Good morning, and good afternoon, ladies and gentlemen, and welcome to the Sasol FY '19 Year-End Results Conference Call. Today's call will be hosted by Fleetwood Grobler, Chief Executive Officer; and Paul Victor, Chief Financial Officer. Following the presentation, an interactive Q&A session will take place. I will now hand the call over to Fleetwood Grobler. Please go ahead, sir.

Thank you, operator, good afternoon everyone. This is Fleetwood Grobler speaking. Our sincere apologies for the delay in the start of this call. Thank you for joining us on this call, during which Paul Victor and I will discuss Sasol's financial results for the period ending June 2019. Other members of our management, including the newly appointed EVP, Brad Griffith, will be part of the team, who will support us during the Q&A session. We have published a slide presentation of our results, which you can download from the Investor Centre on the Sasol website. In the interest of time, we will not discuss all the slides as we would like to make more time available for your questions. Before we begin, I would like to refer you to the safe harbor note on forward-looking statements contained on Slide 2 of the presentation. Before I provide you with an overview of the business and the FY '20 priorities, I would like to make a few comments by way of context. In order to move forward, I believe we need realism, focus and delivery. Firstly, you need to be realistic that although today we address some key areas of uncertainty, we still have challenges ahead. Chief among these is the successful completion of the LCCP, protecting the balance sheet during the upcoming brief peak gearing phase and developing our carbon reduction roadmap. While we must not underestimate or understate our challenges, I do believe we have a clear pathway to address them. To do so requires clear focus on the issues that we can control. Our stakeholders must be under no illusions that this is the first priority. More than focused though, the outcome must be delivering. Many of our stakeholders are not interested in promises, they want to see delivery,…

Thank you, Fleetwood. Good morning, and afternoon, ladies and gentlemen, to make up some time, I will be brief. I'm very pleased that we reached this milestone. If we grow through down the Board's LCCP review, we really have an opportunity now to look forward and learn from our past and really restate our focus in delivering value to our shareholders. Our results published today are still very much within the earnings range, which was published as part of our trading statement update early in August. Our global assets footprint, better known as our foundation business, continues to perform well in a very challenging macroeconomic environment as evidenced by a year-on-year increase in core headline earnings per share. However, our balance sheet will be stretched as we reached the end of the LCCP construction sites, followed then by the EBITDA contributions as we start to ramp up the LCCP reduction in sales volumes over the next 12 months. I do want to reiterate that the transitory phase of the balance sheet was always anticipated under the pre-pressure of pre-gearing the cost. The cash contribution of our foundation business and that of the LCCP at full run rate will assist us largely to progressively deleverage the balance sheet. We are now also in clear sight of the projected cash flow inflection point, and we remain committed in delivering both this as well as giving shareholders an increased participation in the cash flows as they come online over the next few years. So let's turn our attention to Slide 20 and then I'm going to briefly summarize the 2019 financial results. First, our foundation business delivered a strong operational production and sales volumes performance, enabling strong core earnings and delivered a 20% increase in the cash flow generated by operations. Unfortunately, our…

Operator, you may proceed with questions.

[Operators Instructions] Our first question comes from Chris Nicholson with Morgan Stanley.

I have three questions regarding the balance sheet. The first question is, maybe could you give us a sense of how close or how much margin you have for error regarding the need on the balance sheet to that 3x covenant? So for example, maybe some scenarios around kind of what rand oil price we would have to look at before you start running that 3x covenant closed? That would be the first question. The second question is, I wonder if you could just -- I think you might have mentioned that but it didn't come through clearly. Your guidance for net debt-to-EBITDA between 2.6 to 3x. Is that including the IFRS 16 adjustment, or is that stripping that out? And then once again, how would the banks look at that? And then just the final question is, is I do understand on the Moody's review when they change the outlook to negative. They've specifically mentioned that they would need to see balance sheet gearing coming down over 12 months. The guidance you've given wouldn't indicate that, that's going to be a case this year. But potentially, could you give us a scenario, if you did lose that investment-grade rate what would the increase in finance costs? Or what would be additional cost be?

Right. Paul will answer that.

Chris, thank you very much for your questions. So as I've mentioned that we are currently moving towards -- pre-gearing towards the middle part of the year. And implicit by our guidance that we did provide in terms of our net debt-to-EBITDA covenant level of between 2.6x to 2.9x. It does leave us with limited headroom in terms of our covenant. So ultimately, we need to manage things quite carefully in terms of the margin. In terms of your question on scenarios, obviously, given the volatility in the market, one needs to consider several scenarios, different outcomes. But I will say that we are dependent on oil prices remaining above $55 to the barrel. The rand currently at its levels is probably better for us at ZAR14.70 as opposed to ZAR15.50, we were just trading some time back because that conversion ratio of debt-to-equity can be problematic as the weaker rand. So with the rand currency trades, it's quite good for us. As well as, I will say, the big game-changer for us is ultimately delivering the LCCP in terms of reaching beneficial operations. So that effectively, the bleeding of capital can stop, and we can start to move towards on getting the EBITDA online, because in the ratio of net-debt-to-EBITDA, EBITDA is actually quite important for us to generate over the next couple of months. So as we speak it, maybe tomorrow during our discussions, and also on the roadshow, we can see -- achieve more granularity in some of those scenarios. But for us, a scenario of oil price above $55 and rand kind of, I will say, between ZAR14.50 and ZAR15 will be a good level. And ultimately, our LCCP that kind of gets to within this range of $12.6 billion to $12.9 billion. But ultimately, if…

Our next question comes from Gerhard Engelbrecht with Macquarie.

I have a couple of questions as well. Can you give us an idea of where we stand with the cracker you talked in the slides about startup modifications that you intend to install at year-end? Is this related to the acetylene spec, are you achieving the acetylene spec? That's my first question. And then secondly, you are now selling HDPE and LLDPE, in which destinations are these products landing? And what prices are you achieving? And what price benchmark do you suggest we use to model your revenues? And then lastly, maybe a question for Paul, can you confirm that all cash, short-term incentives for senior managers have been converted to shares rather than cash? Can you quantify the saving -- the cash saving? And also tell us what the strike price on the share incentive was? And what the expected dilution would be for ordinary shareholders as a result?

Thank you, Gerhard. So the first question with respect to the cracker, I'm going to ask Bernard to comment on that. And then we'll move on to the question on your HDPE and the benchmark pricing, which Brad will do it. And the last one, Paul would do that.

Gerhard, it's Bernard Klingenberg. Thanks for the question. Towards the latter end of the year, late November, early December, we'll do a catalyst change on the asset lean reactors in the cracker. At the moment, we're able to achieve specs of between 7 and 9 parts per million, and we want to get that down to about two parts per million because it's limiting our throughput now to about 60% of capacity. And that's the modification or the changes that we'll be doing at the end of the year. It's going to take us about 18 days to do that. And we'll use the opportunity to make some small modifications that are required just to optimize on the plant.

Moving on to the second question, Brad?

Okay. Gerhard, this is Brad Griffith. With the startup of Gemini last year, we've been well placed in the market for over a year on high-density polyethylene. And that's going to both the domestic and export markets. And we've really put in place a very strong network with market channel partners as well as direct marketing and sales globally. And what you'll see is that we're selling very close to the index pricing that you -- to measure. And we'd be happy to engage further on that during our meeting. For linear low density, also starting up earlier this year, also very strong uptake domestically for that linear load as well as for the export markets, logistics have been working smooth with our packaging partners. And again, the same comment on pricing. We're seeing the same movements in pricing that you see on the indexes, and we're confident in being able to continue to achieve that.

Gerhard, Paul speaking. And so in terms of the HDI, maybe just to broadly explain how we did go about the HDI. So as part of the HDI at levels optimization and above, and I'll explain optimization just now. But the levels optimization and above, the equity issuance comes at play. And at levels below optimization in the organization, I think you will be familiar, the old Level 6 and below. Those employees receive still a cash payout in terms of the HDI. So ultimately, in terms of the total HDI, the value thereof is around about ZAR1.2 billion. Just remember, this year, the number seems lower because the GEC as well as other employees, HDI is at zero or lower levels. So ultimately, the number at the end is ZAR1.2 billion. So through those levels, which are explained, ZAR600 million was paid in cash and the other ZAR600 million will then be ultimately converted to equity. So the equity share price that we will consider, obviously, it's the right price over a period of time. But let's just say, today's prevailing cost is ZAR300 exchange if you then extrapolate that over the ZAR600 million that's converted to equity, effectively, the dilution is 0.003%. So that's ultimately less than significant.

Our next question comes from Henri Patricot with UBS.

I have three questions, please. First one on the guidance update on the LCCP. Just to confirm for full year '20, the reason for the lower guidance compared to the previous one is mostly related to these repairs, I suppose? And on the longer-term guidance for full year '22, should we still expect to see slightly higher EBITDA after year '22 as you fully ramp up some of the needs? Or is the ZAR1 billion guidance the new long-term guidance? And secondly, still on the guidance, this time on CapEx. Could you expand on the drivers of the increase in the CapEx guidance for full year '20? I believe, you previously guided to ZAR30 billion or ZAR38 billion. So what are the moving parts there, and is there any flexibility around this figure? And lastly, around the dividend. So you mentioned that you -- the possibility that you could pass on the interim dividend for full year '20. So I wanted to get some sense as to what metrics we should be looking at to assess whether that's likely to happen or not? What can -- perhaps the level of net debt to EBITDA that you have in mind?

Thank you, Henri. Paul will deal with these questions.

Henri, given the EBITDA is softening so ultimately, in terms of the first question, in terms of the LCCP guidance, what resulted in the kind of the decrease on the guidance, it was basically twofold. First and fore mostly, it was the fact that ultimately we did delay some of the beneficial operations of some of the units, which we explained as well as the cracker that is running at 50% and ultimately, needs to be taken down for modifications. And we've taken all of those factors into account. And I would say the other half of it is really relating to the lower and softer margins, in terms of North America as well as what's playing out in terms of the trade wars, in terms of Street that we are currently seeing. Now again, it's a range. It's current providing spot prices play out in terms of the ethane price offset. It can potentially have a positive impact but on the flip side, if the chemical markets are kind of -- even more subdued, it can also go the other way. But we believe that the $100 million to $200 million that give us a sufficient range to take it through the bottom as well as the upside. In terms of your second question. So the guidance that we did provide in full year 2, meaning the year financial '21, is [6 50] to [7 50]. And then ultimately, the run rate of $1 billion. And I will say that it is safe to say that markets are quite volatile, and they need to settle. In the eventuality, where the trade wars do settle make it a usable solution. Obviously, that will be the first signal towards better, hopefully, global growth. But it's a strong signal in terms of…

Our next question comes from Alex Comer with JP Morgan.

First of all, there's just one with regard to the cracker. Given where the balance sheet is -- I mean this catalyst change, sort of, Christmas seems to be quite important. So the first question is how confident are you that this is going to improve your performance of the plant? And maybe, if you can give us some background on that. Secondly, just in terms of future targets. I see you still put this $6 a share of free cash flow in 2022 target out with rand-dollar 8.40. I just wonder how much conviction you still have in that being achievable. And then their equipment might -- the integrated resources plan talked about a 70% reduction, I think, in coal-fired electricity between 2030 and 2050. How do you square that with your asset life at Secunda out to 2050?

Thank you, Alex. I'll deal with the first question and Paul with the second one. So with respect to the cracker and the catalyst change, and the question relating to how confident are we that we'll address the issue. We have worked closely with our experts in the cracker technology space. We've also worked really closely with the licensor. And thirdly, very closely with the catalyst suppliers and when we looked at the operating parameters, we are convinced that the catalyst is somehow damaged or contaminated. And we believe that the solution that we have now to replace the catalyst would be the remedy for the issue. And so we are rather confident that we would be able to remedy the situation and then ramp up from there.

Alex, in terms of your question on the cash flow per share, I will acknowledge the fact that debt ratio is currently under pressure, and it needs to be reviewed. And ultimately, we do plan, at some point in time, to announce at the Capital Markets Day in future. And as part of that process, ultimately, we need to consider the achievability of that number. But I think, all in all, the new effect that LCCP can achieve the $1 billion, which we still currently today believe it will. It's definitely itself, based on financial '19 numbers, can increase the EBITDA of the Company by 30%. So there will be of some sorts expected increase in terms of the cash flow per share but given the change in market dynamics and the change in assumptions that you need to evaluate, we need to come back to you and say, okay, what is that updated range in terms of debt. In terms of your second question, with regards to our sustainability journey in terms of 2050 and useful life, let me just a bit clear about this objective of the sustainability. The objective of the sustainability doesn't mean no coal. It's, in fact, means still coal. And it also just means a broader or larger participation of renewables and potentially low carbon sources such as gas. So we have called feedstock in terms of 2050. And even if you reduce your coal usage, you still have feedstock available to feed you until 2050. The plan is still to operate until 2050, and given our current indication. And we see no reason to change your useful life in terms of the integrated complex for Secunda. So I do take your point that coal dependency may reduce but coal will still be a large part, probably the lion's share of our feedstock requirements for Secunda 2050. What happens after 2050, that there begs the question, how much you will be coal-dependent? But our useful life is only through 2050. So for now, we don't revisit any change to that.

Our next question comes from Sean Ungerer with Arqaam Capital.

The line was a bit unclear. Yes. So excuse me for asking the question again. But just in terms of the potential H1 '20 dividend. So it sounds like it, if it goes -- if net debt to EBITDA goes below sort of 2.6x, then it sounds like it will be a possibility, otherwise not. And then just the comment around the FY '21 CapEx, I think the comment was a large part of it was related to sustenance. At ZAR30 billion, it seems a bit heavy. Maybe if you could just expand on that. And then I know it's just really a bit too early, but I think, obviously, it's quite important to look at growth sort of post-LCCP, what sort of falls into the definition of affordable investment options? And maybe you could give a few examples.

Thank you, Sean. Paul will deal with the first two questions.

Sean, is the line clear to you now?

Yes. Yes. It is, Paul.

Good. All right. So Sean, I do take your question in terms of the first half dividend. I think what's quite important in terms for the interim dividend, and also dividend payout a day after, we did say that we pass this final dividend. But in future, I think what's quite important is that where we do currently see the leverage levels above 2.5x in terms of our covenant. Obviously, we do want to kind of get it more closer to between 2x and 2.5x, and we need to allow the balance sheet to get below that 2.5x at least for us to reconsider the continuation of the future dividend payout. How successful we are in terms of the ramp up with the LCCP as well as providing market circumstances will ultimately depict in terms of how quickly we get that. So ultimately, in terms of financial year '20, in terms of dividend payout, we will be stretched to get below 2.5x, I will say, and given our current assumptions. But the markets have surprised us on the ascension down over the past couple of months. So let us reassess in February. And in February, we will get a better sense of where we are. I just maybe pointing out that risks that we are facing today in current providing market circumstances today, the risk is elevated to potentially pass the interim dividend as well as our current assumptions don't indicate as the 2.5x or below at that 20 ton. In terms of your second question, whether the kind of the capital estimate for financial '21 of ZAR30 billion, mainly focusing on only sustenance and compliance, seems a bit rash. So ultimately, there is some growth capital that we have announced in the '21 estimates. We need to continue with…

Sean, with respect to your question around growth post-LCCP. First of all, I think it's important that we acknowledge that LCCP in itself presents an opportunity with respect to debottlenecking. We've observed that similar plants and similar crackers has been rewrited in terms of increasing capacities, and we believe that there would also be some opportunity for us to focus on debottlenecking that might be very lucrative for us because of low capital spend for the rewards that we may see. So I think that's the first one, so we will look at that. Secondly, consistent with what we've communicated to the market before was that we have growth options, both in our upstream and in our chemicals business, which comprise not only organic, smaller projects, but also we're getting ready for M&A activities. And so our programmatic M&A approach still remains intact, and we will consider that to be implemented once the balance sheet allows for that activity. And then last but not least, we still maintain our energy focus with respect to the retail side, high margining the volumes that we put through those channels to market. So I think that picture didn't change to what we articulated.

Our next question comes from Wade Napier with Avior Capital Markets.

Just a quick one, on clarity on the asset disposal program. I know you previously sort of spoke about a net book value target of $2 billion. Now that sort of changed to an asset sale target of $2 billion. Could you just help me reconcile the two figures? I mean are those different or they're still simply the same thing?

Paul will deal with that.

Yes. So Wade, the numbers still made asset value. I mean -- so ultimately, we haven't changed that target to kind of make it the sales value. So what's being referred to on Slide 10 and are on track to -- with the total divestment target of $2 billion. That's above -- that's the net asset value. Just to confirm that point.

Okay. Then maybe just a follow up on the interim -- of the net debt-to-EBITDA guidance, the -- of 2.6 to 2.9x, is that per -- how you and I would calculate it? Or how the banks are calculating it?

No, Wade. That's not the way the you and I will calculate it. It's basically based on the way that we have agreed the methodology to calculate it with the banks. So it's based on the bank's definition, which looks at -- or that similar to that 2.2 to 2.4x ratio that I provided.

Operator, we will take one more question and then we will conclude the session. So Wade, any other questions?

No. That's it for me, for now.

Our final question will be from Adrian Hammond with Standard Bank.

Just firstly, looking at the balance sheet and available debt facilities, I see you've got about $380-odd million available fundings for the cracker, but you got $1.4 billion remaining. I just want to understand a bit how you utilize dollars for the remaining funding of the cracker? And secondly, given the macro environment, if it weakens further passing -- and passing on the interim isn't sufficient, is there anything else you could do? And then thirdly, just on the asset sales, you've earmarked 20%. I assumed $400 million is what you could shore the balance sheet with. Does this include historical asset sales? And what is the idea around coal reserves, are you looking at specific coal mines? And how does this influence your ability as a low cost feedstock fuels business?

Thank you, Adrian. Paul will deal with the first two question.

Adrian, yes. So in terms of the liquidity, we do manage the liquidity on a global basis for the Company. And yes, if you look at our analyst book analysis, we did provide a sense of how much access to liquidity that we have in terms of ZAR as well as dollars. The combined impact of -- is currently $1.5 billion of liquidity, which is more than sufficient to complete the LCCP. However, we are also busy with banks on a continuous basis to ensure that we have a better match between our dollar pools to ensure that we fund effectively our dollar expenditure. So if you just allow us a couple of weeks to complete that process, I think the fact that it's delaying our financial results, ultimately, held us back in terms of completing our liquidity negotiations with our banks. So hopefully, in a couple of weeks from now, we will provide you with an update in terms of our liquidity position. And I feel quite comfortable that we will achieve a much better match between dollar for dollar and rand for rand. In the eventuality that we are successful, we do believe that at that point in time, we still got sufficient liquidity that, that will then involve the conversion of rand to dollar, which is less ideal for us as a company that we believe for now going we're going to be the least likely to affect, if we can conclude the [indiscernible]. Just allow us some time to update that, and we believe that we'll have a quite effective dollar-for-dollar match to complete the LCCP. In terms of the second question, in terms of macro deterioration, and both on the interim dividend, what else can we do? As far as our management actions in order to create flexibility on the balance sheet, we have identified a substantial amount of cash conservation actions that we all have agreed to the business, and we will be introducing and we have started to introduce, which we believe is sufficient for us to -- in addition to a potential interim dividend part, will assist us in managing the balance sheet. Obviously, we need to be quite effective and efficient in executing those. And we have a proven system of doing that in the past. So there's no reason to believe that we cannot do it going forward. However, I did point out earlier in the conversation that oil prices at below $55 or a much stronger rand or much weaker rand can influence us going forward. But we do believe that with our self-help measures and the way that current production performance of the business is going as well as the sales performance that we can steer the peak gearing phase, which will [refund our event]. I will let an update. Last question?

Yes. So Adrian, I'll deal with the last question and I'll ask Jon to assist me with respect to the coal reserves and how we monetize that. So Adrian, yes, the assets that we have so far divested from back-spend, back to the previous financial year during which time we did do the Malaysian Optimal and Petlin plants, and U.S. Lake De Smet land and coal reserves. But for the full list of the assets that is follow that, I'll refer you to Page 10 of the presentation. And that will also include the two transactions that Sean [indiscernible] confusion, which is the [indiscernible] in China with [indiscernible] joint venturing [indiscernible] Now if you add all of that up, that is [indiscernible]. Jon?

Yes. Sorry, I didn't catch this question. Can you just repeat it?

Maybe I can comment, Jon. So ultimately, Adrian, I think the misconception here is that we will divest from our coal assets and ultimately sacrificing our competitive advantage. Now let me be clear about that. I mean ultimately, our feeds -- we have access to low-cost feedstocks in terms of our coal value chain in Secunda. And although there were a lot of media press with regards to our intention to divest from those assets. That's all hasn't gone on record stating that we will update soon, our coal assets. A lot of our strategic competitive advantage in Secunda is the fact that we've got access to low-cost feedstock. And that we have operatorship of that, and that's a key strength to our business. And we maintain to continue that. I guess the thing is, when we're looking in terms of your broader assets from a Sasol's perspective, [potential] assets are strategic to the Company. And I think what you need to allow is to -- for this opportunity to evaluate and complete the final evaluation in terms of what parts of the assets we want to divest, at what value and then ultimately come back to the market once the Board has actually provided the mandate on such assets. So there's a lot of speculations. But giving up our competitive advantage in Secunda on the city our integrated value chain, it's really not something that currently we are thinking about.

Thank you, Paul. Operator, I think we will, at this stage, conclude the call. And I thank you for everyone that participated in this call this afternoon. Thank you for your interest in the Company.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.