 19, the solid operational performance has underpinned continued healthy cash flow generation across our businesses. Our strong balance sheet positions us uniquely to fund the steady advancement of our attractive growth projects and fund our progressive dividend policy amidst the still volatile and uncertain global economic environment without having to dispose of assets. We've maintained our capital investment estimate for 2013 of ZAR32 billion, and increased the estimate for 2014 by ZAR1 billion to ZAR35 billion.

Approximately 60% of these capital investments will be spent in South Africa over the next two years, while a large portion of future capital investments will be allocated to growth projects in the international energy and chemicals businesses, which is in line with our growth strategy. We remain committed to delivering on our stated targeted returns when advancing our growth strategy and allocating capital in a way that delivers sustainable value to shareholders.

In addition, through our capital excellence program, we have implemented a more robust and streamlined capital governance process. We are pleased to note significant early gain, especially in terms of avoiding costs and improving project benefits. Our balance sheet gearing remains low at 6.6%. We are comfortable that we will manage long-term gearing within our targeted range, taking into account the phasing of our U.S. growth projects, our progressive dividend policy, as well as catering for a buffer for volatility.

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

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

Slide 21, profit outlook. We expect the global environment and the South African economy to maintain a modest recovery into the financial year. Although the resolution of the Eurozone debt crisis and concerns regarding the U.S. debt ceiling remains uncertain, we, therefore, remain cautious on the volatile and uncertain macroeconomic environment. This impacts our assumptions in respect of stable oil prices, which have been range bound in recent months.

Volatile product prices, stronger refining margins, and a weaker rand/dollar exchange rate, set against this backdrop, we continue to focus on factors within our control, being volume growth, margin improvement and cost reduction. We expect some overall solid production performance for financial year '13.

Synfuels remains on track to deliver between 7.2 million to 7.4 million tons of product, which is unchanged from previous guidance. Internationally, we expect ORYX GTL to maintain full year utilization rate of between 80% and 90% due to a planned shutdown in the second half.

With Arya, between 75% and 80% due to feedstock constraints, and in Canada we expect volumes to remain flat, taking into account that we have reduced our drilling rigs. However, the South African cost environment remains challenging. We expect normalized cash fixed costs to increase above South African PPI inflation, as we incur costs to improve plant stability and due to the effects of the weaker rand and higher energy costs on our South African businesses. As detailed in some depth earlier, cost optimization and reduction is a key focus area for management. Expect more news flow on those in future.

In the recent budget speech, the finance minister proposed a carbon tax of ZAR120 per ton with effect from January 1, 2015, increasing by 10% per annum for five years. CTL and GTL will receive a 60% basic exemption, with additional allowances for emissions-intensive and trade-exposed industries. We expect an updated policy paper at 8 March, 2013, and continue to engage with government in this regard. Until we obtain further clarity, we are unable to provide guidance on the impact on Group profits. In our chemical businesses, we expect pressure on our South African polymers operating margins to continue, but we are positive that the turnaround program will begin to yield positive results.

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

In conclusion, management's continued focus on factors within our control has resulted in a solid operational performance in a challenging environment, delivering improved first half profitability excluding the impact of significant once-off charges.

Our strong balance sheet and healthy cash flows positions Sasol well to (on-site starting) growth projects and deliver attractive returns to our shareholders amidst the still volatile and uncertain global economic environment. We are comfortable that we will manage long-term gearing within our targeted range of 20% to 40%, taking into account the phasing of our U.S. growth projects, our progressive dividend policy, as well as catering for a buffer for volatility, allowing us to continue to consistently return sustainable value to our shareholders.

On that note, I would like to hand back to David.

David E. Constable - CEO: Thank you, Christine. I’ve just got about five slides to close off here. So looking at Slide 23, to reach our overarching goal of delivering shareholder value sustainably, it's important that we have a focused and advancing project pipeline. As you can see here, many of our projects have now moved into their FEED and EPC phases. I will not go through the entire list, but rather I’d like to provide you with an update on two of the projects.

First, our FT Wax Expansion Project in Sasolburg; the commissioning of the new Slurry Bed Reactor, which is critically important for the capacity expansion, is expected to take place at the end of this calendar year. Although phase 1 of the project is progressing, the original budget of ZAR8.4 billion is under pressure. We are assessing the capital cost of the entire project both phases 1 and 2 as well as other key parameters, and will provide you with a further update later this year.

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

Slide 24, as I mentioned earlier, at the end of last year, in the U.S. we announced that we are progressing our world-scale ethane cracker and derivatives plant and a gas-to-liquids and integrated chemicals facility to their FEED phases.

Over and above the project funding requirements, which Christine and her team are progressing, our investment decisions are guided by a rigorous business development and implementation gated process. To provide you with greater insight as to what informs our investment decisions at a high level, we thought it would be useful to review four of the key questions we ask ourselves in addition to ensuring that our projects will comfortably achieve their hurdle rates.

First of all, do we have access to a low-cost feedstock that provides us with a competitive advantage? Second, do we have a technology or manufacturing platform that is better than our competitors? Here, we look not only at the technology itself, but also at the scale of the plant in question and whether we have the requisite operating know-how.

Third, we assess whether we have a product or market position that allows us to be competitive. Finally, we evaluate whether we have the required project execution capability to deliver the project in question.

On to Slide 25, if we consider our proposed investments in the United States, we are very encouraged by the critically important answers to the questions we have posed.

First question, do we have a leading low-cost feedstock position, the following key factors are relevant. First, the U.S. has access to low-cost ethane and natural gas, which places us in an extremely favorable position when we look at both our Lake Charles Chemicals and GTL projects; second, the rapid growth in gas supply and overall gas market dynamics support our U.S. growth Aspirations; and third and key, is a strong arbitrage between diesel and natural gas prices which play directly into our value proposition.

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

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

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

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

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

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

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

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

Looking at new growth opportunities, in North America, in particular, we are well-positioned to capitalize on the low feedstock prices to meet America's demand for high quality fuels and chemicals. Our growth strategy remains a compelling one. We have a focused and strong project pipeline with several strategic projects well down the track.

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

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

I'll now turn it back to the operator for any questions. Christine?

Transcript Call Date 03/11/2013

Operator: Jarrett Geldenhuys, Deutsche Bank.

Jarrett Geldenhuys - Deutsche Bank: Two questions, if I may. The first one is related to the dividend policy. As I understand it, at the moment it's based on EPS. Is there any change to it that we could potentially shift this to a cash-based model or an EPS number, or what are your thoughts around the dividend policy going forward? Second question relates, potentially one for Andre, just related to the South African Polymers margins. Just with all else being equal, can you give us some kind of margin upside, which we could expect from the EPU5 plant and the C3 stabilization? Then just the last question from my side is just on the exploration. On Slide 23, you've given us quite a nice breakdown of all the potential drill sites for the next couple of years. Can you just breakdown the costs, as well as the timing, specifically in Mozambique and Botswana?

David E. Constable - CEO: It sounds like we've got some static on the line, but we'll soldier through here; if Christine could take the dividend question first, please.

Christine Ramon - CFO: I think, firstly, we are committed to our progressive dividend policy and delivering superior returns to our shareholders. I think, quite importantly, our dividend has always been based on EPS and our (EBIT) going forward, that we will maintain that. I think with the progressive dividend policy, like we've demonstrated, that we will at least maintain the dividend for the year, like we've actually done at the interim and we'll certainly update it going forward. I think declaring the dividend based on EPS certainly does provide shareholders with a certain amount of predictability into what our sustainable earnings label is going forward, and therefore, we do not predict that we will actually change it.

David E. Constable - CEO: Thanks, Christine. On to EPU5, which is scheduled for completion this year and C3 stabilization scheduled for completion in calendar year '14 delivering benefits, Andre?

Andre De Ruyter - Senior Group Executive, Operations: Yes. Just a quick reminder, what we're trying to do with EPU5 is to extract additional quantities of ethylene so that we can run Poly 2 and 3 in Sasolburg at full capacity. We are also investigating the opportunity whether there is a chance for us to optimize some of our smaller and less efficient cracker assets along the way, and this is part of the turnaround that Christine referred to earlier. So I can't give you a firm number to play into your model, unfortunately. This is work in progress and within the scope of the turnaround that is in progress. On C3 stabilization, again, this is to introduce a measure of stability in the C3 value chain. It is intended to reduce flaring losses, which at this point in time is quite considerable. So we want to cut that down by building storage capacity for C3 feedstock into our polypropylene value chain. We anticipate that with the improved availability of both our polyethylene as well as our polypropylene assets, that those assets will have a significantly enhanced return on invested capital.

David E. Constable - CEO: Thanks, Andre. Next question is on drilling in Mozambique and Botswana. Giullean, I know that Inhassoro, with the oil we are starting a field development plan over the next couple of years. So, we are excited about that, but maybe you could talk a little bit about Sofala and Block A and then Botswana, the coal bed methane?

Giullean Johann Strauss - Senior Group Executive, New Business Development, Sasol Petroleum International, Sasol Synfuels Inte: Thanks, David. Yes, jumping back on Inhassoro, though we have 24 months to provide the development plan, obviously, given the encouraging results we have with the test log, we would like to accelerate that and bring that forward as soon as possible. Botswana, we currently are busy drilling the nine core holes, and we would like to complete this during the first half of this year. Block A, we are doing seismic, and we will also complete the seismic this year. After that, we will take a decision if we will build exploration wells. Sofala, we have done the seismic in Sofala, but exploration will only happen during calendar year 2014. Australia, we affirm that downward to (Shell), hopefully, we will drill exploration well during the second half of this year. Offshore South Africa, offshore (indiscernible) we're just busy with technical evaluation there, so no decision yet on when we will do seismic.

Operator: Caroline Learmonth, Absa Capital.

Caroline Learmonth - Absa Capital: On U.S. GTL, can you comment please on what you see as some of the key aspects of potential execution risk and, in particular, I'm interested in any technology risk in terms of what you are adopting or intend to adopt at U.S. GTL versus existing GTL projects? Secondly, could you give us any guidance on what tax incentives you are likely to receive on that project in what areas and what magnitude? Then just finally on cost inflation in South Africa, clearly, it's a difficult target in terms of your PPI target. What is a more sustainable target or achievable target in your view in the longer term? Thank you.

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

Giullean Johann Strauss - Senior Group Executive, New Business Development, Sasol Petroleum International, Sasol Synfuels Inte: I can just comment on technology risk. We very much like to duplicate the ORYX model. It is more of the same ATRs and the same product work up unit. The GTL reactors will be bigger. It’s the same GTL reactor in terms of size, but we are changing the internals a little bit, we are changing the velocity, we are changing the heat extraction. But we are really comfortable with the phase that we run in Sasolburg that we can scale up the performance of the GTL reactors further ways, very much try and duplicate (construct) standard as per ORYX GTL.

David E. Constable - CEO: Then on to – anything else on that before we go to tax incentives, Andre? You want to make any other comments on risks? The cracker, of course, is of-the-shelf technology.

Andre De Ruyter - Senior Group Executive, Operations: I think it's fair to acknowledge that there is a risk that the labor market can get overheated, in that there could be a skill shortage. I think what we are trying to do with regard to that is to modularize as much as possible the units that we intend to build on-site. So that will reduce the congestion on-site and that will also allow us to make better use of workforce in the surrounding area, possibly even importing some units and shunting them in by barge but next to our site. So that allows us to make use of a low cost country procurement approach.

David E. Constable - CEO: Yes. Just if I could interject; you also get much better productivity in a controlled environment and in the shop as well. So it adds a lot of benefits.

Andre De Ruyter - Senior Group Executive, Operations: That's right. Then I think David's referred to the (indiscernible) I think was very important in the areas that we are going to use contractors with proven systems and experience in the Gulf area. So that will, I think, play a significant role in reducing risk further. We have also negotiated a training facility to the tune of about $20 million, which the state of Louisiana is going to build for us. We will use that training facility to not only train artisans and personnel that will participate and work in the commissioning and running of the facility once it's completed, but we will also use that facilitate to train up labor that will participate in the construction of these mega-projects. Then lastly, I think one of the key lessons that Sasol has learned quite frankly over the years is that we have to do more engineering before we start construction, and this is one of the reasons why we opted for a phased approach on the GTL facilities and we think this will play a significant role again in mitigating the risks. Then, Caroline, you asked about the incentives in Louisiana. I think that these have played a significant role in facilitating our decision. I think David said, without these incentives, we are still easily exceeding our hurdle rates. These are not prerequisites, but they have played a significant role in enhancing budget returns. These include industrial investment allowances. They include federal tax rebates, et cetera. We have not at this point in time disclosed the full magnitude of them, as there are commercial sensitivities surrounding that.

David E. Constable - CEO: Then on to the cost inflation question, and as we all know labor rate, the salaries increase at well over PPI. Christine, can you talk through that question?

Christine Ramon - CFO: Yeah. I think, David, Caroline would like to know what is our achievable target in the longer term. I think it would be fair to say that we would like to beat inflation in the longer term, and I think factors that – or strategies that we’re actually deploying at this point we plan to improving the (key) generation in the Group and looking at procurement and maintenance strategies is what we're actually focusing on at this point in time, and in addition to that we're driving more for shared services across the Group. But I think give us some time to analyze most of the drivers behind these cost increases. We believe that there are some quick ways to take out certain costs as well, but we'll able to put out a target to you in the nearer term. At this point in, time given that there are some issues that we actually still having to deal with in this financial year, we're still expecting cost inflation to be ahead of PPI.

Operator: Gerhard Engelbrecht, Macquarie Capital.

Gerhard Engelbrecht - Macquarie Capital: Got a couple of questions. Firstly, it looks to me like your salaries and wage bill has gone up by 15%, which is substantially above inflation, and also above the rate that you negotiated with unions last year. I guess, could you explain that please, and could you maybe talk around issues that you have in retaining skilled people? That's the first one. It's a number of years now that you've been talking about extraordinary maintenance at the Synfuels site, since three or four years. I mean, when does this actually come to an end? It seems to happen every year that there is extraordinary maintenance, and maintenance is higher than we thought. Then what is normal for maintenance expenditures at Synfuels? Then lastly, it's now two years running that your fuel volumes that you're selling in South Africa have declined. Can you maybe talk around the increased competition from volumes in the new pipeline and your market share, and what is happening there on that front?

David E. Constable - CEO: We've got salary and wages up. We've got a maintenance question on Synfuels and fuel volumes, what's happening with the NMPP. So, I think I'll turn to Christine about the salary and wages over and above the negotiations.

Christine Ramon - CFO: Gerhard, maybe we need to have an offline on how you calculate your 15%. But I think, like we said, wage inflation has been set at 8% and we pretty much see that for the rest of the Group. I think where the difference is coming in is that we've had to increase the headcount in some of our businesses, like Sasol Technology, Sasol Petroleum International in particular, and certain increases in SSI as well. Clearly, we see this is gearing up for growth in supporting our growth projects and specific (key geographies) going forward.

David E. Constable - CEO: On to maintenance at Synfuels and what we can expect there, Bernard?

Bernard Klingenberg - Group Executive, South African Energy businesses: Thanks, David. This is Bernard. Just in terms of the maintenance cost at Synfuels, we've said before that we are really into our second or third year of very deliberate restoration program in terms of increased maintenance costs. As Christine said earlier on, we are moving into a period in the next two to three years of optimizing again on that maintenance cost. So, there was a deliberate attempt to spend more money on maintenance and we are seeing that come through in greater stability in terms of volumes. But we do recognize that we now need to move into an optimization timeframe on that. Also driven a little bit in the last years by additional equipment, new plants of the 17th reformer, and the additional plants that we have, obviously, do have a slight impact on the overall maintenance costs.

Gerhard Engelbrecht - Macquarie Capital: Sorry, Bernard, may I just ask what's the normal (indiscernible)?

Bernard Klingenberg - Group Executive, South African Energy businesses: Gerhard, (indiscernible), we anticipate that the maintenance costs will stabilize and we will look to reducing and optimizing maintenance costs a little bit.

Christine Ramon - CFO: Yeah. So, Gerhard, we are expecting maintenance in the past year, past financial year, full year, was about – we've guided around between ZAR3 billion to ZAR3.5 billion, and so we see that sort of as normalized maintenance going forward, and that equates to about 2.5% to 3% of the equipment replace value at Synfuels.

David E. Constable - CEO: Thanks, Bernard, and thanks, Christine. On to fuel volumes and the concern around lower demand combined with the commissioning of the NMPP, it may result in increased competition in the inland market. Our estimation is that petrol demand was marginally down, less than 1% over the last year, while in fact diesel growth was positive, and inland production from Sasol and our partner at Natref supplies roughly 60% of the demand, and the NMPP really debottlenecks the coast to inland logistics, but does not make Sasol product any less competitive or make it uncompetitive.

Operator: Nishal Ramloutan, UBS.

Nishal Ramloutan - UBS: Just a couple of things from my side. One thing is just on Synfuel's production. If you annualize H1 production, it gets to over 7.4 million tons. We're still keeping the guidance of 7.2 million to 7.4 million tons. Don't you think that's a bit light considering that you did have that shutdown in H1? Also what's the impact of the GHHERs to capacity, considering that as you said you've already achieved this 7.4 million tons annualized number out of Synfuel? Then just for that Inhassoro field in Mozambique, what’s the potential of the field in terms of production of light oil, and what are you looking at actually getting out of there? And just on the Polymer cost savings programs, maybe can you just provide some color in terms of what you're targeting for cost saving of that program in terms of turning that business around?

David E. Constable - CEO: So let me – the first one is on Synfuel's production and guidance including the GHHERs, and what we can see there for the production guidance. I'll give that to Bernard to start with.

Bernard Klingenberg - Group Executive, South African Energy businesses: Thanks, David. Nishal, yes, to some extent you've answered the question with your commentary. In the first half of the year, we had the shutdown which impacted the overall production at Synfuel. Now we're busy with the first implementation of the GHHERs, and as a consequence we have kept the guidance similar for the two halves of the year, because the GHHER certainly does have an impact. It will depend eventually on exactly how long it takes us to get those plant – the GHHER up and running, but that's why we've kept the guidance essentially the same for the two parts of the year.

Giullean Johann Strauss - Senior Group Executive, New Business Development, Sasol Petroleum International, Sasol Synfuels Inte: Thanks, Bernard. I think we'll go to question on Inhassoro, I believe, was your question. We've only around – producing to one well. It produced between 1,000 and 1,500 barrels per day. We believe that’s sustainable. The good question (indiscernible) can we put online collectively. That's what we have to determine now in the work that we are going to do in this development program, but we’re looking at least to put two wells into operation simultaneously. But we will let you know in the time to come, probably before the end of this year, how much we can expect from that field (simultaneous) reduction.

David E. Constable - CEO: Thanks, Leon. Nishal, could you just ask your Polymers question one more time so that we could hear that question again?

Nishal Ramloutan - UBS: I just wanted to get some indication of what sort of cost savings (indiscernible) as general strategy. Maybe can you give some – just a bit of color in terms of what exactly you are physically trying to do?

David E. Constable - CEO: Cost savings out of the business turnaround, okay, and then guidance there, or at least some comments on it, first of all, and we will start with that.

Andre De Ruyter - Senior Group Executive, Operations: I think it's a bit premature to go for a number, because I know that in six months' time you will ask me exactly what that number was. So I will take the first on that one. But we are certainly targeting double digit decreases in cash fixed costs in our chemicals businesses. We believe that that's possible through a restructuring of our management as well as our operating structure. We also believe that with changes to our Management Information Systems that we can enable significant savings to be brought about. However, we will, of course, have to spend some money in order to unlock this value, and this is part of the scoping process that's currently going on as we kick off the turnaround process, not only for Polymers, but also for the rest of the South African Chemical business.

Operator: Alex Comer, JPMorgan.

Alex Comer - JPMorgan: Yeah, I've got a few questions, if you don't mind. Firstly, on Polymers, you talk to the pressures in the business from rising feedstock cost and weak pricing, but if I look at the numbers, if I – it looks to me like your average Polymer selling price was flat; the basic fuel price was down a bit. So what exactly is going on there in terms of why it's probably fallen so much? The first question. Then on O&S, it looks to me like the light oil prices continued to fall, so I just wonder if you could comment on what happened to European profits since the end of the quarter. On costs, I'm slightly surprised that you comment on your – analyzing your cash fixed cost drivers to identify opportunities. If 60% of your cash fixed costs are labor, is it not fairly obvious where the opportunity lies, particularly when you look at the level of employment for the 5.5 million tons that you are going to produce in the U.S., given what obviously we have in South Africa? Then finally, regarding your CapEx targets in the U.S. and what you can do to control spending there, I wonder whether you've considered linking the ultimate CapEx spend to senior management remuneration and bonuses. Those are my questions.

David E. Constable - CEO: Thanks, Alex, for all those questions. We'll start with Polymers and the pressure it’s seeing and, Andre, could you walk us through some of that?

Andre De Ruyter - Senior Group Executive, Operations: I'm not quite sure where you get your numbers from. The numbers that we use in terms of Polymers in rand per ton, if you refer to Page 13 of the presentation that we showed earlier, you can see there that Polymer prices did go up in rand terms by about 8%. However, fuel products, which forms the basis of the fuel percentage value, that went up by 13%, so hence the margin squeeze that we refer to. Maybe if you have different numbers, then when we meet we can unpack the numbers and see…

Alex Comer - JPMorgan: I'm just taking your reported numbers divided by the number of tons you produced (indiscernible).

David E. Constable - CEO: O&S, lauric oil…

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

David E. Constable - CEO: Thanks, Andre. On to the cash fixed costs, yes, 60% of our cash fixed costs are labor driven, and levels of employment in SA will be – are sitting and will sit higher than what we will see in the U.S. We are focused on exactly, not only supply chain and procurement reduction and maintenance reduction, electricity costs reduction, as Christine has talked to, but we had a real drive in the Company to look at labor across all the businesses and functions. We have an exercise ongoing right now. We are doing a cost optimization diagnostics, which the GEC is sponsoring, and we are looking at each business and each function and looking at span of control, levels of management, and also looking out into the businesses, into the operations as well. So more to come on that, but we are leaving no stone unturned when it comes to labor costs in the Company. Christine?

Christine Ramon - CFO: I think that the last question that Alex had was CapEx targets in the U.S. and linking senior management remuneration and bonuses.

David E. Constable - CEO: I thought you had a comment on cash fixed costs.

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

David E. Constable - CEO: So you want to talk – we will talk a little bit about bonuses tied to CapEx. I think our short-term and long term incentives, they are structured effectively. I think, going forward, the way we execute these projects will certainly reflect in management's annual scorecards and will feature prominently in how people are evaluated, how management is evaluating, not only at the GEC level, at the Managing Director level, at the functional levels, and into Sasol technology where product execution is supported. So your points are well taken and we expect that those types of parameters will feature in scorecards going forward on the capital work.

Operator: Tassin Meyer, Citigroup.

Tassin Meyer - Citigroup: Just two questions. Firstly, given the volatility or the rising volatility we've seen in crude prices in recent weeks, plus Sasol's clear ambition in terms of CapEx spend over the next few years, can you give an update on how you view hedging crude and potentially currency as well, I guess, if you consider that at this stage, are you looking at redoing your crude hedging policy? Then the second question I have is just in terms of your Synfuels production, very strong 10% improvement in the production over there. But just to give an idea of that breakdown, will any further gains in production come fairly from your chemical feedstock stream, or could we see an improvement in refined product volumes as well from Synfuels? Within that contribution between – or that split between growth, can you give an idea of impact on profitability between refined products and chemical feedstock in Synfuels?

David E. Constable - CEO: The volatile oil price and hedging policy, certainly hedging is risk mitigation tool that we can use as required. We are deleveraged on the balance sheet, so it doesn't feature too heavily right now, but Christine continues to monitor the spreads and the options that are available to us on oil price hedging, and that's where we are right now. We don't foresee anything in the near future on hedging again because of our strong balance sheet. I think that's where we're at right now. We'll continue to monitor to see if there is opportunity. We have done it in the past and have been successful, and sometimes not so successful. So it's something you don't go into lightly on hedging. Synfuels production in the splits, as we increase our production out there and the split between refined product and chemicals, Bernard, you want to take that one?

Bernard Klingenberg - Group Executive, South African Energy businesses: Thanks, David. I think the – as the volume for Synfuels increases the ratio of chemicals to fuel stays more or less the same. But through re-planning and optimization, we do look to optimize where possible in terms of the values of the different product streams. Then the other comment to make is that most of our transfer pricing is at fuel alternative value, so that also talks a little bit to the optimization.

Operator: Nic Dinham, BNP Paribas.

Nic Dinham - BNP Paribas: It sounds like – I don’t know everyone can hear me, but it sounds like you’re broadcasting shortwave somewhere. Is that better? Can you hear me? Firstly, a quick question on GTL, couple of questions on GTL. You have classified GTL as a proven technology, yet for the last few years you have been unable to predict the utilization rate at ORYX within this and 10% parameters, and I don't believe that matches the definition of a proven technology. That's the first point. The second question is the Escravos, what's happening there? Thirdly, on ORYX, when are you going into a tax paying situation at ORYX, and what do you think the tax rates are going to be? It's been a very secretive question – issue, and I wondered if you could answer that for me. I have got some more questions after that.

David E. Constable - CEO: We have got time for obviously one question, but we will try to answer all three of them. GTL, proven technology, Leon certainly, any comments on that?

Giullean Johann Strauss - Senior Group Executive, New Business Development, Sasol Petroleum International, Sasol Synfuels Inte: Yes. I think the technology is working very well for us. We – our conversion rate from gas to final production as is per our plan. Yes, you are right. I think our unit availability at the plant was not so good in the past, but I think we have demonstrated running at 93% availability the last six months, and actually we plan to improve on that. So we are very satisfied with the way ORYX performs. As far as Escravos is concerned, RFC, ready for commission, by mid-year and we are planning beneficial operation by the end of this calendar year. As far as our tax regime is concerned, unfortunately, that's commercial confidential information. I don’t think we have made that public in the past and I think, unfortunately, that's to stay. I don't know, Christine, what if you can (give here) and what I can say here, so…

Christine Ramon - CFO: Yeah. I would say that it's fair to say that there is a 10-year tax holiday that we factored in, so 2017 is the year that we would have to start paying tax.

David E. Constable - CEO: Thanks, Nic, for your questions, and thank you everyone for joining us on the call today. We all look forward to seeing you at the Investor Strategy Days in April either in New York or down in Cape Town. Thanks again.

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