Good morning, and welcome to Sasol's annual results presentation for financial year 2026. My name is Tiffany Sydow from Investor Relations, and on behalf of the Sasol executive management team, we are pleased that you could join us today. With me is Simon Baloyi, our President and CEO of Sasol, and Walt Bruns, the Chief Financial Officer. The group executive team is present today as well and will join for the market call, which follows directly after the presentations. As a reminder, the presentation and all supporting materials are available on our website since this morning. As a reminder, our strategy follows a two-pillar approach. Firstly, to strengthen our foundation business, where Simon will begin today's presentation with a business overview, which is then followed by Walt, who will take us through the financial performance for the full year.
The second pillar addresses our pathway to grow and transform the business in the long term, where Simon will conclude and provide an update on our progress in this area. A market call will follow immediately after the presentation, where you can submit your questions via the webcast or join the teleconference facilities. As a reminder, the presentation contains some forward-looking information, and more detail is shared on the slide in front of you. I would now like to hand over to Simon to commence his presentation. Thank you.
Good day, everyone, and thank you for joining us today. We appreciate your time. The past year has been about turning commitments into delivery. At Capital Markets Day, we set out a clear roadmap. Today, we can demonstrate meaningful progress in strengthening the foundation business. In the past year, we have done the following: improved reliability across the value chain, strengthened the balance sheet, advanced the reset in International Chemicals, and continued to progress our grow and transform agenda. However, today's results reflect more than improved market conditions. They are evidence of a business that is becoming stronger, more resilient, and more competitive. I wish to thank every member of Team Sasol who has contributed to this excellent set of results.
While there is still work ahead, financial year 2026 gives us greater confidence that the foundation we are building is becoming stronger and that we are moving in the right direction. Before getting into the detail, let me highlight the five key messages I would like our stakeholders to take away today. Firstly, safety remains our foremost value. While we are deeply disappointed by the loss of two colleagues, there are encouraging signs that the interventions we have implemented are strengthening our safety culture. Secondly, we are restoring stability across the Southern African value chain. Improvements in coal quality, reliability, operational performance are translating into better outcomes. Thirdly, International Chemicals reset is delivering measurable progress and improving competitiveness. Fourthly, improved execution is translating into a stronger balance sheet and increased financial resilience. Finally, we continue to advance our grow and transform strategy in a pragmatic and value-accretive manner.
Taken together, these outcomes show that we are not only delivering today, we are positioning Sasol for tomorrow. At Capital Markets Day, we committed to strengthening the foundation business. What matters most is delivery, and today I am pleased to say that we have delivered or exceeded our key financial year 2026 targets. We improved coal quality, exceeded our Secunda production target, reduced the Southern African oil breakeven to $49 per bbl, and strengthened the balance sheet below our target. In International Chemicals, performance benefited from both self-help actions and a more supportive fourth quarter market environment. The reset actions we have implemented effectively position the business to capture those opportunities. We also continue to make tangible progress on our grow and transform agenda. During this year, we brought more than 500 MW of renewable energy online in South Africa. We remain on track towards our renewable energy targets.
This progress supports our emission reduction roadmap, while at the same time creating long-term returns and future growth optionality. These outcomes reinforce an important point. We understand the challenges in our business, we understand the levers within our control, and we are executing accordingly. This is how credibility is built, by doing what we said we will do and consistently delivering against our commitments. Turning to safety, the loss of two colleagues during the year is unacceptable and deeply regrettable. Once again, let me extend our heartfelt condolences to the families, friends, and colleagues of Mr. Godfrey Mamafha and Mr. Sonwabo Makamba. Any loss of life reminds us that no matter how strong our operational or financial performance may be, there is nothing that matters more than ensuring that every person returns home safely every day.
Following these incidents, we implemented targeted actions plans focused on the following: strengthening leadership accountability, improving risk identification, and reinforcing safety ownership across our people, leaders, and service providers. Our safety culture interventions focus on disciplined execution and process safety management so that the rules are followed every time on every shift. While we remain deeply disappointed by the fatalities, the broader trends are encouraging. Hospitalization fell to record lows and process safety performance improved. This is reflected in the meaningful reduction in significant process safety incidents like fires, explosions, and releases. We again had no major process safety incidents in the past year. This was accompanied by substantial lower human-related safety failures, indicating progress in the behavior and discipline that underpin a stronger safety culture. This improvement also reflects in the recordable case rate. However, we will not measure success by statistics alone. Our objective remains unchanged.
Every employee and every service provider must return home safely every day to their loved ones. I will now briefly touch on the financial highlights. Walt will provide a more detailed review of the performance and underlying business drivers later. For much of the past year, we operated in a volatile and uncertain environment. We experienced geopolitical disruption, supply chain pressures, and changing market conditions. I am proud to say that Team Sasol acted decisively to manage the direct and indirect consequences of events in the Middle East. The business captured the benefits of supportive macro conditions in the fourth quarter due to improvements we have made in operational reliability, cost discipline, and commercial agility. While we do not control geopolitics, exchange rates, or market cycles, we remain intensely focused on what we can control. In that context, we delivered a 17% increase in adjusted EBITDA of ZAR 61 billion.
We held cash fixed costs flat compared to prior. We reduced capital expenditure by 18% to ZAR 21 billion without compromising safety or asset integrity, and we generated approximately ZAR 12 billion of free cash flow. This reflects a business that is becoming more disciplined, more resilient, and increasingly focused on what we can control. Feedstock security remains fundamental to the competitiveness of the Southern African value chain. In mining, the implementation of the destoning plant has materially improved coal quality to strengthen Secunda operation by achieving our goal of reducing sinks below 12%. Looking ahead, we will ensure sustained coal quality while focusing on increasing own coal production, reducing external coal purchases, and improving the cost competitiveness of our feedstock. The assessment of scenarios to ensure our long-term coal supply is progressing well. We will give feedback to the market in 2027.
In gas, although production was impacted during the year by some well constraints and flooding events, we continue to make progress across multiple horizons. We achieved a significant milestone with PSA reaching beneficial operation. This enabled the first in-country production of LPG in Mozambique, reducing imported LPG requirements while also contributing additional natural gas, light oil, and condensate production. Gas remains a critical bridge to the future for the Southern African value chain. As with the rest of the foundation business, our focus is on balancing short-term reliability with long-term optionality. NERSA approved our gas pricing application for financial year 2027 and part of 2028, with financial year 2029 and 2030 pending. This is a positive step towards enabling the MRG bridge solution. Our focus remains on maximizing existing gas supply, managing the transition as natural gas declines, and preserving future optionality through LNG and broader gas solutions.
Here, we believe Sasol can play a critical aggregation role. Importantly, we assess all opportunities through an integrated value chain lens because reliability, affordability, and value creation must remain linked. Our objective is clear: to protect feedstock security and sustain the competitiveness of the value chain. The Southern African business delivered one of its strongest operational performances in recent years. Production reached a five-year high at Secunda, where we produced 7.26 million tons because of improved coal quality, improved gasifier availability, and more stable operations. Natref also delivered stable performance. These improvements enabled us to capture stronger margins when market conditions became more favorable in quarter four. Sales continued to grow as a result of driving our strategy to increase our market share in higher value retail and commercial fuel channels. Oryx was shut down earlier this year following the geopolitical disruptions experienced in the Middle East.
However, the facility successfully brought back online during the earlier month of August. Chemicals performance improved during the second half, supported by higher sales volumes and recovery in basket prices during the fourth quarter. All of these improvements resulted in the Southern African oil breakeven reducing to $49 per bbl. While this result includes $69 per bbl improvement due to macro tailwinds and the absence of a Secunda shutdown, it also reflects genuine progress in restoring the value chain and improving performance. The value chain is not yet where we want it to be, but reliability is improving, competitiveness is improving, and the direction of travel is clear. For financial year 2027, our focus thus remains on the following: gasifier turnaround initiatives in Secunda, as well as the safe execution of the shutdown. Implementing the hybrid refinery project at Natref, which includes the production of clean fuels to compliant fuels.
Driving our strategy to increase our share in higher value retail and commercial fuel channels. Finally, improving value delivery across our chemicals portfolio. The reset in International Chemicals continued to gain momentum. Over the past two years, we have streamlined the portfolio, reduced the costs, improved operational performance, and strengthened commercial excellence. In financial year 2026, we continued to see the benefits of these actions. We delivered further cost savings during the year and also went live with our ERP program in Germany, Slovakia, and the United Kingdom during July this year. This gives us more efficient way of working across the business. From a market perspective, we continued to strengthen commercial excellence and agility across the business. When market condition improved in the fourth quarter, the business was better positioned to capture value and respond quickly to opportunities.
Against this backdrop, we delivered an adjusted EBITDA of $604 million. What is particularly encouraging is that the improvement we saw during the year was not driven by one initiative alone. It reflects combined impact of several efforts across the business. Teams across commercial, supply chain, planning, manufacturing, and operation worked more closely together to improve competitiveness and unlock value. One example was a dedicated focus on shifting sales into differentiated applications, specifically in Europe, linked to our alcohol and alumina portfolios. Another example is that we initiated the restart of the paraffin unit in Augusta to take advantage of attractive market conditions created by supply constraints and better serve customer demand. Beyond the short-term benefit, this positions us to strengthen customer relationships and capture sustainable margin upside through higher value and more differentiated applications.
While we are encouraged by the strong performance in quarter four, it is too early to assume these market conditions will persist. We continued to plan the business on prudent assumptions and do not only rely on market recovery to deliver our objectives. The objective is to build a business that is competitive, delivers peer-level returns, and remains resilient through the cycle. The business is better positioned today than it was two years ago, but there is still more work ahead. We will continue to strengthen the portfolio, maintain cost discipline, improve cash conversion, and optimize asset availability in line with demand. At the same time, we will continue to act on opportunities that strengthen the portfolio and improve returns. The Brunsbüttel alumina investment is a good example.
We are building out our advanced material business, thereby strengthening our position in higher value specialty markets and supporting the long-term quality of the portfolio. Sasol's role extends beyond our own operation. This matters because our strategy is not only about financial performance, it is also about building a responsible company that continues to contribute to skills development, local communities, energy security, industrial activity, and economic resilience. We continued to invest in communities and enterprise growth in the past year. We expanded access to water in Mozambique. We trained more than 450 artisans and supported the development of small businesses across our operating regions. These initiatives reflect our belief that long-term business success and social progress must go hand in hand. Sasol remains a force for good in a changing world, creating shared value and positively impacting the lives of our communities.
As we look ahead to financial year 2027, our priorities remain unchanged. We will stay focused on the following areas within our control: safety, operational excellence, commercial excellence, cost efficiency, cash generation, and disciplined capital allocation. We will continue strengthening the foundation business while advancing our grow and transform pillar in a pragmatic and value-accretive manner. As the markets continue to normalize, maintaining focus on these priorities becomes even more critical to sustaining our momentum. Financial year 2026 gives us confidence, but we are not complacent. Credibility is earned through consistent delivery over time, and our focus remains on executing against these commitments we have made. With that, I will now hand over to Walt, who will take you through the performance against our financial framework in more detail.
Thank you, Simon, and good morning, everyone. At our Capital Markets Day in May last year, we set out four clear and connected priorities for our robust financial framework. Firstly, improve sustainable free cash flow. Secondly, strengthen the balance sheet through deleveraging. Thirdly, allocate capital with discipline. Lastly, resume dividends when it is prudent to do so. These priorities are underpinned by proactive risk management and a clear focus on the factors within our control. FY 2026 represents meaningful progress against this framework. While market conditions became more supportive in the second half of FY 2026, the stronger result was not simply market-driven. Improved operational performance, strict cost management, and disciplined capital allocation created operating leverage across the business to convert the opportunity into stronger earnings and further balance sheet strengthening. This progress gives us greater confidence in the operating and financial platform we are building.
Our work is, however, not complete. Our focus now is to sustain the momentum, improve cash conversion, and deliver against the FY 2028 targets we set out at Capital Markets Day. First, some context on the macro environment. FY 2026 remained volatile, with geopolitical developments driving significant movements in commodity prices and currencies, especially during the second half of the year. Overall, the year-on-year impact of pricing was mixed, with the rand oil price and U.S. dollar per ton chemical sales prices broadly flat and only refining margins improving materially. Oil prices strengthened following the conflict in the Middle East before moderating towards year-end as geopolitical concerns eased. We continue to expect volatility in oil markets in the near to medium term. The stronger rand remained a significant earnings headwind, given the U.S. dollar-linked nature of much of our revenue, although it also reduced the rand value of our U.S. dollar-denominated debt.
Refining margins were a notable positive, supported by stronger fuel differentials and improved operational performance at Natref. Chemical markets remain challenging, with excess capacity and weaker demand continuing to put pressure on prices and margins. While conditions improved in the fourth quarter, margins still remain below historical levels, and recovery is expected to be gradual. As an example, full-year U.S. ethylene margins were still 8% below FY 2025. As always, our focus remains on what we can control: operational performance, costs, capital discipline, debt reduction, and risk management. Overall, we delivered against the majority of these items and the associated targets we set for FY 2026. Sales volumes increased by 4%, reflecting improved operational performance across the business. Cash fixed costs remained flat despite inflation, extending our cost optimization track record to three consecutive years of absorbing inflation.
Capital expenditure of ZAR 21 billion was in line with our revised lower guidance, while net debt reduced to $3.3 billion, well ahead of our FY 2026 target of below $3.7 billion. Working capital was 18.3% on a 12-month turnover basis and above our target of 15.5%-16.5%. The increase was mainly driven by higher commodity prices in the second half of the year, the utilization of Prax's shareholding capacity at Natref during the ongoing business rescue process and higher inventory due to lower demand in May and June and planned shutdowns in the first half of FY 2027. Given ongoing pricing volatility, we believe a six-month annualized turnover measure better reflects current trading conditions. On this basis, working capital was 16.6% and only slightly above the target range. Managing working capital remains a key focus area as we work to improve cash conversion in FY 2027.
Finally, we continue to execute our hedging program in line with our risk management framework, completing the FY 2027 oil program, while the FY 2027 foreign exchange program remains in progress. Turning to the details of the group financial performance, FY 2026 delivered a materially stronger earnings outcome. Gross margin and adjusted EBITDA increased by 13% and 17% respectfully. Higher sales volume, stronger oil prices, and significantly improved fuel differentials more than offset the headwinds from a stronger rand exchange rate and the absence of the Transnet legal settlement received in the prior year. Cash fixed costs remained broadly flat despite inflationary pressure, reflecting the benefit of the cost-saving initiatives we have been driving.
The current year includes impairments on the Secunda l iquid fuels refinery CGU, which remains fully impaired, the South African polyethylene CGU due to a stronger forecast rand exchange rate and lower longer-term polyethylene pricing outlook, and an impairment of the Mozambican development, which we recognized at the interim results. Importantly, the Secunda impairment should not be interpreted as a deterioration in the underlying business performance. The recoverable amount improved through the actions we have implemented. The impairment was primarily driven by changes in long-term valuation assumptions, particularly a stronger rand outlook, and relates only to the liquid fuels refinery CGU. The broader Secunda complex, including the chemical CGUs, continues to retain significant headroom when comparing the total recoverable amount to the net book value. As such, the accounting treatment and value should not be viewed as a direct reflection of the underlying economic value of the Secunda complex.
Further improvement initiatives are still being progressed, and the benefits thereof will be included in future impairment assessments once sufficiently advanced. Free cash flow, as defined in our capital allocation framework, was ZAR 11.9 billion, 5% lower than the prior year. Excluding the prior year's once-off Transnet benefit, free cash flow increased by 26% year-on-year. Cash flow from operations increased by 22%, reflecting stronger operational performance, improved earnings quality, and a greater contribution from International Chemicals. As I already mentioned, working capital was the primary headwind to cash conversion during the year, and we expect part of this to unwind in quarter one of FY 2027. Overall, FY 2026 demonstrates that stronger operational execution is translating into stronger financial outcomes. The business generated higher quality earnings, stronger underlying cash flows, and continued to progress on our deleveraging, which I will address later.
Turning to capital management, one of our key priorities has been improving capital efficiency across the portfolio. This is not simply about reducing capital expenditure. It is about ensuring every rand of capital is allocated to the areas that create the greatest value while maintaining safe and reliable operations. Capital expenditure in FY 2026 was 18% lower than the prior year, reflecting the completion of the Mozambique PSA project and environmental compliance programs in South Africa, as well as lower maintenance expenditure due to the absence of a Secunda phase shutdown during the year. Importantly, lower capital spend has not come at the expense of delivery. During the year, the destoning plant, PSA project, and three Natref low-carbon boilers all reached beneficial operation and are already contributing to improved operational performance. Beyond project completion, we have continued to systematically challenge scope, timing, and cost across the portfolio.
As a result, our FY 2027 capital guidance is lower, resulting in a cumulative capital reduction of approximately ZAR 12 billion-ZAR 14 billion compared to the ranges that we communicated at Capital Markets Day. Approximately half of this reduction reflects sustainable cost and scope improvements, with the balance largely related to project timing and phasing. Looking forward, we will continue to drive capital efficiency as it remains an important contributor to improving free cash flow. At our Capital Markets Day, we set out a clear vision for capital allocation, build a more resilient business by de-risking and growing the enterprise value, and increase the share of that value that belongs to shareholders. Deleveraging was a key enabler of that strategy, and we have made good progress over the past two years.
In FY 2026, net debt reduced by a further 11% to $3.3 billion, the lowest level in 10 years, and ahead of the profile we had at CMD. That keeps us firmly on track toward our objective of sustainably reducing net debt below $3 billion between FY 2027 and FY 2028. Enterprise value grew 32% during the year, with the equity share of that value increasing from 37%- 57%. Put simply, shareholders today own a larger share of a significantly larger enterprise. We also improved our liquidity position with available liquidity increasing by 21% to approximately $5 billion. During the year, we also successfully issued a ZAR 5.3 billion bond in exchange for $300 million and a $750 million bond maturing in 2033. These proceeds were applied for a partial repayment of our 2028 and 2029 bond maturities, which was therefore debt neutral.
Collectively, these actions have materially extended our debt maturity profile, further reduced near term refinancing risk, and improved the currency mix of our debt to better match the cash generation of our assets. Sasol's balance sheet is therefore in one of its strongest positions for many years. As we move closer to our net debt target, attention naturally turns to dividends. Our policy remains unchanged. Returning capital to shareholders is important, and net debt of sustainably below $3 billion remains the threshold for the resumption of dividends. Sustainably is the key word. We will continue to test the balance sheet against a range of commodity price, currency, and other scenarios to ensure that any return of capital is supported through the cycle by sufficient free cash flow generation.
Once that objective has been achieved and we are distributing 30% of free cash flows dividends, we will have a broader range of capital allocation options available. These include a combination of further debt reduction, investment in value accretive growth and transformation opportunities, and/or additional shareholder returns. Each will compete for capital based on strategic fit, risk-adjusted returns, and affordability as part of our commitment to creating long-term shareholder value. As we continue to deleverage, hedging remains an important part of our risk management framework. Our objective is not to eliminate exposure to commodity price and currency movements. It is to protect the balance sheet against material downside, manage the cost of protection, and retain appropriate upside participation. During the year, we completed our FY 2027 oil hedging program and also secured protection for the first quarter of FY 2028.
While oil prices increased following the Middle East conflict, the medium-term forward curve did not move to the same extent and remained largely in backwardation with premiums elevated. As a result, we continued using a combination of put options, locking in an average floor of approximately $59 per bbl at an acceptable cost. Our FY 2027 rand dollar program is approximately 60% complete with the second half of FY 2027 fully hedged. We have mainly used zero-cost collars with an average collar range of approximately ZAR 16.50- ZAR 19 to the U.S. dollar. Recent U.S. dollar weakness has made it more challenging to execute the remaining cover at appropriate levels in H1 FY 2027, but with commodity prices remaining elevated, the risk at an enterprise level is reduced. Lastly, hedging complements but does not replace strong operational performance and balance sheet strength.
As the business becomes more resilient and leverage continues to reduce, we will continue to calibrate our hedge cover to the group's financial position and risk capacity while maintaining appropriate downside protection. Turning to adjusted EBITDA by segment. Market conditions varied across our businesses, but strength in fuels and International Chemicals helped offset pressure in mining, gas, and Chemicals Africa supporting materially stronger group earnings. Mining was impacted by the planned phaseout of export coal sales, partly offset by redirecting volumes to Secunda Operations, which benefits the broader SA value chain. While gas was negatively affected by lower volumes and a stronger rand exchange rate. Fuels delivered a particularly strong performance benefiting from improved operational performance and stronger refining margins and product differentials, partly offset by the Transnet legal settlement in the prior year.
Chemicals Africa remained under pressure largely from the stronger rand offset by higher volumes and a marginal increase in prices in Q4. International Chemicals EBITDA increased in both Chemicals America and Eurasia and maintained its contribution of 16% to group EBITDA, reflecting the benefits of our reset strategy and the more supportive market environment that emerged during the fourth quarter. In summary, FY 2026 demonstrated the value of our diversified portfolio with a broader contribution to earnings across the group than we have seen in recent years. Our priorities for FY 2027 remain fully aligned with the financial framework we set out at Capital Markets Day. Our focus remains on delivering volumes in line with our targets, maintaining cost discipline, driving further capital efficiency, improving cash conversion, and continuing to strengthen the balance sheet through deleveraging. Together, these actions will further improve resilience, support transformation, and create sustainable long-term shareholder value.
While there is still more work to do, FY 2026 has clearly demonstrated that disciplined performance is translating into stronger operating and financial outcomes, giving us confidence and credibility to deliver our FY 2028 commitments. With that, I will now hand back to Simon for the strategic update, and I look forward to engaging with you in the Q&A session later.
Thank you, Walt. I will now turn to our strategic update, the grow and transform pillar of our strategy. The foundation business funds today and our future. That is why strengthening the foundation remains crucial. At the same time, we must continue to position Sasol for long-term relevance, resilience, and value creation. Our grow and transform strategy is not about growth at all costs. It is about creating future value while preserving financial flexibility and applying disciplined capital allocation. Sasol plays a uniquely important role in all areas where we operate, especially in South Africa. Every day, we help to keep the country moving by supplying fuels and chemicals that support energy security and economic activity. We enable critical industrial value chains through the products we supply. We support hundreds of thousands of jobs across the economy and contribute meaningfully to South Africa's growth and development.
Recent global disruptions have reinforced the importance of reliable domestic energy and industrial capability. As one of South Africa's largest industrial companies, we have a responsibility not only to create value for our shareholders, but also to contribute to the country's energy security, economic resilience, and future industrial strength. That is why our transition pathway must remain pragmatic and value accretive. We must reduce our emission intensity and build future opportunities while safeguarding jobs, energy security, industrial growth, and competitiveness. We do not see these as trade-offs. We believe they can and must advance together. We continue to move our grow and transform agenda from strategy to delivery. In renewable energy, we now have over 1.3 GW secured and more than 500 MW operational, keeping us on track towards our targets of 2 GW by financial year 2030.
These projects are already lowering costs, reducing emissions, and improving competitiveness aligned with our value accretive approach to reducing carbon intensity. We achieve a milestone in sustainable fuels and products by receiving a first in Africa sustainability certification. This makes Natref the first refinery in Africa to achieve product sustainability certification for key fuels production pathways alongside certified chemicals production at Secunda Operations. This certification is imperative because it gives us credible route into low carbon markets as they mature and become economically attractive. On sustainable aviation fuel, we continue to work with Topsoe through our technology and licensing collaboration. Zaffra is being operationally announced, but the SAF opportunities are still being progressed. Notably, our strategy is built on leveraging capabilities we already have. Whether in renewable energy, sustainable fuels, or sustainable products, we are advancing opportunities where there is a clear pathway to future value creation.
This is a pragmatic, value-led, and disciplined approach to transformation. Capital Markets Day was about setting a clear roadmap, strengthen the foundation business, advance our grow and transform agenda, and create long-term value for all our stakeholders. Two years later, we are demonstrating tangible progress against that roadmap. We have a stronger foundation business with improved operational performance, a more resilient balance sheet, and a growing strategic optionality. We are not declaring victory, but we are increasingly confident that we are building a more competitive and more resilient business that can deliver our FY 2028 aspiration. However, our ambition extends beyond 2028. The foundation business remains at the core of Sasol. Our priority is to continue strengthening these businesses, ensuring they remain profitable, resilient, and cash generative well beyond 2030. The stronger our foundation becomes, the more choices we create for the future.
We are already looking at how Sasol can create value well into the next decade. We are doing this by building on our core strength, leveraging the capabilities we have developed across the group, and creating additional future growth opportunities where they make commercial sense. As we do that, our focus remains on creating more choices for the future through a stronger balance sheet, greater flexibility across our value chains, and a disciplined approach to capital allocation. Put simply, 2028 is not the destination. It is an important milestone in building sustainable long-term value on top of a strong and enduring foundation business. To close, financial year 2026 demonstrated that our strategy is working. We have improved reliability across the value chain. We continue to strengthen the foundation business, strengthen the balance sheet, and position Sasol for future growth.
There is still work ahead, but the foundation is stronger than last year. The business is better positioned, and we are becoming increasingly resilient through the cycle. I would like to thank Team Sasol for their commitment and resilience. The progress we have achieved is because of our people. We are delivering against the commitments we made and building credibility through performance to create sustainable value for our shareholders and stakeholders. Thank you.
Thank you, Simon and Walt, for your presentations, and welcome back to everyone for the Q&A session, where you have the opportunity to direct your questions to Simon, Walt, and the rest of the executive management team. Joining us on stage today, we have Antje Gerber, who is Head of International Chemicals, Sandile Siyaya, who is Head of Mining, and Victor Bester, the EVP for Operations in Southern Africa. In addition, we also have Vuyo Kahla supporting on Commercial and Legal, Christian Herrmann, Marketing and Sales, Energy and Chemical, South Africa, Thabile Makgala, AVP, People, SHE, Risk, and Corporate Affairs, and Sarushen Pillay, Business Building, Strategy, and Technology. We would like to invite you to please submit your questions via the online Q&A platform on the right-hand side of your screen.
Alternatively, you can also dial in via the Chorus Call link, where you have the opportunity to voice over your questions. I will alternate between the two platforms to give everybody a fair chance to ask their questions. I am going to start today with some of the online questions, and if we can go to the financial questions, please. We would like to have some clarity. I think the first question comes from, sorry, just getting there, from Michael at NPV Investments, who wants to understand the principle which underpins the calculation of the break even and what that entails. Then a second question from Sashank Lanka from Bank of America, who says, "Thank you for the presentation and the opportunity to ask questions. I would like to understand the pathway for the working capital to return to target.
Is it inventory reduction or lower Natref-related working capital?" I would like to ask Walt to please start with those questions.
Thanks, Tiffany. I will handle the first one. Thanks, Michael. Yes, so in the calculation of break even, we bring in all costs, including variable costs, cash fixed costs, and our capital expenditure, and we use that in the calculation of break even. We obviously also take a credit on some of the refining margin and chemical prices. So it is impacted by the macros, and you would have seen in the results that we presented that we did give a bit of a range in terms of the impact of that. Total impact between not having the Secunda shutdown and then also the Middle East conflict was around $6-$9 per bbl of the $49 per bbl that we achieved. Sashank, moving to the working capital, we did see a large increase in working capital during the year.
About 60% of that was related to pricing, particularly in the last quarter with regards to the Middle East conflict. 30% of the increase is related to Prax and Natref, where we stepped into the capacity there during the business rescue process. Then around 10% is related to volumes. There is a little bit of non-cash items also in there, but I think that gives a fair approximation of the split. We expect, certainly on the inventory side, that portion to unwind. Now in the first quarter, we have the planned shutdown at Secunda again with the phase shutdown and then also at Natref. So that inventory rewind will happen. Then on Prax, we continue to utilize that shareholding capacity. At the moment, there is a process being run by the business rescue practitioner to find a partner for that, and we continue to engage with them actively.
And then I think lastly, on the pricing, there is still a lot of volatility in pricing at the moment, but we believe that the working capital at year-end sets us up nicely for FY 2027 in terms of cash and our ability to generate cash. We look forward to showing that to you later in this year.
Thank you, Walt. The next theme of questions is around our Southern Africa operations. I am going to start with Thobela Bixa's question from Nedbank. He wants to understand a bit more around the sinks at currently below 12%, and what remains a constraint for coal operations with your sinks there. Your volume and cost guidance seem to show a constrained mining or SO business. What can we expect from external coal purchases? Then some more around the coal capital expenditure that is planned for the 2027 year, which does it include spend for shaft expansion projects, geographic expansion, and sustenance projects? I think let us deal, those are actually three questions in one, so if I could ask Simon, you perhaps address the coal business more broadly.
Yeah. Thank you, Tiffany. Let me start, then I will hand over to Sandile. At Capital Markets Day, you will recall that we identified coal sinks and gasifier availability as the two killers that we needed to pull to improve Secunda to more than 7.4 million tons. Yes, we are on track with the coal quality and the gasifier work is ongoing. So that is where you still see the constraint that we have put for the FY 2027 budget year. I think, Sandile, you can handle the coal purchases and the capital expenditure for Sasol Mining.
Sure. Maybe in answering this question, I will just maybe first outline Sasol Mining main objective, which is to enable SO to perform optimally. Mining is doing this and achieving this through integrated approach of providing or supplying coal of the right coal quality, as demanded by SO and SSO, which is Secunda Operations and Sasolburg Operations. Also ensuring that we supply the right volumes at the right cost or competitive cost. Now, if one then looks at the performance for FY 2026, we have seen year-on-year improvement in terms of the coal qualities, mainly driven by the beneficial operation of the de-stoning plant. Also, in terms of the volumes, we are planning to improve the volumes performance coming through from Sasol Mining.
The impact of that is that there will be a reduction of the coal purchases, again, which is a year-on-year improvement compared to or moving from FY 2025 to FY 2026. Also, further improvement in FY 2027. Just speaking of the exact numbers, in FY 2026, we purchased 8.8 million tons. For FY 2027, we are planning to purchase between 5- 7 million tons, which is a significant improvement, and that has got a positive impact on cost of supplying coal to SO. That's a trend that we'll continue with, so there will definitely be a reduction of the coal purchases. Maybe answering the capital question, whether the capital allocation is reflective of that. Yes. The capital allocation at Sasol Mining is reflective of the mandate that I've spoken about, of supplying the right coal quality at the right volumes at a competitive price.
Given that some of our operations are approaching the end of life, we are also busy with the long-term coal supply roadmap with clear quarterly milestones. Therefore, the capital allocation is also aligned with those milestones. If we look at the performance against those milestones, we are seeing that we are currently meeting those milestones. The plan for FY 2027 is also to continue working on that long-term coal supply roadmap. Thank you.
Thank you, Sandile. I'm going to turn the focus to the rest of SA operations, including Secunda. There's a number of questions from some people, so I'll try and cluster them into themes. Starting with Michael from NPV Investments, trying to understand the overall benefit of the de-stoning and improved sinks on the overall SO production improvement. If we strip out the benefit from not having a shutdown, what is the estimate on production? I think similarly also, on the same theme, the current challenges with improving gasifier availability and expediting the GOs, is there a resource constraint? Are we seeing a reduced number of gasifier or equipment failures with de-stoning now operational and an overall reduction in unplanned shutdowns? I think one more on the same theme is how confident are you in maintaining the FY 2026 operational performance through the 2027 Secunda shutdown?
That comes from Sashank Lanka. Simon, would you like to start?
Yeah. I'll start then and hand over to Victor. The impact of not having the shutdown is about 100 kilotons. We can subtract that from the volume performance that we did this year, if you wanted to know where we'll end without a shutdown. Victor, you can handle the gasifier questions and the question from Sashank.
Thank you, Simon. I think when it comes to gasifiers and gasifier availability, we've made significant progress. I think to position it as a challenge, I would say that the program is fully resourced. It's really this trade-off between gasifier availability and gasifiers on maintenance as well as gasifier utilization. That's a business trade-off that we make. But the program itself is fully resourced, and we are delivering. I think there was another question around the breakdowns. We've actually seen with the de-stoning plant coming on stream, we've seen less breakdowns in our gasifier components, and here specifically referring to our coal locks, which are high wear equipment items, and our ash locks. That has gone some way in terms of helping us to improve gasifier availability.
We've also worked on reducing the downtime duration, and we've seen a positive trend in that regard.
Is there another question?
Thank you. I think if we can move to Natref. Refining also from Sashank from Bank of America. Refining margins are very elevated currently. How is this impacting your fuels business? How has the Middle East conflict impacted your crude oil supply and differentials? Also, on the Natref refinery, it has now been confirmed that ADNOC was the preferred bidder for Shell's downstream assets. Can Sasol confirm if it bid for the assets and the acquisition of the assets would have increased your retail footprint, which is a high-margin channel? How does this tie into the strategy? That comes from Michael, again at NPV Investments.
Thank you, Michael. Let me start with your question, then hand over to Christian. The Middle East conflict, that did intensify the focus on domestic ability to be able to supply fuels during those times. We saw other economies running out of jet fuel and petrol and diesel during that time. Sasol actually did manage to move around some of the shutdowns to make sure that we can produce those critical products for the country at that time. I think with that, we have shown the importance of where Natref fit. Natref and Sasol in particular fits into the energy security of the country. Christian can then take the rest of your questions.
Thank you very much, Simon. Yeah, certainly the higher crack spreads and also the higher crude prices, they were really benefiting our refining margins. So we had roughly $25 last year. That was, I have to say, a very good year. From a crude supply, we have quite a good diversified portfolio where we source our crude. In addition, Victor's team in Natref also changed the diet, the crude diet for the operations. That also helped us to be less dependent on sour crude and actually source more from Latin America and West African crude. So we feel quite comfortable to weather that storm, also to continue going forward. We do not just procure spot on the day, so we have a longer term strategy how we secure our supply. Going forward, with regards to, I think the question was on ADNOC.
We are not commenting on any external developments and if we were bidding or not. To the question, what is our strategy? Our strategy is organic growth, certainly in the retail sector. We have been quite successful. The market in retail overall was actually declining last year, and our market share in retail has been increasing. So we have now a market share of roughly 13%, and just five years ago, we were at 9%. So I think the refresh and premium strategy over the last years is really paying off, and we are quite satisfied with that development. Certainly, we welcome ADNOC in South Africa. It is a formidable competitor like Shell was also in the past, and it keeps us humble and honest. The last one, I think there was one more question. No, I think that is it. Yeah. Thank you.
That's it. Thank you, Christian. I'm going to move to Chorus Call. If we can operate, if we can have two callers with their questions, please.
Thank you. First question comes from Chris Nicholson of RMB Morgan Stanley. Please go ahead.
Hi, good day, Simon, Walt, and Tiffany. Thank you for the call. Well done on hitting all your operational metrics this year. I've got a few couple of questions around International Chemicals. Your guidance for FY 2027, $450 million-$ 600 million, would imply a decrease on this year's level. Just trying to understand what you're assuming to get to that level. Are you assuming that prices fall on average from those that you realized in FY 2026? Maybe it's quite opaque to the market what that would imply from kind of the type of run rates of prices we've seen in the chemical business over July and August so far. Just two questions linked to that. The levels of water in the Rhine River are currently exceptionally low, I think close to all-time lows.
Last time that happened in 2018, it did have a material negative impact on your business in Germany. Should we expect any risk from that in this year? I see Lyondell's guided their operating rates to 85% for their North American business. Is that roughly what you're assuming for your cracker and polyethylene plant run rates for 2027? Thank you.
Thank you, Chris. Can I also have the next caller's questions, if they may be on a similar theme?
Thank you. Next caller is Adrian Hammond of SBG. Please go ahead.
Thanks, operator. Good day, everyone. I will be brief since we are collecting everyone's questions here. First one for Antje, your volume growth expectations for alumina at Brunsbüttel, perhaps you can expand a bit on the margins that you see there versus the business unit average. Secondly, a question for Victor. Could you just give us some color on your update to the PSA reserves percentage increase, any update on your progress with PT5-C in Mozambique? For Walt, I am just curious that your credit ratings still remain negative outlook for both Moody's and S&P. What does it take for them to change that outlook? Noticeably, you are also one notch below investment grade. What should the impact be on your credit cost of capital or cost of financing, should I say, should you move into investment grade? Thank you.
Thank you, Chris and Adrian. Let me start with IC. I think, Antje, when you are done, you can just hand over to Victor to deal with the PSA and PT5-C. Before Antje weighs in, Chris and Adrian, let me remind you that the structural challenges in the chemical market of oversupply have not gone away. What we have seen was just the disruption from the Middle East, but the challenges are still there, and the business is still faced with all of this, and that is why we focus on what we can do internally. I think, Antje, we can take over the two questions from both Chris and Adrian.
Mm-hmm. Thank you, Chris and Adrian, and also Simon for the question. With regard to the guidance in fiscal year 2027, our assumptions are that we have seen a tailwind from the Middle East increase in the last quarter of the fiscal year 2026, which will not repeat. We see that basically for the fiscal year 2027, our guidance is lower because we can factor in only management activities which are under management control, which includes the delivery of a transformation program. Ongoing cost reduction, commercial excellence programs, portfolio optimization, and also increasing the operational reliability throughout the year while we implement further our ERP system. Those are the biggest variables which remain basically market related, ethylene margins and also the European demand structure. The energy costs in Europe are also elevated, Chinese exports, and also inventory effects.
In a nutshell, what we say that if you normalize for the Middle Eastern benefits, our real story is not that the margins stood still in 2026 and are still on a good level. We are quite happy with that. We absorbed in that year roughly ZAR 100 million of ethylene margin, which was lower than in the fiscal year 2025. We delivered on 7% fixed cost savings and executed on our other levers as well, which we had laid out before. If we look into 2027, we continue with all of these measures further on, and they are under our control, what we think. Despite then upside will depend on potential market conditions. Our strategy, nevertheless, does not rely on market recovery, but to create value for Sasol on the long run. The River Rhine risk is existing. We see that every year.
This year earlier than the other years. Nevertheless, it is not impacting our business massively. We have immediately moved to multimodal transportation for our raw materials and also for our finished goods. We do not see a big dependency on that low level of the River Rhine at the moment. In terms of our cracker run rate, both of the crackers, the joint venture cracker and our own, have run above nameplate, and we expect that to continue as long as the market is profitable and beneficial for us. Nevertheless, we have seen already that ethylene margins have come down dramatically from the spike of $0.24 on the spot market in May to $0.12 per pound in June. Adrian, I think your questions were around our Brunsbüttel site, the demand for the alumina products, which we have there.
Alumina is our highest margin business, which we have in International Chemicals. There we enjoy an EBITDA margin of 25%-30% in rough terms. We have increased the volume, but for competitive reasons, we do not want to issue that number, which we are doing. It is all backed up with customer demand. We see an increased demand right now and have made also customer commitments for our expansion in Brunsbüttel. With that, I would like to hand over to you, Victor.
Oh, thank you, Antje. Adrian, I think when it comes to PSA, we have three reserves in PSA. Two small reserves and one large one. Here, I think we're still busy in the appraisal phase or surveillance phase where we need to get wells online to confirm the confidence levels around these reserves. As you would know, CTT has been delayed. What we do have is one of the reserves has been confirmed to be at the low case, which is the smaller reserve, and it will take another two to three years for us to actually confirm the larger reserve and the other small reserve. That's our status on the PSA. On PT5-C, you'll recall that we've had two wells where we discovered gas. We've also paused our activities on PT5-C, and we're exploring opportunities to partner with others for further development.
What we have done, though, is we've made submissions to the regulator in Mozambique in terms of our initial appraisal plans, and we've received feedback on one of those wells, and the other one is still in progress.
Thank you, Victor, Antje, for the extra color. If I could go to the next caller, and then we'll switch back to the online questions.
Thank you. Next question comes from Gerhard Engelbrecht of Absa CIB. Please go ahead.
Good afternoon. Thank you. It's great that you are on track to achieve your 2028 targets despite all the volatility that we're seeing in markets. I've got three questions. One is around CapEx. You've now for three years in a row come in below your guidance, and that could be seen as a good thing, but there are examples in the past where spending less CapEx leads to problems later on. Exactly where are you cutting CapEx, I think is the question, and how do you assess the risk when you decide to reduce your CapEx? Second question, it seems that NERSA is going to do a competition assessment before it's going to make decisions on long-term gas prices. Can you actually go ahead and spend capital on this MRG bridging supply projects if you don't have good visibility on future prices?
How do you see this impact the long-term profitability, supplying more MRG at the expense of production of other products in Synfuels? Then lastly, maybe a little market insight, if you can. The nature of your competition in South African markets are changing significantly from oil companies in the past now to companies that have a more trading orientation. You also talk in some of your quarterly production numbers about seeing more imports into the country impacting your ability to supply product. How is this going to evolve, and how do you kind of strengthen your strategic position if the market's overrun by oil and product traders, the local market? Thank you.
Thank you, Gerhard. If I could ask Walt to please also just address the question from Adrian earlier on the credit ratings as part of your response on CapEx as well.
Okay. Thanks, Tiffany. First, thanks, Adrian, on the credit rating. At the moment, we are constrained still by the sovereign rating of South Africa. Moody's and S&P will complete their annual review after our results announcement. You can be sure that we'll remind them that our balance sheet is in its strongest position for more than 10 years. We will remind them that our net debt to EBITDA is, on their definition, is close to almost 1.1 x. So we're certainly in a much stronger position from a credit perspective. What do we continue to do is what we've said to you is keep deleveraging. We are looking to make sure that we build a more resilient business that can move through the commodities, both the good and the bad, and that we are resilient through the cycle.
They will apply their own assumptions, but needless to say, I think our results and the state of our balance sheet will be a positive signal to them, and we await their outcome of their upgrade there. I think on the capital side, I will start, and then maybe Victor, if you want to add, too, from the ops perspective. I think the capital, this is not just a once-off thing, Gerhard, where we look at it and we try to trim and look like a hero in one year and then pay the price two or three years later. It is part of a capital excellence program that Victor and the team have been running for a number of years now. We are systematically looking at our spend, the scope, who we contract to do the work, and then also the risk rating associated with it.
If we can find more efficient or effective ways to complete the capital expenditure, we do that. There is some of the reduction that I have mentioned. I mentioned the ZAR 12 billion- ZAR 14 billion. I mean, that is a massive reduction in the past three years with regards to the capital expenditure. About half of that is a phasing and timing. I think part of it is linked to Mining, where we are allocating a little bit more capital in FY 2027 for the reasons that Sandile has already highlighted. Then also on things like the ERR and compliance capital, where we can find non-capital solutions, we are pursuing that. So it is a trade-off that we make, but it is risk-based, and certainly it is not at the expense of the asset integrity or safety. But Victor, do you want to add anything else?
No, I thought it was well covered.
Thank you.
I'll cover, Gerhard, thank you for your question, the NERSA and the nature of competition. Firstly on NERSA, let me start by saying we had good engagement and good working relationship with them. From our side, of course, before we spent any significant capital.
To enable the supply of MRG, we will lack the competition assessment to be finished, and NERSA understands that. We're confident that will be done consistently and most adequately. As we look into this MRG opportunity, we need to make sure and confirm that the alternative in terms of the product that we could make, that is protected, and we've also been transparent and open with NERSA. Gas plays a significant role in the South African economy, supporting 700,000 jobs. From a Sasol point of view, we would like to continue supporting our customers and all the people that depends on the entire gas economy. We're confident that will be resolved appropriately. To answer your question, we will not be able to go ahead until the entire pricing on MRG is known to all parties. Secondly, on the nature of the competition, you're right.
This is a dynamic and changing landscape that we are alive to. Christian has already covered one of our key response areas to move our products into high margin channels and also to continue with our organic growth strategy. We'll continue with that. We also believe we've got a serious security of supply because our assets are here in the country, almost insulated from all the geopolitics. That makes us, for customers also, a preferred supplier. Those products we can make fuel from imported crude, we can make it from coal. We also have optionality and flexibility to make the products for our customers. We've also completed the clean fuels investment, which was a ZAR 7 billion investment. That investment also comes with significant tank storage as well, which also allows us to have flexibility. On the transformation agenda, we are busy.
What you've seen when we said that target for 2028 was to make sure that our business continues to be competitive. Like we've said, our focus is beyond 2028. This 2028 is just laying a very strong foundation. On that foundation, we'll continue to make sure that the South African businesses are profitable well into the future. That will give us the ability to be able to compete with the traders.
Thank you, Simon. I am going to move back to the online platform for questions. There are a few more follow-ups on the International Chemicals business. Going to address a couple of questions from Lebohang from Investec. If we could have some clarity around the rationale for the restart of the paraffin unit in Italy, it appears to contrast with the original reset strategy of exiting structurally underperforming assets. Could you help us understand what has changed and what is driving the restart? Also, on International Chemicals, reflecting on the 15%-20% reduction in cash fixed costs by 2028, which was communicated at CMD. If the paraffin unit is restarted, can we expect a reversal of some of those cost savings? Or have you structurally removed enough costs from the business to still achieve this target?
Last question on the reset is, can you help us identify the remaining once-off costs associated with the International Chemicals reset?
Antje, you can take the questions.
Thank you, Simon, and thank you for the question. The paraffin unit restart is a great example of our change trajectory in International Chemicals. It demonstrated agility and also the ability to take quickly decisions if we see that markets are changing, which is extremely important right now given the dynamic nature of the chemical global markets. So I am very proud of the team to move quickly ahead and capture that and also demonstrating through that customer intimacy, because basically we are helping our customers very much in a shortage situation of paraffin and also LAB, which are key components for many other products. So we saw that opportunity and therefore restarted our ISOSIV plant in August and securing with that business continuity and also the potential obviously for us of additional business. Nevertheless, we stick to our fixed cost reduction target of 15%-20% by fiscal year 2028.
We are well underway. As I've said, since fiscal year 2024, we have reduced by 10%. Only last year it was 7%. Therefore, we think that we have enough measures still open to deliver on that target going forward. There is one big one-off cost which will go off in fiscal year 2028, which is related to our ERP S/4HANA implementation. So that's one example of a one-off cost.
Thank you, Antje, for providing a bit of color. If I can move back to the balance sheet theme, there's a couple from a number of people regarding the net debt projections. I'll start with Nick van Rensburg from All Weather. Based on the high crack spreads and Brent price, debt will likely be below $3 billion by December. What is the reason for keeping the net debt target at $3.3 billion for the year, and what CapEx is associated perhaps to support that? Also a question from Themba at Excelsia Capital. Where does the majority of the CapEx go, and what level of CapEx is required across the mining operations to increase coal production? Another question from Stella Cridge from Barclays. Thank you for the updates. How do you plan to address the upcoming 2026 bonds and for the bond balances in the coming years?
Do you plan to return to the market in the near term? Just want to link to us another question from Themba, also at Excelsia, regarding the coal capital. What timeline should we expect for bringing sufficient coal production capacity online? I'm going to ask Walt if you could address the balance sheet questions, please.
Yeah. Thanks, Tiffany, and thanks, Nick and Themba and Stella. Nice to hear from you. I think we haven't kept the net debt target at $3.3 billion for the year. We're just guiding that it will be below that. At this stage, Nick, you'll appreciate, obviously, the macroeconomic environment is very volatile. So it's difficult to predict exactly. Our goal is obviously to get that net debt below $3 billion sustainably as soon as possible. We're guiding it'll be between FY 2027 and FY 2028, as we did at Capital Markets Day. That hasn't changed. And we'll continue to push that deleveraging to get to that target as soon as possible. On the capital portion, so we have first order capital, and then we have a small portion of selective grow and transform at this stage.
Our first-order capital, around 60% of that is spent on sustenance of the assets. Then about 30% is on feedstock replacement. Up until these last few years, we have been spending the money in Mozambique, on the PSA project. As Victor already mentioned, that spend is nearing completion, with the beneficial operation that we achieved during this year. Some of the CapEx will shift towards our mining business, and supporting coal as a feedstock. Sandile, you can unpack a little bit on the mining operations. The guidance that we have given of ZAR 23 billion- ZAR 26 billion includes a higher allocation to mining in FY 2027. Then in terms of the upcoming maturities, we certainly are in a much better position, Stella, from a balance sheet perspective than we have been for a number of years.
We have almost $5 billion in liquidity, so we can manage it with our current liquidities, particularly the 2026s. We will continue to look for opportunities for some of the other nearer term. We have got the convert in 2027, and then we have already refinanced part of the 2028s and 2029s. I think for me, our goal with regards to overall on the debt side is, one, is to reduce the absolute quantum of debt, which I think we have shown, again, down 11% this year. Two, reduce the cost of debt, and I think Adrian alluded to it, but getting our investment grade rating up will certainly help with that. Then three, the regional mix of our debt, and that was part of the transaction that we did in July, where we repaid some $300 million of U.S. debt and listed a ZAR 5.3 billion debt.
Sandile, if we can address the coal capacity.
If I can maybe address the question from Themba. Thanks, Themba, and the question was, what timeline should be expected to bring sufficient coal production capacity online? As indicated earlier, the coal supply to our operations require a fine balance between coal qualities, volumes, and competitiveness. Having said that optimal supply requires about 34 million tons coming through from our internal collieries. What we have seen coming through from Sasol Mining is a year-on-year improvement in terms of the volume supply and volume production. We are planning to continue with that trend, to FY 2027, and we have given guidance of between 30 million and 32 million tons. We also are committed during CMD, that we will reach that optimal point, by FY 2028 of supplying 34 million tons from our internal collieries.
Thank you, Sandile. I am going to take the next call from Chorus Call. Operator, if you could direct that, please.
Thank you. Next question comes from Alex Comer of JPMorgan. Please go ahead.
Hi, guys. Thanks for taking the question. Look, obviously, nobody really knows what is going to happen with regard to the Straits of Hormuz and the situation in Ukraine. Maybe you could just give me a little bit of guidance what your run rate profitability is. It looks to me like EBITDA in the final quarter was around about ZAR 25 billion. So, if you ignore the working capital or assume the working capital will balance itself out this year, you could be close to ZAR 50 billion free cash flow next year if that continues. Just maybe you could just give an indication of what current run rate EBITDA is, maybe in the quarter, if you could do that. If you can, maybe on a monthly basis as well.
Thank you, Alex. Any further questions from your side?
No, that's it.
Great. Walt, if I could ask you to address that one, please.
Yeah. I think I'm not going to give specifics, Alex, with regards to the EBITDA run rate in the last quarter. Needless to say, we did almost ZAR 40 billion. If you think back to H1, we were talking about a ZAR 21 billion EBITDA. We ended up at closer to ZAR 61 billion for the year, so that's ZAR 40 billion in the second half of the year. We look back, we hadn't done that since H2 of FY 2022 when the Russian invasion of Ukraine took place. So we obviously saw a big benefit on earnings and we built up some nice momentum with regards to that. I think what we worried about on our side is more on the demand side, and particularly, I would say in the chemical space where prolonged higher oil prices, energy costs might erode on the customer buying behavior.
Certainly, we did see that also in our SA business in May and June, where you can imagine oil prices moving every day by huge amounts impacted on purchases, and it's part of the reason why we ended up with slightly higher inventory. But certainly, if the macros continue for longer and we run a number of different scenarios, I think I drive the team crazy trying to figure out what's going to happen in the Strait of Hormuz. But I think, we certainly, if it continues, we're setting ourselves up for a good year, both from an earnings perspective, but I think importantly from a free cash flow point of view. But we just need to stay focused on what we can control.
I think the volumes that Simon's spoken to, the cost, the capital, bringing working capital down a few basis points will certainly help to improve free cash flow conversion and obviously accelerate that deleveraging pathway that we've been talking about.
Thank you, Walt. I am going to move to our sustainability section and address some questions from Luís Ribeiro from novobanco and then Larry Claasen from Cape Business News. Maybe the first set of questions relates to the recent CREA findings about the emissions from Secunda and which assumptions does it specifically dispute. Also, given the growing scrutiny around Secunda's emissions, do you see any increased risk of tighter SO2 and NOx regulations or litigation coming in the future? And how much capital would be associated with those incremental projects that would be required? Secondly, I think from Larry at Cape Business News, you have opted to be a catalyst and integrator and bring in partners for your Boegoebaai Green Hydrogen project. Does this mean you will be looking for IPPs to generate electricity? If so, has there been any interest in partnering with Sasol on this initiative?
I will pause there. Simon?
Yeah. Thanks, Tiffany. I will start and Sarushen can then take the rest of the questions. On the CREA report, we have not yet seen the report. It will be released sometimes during the week. We will interrogate it to look at those assumptions. But I want to confirm that we have quality monitoring stations around Secunda and all our operations are within all the licenses that we have to operate that facility. Sarushen, you can answer the rest of the questions.
Thanks, Simon, and thanks, Luís and Larry for those questions. On air quality, we are not standing still. Since 2018, we have spent almost ZAR 11 billion on air quality improvements at our Secunda Operations. Some of the notable achievements in the past year, we have abated 27 of our boilers with the low NOx burners, improved the particulate emission performance of those boilers. In this year, we have shut down all the incinerators at our Secunda Operations and diverted our biosludge to our gasifiers, which then becomes recycled into fuels and other products. We are certainly not standing still on air quality improvements. But air quality is a complex matter. It is not just the industrial emissions. In an airshed, emissions from other sources, such as domestic fuel burning, waste burning, and then obviously vehicle emissions also play a role.
We are working quite closely with the department and with our communities on how we can improve the quality of the airshed. A significant example of that was the solution we proposed on sulfur dioxide, where the solution we proposed gave a better health and air quality outcome than just simply meeting emission standards. It is something that we are working very closely and we are committed to working with the department on how we can improve that. On Boegoebaai and green hydrogen, firstly, let me say, we certainly see the potential of the Northern Cape. The Northern Cape is one of the best areas in the world, blessed with both wind and solar and an immense amount of land. If a green hydrogen project is going to be successful anywhere in the world, the Northern Cape is certainly one of the prime destinations.
We are working quite closely with the Northern Cape government and with other industrial partners, BUSA, and the national government on how do we then unlock that region. Two things are going to be critical to unlock the Boegoebaai development. Firstly is grid access for that region, because the region does not have a strong connection to the South African grid. We are working with the department on how do we now improve and strengthen that grid, and I think you will see the department is moving in terms of bringing IPPs on board to participate in grid development. That will help unlock it. The second one is the port development for the Boegoebaai region. That port will then allow international access for the products. It is something that we are working to unlock, and we certainly see the potential of that opportunity.
Thank you, Sarushen and Simon. I am going to remind everyone, if you have any further questions to please submit online. We are seeing not many coming through. There is one last one from Lisa at News24. The production from Natref seems a major boost. What is the plan going forward? Do you want or need a partner? Is there a scenario where Sasol would continue to operate it alone?
Sasol owns 64% of Natref already. 36% was owned by Prax, and as you all know, Prax then went into business rescue, so the BRP is busy trying to sell Prax's stake. I think for Sasol, we've got a roof on that, and I think we'll analyze it and evaluate it when we see everything. I think all the decisions that we're going to take will be very accretive for the business. That will be the basis of how we're going to make that decision.
Great. Thank you, Simon. I'm going to just check with Chorus Call if there are any further queued people online.
Thank you. At this point, we have no further questions on the telephone lines. Thank you.
Thank you very much. Okay, so that concludes our market call and Q&A session today. On behalf of the executive management team, I'd like to thank you for your participation in the call and for your attention on the presentation. We'd like to conclude the session today. We wish you a safe and pleasant day further. Thank you.