Financial Times Europe - 04.03.2020

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, Mr

Wirthsaid. 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,highlightinga

lower 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— FRANKFURT

The 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 data

centre 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

2018. 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— LONDON

UBS 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 partly

overshadowed 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 Mr

Kielholz. “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/Alamy

The cost of

managing

data via

internal

server

rooms and

data centres

can be

prohibitive

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 on

how they create value’

Africa’s share of world market

Per cent

Source: Xalam Analytics

Population

Mobile

connections

Broadband

connections

GDP

G

Data centre

space

    

MARCH 4 2020 Section:Companies Time: 3/3/2020- 18:53 User:jon.wright Page Name:CONEWS3, Part,Page,Edition:USA, 14, 1