Select Page

“The transformations we are witnessing in the Angolan oil sector are bound to propel the country to a level of development and sustainable economic wealth it has never seen before”

“The transformations we are witnessing in the Angolan oil sector are bound to propel the country to a level of development and sustainable economic wealth it has never seen before”

By NJ Ayuk, founder and chief executive of Centurion Law Group and the executive chair of the Africa Energy Chamber of Commerce.

APO — In December, I was accompanying OPEC Secretary General Mohammed Sanusi Barkindo and Africa Oil and Power CEO, Guillaume Doane on a working visit to Angola. This is an oil market that has been under a lot of scrutiny by many industry players and there is no question that Angola’s oil sector is at a time of transformation. It is now clear that when President João Lourenço’s promised he would clean the country’s administration and revamp its economic engine, the national oil company Sonangol, he meant business.

Certainly, his plans are driven by a medium to long-term vision of diversifying the economy from oil, but in a nation so dependent on the black gold for its economic lifeblood (oil accounts for as much as 90% of Angola’s exports), it is in the oil industry that the funds for developing other sectors will be found.

Since his term in office started in 2017, the administration of nearly every national strategic asset has been changed. Particularly in Sonangol, the leadership of Africa’s richest woman, Isabel dos Santos, has been replaced by an oil industry-savvy technocrat Carlos Saturnino, who has over 30 years of oil industry experience within Sonangol’s core businesses.

This is a man much less likely to spend the company’s resources in questionable investments in healthcare, hospitality, aviation or sports clubs, than previous administrations of politically-charged leaders have been, and which has led to Sonangol’s current dire financial situation. Further, the new Minister of Oil and Mineral Resources, Diamantino Azevedo, announced, last September, that fifty-four concessionaires under the Sonangol umbrella were to be privatized in the run up to 2022, in order to shed costs, reduce operational complexity and allow the national oil company to focus on its core business.

Earlier in the year, the government announced a full revamp of the country’s legal framework for the oil and gas industry, which would include the landmark decision of striping Sonangol from its role as oil block concessionaire. That responsibility will pass to the newly created National Agency of Petroleum and Gas, a migration of duties that should be concluded during the second quarter of 2019. The decision puts an end to decades of conflict of interests between Sonangol’s role as an oil and gas operator and concessionaire of oil and gas blocks.

Furthermore, over the last eighteen months, the Angolan government has put in place official policies that have largely simplified investment in the hydrocarbons sector, clarified and brought transparency to the rules applicable to bidding rounds and public tenders, and introduced the country’s first comprehensive antitrust law, in a row of decisions that is dramatically changing the industry’s landscape. In all, the decisions taken over the oil and gas sector sound like a housecleaning operation and will hopefully see Sonangol quickly become more efficient and focused on its core business. However, that will not be enough.

Strong but pragmatic commonsense measures:

The first eleven months of 2018 saw Angola make more money from oil than in any of the previous four years, at the tune of US$$8.7 billion. While that goes some way to help the country’s economy as a whole, those results can not be attributed to the recent reforms in the sector. The rise in oil prices witnessed in the run up to November 2018 produced most of the gains.

November 2018 marked the highest price per barrel for Angolan oil (nearly US$$80) since November 2014. The average price in the year up to November stood at US$$70,82, while the national state budget had been built on an expected average price of US$$50 per barrel for the year.

This was welcome news for the cash-strapped economy but it can also be misleadingly positive. While the income is rising, production is declining. 2018 marked the first time Angola’s average daily production stood below the 1.5 million barrel mark in over a decade.

The lack of investment in exploration witnessed in the wake of the oil price collapse in 2014 (which resulted in a drastic decrease in exploration wells culminating in a zero count for 2018) means that there are no new projects and reserves to replace the declining and ageing active oil fields. João Lourenço and his cabinet needed to get to work in order to attract investment and revamp the industry.

In part, this work will take the form of the Angolan Marginal Field Bid Round of 2019, the first bid round in the country in over 8 years. As the new investment attraction policies slowly start to impact the sector and again bring the industry’s big players into the country’s least charted waters, the new legal framework created to facilitate the exploitation of the country’s marginal oil fields will go a long way in slowing down the declining oil production.

At the same time, Sonangol has drafted an ambitious plan to develop its downstream sector. After securing a US$$200 million financing package to quadruple the capacity of the Luanda refinery, it is now in the last stages of contracting the construction of two new refineries, one in Lobito and another in Cabinda. These projects will help address the long-standing issue of fuel imports, which today account for 80% of Angola’s fuel consumption.

These are long-term plans to address some of the country’s most pressing structural issues preventing it from rising as a wealthy nation despite its immense natural resources. At the same time, Sonangol has been signing deals in recent months with the likes of BP and ExxonMobil to streamline development in a number of offshore oil fields. These deals have been facilitated by the renewed confidence these companies feel in the Angolan oil landscape. The words of BP chief executive Bob Dudley in December, when the two companies agreed on the joint development of block 18, are telling of this brighter vision for the sector. “I would like to thank President Lourenço, the government and Sonangol for their vision, leadership and drive to improve the industry’s competitiveness and encourage new investment”, he said in a statement.

Another factor underlying optimism for the future of the industry is the reviewed natural gas policy. Up until now, Angola’s hydrocarbon licenses referred solely to crude oil resources. Sonangol is technically the owner of all of the country’s natural gas resources, which are considerable. However, the national oil company has never really explored those assets, preferring to focus on the more profitable oil reserves. This will now also change, as a new policy will give license-holders control over the natural gas resources within their licenses, which could see a renewed expansion of the sector beyond the single standing LNG train of the Angola LNG Project, in Soyo. This intent was further reinforced by Angola’s ascension as a member of the Forum of Gas Exporting Countries in December.

Finally, after being at the brink of bankruptcy, Sonangol seems to be threading a more sustainable path, having secured the US$$1 billion loan it needed to finance its restructuring plan in December. In many more ways than one, the transformations we are witnessing in the Angolan oil sector are bound to propel the country into a level of development and sustainable economic wealth it has never seen before.

If these measures are sustained in time, Angola will undergo a de facto transformation for the better and many oil leaders have already voiced their approval for these transformation. In that sense, we make ours the words uttered by His Excellency Mohammad Sanusi Barkindo, Secretary General of the Organization of the Petroleum Exporting Countries, in his visit to Luanda at the end of 2018: “we congratulate the government’s heroic efforts to reform the industry. These are the right reforms at the right time. We […] applaud these reforms”.


 

About The Author

Sanlam 2018 Annual Results

7 March 2019

 

Sanlam’s 2018 annual results provides testimony to its resilience amid challenging operating conditions and negative investment markets

Sanlam today announced its operational results for the 12 months ended 31 December 2018. The Group made significant progress in strategic execution during 2018. This included the acquisition of the remaining 53% stake in SAHAM Finances, the largest transaction concluded in the Group’s 100-year history, and the approval by Sanlam shareholders of a package of Broad-based Black Economic Empowerment (B-BBEE) transactions that will position the Group well for accelerated growth in its South African home market.

Operational results for 2018 included 14% growth in the value of new life insurance business (VNB) on a consistent economic basis and more than R2 billion in positive experience variances, testimony to Sanlam’s resilience in difficult times.

The Group relies on its federal operating model and diversified profile in dealing with the challenging operating environment, negative investment markets and volatile currencies. Management continues to focus on growing existing operations and extracting value from recent corporate transactions to drive enhanced future growth.

The negative investment market returns and higher interest rates in a number of markets where the Group operates had a negative impact on growth in operating earnings and some other key performance indicators. This was aggravated by weak economic growth in South Africa and Namibia and internal currency devaluations in Angola, Nigeria and Zimbabwe.

Substantial growth in Santam’s operating earnings (net result from financial services) and satisfactory growth by Sanlam Emerging Markets (SEM) and Sanlam Corporate offset softer contributions from Sanlam Personal Finance (SPF) and Sanlam Investment Group (SIG).

Key features of the 2018 annual results include:

Net result from financial services increased by 4% compared to the same period in 2017;

Net value of new covered business up 8% to R2 billion (up 14% on a consistent economic basis);

Net fund inflows of R42 billion compared to R37 billion in 2017;

Adjusted Return on Group Equity Value per share of 19.4% exceeded the target of 13.0%; and

Dividend per share of 312 cents, up 8%.

Sanlam Group Chief Executive Officer, Mr Ian Kirk said: “We are satisfied with our performance in a challenging operating environment. We will continue to focus on managing operations prudently and diligently executing on our strategy to deliver sustainable value to all our stakeholders. The integration of SAHAM Finances is progressing well. In addition, Sanlam shareholders approved the package of B-BBEE transactions, including an equity raising, at the extraordinary general meeting held on 12 December 2018. Our plan to implement these transactions this year remains on track.”

Sanlam Personal Finance (SPF) net result from financial services declined by 5%, largely due to the impact of new growth initiatives and dampened market conditions. Excluding the new initiatives, SPF’s contribution was 1% down on 2017 due to the major impact that the weak equity market performance in South Africa had on fund-based fee income.

SPF’s new business sales increased by 4%, an overall satisfactory result under challenging conditions. Sanlam Sky’s new business increased by an exceptional 71%. Strong growth of 13% in the traditional individual life channel was augmented by the Capitec Bank credit life new business recognised in the first half of 2018, and strong demand for the new Capitec Bank funeral product. The Recurring premium and Strategic Business Development business units also achieved strong growth of 20%, supported by the acquisition of BrightRock in 2017. Glacier new business grew marginally by 1%. Primary sales onto the Linked Investment Service Provider (LISP) platform improved by 5%, an acceptable result given the pressure on investor confidence in the mass affluent market. This was however, offset by lower sales of wrap funds and traditional life products.

The strong growth in new business volumes at Sanlam Sky had a major positive effect on SPF’s VNB growth, which increased by 7% (14% on a comparable basis).

Sanlam Emerging Markets (SEM) grew its net result from financial services by 14%. Excluding the impact of corporate activity, earnings were marginally up on 2017 (up 8% excluding the increased new business strain).

New business volumes at SEM increased by 20%. Namibia performed well, increasing new business volumes by 22% despite weak economic conditions. Both life and investment new business grew strongly. Botswana underperformed with the main detractor from new business growth being the investment line of business, which declined by 24%. This line of business is historically more volatile in nature.

The new business growth in the Rest of Africa portfolio was 68% largely due to corporate activity relating to SAHAM Finances, with the East Africa portfolio underperforming.

The Indian insurance businesses continued to perform well, achieving double-digit growth in both life and general insurance in local currency. The Malaysian businesses are finding some traction after a period of underperformance, increasing their overall new business contribution by 3%. New business production is not yet meeting expectations, but the mix of business improved at both businesses.

SEM’s VNB declined by 3% (up 6% on a consistent economic basis and excluding corporate activity). The relatively low growth on a comparable basis is largely attributable to the new business underperformance in East Africa.

Sanlam Investment Group’s (SIG) overall net result from financial services declined by 6%, attributable to lower performance fees at the third party asset manager in South Africa, administration costs incurred for system upgrades in the wealth management business and lower earnings from equity-backed financing transactions at Sanlam Specialised Finance. The other businesses did well to grow earnings, despite the pressure on funds under management due to lower investment markets.

New business volumes declined by 13% mainly due to market volatility and low investor confidence in South Africa. Institutional new inflows remained weak for the full year, while retail inflows also slowed down significantly after a more positive start to the year. The international businesses, UK, attracted strong new inflows (up 57%).

Sanlam Corporate’s net result from financial services increased by 4%, with the muted growth caused by a continuation of high group risk claims experience. Mortality and disability claims experience weakened further in the second half of the year, which is likely to require more rerating of premiums in 2019. The administration units turned profitable in 2018, a major achievement. The healthcare businesses reported satisfactory double-digit growth in earnings, while the Absa Consultants and Actuaries business made a pleasing contribution of R39 million.

New business volumes in life insurance more than doubled, reflecting an exceptional performance. Single premiums grew by 109%, while recurring premiums increased by a particularly satisfactory 56%.

The good growth in recurring and single premium business, combined with modelling improvements, supported a 64% (71% on a comparable economic basis) increase in the cluster’s VNB contribution.

Following a year of major catastrophe events in 2017, Santam experienced a relatively benign claims environment in 2018. Combined with acceptable growth in net earned premiums, it contributed to a 37% increase in gross result from financial services (41% after tax and non-controlling interest). The conventional insurance book achieved an underwriting margin of 9% in 2018 (6% in 2017).

As at 31 December 2018, discretionary capital amounted to a negative R3.7 billion before allowance for the planned B-BBEE share issuance. A number of capital management actions during 2018 affected the balance of available discretionary capital, including the US$1 billion (R13 billion) SAHAM Finances transaction. Cash proceeds from the B-BBEE share issuance will restore the discretionary capital portfolio to between R1 billion and R1.5 billion depending on the final issue price within the R74 to R86 price range approved by shareholders.

Looking forward, the Group said economic growth in South Africa would likely remain weak in the short to medium term future, and would continue to impact efforts to accelerate organic growth. The outlook for economic growth in other regions where the Group operates is more promising. Recent acquisitions such as the SAHAM transaction should also support operational performance going forward.

“We remain focused on executing our strategy. We are confident that we have the calibre of management and staff to prudently navigate the anticipated challenges going forward,” Mr Kirk concluded.

Details of the results for the 12 months ended 31 December 2018 are available at www.sanlam.com.