Annual Financial Statements for the year ended 30 June 2021 0 - Book - Page 132
1
2
3
4
SASOL LIMITED GROUP
Other disclosures continued
40 Financial risk management and financial instruments continued
40.1 Financial risk management
Expected credit loss is calculated as a function of probability of default, loss given default and exposure at default. The group
allocates probability of default based on external and internal information. The major portion of the financial assets at amortised
cost consists of externally rated customers and the group uses the average of Moody’s, Fitch and S&P Corporate and Sovereign
probability of defaults, depending on whether the customer or holder of the financial asset is corporate or government related. No
changes were made to the majority of formal credit ratings as these credit ratings were obtained close to year-end and therefore
already incorporate the current negative economic environment, as well as an entity’s specific circumstances, financial strength
and outlook. For customers or debtors that are not rated by a formal the rating agency, the group allocates internal credit ratings
and default rates taking into account forward looking information, based on the debtors profile and financial status. Loss given
default (LGD) is based on the Basel model. Until 2019, the group used a 45% LGD for unsecured financial assets and 35% for secured
financial assets. Basel II, however, requires that LGD parameters reflect economic downturn conditions, meaning that entities’ credit
exposures need to reflect the losses entities would expect to incur if all defaults occur during the downturn part of an economic
cycle. Based on the continued economic downturn the group, therefore, applied the Board of Governors of the Federal Reserve
System’s formula for deriving downturn LGD to be used for 2021 and 2020, namely 50% for unsecured financial assets and 40% for
secured financial assets. Credit enhancement is only taken into account if it is integral to the asset. Trade receivables expected credit
loss is calculated over lifetime. Other financial assets expected credit loss is measured over 12 months when the credit risk is low and
over lifetime where the credit risk has increased significantly. The group considers credit risk to have increased significantly when
the customer’s credit rating has been downgraded to a lower grade (e.g. A grade to B grade). The group considers customers to be in
default when the receivable is more than 30 days overdue or the customer has failed to honour a repayment arrangement.
No single customer represents more than 10% of the group’s total turnover or more than 10% of total trade receivables for the years
ended 30 June 2021, 2020 and 2019. Approximately 42% (2020 – 44%; 2019 – 50%) of the group’s total turnover is generated from
sales within South Africa, while about 24% (2020 – 23%; 2019 – 22%) relates to European sales and 18% (2020 – 17%;
2019 – 14%) relates to sales within the US. The concentration of credit risk within geographic regions is largely aligned with the
geographic regions in which the turnover was earned.
Detail of allowances for credit losses:
12-month
ECL
Lifetime ECL
Significant
increase in
Simplified
credit risk approach for
since initial
trade
recognition receivables
Rm
Rm
Creditimpaired
Rm
Total
lifetime ECL
Rm
No
significant
increase in
credit risk
since initial
recognition
Rm
Total
expected
credit loss
Rm
2021
Long-term receivables
Trade receivables
Other receivables
50
–
7
–
9
–
41
192
275
91
201
282
–
–
32
91
201
314
57
9
508
574
32
606
12-month
ECL
Lifetime ECL
Significant
increase in
credit risk
since initial
recognition
Rm
Simplified
approach
for trade
receivables
Rm
349
–
12
–
64
–
47
299
330
361
64
676
No
significant
increase in
credit risk
since initial
recognition
Rm
Total
expected
credit loss
Rm
396
363
342
46
–
1
442
363
343
1 101
47
1 148
Credit- Total lifetime
impaired
ECL
Rm
Rm
2020
Long-term receivables
Trade receivables
Other receivables
The expected credit losses relating to cash and cash equivalents as well as restricted cash included in other long-term investments
are immaterial. The decrease in expected credit losses mainly resulted from financial assets classified as held for sale (R317 million)
and translation differences (R148 million).
130
Sasol Annual Financial Statements 2021