Sasol Ltd. (SSL)
F2Q07 (Qtr End 6/30/07) Earnings Call
September 10, 2007, 9:00 AM ET
Lawrence Patrick Adrian Davies - Chief Executive
Kandimathie Christine Ramon - CFO
Anthony Madimetja Mokaba - Executive Director of Energy Businesses in South Africa
Jonathan Kennedy-Good - Deutsche Securities
Giullean Johann Strauss - General Manager
Keld Rasmussen - Avior Research
Caroline Learmonth - Macquarie First South
Theepan Jothilingam - Morgan Stanley
James Twyman - UBS
Gerhard Engelbrecht - Citigroup
Alex Comer - JP Morgan
Marc McCarthy - Bear Stearns
Tassin Benn - Merrill Lynch
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Unidentified Company Representative
Today it will be both a combined presentation and conference call; we'll have Pat Davies, our Chief Executive starting off and then Christine Ramon, our CFO carrying on. Afterwards we will take questions, both from the floor area as well as from the conference participants. And now operator, I'll make a note -- we will remind you that happens where you can queue the participants. Thanks Pat, over to you.
Lawrence Patrick Adrian Davies - Chief Executive
Good morning, and welcome -- a very warm welcome to all of you, and good morning to some of you that are on the conference call. Thank you so much for joining us. It's great to see so much interest. Many old faces I see as I look around joined by some new faces as well. I hope you are feeling pretty good. We feel great. And the country is feeling great, because we had Bafana qualifying over the weekend for the Africa Cup of Nations. We had the streaming Boca [ph] demolishing Somaiya [ph], and they did that even without Sasol on their chests. They looked a little under dressed, but I think they performed pretty well, so we feel pretty good about that.
We feel good that the share price has gone up as of today, and we particularly pleased of course to be talking to you about not only great results, but also a very significant empowerment deal, and I am sure we are going to get lots of questions when we do report those. Well, let me complete with the welcome, and I think you all know Christine, Nolitha and Benny, our Executive Directors, we have members of the management team here, and our executive team which -- they will be helping with the questions and of course welcome to Pieter Cox, you know him very well. Thanks Pieter for joining us.
Good, let's move on to the presentation, and this is the theme of the presentation, a foundation for sustainable growth. These words are going to continuously come up in the course of the presentation this afternoon. The foundation is the existing business that's producing the record results. A growth, this is huge opportunity that we have is driven by the world engineered, they realize our competitive advantage, and we are going to not only build that foundation, but grow the company in a sustainable way.
We need to look carefully at this first one this time because you've to make sure there is no reference to the U. S. subprime and the exposure that we might have, happy to report we don't have any of that. And now for 2007, just to start off with before I get to the longer term damn successful, a great year, record results. Operating profit up 49% with an 18% increase in operating profits, which takes out the effects of the olefins & surfactants changes that would be a better reflection of our true performance.
Headline earnings are more modest 10% because of some capital effects, which we will discuss. Significant returns to shareholders both by way of dividend with 9 rand and 27% up, and significant quantity of shares already bought back.
Good short-term results need to be seen within the context of a broader strategic framework. We believe that despite some shift to the macroeconomic environments, which I'll come to, this remains a resilient competitive strategy. We are all familiar with the key growth drivers that are basically based on our technology, I am not going to go through them, they haven't changed it in many years. Important to note that it's not just about GTL and CTL, it's about growing our Chemicals, it's about developing our stream of opportunities as well.
But probably more importantly for today's discussion, let us see into the strategic agenda comprising the four building blocks here. We're going to be talking about all four of those building blocks. This is our existing business, largely in South Africa that is doing really well. This is the foundation of Sasol, some times overlooked the performance I think if someone overlooked because of GTL and CTL in the bottom block. That is doing really well. Benny and his team are going to be looking after the kids in South African energy cluster, we're going to be growing that with 20% growth at Secunda, we wanted that growth as we refer to there. And of course, our other assets around the world are going to be nurtured and grown as well.
The second two blocks have to do with sustainability. We'll be talking about those and particularly about the empowerment component of this one. I mean commercializing technological lead is obviously a very important focus to success in our growth driver program into the future. This is what makes us different. This is unique to Sasol, makes it different from another oil and gas company. In fact, we have a technology that nobody else has, developed to the extent that we have, and can convert huge reserves of coal and gas into much needed transportation fuels.
So, in a nutshell, our strategy is to take our competitive advantage, replicate what we've done so successfully in Secunda over so many years, use that to grow our liquid fuels business, our chemicals business, and our upstream business, and of course at the same to nurture and grow our existing efforts. I'll touch on later how our values play into this strategy as well.
But of course, not tripping to what's happening in the world around us, and there have been some big shifts. Oil prices stats remain high, they seem to be sustainably high, certainly as we foresee things. And this has some impact, obviously the higher oil price is great for our strategy, great for our business. But it seems there is more and more demand for oil, and this graph is here to demonstrate that its the effect of the capital consumption of oil, you see where it is for the OECD countries, the developed countries, and we see where it is for China and India. And these are going to be growing a nice growth and we see the signs of the growing -- they're growing at an enormous rate, so the capital consumptions must go up.
And if you just look at China and India's demand for fuel, I think we've mainly resulted as of something that 17 million barrels of oil extra for this year per day that the world has to find. 40% of the world's transportation -- of world's energy demand is for transportation fuels, and oil is the unsignificant contributor to transportation energy at this time. So, there must be other resources that come into play, and those of course we believe coal and gas, natural gas must play a significant role in supplying the world energy needs. We cannot prevent those developing countries from using more energy, what we need to do is of course make sure that they use it in a responsible way, and I'll come to that in a moment.
So, this shows coal reserves, the legend I am afraid is behind this animation. Coal is grey, red is gas, blue is oil, and we can see there why Lean, who is sitting out in the front has so many frequent flier miles because he is going to all of those places that have enormous gas and coal reserves that are importing oil. And what does that technology do? It takes those reserves and converts it into very high quality transportation fuel. So, you can understand this enormous interest that there is in it. Yes, it does take quite a while to get some of these big projects rolled out. That's no different from any other in this -- other player in the industry. Big projects take a little while, but the need is becoming more and more acute for us to play a role.