Sasol Limited Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Streamlined operating model in April 2024, revising Group Executive Committee and senior leadership portfolios to enhance accountability and focus.
• Defined a strategy framework with two pillars: 'strengthen and grow' and 'transform'.
• Addressed safety concerns, noting 5 tragic fatalities in FY 2024 and intensifying efforts to improve safety culture.
• Notable business highlights: Mining full potential program nearing completion with productivity gains; early gas flow from Mozambique PSA initial gas facility; progress in Secunda operations; Sasol Rewards loyalty program with 1.8 million subscribers; managed international asset utilization; successful conclusion of PR related to minimum emission standards in South Africa.

Segment Performance

• Mining: Saw a 4% decline vs prior year due to lower export coal prices and higher external coal purchase prices, partly offset by higher internal transfer prices.
• Gas: Down by 6% mainly due to lower weighted average gas prices, partially offset by increased sales volumes from Mozambique.
• Fuel: Adjusted EBITDA fell by 7% due to lower sales volumes and lower diesel differentials, partly offset by a stronger rand oil price and Natref refining margins.
• Chemicals Africa: Decreased by 31% due to lower dollar-based sales prices, partially offset by higher sales volumes.
• Chemicals America: Adjusted EBITDA increased by more than 100% to ~ZAR3.5 billion due to higher sales volumes and improved ethylene and derivative margins.
• Chemicals Eurasia: Increased by 19% due to higher sales volumes and lower margins driven by lower energy and feedstock costs.

Guidance

• Mining: Projected saleable production between 30 million and 32 million tonnes for FY 2025, focusing on improving own mine volumes, reducing unplanned coal purchases, and production costs.
• Mozambique: Gas production expected to increase by up to 5% supported by PSA license volumes.
• Secunda operations: Production expected between 7 million and 7.2 million tonnes.
• Sales: Anticipate 0% to 4% increase in volumes for liquid fuels and Chemicals Africa.
• International chemicals: Focus on improving margins through optimizing sales mix and reducing costs, with combined volumes from U.S. and Eurasia in line with prior year.
• Capital expenditure: Forecasted between ZAR28 billion and ZAR30 billion, including peak PSA and environmental compliance spend, and ~ZAR1 billion for growth-focused projects.

Risks

• Safety: Ongoing challenges with fatalities and need for continued improvement in safety culture.
• Market Volatility: Uncertain global market sentiment, geopolitical events, and persistent oversupply impacting chemical prices and margins.
• Regulatory Risks: Compliance with emission standards and potential changes in regulations affecting operations and costs.
• Gas Depletion: Expected gas depletion in Mozambique by 2027, requiring transition to LNG and associated investment risks.

Question and Answer

Q: What has caused the impairments leading to losses in the group?

A: Impairments were due to revised assumptions incorporating a weaker outlook for the value chain, including ethane, ethylene, and other product prices due to slower-than-anticipated demand recovery and persistent oversupply.

Q: How does the management plan to respond to gas depletion expected in the next few years?

A: Extending gas supply in Mozambique to mid-2027, working on projects to extend further, and engaging with customers to transition to LNG, with FID on LNG infrastructure projects expected in 2025.

Q: What is the expected gas price increase for South African gas users for the transition to LNG?

A: Current gas price (regulated by NESA) is between $3 and $3.5 per gigajoule, expected to increase 4-5 times, with LNG prices based on global benchmarks linked to oil prices.

Q: Could some of the impairments in the Chemical business be reversed?

A: Yes, as management implements plans to enhance profitability of the business, which could lead to reversal of impairments once implemented plans are reflected in budgets and market conditions improve.

Q: How does the management plan to respond to the competition commission appeal?

A: Preparing to respond to allegations of excessive pricing, factoring in the competition appeal court's indication that [indiscernible] informs pricing as a consideration, and awaiting further directions from the tribunal.