Sasol Form 20-F for the year ended 30 June 2021 - Book - Page 14
negative macro-economic development or further
deterioration of market conditions. The actual cash flow
improvement achieved may therefore differ
significantly from the current targeted amounts. If the
anticipated benefits cannot be realised from these
efforts or unintended consequences from
implementation of the programme realised, our
business, operating results, financial condition and cash
flows could be adversely affected.
Risk Factors
Risks related to financial matters
We may not be able to refinance, extend or repay
our substantial bank market indebtedness on time,
which would have a material adverse effect on our
financial condition and ability to continue as a going
concern
Our level of indebtedness may result in an inability
to comply with our net debt to EBITDA covenant,
which in turn, could have a material adverse impact
on our financial position and results, credit rating,
and/or liquidity
Our financial results have been prepared
assuming that we will continue as a going concern.
Currently, we have substantial indebtedness due to the
construction of the Lake Charles Chemicals Project
(LCCP) in the US. A number of short to medium-term
factors, including, among others, the global impact of
COVID-19, have adversely affected our business and
financial condition.
We still have a substantial, albeit much
reduced, level of indebtedness. Our vulnerability to
adverse economic conditions therefore remains at a
heightened level. The risk of not meeting the maximum
net debt to EBITDA covenant level of 3,0 times in the
event of any further economic shocks therefore
remains, albeit much lower than in the previous year.
Our net debt to EBITDA ratio at the end of the
30 June 2021 reporting period was 1,5 times.
Global macroeconomic factors, along with our
level of indebtedness and the resultant deterioration of
our credit rating has resulted in a significant contraction
of bank market capacity for our credit. We, therefore,
may need to refinance a portion of the bank loans in the
debt capital markets before the loans mature. Should we
not be able to refinance our debt prior to maturity, it
may negatively impact our liquidity position and we
may not be able to continue as a going concern.
Our principal credit facilities contain
restrictive covenants. These covenants limit, among
other things, encumbrances on existing assets of Sasol
and its subsidiaries, the ability of Sasol and our wholly
owned subsidiaries to incur incremental debt and the
ability of Sasol and its subsidiaries to dispose of assets
in certain circumstances. These restrictive and financial
covenants could limit our operating and financial
flexibility.
We may not achieve our Sasol 2.0 cash conservation
targets
As part of the covenant amendments entered
into with lenders we agreed to a restriction on our
capital expenditure for the financial year ended 30 June
2021 that would not exceed the level of R20 billion by
more than 10%. This restriction has been complied with
as the actual capital expenditure for the period
amounted to R16 billion.
In November 2020 Sasol announced the Sasol
2.0 business transformation programme to the market,
which builds on the short-term successes of the initial
cash conservation efforts through the implementation of
sustainable improvements. Sasol 2.0 is the programme
aimed at stabilising and transforming the Sasol
organisation while creating the ability to fund its
turnaround. It is the vehicle to drive the change
required to reach the ambition of a competitive and
sustainable Future Sasol and has very specific targets
for cash fixed cost, gross margin, working capital and
maintaining capital spend. The programme consists of
several improvement initiatives, which are identified,
matured and executed through following a governed
stage-gate process.
We are exposed to a number of inherent
business risks, including, for example, unplanned
production outages, lower margins for our products,
higher-than-anticipated capital requirements for
projects under development, as well as other risks
described in this section, any of which, or a
combination of which, could cause us to breach our
debt covenants during a reporting period. This risk is
exacerbated by the ongoing COVID-19 pandemic and
its impact on our turnover and profitability.
The achievement of the Sasol 2.0 programme
is a top priority for Sasol, however, there are factors
that may impact the delivery negatively. These include
13