Annual Financial Statements for the year ended 30 June 2021 0 - Book - Page 131
Capital allocation
The group's objectives when managing capital (which includes share capital, borrowings, working capital and cash and cash
equivalents) is to maintain a flexible capital structure that reduces the cost of capital to an acceptable level of risk and to safeguard
the group's ability to continue as a going concern while taking advantage of strategic opportunities in order to grow shareholder
value sustainably.
The group manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain the capital structure, the group may adjust the amount of dividends
paid to shareholders, return capital to shareholders, repurchase shares currently issued, issue new shares, issue new debt, issue new
debt to replace existing debt with different characteristics and/or sell assets to reduce debt.
The group monitors capital utilising a number of measures, including the gearing ratio. The group's targeted gearing (net debt to
shareholders’ equity) ratio has been lifted to a range of 55% to 65% for 2021 and thereafter will be managed down to the long-term
target of between 20% and 40%. Gearing takes into account the group's substantial capital investment and susceptibility to external
market factors such as crude oil prices, exchange rates and commodity chemical prices. The group's gearing level for 2021 is 61,5%
(2020 – 117%; 2019 – 56,3%).
Financing risk
Financing risk refers to the risk that financing of the group’s net debt requirements and refinancing of existing borrowings could
become more difficult or more costly in the future. The group’s ability to obtain financing on favourable terms may be significantly
impacted by increased regulation from governmental and regulatory authorities and the lending policies adopted by financial
institutions and the actions of non-governmental organisations as a result of the environmental impacts of the group’s activities.
This risk can be decreased by managing the group within the targeted gearing ratio, maintaining an appropriate spread of maturity
dates, and managing short-term borrowings within acceptable levels.
SASOL LIMITED GROUP
CONSOLIDATED FINANCIAL STATEMENTS
The group has a central treasury function that manages the financial risks relating to the group's operations.
NOTES TO THE FINANCIAL STATEMENTS
The group is exposed in varying degrees to a number of financial instrument related risks. The Group Executive Committee (GEC) has
the overall responsibility for the establishment and oversight of the group's risk management framework. The GEC established the
Risk and Safety, Health and Environment Committee, which is responsible for providing the board with the assurance that significant
business risks are systematically identified, assessed and reduced to acceptable levels. A comprehensive risk management process
has been developed to continuously monitor and assess these risks. Based on the risk management process Sasol refined its hedging
policy and the Sasol Limited Board appointed, the Audit Committee that meets regularly to review and, if appropriate, approve the
implementation of hedging strategies for the effective management of financial market related risks.
The group’s target for long-term borrowings include an average time to maturity of at least two years, and an even spread of
maturities.
Credit rating
Risk profile
Risk management and measurement relating to each of these risks is discussed under the headings below (sub-categorised into
credit risk, liquidity risk, and market risk) which entails an analysis of the types of risk exposure, the way in which such exposure is
managed and quantification of the level of exposure in the statement of financial position.
Credit risk
Credit risk is the risk of financial loss due to counterparties not meeting their contractual obligations. Credit risk is deemed to be low
when, based on the forward available information, it is highly probable that the customer will service its debt in accordance with the
agreement throughout the period.
How we manage the risk
SASOL LIMITED COMPANY
Moody’s Investors Service (Moody’s) on 5 March 2020 revised Sasol’s credit rating from Baa3, negative to Ba1 stable and
on 31 March 2020 further revised it to Ba2 and placed the company under review for a downgrade on the back of oil price volatility
and the impact of the COVID-19 pandemic on the global economy. On 15 October 2020 Moody's concluded the review by confirming
Sasol's Ba2 credit rating with the outlook changing from ratings under review for downgrade to negative. Sasol's A1.za national issuer
scale rating was also confirmed.
The risk is managed by the application of credit approvals, limits and monitoring procedures. Where appropriate, the group obtains
security in the form of guarantees to mitigate risk. Counterparty credit limits are in place and are reviewed and approved by the
respective subsidiary credit management committees. The central treasury function provides credit risk management for the
group-wide exposure in respect of a diversified group of banks and other financial institutions. These are evaluated regularly
for financial robustness especially in the current global economic environment. Management has evaluated treasury counterparty
risk and does not expect any treasury counterparties to fail in meeting their obligations. The group maximum exposure is the
outstanding carrying amount of the financial asset.
OTHER
For all financial assets measured at amortised cost, the group calculates the expected credit loss based on contractual payment
terms of the asset. The contractual payment terms for receivables vary from 30 days to 120 days. The exposure to credit risk is
influenced by the individual characteristics, the industry and geographical area of the counterparty with whom we have transacted.
Financial assets at amortised cost are carefully monitored and reviewed on a regular basis for expected credit loss and impairment
based on our credit risk policy.
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Sasol Annual Financial Statements 2021