Good morning, and good afternoon, ladies and gentlemen, and welcome to the Sasol Interim Results Conference Call. Today's call will be hosted by Bongani Nqwababa, Joint President and Chief Executive Officer; and Paul Victor, Chief Financial Officer. Following the presentation, an interactive Q&A session will take place.

I will now hand the call over to Bongani Nqwababa. Please go ahead..

Continue improving our safety performance in pursuit of achieving zero harm; Maintain our low cost and working capital competitiveness though continuous improvement; Drive safe, reliable and stable operations; Deliver LCCP commissioning, operations and business readiness; And manage our balance sheet, while protecting investment grade ratings and positioning the company for growth.

Our focus will lead us to deliver sustainable returns to our shareholders, where we have defined growth targets for EBIT, ROIC, free cash flow, and delivering increased dividend returns. Paul will now take you through the detail of our financial and operational performance. We will then open up the session for questions, which will be led by Steve.

I thank you..

Thank you, Bongani, and good afternoon, ladies and gentlemen. It's my pleasure to talk you through the highlights of our 2019 interim financial results.

Our drive towards growing shareholder value sustainably is guided by our continuous focus on a safe and sustainable delivery of operational and capital efficiencies, continuously improving our cost competitive position, managing the balance sheet’s risk prudently by means of our financial risk management strategy, and at the appropriate time, further growing the value of the business as informed by our focused strategy and disciplined capital allocation approach.

With this in mind, I will now turn to our financial year [2018] interim results and how that contributed towards delivering on our value-based strategy. I will be now turning to Slide 13 for the key messages. First, improving rand oil price had a significant positive impact on our results.

While the macroeconomic environment is volatile and uncontrollable, we will need to and will continue to focus on the factors within and under management’s control. We are very pleased by a stellar cost performance during the period resulting in us delivering a normalized cash fixed cost increase that was once again below inflation.

We have also seen a marked improvement in our working capital levels. The weaker rand had a positive impact on our profitability, but it did have 2% negative impact on our gearing due to the translation of dollar denominated debt.

This combined with higher capital spend levels on LCCP as well as a decision early in the year to refinance Inzalo debt resulted in a slightly elevated gearing levels. We continue to proactively engage with rating agencies to ensure that we protect our investment grade ratings.

I am very pleased to report that we were successful in placing $2.25 billion worth of corporate bonds late last calendar year. This was a very important milestone for us in spreading our debt maturity profile more effectively and also allow us to position the balance sheet to enable our value-based growth strategy going forward.

Despite the recent challenges faced at LCCP, we do remain confident as Bongani mentioned that this project, combined with the performance of our foundation business, will result in the free cash flow inflection point now occurring by mid financial year ‘20.

Finally, I will also share with you briefly what our outlook for the remainder of financial year ‘19. Let's turn our attention to Slide 15. We delivered an increase of 10% in EBITDA over the comparable period.

And the core HEPS, which is headline earnings per share adjusted for re-measurement and period-end revaluations, amounted to R21.45 per share which is 18% higher compared to the comparable period. Very important to note is that although the rand per barrel increased by 33%, our EBITDA only increased by 10%.

And this is really as a result of the impact of inflation, the lower than planned production volumes as a result of the extended shutdown of Secunda as well as operational costs that we’re starting to incur on LCCP.

Operating profit of R20.8 billion increased by 76%, benefitting from a higher dollar-based oil and chemical prices, a weaker rand and lower re-measurement items and once-off items. As mentioned earlier, our gearing has now increased to 48.9% as at 31 December 2018 which is above our targeted level of 44%.

The 4.9% increase above the target mainly relates to round about just over 2% as a result of elevated LCCP capital cash flows and 2% remaining as a result of the translation impact of the higher closing exchange rate on our balance sheet debt.

Despite the elevated gearing levels, we are pleased to declare an interim dividend of R5.90 per which is very much in line with the company’s cover dividend base policy. If you’ll move on to Slide 16, I want to take you through the items impacting the changing operating profit compared to the previous year.

And let me just step you down through the slide from top to bottom. The weaker average rand/dollar exchange rate, net of inflation, positively impacted our operating profit by 18%. The higher dollar-based crude oil and chemicals product prices positively significantly boosted the operating profit by 43%.

Re-measurement items were much lower compared to the prior period. Very important to note that during the period under review we have reported a R949 million partial impairment reversal of the previous year’s R5.7 billion impairment of the South African Chlor Vinyls business.

Now over the past 18 to 20 months, we held steady the integration impact of Secunda Synfuels to Sasolburg and it was quite evident that there is lot of assets that fundamentally integrated to Secunda Synfuels and for that reason we have been reset to useful life of the Sasolburg assets to 2050 that is in fact aligned and integrated to Secunda Synfuels.

The remaining assets on Sasolburg site that’s not integrated such as west assets as mostly still stay at 2034. Normalized cash fixed costs increased by 4.3% which is below a 6% inflation guidance given previously. And I will also unpack this on the following slide.

Sales volumes were even negative, which has been actually quite disappointing as a result of the production interruptions which we experienced during the first quarter of financial year ‘19 and which we reported on in terms of our quarterly results.

And this was really as a result of two reasons, the extended shutdown at Secunda Synfuels as well as the external ethylene supply constraints which impacted our European operations.

We have even seen a very much improved -- increase in our run rates from our global assets since our quarter two financial year ‘19 and we do expect that these run rates will continue for the remainder of the financial year. Please turn to Slide 17, as I said, we’re proud of the cost performance.

This resulted in a normalized cash fixed costs to be contained to approximately 2% below inflation. We have normalized our [EBIT] for the following items in cash fixed costs and allow me again to take you through from top to bottom.

First, growth costs increased our cash fixed costs by 5.1% and really mainly relate to costs associated with our projects in the US, predominantly the LCCP as well as the normalizing impact of the HDPE plant.

These growth projects will however significantly increase our future earnings from financial year ‘20, and then we’ll see better match between costs and revenues.

Business establishment costs and once-off items decreased our cash fixed costs by 0.5% as we now start to see the energy benefit and lower electricity charges since we started Oxygen Train 17 in Secunda. Both of these items have been realized in a normalized cash fixed cost to be contained to well below inflation.

As mentioned by Bongani, quite important that our cost target will remain a key business priority for us going forward. So let’s move on to Slide 21. We have incurred actual capital expenditure for the six months, including accruals, of R30 billion. And this includes R16 billion or US$1.1 billion relating to the LCCP.

We actually also revised our full year guidance from R38 billion to R52 billion, largely as a result of the increased spend on the LCCP as well as a R5 billion translation impact as a result of the weaker average rand/dollar exchange rate, as a lot of our capital, actually most of it, is dollar denominated.

Our capital expenditure forecast of R30 billion for financial year ‘20 we believe is sufficient to sustain the foundation businesses and support the final execution of the LCCP. Again quite important to remind is that our capital forecasts have been calculated over R14.10 to the exchange rate -- rand exchange rate to the dollar.

Rand volatility will have an impact on these estimates as again as I stated, a majority of the portion of our capital expenditure is dollar denominated. Let’s move on to the second last slide, Slide 22. And as I have said several times, our gearing has been elevated to 48.9% which is ahead of our gearing target of 44%.

Looking ahead, I think it’s quite important that we do share with you how we plan to respond in managing our gearing levels going forward. Firstly, we still have access to liquidity of around about $2 billion equivalent, to fund the remaining capital spend on the LCCP.

We are therefore very comfortable from a liquidity perspective that we will and can complete the LCCP. Secondly, in the next 12 months we expect to manage our gearing to between 45% to 49%, and although much higher than anticipated, we still hold the view that this doesn’t compromise our investment grade credit ratings.

Our commitment to protect investment grade credit metrics still remains quite solid. I should also reiterate that our successful hedging program which we plan to continue within financial year ‘20 will continue to underpin balance sheet protection. We also are of the view, based on our current assumptions that the loan covenants are not at risk.

Just again as a reminder, our loan covenants are set at 2.5 times net debt-to-EBITDA, and we are currently at 2.17 times, which leaves us with sufficient liquidity headroom going forward.

I am also very pleased that we were still able to declare our interim dividend for the half year, reiterating our commitment to shareholders to maximize shareholders’ returns whilst still managing the balance sheet to within the investment grade.

Our previous guidance to increase our dividend payout ratio to 45% over time, as communicated at our Capital Markets Day, remains intact, however, it may be slightly deferred as a result of the increase in gearing levels.

To close off on the balance sheet, we are still actively growing the balance sheet as demonstrated by the increase in invested capital over time. You will note from the composition of the balance sheet is that we expected it to be more equity biased as we de-lever the balance sheet post the LCCP startup.

Finally, I should also remind investors that our strategic objectives and value creation remains intact. We do, however, foresee a deferral in the execution of our value-based strategy by 12 months, in order to allow the balance sheet the opportunity to de-lever appropriately.

Our commitment to a disciplined capital allocation approach continues to guide our thinking as we move forward. Let me end by the outlook for financial ‘19 as contained on Slide 23. Safe to say that macroeconomic volatility is really for us to be normal.

And within this context, we expect that our assets to deliver the following results in the second half of financial year ‘19.

Firstly, mining to ramp-up to targeted productivity levels; Performance Chemical’s average US dollar margins to remain resilient for most of the product lines; Base Chemicals sales volumes, excluding the US produced volumes, to be 1% lower on a year-by-year comparative basis; The US HDPE plant is forecast to achieve a utilization rate of about 80% for financial year ‘19.

As a result of the longer than expected Secunda shutdown in the first half, we still expect our South African liquid fuels sales volumes to range between 57 million and 58 million barrels and with Secunda Synfuels Operations forecast production to between 7.5 million and 7.6 million tons.

The ORYX average utilization rate which has been revised downwards to 90%, as a result of maintenance required during the second half of the financial year. Normalized cash fixed costs are expected to track our forecasted inflation rate of 6%.

On the macroeconomic front, we forecast the rand/dollar exchange rate to trade in the range of between R13.85 and R14.50; and average Brent crude oil prices to remain between US$60 and US$65 to the barrel.

Our balance sheet gearing to range between 45% and 49% and net debt-to-equity and our net debt-to-EBITDA to be in a range between 2.0 and 2.3 times. Thank you very much for listening me up. And on that note, I'll hand back to Steve, who will open the floor for the questions-and-answers section. Thank you..

Thank you, Paul. Operator, I think we're ready for questions, so you can open the line..

Thank you. [Operator Instructions]. We will now take our first question from Chris Nicholson of Morgan Stanley. Please go ahead..

Good afternoon, gentlemen. Thank you for the call. I understand you commented that you believe that you want stable balance sheet, you won’t compromise your investment grade rating.

Could you just maybe detail any conversations or interactions you've had with specific rating agencies and may be that kind of gives you assurance on that? That's number one.

And then number two, could you just also just bring us through the implications, if Moody's were to downgrade South Africa's investment grade credit rating later this year for Sasol? Thank you..

Paul would you like to answer that?.

Yes, I will. Thank you, Chris and good afternoon to you. Chris, the engagement with the rating agencies is on a continuous basis for us. We have engaged with them over the past two to three years on a quarterly basis. So they are very familiar with our ratings in terms of their metrics apply us.

And although we have increased our estimate on the project, and we did share it with you, I've had conversations with Moody's and S&P post LCCP announcement. At his stage the rating agencies do take note of the update and also the impact that it has on our rating metrics.

And basically there’s no significant change in the metrics and now we will recover our metrics over the next 12 to 24 months to get back to where they believe it’s sufficient. It doesn't take away that they will still do a fundamental review of our results that we’ve published today.

But we all know based on our assumptions, we don't anticipate a downgrade to sub investment grade and that's quite important. We need to have dividend decision to have a view in terms of where they position themselves in terms of our grade metrics.

I think leading up to hearings, it will be quite important that we do deliver our balance sheet metrics within the guidance ranges as we've kind of communicated. And for that reason we do believe that we can do it and it doesn't create issue for us. From the Moody’s perspective, yes Moody’s definitely is quite critically looking at South Africa.

I think the early indications in the market is that they’ll not downgrade South Africa.

But let’s go with your question and say they do, they have also articulated to us as a result of the stage of completion of the LCCP and also how we would transform our global flows of revenues from the different assets that they are willing to allow us to decouple from the Sovereign allowing us to trade two notches above the Sovereign.

So ultimately there is no reason to believe why that will not impact on that. So even if the Sovereign goes to certain investment grade, from a Moody’s perspective given where we are now, we don’t anticipate that to pull us to sub investment grade..

We will now take our next question from Gerhard Engelbrecht of Macquarie. Please go ahead, sir..

Thank you, good afternoon. A couple of questions. Firstly, with the delay and higher CapEx at the LCCP, what is your expected IRR now on the project and do you see any risk of an impairment of any or every assets at the LCCP? Secondly, you’ve spoken in the past about achieving contract prices for your polyethylene in the US.

What gives you the confidence that in the seemingly oversupplied market that you can achieve these contract prices and would you think that the contract premium might erode as a result of the interest volumes? And then lastly, you have changed the accounting standard on capitalized interest.

Can we expect around R7 billion of increased interest capitalized this year and how much maybe in the following two years?.

Thank you, Gerhard. Paul will talk about the capitalized interest first, and then IRR calculation.

Would you respond for us on the polyethylene please?.

Thanks, Steve. So let me deal with the IRR. So Gerhard, as you would recall, when we do the project economics, we do it over a 25 year period to be consistent with the IRRs that we’ve issued originally when we simply these. So I think that’s quite important.

So from that perspective the IRR on the project also this update in capital is trading round about 7.5%, so it’s below the weighted average cost of capital of 8%. As just to put that into context, so we basically use IHS assumptions which is very much the Gulf biased economics.

So it’s a R0.30 to R0.40 scenario, with the oil price of $60 to $65 per barrel. That’s kind of really where the underlying assumptions play out through the 7.5%.

However, what we have seen is if the ethane prices stay lower for longer, in terms of what the current indications are, that the project still has a reasonable expectation to actually go about weighted average cost of capital, but only time will tell in terms of where ethane prices do play out.

From an impairment risk perspective, we will do the impairment risk analysis. We do it over the useful life of the assets which is obviously 50 years and not 25 years. So there is a significant headroom on that asset on the LCCP.

So for the immediate future, at least something further changes in terms of macroeconomics or capital, we don't anticipate any impairment risk on the LCCP.

So the second part of your question in terms of IAS 23 or the interest borrowing, I must say, we did articulate even to the IASB that we're not comfortable with this change of capitalizing specific borrowings to capital. But unfortunately that is how the ruling went in terms of applying IFRS now going forward.

So what we will do is I do acknowledge that there is lot more interest that ultimately will find its way around the balance sheet and not through the income statement. And we will provide you more guidance towards year-end in terms of what the flows of interest will be in terms of the income statement and in terms of the balance sheet.

It's also allow us a little bit of time to work on that. Now even for half year the impact was slowed to a R1 billion of interest that should have flown to the income statement but didn't as a result of this change in terms of the convention on the accounting standard. But towards year-end, we'll provide you with more detail..

Good morning, Gerhard. It’s Stephen Cornell here. So with respect to your question regarding pressure on contract prices, I think we need to see the context that about two-thirds of the new polyethylene capacity has come on line in the last year or two.

And that we generally see a bit of upbeat outlook in the polyethylene market as supply demand balance come back into I would say a better situation. So with respect to that, having said that, we are seeing that that there is pressure on contract prices but as I say it is almost at the low point.

So we’re positive that going forward it would be more positive industry outlook in terms of these prices. However, our view on the price differential between contract and just spot export, we in fact have an conservative view in our project economics by assuming a very small premium to that product of what is generally published..

Sorry if I could just -- the other part of the question. Yes. Sorry.

What gives you confidence that you can actually enter this contract market, just start off with?.

Okay. On that side, we have really had a very strong glide path with our HDPE since we started up. We have really the majority of that product replaced in the US surprisingly. We thought it's going to be more of 50-50 play. But we have really make in-road. There was a very robust demand on HD polyethylene over the past year.

Year-on-year the demand has grown also substantially as you can see reported in the numbers. So with that glide path, we also have relationships with these customers that who also take LL and LD.

And similarly, we've seen the export markets where we’re present on polypropylene in Europe, in Asia and in the rest of the world that those customers are also keen to work with us, having had these long relationships over many years with them. And they are also keen to receive new LL and LD products for their needs..

We will now take our next question from Alex Comer of JPMorgan. Please go ahead..

Hi. It's Alex from JPMorgan. I just had one quick question. I know you said your sensitivities, the sensitivity to move in refining crack has come down from R576 a barrel six months ago to R340.

Just is there any particular change in the refining business for the sensitivity to produce by that much?.

So Alex, no, there's nothing fundamental that we see that that is driving the drop. Of course it's always seasonal in terms of the supply demand and what the balances are in terms of the inventories. But the only big fundamental change that we see on the horizon is the IMO spec and it actually should drive it in the other direction.

So I'm going to tell you, no, we don't really see anything that's moving it fundamentally such that it would stay at this lower level..

Okay. Just your oil sensitivity hasn't changed but your refining sensitivity has. So I’ll just sort of leave it off. But some -- maybe we’ll catch up later and then talk about that. Thanks..

No, we have not..

We'll now take our next question from Henri Patricot of UBS. Please go ahead..

Thank you for the update. A couple of questions on LCCP. First one, just want to follow-up on comments you made in the opening saying that you had improved the management side of the project.

I wonder if you can expand on what has changed, in fact since you’ve identified these issues late last year? And what makes you more confident about the revised schedule? And related to that my second question is around just the overall cost of the project. You’ve left a range of $200 million.

I want to one point, do you think you'd be able to narrow that down the west vacant ethane crackers if we started up? Thank you..

Yes, Henri, thank you very much. So we've tested ourselves in terms of what other leading indicators -- obviously we already have leading indicators but they weren't as good as what we wanted. So the two -- I would say the two financial ones that we're looking at is, just trying to get earlier more accurate view on the productivity in the field.

That's -- all that’s really left to a large extent is the manpower that it will take to finish out the project and the manpower that is needed, contractor manpower that's needed in the early part of commissioning. So just trying to get better indications on that -- on the numbers, crack numbers, productivity numbers.

And as we said the FTI system is really built more for both construction and to get the data from that takes about six weeks for it to come out and we've seen that that's longer than what we really need. So we're trying to do that. The other is just some indications on expenditure rates and trying to get earlier indication on expenditure rate.

So you can see what the burn rate is, and is that matching with what we think the demobilization curve should be. So those are the two things I'd say that that we're putting in place to try and get better site earlier.

Is there any residual questions or anything else you think Henri?.

No, I think that addresses the first question.

I mean just on the second question around the overall cost of the project and narrowing down this range?.

So ultimately we had to update obviously what we believe is a plausible range in terms of the project’s cost giving rise to be 11.6 billion with the contingency of $200 million and what’s been our practice is on the quarterly basis is to update you in terms of progress that we're making in terms of this regard.

I think the critical milestone for us will be as we move through 30 June -- 31 July as kind of get to completion on specifically the cracker which is probably the biggest draw on capital in terms of outflow and SEC will monitor these KPIs.

You will really have good clarity in terms of where the cost of the project will play out towards our final results in June but we will use the quarterly updates to provide you with some more color in terms of what the progress is that we’re making..

We’ll now take our next question from Johan Steyn of Citi. Please go ahead..

Hi, guys. It's Johan Steyn from Citi. Just a quick question regarding your net debt-to EBITDA. You currently hit 2.2 times and covenants obviously 2.5 times. There’s still a little bit of headroom but it is pretty close.

As you sort of are negotiating with your bank some form of a debt or a net-to-EBITDA covenant waiver, some of your peers in the mining industry have done that before. That might just put some fierce debate about the balance sheet.

Have you considered that?.

Thank you, Johan. Good afternoon. I think this is a very fundamental question that you’ve asked. So ultimately on the first principle you need to be comfortable that your plans for the next six months will support your managing of your cash flows to within this range.

So from a modeling perspective, obviously we have modeled 11.6 billion, 11.8 billion capital scenario because that's really the biggest draw if you undertake that as well as low oil prices and stronger rand/dollar scenarios. And we do feel comfortable that the 2.3 times range is still for us as you know has been quite sufficient.

We have also introduced a couple of management actions, I will say, to ensure that we do kind of manage the shift quite tightly in the next couple of months. So your point in terms of so what next plan A.

So if plan A doesn't work, are you ready for plan B where you potentially are being confronted with a covenant breach? And I will say definitely we have to have a plan B. Ultimately we are in the process of also considering the refinancing of our bank term facility over the LCCP’s remaining kind of debt the $1.75 billion.

And as part of that process we will see how we can actually kind of reset our covenant levels just in the eventuality that you do go closer to 2.5 times which we don't anticipate but you want this quite valid, rather be ready than not.

So it's definitely part of our reference to consider that and we will probably also be able to update you in closer to June in terms of how successful we were as part debt proceeds..

Okay. Thanks, Paul.

And then regarding the dividend, in a worst case scenario over the next six months -- six to 12 months, is there any chance of the dividend -- is it more likely to increase waivers on your debt covenants or your cut down on the dividend payments, if you look forward over six to 12 months in a worst case scenario that would be?.

It’s Bongani here. If I can response to that. Certainly the view of management which we’ve shared with the Board is that as management we need to exhaust all the reasonable actions to make sure that the -- we recognize certainly off any exercises which might be there but at the same time not compromising the business.

So it's not a decision we would take very easily because we would need to make sure that we have exhausted all internal alternatives. But if it is a residual case, which needs to be done for the sustainability of the business, we'll obviously do that, because we wouldn't over risk the business, being downgraded or things like that.

But I can assure you it's not a decision we will take easily..

We will now take our next question from Adrian Hammond from Standard Bank. Please go ahead..

Good afternoon, everyone. Yes, I have three questions please. Just firstly on the schedule -- look out schedule.

Have you guys built any stats into that schedule? And how confident are you in middle year schedule given that you don't really know what's happening after 46 weeks? And then secondly, what is your revised working capital requirements on LCCP? And lastly regarding your credit rating which you say is sacrosanct, are there any other levers you can pull to ensure that you've spoken about hedging, obviously the dividend is questionable, but what about cost and CapEx?.

So let me take your last question first and then Steven, if would want to, can comment with I believe with the expecting schedule.

So ultimately from investment credit ratings perspective, I’ll really touch on to what Bongani said just now, is that we need to make sure that all management actions of reducing excess in a company are identified and are being executed on.

So ultimately as we did advise the estimate of the LCCP higher, we were also equally focusing on finding cash savings in the company that were not only from the interim dividend but also we'll make sure and ensure that we manage to getting as well as the negative EBITDA within the ranges that we provided.

So effectively, we looked at further working capital optimization without putting the sustainability of the business at risk.

We have trimmed down our capital portfolio in terms of remaining spend for the year and obviously looked at the lane of certain capital projects that hadn't started yet or we can actually delay, so we were actually ranging to that.

And also identified further gross margin and volume increase opportunities, which we believe is plausible and achievable. So the combination of all of that provided us with a management action plan to provide to the Board and gave us comfort that this plan was agile probability of being achieved.

Second to that, we've also identified further actions such as shaping up our asset disposal proceeds. We have really just completed all the reviews of the assets, but we've got good themes of what assets are non-core or where we want to potentially sell certain equity stake at value, with some of our assets.

We are certainly been approached by many parties for access -- or kind of access to certain assets, or the asset in itself or equity thereto. So hence we’ll also step up and beat up our effort in the next six to 12 months with regards to slimming and also simplifying the asset portfolio.

There are then also a lot of actions that we've preferred such as a cut to the final dividend or even considering salary increases. And so hopefully this gives you the extent the suite of actions that we've identified in order to manage our investment grades going forward and manage the balance sheet risk.

And that obviously comes into addition to our hedging program. We do -- we have started to execute on the Board approved mandate for financial year 2020, and half of our currency exposure mandate have already been completed. And most of the ethane hedging has also been completed.

So I think we're in good shape in terms of predicting the balance sheet at those investment grade ratings. From a working capital perspective, in terms of LCCP, what's important to note that we’ve certainly presented at stable run rate our working capital to turnover a percentage of between 12% to 13% working capital to turnover.

So we are very much still in that line along those lines, really I think fundamentally has changed in terms of what we've messaged before..

On the schedule, the schedule that we’ve put out to the market is our schedule that we developed with our internal team given the data that we have on site as of January. And obviously we still have some time to go. So looking at what could additionally be in front of us that are still uncontrollable is where we came up with the range on the cost.

But in terms of the confidence on the schedule, I would say we had two recent external reviews to interrogate our schedule. One, we did before, we went to market and one that has been done after we went to market and both are aligned that our schedule is realistic and achievable.

We feel very confident in it and we don't have any question that we should be able to deliver it as planned..

We will not take your next question from Wade Napier of Avior Capital Markets. Please go ahead..

Hi, guys. Thanks for the time. A quick one on these scope changes at LCCP, specifically regarding the steel forgings. As I understand, a lot of this sort of steel work was done sort of off-site in a modular fashion. So why was the integrity of the steel forgings only sort of inspected in-situ once at LCCP and everything was put together.

Why wasn't the inspections done at site where the manufacture has taken place? And then my second question is, regarding the 12 months deferral of your value-based strategy, I mean I understand the de-gearing now only occurs in sort of 2020 but is there a risk that the sort of 40% dividend payout target move from 2022 to 2023 now? Thank you..

Thank you, Wade. So the forgings -- yes, the modules were done off-site. The problem that was identified was identified on two of the units. It was limited primarily to the flanges. Testing was done, adequate testing was done. We actually discovered this. The -- we had QC on site at all of the mod yards.

But the fabricator did not bring forward the data that, that was necessary that we actually discovered. And like we said, we started digging on this, it took us several months to track down if we did or did not have a problem.

And finally when we convinced ourselves that we did have a problem that would be a process safety risk and unacceptable to go forward, if we did not address it, then we had to order new flanges, basically cut out the ones that have already been installed and reinstalled them.

So it wasn't that we didn't have QC, but basically, we, the Sasol team did extra investigation and we found the problem, and we're glad that we did find the problem, because it would have been a serious process safety concern if we hadn't addressed it..

Wade, to the second part of your question in terms of how quickly can the dividend payout ratio be set up and how much of deferral do we anticipate.

So we have seen, Wade, that our previous set of assumptions prior to the update of LCCP was that the de-leveraging of the balance sheet we saw to take place as soon as we complete LCCP’s last unit debt-to-EBITDA and then ultimately from financial year ‘20 not really committed to significant growth capital until such time that we actually achieved a gearing level which we feel is commensurate to actually setting up the dividend.

And that fundamental process and its mental model alignment is still intact.

I will say that at elevated gearing levels that we currently or how quickly we can deliver is ultimately based on assumption of how quick can we deliver the LCCP data on EBITDA and ultimately also what will the macroeconomics be as well as how strong will the cash be from our foundation businesses.

And we do foresee -- we forecast to stay between that $60 and $70 world and the rand between R13.5 and R14.50 in that range that ultimately deferral is probably 12 months at least. But there are many moving parts here and I think you have to allow us to delever the balance sheet to that 30%, 40% range and then present it to the Board.

And if that happens sooner than later, of course the Board will have a look at that and then support the capital allocation approach. But if it's going to be slower due to more kind of diverse or severe macroeconomic situation, the Board will not put the investment grade ratings under risk for the sake of stepping up the dividend.

So there are many roads to manage, but I think we've been quite clear in the way and the manner that we want to step up the dividend and that hasn't changed. So there's no reason why growth capital all of a sudden or projects will be put in front of dividend, it will be deleveraging dividend and doing growth capital..

Last question, operator..

We’ll now take our last question from Alex Ayoub of Waha. Please go ahead..

Thank you very much. And just question on the rate increase, you mentioned you have different strategies in case the performances are really tough here, can you quantify a little bit in terms of asset disposals. I mean what's the magnitude of these assets? This potential asset disposal would be like couple of hundred million dollar.

Can you give us some feel around that? And then secondly, sorry if I missed it, would you have some guidance around you have call it $1 move on the oil price or on the on the FX US dollar/rand side, how much impact that could have on your EBITDA? Thank you very much..

So basically in terms of the sensitivities we -- I'm going to give it to you in terms of operating profit, $1 change in operating profit is round about R816 million. So let's say $60 million to $65 million. And if things change in the currency, it’s around about R790 million or let’s say round about $60 million. That's just on an annual average basis..

Your question on asset disposal. The process that we've used in terms of assets disposals, we've broken up the company into what we believe are logical bite-sized pieces of the business that can stand alone in terms of operations or financial reporting. And we have about 100 different of those units.

And we've gone through over the last 12 months or so about 80% of them. And as you said, the majority of them, we believe we can retain and to some certainly improve. But in terms of identification of disposal, say the magnitude of what we believe we could ultimately achieve would be up to US$1 billion.

We've already done a couple of disposals and we have put those into our financials. And there are others that we're currently investigating and proceeding with but that will take some time. But over the next probably 24 months we would hope to try to achieve something approaching that kind of a level..

Fantastic. And sorry just a last question on the covenant.

How regularly are they tested? Are they semi-annual covenants? And look, I mean from our perspective, I mean we know that like even if you're in slight ratio of the 2.5 it's really fine especially given you have a lot of deleveraging coming in the next few years, and the banks should not have any issues around that, so it's always a bit better to have some buffer or having you had these discussions earlier on with the banks? And also 2.5 times I think for companies such as you're going through this project is extremely tight.

So just wondering how regularly are they tested? And if you had any discussions already on that front?.

Yes, I think there was earlier question that we really got it that answered and asked. We have replied in terms of how we plan to manage it, as well as potentially increasing the covenant levels. So I'm not going to repeat that. Having said that, we are -- no, no, no, no worries.

So ultimately, we do revise and monitor our covenants twice a year, as you've mentioned. And that will continue, there is no reason why that will not continue in that fashion session going forward..

I would now like to hand the conference back to Mr. Bongani Nqwababa. Please go ahead..

Thank you, operator. I would like to take this opportunity to thank you all for participating in Sasol's half year results call. Your concerns on the LCCP delivery are very well founded, as it looms large in our life. And delivery is not an option for us.

So we're well aware of the impact it has not only on our profitability going forward but also on our valuation, which is important for all of us. So we'll continue to focus on that. But our strategy remains the same and committed and we'll deliver on our strategy.

We'll continue to report to all of you on a quarterly basis and we'll also see some of you on the road show. Thank you very much for your participation and have a better day..

Thank you for your participation. You may now disconnect..