Standard Bank continues to reap the benefits of growth in its businesses in sub-Saharan Africa. Group headline earnings and headline earnings per share increased by 5% to R10 861 million and 680 cents respectively. An interim dividend of 340 cents per share has been declared, representing a 12% increase on 1H15 and 2.0 times dividend cover. Headline earnings growth of 5% combined with 9% growth in average equity resulted in a decline in group ROE from 15.1% for 1H15 to 14.4% for 1H16. Banking activities recorded an ROE of 15.2% for 1H16.
The group continued to reap the benefits of ongoing growth in its businesses both in South Africa and its rest of Africa franchise, in the six months to June 30, 2016.
Rest of Africa contributed 31% to the group’s total income, relative to 29% in the prior period, and 25% to the group’s headline earnings, consistent with the prior period.
The global growth outlook going into 2016 was cautiously positive. However, the slow speed of China’s economic re-balancing, sustained low commodity prices and overall weak global demand have resulted in increased volatility and uncertainty. Britain’s vote to leave the European Union (EU) and the associated lack of clarity has exacerbated this.
Across sub-Saharan Africa, oil and commodity export-reliant countries continue to feel the impact of lower prices on the back of excess supply and subdued demand from China. The pace of structural reform, which is required to promote diversification and much needed economic growth, has been slow. In addition, the prolonged and widespread drought brought by El Nino has affected a number of countries.
In South Africa, the mining and agriculture sector headwinds associated with low commodity prices and the persistent drought, continued to place pressure on the economy into 2016. For most of the period under review, the country operated under the threat of a downgrade of the sovereign by ratings agencies to sub-investment grade. Higher rates and above target inflation throughout the period placed additional strain on consumers, manifesting in lower confidence levels and a contraction of consumer credit. The overall macro deterioration, although marked and prolonged, has been more gradual than that experienced in the 2008/2009 crisis, enabling businesses to better prepare and adjust.
Personal & Business Banking (PBB)
PBB’s headline earnings grew 14% to R5 492 million. Strong NII growth of 18% and NIR growth of 14% translated into total income growth of 16%. Credit impairment charges were 3% higher, while operating expenses increased by 17%.
PBB’s ROE increased to 16.4% from 16.1% in the prior period. PBB South Africa earnings rose by 10% to R5.0 billion, PBB outside Africa by 48% to R313 million and PBB rest of Africa earnings increased by R105 million to R158 million.
Transactional products total income grew by 15% while earnings grew by 10% to R1 375 million, despite the operational risk losses associated with the Japan fraud.
Mortgage lending grew total income by 10% while credit impairments fell 13%. Headline earnings grew by 17% to R1 225 million.
Card products total income grew by 17% and earnings grew by 15% to R785 million.
Lending products grew total income by 16% while earnings grew by 13% to R581 million.
Vehicle and asset finance (VAF) grew total income by 16% while earnings increased by 1% to R165 million.
Bancassurance and wealth total income grew by 25% and earnings grew by 16% to R1 361 million.
Corporate & Investment Banking (CIB)
CIB’s headline earnings grew 13% to R4 983 million. Total income grew 17% to R17,7 billion with a strong contribution from the rest of Africa franchise. NII increased 26% reflecting the successes of the liability-led model complimented by targeted credit growth within selected sectors. The tough macro-economic environment impacted customers, in particular in the oil-reliant West Africa region, requiring increased credit impairment charges resulting in a credit loss ratio of 49bps (1H15:25bps). ROE improved to 18.2%.
Global markets recorded strong headline earnings growth of 26% to R2 590 million.
Transactional products and services total income was 21% higher than the prior period. Headline earnings fell 5% to R1 327 million.
Investment banking earnings increased 14% to R1 146 million despite increased NPLs and higher credit impairment charges in the oil & gas and power & infrastructure sectors.
Real estate and principal investment management (PIM) recorded a headline loss of R80 million, largely attributed to the costs associated with the business’ wind down.
Other banking interests
The group’s interests in ICBC Argentina, previously included in Central and other, and ICBC Standard Bank Plc (ICBCS), previously included in CIB’s results, now comprise the group’s other banking interests and represent the group’s associate interests in previously consolidated entities that are held in terms of strategic partnerships with the Industrial and Commercial Bank of China (ICBC). Headline earnings from the group’s other banking interests fell from R208 million in the prior period to R2 million. The headline earnings contribution from the group’s 20% interest in ICBC Argentina equated to R358 million and the loss from the groups 40% stake in ICBCS equated to R356 million.
Liberty’s BEE normalised headline earnings for the six months to June 2016 decreased by 9% to R1 821 million of which the IFRS heading earnings attributable to the group was R886 million. Its earnings were negatively affected due to a combination of generally challenging market conditions and changes specific to Liberty. Liberty’s capital position remains strong.
The latest IMF forecasts expect global GDP growth of 3.1% for 2016, down from 3.4% at the beginning of the year. Although the impact of “Brexit” is expected to be most felt in the United Kingdom and European economies, prolonged uncertainty regarding the outcome of the separation negotiations could result in downside risk to this forecast. Despite the economic headwinds, the IMF expects emerging and developing markets to grow at 4.1%, far outstripping the advanced economies at 1.8%.
Sub-Saharan Africa’s GDP is expected to grow at 1.6% with South Africa trending towards zero growth and a contraction in Nigeria. East and South & Central regions are expected to continue to fare better than the oil exporting countries in West Africa. Ahead of South Africa’s next ratings review in December 2016, considerable effort is being spent by government, business and labour to find ways to promote growth, employment and greater inclusion.
Standard Bank is cognisant of the constraints under which its customers are currently operating. Despite increasing credit provisions to reflect this, the group remains well capitalised and in a position to continue to invest and grow in its targeted sectors and countries.
Sim Tshabalala, Standard Bank Group Chief Executive, says: “We continue to monitor developments in the banking sector and financial markets to ensure that we remain appropriately equipped to deliver on our vision to be the leading financial services organisation in, for and across Africa. We are focused on delivering effective solutions tailored to our customers’ needs and continue to invest in our franchise, our products and our people.
We are committed to delivering through-the-cycle earnings growth and ROE within our target range of 15% – 18% over the medium term. This includes a heightened focus on optimising resource allocations across the group, coupled with tighter management of capital supply, and a diligent focus on costs.”
Results for the six months to 30 June 2016 at a glance:
Headline earnings per share (HEPS): 680 cents, up 5%
Interim dividend per share: 340 cents per share, up 12% from 1H15
Common equity tier I ratio: 13.2% (1H15: 13.1%)
Return on equity (ROE): decreased from 15.1% to 14.4%
Cost to income ratio: improved from 57.3% to 56.8%
The Bulb World Chief Executive Officer (CEO) and entrepreneur, Ketshephaone Jacob has been selected as a 2021 Top 50 Africa’s Business Hero.
Jacob was chosen from a pool of 12,000 applicants – many of whom are highly-skilled and accomplished entrepreneurs.
Africa’s Business Hero, sponsored by technology entrepreneur, Jack Ma, aims to identify, support and inspire the next generation of African entrepreneurs who are making a difference in their local communities, working to solve the most pressing problems, and building a more sustainable and inclusive economy for the future.
The initiative is as inclusive as possible and applications were open in English and French to entrepreneurs from all African countries, all sectors, and all ages who operate businesses formally registered and headquartered in an African country, and that have a 3 year-track record.
Every year, finalists are selected to compete in the ABH finale pitch competition and participate in a TV Show that will be broadcast online and across the continent.
The finalists will compete for a share of US $1.5 million in grant money.
The Bulb World, is home grown LED light manufacturing company, which was partly funded by Citizen Entrepreneurial Development Agency (CEDA) at the tune of P4 million, to manufacture LED lighting bulbs for both commercial and residential use in 2017.
The Bulb World operate from the Special Economic Zone of Selibe Phikwe. Early this year, The BulB World announced its expansion to South Africa, setting in motion its ambitious Africa expansion plan.
During the first quarter of 2021, production in Botswana’s economic nucleus- the mining sector contracted by 12 percent. This is according to Mining Production Index released by Statistics Botswana this week.
The country’s central data body revealed that Index of Mining production stood at 74.4 during the first quarter of 2021, showing a negative year on-year growth of 12.0 percent, from 84.6 registered during the first quarter of 2020.
The main contributor to the decline in mining production came from the Diamonds sector, which contributed negative 11.7 percentage points. Soda Ash was the only positive contributor in the mining production, contributing 0.1 of a percentage point. However Soda Ash’s contribution was insignificant to offset the negative contribution made by Diamonds.
The quarter-on-quarter analysis by Statistics Botswana experts shows an increase of 16.3 percent from the index of 64.0 during the fourth quarter of 2020 to 74.4 observed during the period under review.
Diamond production decreased by 12.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. The decrease was as a result of planned strategy to align production with weaker trading conditions mostly linked to Covid-19 protocols restrictions.
Botswana’s diamond sector is underpinned by Debswana, the country’s flagship rough producer- a 50-50 joint venture between government and global mining giant De Beers Group. The other producer is Canadian based Lucara Diamond Corp through its wholly owned Karowe Mine which is a relatively small but significant production that has made a name for itself worldwide with rare diamond recoveries of unprecedented carat size.
On the other hand, quarter-on quarter analysis shows that production has improved, registering a positive growth of 17.5 percent during the first quarter of 2021 compared to the preceding quarter – 2020 Q4.
Though production was significantly lower in the first quarter, the two producers ended Q2 with rare diamond recoveries. Debswana early last month found the world’s third largest gem diamond – weighing 1098 carat at Jwaneng Mine, its flagship gem quality diamonds producer, also regarded the world’s richest diamond mine.
A week later Lucara announced its second biggest recovery, the 1174 carat clivage near-gem dug from its Karowe Mine. The diamond is the world third in carat size after the plus-3000 carat Cullinan found in South Africa back in 1905 and the 1758 carat Sewelo unearthed at its Karowe mine in 2019. Debswana and Lucara are investing billions of pulas in underground mining projects to extend the life of its mines, Jwaneng & Karowe respectively.
In terms of Gold which is produced at Mupani mine near Botswana’s second city of Francistown output decreased by 17.9 percent during the first quarter of 2021 compared to the same quarter of the previous year.
Similarly, quarter-on-quarter analysis reflects that production decreased by 21.4 percent during the first quarter of 2021, compared to the preceding quarter. The decrease was as a result of the deteriorating lifespan of the mine as well as the impact of COVID-19 which slowed down the mining activities.
Soda Ash production increased by 11.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. In terms of quarter-on-quarter Soda Ash production also showed an increase, picking up by 2.1 percent during the period under review. The increase in production is attributable to the effectiveness of the plant following refurbishment which occurred in the third quarter of 2020.
Salt production decreased by 34.0 percent during the first quarter of 2021, compared to the same quarter of the previous year. Similarly, the quarter-on-quarter analysis shows that salt production registered a decrease of 32.9 percent during the period under review. Both salt and Sodash are produced by partly government owned Botswana Ash (BotsAsh) operating from Sowa town near Makgadikgadi pans.
Coal production decreased by 11.2 percent during the first quarter of 2021, compared to the corresponding quarter of the previous year. The decrease was attributed to the reduced demand from Morupule B Power Station following the remedial works being undertaken, as one boiler was in operation during the period under review.
Although production fell, Statistics Botswana says there was no shortfall in supply of coal due to stockpiling. On the other hand, the quarter-on-quarter comparison shows that coal production increased by 20.4 percent compared to the preceding quarter.
Botswana’s flagship coal producer is Morupule Coal Mine; a wholly state owned mining company located in Palapye producing primarily for Botswana Power Corporation (BPC)’s power generation plants Morupule A & B.
The other coal producer is Botswana Stock Exchange listed Minergy which operates a 390 MT Coal Resource mine in Masama near Media in the southwestern edge of the Mmamabula Coalfields.
Department of Mines in the Ministry of Mineral Resources, Green Technology & Energy Security has awarded mining licence to Tshukudu Metals-a subsidiary of Aussie firm Sandfire Resources ,giving the company a green light to start piecing the ground at its Motheo Copper Project near Gantsi.
Lefoko Moagi, minister in charge of mineral resources in Botswana confirmed to weekendpost on Tuesday. Minister Moagi revealed that “the licence has been approved , but Sandfire Resources as a listed company will report to its shareholders and investors then make an official public statement” he said.
Based on a forecast copper price of US$3.16/lb (reflecting current long-term consensus pricing) the Base Case 3.2Mtpa – Ghantsi copper project is forecast to generate US$664 million (over P7 billion) in pre-tax free cash-flow and US$987 million (over P10 billion) in EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), at a forecast all-in sustaining cost of US$1.76/lb over its first 10 years of operations.
In December 2020, the Board of Sandfire Resources approved the commercial development of the Motheo Copper Mine located in the Kalahari Copper Belt in Botswana, marking a key step in its transformation into a global, diversified, and sustainable mining company.
Tshukudu Metals Botswana (Pty) Limited (Tshukudu) a 100% owned subsidiary will be the owner and operator of the Motheo Copper Mine which is scheduled to produce up to 30,000 tonnes per annum of copper in concentrate over a 12 year mine life.TMB is targeting development of its Motheo Copper Mine in 2021 and 2022, with its first production in 2023.
GOVERNMENT NOT TAKING UP 15 % STAKE ON OFFER
Beginning of this year presentations were made to the Department of Mines as part of the Mining Licence approval process and to the Ghanzi Regional Council, additional information was requested by Department of Mines in April and was duly supplied by the company.
As part of the Mining Licence approval process, the Government of Botswana has a right to acquire up to a 15% fully contributing interest in all mining projects locally. Quizzed on whether government through Mineral Development Corporation Botswana (MDCB) would be taking up stake in the project Minister Moagi said, “No consideration is being made on that regard”.
“Government is not considering taking up a stake in the Ghantsi Copper Mine project, every opportunity is assessed on all risks, but Government makes money all the while from leases, taxes and royalties, remember if you take stake you are liable for liabilities of the project as well,” Moagi said.
Last month Sandfire announced that it has awarded over P5 billion worth mining contract to African Mining Services (AMS), a subsidiary of Perenti, to deliver the open cast operation.
The contract, which has an estimated value of US$496 million (over 5 billion), is the largest single operational contract for the new Motheo Project covering a period of 7 years and 3 months, with provision for a one-year extension.
The contract according to Sandfire Resources was awarded following a competitive 3-stage tender process which saw a number of key factors taken into consideration when selecting the preferred contractor.
These included Citizen Economic Empowerment, safety culture, equipment suitability and availability, commercial terms and identified improvement opportunities. Under the terms of the contract, AMS has agreed to form a 70:30 Joint Venture with a suitable local Botswana partner or partners.
The JV is expected to be finalized ahead of commencement of mining in early 2022. African Mining Services has been operating in Africa for over 30 years. AMS’ parent company, ASX listed diversified mining services group Perenti, already has a presence in Botswana through Barminco, their underground mining division, at the large-scale Khoemacau Copper Mine located 200km north-east of Motheo.
Last month Sandfire executives said the award of the open pit mining contract represents another key milestone in advancing the Motheo Project towards production, with all components of the contract in line with the key parameters outlined in the December 2020 Definitive Feasibility Study (DFS).
The company said full-scale construction of the US$279 million (over P 3 billion ) mine development is expected to commence immediately upon receipt of the Mining Licence, with mining scheduled to commence in early 2022 ahead of first production in early 2023. This week Sandfire Resources advertised over 10 positions in calling on applications from geologists, mining engineers and geotechnical engineers.
The Motheo mine has an initial mine life of 12.5 years based on production from the T3 pit. The initial development is expected to generate approximately 1,000 jobs during the construction phase and 600 direct full-time jobs during operations, with at least 95% of the total mine workforce expected to be made of up of Botswana citizens.
Later in the week Sandfire Resources announced in the company website that it has received the licence. Sandfire’s Managing Director and CEO, Mr Karl Simich, said the award of the Mining Licence represented a major milestone that would see a significant increase in construction and development activities on site.
“We are absolutely delighted to now be in a position to move to full-scale construction at Motheo, with our construction crews expected to mobilise to site over the next few days. I would like to thank the Government of Botswana for their support throughout the approvals process, which will see Motheo come on-stream in 2023 as one of very few new copper mines commencing production globally.”
Simich said the project is expected to generate approximately 1,000 jobs during construction and 600 full-time jobs during operations, and represents the foundation for Sandfire’s long-term growth plans in Botswana.
“Our vision is that Motheo will form the centre of a new, long-life copper production hub in in the central portion of the world-class Kalahari Copper Belt, where we hold an extensive ground-holding spanning Botswana and Namibia,” he said.