Sasol Limited Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Safety: Fatality-free since August 2024, but safety incidents elevated in first half due to Secunda shutdown; fire at Natref refinery in Jan 2025; focus on driving safety culture change, collaborating with service providers, streamlining systems, and embedding industry best practices.
• Financial Performance: Adjusted EBITDA for period ended ZAR24 billion, 15% lower than previous year; free cash flow improved by over 80% but slightly below expectation, expecting recovery in second half; macroeconomic headwinds (lower oil prices, refining margins, chemicals market downturn) impacted results.
• International Chemicals: Commenced reset journey with cost efficiency, market focus, asset optimization; streamlined organizational structures, refined value proposition for products, mothballed three underperforming assets in Germany, Italy, and U.S.; targeting EBITDA uplift of $100M to $200M from FY '24 baseline.
• South African Energy and Chemicals: Addressed coal quality challenges with destoning solution FID; Natref refinery back online after Jan 2025 fire; gas business FID on junction compression project and PPA license in Mozambique; focus on optimizing channel mix, aiming for oil breakeven cost below $60/barrel for FY '25.
• Emission Reduction: GHG reduction target 30% by 2030; optimized ERR roadmap with focus on maximizing Secunda operation production, considering renewables and other value accretive opportunities; reverse roadmap lowered capital requirements for ERR from ZAR15B-ZAR25B to ZAR11B-ZAR16B.

Segment Performance

• Southern Africa Energy and Chemicals: Mining segment had improved earnings due to pricing revision in coal supply agreement; gas business earnings up 71% from higher prices and volumes; Fuels earnings down 61% due to lower prices, volumes, and higher feedstock costs but saw 4% increase in higher-margin mobility channel sales; Chemicals Africa earnings down 14% due to lower Secunda production and higher feedstock costs but had higher average basket sales price and 4% higher differentiated chemical sales volumes.
• International Chemicals: Strong improvement in first half with focus on value over volume; Chemicals America earnings up 77% supported by improved U.S. ethylene margins and cost reductions; Chemicals Eurasia earnings up over 100% but margins structurally low due to high feedstock and energy costs. Adjusted EBITDA from international chemicals increased over 80%, lifting its contribution to group adjusted EBITDA from 6% to 13%.

Guidance

• Adjusted EBITDA expected to recover in second half of FY '25 with focus on cost discipline, operational stability, and sustainable working capital; International Chemicals targeting EBITDA uplift of $100M to $200M from FY '24 baseline; aim to bring net debt below $4B by end of FY '25; free cash flow performance expected to improve in second half as major shutdowns are behind.

Risks

• Macroeconomic headwinds including lower oil prices, refining margins, and chemicals market downturn; safety incidents and process safety risks; carbon tax impacts and regulatory changes; mismatch between offshore debt and South African earnings; volatility in global market sentiment and geopolitical tensions impacting business performance.

Question and Answer

Q: How much would the destoning project add in terms of coal volumes, revenue uplift, cost savings or EBITDA uplift? Which other options were considered in improving mining volumes, i.e., was a new mine considered, given the variability of your coal production? Impact on Secunda operations, how do you plan to maintain Secunda volumes beyond 2028 when your gas volumes are expected to start declining while reaching your 30% CO2 reduction target?

A: Simon Baloyi stated the destoning project helps address coal quality, Victor Bester elaborated on gasification yield improvement and maintenance needs; considering options like producing own coal or buying from outside for new mines; gas volumes end in 2028, and Sasol will reposition to keep Secunda profitable.

Q: Did you want Sarushen to add anything on the 30% CO2 reduction target and levers?

A: Sarushen Pillay mentioned optimizing ERR with focus on ramping up Secunda production, increasing renewables, enhancing energy efficiency, and exploring sustainable market mechanisms.

Q: The revised ERR seeks to incorporate the use of sustainable feedstocks provided they are cost competitive. Should this not be the case? What will the impact on the ERR targets to be achieved?

A: Simon Baloyi and Sarushen Pillay stated it's a dynamic process, exploring all levers, and core focus is maximizing Secunda production and protecting value; drilling for mining is to map geology, not for exploration.

Q: Question comes from Chris Nicholson of RMB Morgan Stanley on destoning, impairment calculations, export coal diversion, and Richards Bay allocation.

A: Simon Baloyi and Hermann Wenhold addressed that destoning FID doesn't immediately cause impairment write-backs; export coal may be diverted, and Richards Bay allocation is being reviewed with potential value assessment.

Q: Question from Gerhard Engelbrecht of Absa CIB on CapEx, maintenance CapEx, mine timelines, and gas impact.

A: Simon Baloyi and Hermann Wenhold discussed CapEx outlook at CMD; Bosjesspruit and Isibonelo timelines for coal supply; gas volumes end in 2028, and Sasol will reposition to stay profitable.

Q: Question on carbon tax savings, impairment reversal, and offshore debt restructuring.

A: Walt Bruns explained carbon tax impact reduction, impairment reversal plans at Capital Markets Day, and offshore debt refinancing considerations.

Q: Questions on International Chemicals IPO, asset mothballing, and EBITDA uplift guidance.

A: Simon Baloyi and Antje Gerber stated IPO depends on business reset; mothballing assets to stop bleeding; EBITDA uplift driven by cost savings, operational and commercial excellence, and asset review.

Q: Questions on destoning plant, coal intake, and gasifier timelines.

A: Hermann Wenhold detailed destoning plant throughput, coal intake plans, and gasifier maintenance timelines post-destoning implementation.