14 ★ FINANCIAL TIMES Wednesday4 March 2020
COMPANIES
G R E G O RY M E Y E R— NEW YORK
Chevronis set to return as much as
$80bntoshareholdersoverthenextfive
years, pledging greater payouts and
share buybacks in an industry plagued
bypoorreturns.
Michael Wirth, chief executive, said
conservative gearing, disciplined capi-
tal spending, and cost controls would
enable the second-largest US oil group
to raise its return on capital from 7 per
cent currently to more than 10 per cent
by 2024 with Brent crude oil prices at
$60abarrel.
The California-based company last
registered double-digit returns on capi-
tal in 2013, when oil prices were more
than $100 a barrel, according to S&P
GlobalMarketIntelligence.
“Investors in Chevron don’t need to
worryaboutaweakercommodityprice.
We’re built for it,” Mr Wirth told securi-
ties analysts at a presentation in New
York.
The business had the “potential” to
return $75bn to $80bn to shareholders
through dividends and share repur-
chases over the next five years, MrWirthsaid. Last year Chevron paid out
$9bn in dividends and bought back
$4bn of its stock. The presentation
attempted to easeinvestors’ doubts ni
the face of industry capital spending
that has not paid off and questions over
futuredemandforfossilfuels.
US energy stocks have delivered total
returns of 9 per cent in the past decade,
compared with more than 240 per cent
for the S&P 500. Chevron has outper-
formed US peers but lagged the broader
market. Its shares were 0.6 per cent
lowerat$95.98atmiddayyesterday.
Chevron also sought to differentiate
itself from peers includingExxonMobil,
BPandRoyalDutchShell,highlightingalower debt ratio and oil price at which it
couldfunddividendsoutofcashflow.
The company forecast compound
annual production growth of more 3 per
cent from 2019-24, excluding future
asset sales. In the Permian Basin of the
US it expects production to more than
double to 1.2m barrels of oil equivalent
per day, while the company said it
would holdcapital spending teady ats
between$19bn-$22bnayear.
Questioned ongreen targets, follow-
ing BP’s pledge last monthto bring its
greenhouse gas emissions to “net zero”
by 2050 or sooner, Chevron highlighted
efforts to reduce emissions per unit of
oilandgasproduction—knownasemis-sions intensity. “Certainly the European
companieshavemadelonger-termaspi-
rational commitments. What we’ve
done is given you things that are very
tangible here and now that we’re doing
today,”MrWirthsaid.
Unlike ExxonMobil andConocoPhil-
lips, Chevron has not joined the Climate
Leadership Council’s push for acarbon
tax a nddividendintheUS.
“The specifics matter. Just because
we’re in favour of carbon pricing doesn’t
mean we would sign on to any carbon
price scenario,” Mr Wirth said. He said
thecompanytalkedoftentothecouncil,
“but we’ve not been able to find com-
mongroundyettojointhatgroup”.J O E M I L L E R— FRANKFURTThe chief executive ofPorsche ash
warnedthatthecostoflithium-ionbat-
teries, by far the most expensive com-
ponent in an electric car, is unlikely to
drop for at least five years, complicat-
ing carmakers’ attempts to generate
profitsfromemissions-freemodels.Oliver Blume, whose company has just
begun delivering its first battery-pow-
ered sports car, the Taycan,said the
industryfaced supply constraints for
the “next few years. I don’t expect
decreasing costs in batteries, because
there is a big demand and we still have a
bottleneckinproductioncapacities”.
Although Porsche has fixed contracts
with battery suppliers such as South
Korea’sLG Chem, Mr Blume raised the
possibility that rivals could see their
price soar, before the electric-car mar-
ket becomes big enough to benefit from
economies of scale. Porsche is part of
Volkswagenand Mr Blume sits on the
VWboard.
The forecast will frustrate many
Europeancar manufacturers, who must
sell hundreds of thousands of electric
vehicles over the next few years in order
tocomplywithEUregulations.
The industry had been hoping that
battery-poweredmodels,whicharesold
either at a loss or for very small returns,
would begin making money as the cost
oftheircoretechnologyplummeted.
Porsche’sTaycan, which is the first
European rival toTesla’s Model S, will
not be profitable for a few years, Mr
Blume confirmed, despite already
securing30,000orders.
The rapid growth of electric vehicles,
spearheaded by VW’splans to produce
26memissions-freecarsinthenextnine
years, is expected to almost quadruple
demandforbatteriesby2025.
Thegroup is investing in its own,
domestic cell-building facilities, in con-
junction with Swedish developerNorth-
volt, but is largely reliant on Asia bat-
tery suppliers, which dominate the
industry. Europe is staging a late surge
into battery manufacturing, with the
likes ofBASF nda Opel eceiving stater
aid to buildgigafactories, but those
facilities are unlikely to come online for
afewyears.
VW ossb Herbert Diesssaid last week
that the carmaker had secured enough
battery supply to see it through until
2023, by which point it hopes to have
produced1melectriccars.
Those comments came as production
of emissions-free vehicles atAudi, one
of VW’s brands, in Belgium was forced
to a halt due to delays in the delivery of
batterycells.
“That’s a typical thing that happens
when you ramp p a new technology,”u
said Hildegard Wortmann, Audi’s board
memberresponsibleforsales.
But Ms Wortmann, who earlier on in
her career helped launchBMW’s elec-
tric models, warned that the price of
Audi’s battery-powered models were
unlikely to drop, even if battery costs
were reduced. “Whenever we get cost
savingsintermsofscalability,[Audiwill
invest] into better cell performance and
cell intensity, etc, to build on the
reach.”She said electric models would
needa reach of about 500km before the
savings in battery costs could be passed
ontoconsumers.N E I L M U N S H I LAGOS—
International investors are rushing to
fund a boom in the African cloud com-
puting market as the proliferation of
smartphones and mass adoption of
businesssoftwarefuelsdemandfordata
centrestopowerthetechnology.
Africaaccountsforlessthan1percent
of available global data centre capacity,
according toXalam Analytics, despite
being home to about 17 per cent of the
world’s population. However, its capac-
ityhasdoubledinthepastthreeyears.
Among those to invest isActis, a pri-
vateequityfirminLondonthatisinject-
ing $250m into African data centres
overthenextthreeyears,startingwitha
controlling stake inRack Centre, a Nige-
riancompanythatserveswestAfrica.
The investment will fund a doubling
of Rack Centre’s 750kW capacity and its
regional expansion, creating one of the
largestdatacentresonthecontinent.
“Ifyoulookatthetrendsarounddata,
data consumption, cloud migration glo-
bally — those trends have played out in
many markets and have led to signifi-
cant growth of the data centre sector,”
saidKabirChal,directoratActis.
Africa is no different. You see digiti-“
sation, the inexorable migration to
cloud, and really the advent of big data
but,asaconsequence,thesupplyofdata
hasn’tkeptup.”
Where governments and companies
have historically used in-house servers
for storage and computing, rising
demandis leading them to outsource
these capabilities to external centres.
These large facilities, once the province
oftelecomsoperators,arenowmorefre-
quentlyrunbyindependentcompanies.
A driver for the localisation of data
storage is that it improves connection
speeds since users no longer have to
fetch data from the other side of the
world,whileitisalsobeingmandatedby
governments that stipulate that local
databehosteddomestically.
For companies operating in Africa,
particularly in banking and energy, the
cost of managing their own data via
internal server rooms and data centres
can be prohibitive, said Uzoma Dozie,
former chief executive of Diamond
BankinNigeria.
“Cyber security is not an expert capa-
bility of banks, and continuous upgrad-
inganddevelopment[ofdatacentres]is
expensive,” said Mr Dozie. “So there’s a
big opportunity there, as more people
begin to use cloud services instead of
havingtheirowndataservers.”
But data storage companies operating
in Africa face a lack of infrastructure
thatfurthercomplicatesacapital-inten-
sive, power-hungry business. Compa-
nies often rely on electricity generators
running on costly fuel, while slow inter-
net speeds, high data costs and a lack of
fibre networks — plus the increased cost
of capital in countries perceived as risky
—furtherconstraintheiroperations.
“We have to fundamentally build our
ownpowergeneratingcapabilitytogeta
level of reliability and consistency, so
thatisacapitalcostinitself,”saidTunde
Coker, managing director of Rack Cen-
tre, which connects to more than 36 tel-
ecoms operators across west Africa,
includingOrange,MTN nda Airtel.
TheActisinvestmentispartofatrend
of international players looking tosub-
Saharan Africa, where the total datacentre capacity equals about a quarter
of London’s or half of Frankfurt’s,
accordingtoXalam.
Last year,Berkshire Partners, a pri-
vate equity firm in Boston, acquired a
stake inTeraco Data Environments,
which owns Africa’s largest data centre
and powers much of the cloud comput-
ing in South Africa, saying it aimed to
doublecapacityto60MW.
Microsoft lso launched its first Afri-a
can cloud data centres last year in the
country, which is a key growth market
alongside Nigeria, Kenya and Ghana
and accounts for roughly half of Africa’s
datacentrecapacity.Amazon ebServ-W
ices plans to open a cluster of centres in
CapeTowninitsfirstforayinAfrica.
Bothwillrelyonindependentssuchas
Rack Centre and Africa Data Centers,
the South Africa-basedLiquid Telecom
unit that plans to double its 25MW
capacityinthecomingyear.The growth of data centres will help
boost internet speeds that are among
the slowest and costliest on earth. One
chief benefit is that independent com-
panies, as opposed to centres owned by
telecoms companies,can offer clients
dozensofconnectivityoptions.
“The big success.. is where you.
have a neutral data centre where there
are a lot of various providers of connec-
tivity,” saidStephane Duproz, chief
executiveofAfricaDataCenters.“Those
cloud providers need a diversity of con-
nectivity where they establish them-
selves. You will never see a big deploy-
mentofcloudinatelcodatacentre.”
Mr Duproz, whose company has
China Telecom as one of dozens of con-
nectivity providers at its sites, said the
Chinese had not yet made big invest-
ments in data centres in Africa. How-
ever, he added that “it’s definitely a con-
versationtheyarehaving”.R I C H A R D M I L N E— OSLO
Norway’s $1.1tn oil fund quizzedAma-
zon bout human rights,a Citigroup
about anti-money laundering systems,
andGE andMicrosoft bout executivea
pay as it stepped up meetings with
companiesinthepastyear.
The fund is increasing its work on sus-
tainability and issues such as tax, talk-
ing toToyota nda Volkswagen bouta
their sourcing of cobalt andHershey
about the use of child labour and defor-
estation in the cocoa supply chain,
according to its 2019 responsible invest-
mentreport.
“The way companies approach these
themes will have an impact on how they
create value in the long term,” said Car-
ine Smith Ihenacho, chief corporate
governance officer at the oil fund’s
manager.
The fund has quadrupled its assets in
the past decade and on average owns 1.
per cent of every listed company glo-bally, and it has been grappling with
what itssize means for how it deals with
companies, a challenge outgoing chief
executiveYngve Slyngstad ast weekl
calledthebiggestfacingtheinvestor.
Ms Ihenacho stressed the fund issued
a number of expectation documents on
“importantthemes”suchasboardcom-
position, human rights, anti-corruption
measuresandexecutivepay.
Its sustainability report details some
of the 3,412 meetings it held with 1,
companies last year — up from 3,256 in- It spoke to Citi and 13 other banks
about their anti-money laundering sys-
tems after a series of scandals involving
lenders such as Danske Bank, Swed-
bank and ABN Amro. The fund also
pushes companies to have a human
rights policy and talked to Amazon
about the ecommerce retailer’s newly
issuedprinciples.
The disclosure offers a rare insight for
howtheworld’slargestsovereignwealth
fund interacts with its biggest share-
holdings.
The oil fund also revealed how it had
voted against four of its top five share-
holdings at their annual meetings,
namelyApple,Alphabet,Nestlé nda
Amazon on issues such as pay and
“overboarding” — where non-executive
directors have too many positions.
Other targets for its votes against the
board’s recommendations included
Facebook, Tencent nda JPMorgan
Chase.
The $1.1tn fundreleases all its votes a
day after annual meetings, but is gear-
ing up to announce them before all
AGMs by the end of 2022. Ms Ihenacho
said the fund might increase its staffing
by “one or two” but was committed to
beingcost-efficient.
Thefund showed how selling out of
big coal producers and users led to its
return increasing last year, bucking a
long-term trend.The move added 0.
percentage points to its equity returns
in2019.ST E P H E N M O R R I S A N D
O L I V E R R A L P H— LONDONUBS hief executivec Sergio Ermotti s toi
become chairman of insurance
groupSwissRe,endinggrowingspecula-
tion in Zurich that he would eventually
step up to replaceAxel Weber s chair-a
manoftheSwissbank.
Mr Ermotti will join theboard next
month and become chairman in 2021,
the reinsurer said. He will replaceWal-
ter Kielholz, a former chairman of
Credit Suisse ho has been on the boardw
oftheinsurerformorethantwodecades
andchairmansince2009.
Mr Ermotti’s contract with Swiss Re
does not allow him to take on another
chairmanship. He had been seen as a
potentialcandidateforchairmanofUBS
whenMrWeber tepsdown.s
UBS said last month that Mr Ermotti
would be replaced yb Ralph Hamers,
chiefexecutiveofDutchlenderING,one
of several changes nder way in the topu
management of European banks,
includingHSBC ndCreditSuisse.a
Mr Ermotti will leave UBS in Novem-
ber after nine years as chief executive,
during which he shrunk the investment
bank and focused on growing wealth
management. His tenure was partlyovershadowed by a €4.5bn penalty that
aFrenchcourtimposedonUBSlastyear
inataxevasionscandal.
The Swiss executive received
SFr12.5m ($12.9m)in compensation
from UBS last year, down 11 per cent
from SFr14.1m in 2018. The cut
reflectedshareholder protests at UBS’s
high pay levels. His compensation at
SwissRehasnotbeendisclosedyet.
AlthoughMr Ermotti has never
run an insurance company, Mr Kielholz
saidreinsurance was “not so different
frombanking”.
“Sergio Ermotti is very familiar with
the asset side of our business,” said MrKielholz. “He’s market-savvy, he knows
aboutassetmanagement,andheunder-
standscorporatefinanceissues.
“What I like is his international
network... with governments, finan-
cial institutions and multinationals.”
Swiss Re is recovering after atough
year n which profits were hit by naturali
catastrophes in the US, Japan and Aus-
tralia. It hasbeen restructuring its cor-
porate solutions business fter a seriesa
ofheavyclaims.
Mr Ermotti started his career as an
investment banker withMerrill Lynch,
andhad a stint withUniCredit eforeb
joining UBS in 2011. He was elevated to
chief later that year after his predeces-
sorsteppeddown.
MrKielholztookontheSwissReposi-
tion during the financial crisis, shortly
after the company received a capital
injection fromWarren Buffett’sBerk-
shireHathaway.
Since then, Swiss Re has recovered,
with the share price rising from SFr
whenhebecamechairmantomorethan
SFr93today.
Over the past few years e has steeredh
the group through talks over a deal with
SoftBank, which led to nothing, and
the sale ofReAssure, its UK life insur-
ancebusiness,toPhoenixGroup.Oil & gas
Chevron plans $80bn payout to investors
Chief hails spending
discipline, conservative
gearing and cost control
Technology. ata centresD
Sky’s the limit for
cloud computing
market in Africa
Private equity is leading the
charge in a region yearning for
fast speeds and connectivity
The expansion
of data centres is
expected to help
boost internet
speeds that are
among the
slowest on earth
Mint Images/AlamyThe cost of
managingdata via
internalserver
rooms anddata centres
can beprohibitive
Financials
Norway fund grills boards on sustainability
Insurance
Ermotti to be installed as Swiss Re chairman
Automobiles
Porsche boss
warns over
lithium-ion
battery costs
Outgoing UBS boss Sergio Ermotti will
fill the role at the insurer from 2021‘The way companies
approach these themes
will have an impact onhow they create value’
Africa’s share of world market
Per centSource: Xalam AnalyticsPopulationMobile
connections
Broadband
connectionsGDP GData centre
spaceMARCH 4 2020 Section:Companies Time: 3/3/2020- 18:53 User:jon.wright Page Name:CONEWS3, Part,Page,Edition:USA, 14, 1