Sasol - H2 2024
August 20, 2024
Transcript
Tiffany Sydow (Head of Investor Relations)
Good morning, and welcome to Sasol Limited's presentation of the financial results for the financial year 2024. Thank you for dialing in and listening to our announcement today. My name is Tiffany Sydow from Investor Relations, and with me is Simon Baloyi, President and CEO of Sasol, and Hanré Rossouw, Chief Financial Officer. Simon will start today's presentation with some opening remarks and an overview of the business performance. The financials will be covered in more detail by Hanré, and Simon will then conclude on strategy. We will have a Q&A session following the presentation, accessible through both the webcast and teleconference platforms. Before we get into the main agenda, I'd ask that you please take note of our forward-looking statement shown on the slide. Please peruse in your own time and note the important information regarding statements that are made in this presentation.
Adrian Hammond (Analyst)
Thank you, and I will now hand over to Simon to commence his presentation.
Simon Baloyi (CEO)
Good day, everyone, and welcome. In the past five months, since I started my tenure as President and CEO, I have drawn on 20 years of Sasol experience to implement a few decisive actions to bring about meaningful change. Let me share a few examples with you. In April, I commenced streamlining of Sasol's operating model. This entailed revising the portfolios of the Group Executive Committee and senior leadership layers. These changes were made to improve accountability, collaboration, and to help create a clearer focus between business of today and business of the future. Regarding strategy, we have already defined a framework to guide our priorities and ambition. This framework has two pillars: one, strengthen and grow, and two, transform. I'll touch on this in more detail shortly. Furthermore, recognizing the urgent need to improve our short-term performance, I implemented focus areas to unlock opportunities.
Adrian Hammond (Analyst)
This enabled us to deliver a strong fourth quarter performance. My vision for Sasol is to build a profitable and sustainable business. We must achieve this vision by safely delivering value to our shareholders, customers, communities through inspired people. I am deeply honored to lead Sasol at this pivotal moment. Team Sasol is fully committed to ensure that we thrive as the pioneers of our great company had intended. We have an excellent portfolio of global assets and a solid customer base and integrated technologies, but what truly excites me is the people of Sasol. With nearly 30,000 employees worldwide, united by a shared purpose, Team Sasol is the true driving force behind our success. It is for this very reason that I'm saddened that we did not send all our team members safely home during FY 2024. This is not acceptable.
Safety is a critical issue, and I'll spend more time on this topic shortly. Looking at the two pillars I've mentioned earlier, we are advancing with great agency to strengthen our foundation, step up performance, and move towards full potential. This underpins our ambition to strengthen and grow the business and then drive its transformation. Recent improvement in our operational stability are early signs of progress towards strengthening our foundation. At this early stage of my tenure, there are three key messages I'd like to share with you. Firstly, I have a clear vision for Sasol: to build a resilient, sustainable business that delivers value for all our stakeholders. Secondly, our recent actions are making an impact, but there is more that must be done to strengthen and grow our foundation business. And finally, we must transform Sasol for long-term sustainable performance by building on our strength.
Towards the latter part of my presentation, I will circle back to strategy and our long-term outlook. While I'm confident that we can leverage Sasol's strength, our future aspiration must be grounded in what is realistic and achievable. This work will require more time to develop. We'll provide greater clarity at our next Capital Markets Day, planned for Q4 FY 2025. Turning to safety, as I mentioned earlier, our performance is not acceptable. Having spent many years in operation, directly interacting with our frontline team members and service providers, I have first-hand knowledge of how much their families mean to them. This deepens my commitment that every one of us must return home safely to our loved ones each day. The fact that we are not achieving this weighs heavily on my heart.
While we experienced lower hospitalization and less work day cases compared to FY 2023, we suffered five tragic fatalities. The colleagues we lost in FY 2024 are Francois Lobe, a 25-year-old electromechanic artisan from Syferfontein Colliery; Dumisani Dumile, a 36-year-old scaffold builder from Secunda; Colani Dube, a 43-year-old continuous miner operator from Bosjesspruit Colliery; Sipho Maduna, a 32-year-old industrial cleaning supervisor from Secunda; Nthobisi Mahlobo, a 31-year-old shuttle car operator from Thubelisha Colliery. I'm also saddened to report that last week, we also lost 36-year-old Mzwandile Dlamini, a scaffold builder from Secunda. I'm choosing to share more than just names as a way to honor these colleagues. They were our employees, but they were sons, husbands, fathers, and community members, among many other roles. Each individual and loss we suffer is simply one too many, and we are leaving no stone unturned to reverse this trend.
We have intensified our efforts to ensure that everyone is adhering to the right operational rigor, with numerous interventions underway. Safety is a crucial leadership matter. We are actively increasing the presence of leaders in the field to confirm that the safety systems are working as we designed. Our leaders are engaging and supporting their teams to remove barriers to a safe working environment. I have mandated that all the people on site, regardless of rank and position, must speak up to stop work if they see unsafe practices or safety risks. With the full support of Team Sasol, these actions will further embed a culture where safety is at the forefront of everything we do to ensure that no one is left behind. I will now unpack a few salient aspects of our FY 2024 business performance. We saw operational improvements in the fourth quarter.
This contributed to increase in production and sales volumes compared to FY 2023. As Team Sasol, we understand that the performance of one quarter is not enough. We must be consistent in our delivery to ensure that we meet our targets. Let me share a few notable highlights with you from FY 2024 . Our Mining Full Potential program is nearing completion. The benefits of this are reflected in productivity gains. While productivity in certain sections have been met and even exceeded, we have identified opportunities to further improve the lagging sections. We are fully unpacking these opportunities, and we will provide feedback at our FY 2025 half-year results. A significant milestone was achieved in Mozambique with early gas flow from the PSA initial gas facility. We also continued with our improvement interventions at Secunda operation, focusing on equipment availability and operational stability.
I'm also delighted to share that our Sasol Rewards loyalty program has reached an impressive 1.8 million subscribers since launching two years ago. This program contributed to an increase in retail fuel sales performance, despite an overall decrease in sales volumes. Internationally, we continue to manage the utilization of our assets in response to continued weak demand. We are also focusing on increasing volumes of our high-margin products. Lastly, I'm pleased to announce the successful conclusion of our appeal related to Clause 12A of the Minimum Emission Standards in South Africa. This allows us to proceed with the implementation of the load-based integrated solution to reduce sulfur dioxide emissions in Secunda from 1 April 2025. FY 2025 will be about stepping up delivery as we progress our pathway to full business potential. Let me spend a few minutes on some of the specific we are focusing on.
In mining, our benchmarking indicates that supply from our own mines remains the most cost-competitive for our value chain. Consequently, our focus will be on improving our own volumes, reducing unplanned coal purchases, and reducing production cost. We will achieve this by increasing the capacity at our mines and creating deployment flexibility. Additionally, we are implementing our coal quality improvement program, which focuses on coal and blend quality. A final investment decision on our de-stoning solution will also be made later this calendar year. As we refine our delivery plans, we will shift our focus from tracking productivity at mining to maximizing sellable production tons at the lowest possible cost. Operational stability and rigor is key at our South African operations. This includes the execution of successful shutdowns and optimizing external spend. International Chemicals is undergoing a reset journey as we target various opportunities.
Our journey began in April 2024 with the appointment of Antje Gerber as EVP, International Chemicals. In FY 2025, we'll maintain momentum by focusing on improving efficiency and driving targeted innovation. We will embrace our go-to-market model to better align with evolving consumer demands. We'll also provide more competitive solution to our customers. Additionally, we'll review and assess our asset portfolio. Here, we will take decisive actions on underperforming assets to ensure robust returns, which are comparable to our peers. In Southern African marketing and sales, we aim to enhance margins through optimized channel placement and improving customer value proposition. On the regulatory front, risk to our business persist, and managing this through proactive with critical stakeholders remains a priority. Flexibility in our strategy is also being considered to allow us to respond effectively to evolving regulation and policies.
Our FY 2025 priorities are well aligned with our goal to strengthen our foundation business. This is underscored by safety, cash generation, and customer centricity. We are also building on stakeholder confidence and driving sustainability. In our commitment to financial resilience, we are focused on enhancing our cash generating and deleveraging. This we will do through improving margins and enhancing our cost competitiveness. Customers are pivotal to our continued success, and our promise to meeting their quality, service, timing, and innovation needs remains unwavering. We'll progress our plans to reduce our greenhouse gas emissions and carbon intensity. We are already seeing opportunities to optimize the GHG Roadmap, also known as the Emission Reduction Roadmap, for our South African value chain. We look forward to sharing more detail on this at our Capital Markets Day. We recognize that we cannot achieve our goals alone.
Our stakeholders are crucial to our future, and we are working diligently to deliver on our promises. To conclude the first part of my presentation, I'll summarize the journey that we are on. The focus in FY 2024 was to position the organization for effective delivery. One of my first priorities was to streamline our operating model to improve focus, accountability, and collaboration. Looking to FY 2025, we must step up delivery as we define credible pathways to full performance and strengthen our balance sheet. We now have a more robust organization that is better positioned to drive improved performance in our journey to reach full potential. As part of this, we'll uphold rigorous cost and capital management practices to foster a culture of continuous business improvement. In this regard, we have updated our dividend policy, which Hanré will discuss later. This change aligns dividends more closely with cash flow.
While it will impact near-term payments, we remain committed to delivering shareholder returns. Beyond FY 2025, we'll continue to opt to prioritize operating performance while intensifying our focus on delivering future Sasol. Our efforts will be centered on pursuing value creation that aligns with our sustainability goals and drives growth. I am confident in our ability to succeed, and I'm excited to lead Team Sasol towards achieving success in FY 2025 and beyond. On that note, I now hand you over to Hanré to unpack our financial performance in greater detail.
Hanré Rossouw (CFO)
Thank you, Simon, and good morning, ladies and gentlemen. As Simon has highlighted, we have navigated through significant challenges and achieved some improvements in the second half of the financial year. Despite these improvements, our financial results were impacted by a range of factors owing to operational issues and the challenging macro environment. Let me start with the macro environment that we had to navigate this financial year. Oil prices continued to soften in the second half of the financial year, decreasing by 3% when compared to the prior-financial year, which was partially offset, however, by a 5% weaker rand. A 2% increase in the rand oil price was realized compared to the prior year. However, the closing exchange rate was stronger, which positively impacted the translation of our U.S. dollar-denominated debt.
Adrian Hammond (Analyst)
We observed a 13% increase in petrol differentials, but diesel differentials were down 22% compared to last year, negatively impacting our fuels business. We continued to see some respite in lower ethane and energy input costs, contributing to slightly improved margins in our international chemicals business. However, energy input costs remain elevated compared to historic levels. Sasol's average polyethylene prices decreased by 8% due to persistent weak demand and global oversupply. Looking ahead, we expect continued pricing and demand volatility in the short term, given the uncertain global market sentiment and ongoing geopolitical events. These challenges required continued agility and efforts to adapt to market demand and enhance margins. We must also maintain our cost and capital discipline through our business transformation program.
Turning to the results for the financial year 2024, the underlying operating performance was mostly in line with the revised market guidance. Despite the improved business performance in the second half of the financial year, we experienced a significant decrease in our cash generation and profitability compared to the prior year. Cash fixed cost increased by 1%, well below inflation. Excluding inflation and exchange rate movements, cash fixed cost decreased by approximately 5%, reflecting focused cost reduction initiatives. Adjusted EBITDA and cash generated by operations decreased by 9 and 19%, respectively. However, it's important to highlight the substantial improvement in the second half of the year compared to the first half.
A loss before interest and tax was realized, which was negatively impacted by non-cash adjustments, most notably the impairment in the Chemicals America segment relating to the specialty chemicals cash generating unit of ZAR 46 billion, net of tax. The impairment reflects revised assumptions, incorporating a weaker outlook for the value chain, including ethane, ethylene, and other product prices, due to slower than anticipated demand recovery. Persistent oversupply is likely to have a prolonged impact on prices and margins. Additionally, we've also seen higher discount rates further impacting the value in use. Although impairments are, of course, a non-cash adjustment, management remains committed to clawback value through various initiatives to improve the business performance of the International Chemicals business, as well as, of course, our broader portfolio.
Our capital spend of ZAR 30 billion decreased by 2% compared to the prior year and ended lower than market guidance, mainly due to continued optimization of our capital portfolio and postponement of low-risk projects. It is key to note that the lower capital spend was without compromising on maintenance and reliability of our assets. Although free cash flow for the financial year decreased by 60% compared to the prior year, we saw a significant improvement from a ZAR -6 billion in the first half to a ZAR 8 billion free cash flow at the end of the financial year. This reflects the resilience and the resolve of Team Sasol, and I have full confidence that we can step up performance going forward into the next financial year.
The board has taken the tough decision to pass on the final dividend for the financial year 2024, bringing the full-year dividend to ZAR 2 per share. We revised our dividend policy, which I will talk about more a bit later. It is important to recognize how the diversification of our portfolio across the energy and chemical sectors enhances the overall stability and performance of our businesses and mitigates risk. This diversification has proven beneficial, reducing the impacts of low oil price in the past, and is currently mitigating the effects of low chemical prices and softer market conditions. Our energy business, supported by reasonably stable oil prices, continue to underpin our profitability, although there remains a performance gap to reaching its full potential. We are implementing targeted plans to ensure we leverage the favorable market conditions provided by the stable oil prices.
In our chemicals business, the slight increase in performance from especially our international segments is encouraging, given the challenging global economic climate. We will continue the reset of our international chemicals business, improving the overall contribution to the group going forward. By consistently evaluating and reviewing our portfolio, we aim to achieve robust returns from both businesses, allowing us to navigate economic challenges and paving the way for sustained profitability. Now, shifting our focus to the variance in Adjusted EBITDA, comparing the previous year with the latest year, with business segments starting on the energy side. Our mining business saw a 4% decline versus prior year, largely due to lower export coal prices and higher external coal purchase prices, partly offset by the higher internal transfer prices. We continue to focus on the mining turnaround interventions, which Simon referenced earlier, to increase output and improve cost competitiveness.
Our gas business was down by 6%, mainly due to lower weighted average gas prices. The lower weighted average gas prices were driven by gas prices from Mozambique linked to the lower oil price. This was partially offset by increased sales volumes, driven by the additional wells that came online last year and the initial gas flow from the PSA license. In our fuels segment, adjusted EBITDA fell by 7%, mainly due to lower sales volumes and lower differentials on diesel, partly offset by a stronger rand oil price and Natref refining margins. Turning to the chemicals business, Chemicals Africa decreased by 31% due to lower dollar-based sales prices. This was partially offset by the higher sales volumes for the year.
In Chemicals America, Adjusted EBITDA increased by more than 100% to approximately ZAR 3.5 billion due to higher sales volumes and improved ethylene and derivative margins as feedstock and energy costs reduced. Chemicals Eurasia increased by 19% due to higher sales volumes and lower margins driven by lower energy and feedstock costs. Margins, however, still remain low compared to historic levels. Improved performance in our International Chemicals business represents some positive momentum in the current macro environment. We are also taking proactive self-help steps to reposition this business to be more resilient in the longer term. We launched our Sasol 2.0 transformation program in 2020, which was designed to drive cost improvement initiatives and enhance profitability.
I'm pleased to say that by financial year 2024, we successfully delivered a cumulative total of ZAR 16 billion of EBITDA enhancements, which has given us more headroom to withstand the impact of volatile economic environment and high inflation. We target an additional ZAR 2-4 billion of EBITDA enhancements in the financial year 2025 through further cost savings and gross margin enhancements. This will mark the successful completion of the Sasol 2.0 program. Going forward, we will implement a continuous optimization approach to business transformation, emphasizing sustained cost management and ongoing margin improvement. This involves embedding the principles of Sasol 2.0 into a culture of continuous optimization, ensuring ongoing free cash flow delivery. With our streamlined business structure, the new operating model will enhance our effectiveness and improve how we manage the business.
Our ongoing commitment to cost optimization will ensure that Sasol remains resilient and competitive in an ever-evolving global market. Shifting our focus now to our capital allocation framework, which remains pivotal to our investment decisions and the foundation of our financial strategy. Turning first to our dividend policy, a topic of considerable importance and one that we have engaged extensively on with shareholders. The significant disconnect between headline earnings and cash flow generation, alongside elevated leverage levels, has necessitated a revised approach to our dividend policy. Under this new policy, dividends will be calculated based on free cash flow before discretionary capital and dividends paid. It is important to note that dividends will only be distributed while our net debt remains sustainably below $4 billion. This threshold is critical as it supports our overarching goal of deleveraging the balance sheet and creating financial flexibility.
Unfortunately, as I noted earlier, given we ended the period marginally above the $4 billion threshold, we did not declare a final dividend for the period, further to the two rand per share interim dividend. We are committed to strengthen the balance sheet with the solid action plans that Simon unpacked earlier to improve cash flow generation and deliver sustainable shareholder returns over the long term. We continue to refine our approach to maintenance capital, optimizing spend while ensuring the safety and reliability of our operations. Additionally, we are carefully balancing our transformation capital to enable our greenhouse gas emissions reduction roadmap, thereby balancing our commitments to sustainability, growth, and delivering of value to our shareholders. Looking ahead to the financial outlook for the financial year 2025.
In mining, as Simon highlighted, we are shifting our focus from productivity metrics to closely tracking saleable production and optimizing the associated production cost. For financial year 2025, we project saleable production to be between 30 and 32 million tons. In Mozambique, gas production is expected to increase by up to 5%, supported by the additional volumes from the PSA license. The slight improvement in mining and increased gas volumes is projected to increase production from Secunda operations to be between 7-7.2 billion tons. In terms of sales, we anticipate a 0-4% increase in volumes for liquid fuels and Chemicals Africa, compared to the prior year. For our international chemicals business, we expect combined volumes from U.S. and Eurasia to be in line with the prior year, with a focus more on improving margins through optimizing sales mix and reducing cost.
Working capital to turnover ratio is expected to remain stable at around 15.5-16.5% on a rolling twelve-month average basis, ensuring optimal inventory levels. Capital expenditure for maintenance and transformation is forecasted to be between ZAR 28 and 30 billion. This includes peak PSA and environmental compliance spend. Additionally, we have included approximately ZAR 1 billion towards growth-focused projects, including those in our Zafra joint venture. Following the streamlining of our executive portfolios, our businesses will now be managed as a Southern Africa energy and chemicals business, which effectively includes the South African value chain, and an international chemicals business, which combines our Americas and Eurasia chemical businesses. More detail on the disclosure relating to our new operating model will be provided later in the calendar year.
In conclusion, as we navigate through financial year 2025, our strategic initiatives are set to strengthen our operational efficiency and ensure strict cost and capital management. This set of results will be my last message as the outgoing CFO, and I'm grateful for the opportunity to have been part of this dynamic organization. Thank you to my colleagues, especially to my finance team, for your support and unwavering dedication. I'm pleased to hand over the baton to Walt Bruns, who succeeds me as CFO, and I'm confident that he is well-positioned to lead Team Sasol towards future success. I will now hand back to Simon to conclude with a longer-term strategic outlook. Thank you.
Simon Baloyi (CEO)
Thank you, Hanré. As I mentioned earlier, we are committed to unlocking the full potential of our business and building a more sustainable future for Sasol. To achieve this, we are refining our strategy to proactively address challenges. We will also leverage our competitive advantages to seize opportunities. As I shared at the outset, our strategic framework revolves around two pillars: strengthen and grow, and transform. To recap, in the short term, we'll focus on enhancing delivery from our core businesses and maximize cash flow. In the medium term, we aim to maintain this performance while scaling transformation opportunities. Over the long-term, we plan to optimize and transform our portfolio. This we'll do by leveraging existing assets and exploring new sustainable growth opportunities.
Adrian Hammond (Analyst)
Our environmental commitments remain central to our strategy. Here, we need to maintain a balanced and measured approach across our people, planet, and profit goals. This ensures that every strategic decision we make supports our environmental ambition and social responsibility, and returns to shareholders. As always, we welcome ongoing input from all stakeholders as we optimize our approach to transform our businesses. I look forward to this work progressing and sharing more details at our Capital Markets Day in 2025. Regarding the energy transition, this is influenced by multiple factors, including the imperative for energy security and a just transition. By remaining agile and responsive, we are adapting to these changes and shaping our strategic objectives. Given this context, it is essential that we optimize the execution of our GHG roadmap.
This is to ensure we maximize value from Secunda operations for energy security and to enable a just transition. Transformation is not just about responding to change, it's about seizing new opportunities. We are focused on identifying and building scalable growth opportunities around new sustainable value pools. In summary, we are adapting our plans to address today's realities and create a more resilient business for tomorrow. Let me now touch on a few aspects of Sasol's continued contributions. Sasol makes very significant contributions across various sectors and regions where we operate. This includes producing essential everyday products and making substantial socioeconomic investments. We also play an important role in critical value chains such as agriculture, liquid fuels, chemicals, and mining. A recent study has confirmed that our direct, indirect, induced employment contribution in South Africa is in the order of 500,000 people, looking at only backward integration.
This number will increase significantly if both backward and forward integration are considered. Over the past five years, we invested ZAR 4.2 billion globally in our social impact programs. It is our intent that this company will continue to drive meaningful contributions. We fully intend upholding our integral role in the prosperity and socioeconomic development of communities, countries in which we operate. While we refine our strategy in preparation for our next Capital Markets Day, we are not standing still. We continue to progress our renewable energy commitment of 1,200MW by 2030. To date, we have signed 750MW of power purchase agreements, some which are in construction and will come online in the near term. The commissioning of Msenge Emoyeni Wind Farm is nearly finished.
We look forward to this farm supplying 69MW of renewable energy by October 2024 to our Sasolburg operation. This marks a significant milestone in our commitment to sustainable energy. Moving forward, we aim to build on this success, and we are exploring options to position ourselves as leaders in renewable energy projects. This will not only help us to reduce our carbon footprint, but also support South Africa's energy pathway. Additionally, natural gas serves as a crucial transition fuel in both Sasol and South Africa's energy mix. In line with this, we continue to optimize and mature projects in southern Mozambique. The efforts aim to extend our gas plateau to supply our customers for as long as feasibly possible.
Through this, we are pleased to confirm that we can continue the supply of natural gas and methane-rich gas to our customers up to the end of FY 2027. As previously communicated, gas in the south of Mozambique is running out. To close this gap, and in response to our energy security needs, we're investigating the potential for future LNG supply. A critical factor for enabling LNG supply is securing confirmed demand, which will support the development of an LNG terminal and its associated infrastructure. The terminal will also pave way for other customers to come online in the future. Innovation in our feedstock is pivotal for our transformation. We are actively piloting the use of renewable feedstocks in power generation and transforming these feedstocks into fuels. By scaling these opportunities in the future and leveraging our existing facilities and our Fischer-Tropsch technology, we can diversify our feedstock mix.
In March 2024, we also launched Zafra, the joint venture with Topsoe, aiming to become a player in the aviation industry by focusing on the development and delivery of sustainable aviation fuel. As mentioned, we will provide more detail on these exciting developments next year at our Capital Markets Day. As we look towards the future, our goal is clear: build a sustainable Sasol, which is profitable and adaptable in the future. By embracing agility, we'll ensure that Sasol navigate the challenges and the changing landscape. This includes our commitment to reducing our greenhouse gas emission and the carbon intensity of our operations. Our journey is one of strengthening and growing, and through innovation, driving transformation towards future Sasol. I am both excited and confident that together we will build an even greater Sasol.
I firmly believe that our future will surpass our past achievements. On that note, I'm delighted to announce Walt Bruns as our new Group CFO. At the same time, I'd like to extend our heartfelt thanks to our outgoing CFO, Hanré Rossouw, who steered our financial outcomes over the last two years. It has been a pleasure to present my first set of results today. My executive team and I look forward to further discussion in the conference call shortly. Thank you.
Tiffany Sydow (Head of Investor Relations)
Thank you, Simon. This concludes our results presentation for today, and we'll commence with the question and answer session after a short five-minute break. Thank you. Good morning, and welcome to this question-and-answer session for Sasol's 2024 financial results. With us in the room today are other members of Sasol's group executive management team. To my left, Antje Gerber, EVP of International Chemicals. On my right-hand side, starting with Christian Herrmann, EVP of Marketing and Sales, Energy and Chemicals, Southern Africa. Victor Bester, next to him, the Executive Vice President of Operations and Projects, and on my far right, Hermann Wenhold, EVP of Mining, Risk, and SHE.
Adrian Hammond (Analyst)
Also participating online, we have a few other executives: Vuyo Kahla, who is the EVP of Commercial and Legal; Surushen Pillay, the EVP of Business Building, Strategy, and Technology; and Charlotte Mokoena, EVP of Human Resources and Stakeholder Relations and Corporate Affairs. You are welcome to submit your questions online via the platform. Our streaming platform, on the right-hand side of the screen, you'll find a dialogue box where you can submit your questions. Alternatively, you can also dial in via our Chorus Call link, and you'll have the opportunity to voice over your question once prompted. I'll be alternating between the two platforms to ensure that we have effective participation during the session today. With that, I'll start with the questions coming through the online platform. I'll direct the first set of questions to Hanre.
A lot of questions received on the impairments and some context around that. Perhaps I'll read just the first three questions on the impairments theme. From Lerato Tshoni at Momentum Investments: "What has caused these impairments, which led to the losses experienced by the group? And on your, in your analyst book, you unpack the impairments related to the ethane value chain, where you state, including options based on adjusting current asset and/or value chain footprint. Are you considering a full exit from Chemicals America, or what other options are being considered?" And that's from Warren Riley at Bateleur Capital, also from Ray Stine, who's a private investor, and Bheki Thethwa from Bateleur Capital. The last question in this series revolves around the free cash flow and break-even rand oil price, which is the standard question we get for all results.
I think I'll hand over to you with those set of questions, Hanr`e.
Hanré Rossouw (CFO)
Thank you, Tiffany. I think firstly, perhaps just background on impairments. Of course, we all know it's an accounting aspect that at the end of each financial period, you have to assess the carrying value of your asset base. And I think what we've seen, and certainly the accounting standards talks about the impairment indicator being your market cap being significantly lower than the net asset value on the book. So to that extent, we had a net asset value of over ZAR 300 a share. Share price has already reflected that a lot of value has been lost in kind of lower financial outlook. So I think that really then triggers the impairment assessment, and we do that by each cash-generating unit to assess the carrying value of that.
Adrian Hammond (Analyst)
Perhaps just to unpack then the big impact on the U.S. impairment and the U.S. chemical assets, and there we've seen a significant decline in our long-term pricing. Note eight in the financial statements unpacks the assumptions. There we've seen kind of lower ethane, ethylene, and polyethylene prices, and that change in prices has dropped the carrying value then of those assets. The question around the inclusion of option-based and adjusting current asset and portfolio really relates to our assessment of the cash-generating units, the way that we operate those assets. So in no way does it infer any ambition to sell or restructure the portfolio. It really relates to the assessment of the asset base when we do the carrying value assessments.
So then just lastly, Tiffany, in terms of the free cash flow, for the South African value chain, last year, we saw around $58 a barrel. Going forward, to expect that with the cost initiatives to be around $55 a barrel. I think important that one has to then look also at the rand-dollar exchange rate, and if you apply that, that's just over a 100 sorry, just over ZAR 1,000 per barrel is then the breakeven of the South African value chain. Thanks.
Tiffany Sydow (Head of Investor Relations)
Thank you, Hanr`e. I think a further question just on the detailed assumptions. I think you've already covered that in reference note eight in our apps. That was from Hanr`y Snowden at Sanlam Investments. I think then similar theme to impairments, there are a few questions around the international chemicals and the business outlook. Simon, perhaps a question for you: Could you talk about what's going on in the Chems Americas segment? You've had an operating loss before the impairments and barely any free cash flow. This is despite close to record low ethane prices and very different from what the peers in the U.S. are seeing. Are there any issues specific to the portfolio or assets that are driving this disconnect? And this comes from Sriharsha Pappu at HSBC. I'll pause there.
Simon Baloyi (CEO)
Yeah. Thank you, Tiffany. Thank you, Sriharsha, for your question. You'll remember in Chemicals America, our value chain there is, I mean, is relatively divided into two, which is your cracker and units associated with the cracker and the downstream units. So I mean, the utilization of our cracker, that's, I mean, on par with our peers. However, the demand in the downstream units, I mean, and this is a global issue, the demand in the downstream units is below where we'll expect it to be. And I mean, as we've said during the presentation, we're already intervening 'cause that's what we've seen our peers doing. So we're intervening in that segment to make sure that we rationalize, I mean, some of the assets if we need to do so.
Adrian Hammond (Analyst)
But, I mean, there, there's nothing specific that's happening to the asset other than what generally the market sees, especially on the downstream units.
Tiffany Sydow (Head of Investor Relations)
Thank you, Simon. I think moving on to our Southern Africa operational side of things, there's a question from Lerato Choni from Momentum, and Naledi Nkenke from Pan-African: How does the management team plan to respond to the issue of gas depletion expected in the next few years, and is there a plan to offset against the expected gas decline?
Simon Baloyi (CEO)
Yeah, I'll start, and I'll hand over to Christian in terms of what we're doing. As we previously communicated, gas in the south of Mozambique is getting finished. You remember that, as far as our customers were concerned, we did give a date of 2026 as the deadline. However, we did some projects to try and optimize the gas that is there, and we can extend that plateau to 2027. But in our view, customers have to move to LNG. There's no any other option or even prospects of finding more gas in the south of Mozambique. Christian, you can elaborate.
Christian Herrmann (EVP of Marketing and Sales, Energy and Chemicals, Southern Africa)
Yeah. Thank you very much, Simon. So first of all, we are extremely happy today to extend now by one year from the 2026 timeline now to the mid-June 2027. We're also working on other projects that potentially could also extend that timeline even to mid-2028. Those projects carry risk, and they come with significant investment, and the FID still has to be taken. We anticipate that to happen in the first half of 2025. But there are opportunities that we are heavily and really intensely looking at in order to serve as a bridge then to the LNG market. And you know, it takes roughly three to four years to prepare and build an LNG infrastructure, and that's what we are interested.
Adrian Hammond (Analyst)
We would like to also continue acting as an aggregator in the gas market in South Africa. And that's the reason why, as we speak right now, we are engaging with our customers, our gas customers, more than three hundred in South Africa, and starting to set up meetings to see what is the demand going forward. Because we need to have commitments, we need to work together in order to make that happen for the future gas supply in South Africa. So bottom line is, we are very happy to be able now to extend gas supply coming from Mozambique, but as Simon mentioned, this is finite, and we want to work together with our customers to transition into LNG.
Maybe Victor would like to add something on the projects and the technicalities, what we have done in Mozambique to extend that.
Victor Bester (EVP of Operations and Projects)
Thank you, Christian. I think you've sufficiently answered the question, but I'll just detail out. We have specific projects that are underway. We've taken FID on three infill wells, which will basically supplement our well capacity in Mozambique. We are busy with exploration activities in the PT5-C area, and there we're actively involved with two wells. And then, of course, we continue to look for opportunities to extend the plateau, but at this stage, our indications are that the plateau will decline towards the end of FY 2028.
Tiffany Sydow (Head of Investor Relations)
Thank you, Simon, Christian, and Victor, for that color. I'm going to switch to Chorus Call. Operator, over to you for the first question, please.
Operator (participant)
Thank you. Our first question comes from Adrian Hammond of SBG Securities. Please go ahead.
Adrian Hammond (Analyst)
Yeah, good morning, Simon and Hanr`e. Thanks for the opportunity. Well done on an improved second half. Simon, firstly, you talked about an asset review. Can you give a bit more color on this, and would you include LCCP as part of that potential sale review? And then I think just curious-
..to get a bit more color on the successful appeal for the 12A emission standards to 2030. Is there scope to extend it beyond 2030? And any sort of further color on carbon tax allowances, beyond 2030 as well? And then for Hanré, just looking at the balance sheet, you're sitting on quite a chunk of cash of ZAR 45 billion, but you've got debt that could be repaid and reduce your very high finance costs. So what's the plan or thinking around that? And have you done any more hedging as well since the end of June? Thanks.
Simon Baloyi (CEO)
Yeah. Thank you, Adrian. Let me start with-
Antje Gerber (EVP of International Chemicals)
Asset review.
Simon Baloyi (CEO)
Yeah, the LCCP or asset review questions, and then go over to the 12A. So what we're going to do, I mean, the LCCP, as we've previously communicated, you remember we still own, I mean, 50% of the cracker and the two downstream units. We will continuously review that and look at timing. I mean, for me, it's all about timing. If you look at where we are right now in the cycle, I mean, it won't be attractive. We don't think that's going to help us to generate any value for the shareholders. But at the right time, you can, I mean, consider that. However, what we're going to focus on when we talk about, I mean, a review of our assets, we're going to look at our global international chemicals portfolio.
Adrian Hammond (Analyst)
We're going to go through asset by asset, and we're going to take decisive actions on underperforming assets. And it's something that I can, I mean, allow Antje in a moment to just add more color to it in terms of her thinking, how we're going to approach it. And before I hand over to Antje, on the 12A, yes, I mean, we're very, very thankful to our teams. I think it was incredible work with our technical, legal, and our communication teams to make sure that we, I mean, arrive at a successful conclusion of the 12A. I mean, I would actually encourage many of you who've not seen all our submissions 'cause they're on our website. It was truly a great, I mean, show of what is possible.
So on the 12A, I mean, that at least gives us respite to make sure that we can, I mean, lawfully operate our plants and reduce. I mean, like we said, this is to make sure we comply to SO2. And you remember, I mean, our SO2 solution, as we reduce the SO2, has got some integrated benefits, so we'll also derive it. Carbon tax is an issue of allowance. Allowances are very, very clear and set to 2030, but you remember, there's no clarity yet, I mean, after 2030. We're busy engaging, I mean, Treasury is the critical stakeholder here. So we've got some time. We're busy engaging so that they can afford clarity not only to us but to the rest of the market in terms of how the regime is going to progress until 2030.
So we'll continue with that engagement, we'll continue with that work, and it's something that I mentioned, that that risk still remains. However, if I look at how our teams, working with all stakeholders, including the Minister, managed to deal with the 12A, I'm confident that we should be able to get a successful conclusion on that one, but it requires time, and we'll continue with the engagement. On that note, Antje, any more color on the asset review just for the Global International Chemicals portfolio?
Antje Gerber (EVP of International Chemicals)
Yeah. Thank you, Simon, and thank you for the question, Adrian. Since I joined Sasol in April, the entire leadership team of International Chemicals is doing a reset of the organization. We are reviewing everything in the organization to improve our performance, which is, yeah, unfortunately lagging behind, and that includes as well, our asset footprint. Luckily, the new operating model allows us to work much closer together across, yeah, America and Europe, and assess the asset footprint as well, which we have on both sides of the pond. We have some underperforming assets, we're looking at how we can improve that from a market perspective, go-to-market view, but also, yeah, obviously, we will assess all other options which go with an asset review, not only in America but also in Europe.
Hanré Rossouw (CFO)
Thanks. And, perhaps just to talk about the debt reduction plan. I think, Adrian, you correctly point out the cash on the balance sheet, and if we take into account also the remaining part on the RCF, we've got a total of about ZAR 75 billion of liquidity. I think important that we maintain sufficient liquidity to also go into refinancing. We've got a bond coming up for redemption, 2026, and we'll continue to proactively look at extending the tenure of our bonds, refinancing that. So very comfortable at the moment with that flexibility on the balance sheet, and we will maintain the approach we've done historically to proactively manage that refinancing and make sure that we've got robust liquidity.
Adrian Hammond (Analyst)
In terms of hedging, a kind of important question, I think, also goes back to the earlier question around the breakeven. So to that extent, we continue with limited hedging. We've significantly reduced our hedging, now targeting 20-35% hedge cover ratio. On the U.S. dollar side, we've got about $1.5 billion of hedges, with a floor of around 17.35-17.70. That protects us for a strengthening of the rand. On the oil price side, we've got put options to also protect any downside exposure below around the $58 a barrel level. As I've mentioned, it's a lower level, and we do believe that the balanced approach that we are taking factors in the overall assessment of risk on the balance sheet.
Simon Baloyi (CEO)
That's great.
Adrian Hammond (Analyst)
Thanks, everyone.
Tiffany Sydow (Head of Investor Relations)
Thank you, Hanre. Moving on to the next caller on Chorus Call.
Operator (participant)
Thank you. Next question comes from Chris Nicholson of RMB Morgan Stanley. Please go ahead.
Christopher Nicholson (Analyst)
Hi, good morning, Simon, Hanr`e, and team. I'm gonna just go back to the impairment and the chemical segment again. I think it'll clearly be a focus area of these results. Previously, for the U.S. or the American chemical complex, you'd guided to a longer-term EBITDA of around $700-900 million. I mean, in your impairment spreadsheets, I suppose when you calculate this for the CGU with lower prices, that EBITDA will now be lower. So maybe could you give us some clarity on what sort of longer-term EBITDA generation from the chemical America complexes now implies? That's the first question there.
Adrian Hammond (Analyst)
Second question, is really on what you're talking about in terms of reviewing the footprint of your assets, and potentially taking decisive action. Maybe just a bit more detail on kind of what exactly that involves and kind of what your metrics you'll look at. I mean, are you prepared to keep an asset if it's free cash flow positive, if it's EBITDA positive, or are you going to apply some kind of hurdle rate? Does it need to earn a certain return on invested capital? So how should we think about that? And I'm just mindful of the fact that you've obviously, Sasol went through quite an extensive review of the chemical portfolio or all assets about two, three years back.
I think, yeah, let's leave it there for those two questions. Thank you.
Tiffany Sydow (Head of Investor Relations)
Thank you, Chris. Simon, do you want to start?
Simon Baloyi (CEO)
Yeah, yeah, thank you, Chris. I mean, so, so what we're going to do. The focus area is actually going to be on making sure that there's a return on investment, on invested capital on the asset, and also the ability to generate free cash flow. 'Cause what we want is that we want the assets to contribute into the group profitability. So, that's what we're going to do, and then we'll do this on an entire global landscape of all our assets.
Hanré Rossouw (CFO)
Thanks. Chris, perhaps just to come back to your question around EBITDA guidance. I think for exactly that reason, I would not be venturing into taking another guess at what the price could be. We've seen significant change in long-term assumptions, so that, to that extent, for example, you'll see in note 8, I think it's page 44 in financial statements, we show the updated price assumptions. LLDPE price, for example, is 13% lower, and with already depressed margins, that, of course, had an impact of lowering the EBITDA forecast in our model. But I think given volatility of price, volatility of input cost, it's best not to try and take a guess on what these long-term estimates would be. Thanks.
Tiffany Sydow (Head of Investor Relations)
Okay, thanks for your set of questions, Chris.
Adrian Hammond (Analyst)
Moving back to the online platform, there's a couple of questions around our balance sheet management and dividend. Hanré, perhaps for you to address. I'll start with the first two, one from Dawn So``uter at Parley Assets: With the new dividend policy, does this mean that Sasol's net debt is now ZAR 4 billion before leases? And is it fair to assume that there will not be active debt reduction below this level? I think the second one on a similar theme: How should we approach your CapEx spending over the medium term relative to previous years? Just around the plan around getting net debt below ZAR 4 billion to bring back dividends and also the plan to reduce gross debt similarly. Are you planning to introduce any refinancing maturities with more ZAR-denominated debt into your total debt mix?
That comes from Gustavo Campos at Jefferies.
Hanré Rossouw (CFO)
Thanks. Thanks, Tiffany. Thanks, Gustavo, for that question. I think firstly, just in terms of what is the debt target, I think certainly, the current base where we are, the $4.1 billion net debt gives us about a one and a half times net debt to EBITDA ratio. So it's a comfortable ratio, but what we're signaling through the dividend policy is that we do wanna get debt to below that level. So we will, from a first-order capital allocation perspective, we will prioritize the repayment of debt before dividends then. So to the extent that we are above the $4 billion mark, all cash will go to debt repayment.
Adrian Hammond (Analyst)
Only then, when we're below the $4 billion, we will continue with debt repayment, 70% then of the cash then kept for that consideration, 30% going to the dividend. And ultimately, I think, we, as we've pre-signaled previously as well, we do wanna target lower leverage ratios than the one and a half times net debt to EBITDA. In terms of overall absolute, gross debt levels, yes, we're sitting around $6 billion of U.S. dollar-denominated debt. I think important that we will continue, as I mentioned earlier, to retain flexibility on that, proactively refinancing that. Kind of we've got through the actions we've had, we've done in the last 18-24 months, I think we're in a very comfortable position, but we'll continue with that track record to proactively manage maturities.
To that extent, I can't elaborate on any other current plans other than to say that we will continuously look at the market opportunities to refinance, but ultimately reduce our absolute gross debt level as well. Given cash generation, as we pay down debt, the preference then will be to issue more rand-denominated debt, and you'll see that in the DMTN, we've continued to tap that market while we reduce the U.S. dollar-denominated debt.
Tiffany Sydow (Head of Investor Relations)
Thank you, Hanr`e. I think, two more questions on the balance sheet. From Thobela Bixa at Nedbank. Previously, you were able to pay dividend when the net debt was above ZAR 4 billion, so how come you decided to skip the dividend this time around? And any cash requirements in the near future that caused the board to be more cautious? I think that speaks to the new policy. And then I think, another question from Igor Fedorov from ING: Do you plan any debt programs, linked to your carbon emission reduction in future?
Hanré Rossouw (CFO)
Thanks. So I think important to note that. Of course, the full-year dividend for 2023 was based on our core headline earnings per share, so it's the old 2.5-2.8x cover ratio. Effectively, what that meant then is we did pay debt out of- we did pay dividends out of debt. So you would notice that at the end of 2023, we ended at $3.8 billion of net debt, and with the ZAR 6 billion final dividend that was paid through the year, we effectively geared up to the half-year. At the half-year, we noted that we will be reviewing the dividend policy, so to that extent, declared a ZAR 2 per share dividend.
Adrian Hammond (Analyst)
And now with the full-year basis, and the updated dividend policy, we of course passed on the final dividend, bringing the full-year dividend to ZAR 2 per share. So I think the principle really we're trying to base the dividend on is that free cash flow should be the basis of distribution of dividends. Of course, it also flows into the capital allocation framework, where we look at that first order capital allocation underpinning that 30% to give a base dividend. But I think very important to actually then add that any further cash generation will also be considered in second-order capital allocation, where we will look at growth projects, whether it's inorganic or organic growth, all in further cash returns to shareholders.
Beyond just the 30%, first-order allocation, we would look at other returns of cash to shareholders, such as share buybacks, special dividends, and the like. Just in terms of debt programs linked to 2030 emission targets, I think that would certainly be on the cards if we consider further bond issuance, and we would have to consider that relative to just kind of green bonds, sustainability-linked bonds, or just plain vanilla bonds. That will certainly be considered.
Tiffany Sydow (Head of Investor Relations)
Thank you for that, Hanr`e. There's another question on the operational side relating to gas, from Karabo Seema from Momentum: What is the expected gas price increase for the South African gas users for the transition to LNG, both from an industrial and household perspective? Simon?
Simon Baloyi (CEO)
Yeah, thank you, Karabo. I mean, if you look at the current price as regulated by NERSA, I mean, it's between $3 and 3.5 per gigajoule. This price will increase around four to five times. I mean, because LNG is an internationally traded commodity, so you'll have to use the global benchmarks to bring the LNG. Of course, it's always based on oil price multiplier. So today, I mean, at around $80, the LNG price is around $12-13. So, I mean, that's the prices that we can expect.
Tiffany Sydow (Head of Investor Relations)
Great. Thank you. I think there's one last question. If you have any further questions to submit, please submit your questions online or queue in Chorus Call. If there are no further questions, we will end the call a bit earlier. I think there's one further question from the online platform. In the context of your plan to decarbonize the business, are you considering the technologies like carbon capture at your facilities and converting this to carbon products? That comes from Mzi Tyhokolo from SLG.
Simon Baloyi (CEO)
Yes, Mzi, thank you. We In terms of, I mean, all future optionalities, we're actually working very, very closely with the Department of Mineral Resources and Energy and the Council for Geoscience. We actually have a test pilot program going on in Leandra that's investigating carbon capture. So of course, if you've captured the carbon, you can, I mean, then check if you can make any products from it. But for now, it's only carbon capture and storage that's being investigated, but we see that as a longer-term outlook.
Tiffany Sydow (Head of Investor Relations)
Thank you. Thanks for that question, Mzi. I'm going to just ask Chorus Call if there are... Operator, if there are any other queued people on the call?
Operator (participant)
Yes, ma'am. Next question comes from Shashank Lanka of Bank of America. Please go ahead.
Shashank Lanka (Analyst)
Yes, thank you very much for the presentation. I have two questions from my side. One, again, relates to the dividend policy. You do speak about net debt excluding leases sustainably being less than $4 billion. So could you just help us understand this better? Just wondering, you know, in the current coming periods, if you're still around the same net debt levels or slightly lower, would that trigger a dividend restart, or do you need to see sustained periods of net debt less than $4 billion before you, you know, and comfortably below $4 billion before you start paying dividends? That is the first question. And the second question is just on your de-stoning process.
Adrian Hammond (Analyst)
You did speak about FID, I think, in Q2 2025, so anything on the CapEx potentially to be spent there, any guidance you can provide us? Thank you.
Hanré Rossouw (CFO)
Thanks. Thanks, Shashank. Let me start with the dividend question. I think you're spot on. So the dividend policy, of course, talks to paying a dividend whilst we're below $4 billion of net debt. We were a smidgen above $4 billion, and of course, the dividend policy talks about a assessment of being sustainably below. But I think to the extent that we can predict the market and the current outlook, and of course, I put that with the requisite health warning. But we do currently, if one looks at the performance, the current pricing environment, we do expect to pay interim and final dividend, given the current outlook. But of course, that could change.
Adrian Hammond (Analyst)
But I think the important aspect is then using Free Cash Flow as a basis for that payment.
Tiffany Sydow (Head of Investor Relations)
Thank you. You have the question on de-stoning, Simon?
Simon Baloyi (CEO)
Yeah, Shashank, thank you so much. Yes, I mean, coal quality remains a critical lever for us to restore our Secunda operations back to the range of seven point five to seven point six. So to that end, we focus on making sure that we address the coal quality. De-stoning is one of those critical interventions that we're busy with. So we're busy with the study, and we will take FID, I mean, before the end of this calendar year. After that, I mean, we'll implement the project, and we'll start seeing the benefits of de-stoning.
Tiffany Sydow (Head of Investor Relations)
Thank you, Simon. Operator, are there any further questions on the Chorus Call platform?
Operator (participant)
We have no further questions at this stage, ma'am.
Tiffany Sydow (Head of Investor Relations)
Thank you very much. Moving back to the online platform, a follow-up from Gustavo at Jefferies: "Thank you for answering the previous questions, but could you please elaborate on the medium-term plans around capital spending levels after 2025?" Hanr`e, I think that's for you, and similarly, also from, I saw a question from Mark du Toit: "Is there any scope to reduce capital expenditure to improve free cash flow generation?" I'll pause there.
Hanré Rossouw (CFO)
Thanks for those questions, and apologies, Gustavo, for omitting to answer that previously. I think important to note that in, again, in capital allocation, our first-order capital assessment firstly starts with putting the right amount of capital back into the business to sustain the safety and the sustainability, ultimately, of those assets. So currently, we're sitting around, as I've mentioned, around ZAR 28 30 billion per annum is the expectation of capital going forward and longer-term. You would note that if you look at the previous year and the year before, 2023 was actually our peak capital in terms of real-term capital expenditure. So we do expect capital expenditure then to moderate.
Adrian Hammond (Analyst)
We've seen peak capital from PSA, and that will then see capital decline over the coming years. That's, of course, on a first-order capital basis. On a second-order capital basis, we're only paying around ZAR 1 billion at the moment, and we will look at approving only projects that give us a return in excess of the weighted average cost of capital. So hopefully that covers the capital. That covers it, I think, Tiffany. Thanks.
Tiffany Sydow (Head of Investor Relations)
That's your question. Yes, any opportunities for free cash flow generation to reduce capital, I think we've covered that. A further follow-up or another question from Jesse Armstrong from Fairtree: "Would you consider share buybacks in the current financial year, given the large cash balance, and if so, what is your guidance on level and volume of shares?" And then another request for an update on the de-stoning project relating to CapEx cost and timeline. Perhaps that one's for you, Simon. Hanr`e, if you could start, please.
Hanré Rossouw (CFO)
Thanks, Jesse. So just coming back to the previous point I made, that of course firstly the focus is on the base dividend. So in terms of the dividend policy, once we get to below $4 billion of net debt to pay the base dividend, any excess cash then on a second order will compete with, as I said, organic, inorganic projects, together then with assessment on such as the likes of share buybacks, special dividends, and other metrics. So I certainly can't give any guidance on levels or volumes or how we would look at those trade-offs. In terms of de-stoning and CapEx, maybe let me just deal with that as well. It comes back to cost of capital allocation.
Adrian Hammond (Analyst)
We do expect to bring that project through to FID in the next 6-12 months. So I think to that extent, we will only give guidance on the exact CapEx and timing of that once it is approved. Dare I say, though, that we've made a lot of progress in optimizing the capital spend and de-risking that project significantly, so confident that that project will be assessed. Of course, can't prejudge the outcome of that capital allocation process, but we've got confidence that we've got a very robust project to assess.
Tiffany Sydow (Head of Investor Relations)
Thanks. Simon, perhaps the update on the timing of de-stoning.
Simon Baloyi (CEO)
I mean, we will take FID, like I said, before the end of the calendar year, and I mean, as far as and what we previously committed is that before the end of FY 2027, we'll be fully online with de-stoning, so we still stick to that guidance.
Tiffany Sydow (Head of Investor Relations)
Great. Thank you. Two questions coming from Gerhard Engelbrecht, one on chemicals and the other on mining. So we'll start with the chemicals one. "The outlook for the detergent raw materials in the U.S., if you de-recognize the assessed tax losses, what does it mean? Or does it mean that you don't expect taxable profits on the next, in the next three to five years in this segment?" And I think the second question, Simon, on mining, was you spoke about increased own-mined coal volumes. Is this outside of the CapEx range of ZAR 28-34 billion? Also from Gerhard.
Simon Baloyi (CEO)
Sorry, on the-
Tiffany Sydow (Head of Investor Relations)
So sorry for the-
Simon Baloyi (CEO)
The mining, what's the-
Tiffany Sydow (Head of Investor Relations)
For the mining question, it was relating to the increase in coal volumes, and is this outside of the capital range that we've provided?
Simon Baloyi (CEO)
Okay.
Tiffany Sydow (Head of Investor Relations)
I think let's first address the chemicals.
Simon Baloyi (CEO)
Yeah, let's address the mining.
Tiffany Sydow (Head of Investor Relations)
Okay.
Simon Baloyi (CEO)
I mean, thanks, Hanré. I mean, you remember at mining, I mean, our own collieries, if you look at the usage of coal that we use in Secunda, I mean, we have an existing purchase with one of our partners at around 4 million tons. Then, previously, we produce the balance ourselves, but right now, our volume guidance is between 30 and 32, and we're working hard to close down the remaining gap. So all the capital interventions that we need at mining will be within the guidance range of 27-32 for our CapEx, so this doesn't talk to additional CapEx required at mining. Then, I mean, on the feedstock, I mean, Antje, you can, I mean, just add in on the feedstock, the chemical feedstock for detergents.
Antje Gerber (EVP of International Chemicals)
Yes, thank you, Simon, and thank you, Harat, for the question. So while we expect a recovery of the surfactants raw materials over the next couple of years, we don't see that being imminent, and we don't bank on any market recovery at the moment. What we are doing is to set up the business in more self-help. That means we are looking at improving the profitability through our new organizational setup, new go-to-market strategy, new innovation pipeline reset, and also efficiencies across the entire value chain of our business. So yes, I hope that answers your question with regard to the next couple of years in the segment.
Hanré Rossouw (CFO)
Perhaps just on the tax losses then, the write-off, it's not the full tax losses, so there is an assessment then of the recoverability of that. I think note 11 in the financial statements gives a little bit more detail on the tax loss assessment and deferred tax.
Tiffany Sydow (Head of Investor Relations)
Thank you for that. Another question on mining from Jesse at Fairtree, on the Full-Potential program, a question regarding the timing, and is the process now complete? Which mines would it still need to be rolled out to? And with Isibonelo end of life, mine only one year out, is there an update on the extension of that contract with Thungela or a different mine with similar volumes? Also another question in that same theme relating to the logistics, what is the limit to the amount of external coal purchases possible if it needs to be delivered by road? Perhaps I'll just pause there on that set of mining questions.
Simon Baloyi (CEO)
Yeah, no, thank you. I'll start, then I'll allow Hermann to weigh in. I mean, we're also pleased to announce that with Thungela, we've extended, I mean, the supply by six months, and we continue to work together to explore even extending that further. Suffice to say that we already have, I mean, our own plans to make sure that we can supply the required coal to Secunda, even in the event that Isibonelo's contract is not extended, so we're sufficiently covered there. On the full performance, I think, Hermann, you can weigh in terms of our full performance project, the Fullco, in terms of where we think we're done in some of the sections, but only a little bit of the sections still requires interventions.
Hermann Wenhold (EVP of Mining, Risk, and SHE)
Yes, so full performance has largely been completed specifically for our high production mines or larger collieries. We still have to do some final implementation of the full performance at our Impumelelo Colliery, but that's the colliery that have very difficult mining conditions, and we are also just prioritizing safety to ensure that we mine the coal safe. And then finally, we are also still just finalizing the full potential program at the Bosjesspruit Colliery.
Tiffany Sydow (Head of Investor Relations)
Thank you. Thank you very much, Simon, Hermann. A further question from Rian Roux on gas. So the question is: would the transition to LNG imply an end to MRG supply? And then one more question on mining. Post from Pallavi Ambekar from Coronation: Post the de-stoning CapEx, what is the expected improvement in coal quality, and can you contextualize it for us versus the quality today?
Simon Baloyi (CEO)
Okay, and I'll handle both of them. The first one is on LNG. I mean, check where we are, I mean, today, if you think about the gas supply, we will not... I mean, there's no additional gas for the customers after 2027. I mean, we might slightly extend to 2028 if those projects comes online. What we'll do once that gas has declined, all MRG will be used internally, so there will be no MRG supply. So customers have to transition to LNG, and as we've previously said, we're working with the customers to help and to make sure that there can be LNG in the country. 'Cause we've seen what was previously stated, that, I mean, up to 200 jobs are at stake.
So it's something that all of us, and we believe Sasol, can be part of the solution to make sure there is LNG. Then the next one is on-
Adrian Hammond (Analyst)
Yeah, on mining, Pallavi. Our current coal quality today is at around 14-14.5%. The required coal quality-
Antje Gerber (EVP of International Chemicals)
Sinks.
Simon Baloyi (CEO)
Is what?
Antje Gerber (EVP of International Chemicals)
Sinks.
Simon Baloyi (CEO)
Yeah, the sinks. Yeah, the sinks quality is 14.5%, and the required sinks in terms of, I mean, the quality in the coal is around 12%, and de-stoning is aiming to address it and send it back to 12%. Once we are at 12%, we'll then be able to run Secunda at full potential. As long as we are below 12% on the sinks.
Tiffany Sydow (Head of Investor Relations)
Great. Thank you. Question from Andrew Snowden to you, Simon. Simon mentioned that you, you are looking at it to explore new sustainable growth opportunities. Could you please elaborate on this and what is meant by the statement?
Simon Baloyi (CEO)
I'll give you a high level cost, 'cause, I mean, my guidance is we're busy with the work and, I mean, we'll want to give you a detailed feedback at Capital Markets Day next year around April, May. However, like I said in my presentation, we see various opportunities, like in renewable energy, where Sasol could play a bigger role. But we'll explore all of those, and I can assure you that we're going to be very disciplined, 'cause for us, it's not transitioning at all cost. If we see that there's no projects or possible pathways, we'll always maximize the outcome and return cash to the shareholders.
Tiffany Sydow (Head of Investor Relations)
Great. Thank you, Simon. I think one final question we have online from Francois van Wyk, from PSG Wealth: Can you please give an update on the Competition Commission appeal? And perhaps we want to defer to Vuyo for this one.
Vuyo Kahla (EVP of Commercial and Legal)
Yeah.
Tiffany Sydow (Head of Investor Relations)
Okay. Vuyo, are you online? Could you please come in?
Vuyo Kahla (EVP of Commercial and Legal)
Thank you. So the question is around whether we would be raising a competition appeal?
Tiffany Sydow (Head of Investor Relations)
Correct. That's right, Vuyo. The status update on the competition appeal process.
Vuyo Kahla (EVP of Commercial and Legal)
Okay. I think the key point to emphasize on that is that we have now closed the appeal process in respect of the jurisdiction issue impacting on the tribunal. And so what we're focusing on is getting to prepare ourselves to respond to the allegations around excessive pricing that have been raised by the Competition Commission in the referral. We do, of course, factor into the preparations for that the fact that the Competition Appeal Court itself had already indicated that the very fact that NERSA informs the price that gets charged is a factor to be considered in any defense in relation to to the referral at the tribunal.
Adrian Hammond (Analyst)
And so we're preparing now to deal with the referral, and await further directions on that.
Tiffany Sydow (Head of Investor Relations)
Thank you very much, Vuyo. I think we have a few last questions streaming in. A few follow-ups from Shashank Lanka, from Bank of America. From the impairments in the chemical business in the U.S., it seems it's more likely on the specialty segment, and what has changed there in the last six months? Could some of these impairments be reversed? And I think second question from Shashank: Would you like to revise some of the 2030 ESG targets in the CMD next year? I'll defer that one to you, Simon.
Hanré Rossouw (CFO)
Thanks, Tiffany. Let me perhaps just discuss the impairment then on the chemical business. I think since the half-year review, Shashank, we certainly saw a further deterioration in prices. At that point, we expected a reasonably sharp recovery. So it's not only the medium term, but then also the long-term pricing that we have adjusted lower, and with the low margins that we've already had in that business, of course, that has significant impact on the DCF, on the carrying value. A further impact has also been the weighted average cost of capital. So at the previous financial year was around 8%. It increased to around 9% and now 9.4. All the detailed assumptions are in that note 8 that I've referenced earlier.
Adrian Hammond (Analyst)
And to your point then, can it be reversed? Of course, yes. We are looking to enhance the profitability of that business. Those plans cannot be incorporated yet in an impairment assessment. You have to have implemented the plans and have that approved in your budget. So to the extent that management interventions are not factored in, yes, that of course will also see a clawback of value. But then, of course, also, aspects such as the financing cost and the price outlook will also then lead to potential reversal of that impairment.
Tiffany Sydow (Head of Investor Relations)
Thank you.
Simon Baloyi (CEO)
Yeah. Thank you. On the 2030 target, I think, I mean, suffice to say, at the group level, we remain committed to the 2030 target. I mean, as you can see, during the presentation, I elaborated that we continue with renewable energy, energy efficiency. Those projects are ongoing. However, what we're busy working on is to make sure that we can enhance and preserve value from our SA operation. And so we'll be tweaking the execution of the entire roadmap, and we'll share more details with you at Capital Markets Day.
Tiffany Sydow (Head of Investor Relations)
Thank you, Simon. I think the final question comes from Gerhard, more broadly on the business. In a world of lower chemical prices for longer, gas drying up, and production potentially lower at Secunda, do you think a three to four billion long-term debt target is sufficient or suitable?
Hanré Rossouw (CFO)
Thanks, Gerhard. I think a very apt question. Certainly, we look at net debt from an absolute level as well as a gearing ratio level. So to the extent that the one and a half times net debt to EBITDA and the 4 billion is the trigger for a dividend payment, we do see that as the upper end of a risk tolerance level. In terms of target level, we've always said previously that we do look to get lower gearing, and especially given the longer term outlook, those gearing targets will be lower. We'll give an update of the target gearing longer term at the Capital Markets Day as well, coming next year.
Tiffany Sydow (Head of Investor Relations)
Thank you. Thank you, Hanr`e, Simon. A final question from Jesse Armstrong from Fairtree on the Synfuels product mix. There was a swing of 48% refined products at Synfuels from 47%. Is this a function of coal quality, or was this something else intentional, and what is your expectation going forward of the... I think the fuels to chemical ratio is the one in question here.
Simon Baloyi (CEO)
Thanks for the question. Our stable fuels to chemicals ratio is always, I mean, a 60-40 split, and that's usually set not by the coal quality, but set by the catalyst that we use, and the catalyst is constant and fixed, so usually there's no change there. When you start seeing the ratio changing is when you're experiencing logistic challenges, and we start sloping the chemicals back into the fuel, and then we produce more fuel. That's what we're dealing with. However, I mean, I must commend Transnet that we're seeing massive improvements in that. As soon as we stop sloping, that ratio will be restored.
Tiffany Sydow (Head of Investor Relations)
Great, thank you. I think that wraps up the session for today. Thank you for your participation online and via chorus call. Thank you to Simon, Hanr`e, and the executive management team for your participation. With that, we wish you a safe and wonderful day. Thank you.