Sasol Limited

Good morning and welcome to SASL Limited's Financial Year 2024 Interim Results Presentation. Thank you for dialing in and listening to our announcement. My name is Tiffany Sido from Investor Relations. With me is Fleetwood Grobler, President and CEO of SASL, and Henri Rousseau, Chief Financial Officer. Fleetwood will start today's presentation with an overview of the business performance in this period. The financials will be covered in more detail by Andre. Fleetwood will then conclude with a brief update on our social commitment and sustainability and strategy. We will commence with a Q&A session immediately thereafter, where you will have an opportunity to engage with management and ask a few questions via our webcast or teleconference facility. I'd like you to note our forward-looking statement shown on the slide. Please peruse in your own time and note the important information regarding statements that are made in the presentation. Thank you, and now handing over to Sleetu to commence his presentation today.

Good day everyone and welcome to our interim financial results update for the 2024 financial year. The last six months have again seen an incredibly challenging external environment for us to navigate. with a high level of macro uncertainty, inflationary pressure, weak economic growth, and specific operating constraints in South Africa. These factors have had a material impact on our business, particularly with lower prices and demand across many of our chemical products, but they are not the sole determinants of our performance. As an organization, We have worked hard to mitigate the external pressures to the extent that we can through focus on the issues that we can control. As part of this, I am pleased that we continue to deliver against our SASL 2.0 improvement program targets and we deliver further operational improvement in South Africa. Unfortunately, though our efforts were hampered by persistent underperformance of the state-owned enterprises involved in Sussel's value chain and, in some instances, unplanned safety-related production stoppages. Moving forward, whilst we are well positioned to benefit from a turn in the chemical cycles at this stage, we need to keep absolutely focused on our priorities. to step up cash flow generation to make sure that we maintain the robust balance sheet needed to cope in these extremely uncertain times. As with previous results presentations, I will start by reviewing our half-year performance across our people, planet and profit pillars. From a safety standpoint, The period has been marred by four tragic fatalities. Mr. Zolani Dube, Mr. Dumisami Dumile, Mr. Mitswobisi Matlobo, and Mr. Sifsu Maduna lost their lives in work-related incidents and we again express our heartfelt condolences to their families, friends and colleagues. Safety is our priority and we must continue our work towards zero harm. Our recordable case rate of 0.024 for the half year is below the of the corresponding period last year. Our dedication to enhancing social welfare in our communities remains steadfast, exemplified by our investment of over R280 million in social impact programs. We continue to actively participate in initiatives aimed at uplifting communities yielding positive and impactful results for the most vulnerable members of society. Staying with the theme of people, in November last year, we announced the appointment of Simon Bolloy, our EVP for Energy Operations and Technology, as my successor, with effect from 1 April 2024. I'm also pleased to confirm that Gerrit Viljoen, our SVP Secunda Operations, will assume Simon's current role on our Group Executive Committee on the same date. I share the Board's confidence that the wealth of experience and leadership capabilities that both Simon and Gerrit possess will be a considerable asset to SASL in delivering sustainable performance improvements. On our planet pillar, we again recorded excellent progress in our renewable energy procurement program. Over 600 MW has now been procured for Secunda operations and a further 69 MW for Susselburg, of which approximately 498 MW has reached financial close and some of which is under construction. In Mozambique, our gas drilling campaign continues to yield positive results, with four additional wells coming online during the period under review. On profit, our continued focus on operational improvement is yielding results, with productivity improvements realized in mining and higher volumes delivered at Secunda operations. These and other notable areas of delivery helped partially offset the impacts of severe macro headwinds and challenges that we continue to face with South African state-owned entities involved in SUSL's value chain. Despite continued volatility over the period, the Board decided to declare an interim dividend of two rand per share. Turning to safety, earlier I acknowledged that we suffered four tragic fatalities over the past six months. Any workplace fatality is a deeply heart-wrenching experience for all of us, with a profound sense of loss felt not only by the loved ones and friends, but social colleagues too. Any loss of life or harm is simply unacceptable to us, and we are working incredibly hard to realize a zero-harm workplace because we want all our people, employees and contractors alike, to return home safely each day. While no further reason is needed to pursue our safety agenda It is also true that safety incidents often lead to unplanned work stoppages which impacts our production. Our commitment to excellence in safety is an embedded priority and we have bolstered existing safety initiatives through institutionalizing learnings, reinforcing our life-saving rules and focused leadership visibility and engagement to help prevent future incidents. Furthermore, our high severity injury prevention program remains the backbone for improving our sheep performance. As we mature the program, we can see that it is reaping results as we continue to see our fires, explosions and releases or FER severity rate decreasing. There were no major FER incidents during the first half of FY24. Through our humanizing safety initiative, we are driving a culture that looks beyond safety statistics. Here, our focus is on showing care through every layer of influence instead of only through a compliance-driven approach. We are striving to provide an enduringly safe work environment. This requires a dedicated leader-champion safety culture and, as important, employees who are fully engaged and comply with all safety rules and procedures who speak up, report and stop unsafe work immediately if that is required. As I referenced in my opening remarks, SASL faced a challenging macro backdrop during this period, and many of these factors continue to pose near-term challenges to our business. They include high inflation and weak economic growth, while our chemicals business also faces weak demand and margin pressure. We are taking measures to position chemicals for improved performance when the chemicals cycle turns. Across the organization, strict cost and capital management measures have been introduced to improve cash flow generation. We also continue to embed operational improvements with a relentless focus on safety, improving productivity rates at mining, which will lead to better performance of the South African value chain. I will unpack this in more detail in a later slide. This takes place against a backdrop of continued volatility and in South Africa specifically, an uncertain regulatory environment and other business challenges such as power supply and infrastructure constraints. The legal and regulatory environment in South Africa includes a range of complexities such as the domestic gas price, environmental compliance, fuel blending mandates and carbon tax. We continue to navigate these challenges and uncertainties through proactive engagements with all stakeholders. This includes ongoing engagement with NRSA on gas prices. On 26 October 2023, NRSA dismissed our FY23 application and confirmed that SASL is entitled to submit a clawback application to recover the cost increase that occurred in FY23. At the same time, NRSA approved our FY24 application, including the quarterly adjustment. We also still await the decision from the Minister of Forestry, Fisheries and the Environment regarding SUSL's application for an alternative emissions load basis for sulphur dioxide from Secunda boilers. While all of these matters present challenge and hence uncertainty, it is important to keep them in perspective. We have constructive dialogue on these issues across a range of stakeholders, and we are executing on these plans to increase resilience, irrespective of the outcomes. In terms of operational improvement, although we have got much more to do, we made some real progress despite the challenges. Looking at our energy business, mining productivity for the half year was 6% higher than the corresponding period in FY23, with productivity for the Sakuta collieries up 5%. Although we have seen an improvement in productivity since the implementation of our full potential program, We experienced a challenging second quarter in FY24, where productivity declined by 8% compared to the first quarter, mainly due to safety-related incidents as well as other operational challenges. In Mozambique, gas production for the reporting period was 10% higher than the prior period, reflecting another strong production performance underpinned by the... four wells brought online in our PPA license. Secunda operations production volumes were 8% higher than the prior period mainly due to the phase shutdown relative to a total shutdown in the prior year and improved operational performance. Coal quality did, however, continue to negatively impact production. RXGTL achieved a utilization rate of 79% over the half year, 19% above the prior period. Owing to this performance, the energy business recorded a 1% decline in gross margin with higher sales volumes offset by lower rand oil prices and higher input costs. This stems from higher external coal purchases, increased maintenance expenditure, and higher gas feedstock costs due to a dollar exchange rate. In the chemicals business, Africa's sales volumes for the period were 3% higher than the corresponding period last year. Ongoing infrastructure challenges in South Africa. While close collaboration with Transnet continues, supply chain challenges persist and remains a risk to our business. Chemicals America sales volumes were 12% higher compared to the prior half year, mainly due to the higher ethylene and polyethylene sales volumes, albeit at continued low ethane-ethylene margins, while both essential care chemicals and advanced materials were higher. For our Eurasian operations, sales volumes for the first half of FY24 were 4% lower than the same period in FY23 due to continued low market demand that is significantly below historic levels with continued inventory destocking by customers and an overall weak economic environment in both Europe and China. Production rates at several of our units continue to be managed proactively in response to the lower demand and to avoid inventory build. The combination of these factors saw our chemicals business record a 10% decrease in gross margin, reflective of continued weak macroenvironment and margin pressure. Let me now delve deeper into our South African operations, where our focused planning and effective integration between mining and Secunda operations is ensuring value chain stability. Looking at our delivery over the past six months, safety is, of course, a major concern, and I have already shared details on the rigorous actions we are taking to improve our performance. Our Secunda operations coal stockpile was 1.9 million tons on 31 December 23, which is above the minimum safety threshold and productivity is within guidance. The external coal purchasing program to supplement our own production continues to assist us to meet Secunda operations coal demand and quality requirements. This, together with other interventions to unlock coal quality improvements, will help us to get to the historic levels of production of around 7.5 million tonnes per annum. Our integrated coal quality management centre implemented last year has assisted us in managing coal quality variations to the Secunda factory. Phase two of our full potential program started in quarter one and two of FY24 at Shondorny and Chubilisha Collieries respectively. We also had a successful phase shutdown of Secunda operations in September 2023. Given the challenges we experienced over the past six months, which impacted productivity at mining and volumes at Secunda, it is understandable to question whether these are ones-off in nature or indicate that progress is slowing down. Let me be clear that we are seeing improvements in productivity rates since the implementation of our full potential program. Challenges are to be expected, but it is how we mitigate and adapt to these that will ultimately yield results. We are fully committed to driving interventions to realize sustainable benefits. Additionally, our coal destoning project, which is nearing a final investment decision later in 2024, can improve coal quality and has the potential to reduce the percentage of rocks in the coal feed to secunda operations. which will enable improved gasifier yield and thus better value chain performance. A strong focus on optimization of our cash costs will be critical in the near term to improve our competitiveness. bolstered our operations experience at executive level through the appointment of leaders with deep operations and technical expertise in the form of both Simon and Gerrit. Their intimate knowledge of our South African value chain will stand us in good stead as they drive focus plans to improve our operations. In summary, in our efficiency of our South African operations, particularly in mining and at Secunda, we have had some setbacks during the reporting period. I remain confident of the progress and that we will continue to deliver and report further progress in this critical engine room of the business. In chemicals, we mitigated against volatile market conditions through active margin management. In the first half of FY24, production rates at several of our units were managed proactively in response to the lower demand and to avoid inventory build. While U.S. sales volumes are ahead of plan and our cost containment measures are unlocking savings. Turning to the focus areas. In 2024, we experienced a spike at our RXGTL plant in Qatar. During the inspection of Train 1 reactor coils, we observed coil erosion which will result in extended scope of repair work. This means that both Train 1 and 2 will be offline for longer than planned. The focus is on now the successful completion of the shutdown in the next months. André will expand on the performance impact of this maintenance shutdown. In the short term, We will also focus on proactively managing operating rates to meet demand, product optimization to maximize profitability, and exercising strict cost and capital management. To close on this slide, I want to emphasize that the fundamentals of our chemicals business remain strong. It is operationally sound and highly efficient, which is evident in how we are managing the business in a difficult operating climate. We have seen many cycles in the past and the proactive measures we are executing allow us to conserve cash flow and make sure that it will be very well positioned to take advantage of a recovery in the cycle. Turning attention now to Mozambique, I'm pleased to report that our projects are delivering gas to plan. Post-LCCP, our PSA project is the largest capital project and we continue to deliver within schedule and budget, with commissioning readiness expected towards the end of calendar year 24. Our focus here is to extend the natural gas plateau to FY30 and beyond, from an original estimated decline which was anticipated for 2024-25. We have already invested over $700 million in plateau extension projects with benefits of additional gas to sustain the plateau in this decade already realized. On PSA, the initial gas facility achieved beneficial operation in November 2023. This is a precursor to the integrated gas facility. Commissioning activities are expected to commence in quarter four of this financial year. We have completed approximately 75% of our surface facilities and 80% of the wells are drilled. We are exploring all options to allow early gas flow to South Africa. We continued our in-fill well drilling projects on our PPA license. Development remains on track, progressing within budget and schedule. As mentioned earlier, four new wells have been operationalized in the reporting period. Our exploration strategy has also resulted in a successful gas discovery in block PT5C, which is located in southern Mozambique. This could bolster our reserves and further extend our plateau. Our appraisal plan has been improved which allows us to progress work to determine commercial viability. What you are seeing in this picture on the right is a before and after view of the PSA integrated oil, gas and LPG processing facility in Mozambique, where significant progress has been achieved in a year. The control room building, the utility area, the substations and the equipment rooms have all been completed. Given the operating context and our operational performance, I will highlight a few financial metrics before I hand over to André. Our adjusted EBITDA was 12% lower around R28 billion. Earnings were significantly impacted this half year by non-cash adjustments relating to impairments coupled with translation impacts and financial instruments and derivatives. Our net debt, now standing at $4.6 billion, is up around 1%, with net debt to EBITDA of 1.6 times. Although we're well within our debt covenants, improving cash flow and increasing balance sheet strength are critical priorities for management. For this reason, we are driving several interventions to improve gas generated by our operations. Gas generated by operating activities declined by 31% to R15 billion compared to the prior period in line with the decrease in EBIT and the movement in working capital. Our immediate focus on cash unlock across the business will be prioritized in the coming months through a range of initiatives, including operation efficiencies, optimization of turnover, and stringent management of costs. Lastly, we declared an interim dividend of R2 per share. Looking ahead, our dividend policy is currently under review. Andre will provide more detail in this regard. On that note, I will now hand over to Andre. He will take us through the detailed financial results for the reporting period.

Thank you Fleetwood and good morning ladies and gentlemen. As Fleetwood already mentioned, whilst we saw some operational improvements, this was not enough to mitigate the external challenges and resulted in a weaker financial performance in this half. I'm confident that enhanced by the initiatives we are already implementing now, our business will however be better placed for the second half. Let me start with some detail around the macro environment and some of the key metrics we track. Oil prices softened during the first half of the financial year, decreasing by 10% to an average of $85 per barrel. This was offset by the rand weakening 8% to an average of R18.69 to the dollar. As such, a 3% decrease in the rand oil price was realized compared to the prior period. the weaker closing exchange rate negatively impacted the translation of our US dollar denominated debt. Although we have seen a significant decrease in ethane and energy input costs in the first half of the financial year, they remain elevated compared to historic levels. As such, chemical margins remained under pressure due to weak market conditions. Polyethylene prices continue to decrease on the back of weaker demand, as seen in the 19% decrease compared to the previous period. Looking ahead, we expect pricing and demand volatility to continue in the short term, given the uncertain global market sentiment and ongoing geopolitical events. Locally, the South African economy continues to face multiple challenges relating to the underperformance of state-owned enterprises, which needs to be factored into our business planning. These headwinds require us to adapt quickly to the prevailing situation and optimize our integrated cash cost and margins across our portfolio. Turning then to the financial results, with operational improvements unable to mitigate external headwinds, we experienced a significant decrease in our cash generation and profitability. Cash fixed costs increased by 5%, mainly due to inflationary increases and the weaker exchange rate. However, excluding inflation, exchange rate and want-off costs, cash fixed costs decreased by approximately 1%, reflecting continued cash fixed cost savings from our SASL 2.0 program. Adjusted EBITDA and cash generated by operations decreased by 12% and 31%, respectively. Following the same trend from last year, with ongoing cyclical pressures in global chemicals, Group EBITDA continues to be heavily reliant on the contribution from our South African region. Earnings before interest and tax for the period was negatively impacted by non-cash adjustments, most notably impairments in the fuel segment relating to the Secunda Liquid Fuels Refinery cash generating unit, as well as in two of our Chemicals Africa CGU's. This was partly offset by the translation of monetary assets and liabilities and valuation of financial instruments and derivative contracts. Core headline earnings of R18.39 per share decreased by 25% compared to the previous period. An interim dividend of R2 per share was declared. Let me now turn to the business segments, starting with the energy business. Our mining business saw a 39% decline in adjusted EBITDA. This was largely due to lower export coal prices, higher external coal purchases, and higher cash fix costs, coupled with safety incidents and related operational challenges experienced in the second quarter of our 2024 financial year. Despite these challenges, we achieved a 6% increase in productivity since the prior period. Our productivity guidance remains between 975 to 1,100 tonnes per continuous miner per shift. However, due to our recent challenging performance, we expect to achieve this in the lower end of this guidance range. Adjusted EBITDA of our gas business was down by 19%. Our gross margin percentage decreased mainly due to the high cost of gas, driven by the weaker RAND dollar exchange rate. while our selling prices in South Africa remained flat. This was partially offset by higher external sales in South Africa and higher gas production in Mozambique from the additional wells coming online. For this segment, we expect the volume guidance to remain between 113 to 119 billion standard cubic feet for 2024, in line with previous market guidance. In our fuel segment, adjusted EBITDA decreased by 1%. Liquid fuel sales volumes were 1% lower, whilst refining margins increased mainly due to higher production, improved product yield and lower cost of crude. This was negated by higher operational costs. Secunda Operations is expected to meet guidance of between 7 to 7.3 million tonnes for the year, and our South African liquid fuel sales volume is expected to range between 51 to 54 million barrels. As mentioned by Fleetwood earlier, RX GTL Trains 1 and 2 are offline. Our second half of 2024 performance will thus be further impacted and we expect the utilization rate for the year to be between 50 to 60%, slightly below the previous market guidance of 65 to 75%. Turning then to the chemicals business. Chemicals Africa saw a 44% decline in adjusted EBITDA compared to the previous period, mainly due to lower sales prices and a constrained supply chain. This was partially offset by higher sales volumes, which are mainly attributable to the Secunda phase shutdown in 2024 relative to a total shutdown in the previous year. In Chemicals America, Adjusted EBITDA increased by more than 100% compared to the previous period due to higher sales volumes and improvements seen in ethylene and derivatives margins as feedstock and energy costs reduced. Cash fixed cost was lower despite inflationary pressures. and the weaker RAND dollar exchange rate. Strict cost management measures and lower spend on maintenance and repairs in Lake Charles contributed to this decrease, noting though that maintenance spend was higher in the previous period, partly due to the fire that occurred in our Ziegler alcohols unit. Chemicals erasure adjusted EBITDA decreased by 84% compared to the previous period. Margins were largely impacted by continued low market demand and higher pre-war energy prices. Against the backdrop of challenging macroeconomic environment and weaker chemicals demand globally, we maintain our guidance ranges across all the chemical segments, with a recovery of demand expected in the second half of 2024. Delivery of our SASL 2.0 transformation program continues to reset our business in a volatile economic landscape with further initiatives currently being confirmed, which we will announce in due course. Looking at our performance for the first six months of the financial year, we realized R4.1 billion in net sustainable cash fixed cost savings towards a full-year target of over R8 billion. We also saw a R3.2 billion gross margin improvement, progressing well towards our revised target of more than R7 billion. It should be noted that the benefit trend of some of these initiatives are not linear, where the gross margin benefits in particular are often stepped up in the second half of the financial year. The progress on both cash fixed costs and gross margin are also measured against our increased 2025 targets. These targets were increased in August 2023 as we intensified our business reset and will amount to an additional R4 billion in annual EBITDA enhancements by FY25. We continue to also successfully track on our capital expenditure and working capital targets. During the remainder of this year, we will continue to mature our pipeline of initiatives. These initiatives include but are not limited to the optimization of our portfolio, continued improvement of maintenance processes, and optimization of third-party spend. Given the half-year-end progress shared today, we are confident that we will achieve these SASL 2.0 targets. We continue with our efforts to apply disciplined capital management in the prudent capital expenditure to maintain, transform and grow our business. Our maintain and transform capital expenditure for the half-year of R16 billion mainly includes fee capital spend on the PSA project, which remains within budget and on schedule, and the Secunda operations phase shutdown. We see increasing capital spend consistent with our compliance roadmap, which includes our Environmental and Clean Fuels II projects. To date, minimal discretionary growth capital has been incurred with spend mainly towards the Sasselberg Green Hydrogen Pilot Project. The total capital spend of R16 billion tracks within our market guidance of capital forecasted between R33 to R34 billion for the financial year. Although this is aligned to our SASL 2.0 target range, we continue to apply further focus to optimize capital expenditure. In conclusion, let me walk you through some of our key capital allocation priorities in the near term. Our capital allocation framework is underpinned by two pillars. First order allocation enables us to prioritize, maintain, and transform capital, which ensures that we run sustainable operations and deliver on our 30% greenhouse gas reduction target by 2030. Within the first order allocation, we prioritize debt reduction And under our current policy, the current dividend policy rather, the payment of dividends is linked to core headline earnings per share. Second order allocation focuses on expensory growth, additional sustainable initiatives, and or then additional shareholder returns. This framework remains relative for SASL during our reset phase of the strategy. There are a few key focus areas which are prioritized to strengthen the balance sheet, namely, firstly, the step up of free cash flow generation. We will prioritize initiatives that will increase cash generation by our operations, reduce operational costs, and deliver SASL 2.0 savings, which includes strict working capital management. The delivery of SASL 2.0 is critical for further cash unlock. Without the success achieved through the SASL 2.0 program to date, our free cash flow generation would have been in a far more unfavorable position. Secondly, the deleveraging pathway is a critical priority for us. A liquidity headroom of nearly $5 billion is still above our target to maintain liquidity in excess of $1 billion. We have also optimized our debt maturity profile through the successful refinancing of our near-term debt maturities, which is important given the current macro volatility and market uncertainty. Lastly, prudent capital allocation. Intensifying our disciplined approach to capital allocation and further refinement of the emissions reduction roadmap are key levers for this area. Now, regarding our dividend policy, we are conscious of the considerable recent disparity between core headline earnings and cash flow. To address this disparity, the Board is considering a revised dividend policy to better align shareholder returns with the cash flow generation of the business, and we undertake to announce an updated dividend policy at the full year 2024 results. In consideration then of an interim dividend for the period, The two rand per share interim dividend reflects a balanced consideration of our continued confidence in the cash flow generation of the business, whilst recognising other factors such as the continued external and internal pressures and risks on SASL. Thank you for listening, and as I hand back to Fleetwood, perhaps just a quick word of thanks and farewell. John F. Kennedy noted that efforts and courage are not enough without purpose and direction. And Fleetwood, you have certainly embodied this. Thank you for your incredible commitment and leadership to SASL over the last 40 years, especially in bringing stability and purpose when the company most needed it. We wish you well and back to you to conclude.