Sasol Limited (SOL) Earnings Call Transcript

Good morning, and welcome to Sasol's Annual Results Presentation for Financial Year '26. My name is Tiffany Sydow from Investor Relations. And on behalf of the Sasol executive management team, we are pleased that you could join us today. With me is Simon Baloyi, our President and CEO of Sasol; and Walt Bruns, the Chief Financial Officer. The group executive team is present today as well and will join for the market call, which follows directly after the presentations. As a reminder, the presentation and all supporting materials are available on our website since this morning. As a reminder, our strategy follows a 2-pillar approach, firstly, to strengthen our foundation business where Simon will begin today's presentation with a business overview, which is then followed by Walt, who will take us through the financial performance for the full year. The second pillar addresses our pathway to grow and transform the business in the long term, where Simon will conclude and provide an update on our progress in this area. A market call will follow immediately after the presentation where you can submit your questions via the webcast or join the teleconference facilities. As a reminder, the presentation contains some forward-looking information and more detail is shared on the slide in front of you. I would now like to hand over to Simon to commence his presentation. Thank you.

Good day, everyone, and thank you for joining us today. We appreciate your time. The past year has been about 10 commitments into delivery. At Capital Markets Day, we set out a clear road map. Today, we can demonstrate meaningful progress in strengthening the foundation business. In the past year, we have done the following: improved reliability across the value chain, strengthened the balance sheet, advance the reset in international chemicals and continue to progress our growth and transform agenda. However, today's results reflect more than improved market conditions. They are evidence of a business that is becoming stronger more resilient and more competitive. I wish to thank every member of team Sasol, who has contributed to this excellent set of results. While there is still work ahead, Financial year '26 gives us greater confidence that the foundation we are building is becoming stronger and that we are moving in the right direction. Before getting into the detail, let me highlight the 5 key messages I would like our stakeholders to take our way today. Firstly, safety remains our foremost value. While we are deeply disappointed by the loss of 2 colleagues there are encouraging signs that the interventions we have implemented are strengthening our safety culture. Secondly, we are restoring stability across the Southern African value chain. Improvements in core quality, reliability, operational performance are translating into better outcomes. Thirdly, international chemicals resetting is delivering measurable progress and improving competitiveness. Fourthly, improved execution is translating into a stronger balance sheet and increased financial resilience. And finally, we continue to advance our growth and transform strategy in a pragmatic and value-accretive manner. Taken together, these outcomes show that we are not only delivering today we are [indiscernible] as well for tomorrow. At Capital Markets Day, we are committed to strengthening the foundation business. What make us most is delivery. And today, I'm pleased to say that we have delivered or exceeded our key financial year '26 targets. We improved coal quality, exceeded our Secunda production target reduced the Southern African oil breakeven to $49 per barrel and strengthen the balance sheet below our target. In international chemicals performance benefited from both self-help actions and a more supportive fourth quarter market environment. The reset actions, we have implemented effectively position the business to capture those opportunities. We also continue to make tangible progress on our growth and transform agenda. During this year, we brought more than 500 megawatts of renewable energy online in South Africa. We remain on track towards our renewable energy targets. This progress supports our emission reduction road map, while at the same time, creating long-term returns and future growth optionality. These outcomes reinforce an important point. We understand the challenges in our business. We understand the levers within our control, and we are executing accordingly. This is how credibility is built by doing what we said we will do and consistently delivering against our commitments. Turning to safety, the loss of two colleagues during the year is unacceptable and deeply regrettable. Once again, let me extend our heartfelt condolences to the families, friends and colleagues of Mr. [indiscernible] and Mr. Sonwabo Makamba. Any loss of life reminds us that no matter how strong our operational or financial performance may be, there is nothing that matters more than ensuring that every person returns home safely every day. Following these incidents, we implemented targeted actions, plans focused on the following: strengthening leadership accountability, improving risk identification and reinforcing safety ownership across our people, leaders and service providers. Our safety culture interventions focus on disciplined execution and process safety management so that the rules are followed every time on every shift. While we remain deeply disappointed by the facilities, the broader trends are encouraging. Hospitalization fell to record lows and process safety performance improved. This is reflected in the meaningful reduction in significant process safety incidents like fires, explosions and releases. We again had no major process safety incidents in the past year. This was accompanied by substantial lower human-related safety files, indicating progress in the behavior and discipline that underpins strong safety culture. This improvement also reflects in the recordable case rate. However, we will not measure success by statistics alone. Our objective remains unchanged. Every employee and every service provider must return home safely every day to their loved ones. I will now briefly touch on the financial highlights. Walt will provide a more detailed review of the performance and underlying business drivers later. For March of the past year, we operated in a volatile and uncertain environment. We experienced geopolitical disruption, supply chain pressures and changing market conditions. I am proud to say that Team Sasol acted decisively to manage the direct and indirect consequences of events in the Middle East. The business captured the benefits of supportive macro conditions in fourth quarter due to improvements we've made in operational reliability, cost discipline and commercial agility. While we do not control geopolitics, exchange rates or market cycles, we remain intensely focused on what we can control. In that context, we delivered a 17% increase in adjusted EBITDA of ZAR 61 billion. We held cash fixed costs flat compared to prior year. We reduced capital expenditure by 18% to ZAR 21 billion without compromising safety or asset integrity. And we generated approximately ZAR 12 billion of free cash flow. This reflects a business that is becoming more disciplined, more resilient and increasingly focus on what we can control. Feedstock security remains fundamental to the competitiveness of the Southern African value chain. In mining, the implementation of the destoning plant has materially improved core quality to strengthen Secunda operation by achieving our goal of revision sinks below 12%. Looking ahead, we will ensure certain core quality while focusing on increasing own coal production, reducing external coal purchases and improving the cost competitiveness of our feedstock. The assessment of scenarios to ensure our long-term coal supply is progressing well. We will give feedback to the market in 2027. In gas, although production was impacted during the year by some well constrained and flooding events, we continue to make progress across multiple horizons. We achieved a significant milestone with PSA reaching beneficial operation. These enable the first in-counter production of LPG in Mozambique, reducing imported LPG requirements while also contributing additional natural gas, light oil and condensate production. Gas remains a critical bridge to the future for the Southern African value chain. As with the rest of the foundation business, our focus is on balancing short-term reliability with long-term optionality. NERSA approved our gas pricing application for financial year '27 and part of '28 with financial year '29 and '30 pending. This is a positive step to us enabling the MRG bridge solution. Our focus remains on maximizing existing gas supply, managing the transition as natural gas declines and preserving future optionality through LNG and broader gas solutions. Here, we believe Sasol can pay a critical aggregation rule. Importantly, we assess all opportunities through an integrated value chain lens because reliability, affordability and value creation must remain linked. Our objective is clear to protect feedstock security and sustain the competitiveness of the value chain. The Southern African business delivered one of its strongest operational performances in recent years. Production reached a 5-year high in Secunda where we produce 7.26 million tonnes because of improved coal quality, improved gasifier availability and more stable operations. Natref also delivered stable performance. These improvements enabled us to capture stronger margins when market conditions became more favorable in quarter 4. Sales continued to grow as a result of driving our strategy to increase our market share in higher value retail and commercial fuel channels. [ RX ] was shut down earlier this year following the geopolitical disruptions experienced in the Middle East. However, the facility successfully brought back online during the earlier months of August. Chemicals performance improved during the second half, supported by higher sales volumes and recovering basket prices during the fourth quarter. All of these improvements resulted in the Southern African oil breakeven reducing to $49 per barrel. While this result includes $69 per barrel improvement due to macro tailwinds and the absence of Secunda shutdown, it also reflects [ Genon ] progress in restoring the value chain and improving performance. The value chain is not yet where we want it to be, but reliability is improving. Competitiveness is improving, and the direction of travel is clear. For financial year '27, our forecast task remains on the following: gasifier turnaround initiatives in Secunda as well as the safe execution of the shutdown. Implementing the hybrid refinery project at Natref, which includes the production of clean fuels to compliant fuels. Driving our strategy to increase our share in higher value retail and commercial fuel channels. And finally, improving value delivery across our chemicals portfolio. The reset in international chemicals continue to gain momentum. Over the past 3 years, we have streamlined the portfolio, reduce their costs improve operational performance and strengthen commercial excellence. In financial year '26, we continue to see the benefits of these actions. We delivered further cost savings during the year and also went live with our ERP program in Germany, Slovakia and the United Kingdom during July this year. This gives us more efficient way of working across the business. From a market perspective, we continue to strengthen commercial excellence and agility across the business. When market conditions improved in the fourth quarter, the business was better positioned to capture value and respond quickly to opportunities. Against this backdrop, we delivered an adjusted EBITDA of USD 604 million. What is particularly encouraging is that the improvement we saw during the year was not driven by 1 initiative allow. It reflects combined impact of several efforts across the business. Teams across commercial supply chain, cleaning, manufacturing and operation work more closely together to improve competitiveness and unlock value. One example was a dedicated focus on shifting sales into differentiated applications, specifically in Europe linked to alcohol and alumina portfolios. Another example is that we initiated a restart of the paraffin unit in Augusta to take advantage of attractive market conditions created by supply constraints and better serve customer demand. Beyond the short-term benefit, this positions us to strengthen customer relationships and capture sustainable margin upside through higher value and more differentiated applications. While we are encouraged by the strong performance in quarter 4, it is too early to assume that these market conditions will persist. We continue to plan the business on prudent assumptions and do not only rely on market recovery to deal our objectives. The objective is to build a business that is competitive delivers clear level returns and remains resilient through the cycle. The business is better positioned today than it was years ago, but there is still more work ahead. We will continue to strengthen the portfolio, maintain cost discipline, improve cash conversion and optimize asset availability in line with demand. At the same time, we'll continue to act on opportunities that strengthen the portfolio and improve returns. The Brunsbüttel alumina investment is a good example. We are building out our Advanced Materials business, thereby strengthening our position in higher value specialty markets and supporting the long-term quality of the portfolio. Sasol's role extends beyond our own operation. This matters because our strategy is not only about financial performance. It is also about building a responsible company that continues to contribute to [indiscernible] development, local communities, energy security, industrial activity and economic resilience. We continue to invest in communities and enterprise growth in the past year. We expanded access [indiscernible] Mozambique. We trained more than 450 artisans and supported the development of small businesses across our operating regions. These initiatives reflect our belief that long-term business success and social progress must go hand in hand. Sasol remains a force for good in a changing world, creating shared value and positively impacting the lives of our communities. As we look ahead to financial year '27, our priorities remain unchanged. We will stay focused on the following areas within our control. Safety, operational excellence, commercial excellence, cost efficiency, cash generation and disciplined capital allocation. We will continue strengthening the foundation business while advancing our growth and transform pillar in a pragmatic and value-accretive manner. As the markets continue to normalize, maintaining focus on these priorities becomes even more critical to sustaining our momentum. Financial '26 gives us confidence, but we are not complacent. Credibility is and through consistent delivery over time. And our focus remains on executing against these commitments we have made. With that, I'll now hand over to Walt, who will take you through the performance against our financial framework in more detail.

Thank you, Simon, and good morning, everyone. At our Capital Markets Day in May last year, we set out 4 clear and connected priorities for our robust financial framework: Firstly, improved sustainable free cash flow; secondly, strengthen the balance sheet through deleveraging; thirdly, allocate capital with discipline; and lastly, resume dividends when it is prudent to do so. These priorities are underpinned by proactive risk management and a clear focus on the factors within our control. FY '26 represents meaningful progress against this framework. While market conditions became more supportive in the second half of FY '26, the stronger result was not simply market-driven. Improved operational performance, strict cost management and disciplined capital allocation, created operating leverage across the business to convert the opportunity into stronger earnings and further balance sheet strengthening. This progress gives us greater confidence in the operating and financial platform we are building. Our work is, however, not complete. Our focus now is to sustain the momentum, improve cash conversion and deliver against the FY '28 targets we set out at Capital Markets Day. First, some context on the macro environment. FY '26 remain volatile with geopolitical developments driving significant movements in commodity prices and currencies especially during the second half of the year. Overall, the year-on-year impact of pricing was mixed, with the rand oil price and U.S. dollar per ton chemical sales prices broadly flat and only refining margins improving materially. Oil prices strengthened following the conflict in the Middle East before moderating towards year-end as geopolitical concerns eased. We continue to expect volatility in oil markets in the near to medium term. The stronger rand remained a significant earnings headwind given the U.S. dollar-linked nature of much of our revenue although it also reduced the rand value of our U.S. dollar-denominated debt. Refining margins were a notable positive, supported by stronger fuel differentials and improved operational performance at Natref. Chemical markets remain challenging, with excess capacity and weaker demand continuing to put pressure on prices and margins. While conditions improved in the fourth quarter, margins still remain below historical levels and recovery is expected to be gradual. As an example, full year U.S. ethylene margins were still 8% below FY '25. As always, our focus remains on what we can control, operational performance, costs, capital discipline, debt reduction and risk management. Overall, we delivered against the majority of these items and the associated targets we set for FY '26. Sales volumes increased by 4%, reflecting improved operational performance across the business. Cash fixed costs remained flat despite inflation, extending our cost optimization track record to 3 consecutive years of absorbing inflation. Capital expenditure of ZAR 21 billion was in line with our revised lower guidance, while net debt reduced to USD 3.3 billion, well ahead of our FY '26 target of below USD 3.7 billion. Working capital was 18.3% on a 12-month turnover basis and above our target of 15.5% to 16.5%. The increase was mainly driven by higher commodity prices in the second half of the year. The utilization of Prax's shareholding capacity at Natref during the ongoing business rescue process and higher inventory due to lower demand in May and June and planned shutdowns in the first half of FY '27. Given ongoing pricing volatility, we believe a 6-month annualized turnover measure better reflects current trading conditions. On this basis, working capital was 16.6% and only slightly above the target range. Managing working capital remains a key focus area as we work to improve cash conversion in FY '27. Finally, we continue to execute our hedging program in line with our risk management framework. Completing the FY '27 oil program, while the FY '27 foreign exchange program remains in progress. Turning to the details of the group financial performance. FY '26 delivered a materially stronger earnings outcome. Gross margin and adjusted EBITDA increased by 13% and 17%, respectfully, higher sales volume, stronger oil prices and significantly improved fuel differentials more than offset the headwinds from a stronger rand exchange rate and the absence of the transnet legal settlement received in the prior year. Cash fixed costs remained broadly flat despite inflationary pressure, reflecting the benefit of the cost-saving initiatives we have been driving. The current year includes impairments on the Secunda liquid fuels refinery CGU, which remains fully impaired, the South African polyethylene CGU due to a stronger forecast rand exchange rate and lower longer-term polyethylene pricing outlook and an impairment of the Mozambique development which we recognized at the interim results. Importantly, the Secunda impairment should not be interpreted as a deterioration in the underlying business performance. The recoverable amount improved through the actions we have implemented. The impairment was primarily driven by changes in long-term valuation assumptions, particularly a stronger rand outlook and relates only to the liquid fuels refinery CGU. The broader Secunda complex, including the chemical CGUs, continues to retain significant headroom when comparing the total recoverable amount to the net book value. As such, the accounting treatment and value should not be viewed as a direct reflection of the underlying economic value of the Secunda complex. Further improvement initiatives are still being progressed with benefits -- and the benefits thereof will be included in future impairment assessments once sufficiently advanced. Free cash flow, as defined in our capital allocation framework was ZAR 11.9 billion, 5% lower than the prior year. Excluding the prior year's one-off Transnet benefit, free cash flow increased by 26% year-on-year. Cash flow from operations increased by 22%, reflecting stronger operational performance, improved earnings quality and a greater contribution from international chemicals. As I already mentioned, working capital was a primary headwind to cash conversion during the year, and we expect part of this to unwind in quarter 1 of FY '27. Overall, FY '26 demonstrates that stronger operational execution is translating into stronger financial outcomes. The business generated high-quality earnings, stronger underlying cash flows and continued progress on our deleveraging, which I will address later. Turning to capital management. One of our key priorities has been improving capital efficiency across the portfolio. This is not simply about reducing capital expenditure. It is about ensuring every rand of capital is allocated to the areas that create the greatest value while maintaining safe and reliable operations. Capital expenditure in FY '26 was 18% lower than the prior year, reflecting the completion of the Mozambique PSA project and environmental compliance programs in South Africa as well as lower maintenance expenditure due to the absence of a Secunda phase shutdown during the year. Importantly, lower capital spend has not come at the expense of delivery. During the year, the destoning plant, PSA project and 3 Natref low-carbon boilers all reached beneficial operation and are really contributing to improved operational performance. Beyond project completion, we have continued to systematically challenge scope, timing and cost across the portfolio. As a result, our FY '27 capital guidance is lower resulting in a cumulative capital reduction of approximately ZAR 12 billion to ZAR 14 billion compared to the ranges that we communicated at Capital Markets Day. Approximately half of this reduction reflects sustainable cost and scope improvements with the balance largely related to project timing and phasing. Looking forward, we will continue to drive capital efficiency as it remains an important contributor to improving free cash flow. At our Capital Markets Day, we set out a clear vision for capital allocation, build a more resilient business by derisking and growing the enterprise value and increase the share of that value that belongs to shareholders. Deleveraging was a key enabler of that strategy, and we've made good progress over the past 2 years. In FY '26, net debt reduced by a further 11% to USD 3.3 billion, the lowest level in 10 years and ahead of the profile we had at CMD. That keeps us firmly on track toward our objective of its sustainably reducing net debt below USD 3 billion between FY '27 and FY '28. Enterprise value grew 32% during the year with the equity share of that value increasing from 37% to 57%. Put simply, shareholders today own a larger share of a significantly larger enterprise. We also improved our liquidity position with available liquidity increasing by 21% to approximately USD 5 billion. During the year, we also successfully issued a ZAR 5.3 billion bond in exchange for USD 300 million and a USD 750 million bond maturing in 2033. These proceeds were applied for a partial repayment of our 2028 and 2029 bond maturities, which was, therefore, debt neutral. Collectively, these actions have materially extended our debt maturity profile further reduced near-term refinancing risk and improved the currency mix of our debt to better match the cash generation of our assets. Sasol's balance sheet is, therefore, in one of its strongest positions for many years. As we move closer to our net debt target, attention naturally turns to dividends, our policy remains unchanged. Returning capital to shareholders is important and net debt of sustainably below USD 3 billion remains the threshold for the resumption of dividends sustainably is the keyword. We will continue to test the balance sheet against a range of commodity price, currency and other scenarios to ensure that any return of capital is supported through the cycle by sufficient free cash flow generation. Once that objective has been achieved, and we are distributing 30% of free cash flows dividends, we will have a broader range of capital allocation options available. These include a combination of further debt reduction, investment in value-accretive growth and transformation opportunities and/or additional shareholder returns. Each will compete for capital based on strategic fit, risk-adjusted returns and affordability as part of our commitment to creating long-term shareholder value. As we continue to deleverage, hedging remains an important part of our risk management framework. Our objective is not to eliminate exposure to commodity price and currency movements. It is to protect the balance sheet against material downside, manage the cost of protection and retain appropriate upside participation. During the year, we completed our FY '27 oil hedging program and also secured protection for the first quarter of FY '20. While oil prices increased following the Middle East conflict, the medium-term forward curve did not move to the same extent and remained largely in backwardation with premiums elevated. As a result, we continued using a combination of put options, locking in an average floor of approximately USD 59 per barrel at an acceptable cost. -- our FY '27 and dialer program is approximately 60% complete with the second half of FY '27 fully hedged. We have mainly used 0 cost collars with an average collar range of approximately ZAR 16.50 to ZAR 19 to the U.S. dollar. Recent U.S. dollar weakness has made it more challenging to execute the remaining cover at appropriate levels in H1 FY '27. But with commodity prices remaining elevated, the risk at an enterprise level is reduced. Lastly, hedging complements but does not replace strong operational performance and balance sheet strength. As the business becomes more resilient and leverage continues to reduce, we will continue to calibrate our hedge cover to the group's financial position and risk capacity while maintaining appropriate downside protection. Turning to adjusted EBITDA by segment. Market conditions varied across our businesses, but strength in fuels and International Chemicals helped offset pressure in mining, Gas and Chemicals Africa, supporting materially stronger group earnings. Mining was impacted by the planned phaseout of export coal sales, partly offset by redirecting volumes to Secunda operation, which benefits the broader SA value chain, while gas was negatively affected by lower volumes and a stronger rand exchange rate. Fuels delivered a particularly strong performance, benefiting from improved operational performance and stronger refining margins and product differentials, partly offset by the Transnet legal settlement in the prior year. Chemicals Africa remained under pressure, largely from the stronger rand, offset by higher volumes and a marginal increase in prices in Q4. International Chemicals EBITDA increased in both Chemicals America and Eurasia and maintained its contribution of 16% to group EBITDA reflecting the benefits of our reset strategy and the more supportive market environment that emerged during the fourth quarter. In summary, FY '26 demonstrated the value of our diversified portfolio with a broader contribution to earnings across the group than we have seen in recent years. Our priorities for FY '27 remain fully aligned with the financial framework we set out at Capital Markets Day. Our focus remains on delivering volumes in line with our targets maintaining cost discipline, driving further capital efficiency, improving cash conversion and continuing to strengthen the balance sheet through deleveraging. Together, these actions will further improve resilience, support transformation and create sustainable long-term shareholder value. While there is still more work to do, FY '26 has clearly demonstrated that disciplined performance is translating into stronger operating and financial outcomes, giving us confidence and credibility to deliver our FY '28 commitments. With that, I will now hand back to Simon for the strategic and I look forward to engaging with you in the Q&A session. Thank you.

I will now turn to our strategic update, the grow and transform pillar of our strategy. The foundation business funds today and our future. That is why strengthening the foundation remains crucial. But at the same time, we must continue to position Sasol for long-term relevance, resilience and value creation. Our growth and transform strategy is not about growth at all costs. It is about creating future value while preserving financial flexibility and apply disciplined capital allocation. Sasol plays a uniquely important role in all areas where we operate, especially in South Africa. Every day, we have to keep the country moving by supplying fuels and chemicals that support energy security and economic activity. We enable critical industrial value chains through the products we supply. We supply -- we support hundred thousands of jobs across the economy and contribute meaningfully to South Africa's growth and development. Recent global disruptions have reinforced the importance of reliable domestic energy and industrial capability. Son of South Africa's largest industrial companies we have a responsibility not only to create value for our shareholders but also to contribute to the country's energy security, economic resilience and future industrial strength. That is why our transition pathway must remain pragmatic and value accretive. We must reduce our emission intensity and build future opportunities while safe guiding jobs, energy security, industrial growth and competitiveness. We do not see these as trade-offs. We believe they can and must advance together. We continue to move our grow and transform agenda from strategy to delivery. In renewable energy, we now have over 1.3 gigawatts secured and more than 500 megawatts of original, keeping us on track towards our target of 2 gigawatts by financial year '30. These projects are already lowering costs, reducing emissions and improving competitiveness aligned with our very accretive approach to reducing carbon intensity. We achieved a milestone in sustainable fuels and products by receiving a [indiscernible] in Africa sustainability certification. This makes Natref the first refinery in Africa to achieve product sustainability certification for key first production pathways alongside certified chemicals production at Secunda operations. This certification is imperative because it gives us credible route into low carbon markets as they mature and become economically attractive. On sustainable aviation fuel, we continue to work with [indiscernible] through our technology and licensing collaboration. [ Zafra ] has been operationally announced, but the SAF opportunities are still being progressed. Notably, our strategy is built on leveraging capabilities we already have. While and renewable energy, sustainable fuels or sustainable products we are advancing opportunities where there's a clear pathway to future value creation. This is a pragmatic, value-led and disciplined approach to transformation. Capital Markets Day was about setting a clear road map, strengthened the foundation business advance our growth and transform agenda and create long-term value for all our stakeholders. 2 years later, we are demonstrating tangible progress against that road map. We have a stronger foundation business with improved operational performance, a more resilient balance sheet and a growing strategic optionality. We are not deferring weekly, but we are increasingly confident that we are building a more competitive and more resilient business that can deliver our financial year '28 aspiration. However, our ambition extends beyond 2028. The financial business remains at the core of Sasol. Our priority is to continue strengthening these businesses, ensuring they remain profitable, resilient and cash-generative well beyond 2030. The stronger our foundation becomes the more chances we create for the future. We are already looking at how Sasol can create value well into the next decade. We are doing this by building on our cost strength leveraging the capabilities we have developed across the group and creating additional future growth opportunities where they make commercial sense. As we do that, our focus remains on creating more prices for the future through a stronger balance sheet, greater flexibility across our value chains and a disciplined approach to capital allocation. Put simply, 2028 is not a destination. It is an important milestone in building sustainable long-term value on top of a strong and enduring foundation business. To close, financial '26 demonstrated that our strategy is working. We have improved reliability across the value chain. We continue to strengthen the foundation business. Strengthen the balance sheet and position Sasol for future growth. They still wake ahead, but the foundation is stronger than last year. The business is better positioned, and we are becoming increasingly resilient through the cycle. I would like to thank Team Sasol for their commitment and resilience. The progress we have achieved is because of our people. We are delivering against the commitments we made and building credibility through performance to create sustainable value for our shareholders and stakeholders. Thank you. [Break]

Thank you, Simon, and Walt, for your presentations, and welcome back to everyone for the Q&A session. where you have the opportunity to direct your questions to the Simon Walt and the rest of the executive management team. So joining us on stage today, we have Antje Gerber, who's Head of International Chemicals; Sandile Siyaya, who's Head of Mining; and Victor Bester, the EVP for Operations in South Africa -- Southern Africa. In addition, we also have [ Vuyo Kahla ] supporting on Commercial and Legal; Christian Herrmann, Marketing and Sales Energy and Chemical South Africa; Thabile Makgala, EVP of People Risk and Corporate Affairs; and Sarushen Pillay, Business Building Strategy and Technology. [Operator Instructions] So I'm going to start today with some of the online questions. And if we can go to the financial questions, please. We'd like to have some clarity I think the first question comes from -- sorry, just kidding there from Michael. At NPV investments, who wants to understand the principle, which underpins the calculation of the breakeven and what that entails? And then a second question from Sashank Lanka from Bank of America. Who says, thank you for the presentation and the opportunity to ask questions. I'd like to understand the pathway for the working capital to return to target. Is it inventory reduction or lower Natref related working capital. So I'd like to ask Walt to please start with those questions.

Thanks, Tiffany. I'll handle the first one. Thanks, Michael. Yes. So on the calculation of breakeven, we bring in all costs, including variable costs, cash fixed costs and our capital expenditure. And we use that in the calculation of breakeven. We obviously we take a credit on some of the refining margin and chemical prices. So it is impacted by the macros. And you would have seen in the results that we presented that we did give a bit of a range in terms of the impact of that. total impact between not having the Secunda shutdown and then also the Middle East conflict was around $6 to $9 per barrel of the $49 per barrel that we achieved. So Shank, moving to the working capital. We did see a large increase in working capital during the year. About 60% of that was related to pricing, particularly in the last quarter with regards to the Middle East conflict. 30% of the increase is related to Prax's Natref, where we stepped into the capacity there during the business rescue process. and then around 10% is related to volumes. There's a little bit of noncash items also in there. But I think that gives a fair approximation of the split. We expect certainly on the inventory side, that portion to unwind, now in the first quarter, we have the planned shutdown at Secunda again with the phase shutdown and then also at Natref. So that inventory rewind will happen. And then on Prax, we continue to utilize that shareholding capacity. At the moment, there is a process being run by the business rescue practitioner to find a partner for that, and we continue to engage with them actively. And then I think lastly, on the pricing, there's still a lot of volatility in pricing at the moment. But we believe that the working capital at year-end sets us up nicely for FY '27. In terms of cash and our ability to generate cash. And so we look forward to showing that to you later in this year.

Thank you, Walt. The next team of questions is around our Southern Africa operations. I'm going to start with [ Gabelli's ] question from Nedbank. And he wants to understand a bit more around the sinks at currently below 12% and what remains a constraint for coal operations with your sinks there? Your volume and cost guidance seemed to show a constrained mining or so business what can we expect from external coal purchases and then some more around the coal capital expenditure that's planned for the 2027 year which includes -- does it include spend for shaft expansion projects, geographic expansion and sustenance projects. I think let's deal with actually 3 questions in 1. So if I could ask, Simon, you perhaps address the coal business more broadly.

Thank you, Tiffany. Let me start, and I'll hand over to Sandile. At Capital Markets Day, you will recall that we identified coal things and gasifier availability that [indiscernible] that we needed to prove to improve Secunda to more than 7.4 million tonnes. And yes, we are on track with the coal quality and the gasifier work is ongoing. So that's where you still see the constraint that we've put for the FY '27 budget yet. I think Sandile, you can handle the coal purchases and the capital expenditure for Sasol Mining.

Maybe in answering this question, I will just maybe first outline Sasol Mining main objective, which is to enable SO to perform optimally. And mining is doing this and achieving these through integrated approach of providing or supplying coal of the right call quality as demanded by SO and SNO, which is Second Operation and Sasol Operations and also ensuring that we supply the right volumes at the right cost or competitive cost. Now if one then looks at the performance for FY '26, we have seen year-on-year improvement in terms of the coal qualities, mainly driven by the beneficial operation of the destoning plant. But also in terms of the volumes, we are planning to improve the volumes performance coming through from Sasol Mining. And the impact of that is that there will be a reduction of the coal patiences, again, which is a year-on-year improvement compared to -- or moving from FY '25 to FY '26. Also further improvement in FY '27. Just speaking of the exact numbers, in FY '26, we purchased 8.8 million tonnes. For FY '27, we are planning to pitches between 5 million to 7 million tonnes, which is a significant improvement. And that has got a positive impact on cost of supplying coal to SO. And that's a trend that will continue with. So there will definitely be a reduction of the coal patencies. Maybe answering the capital question, whether the capital allocation is reflective of that yes. So the capital allocation at Sasol Mining is a reflective of the mandate that I've spoken about of supplying the right call quality at the right volumes at a competitive price. And given that some of our operations are approaching the end of life, we are also busy with the long-term coal supply road map with clear quarterly milestones. And therefore, the capital allocation is also aligned with those milestones. And if we look at the performance against those milestones, we are seeing that we are currently meeting those milestones. And the plan for FY '27 is also to continue working on that long-term coal supply road map. Thank you.

SP-3 Thank you, Sandile. I'm going to turn the focus to the rest of SA operations, including Secunda. There's a number of questions from some people. So I'll try and cluster them into themes. Starting with Michael from NPV investments. I'm trying to understand the overall benefit of the destoning and improved things on the overall, so production improvement. So if we strip out the benefit from not having a shutdown, what is the estimate on production, I think similarly, also on the same theme, the current challenge is with improving gasifier availability and expediting the [ geos ]? Is there a resource constraint? Are we seeing a reduced number of gasifier or equipment failures with destoning now operational and the overall reduction in unplanned shutdowns. And I think one more on the same theme is how confident are you in maintaining the FY '26 operational performance through the '27 Secunda shutdown, and that comes from Sashank Lanka. Simon, would you like to start?

Yes, I'll start then hand over to Victor. The impact of not having the shutdown is about 100 kilotons. So we can subtract that the volume performance that we did this, if you wanted to know where we'll end without a shut down. Victor, you can handle the gasifier questions and the questions from Sashank.

Thank you, Simon. I think when it comes to gasifiers and gasified availability, we've made significant progress. And I think to position it as a challenge, I would say that the program is fully resourced, and it's really the straight off between gasify availability and gasifies on maintenance as well as gasifier utilization. And that's a business trade-off that we make. But the program itself is fully resourced, and we are delivering. I think there was another question around the breakdowns. We've actually seen with the destoning plant coming on stream we've seen less breakdowns in our gasifier components and year, specifically referring to our [ colo ], which are highway equipment items and our [ ash locks ] so that has gone some way in terms of helping us to improve gasify availability. And then, of course, we've also worked on reducing the downtime duration, and we've seen a positive trend in that regard. Is there another question?

Thank you. I think if we can move to Natref, refining also from Sashank from Bank of America. Refining margins are very elevated currently. How is this impacting your fuels business? And how is the Middle East conflict impacted your crude oil supply and differentials. Also, on the Natref refinery, it's now been confirmed that [ ADNOC ] was the preferred bidder for Shell's downstream assets. can Sasol confirm if it bid for the assets and the acquisition of the assets sort of increased the -- your retail footprint, which is a high-margin channel. So how does this tie into the strategy? And that comes from Michael again at NPV investments.

Thank you, Michael. Let me start this with your questions and then hand over to Christian. The Middle East conflict, I mean they did intensify their focus on domestic, I mean, ability to be able to supply us during those times. We saw other economies running out of jet fuel and petrol and diesel during that time. And Sasol actually did manage to move around some of the shutdowns to make sure that we can produce those critical products for the country at a time. And I think with that, we will show the importance of not reference as well, in particular, fits into the energy security of the country. Christian can then take the rest of your questions.

Thank you very much, Simon. Yes, certainly, the higher crack spreads and also the higher crude prices, they were really benefiting our refining margin. So we had roughly $25 last year that was, I have to say, a very good year. crude supply, we have quite a good diversified portfolio where we source our crude. And in addition, Victor's team and Natref also changed the diet, the crude diet for the operations. And that also helped us to be less dependent on sour crude and actually source more from Latin America and West African crude. So we feel quite comfortable to whether that storm also to continue going forward. We also have -- we don't just future spot on the day. So we have a longer-term strategy, how we secure our supply. Going forward, with regards to, I think the question was on ADNOC. We are not commenting on any external developments and if we were bidding or not. But to the question, what is our strategy? Our strategy is organic growth, certainly in the retail sector. We have been quite successful in the market in retail overall was actually declining last year, and our market share in retail has been increasing. So we have now a market share of roughly 13%. And just 5 years ago, we were at 9%. So I think the refresh and premium strategy over the last years is really paying off, and we are quite satisfied with that development. Certainly, we welcome ADNOC in South Africa it's a formidable competitor like Shell was also in the past, and it keeps us humble and honest. And the last one, I think there was one more question. No, I think that's it.

Yes. Thank you, Christian. I'm going to move to Chorus Call. If we can -- operator, if you can have that 2 callers with their questions, please.

First question comes from Chris Nicholson of RMB Morgan Stanley.

Well done on your -- hitting all your operational metrics this year. I've got a few couple of questions around international chemicals. Your guidance for FY '27, $450 million to $600 million would imply a decrease on this year's level. Just trying to understand what you're assuming to get to that level? Are you assuming that prices fall on average from those that you realized in FY '26. And maybe it's quite a page to the market, what that would imply from kind of the type of run rates of prices we've seen in the chemical business over July and August so far? And then just 2 questions linked to that. Just levels of water in the Rhine River are currently exceptionally low, I think, close to all-time lows. Last time that happened in '28, it did have a material negative impact on your business in Germany. Should we expect any risk from that in this year? And then I see Lyondell's guided their operating rates to 85% for the North American business. Is that roughly what you're assuming for your cracker and polyethylene plant run rates for 2027?

Thank you, Chris. Can I also have the next caller's questions, if they may be on a similar theme.

Next caller is Adrian Hammond of SBG.

Thanks, operator. Good day, everyone. I'll be brief since we collecting everyone's questions here. First 1 for Antje, your volume growth expectations for alumina at Brunsbüttel and perhaps you could expand a bit on the margins that you see there versus the business it average. Secondly, question for Victor. Could you just give us some color on your update to the PSA reserves percentage increase? And any update on your progress with [ PT 5C ] in Mozambique. And then for Walt. I'm just curious that your credit rating still remain negative outlook for both Moody's and S&P. What does it take for them to change that outlook? And noticeably, you also [ 1 log ] below investment grade. So what should the impact be on your credit cost of capital or cost of financing should say should you move into investment grade?

Thank you, Chris and Adrian. Let me start with [ IC ]. I think Antje you're done, you can just hand over to Victor to deal with the PSA and PVC. Before Antje [indiscernible] and Adrian. I mean let me remind you that as the structural I mean challenges in the chemical market of oversupply have not gone away. What you've seen was that the disruption from the Middle East but the challenges are still there and the business is still, I mean, faced with all of this, and that is why we focus on what we can do internally. I think ANtje, we can take over the 2 questions from both Chris and Adrian.

Yes. Thank you, Chris and Adrian and also Simon, for the question. So with regard to the guidance in fiscal year '27, our assumptions are that we have seen in from the Middle East increase in the last quarter of the fiscal year '26, which will not repeat. So we see that basically for the fiscal year our guidance is lower because, yes, we can factor in only management activities, which are under management control, which includes the delivery of our transformation program. So ongoing cost reduction, commercial excellence programs, portfolio optimization and also increasing the operational reliability throughout the year while we implement further our ERP system. So those are the biggest variables which remain basically market-related ethylene margins and also the European demand structure. So the energy costs in Europe are also elevated Chinese exports and also inventory effects. So in a nutshell, what we say that you normalize for the European -- for the Middle Eastern benefits our real story is not that the margin stood still in '26 and are still kind of [indiscernible] a good level. We are quite happy with that. We absorbed in that year. Roughly $100 million of ethylene margin, which was lower than in the fiscal year '25 we delivered on 7% fixed cost savings and executed on our other levers as well, which we had laid out before. So if we look into '27, we continue with all of these measures further on, and they are under our control, what we think. And despite upside will depend on potential market conditions. Our strategy, nevertheless, does not rely on your market recovery, but to create value for Sasol on the long run. The River Rhine risk is existing. We see that every year. I mean, this year earlier than the other years, Nevertheless, it's not impacting our business massively. We have immediately moved to multimodal transportation for our raw materials and also for our finished goods. So we do not see a big dependency on that low level of the River Rhine at the moment. In terms of our cracker run rate, the cracker, both of the cracker still joint venture cracker and our own have run above nameplate, and we expect to continue as long as the market is profitable and beneficial for us. Nevertheless, we've seen already that ethylene margins have come down dramatically from the spike of $0.24 on the spot market in May to $0.12 per pound in June. Adrian, I think your questions were around our Brunsbüttel side. The demand for the alumina products, which we have there. Alumina is our highest margin business, which we have in international chemicals. So there, we enjoy an EBITDA margin of 25% to 30% in rough terms. We have increased the volume. But for competitive reasons, we don't want to -- yes. issue that number, which we are doing, but it's all backed up with customer demand. We see an increased demand right now and have made also customer commitments for our expansion in Brunsbüttel. With that, I'd like to hand over to you, Victor.

Thank you, Antje. So Adrian, I think when it comes to PSA, we have 3 reserves in PSA to small reserves and one large one. And here, I think we're still busy in the appraisal phase or surveillance phase, where we are we need to get wells online to confirm the confidence levels around these reserves. And as you would know, CTT has been delayed. But what we do have is 1 of the reserves has been confirmed to be at the low case, which is the smaller reserve. And it will take another 2 to 3 years for us to actually confirm the larger reserves and the other small reserves. So that's our status on the PSA. On [ PT5C ], you'll recall that we've had -- we've had 2 wells where we discovered gas. We've also paused our activities on PT5C, and we're exploring opportunities to partner with others for further development. What we have done, though, is we have made submissions to the regulator in Mozambique in terms of our initial appraisal plans and we've received feedback on one of those wells, and the other one is still in progress.

Victor and Antje for the extra color. If I could go to the next caller, and then we'll switch back to the online questions.

Next question comes from Gerhard Engelbrecht of Absa CIB.

It's great that you are on track to achieve your 2028 targets despite all the volatility that we're seeing in markets. So yes. I've got 3 questions. One is around CapEx. You've now for 3 years in a row coming below your guidance, and that could be seen as a good thing. But there are examples in the past, we're spending less CapEx leads to problems later on. Exactly where are you cutting CapEx? I think is the question. And how do you assess the risk when you decide to reduce to reduce your CapEx? Second question, it seems that [indiscernible] is going to do a competition assessment before it's going to make long-term decisions on long-term gas prices. Can you actually go ahead and spend capital on this MRG supply bridging supply projects if you don't have good visibility on future prices. And how do you see this impact the long-term profitability supplying more MRG at the expense of production of other products in [indiscernible]. And then lastly, maybe a little market insight, if you can, the nature of your competition in South African markets are changing significantly from oil companies in the past now to companies that have a more trading orientation. And you also talked in some of your quarterly production numbers about seeing more imports into the country impacting your ability to supply product. How is this going to evolve? And how do you kind of strengthen your strategic position if the market is overrun by oil and product traders, the local market.