Executive Summary / Key Takeaways

• Sasol is actively transforming its business, focusing on strengthening its foundational Southern Africa Energy and Chemicals operations and resetting its International Chemicals segment to enhance profitability and competitiveness.
• The company's proprietary Fischer-Tropsch (FT) technology remains a core differentiator, enabling diversified product streams from various feedstocks and positioning Sasol for future sustainable fuel and chemical production through initiatives like the Zaffra B.V. joint venture.
• Despite macroeconomic volatility and operational challenges, Sasol achieved a 75% increase in free cash flow to ZAR 12.6 billion in FY25, driven by disciplined cost and capital management, and a significant Transnet legal settlement.
• Sasol is committed to deleveraging its balance sheet, targeting net debt (excluding leases) sustainably below US$3 billion by FY27-28, which is a prerequisite for dividend reinstatement under its revised policy.

• The company is making substantial progress on its Emission Reduction Roadmap (ERR), securing over 900 MW of renewable energy in South Africa and aiming for a 30% GHG reduction by 2030, while optimizing Secunda production and exploring alternative feedstocks.

A Legacy Forged in Innovation: Sasol's Integrated Value Chain

Sasol Limited, founded in 1950 in Johannesburg, South Africa, has evolved into a global energy and chemicals powerhouse, distinguished by its unique proprietary Fischer-Tropsch (FT) technology. This innovative process, central to Sasol's Southern Africa Energy and Chemicals business, enables the conversion of coal and natural gas into a wide array of fuels and chemicals. This technological differentiation provides Sasol with a competitive edge, allowing it to leverage abundant local resources and produce high-value products across diverse applications. The company's extensive experience in commercial-scale FT technology, including through its Zaffra B.V. joint venture with Topsoe AS for sustainable aviation fuels, underscores its foundational strength and adaptability in a changing energy landscape.

Sasol's strategic framework, "strengthen the foundation, grow and transform the business," is a direct response to its historical journey and the dynamic global energy and chemicals industry. This strategy aims to enhance profitability, ensure operational stability, and drive a responsible transition towards a lower-carbon future. The company's integrated value chain, from mining and gas extraction to the production of fuels and specialty chemicals, positions it as a specialized player, particularly in regions like South Africa and Mozambique. This regional concentration, while offering cost advantages and localized expertise, also exposes Sasol to specific geopolitical and regulatory risks.

In the broader competitive landscape, Sasol operates alongside global integrated energy and chemicals giants such as ExxonMobil (NYSE:XOM), Shell (NYSE:RDS.A), TotalEnergies (NYSE:TTE), and Chevron (NYSE:CVX). These larger competitors often benefit from greater scale, broader diversification, and more extensive R&D investments in emerging low-carbon technologies. Sasol's niche specialization in FT technology and its integrated African operations provide a unique value proposition, particularly in resource-constrained environments. However, its financial stability and adaptability may lag behind rivals with superior financial resilience and broader product portfolios. Sasol's competitive positioning is further influenced by indirect competitors, including renewable energy providers and electric vehicle manufacturers, which pose long-term threats to traditional fuel demand through electrification trends.

Operational Resilience and Financial Performance

Sasol's recent financial performance reflects its strategic focus on operational improvements and cost discipline amidst a volatile macroeconomic environment. For the financial year 2025, the company reported a turnover of R249.10 billion, a 9% decrease from the prior year. Adjusted EBITDA declined by 14% to ZAR 52 billion. Despite these headwinds, Sasol achieved a notable 75% improvement in free cash flow, reaching ZAR 12.6 billion. This was significantly bolstered by disciplined capital expenditure, lower tax payments, and the receipt of a R4.3 billion legal settlement from Transnet for historical overcharges in oil transportation. Excluding this settlement, free cash flow still increased by over 30%.

The Southern Africa Energy and Chemicals business remains the primary driver of group adjusted EBITDA, contributing approximately 85%. Within this segment, Mining EBITDA increased by 15% in FY25, while Gas EBITDA saw a 35% increase, driven by higher gas prices and sales volumes. Conversely, the Fuels segment experienced a 38% decline in EBITDA, impacted by a 15% lower rand oil price, 68% lower Natref refining margins, reduced production volumes, and higher feedstock costs. Chemicals Africa's EBITDA also decreased by 32%, primarily due to lower production volumes and a stronger rand-dollar exchange rate.

The International Chemicals business, undergoing a strategic reset, demonstrated encouraging progress, increasing its share of group adjusted EBITDA from 9% to 15% in FY25. This improvement was attributed to enhanced U.S. ethylene margins, stronger palm kernel oil pricing, and the initial benefits of strategic reset initiatives. However, the segment recorded total impairments of ZAR 20.7 billion in FY25, a 73% reduction from the prior year, with the largest impairments related to the Secunda and Sasolburg liquid fuel refinery cash-generating units, which remain fully impaired. These impairments reflect a weaker macroeconomic outlook and lower forecast price assumptions, despite management actions to improve recoverable amounts.

Sasol's commitment to cost efficiency is evident in its containment of cash fixed cost increases to 1% below the 3% inflation rate in FY25. This was achieved through headcount reductions, vacancy freezes, improved contracting, and tighter scope control. The Sasol 2.0 transformation program, which aimed for ZAR 16 billion in cumulative EBITDA enhancements by FY24, is on track to deliver an additional ZAR 2 billion to ZAR 4 billion in FY25, marking its successful completion.

Technological Edge and Strategic Evolution

Sasol's proprietary Fischer-Tropsch (FT) technology is a cornerstone of its competitive advantage, particularly in its Southern Africa operations. This technology allows for the flexible conversion of diverse feedstocks, such as coal and natural gas, into a broad spectrum of high-value fuels and chemicals. The tangible benefit lies in its ability to create an integrated value chain, optimizing resource utilization and product diversification. For investors, this means a foundational business capable of adapting its output mix to market demands, potentially offering more stable revenue streams in volatile commodity markets.

The company is actively leveraging its FT expertise for future growth, notably through the Zaffra B.V. joint venture with Topsoe AS. This initiative aims to develop, build, own, and operate sustainable aviation fuel (SAF) plants utilizing green hydrogen, CO2, and biomass, alongside Sasol's FT and Topsoe's related technologies. This strategic move positions Sasol at the forefront of the emerging SAF market, offering a pathway to diversify its product portfolio into lower-carbon solutions and capture new value pools. While specific quantifiable benefits for Zaffra are still developing, the strategic intent is clear: to capitalize on its core technological strength to meet evolving sustainability demands and secure long-term growth.

Beyond FT, Sasol's technological roadmap includes significant R&D in carbon capture and storage (CCS). A test pilot program is underway in Leandra, investigating the viability of CCS in South Africa as a longer-term solution for emissions reduction. This demonstrates a proactive approach to addressing environmental challenges and potentially creating new revenue streams from captured carbon.

Outlook and Strategic Initiatives

Sasol's forward-looking guidance for FY26 underscores its commitment to operational stability and financial discipline. Secunda operations are targeted to achieve a production of 7 million to 7.2 million tonnes, driven by improved operational reliability and the absence of a phase shutdown. A critical enabler for this is the destoning plant, which received a final investment decision in December 2024 and is expected to be operational in the first half of FY26. This plant aims to reduce coal sinks to below 14% and enhance gasifier availability, ultimately improving overall production yield.

The Southern Africa value chain breakeven target for FY26 is set between $55 and $60 per barrel, a challenging but achievable goal given the FY25 breakeven of $59 per barrel (or $63 per barrel excluding the Transnet settlement). This target is supported by ongoing cost-saving initiatives, including a commitment to keep cash fixed cost increases below inflation. Capital expenditure for FY26 is guided between ZAR 24 billion and ZAR 26 billion, reflecting a disciplined approach that balances maintenance, environmental compliance, and selective growth projects, including those deferred from FY25.

In International Chemicals, the reset strategy is expected to yield further improvements, with adjusted EBITDA guided between $450 million and $550 million for FY26, and an adjusted EBITDA margin of 10% to 13%. This uplift is anticipated from continued market focus, asset optimization (including the mothballing of underperforming assets in Germany, Italy, and the U.S.), and cost efficiencies from the rollout of the modern ERP system in Italy across more sites. Management acknowledges the prolonged downturn in the chemical market, emphasizing that this guidance is driven by self-help measures rather than an an expectation of rapid market recovery.

Sasol is making significant strides in its Emission Reduction Roadmap (ERR), targeting a 30% reduction in greenhouse gas (GHG) emissions by 2030. The optimized ERR is designed to be value-accretive and capital efficient, maximizing Secunda production without planned turndowns. The company has secured over 900 megawatts (MW) of renewable energy in South Africa through power purchase agreements, with the 97 MW Damlaagte solar plant coming online in September 2025. A virtual PPA for 90 MW of renewable energy for the Lake Charles facility will support 50% of its electricity needs by mid-FY27. Sasol aims for a total of 2 gigawatts (GW) of renewable energy by 2030.

Risks and Competitive Positioning

Sasol faces a complex array of risks that could impact its investment thesis. Macroeconomic volatility, exacerbated by global tariffs and geopolitical tensions, continues to influence commodity prices and demand for its products. The declining natural gas resources from the Pande-Temane PPA in Mozambique necessitate a transition to imported LNG for external customers beyond mid-2027, with LNG prices expected to be 4 to 5 times higher than current regulated gas prices. This transition poses a significant cost challenge for South African gas users.

Operational risks include potential project delays and cost overruns, as well as the ongoing underperformance of state-owned enterprises like Transnet, which impacts supply chain efficiency. The recent administration and liquidation of Prax SA, Sasol's joint venture partner in the Natref refinery, introduces uncertainty regarding Natref's financial and governance obligations. Furthermore, Sasol identified material weaknesses in its internal controls over financial reporting (ICFR) for FY25, which could impact investor confidence.

From a competitive standpoint, Sasol's regional concentration in Africa and its dependence on commodity prices make it vulnerable to larger, more diversified global players like ExxonMobil and Shell. While Sasol''s FT technology provides a niche advantage, competitors often exhibit superior financial resilience, broader R&D capabilities, and faster innovation in sustainable technologies. The EU's Carbon Border Adjustment Mechanism (CBAM) also poses a risk, potentially increasing costs for carbon-intensive South African exports and reducing competitiveness in the EU market. Sasol's exports to the U.S. market are also exposed to a significant 30% tariff increase, with an estimated unmitigated impact of $80 million, currently reduced to a $60 million risk through mitigation efforts.

Conclusion

Sasol is undergoing a profound strategic evolution, balancing the imperative of strengthening its core operations with a disciplined transformation towards a more sustainable and profitable future. The company's unique Fischer-Tropsch technology and integrated value chain in Southern Africa remain foundational, providing a distinct competitive advantage in resource conversion. Despite persistent macroeconomic headwinds, operational challenges, and a complex regulatory environment, Sasol's focused management actions have yielded tangible financial improvements, particularly in free cash flow generation and debt reduction.

The clear guidance for FY26, coupled with significant progress on its Emission Reduction Roadmap and the strategic reset of its International Chemicals business, signals a determined effort to enhance shareholder value. While risks such as commodity price volatility, gas depletion, and internal control weaknesses persist, Sasol's commitment to deleveraging, disciplined capital allocation, and leveraging its technological expertise for low-carbon solutions positions it for long-term resilience. Investors should monitor the execution of its ERR, the success of its International Chemicals reset, and its progress towards the net debt target, as these will be critical indicators of its ability to sustain profitability and reinstate consistent shareholder returns in a rapidly changing global energy and chemicals landscape.