Sasol Limited (SOL) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. This is Fleetwood Grobler. Thank you for taking time to join us today. I would be taking you through a business update in response to the COVID-19 pandemic, after which we will open up for Q&A. In the room with me today is our CFO, Paul Victor; who will participate in the Q&A session at the end of the call. Unfortunately, I have to start with somewhat very sad news. On the 7th of April, one of our service providers was fatally injured while performing work at our Synfuels operations in Secunda. An investigation is underway to determine the root cause of this incident. On behalf of Sasol, I convey our sincere condolences to Mr. [ Dr. Guenas' ] family, friends and colleagues during this difficult time. Now moving on to other key matters I would like to discuss today. Firstly, I will share a brief update on the impact of the COVID-19 pandemic on our operations in South Africa and in other regions. Two weeks ago, we announced that we had to make a few tough decisions to scale back on some of our operations in South Africa as a result of the unprecedented decline in fuel demand since the national lockdown came into effect at the end of March 2020. Second, I will share how we are performing against our response strategy with particular focus on our self-help measures. This is, of course, one of the critical pillars to help us conserve cash against a backdrop of low oil prices and the COVID-19 pandemic. Lastly, I will talk through the financial impact of the COVID-19 pandemic and provide a brief summary of our outlook for financial year 2020 and business performance metrics for the 9 months ended on March 31, 2020. The COVID pandemic is providing enormously -- is proving enormously disruptive, adversely impacting lives, workplaces and economies across the globe, including in South Africa. With infection rates continuing to rise across the globe, we continue to act swiftly to ensure that employees stay healthy and can continue to work safely. We currently have 14 confirmed employees across the globe who tested positive with the COVID-19 virus. Nine of the employees recovered fully, while the remaining 5 are in self isolation. Our South African operations have had no recorded COVID-19 cases at this stage. We have implemented several measures and protocols across all of our global operations, which is strictly enforced to ensure the safety of our employees. We also have dedicated COVID-19 task forces at each site, who are mandated to take decisive action in response to any changes, if necessary. In South Africa, the steep drop-off in liquid fuel demand has resulted in the phased suspension of production at Natref from April 9, and reduction to the daily production rates at our Secunda infills operations by approximately 25%, while managing inventory levels. We have maximized the production of chemicals at these reduced rates to ensure that we prioritize supply of chemicals required for the production of hand sanitizers and other essential products to the local market. Export demand still appears to be maintained at this time. We will maintain these production rates until further notice, while carefully monitoring the supply and demand balance. Furthermore, demand for some chemicals used in the mining and construction sectors have reduced as a result of the lockdowns. And therefore, we have had to suspend production at our ammonia, nitric acid and Chlor Vinyl plants in Sasolburg. Sasol's process allows for some flexibility to shift the fuels and chemicals balance in our Secunda operations, enabling Sasol to respond to higher demand for certain chemical products and the lower demand for our liquid fuels. I must also caution that a further reduction in production rates may be required depending on developments in the fuels market over the next few weeks. Our operations in other parts of the world are relatively stable, with some units operating at reduced rates due to the limited feedstock supply. Some of the chemicals produced globally serve markets associated with human hygiene and disinfection, and therefore, will continue to operate according to plan. Furthermore, Sasol is continuing its efforts to help South African government and the citizens of the country to respond to the COVID-19 pandemic. We have prioritized production of a new alcohol blend suitable for the manufacture of disinfectants and hand sanitizers and are working with local partners in manufacturing of our own hand sanitizer products. This is primarily to supply our fence line communities in Secunda, Sasolburg as well as our employees in Mozambique, with up to 55,000 liters per week and a plan to scale this up in the coming weeks. Sasol has also made available over 1 million liters of jet fuels, which can power up 5 A340-600 aircrafts for at least 5 long-haul flights for government to use in the repatriation of citizens and the transportation of urgent medical supplies. I'm proud that Sasol has heeded the call in helping to combat the spread of the virus. The need for Sasol to drive our response strategy with absolute focus and urgency is critical for our organization in these uncertain times. We find ourselves in uncharted territory as a result of the challenges brought about by the global COVID-19 pandemic and lower oil prices. As previously announced, our response plan is designed to generate at least USD 6 billion by the end of financial year '21. We have made good progress on our USD 1 billion self-help measures for the financial year 2020, particularly regarding our cost containment and capital savings measures, with most of the initiatives agreed and being implemented. Capital deferment will be done on a risk-based approach, where safe and reliable operations units remaining a top priority for Sasol. Cost containment measures include foregoing the financial year 2020 short-term incentive bonuses for all employees, freezing our vacancies across the organization, minimizing all external spend and general cash cost optimization, which will be ramped up over time. The biggest risk for financial year 2020 is the working capital savings target due to the higher inventory levels as a result of reduced demand and the weaker exchange rate impact on the translation of foreign debtors as well as lower payments from debtors. Initiatives are in place in all our regions to manage inventory levels optimally in the current environment. For financial year '21, we have already identified savings opportunities and have commitments for approximately 80% of the USD 1 billion target. In addition, we are currently exploring the opportunity to bring forward some of our critical and statutory maintenance work at Secunda Synfuels operations in May, while we are running at lower production rates. In doing this, the maintenance intervention planned for September 2020 could be optimized significantly or even postponed. Unfortunately, the markets have been unrelenting and we needed to identify additional self-help measures to manage the short-term volatility. We needed to be agile and act decisively. Together with my leadership team, we have had to make more tough decisions and will be implementing the following key human capital measures for balance sheet protection and to improve liquidity. A reduction in directors' fees ranging from 20% to 40%. I will take a 2-part salary sacrifice, which comprises a 33% donation of my salary for the next 3 months to the South African Solidarity Fund and a 20% sacrifice for the remaining months of 2020. Salary sacrifices of 20% from our executive team for the next 8 months as well as a 10% to 20% salary reductions for junior and senior management levels within the organization. The duration of the salary sacrifices will be subject to progress made on the savings targets and could be relaxed if there is sufficient progress. Lastly, no salary increases will be affected in 2020. In addition to the measures I've mentioned, we are also making steady progress on our review of the business in line with our objective of repositioning Sasol to remain sustainable in a low oil price environment. In doing so, we are conducting a systematic and purposeful review of our cost competitiveness and business structures, and we'll share more details on the preliminary findings at year-end. The successful delivery of the self-help measures is aimed at reducing the impact of lower demand on our profitability and will assist us in proactively managing our liquidity position over the coming months. Any potential asset disposals will be key in reducing our debt levels. We are still in active discussions with our lenders and appreciate their support in the consideration of an uplift to our bank covenants and expect to provide feedback towards the latter end of May or early June. Given all the developments I've talked through now today, we expect a significant impact on our results for the financial year 2020. For our Mining business, we expect our productivity, which is now improving, to be between 1,130 to 1,180 tons per continuous miner per shift. However, this does not take into account any potential impacts of COVID-19 spread amongst our mining workforce. External coal purchases will drop by 400 to 600 kilotons to meet the lower demand from Secunda Synfuels, and we will continue to mine coal to build our stockpile levels as a mitigation strategy. Synfuels production volumes will be approximately 7.3 million to 7.4 million tons against the previously guided range of 7.7 million to 7.8 million tons, mainly due to the decline in liquid fuels demand. Consequently, fuel sales volumes are expected to be approximately 50 million to 51 million barrels. For the LCCP, we expect an EBITDA loss for the financial year 2020 of USD 50 million to USD 100 million against the previous EBITDA range of a positive USD 50 million to USD 100 million. This is largely due to the significant weakness of chemical prices in the current market despite the good ramp-up of the operating units. Units under construction, namely Ziegler and Guerbet, remain within the previous guidance for scheduled beneficial operations to be achieved before the end of June 2020. While LDPE is expected to start-up in the first quarter of financial year '21, which is earlier than previously guided. This will allow us to capture the additional contribution margin of polyethylene above ethylene sooner rather than later. Our business performance for the 9 months ended on March 31, 2020, was satisfactory and largely consistent with our expectations for the quarter. By and large, quarter 3 performance was not negatively impacted by the COVID-19 pandemic, with the exceptions of our operations in China and Italy. However, this has not been material. Given the current volatility in oil markets, we have also included an update of our current oil hedging position. For financial year '21, we continue to target an 80% hedge cover ratio for Synfuels' production using a blend of instruments. More detail is contained towards the end of the BPM report. For quarter 4, we expect a material impact on our volumes performance-based on the reduced demand across all sectors and markets. I refer you to the published report on our website for more detail of our production rates, sales metrics for the 9 months ended March 31, 2020. It is clear that each passing week brings more risk and uncertainty relating to our operations, supply chains, demand and product pricing. The COVID-19 pandemic is highly dynamic. However, Sasol is committed to being responsive and adaptable to ensure that we are able to weather this storm. We can only focus on our controllables at this stage and will act decisively to ensure that our business remains viable. Before I close, I would like to thank all our stakeholders for their support and particularly our employees, who have demonstrated their commitment to ensure that Sasol can weather this storm. I will now take a few questions via the webcast.

Thank you. Fleetwood, there have been questions on the COVID-19 impact. The first one is from Herby. It's, what is the expected volume decline in the Base Chemicals business as a result of COVID-19?

Okay. Thank you, Feroza. Herby, so in terms of our Base Chemicals sales volumes, and this quote, I exclude the U.S. polymer products, we expect that to be 4% to 6% lower than the prior year.

Okay. The next question on COVID-19, relates to outside of South Africa from Sashank. Have any of our operations been impacted due to COVID-19?

So with respect to any operations outside Africa, we have seen no significant impacts. For example, our North American operations or its supply chain, although Lake Charles Chemicals Project at -- from a construction point of view, clinical manufacturing is defined as a critical infrastructure sector. And therefore, North American operations and the LCCP is exempt from the stay-at-home order issued by the Louisiana government. If I look at our European and Asian assets, they're all currently in operations. The COVID-19 pandemic directly impacted our production at our Terranova and Nanjing facilities, with both units having been temporarily shut down during Q3 -- in FY '20. Production, however, has been restarted on both units. When I take a view on Mozambique, the central processing facility in Temane, which supplies natural gas from Mozambique to South Africa and to Mozambique itself was not affected. Sasol continues to work closely with suppliers and customers to ensure uninterrupted supply where possible.

Thank you. A question on response strategy from Herby. What are the updated targets for the 3 initiatives, business optimization, asset disposal and rights issue?

Thank you, Herby. I think we need to see this as a bit of a blend. There's a level of interdependency between these targets. From the outset, we mentioned that the target will be considered at least as a last me -- well, let me rephrase. So let me reemphasize the rights issue will be considered as a last measure. And for example, if you progress with asset disposals or partnering, then the rights issue considerations could change. In other words, the targets are referred to is really dynamic at this stage. We also need to consider the dynamic environment and have therefore, expanded measures to include supply chain and human capital measures. So a lot of moving parts. But we're addressing most of them in terms of the levers we can control.

Thank you. There's a question from Adrian Paul. Does the $6 billion target funding requirements still hold? Or do you need more? And at what oil price assumption was this based on?

So previously, we said that the $6 billion target funding in effect that we want to pay down our debt on was based off a $35 oil price scenario for financial year '21, but also taking into account we've worked off a ZAR 14.60 to the dollar. So if you translate it, we worked off a ZAR 511 a barrel base case scenario for financial year '21. I think safe to say that the markets have changed quite dramatically. And in terms of our scenario planning, we have been ultimately also stretched our scenarios to as low as ZAR 400 a barrel, and in even some scenarios lower. And you can then consider $18 oil price at a ZAR 17.50 also as a plausible scenario. So we are actually looking at from many lenses to say if these things play out in many shapes or form, can our balance sheet sustain it? But at the core of it, are still to find ways of paying down the debt because that's what we are still focusing on and getting our debt to $5 billion or $6 billion of remaining debt and even lower, is still the key focus for us. The market remains quite volatile. We'll keep on looking at our scenarios and see whether they still hold. And then also coming back to Fleetwood's point on those specific targets that we've previously communicated in terms of self-help. It's quite important that those targets are also kind of meaningfully supporting our debt payments and also making sure that we save free cash flow positive. We'll talk about cash flow a little bit later and some of the other questions, but I think quite important that we have flexibility on our scenarios. We'll look at it much broader, and we do adjust our targets to make sure that they do take into account the more deteriorating macroeconomic scenario.

Thank you. We have a question from Henri Patricot at UBS. Please reconcile 2 comments you make around cash savings planned in place for 80% of these, but at the same time, more difficult because of lower sales.

Yes, Henri, I mean, to be quite clear, as to say, in terms of the previous self-help measures that we've announced in terms of the $2 billion, meaning $1 billion for financial year '20 and $1 billion for financial year '21. Our comment on the 80% for financial year '21 is exactly what we're stating as we have reprioritized our capital portfolio. We've introduced a lot of cost savings and cash deferral options that gives us reason to believe that we've identified and is in the process of implementing those measures that will give us today certainty that 80% of the $1 billion for financial year '21 has been achieved. And similarly, we've also made a significant progress for financial year '20 in terms of that. And that we did say that it will come via reduced operating costs, reprioritization of capital. But having said that, the scenario is also indicating where we are confronted with more lower sales and more adverse macro environment. And hence, coming back to my earlier point, we have to find more savings just to ensure that we kind of see safe free cash flow positive or getting it as close as 0 as possible and also making sure that we manage the dynamics of the current situation over the next couple of months.

Fleetwood, there have been a few questions with regard to the quantification of the financial benefits of the human capital levers, salary cuts, STI, et cetera. Can you elaborate on that?

Yes. Thank you, Henri, Feroza. I think in terms of those measures, I mean, the STI is what it is. You can see it historically. It's typically the range that we've paid before. In terms of the salary cuts per se, I can't give you an exact figure. There are nuances in certain regions and jurisdictions. We're still finalizing. But that is an amount of more than ZAR 1.5 billion.

Okay. Can we move to asset disposals? There have been a few questions around the asset disposals. What is the progress on the asset disposals and a expected time line? That has featured from quite a few of the questions on the system as well as questions received earlier.

Yes. I think suffice to say, we have made quite substantial progress in terms of the asset disposal process. Our announcement with respect to the partnering of our Base Chemical assets in the U.S. There's strong interest from the market. We are currently progressing all of those interests and we believe that there's -- again, I must emphasize there's strong interest. We will communicate more detail to the market once we make more progress on definitive terms on any of the individual transactions. I cannot say more at this stage, and I cannot further comment on detail commercially sensitive matters. But suffice to say is, they are good progress from a management point of view, and they are strong interest in many of the assets.

Is the 25% realization of the $2 billion target still on track for June 2020?

We've got a dedicated team focusing on this important lever for the company. And we can say that we're fairly confident that we will reach this target. We cannot say more at this stage. And as I say, these matters are currently quite commercially sensitive. Suffice to say, good progress is being made.

On asset disposals, Paul, with the macroeconomic developments over the last 2 months, what's your expectation in terms of realizing fair value through asset sales? And is Sasol a forced seller?

Well, when I look at the industry, many industries are going through various cycles. And most certainly, part of the negotiation would be to assess the long-term nature of the business to realize value. And depending on the structure of the deal, if it's a partnering, is it a sale, one needs to consider the potential synergies or savings that could be realized. So I think there's not a -- there's not a one cut approach. And definitely, we do not see ourselves as only a forced seller here, we see that there is reason and the interest do reflect that.

Okay. We'll move on to the topic of a rights issue. With RSC likely to be downgraded again by May by S&P, what will happen to the right issue underwriting agreement?

I will deal with that part. On the rights issue, we cannot comment in terms of what rating agencies may or may not do. I think what's quite important is that we've -- I've previously stated to you that the investment grade and being at a certain level in terms of your rating is a condition precedent for us in terms of the underwriting. So in terms of Moody's and S&P, both have given us a kind of a leeway to go 2 levels below investment grade, meaning from a sub investment grade perspective before the condition precedent thing kicks in, and ultimately, the banks then can walk away in terms of underwriting the rights issue. On a Moody's level, currently, we are at that level, meaning 2 levels below IC. And then with S&P, we can actually go still one more level. So in the likelihood of S&P taking South Africa down by one level, one notch and we're automatically following in that scenario, it will still be okay. It's only when they kind of go more than one level and Moody's also go another level, that condition precedent will kick in for us. So at this point in time, we're still very much within that band of not triggering the conditions precedent. Then there have been also other conditions precedent being identified, which I have spoken to you about in terms of whether there's any defaults on other debt facilities and bonds, the SP&A is being signed up to a certain level in terms of asset disposals or any force majeure. And I can say, at this point in time, none of those have been triggered. I think all in all, this -- if I look at the condition precedent, I think there's 2 important ones: the first one is, as I've explained kind of the investment-grade ratings by the rating agencies; and then, secondly, is the progress on asset disposals. Asset disposals and SP&A agreements and sign up and progress in terms of that, will only be more known as we move closer to June, and we need to report back to the banks in terms of that. And obviously, we'll monitor it. Once we see that we cannot meet these CPs, then ultimately, we need to update the market on that. And hopefully, with future communication to the market in the next couple of weeks, months, we will be able in a better position to talk about the progress and give you a sense of where we are. I, again, just want to reemphasize, as Fleetwood says that our focus at this point in time is making sure that the self-help measures and the asset disposals are driven from a first priority perspective. We want to keep the right issue as really the last result. So I just want to restate that.

With regard to asset disposal, some of the other questions that have come through. Could you please comment on the most recently reported sale of the stake in LCCP, if possible? And what stake would you consider selling? And what is the expected time frame? And what is the progress in terms of engagements? Are they encouraging at this point in time?

Yes. I think we've indicated that the stake in our Base Chemicals business, which is the polyolefins, is the main focus. As I've indicated before, when I addressed a similar question. That there are really strong interest expressed from the market. We are engaging those exploratory discussions, and we're confident that, that would be seeing further keen interest in the process. I think I must just emphasize that the asset, in terms of our LCCP Base Chemicals is really a world-class facility. It is state-of-the-art technology. It is the most energy-efficient and greenhouse gas efficient kit that you can buy. So I think everyone that is looking at this asset to potentially partnering with us is clearly aware of these attributes. And therefore, I believe that the process will unfold. But again, I emphasize, I see strong interest.

Okay. We have some questions regarding covenants. Have you been able to secure continued support from local lenders? And what is the status of your covenant headroom negotiations?

Yes. So again, as what we stated in the past and also with banks, we have -- we actually have a very robust and continuous process with our group of banks where we update them on a monthly basis in terms of our forecast, the progress that we make with regards to that. And that also gives banks a kind of the comfort that what other targeted levels in terms of proposed covenant levels, which we -- one thing to consider and also what's our progress in terms of self-help measures and so on and so forth. So the discussion with the banks are really kind of progressing well. They have to consider kind of the latest forecasted updates, which we've just completed in the context of going through their credit committees. That's what they're busy doing with kind of in this process now. So also, hopefully, in the next couple of weeks, we will be able to update you in terms of kind of the success of that process. And we feel very positive about it. The conversations are really kind of progressing and going into the direction. But as you can also imagine, banks globally are challenged by liquidity issues of companies. So they will take their time to kind of give us the right decisions. Maybe they will ask us on certain covenant uplifts, some leeway to come back later. But we are, first and foremost, targeting the covenant uplift for doing that, that's the first priority, and then that of December following that. And we are making good progress. But as I've said, we will definitely come back to you once we have concluded and complete that process. But expect May, June -- early June at the latest as we plan to come back to you.

Just in terms of covenants, is there a target that Sasol is hoping to achieve? Is it a 4x net debt-to-EBITDA? Or are we asking for a complete waiver? And what are the implications and recourses of lenders should they choose not to offer additional headroom and the covenant is breached?

Well, we're currently in the process of negotiating that. And ultimately, I think it will be foolish for me to put out numbers that we currently, in a very dynamic process, obviously, negotiating with banks. So once we've concluded those, we will update you on the exact specifics in terms of that. I think safe to say, not to hold the banks at ransom, but not giving us the covenant uplift, the banks then also need to tell us how we can actually remedy the situation. I think it's in both parties' interest. If we've got plausible plans to manage the balance sheet back to a kind of acceptable risk level that you kind of reengage with the banks on that premise. Obviously, all our plans are kind of quite in detail to them and the progress that we've made on those plans. So yes, ultimately, I think the banks always have their choice in terms of this. They have been here before with many other companies. And our feeling is still in our discussions with them. It's best to do the covenant uplift or if they don't want to provide that, to give us a time to remedy the situation. It's going to be one of the 2.

So we can move on to questions at our liquidity. There's a good few questions around that, but we can probably consolidate it into a couple of themes. Given weak oil and chemical prices and the lower-than-expected earnings from LCCP, how many months of liquidity do you have at $25 per barrel oil?

So again, when I talk about liquidity, we have given you the ranges of liquidity. And in today's sense, we did make the point to say that in all times, excluding, let's say, the working capital cash that we have in running the business on a day-to-day basis. And we want $1 billion of cash and liquidity committed facility headroom in our business. All of our efforts are focused on that to ensure that we protect that. It's quite important. In the interim I spoke about the previous scenarios in terms of going much lower than our $35 scenario as well as taking many rands and dollars into account, it was also to address that point is to say, it can be protect the $1 billion, what will be required to protect the $1 billion. And again, kind of be quite clear, the $1 billion is through self-help measures, asset disposals needs to go down in terms of paying off the debt of the company and not just kind of merely helping us on liquidity. Going a little bit further. So what we've done, in terms of our dollar pool, we have drawn on all of our facilities. So the RCF is fully drawn, but we are effectively having the cash in our cash -- bank account effectively. On the RSA side, it's a mixture, between having access to the committed facilities as well as having the cash available. And so that's very much still kind of quite robust. A question that [ Jarrett ] asked, I think, in front of me, Feroza, if I can highlight it, do we still have the $12.3 billion facilities available? Yes, we do. And again, the engagement with the banks are quite delicate and quite interactive in terms of us drawing on those facilities and having access to those. But today, as we know, nothing gives us reason to believe that we don't have access to it. Obviously, I think the last thing on liquidity, I want to mention is where we find ourselves with the macros being significantly kind of against us even on a rand per barrel basis, it is quite important that our month-to-month liquidity is very carefully managed. We want to kind of get it as close to breakeven as possible. But we do acknowledge there may be some months, where -- specifically, where oil sits now or where chemical prices take a dip that we may dip into being cash flow negative for some months. Ultimately, we try to limit it as much as possible. And yes, based on that, we have to manage it. I will say that the next 6 months will be very -- will take a lot of careful management for us on liquidity. But we will still target maintaining our $1 billion-plus the cash in the business to run it on a day-by-day basis.

Okay. If we can move on to questions around hedging, from [ Cornelius Ziman ]. There's a question around you have hedged 4.5 million barrels of crude oil for 2021. Can you please elaborate on the considerations for the target cover ratio of 50% to 80%, which is quite wide? And what is your order of preference and considerations between the 3 instruments?

Yes. So thanks, [ Cornelius ], for the question. So ultimately, we're very grateful of having the edge in place for this forthcoming quarter because we anticipated that the volatility may continue. And having $52 hedge in place really takes off that immediate pressure and leakage that one would have experienced if you didn't have the hedge in place. Talking to quarter one, hopefully, in the next couple of months, they can get some form of normalization happening, meaning normalization in more -- in terms of the mid-20s to the lower 30s, in terms of oil price. But the fact that we've got the 0 cost collar in place for financial '21, it's not a lot of barrels. But we will still, ultimately, looking at any instrument of securing that $30-plus per barrel floor level. Obviously, from order of -- as we always prefer put options first, even if it comes at a cost, but we have limited ourselves to a $3 premium, net premiums. So for a put option structure to be effective on oil, we need the net price to be $30, meaning the gross 33%. And secondly, we'll go for 0 cost collars, with a spread in terms of what you've seen we achieved on the current ones because you will give upside away if all prices start to rally quite quickly on you, but you want to get that floor in place. And lastly, we'll look at swaps, but we have had no other option for the next quarter to take out swaps because they did present that opportunity. And most of the quarter's exposure or kind of hedging from the next quarter was actually using a swap level. We will be quite cautious with that just because you're either in or out of the money. But I think risk management probably take precedence. So the team are continuously monitoring those. And again, as we update our hedges on a quarterly basis, we'll also update you in terms of how successful we are. But that's typically how we look at it. On the rand, we're fully hedged, mostly, and then on the ethane as well. We are currently not hedging ethane anymore because we have full dose hedges. We'd rather go and see kind of where the market kind of goes. We think we're properly covered as well as for the rand-dollar exchange rate.

Okay. I think we've covered all the questions around hedging, which have been quite repeated quite a few times amongst the different participants. In terms of LCCP, can we move on to that? What is LCCP outlook in a prolonged global shutdown scenario? 12 months as an example.

Yes. Thanks, Herby. I think when we -- I've already covered that our operations in Louisiana has been continuing. There's been no significant impact due to COVID-19. The government or the state of Louisiana and Texas, they remain in terms of the regulation. We've got our personnel classified as essential and we continue to report to work, and there's no disruption in any operations because of that. So that's very positive. But for now, I don't see any reason that we have to plan for a 12-month shutdown scenario, with most countries slowing down out of the lock down. Slowly -- they're actually slowly coming now out of the lockdown and you see green shoots coming through in Germany and the U.S. is reconsidering how to slowly opening up. So we do not believe it's to be a realistic scenario that there's a global continuous slowdown of 12 months. However, we'll stay on top of how this thing develops.

Okay. In terms of the profit downgrade PET chem operational issues, pricing or volume?

So let me just unpack that for a moment. And I think Alex asked the question. So with respect to the operational matters, I think if I look at where we are now on our LL unit, we're now in the second year of ramp up. In terms of our ramp up, we are approaching. We set the target at the time. So the second year, we should ramp up to 90%. We are actually running above those levels. So I think that is really positive. So from an operational point of view, LL is doing as we planned. With respect to the cracker, we're now still in the first year of ramp up since the start-up in August. So we're approaching the 90% in our plan, but actual ramp-up is better than that. So operationally, our ramp-up is tracking. The past quarter, it is per our plans. And the other units, likewise, I think what we do see is that the EBITDA downward revision is mainly as a result of continuing weakening of chemical prices. So when you look at the IHS published prices, that's also not tracking actual prices as it's now going into a downturn. So when I look at the PE pricing for quarter 3, we did see quite a decrease in netback prices due to COVID-19 and NAFTA falling with or even more than plane crude, which is allowing NAFTA-based production to be more competitive. I think that LDE is slightly more resilient than LL and HD, and U.S. producers are still seeing that gap between LL and the rest of it by around $0.02 per pound or $50. And we're really looking forward to get our LD plant back online as that will even add further margin as we know the gap between LD and the others are even bigger in terms of that pricing. So we're looking forward to bring our operations of the LD unit back as soon as we can.

In terms of FY '21, EBITDA from LCCP, what's your latest view?

I think this is a very -- it's a very difficult question to give you any outlook at this point in time. What we are clear on is that we, from an operational point of view, will be able to run per our volume guidance where we can, if the market demand is there, they will run there because we've proven ourselves now in the last months. We could see that the ramp-up is tracking to our plan. So from an outlook, in terms of a volume point of view, I think we're good. The question is what will happen to margins? And how does NAFTA and that plays out and how does demand play out. So very difficult to predict. So I would rather not give any update on guidance for FY '21 at this stage.

Fleetwood, the last question, with regard to demand, is with the overall, not just LCCP related, but for the business, with the quarter ending -- this is from [ Dez ], with the quarter ending March 31, demand wasn't affected like it would be now. Going forward, with demand collapsing massively and no increase in demand in sight, how will your business handle that?

Well, I think we need to also see the balance in that. We've seen pockets in our chemicals business that is really very much impacted. I mentioned earlier that in Sasolburg, we had to shut down our ammonia plant, we had to shut down also our Chlor Vinyl value chain in Sasolburg. And that is directly as the demand in South Africa has been severely impacted. If I look at our Performance Chemicals and I look at the surfactants and applications, where product goes into pharma and into detergent use globally, there's strong demand. Actually, demand has picked up, and we are very blessed that, that part of our business is really going strong. So you also have to put that in perspective of the various areas. Our industrial solvents in South African value chain is performing well. We know that many of those applications are strong in demand. We still see a big demand for film and packaging material through this. So it is not that all demand is falling away. You need to look at it in the various product value chains as well and what is unfolding in those areas. Yes, we are calibrating where we need to, to do that to shut down or reduce output in certain of the product value chains. But I think at this point in time, we are seeing some balance coming through. It is about a prolonged shutdown in South Africa or long lock down, that's going to hurt us the most if the fuel demand is impacted on the longer term. So for example, jet fuel, we've seen almost 100% decline in demand, and therefore, that informed basically our decision to shut down Natref. But in terms of fuel and other products, we see the synfuels throttling back to 75% is manageable. And when demand is now picking up with a slow release of the lockdown, we believe that, that could normalize in the next year. So that's how we look at it at the moment. But it remains volatile, and we can't bank on any situation. We need to stay on top of how those demands are impacting and flowing out.

Okay. We have one more question on covenants. Can you confirm that the bank covenants won't take into account the ZAR 9 billion hedging losses?

Okay. I'll take it. Yes, the bank methodology excludes all realized and unrealized hedging gains and losses.

Okay. I think we've answered quite a few questions now. Are prices of sales at Lake Charles in line with your budget?

So if you look at what has transpired in the last quarter and how polyethylene and NAFTA has been looking, I mean, our budget was still in a world of $50 to $60. So our guidance as we've given it at half year-end is definitely impacted. So it is not according to our budget. It is much more impacted through the COVID pandemic and lower oil prices.

Okay. Then, the last question. Are you able to provide an indication on timing for the first asset sale? And will you have to issue a circular seeking shareholder approval for these sales?

Well, it depends on the size of the sale, whether you need to issue a circular. I acknowledge, Mike, that you asked a question that, ultimately, we -- our market cap is lower. So ultimately approaching shareholders for a bigger top-ish sales will be required. And hence, the answer is once you trigger those thresholds, of course, you need to engage with shareholders to get those approvals. Like what we spoke about, anything on the U.S. may be quite sizable, and hence, will trigger such provisions. Although on the, let's say, the medium to smaller type of assets, you probably will not trigger such governance processes. We are very positive that we are making progress on some of these assets that we can, before the end of June, announce the progress thereof. And the moment that we'll do it, you probably have picked up that we are increasing our communication to the market more regularly, as once we've got the details on those, we will share it with you without harming the process. The delicateness of some of these negotiations require from us, at this point in time, not to disclose too much. But as soon as we get to that point, we'll disclose it to you or seek the approval.

Thank you, Feroza. Thank you, Paul. Thank you for all the questions that we received. I hope that we could have dealt with that in a longer period, but we need to now draw to a close. Thank you for the questions. And please, if there are any residual questions or clarifications, please interface with our Investor Relations team. So Feroza, thank you for that. We're going to now close the call. Thank you very much.