sasol - financial instruments

sasol limited group financial instruments


Liquidity risk
The Group manages liquidity risk by proper management of working capital and cash flows. Adequate banking facilities and reserve borrowing capacities are maintained. The Group has sufficient undrawn call/demand borrowing facilities which could be utilised to fund any potential shortfall in cash resources.
Credit risk
The Group has potential credit risk exposure on trade receivables, cash investments, term investments and derivative contracts.The exposure to credit risk with regard to trade receivables is not concentrated due to a large customer base. Adequate provision is made for doubtful debts.
The Group minimises its credit risk relating to financial instruments by only transacting with major financial institutions on listed exchanges. Counterparty credit limits are in place and are reviewed and approved by the respective subsidiary boards.
Credit risk exposure is analysed as follows:
	2001	2000
	%	%

By business segment
Sasol Mining	2	2
Sasol Synthetic Fuels	17	27
Sasol Oil	11	18
Sasol Chemie	34	—
Alpha Olefins	2	3
Sasol Solvents South Africa	6	9
Nitrogenous products	10	13
Sasol Polymers	10	14
Other chemicals	8	14

	100	100


By geographic location
South Africa	36	72
Rest of Africa	4	6
Europe	44	12
Middle East	2	2
Far East	—	2
North America	12	4
South America	1	1
Southeast Asia and Australasia	1	1

	100	100

Foreign exchange risk
The Group’s objective in using financial instruments is to reduce the uncertainty over future cash flows arising from movements in currency, interest rates and commodity prices.
The Group has potential currency exposures in respect of items denominated in foreign currencies comprising transactional exposure in terms of imports and exports incurred in currencies other than rand and in respect of investments in overseas operations.
These exposures are managed through approved policies utilising derivative instruments. The Group policy states that all local import exposures must be covered using forward exchange contracts whilst hedging of local export exposures is optional. Trade related exposures are also managed through the use of natural hedges. Financing of these transactions using foreign currency borrowings cause further potential currency exposures.

All forward exchange contracts are supported by underlying commitments or receivables.
The following forward exchange contracts were held at 25 June 2001:


Contract foreign		Average			Estimated fair
currency amount		rate	Contract amount		value gain/(loss)
Related to specific balance sheet items	Million		USDm	Rm	USDm	Rm

Imports
United States dollar – Republic of South Africa	76	8,1	76	613	-1	-6
United States dollar – foreign	5		5	40
Pound sterling – Republic of South Africa	2	11,5	3	26	—	—
Euro – Republic of South Africa	11	7,1	10	77	—	-1
Other currencies (USD equivalent)	1		1	6	—	—

Exports
United States dollar – Republic of South Africa	105	8,1	105	855	1	6
United States dollar – foreign	30		30	238
Pound sterling – Republic of South Africa	2	11,4	3	27	—	—
Pound sterling – foreign	3		4	34
Euro – Republic of South Africa	23	7,0	20	161	—	4
Other currencies (USD equivalent)	—		—	1	—	—

Long-term liabilities
United States dollar – Republic of South Africa	167	8,0	167	1 340	—	-4
United States dollar – foreign	40		40	321

Related to future commitments – imports
United States dollar – Republic of South Africa	17	7,8	17	132	1	6
Pound sterling – Republic of South Africa	5	11,4	7	56	—	1
Euro – Republic of South Africa	49	7,2	44	351	—	-4
Other currencies (USD equivalent)	4		4	34	—	-3

Related to future commitments –exports
United States dollar – foreign	1		1	8


	Nominal foreign
	currency amount	Expiry date	Fixed rate	Market value
Interest rate derivative contracts	Million			USDm	Rm

Interest rate swap
Pay fixed rate, receive floating rate
United States dollar – foreign	94	15-Jun-05	5,4	—	—
Euro – foreign	170	15-Jun-05	4,7	—	-4

Interest rate cap
Euro – foreign	33	15-Jun-05	4,7	—	-1


Interest rate risk
Exposure to interest rate risk on liabilities and investments is monitored on a proactive basis. The financing of the Group is structured on a combination of floating and fixed interest rates. The benefits of fixing or capping interest rates on project financing to achieve improved predictability for cash flows are considered and implemented on a project-by-project basis. For further details on long and short-term liabilities refer to page 141.
Crude oil price risk
The Group manages the movement in crude oil prices on a proactive basis. The effect of the crude oil pricing strategy is that a daily average crude oil price for the financial year is attained.
As a result of the fire at the Natref Refinery there were no financial derivative instruments relating to the hedging of crude oil at 25 June 2001.
Maturity profile of financial instruments

		Within	1 to 2	2 to 5	More than
	Total	1 year	years	years	5 years
	Rm	Rm	Rm	Rm	Rm

Financial assets
Cash and cash equivalents	2 370	2 370	—	—	—
Trade and other receivables	10 109	10 109	—	—	—
Long-term loans and debtors	811	—	70	446	295
Financial liabilities
Long and short-term liabilities	8 449	3 479	1 534	2 191	1 245
Trade and other payables	7 419	7 419	—	—	—
Derivative instruments – nominal value
Forward exchange contracts
Imports	1 335	1 331	4	—	—
Exports	1 324	1 324	—	—	—

		Within	1 to 2	2 to 5	More than
	Total	1 year	years	years	5 years
	USDm	USDm	USDm	USDm	USDm

Financial assets
Cash and cash equivalents	296	296	—	—	—
Trade and other receivables	1 260	1 260	—	—	—
Long-term loans and debtors	101	—	9	56	36
Financial liabilities
Long and short-term liabilities	1 054	434	191	273	156
Trade and other payables	925	925	—	—	—
Derivative instruments – nominal value
Forward exchange contracts
Imports	166	166	—	—	—
Exports	165	165	—	—	—