Engen Botswana Limited 2018 Annual Report

We have extracted below the Chairman’s Statement from the 2019 abridged report of Engen Botswana Limited (ENGEN.bw), listed on Botswana Stock Exchange:

On behalf of the Board of Directors, it is my pleasure to present the Engen Botswana Ltd 2018 annual report.

I am happy to report that the Company rose to the challenges of a difficult trading environment and showed good performance during the year. Against a backdrop of a slower than anticipated pace of economic growth, volatile oil prices and the absence of any government regulated margin adjustments, Engen Botswana Ltd was able to achieve positive results despite the challenging market conditions.

The adverse economic circumstances were compounded by the pricing slate levy mechanism under-recovery, reaching record levels; a situation that if not resolved expeditiously is likely to impact negatively on the financial robustness of the industry. We are mindful of efforts by the Botswana Government to address this challenge, and hope that concerted efforts will persist with the view to normalising the situation in the shortest time possible.

Business Environment

Despite reasonably strong growth at the beginning of the year, the global economy showed signs of a slowdown towards the end of 2018. Continued geopolitical uncertainty, particularly with regard to Brexit, as well as increasing trade tensions impacted negatively on global economic growth. Brent crude oil, an international industry benchmark, averaged around $71 per barrel for 2018 against an average of $54 per barrel in 2017, ending the year at $51 per barrel. As a result, Engen Botswana Ltd incurred considerable inventory revaluation losses due to the lower crude price at the end of the year. According to the International Energy Agency’s (IEA) Oil Market Report published in January 2019, global oil demand in 2018 grew by 1.2%, to 99 million barrels per day, driven largely by the emerging economies. The global growth outlook is mixed, with developing economies expected to perform ahead of the global mean in 2019. Botswana’s GDP growth showed an upturn towards the end of 2018 and there are encouraging signs of increasing economic activity for 2019, particularly in the non-mining sectors.

Botswana continued to have a stable macroeconomic environment as Government maintained a sound balance between fiscal, monetary and exchange rate policies. Headline inflation rose slightly in 2018 but continued to be managed well within the Bank of Botswana’s target range of between 3 and 6 percent. Expectations are that inflation in 2019 will be between 3.5% and 4%. Botswana’s political landscape remained stable with a positive outlook in the run up to the 2019 general election, and indications that expected reforms directed in improving the country’s ease of doing business index contributed to positive business sentiment.

Industry Developments

We are gratified that the Botswana Energy Regulatory Authority (BERA), which provides a regulatory framework for the industry, did not agree to an application by Botswana Oil Ltd for the exclusive licence for the importation of fuel into Botswana. The dangers inherent in entrusting a single, largely untried entity with this strategic responsibility were therefore avoided, and we believe that BERA will ensure that appropriate standards are complied with and that continued investment in the petroleum sector is sustained, while ensuring that the interests of consumers of petroleum products are protected.

Subsequent to the series of engagements with the Government of Botswana that we initiated during 2017, requesting them to urgently settle the accumulated slate under- recovery, indications are that a substantial effort will be made in the first part of 2019 to significantly reduce the amount owing to the industry. This is essential in order to prevent the financial stability of the sector being placed under further duress and to avoid possible disruption of the supply of fuel into the country should local oil companies be unable to meet their financial obligations as a result of continued slate under-recovery.

Outlook

While the global economic recovery remains uncertain, several indicators, including improving employment figures, suggest that the Botswana economy has largely recovered from the effects of the closure of BCL mine and associated support industries. We remain convinced that steady growth and increasing diversification will see a stronger Botswana economy in the short to medium-term. The Company is confident that there is still considerable growth potential in the local market and it will continue to invest in an expanded business footprint and retail presence across the country.

We continuously seek to improve our operating performance and maximise sustainable results, with an emphasis on health, safety, security, the environment, our ethics and core beliefs. In order to achieve this, we strive to attract and retain highly qualified and motivated employees who will take the Company forward while being encouraged to maximise their potential.

In conclusion, I would like to thank my fellow Board members, our investors, and all stakeholders for their support throughout the year. We assure all of them that we see a positive future for Engen Botswana Ltd and look forward to their continued support. I also extend my thanks to the management team and employees for their dedication and hard work that will ensure that Engen Botswana Ltd will continue to show a satisfactory return for its shareholders and remain a major player in Botswana’s dynamic commercial environment in the years to come.

SHABANI NDZINGE
Chairman