Sasol South Africa (Pty) Ltd

Transcription

1 SASOL SOUTH AFRICA (PTY) LTD Unaudited Financial Information 30 June

2 Sasol South Africa (Pty) Ltd Registration number 1968/013914/07 Unaudited Financial Information for the year ended 30 June 2017 Contents Page Income statement 3 Statement of comprehensive income 3 Statement of financial position 4 Statement of changes in equity 5 Statement of cash flows 6 Notes to the financial information 7 This financial information has not been audited or approved by the directors. 2

3 Income Statement for the year ended 30 June Note Rm Rm Turnover Materials, energy and consumables used 2 (35 641) (31 564) Selling and distribution costs Maintenance expenditure (2 624) (2 977) (4 749) (5 017) Employee-related expenditure 3 (12 584) (11 043) Exploration expenditure and feasibility costs (591) (672) Depreciation and amortisation (8 447) (8 067) Other expenses and income (4 649) (4 934) Translation (losses)/gains 4 (619) Other operating expenses and income 5 (4 030) (5 954) Remeasurement items 7 (6 165) (16 317) Equity accounted profits net of tax Operating profit/(loss) (2 637) Finance income Finance costs 6 (2 578) (1 744) Profit/(loss) before tax (3 642) Taxation Profit/(loss) for the year (2 661) Statement of comprehensive income for the year ended 30 June Rm Rm Profit/(loss) for the year (2 661) Other comprehensive income, net of tax Items that can be subsequently reclassified to the income statement 3 4 Effect of cash flow hedges 4 5 Tax on items that can be subsequently reclassified to the income statement (1) (1) Items that cannot be subsequently reclassified to the income statement (5) 245 Remeasurement on post-retirement benefit obligation (7) 341 Tax on items that cannot be subsequently reclassified to the income statement 2 (96) Total comprehensive income/(loss) for the year (2 412) 3

4 Statement of financial position at 30 June Assets Note Rm Rm Property, plant and equipment Assets under construction Intangible assets Equity accounted investments Investment in subsidiaries Post-retirement benefit assets Long-term receivables and prepaid expenses Non-current assets Assets in disposal groups held for sale Inventories Tax receivable Trade and other receivables Short-term financial assets 1 9 Cash restricted for use Cash and cash equivalents Current assets Total assets Equity and liabilities Shareholder's equity Total shareholder's equity Long-term debt Long-term provisions Post-retirement benefit obligations Long-term deferred income Deferred tax liabilities Non-current liabilities Short-term debt Short-term provisions Trade and other payables Short-term deferred income Short-term financial liabilities - 2 Current liabilities Total equity and liabilities

5 Statement of changes in equity for the year ended 30 June Share capital Sharebased payment reserve Note 12 Note 32 Cash flow hedge accounting reserve Remeasurement on postretirement benefits Retained earnings Shareholders' equity Rm Rm Rm Rm Rm Rm Balance at 30 June (253) Share-based payment expense Expiry of Sasol share incentive scheme 16 (388) Total comprehensive income for the year (2 661) (2 412) profit (2 661) (2 661) other comprehensive income for the year Dividends paid (2 978) (2 978) Balance at 30 June (8) (705) Share-based payment expense Long-term incentives vested and settled (28) 28 Long-term incentive scheme converted to equity settled Expiry of Sasol share incentive scheme (6) 6 Total comprehensive income for the year 3 (5) profit other comprehensive income for the year 3 (5) (2) Dividend received in specie Dividends paid (10 000) (10 000) Balance at 30 June (13) (6 482)

6 Statement of cash flows for the year ended 30 June Note Rm Rm Cash receipts from customers Cash paid to suppliers and employees (61 107) (56 016) Cash generated by operating activities Dividends received from equity accounted investments Finance income received Finance costs paid 6 (2 926) (2 196) Tax paid 10 (434) (2 037) Cash available from operating activities Dividends paid 27 (10 000) (2 978) Cash retained from operating activities Additions to non-current assets (13 089) (12 766) additions to property, plant and equipment 15 (140) (76) additions to assets under construction 16 (12 455) (12 556) increase/(decrease) in capital project related payables 23 (494) (134) Non-current assets sold 16 9 Cash acquired from businesses relating to the Sasol group restructuring Acquisition of businesses for cash consideration 8 (1 282) (236) Increase in long-term loans to subsidiaries (10) (Increase)/decrease in long-term receivables (2) 42 Cash used in investing activities (13 681) (12 949) Proceeds from long-term debt Repayment of long-term debt 13 (3 053) (853) Proceeds from short term debt Repayment of short-term debt (7 505) (11 381) Cash generated/(utilised) by financing activities (3 683) Decrease in cash and cash equivalents (1 458) (23) Cash and cash equivalents at the beginning of year Cash and cash equivalents at the end of the year

7 Notes to the financial information 1 Turnover Sale of products Services rendered Other trading income* *In 2017, other trading income includes licensing fees from the Uzbekistan GTL project and sale of accessories in the explosives industry. Accounting policies: Revenue is recognised at the fair value of the consideration received or receivable net of indirect taxes, rebates and trade discounts and consists primarily of the sale of products, services rendered, licence fees and royalties. Revenue is recognised when the following criteria are met: evidence of an arrangement exists; delivery has occurred or services have been rendered and the significant risks and rewards of ownership have been transferred to the purchaser; transaction costs can be reliably measured; the selling price is fixed or determinable; and collectability is reasonably assured. The timing of revenue recognition is as follows. Revenue from: the sale of products is recognised when the group has substantially transferred all the risks and rewards of ownership and no longer retains continuing managerial involvement associated with ownership or effective control; services rendered is based on the stage of completion of the transaction, based on the proportion that costs incurred to date bear to the total cost of the project; and licence fees and royalties are recognised on an accrual basis. The company enters into exchange agreements with the same counterparties for the purchase and sale of inventory that are entered into in contemplation of one another. When the items exchanged are similar in nature, these transactions are combined and accounted for as a single exchange transaction. The exchange is recognised at the carrying amount of the inventory transferred. Performance Chemicals Performance Chemicals markets commodity and differentiated performance chemicals. The key product lines are organics, inorganics and wax value chains. These are produced in various Sasol production facilities around the world. Base Chemicals Base Chemicals markets commodity chemicals based on the group s upstream Fischer-Tropsch, ethylene, propylene and ammonia value chains. The key product lines are polymers, solvents and ammonia-based fertilisers. These are produced in various Sasol production facilities around the world. The Base and Performance Chemicals businesses sell the majority of their products under contracts at prices determinable from such agreements. Turnover is recognised upon delivery to the customer which, in accordance with the related contract terms, is the point at which the title and risks and rewards of ownership transfer to the customer. Prices are determinable and collectability is reasonably assured. Turnover on consignment sales is recognised on consumption by the customer, when title and the risks and rewards of ownership pass to the customer. Prices are determinable and collectability is reasonably assured. 7

8 The date of delivery is determined in accordance with the contractual agreements entered into with customers which are as follows: Delivery terms Ex-tank sales Ex-works Carriage Paid To Free on Board Cost of Insurance Freight and Cost Freight Railage Proof of Delivery Consignment Sales Title and risks, and rewards of ownership pass to the customer: When products are loaded into the customer s vehicle or unloaded from the seller s storage tanks. When products are loaded into the customer s vehicle or unloaded at the seller s premises. On delivery of products to a specified location (main carriage is paid for by the seller). When products are loaded into the transport vehicle the customer is responsible for shipping and handling costs. When products are loaded into the transport vehicle the seller is responsible for shipping and handling costs which are included in the selling price. When products are delivered to and signed for by the customer. As and when products are consumed by the customer. Energy Secunda Synfuels Operations sells synthetic fuels components to Sasol Oil under the Component Supply Agreement (CSA) at prices determined by the CSA. Turnover is recognized when the risks and rewards of ownership have passed to the customer, which is when the product has passed over the appropriate weigh bridge or flow meter. 2 Materials, energy and consumables used Cost of raw materials Cost of electricity and other consumables used in production process Costs relating to items that are consumed in the manufacturing process, including changes in inventories and distribution costs up until the point of sale. for the year ended 30 June Note Rm Rm 3 Employee-related expenditure Analysis of employee costs Labour salaries, wages and other employee related expenditure post-employment benefits Share-based payment expenses equity-settled cash-settled 31 (153) 252 Total employee-related expenditure Costs capitalised to projects (938) (1 027) Per income statement Accounting policies: Remuneration of employees is charged to the income statement, except where it is capitalised to projects in line with the accounting policy for assets under construction. Short-term employee benefits Short-term employee benefits includes salaries, wages and costs of temporary employees, paid vacation leave, sick leave and incentive bonuses. Long-term employee benefits Long-term employee benefits are those benefits that are expected to be wholly settled more than 12 months after the end of the annual reporting period, in which the services have been rendered and are discounted to their present value. Post-retirement benefits Further information on these benefits is provided in Note 30, and include defined benefit contribution plans, as well as defined benefit plans. 8

9 4 Translation (losses)/gains Arising from Forward exchange contracts Trade and other receivables (15) (22) (708) 807 Trade and other payables Foreign currency loans (5) 13 Other 20 (35) (619) Differences arising on the translation of monetary assets and liabilities into functional currency. 5 Other operating expenses and income Rentals Insurance Computer costs Hired Labour Audit remuneration Professional fees Changes in rehabilitation provisions Other expenses Other operating income (3 909) (3 101) for the year ended 30 June 6 Net finance costs Finance income Note Rm Rm Dividends received from investments Interest received on loans and receivables cash and cash equivalents - fellow subsidiaries cash and cash equivalents - external Per income statement Less: interest received on tax (96) - Per the statement of cash flows Finance costs Debt Finance leases 77 9 Other Notional interest Total finance costs Amounts capitalised to assets under construction 16 (734) ( 894) Per income statement Total finance costs before notional interest Less: interest accrued on short-term debt 14 ( 145) Per the statement of cash flows

10 for the year ended 30 June Note Rm Rm 7 Remeasurement items affecting operating profit Impairment of property, plant and equipment assets under construction investment in subsidiaries Reversal of impairment of (4 973) (10) property, plant and equipment 15 (3 254) assets under construction 16 (528) long-term receivables (10) investment in subsidiaries 19 (1 191) Loss/(profit) on disposal of property, plant and equipment (6) (4) disposal of other intangible assets 5 23 scrapping of property, plant and equipment scrapping of assets under construction Remeasurement items per income statement Tax effect (2 055) (4 239) Total remeasurement items, net of tax Impairment/reversal of impairments The company's non-financial assets, other than inventories and deferred tax assets, are reviewed for impairment at each reporting date or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverable amounts are estimated for individual assets or, where an individual asset cannot generate cash inflows independently, the recoverable amount is determined for the larger cash generating unit to which it belongs. Value-in-use calculations The recoverable amount of the assets reviewed for impairment is determined based on the value-in-use calculations. Key assumptions relating to this valuation include the discount rate and cash flows used to determine the value-in-use. Future cash flows are estimated based on financial budgets covering a five year period and extrapolated over the useful life of the assets to reflect the long term plans for the company using the estimated growth rate for the specific business or project. Where reliable cash flow projections are available for period longer than five years, those budgeted cash flows are used in the value-in-use calculation. The estimated future cash flows and discount rate are post-tax, based on the assessment of current risks applicable to the specific entity and country in which it operates. Discounting post-tax cash flows at a post-tax discount rate yields the same results as discount pre-tax cash flows at a pre-tax discount rate, assuming there are no significant temporary tax differences. Main assumptions used for value-in-use calculations Growth rate long-term Producer Price Index % 5,50 6,02 Weighted average cost of capital % 12,50 14,05 Discount rate risk adjusted % 12,50 14,05 Long-term average Ammonia price* Rand/ton 6 392, ,28 Long-term average Wax price* Rand/ton , ,42 Long-term average exchange rate* Rand/US$ 14,71 14,95 * Assumptions are provided on a long-term average basis and are calculated based on a five year period. Areas of judgement: Management determines the expected performance of the assets based on past performance and its expectations of market development. The weighted average growth rates used are consistent with the increase in the long-term Producer Price Index. Estimations are based on a number of key assumptions such as volume, price and product mix which will create a basis for future growth and gross margin. These assumptions are set in relation to historic figures and external reports. If necessary, these cash flows are then adjusted to take into account any changes in assumptions or operating conditions that have been identified subsequent to the preparation of the budgets. The weighted average cost of capital rate (WACC) is derived from a pricing model based on credit risk and the cost of the debt. The variables used in the model are established on the basis of management judgement and current market conditions. Management judgement is also applied in estimating the future cash flows and defining of the cash generating units. These values are sensitive to the cash flows projected for the periods for which detailed forecasts are not available and to the assumptions regarding the long-term sustainability of the cash flows thereafter. 10

11 7 Remeasurement items affecting operating profit continued Significant impairments of assets in 2017 Base Chemicals cash generating units (CGUs) At 30 June 2017 the prior period impairment in the Polythene and the Mining Reagents and Chlor Vinyls CGU s were reversed by R2 036 million and R1 211 million, respectively. At 30 June 2017 the recoverable amounts of the Polythene and the Mining Reagents and Chlor Vinyls CGU s are R million and R3 083 million, respectively. The impairment reversals were largely due to stronger product prices driven by a revised outlook in respect of new on-stream global ethylene capacity. The Blends and Mining Chemicals and the Methanol CGU s were further impaired by R15 million and R207 million, respectively. At 30 June 2017 the recoverable amounts of the Blends and Mining Chemicals and the Methanol CGUs are negative R707 million and negative R226 million, respectively. The performance of the Polythene and Mining Reagents and Chlor Vinyls CGUs is highly sensitive to Rand / US$ exchange rate and WACC movements. A 5% change in the exchange rate assumption could change the recoverable amount by approximately R5 353 million for the Polythene CGU and R3 352 million for the Mining Reagents and Chlor Vinyls CGU. A 1% change in the WACC could change the recoverable amount by approximately R661 million for the Polythene CGU and R237 million for the Mining Reagents and Chlor Vinyls CGU. The macro-economic factors are outside of the control of management. We continue to monitor these asset CGUs for further impairments or signs of recovery indicating a reversal of impairment. Performance Chemicals CGUs The Performance Chemicals CGUs were further impaired by R million at 30 June 2017 due to the R6 154 million and R4 155 million impairments in the Wax and the Ammonia CGUs, respectively. At 30 June 2017 the recoverable amounts of the Wax and Ammonia CGUs are R4 052 million and R109 million, respectively. The performance of the Wax CGU is highly sensitive to the prevailing market prices of Wax, the Rand/US$ and Rand/EUR exchange rate movements. The impairment was largely driven by lower margins resulting from lower sales prices & volumes as well as the strengthening of the Rand against the US Dollar and EURO, when compared to financial year A 5% change in the Wax sales prices would result in R million change in the recoverable amount, whereas a 5% change in the Rand/US$ and Rand/EUR would result in a change of R2 016 million in the recoverable amount. A 1% change in WACC would change the recoverable amount by approximately R370 million. The impairment in the Ammonia value chain CGU is as a result of the downturn in the commodity and agricultural industries impacting negatively on the performance of the Fertiliser and Explosive businesses within the Ammonia value chain CGU. A further drop in the Ammonia sales prices, due to a global over supply, also contributed to further lowering product margins in The recoverable amount of the Ammonia CGU is largely impacted by global Ammonia prices and the Rand/US$ exchange rate. A 5% change in the global Ammonia price or Rand/US$ exchange rate assumptions, could change the recoverable amount by approximately R1 961 million. A 1% change in WACC could change the recoverable amount by approximately R220 million. The global market prices and macro-economic factors are outside the control of management. We continue to monitor these CGUs for further impairments and signs of recovery indicating a reversal of impairment. Sasol Acrylates Group The impairment in the investment in the Sasol Acrylates Group was fully reversed by R1 191 million at 30 June Sasol Acrylates South Africa (Pty) Ltd fully reversed the impairment of its own assets at 30 June 2017, based on an update in the distributorship agreement between Sasol Acrylates (South Africa) (Pty) Ltd and Sasol Base Chemicals, a division of Sasol South Africa (Pty) Ltd, confirming that the value of the investment in the Sasol Acrylates Group is recoverable. Significant impairments of assets in prior periods Base Chemicals cash generating units (CGUs) The Base Chemicals CGUs were impaired by R7 063 million at 30 June 2016 mainly due to a R3 130 million impairment in the Polythene CGU, a R3 115 million impairment in the Mining Reagents and Chlor Vinyls CGU and a R581 million impairment in the Methyl Isobutl Ketone (MIBK) CGU. At 30 June 2016 the recoverable amounts of the Polythene, Mining Reagents and Chlor Vinyls and MIBK CGUs are R6 515 million, R1 831 million and zero, respectively. These impairments were largely driven the strengthening of the Rand against the US Dollar and an increase in the WACC. The performance of the Polythene and Mining Reagents and Chlor Vinyls CGUs is highly sensitive to Rand / US$ exchange rate and WACC movements. A 5% change in the exchange rate assumption could change the recoverable amount by approximately R2 123 million for the Polythene CGU and R1 653 million for the Mining Reagents and Chlor Vinyls CGU. A 1% change in the WACC could change the recoverable amount by approximately R340 million for the Polythene CGU and R200 million for the Mining Reagents and Chlor Vinyls CGU. The macro-economic factors are outside of the control of management. We continue to monitor these asset CGUs for further impairments or signs of recovery indicating a reversal of impairment. Performance Chemicals CGUs The Performance Chemicals CGUs were impaired by R7 220 million at 30 June 2016 due to the R5 231 million and R1 989 million impairments in the Wax and the Ammonia CGUs, respectively. At 30 June 2016 the recoverable amounts of the Wax and Ammonia CGUs are R million and R4 833 million, respectively. The performance of the Wax CGU is highly sensitive to prevailing market prices of Wax and Rand/US$ exchange rate movements. The interdependency of these factors on the sales volumes also has a significant impact on the value in use. The impairment was largely driven by lower margins due to lower sales prices as well as the strengthening of the Rand against the US Dollar. A 5% overall change in the Wax market price and Rand/US$ exchange rate assumptions could change the recoverable amount by approximately R1,3 billion. A 1% change in the WACC could change the recoverable amount by approximately R630 million. 11

12 The impairment in the Ammonia value chain CGU is as a result of the downturn in the commodity and agricultural industries impacting negatively on the performance of the Fertiliser and Explosive businesses within the Ammonia value chain CGU. A significant drop in Ammonia sales prices, due to a global over supply, also contributed to lower product margins. The value in use of the Ammonia CGU is heavily impacted by global ammonia prices, the Rand/US$ exchange rate and WACC movements. A 5% change in the global ammonia price and Rand/US$ exchange rate assumptions, considering the related impact on volumes, could change the recoverable amount by approximately R750 million. A 1% change in the WACC could change the recoverable amount by approximately R300 million. The global market prices and macro-economic factors are outside of the control of management. We continue to monitor these CGUs for further impairments or signs of recovery indicating a reversal of impairment. Sasol Acrylates Group The net investment value in the Sasol Acrylates Group was fully impaired by R1 191 million at 30 June The investment value is not considered to be recoverable, due to the current and expected future product selling prices in the Acrylates market being depressed because of the low global oil price outlook. Sasol Acrylates SA (Pty) Ltd fully impaired its own assets at 30 June 2016 confirming that the value of Sasol South Africa (Pty) Ltd s (SSA) investment is not recoverable. Sensitivity to changes in assumptions Management has considered the sensitivity of the value-in-use calculations to various key assumptions such as commodity prices, exchange rates and the WACC rate. These sensitivities have been taken into consideration in determining the required impairments and reversals of impairments. Accounting policies: Remeasurement items are items of income and expense recognised in the income statement that are less closely aligned to the operating or trading activities of the reporting entity and includes, inter alia, the impairment of non-current assets, profit or loss on disposal of non-current assets and scrapping of assets. The company s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, to determine whether there is any indication of impairment. An impairment test is performed on all goodwill, intangible assets not yet in use and intangible assets with indefinite useful lives at each reporting date. The recoverable amount of an asset is defined as the amount that reflects the greater of the fair value less costs of disposal and value in use that can be attributed to an asset as a result of its ongoing use by the entity. Value in use is estimated using a discounted cash flow model. The future cash flows are adjusted for risks specific to the asset and are discounted using a discount rate derived from the group's weighted average cost of capital. The recoverable amount may be adjusted to take into account recent market transactions for a similar asset. Some assets are an integral part of the value chain but are not capable of generating independent cash flows because there is no active market for the product streams produced from these assets, or the market does not have the ability to absorb the product streams produced from these assets or it is not practically possible to access the market due to infrastructure constraints that would be costly to construct. Product streams produced by these assets form an input into another process and accordingly do not have an active market. These assets are classified as corporate assets in terms of IAS 36 when their output supports the production of multiple product streams that are ultimately sold into an active market. The company s corporate assets are allocated to the relevant cash generating unit based on a cost or volume contribution metric. Costs incurred by the corporate asset are allocated to the appropriate cash generating unit at cost. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the cash-generating unit to which the corporate asset belongs. In Southern Africa, the coal value chain originates with feedstock mined in Secunda and Sasolburg and continues along the integrated processes of the operating business units, ultimately resulting in fuels and chemicals-based product lines. Similarly, the gas value chain starts with the feedstock obtained in Mozambique and continues along the refinement processes in Secunda and Sasolburg, ultimately resulting in fuels and chemicals-based product lines. The groups of assets which support the different product lines, including corporate asset allocations, are considered to be separate cash generating units. Certain products are sometimes produced incidentally from the main conversion processes and can be sold into active markets. When this is the case, the assets that are directly attributable to the production of these products, are classified as separate cash generating units. The cost of conversion of these products is compared against the revenue when assessing the asset for impairment. 12

13 8 Acquisition of business Property, plant and equipment Assets under construction 58 2 Intangible assets 100 Post-retirement benefit assets 34 Deferred tax asset/(liability) 43 (58) Inventory 53 Trade and other receivables Long-term provisions Retirement benefit obligations Trade and other payables Other short-term provisions Other (449) (132) (1 339) (9) Net book value (excluding cash) Cash acquired per cash flow statement 676 Net book value acquired On 1 July 2016 Sasol South Africa (Pty) Ltd acquired the net book value of Sasol Technology (Pty) Ltd, excluding current registered intellectual property, for a cash consideration of R1,3 billion. Accounting policies: Common control transactions are business combinations between entities which are ultimately controlled by Sasol Limited. The company applies the predecessor accounting method when accounting for common control transactions, whereby the assets and liabilities of the combining entities are not adjusted to fair value but are rather transferred at their carrying amounts at the date of the transaction. Any difference between the consideration paid/transferred and the net asset value acquired is recognised in retained earnings. No new goodwill will be recognised as a result of the common control transaction. The statement of financial position and income statement will be adjusted from the date of the transaction. for the year ended 30 June Note Rm Rm 9 Taxation South African normal tax current year prior years Foreign tax current year (160) (107) 6 Income tax Deferred tax South Africa 11 (249) (2 610) current year (260) (2 699) prior years Deferred tax foreign prior year 11 2 (47) (981) 13

14 for the year ended 30 June Reconciliation of effective tax rate % % The table below shows the difference between the South African enacted tax rate (28%) compared to the effective tax rate in the income statement. Total income tax expense differs from the amount computed by applying the South African normal tax rate to profit before tax. The reasons for these differences are: South African normal tax rate 28,0 28,0 Increase/(decrease) in rate of tax due to disallowed expenditure 7,5 (7,0) disallowed share-based payment expenses 0,4 (0,5) different tax rates 0,1 reversal of impairment/impairment of investment in the Sasol Acrylates Group 1 (10,1) (9,2) exempt income (3,2) investment incentive allowances (19,1) 15,1 prior year adjustments 2 other adjustments Effective tax rate 1 The prior year impairment in the Sasol Acrylates Group was fully reversed at 30 June The prior year adjustments relate mainly to the section 12L energy efficiency allowances. (4,4) 0,4 (0,5) (1,4) 26,9 for the year ended 30 June Note Rm Rm 10 Tax paid Net amounts receivable at beginning of year (1 985) (1 520) Net interest on tax (96) (57) Income tax per income statement (1 881) 52 Net tax receivable per statement of financial position Per the statement of cash flows Comprising Normal tax South Africa Foreign for the year ended 30 June Note Rm Rm 11 Deferred Tax Reconciliation Balance at beginning of year Current year charge (248) (2 548) per the income statement 9 (247) (2 645) per the statement of comprehensive income (1) 97 Acquisition of other businesses (43) 58 Balance at end of year

15 11 Deferred Tax continued Deferred tax is attributable to temporary differences on the following Net deferred tax liabilities: Property, plant and equipment Current assets (24) 7 Current liabilities (193) (195) Short- and long-term provisions (3 090) (2 894) Financial liabilities 2 Other (161) (501) Accounting policies: The income tax charge is determined based on net income before tax for the year and includes deferred tax. The current tax charge is the tax payable on the taxable income for the financial year applying enacted or substantively enacted tax rates and includes any adjustments to tax payable in respect of prior years. Deferred tax is provided for using the liability method, on all temporary differences between the carrying amount of assets and liabilities for accounting purposes and the amounts used for tax purposes and on any tax losses. No deferred tax is provided on temporary differences relating to: the initial recognition of goodwill; the initial recognition (other than in a business combination) of an asset or liability to the extent that neither accounting nor taxable profit is affected on acquisition; and investments in subsidiaries, associates and interests in joint arrangements to the extent that the temporary difference will probably not reverse in the foreseeable future and the control of the reversal of the temporary difference lies with the parent, investor, joint venturer or joint operator. The provision for deferred tax is calculated using enacted or substantively enacted tax rates at the reporting date that are expected to apply when the asset is realised or liability settled. Deferred tax assets and liabilities are offset when the related income taxes are levied by the same taxation authority, there is a legally enforceable right to offset and there is an intention to settle the balances on a net basis. Areas of judgement: A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the deferred tax asset can be utilised. The provision of deferred tax assets and liabilities reflects the tax consequences that would follow from the expected recovery or settlement of the carrying amount of its assets and liabilities. 15

16 12 Share capital Issued share capital (as per statement of changes in equity) Number of shares Authorised Ordinary shares of no par value Issued - no par value shares Shares issued at beginning of year Shares issued during the year 1 Shares issued at end of year Share Capital The capital of the company is managed by its ultimate holding company, Sasol Limited, by means of an approved group funding policy, which determines each group entity s required rate of return. Accounting policies: Issued share capital is stated in the statement of changes in equity at the amount of the proceeds received less directly attributable issue costs. for the year ended 30 June Note Rm Rm 13 Long-term debt Fellow subsidiaries External Total long-term debt Short-term portion (3 048) (78) Analysis of long-term debt At amortised cost Finance leases* Unsecured debt Reconciliation Balance at beginning of year Loans raised Loans repaid (3 053) (853) Translation effect of foreign currency loans (14) 36 Balance at end of year Interest-bearing status Interest-bearing debt Non-interest-bearing debt Maturity profile Within one year One to five years More than five years *Mainly relate to IFRIC 4 deemed finance leases for the Sasolburg Oxygen plant and the BASF Catalyst plant in the Netherlands. 16

17 13 Long-term debt continued Fair value of long-term debt The fair value of long-term debt is based on the current rates available for debt with the same maturity profile and with similar cash flows. A market related rate of 9,32% was used to discount estimated cash flows based on the underlying currency of the debt. Rm Rm Total long-term debt Terms of repayment Security Business Currency Finance leases Interest rate at 30 June 2017 Rm Rm Repayable in equal monthly instalments ending November 2030 Underlying assets Base and Performance Chemicals Various Fixed 3,7% to 13% Other finance leases Underlying assets Various Various Various Terms of repayment Business Currency Unsecured debt Interest rate at 30 June 2017 Rm Rm Repayable in annual instalments ending June 2026 Repayable on 30 days written notice from Sasol Limited 1 Energy, Base and Performance Chemicals Rand Jibar + 2,5% Sasol South Africa (Pty) Ltd Rand Fixed 0% Total unsecured debt Total long-term debt Short-term portion of long-term debt (3 048) (78) Sasol South Africa (Pty) Ltd purchased 100% of the shares in Sasol Gas (Pty) Ltd from Sasol Limited on 30 June 2017 for R51,2 billion (fair value). The purchase was funded by a loan from Sasol Limited at 0% interest. The loan is payable on 30 day s written notice from Sasol Limited to SSA. Accounting policies: Debt, which constitutes a financial liability, includes short-term and long-term debt. Debt is initially recognised at fair value, net of transaction costs incurred and is subsequently stated at amortised cost. Debt is classified as short-term unless the borrowing entity has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Debt is derecognised when the obligation in the contract is discharged, cancelled or has expired. Premiums or discounts arising from the difference between the fair value of debt raised and the amount repayable at maturity date are charged to the income statement as finance expenses based on the effective interest method. 17

18 14 Short-term debt Subsidiaries Fellow subsidiaries Total short-term debt Short-term portion of long term debt Reconciliation Balance at beginning of year Loans raised Loans repaid (11 020) (11 381) Interest accrued 145 Balance at end of year Interest-bearing status Interest-bearing debt Non-interest-bearing debt Short term debt bears interest at market related rates and has no fixed terms of repayment. Security Short-term debt is unsecured. Fair value of short-term debt The carrying value of short-term debt approximates its fair value because of the short period to maturity. Land Building and improvements Plant, equipment and vehicles Rm Rm 15 Property, plant and equipment Carrying amount at 30 June Additions Acquisition of other businesses Net reclassification from other assets Projects capitalised Disposals and scrapping (7) (4) (155) (166) Current year depreciation charge (238) (7 917) (8 155) (Impairment)/reversal of impairment of property, plant and equipment 44 (7 681) (7 637) Carrying amount at 30 June Total 18

19 15 Property, plant and equipment continued Land Building and improvements Plant, equipment and vehicles Rm Rm Carrying amount at 30 June Additions Acquisition of other businesses Net reclassification from/(to) other assets (55) Projects capitalised Disposals and scrapping (1) (3) (155) (159) Current year depreciation charge (203) (7 609) (7 812) Net impairment of property, plant and equipment (44) (12 472) (12 516) Carrying amount at 30 June Total 2017 Cost Accumulated depreciation and impairment (2 166) (47 202) (49 368) Cost Accumulated depreciation and impairment (1 932) (34 807) (36 739) Cost Accumulated depreciation and impairment (1 651) (17 909) (19 560) Additions to property, plant and equipment (cash flow) Current year additions Adjustments for non-cash items movement in environmental provisions capitalised (21) Per the statement of cash flows

20 Leased assets Carrying value of capitalised leased assets (included in plant, equipment and vehicles) cost accumulated depreciation Capital commitments (excluding equity accounted investments) Capital commitments, excluding capitalised interest, include all projects for which specific board approval has been obtained. Projects still under investigation for which specific board approvals have not yet been obtained are excluded from the following: (384) (334) Authorised and contracted for Authorised but not yet contracted for Less expenditure to the end of year (11 473) (12 907) Estimated expenditure Within one year One to five years Funding Capital expenditure will be financed from funds generated out of normal business operations, exisitng borrowing facilities, specific project financing and additional capital contributions from Sasol Limited. Accounting policies: Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Land is not depreciated. When plant and equipment comprises major components with different useful lives, these components are accounted for as separate items. Property, plant and equipment is depreciated to its estimated residual value on a straight- line basis over its expected useful life. Areas of judgement: The depreciation methods, estimated remaining useful lives and residual values are reviewed at least annually. The estimation of the useful lives of property, plant and equipment is based on historic performance as well as expectations about future use and therefore requires a significant degree of judgement to be applied by management. The following depreciation rates apply in the company: Buildings and improvements 2 5 % Plant 4 5 % Equipment % Vehicles % 20

21 Property plant and equipment construction under Other intangible assets under development 16 Assets under construction Balance as at 30 June Additions to sustain existing operations to expand operations Acquisition of other businesses Finance costs capitalised Reversal of impairment of assets under construction Projects capitalised (9 936) (210) (10 146) Total Rm Disposals and scrapping (92) (92) Balance at 30 June Property plant and equipment construction under Other intangible assets under development Total Rm Balance as at 30 June Additions to sustain existing operations to expand operations Acquisition of other businesses 2 2 Net reclassification from/(to) other assets (14) 4 (10) Finance costs capitalised Impairment of assets under construction (2 385) (2 385) Projects capitalised (11 821) (815) (12 636) Disposals and scrapping (50) (43) (93) Balance at 30 June Additions to assets under construction (cash flow) Rm Rm Current year additions Adjustments for non-cash items cash flow hedge accounting (4) 5 Per the statement of cash flows The company hedges its exposure in South Africa to foreign currency risk in respect of its significant capital projects. This is done primarily by means of forward exchange contracts. Cash flow hedge accounting is applied to these hedging transactions and accordingly, the effective portion of any gain or loss realised on these contracts is adjusted against the underlying item of assets under construction. 21

22 Accounting policies: Assets under construction Assets under construction are non-current assets, which includes land and expenditure capitalised for work in progress in respect of activities to develop, expand or enhance items of property, plant and equipment and intangible assets. The cost of self-constructed assets includes expenditure on materials, direct labour and an allocated proportion of project overheads. Cost also includes the estimated costs of dismantling and removing the assets and site rehabilitation costs to the extent that they relate to the construction of the asset as well as gains or losses on qualifying cash flow hedges attributable to that asset. When regular major inspections are a condition of continuing to operate an item of property, plant and equipment, and plant shutdown costs will be incurred, an estimate of these shutdown costs are included in the carrying value of the asset at initial recognition. Land acquired, as well as costs capitalised for work in progress in respect of activities to develop, expand or enhance items of property, plant and equipment are classified as part of assets under construction. Finance expenses in respect of specific and general borrowings are capitalised against qualifying assets as part of assets under construction. Where funds are borrowed specifically for the purpose of acquiring or constructing a qualifying asset, the amount of finance expenses eligible for capitalisation on that asset is the actual finance expenses incurred on the borrowing during the period less any investment income on the temporary investment of those borrowings. Where funds are made available from general borrowings and used for the purpose of acquiring or constructing qualifying assets, the amount of finance expenses eligible for capitalisation is determined by applying a capitalisation rate to the expenditures on these assets. The capitalisation rate is the weighted average of the interest rates applicable to the borrowings of the company that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining qualifying assets. The amount of finance expenses capitalised will not exceed the amount of borrowing costs incurred. for the year ended 30 June 17 Intangible Assets Rm Rm Patents and trademarks 3 3 Software Other intangible assets and emission rights Accounting policies: Intangible Assets Intangible assets are stated at cost less accumulated amortisation and impairment losses. These intangible assets are recognised if it is probable that future economic benefits will flow to the entity from the intangible assets and the costs of the intangible assets can be reliably measured. Intangible assets with finite useful lives are amortised on a straight-line basis over their estimated useful lives. The amortisation methods and estimated remaining useful lives are reviewed at least annually. The estimation of the useful lives of other intangible assets is based on historic performance as well as expectations about future use and therefore requires a significant degree of judgement to be applied by management. The following amortisation rates, based on the estimated useful lives of the respective assets were applied: Software % Patents and trademarks % 20 Other intangible assets % 6-33 Intangible assets with indefinite useful lives are not amortised but are tested at each reporting date for impairment. The assessment that the estimated useful lives of these assets are indefinite is reviewed at least annually. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as incurred. Research expenditure relating to gaining new technical knowledge and understanding is charged to the income statement when incurred. Development expenditure relating to the production of new or substantially improved products or processes is capitalised if the costs can be measured reliably, the products or processes are technically and commercially feasible, future economic benefits are probable, and the business unit intends to and has sufficient resources to complete development and to use or sell the asset. All remaining development expenditure is charged to the income statement. Cost includes expenditure on materials, direct labour and an allocated proportion of project overheads. Purchased software and the direct costs associated with the customisation and installation thereof are capitalised. Expenditure on internally-developed software is capitalised if it meets the criteria for capitalising development expenditure. Other software development expenditure is charged to the income statement when incurred. Patents and trademarks expenditure on purchased patents and trademarks is capitalised. Expenditure incurred to extend the term of the patents or trademarks is capitalised. All other expenditure is charged to the income statement when incurred. Emission rights (allowances) received from a government or a government agency and expenditure incurred on purchasing allowances are capitalised as indefinite life intangible assets at the quoted market price on acquisition date and are subject to an annual impairment test. 22

23 18 Equity accounted investments Amounts recognised in the statement of financial position: Investments in associates 11 9 Amounts recognised in the income statement: Share of profits of equity accounted investments, net of tax 10 6 Amounts recognised in the statement of cash flows: Dividends received from equity accounted investments 8 7 At 30 June, the company s interest in equity accounted investments and the total carrying values were: Country of Interest Name incorporation Nature of activities % Rm Rm Associates Clariant Sasol Catalysts (Pty) Ltd South Africa Manufacture of catalyst Summarised financial information for the company's share of equity accounted investments which are not material*** Operating profit 14 8 Profit before tax 14 8 Taxation (4) (2) Profit and total comprehensive income for the year 10 6 *** The financial information provided represents the company's share of the results of the equity accounted investment. Impairment testing of equity accounted investments Based on impairment indicators at each reporting date, impairment test in respect of investments in associates are performed. The recoverable amount of the investment is compared to the carrying amount to calculate the impairment. There are no significant restrictions on the ability of the associate to transfer funds to Sasol South Africa (Pty) Ltd in the form of cash dividends or repayment of loans or advances. Accounting policies: The financial results of associates are included in the company s results according to the equity method from acquisition date until the disposal date. Under the equity method, investments in associates are recognised initially at cost. Subsequent to the acquisition date, the company s share of profits or losses of associates is charged to the income statement as equity accounted earnings and its share of movements in equity reserves is recognised as other comprehensive income or equity as appropriate. An associate is an entity, other than a subsidiary, joint venture or joint operation, in which the company has significant influence, but no control or joint control, over financial and operating policies. 23