Energy and chemicals group Sasol reported on Tuesday that it had finalised currency hedges with a total notional amount of $4-billion for its 2018 financial year. The hedges represent about 70% of its expected net rand/US dollar exposure for the period, which runs until June 30, 2018.
The programme is based on zero-cost collar instruments, using a yearly average floor of R13.46 to the dollar and an annual average cap of R15.51.
Sasol has cautioned that ongoing rand/dollar volatility poses earnings risks, with a 10c move in the rand/dollar exchange rate having a R740-million impact on annualised earnings.
News of the hedges comes amid heightened rand/dollar volatility, following President Jacob Zuma’s March 31 Cabinet reshuffle.
Prior to that event, the rand had been one of the best performing currencies globally in 2017, reaching a 20-month high of R12.31 to the dollar on March 27.
Speaking on February 27, Sasol CFO Paul Victor said the the strong rand/dollar exchange rate might negate the improved fundamental performances of the company during the second half of its 2017 financial year.
However, since the March 31 reshuffle the currency had weakened materially, trading at levels approaching R14 to the dollar.
Sasol said the hedges would provide it with some cash flow and balance-sheet protection, with gearing and net debt to earnings before interest, taxes, depreciation and amortisation levels expected to peak during the 2018 financial year.
The currency hedges follow Sasol’s December announcement that it had entered into crude oil put options, to provide protection against adverse movements in commodity and final product prices. A $1/bl change in the crude oil price affects the group’s earnings by as much as R730-million.
“Sasol has completed the majority of its rand/US dollar hedging programme for the 2018 financial year ending on 30 June 2018 using zero-cost collar instruments,” the company said, adding that it would make further announcements should additional material hedges be put into place.