Annual Financial Statements for the year ended 30 June 2021 0 - Book - Page 138
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SASOL LIMITED GROUP
Other disclosures continued
40 Financial risk management and financial instruments continued
40.1 Financial risk management continued
Income statement – 1% increase
South Africa
Rm
30 June 2021
30 June 2020
Europe*
Rm
United States
of America*
Rm
Other
Rm
166
19
25
12
110
15
(761)
21
* A decrease of 1% in interest rates for the United States of America and Europe will not have an effect on the income statement as it is not considered
reasonably possible that the repo interest rates will decrease below 0%.
A 1% decrease in interest rates would have an equal and opposite effect to the amounts disclosed above.
The group has exposure to the variable US dollar London Interbank Overnight Rate (LIBOR) through the USD term loan and revolving
credit facility. The group has entered into the US interest rate swap to convert a portion of the group’s exposure to the variable LIBOR
to a fixed rate. It was designated as the hedging instrument in a cash flow hedge.
Hedge effectiveness was determined at the inception of the hedge relationship, and through periodic prospective effectiveness
assessments, to ensure that an economic relationship exists between the hedged item and hedging instrument. A regression
analysis method is employed for assessing the effectiveness of each designated hedging relationship.
Possible sources of hedge ineffectiveness include:
•
Differences in critical terms between the interest rate swaps and interest payments, including future payment date
mismatches;
•
A significant change in the credit risk of either party to the hedging relationship during the period of the hedge; and
•
The effects of the forthcoming IBOR reform, because changes might take effect at a different time and have a different
impact on the hedged item (the floating-rate debt) and the hedging instrument (the interest rate swap used to hedge
the debt).
The interest rate swap in Mozambique relates to the group's interest in CTRG. This interest rate swap is not classified as a cash flow
hedge and was classified as held for sale in the current year along with the other assets and liabilities associated with the entity.
Refer to note 12.
North America
2021
Carrying value included in short and long-term financial liabilities
Fair value (gain)/loss recognised in other comprehensive income
Fair value loss recognised in other operating expenses
Balance of hedge reserve – continuing hedge relationships
Balance of hedge reserve – discontinued hedge relationships*
Nominal amount
Expiry
Average fixed rate
Hedge ratio
Change in continuing hedging instrument fair value used as the basis for
recognising hedge ineffectiveness – (gain)/loss
Change in hedged item fair value used as the basis for recognising hedge
ineffectiveness – (gain)/loss
Rm
Rm
Rm
Rm
Rm
Rm
%
2 103
(1 072)
89
(801)
(106)
1 751
December 2026
2,82
1:1
2020
4 058
2 192
4
(1 771)
–
1 854
December 2026
2,82
1:1
US$m
(32)
148
US$m
(38)
151
* The group traded a total of seven interest rate swaps on 25 July 2019 with various counterparty banks. During the year a novation of one of the
interest rate swaps was concluded. All the terms and conditions of the novated interest rate swap remained the same as the original interest rate
swap. Following the novation, the original hedge relationship was discontinued and the novated interest rate swap was designated as a hedging
instrument in a new hedging relationship. The balance of the hedge reserve relating to the discontinued interest rate swap will be released to profit
or loss over the original remaining term of the contract.
Commodity price risk
Commodity price risk is the risk of fluctuations in our earnings as a result of fluctuation in the price of commodities.
How we manage the risk
Crude oil and coal price
The group makes use of derivative instruments, including options and commodity swaps as a means of mitigating price movements
and timing risks on crude oil purchases and sales and ethane purchases. The group entered into hedging contracts which provide
downside protection against decreases in commodity prices. Refer to the summery of our derivatives below.
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Sasol Annual Financial Statements 2021