Black Economic Empowerment Progress in Shell Presentation to the Parliamentary Portfolio Committee for Minerals and Energy 30 August 2006 The presentation will focus on Transformation and Black Economic Empowerment in Shell Equity Ownership Management Control Employment Equity Skills Development Preferential Procurement Enterprise Development Social Investment Supportive Culture Retail Network Presented By: Vusi Khanyile - Chairman of Thebe Investment Corporation (Pty) Ltd
Paddy Milner Country Chair: South Africa Gheneez Munian BEE Advisor Vernon De Vries External Affairs Manager Ivan Collair Regulatory Environment Advisor Shell policy of embracing Black Economic Empowerment in South Africa is driven by the imperatives to address the imbalances of the past and to secure the long-term sustainability of our business in a sustainable socio-economic environment The principles underpinning the discussions of the Equity Deals Equity Ownership The long term objective of BEE is the normalisation of South African society and it therefore has a number of facets all of which are included in the Oil Industry charter. The main criteria for success of the transaction are -whether it is aligned with the equity objectives of the Oil Industry Charter -whether it is sustainable
Because of FDI considerations any action on BEE must be perceived positively by the international investment community and that includes the shareholders of multinationals. The equity element of the charter was transacted by the parties, assisted by their professional advisors on a willing buyer/willing seller basis. To achieve a successful transaction, two key variables need to be balanced and traded off -sources of capital -where risk is carried Phase 1 resulted in a Corporate Structure involving 2 legal entities The Shell Petroleum Company Ltd. Equity Ownership Thebe Investment Corporation (Pty) Ltd 1992/001846/07 SPCO UK 77861 (a Shell Group holding company) 100% Shell South Africa Holdings (Pty) Ltd SSAH ZA 2001/020068/07 (owner of Group businesses in SA)
Thebe Petroleum Investments (Pty) Ltd 2001/023590/07 100% 75% 25% Shell South Africa Energy (Pty) Ltd Shell South Africa Marketing (Pty) Ltd SSAE SSAM ZA 2000/018439/07 ZA 1961/000645/07 (Manufacturing, Supply, Trading and Chemicals business in SA) (Shell Marketing businesses in SA) Equity Ownership Our Marketing Equity transaction was built on the following foundation
COMMUNITY BENEFITS CHECKS & BALANCES SUSTAINABILTY - Aims to benefit a wide range of South Africans, especially HDSAs and contribute to sustainable development. - Balance between operational control and minority protections - Affordability of the equity - Preference Dividend Structure - Allocation of Risk Equity Ownership Summary of the current equity deal Thebe Petroleum Investments 25% ordinary shares (and hence asset ownership) 25% voting rights 25% Board representation the right to appoint 25% of the board members has received >25% economic interest in recent years Economic sustainability of the transaction Structures for BEE partners involvement across the value chain Phase 2 Manufacturing, Supply and Trading in progress Structures for involvement in the entire spectrum of the business i.e. strategy, management and operations of the business
Skills transfer and development Protection of BEE Partner against volatility of the oil business Shells measurement and assessment of progress to date Management Control Board and Top management Liquid Fuels Charter targets have been exceeded. Gender transformation is our focus. SSAM Board Representation SSAE Black Women 0% Non-black Male 25% Black Male 50% Black Women 0% Non-black Male 50% White Women 25%
White Women 25% SSAM Top Management Non-black Male 33% Non-black Male 33% Black Women 0% White Women 11% Black Male 25% Black Male 56% White Women 17% SSAE Black Male 50% Black Women 0% Collectively, women representation in Shell is above industry average.
Shell 65% Black 23% Black women 38% Women Industry 69% Black 17% Black women 25% Women 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Top Management Senior Management
Professionally qualified and experienced Skilled technical and academically qualified workers Semi-skilled and discretionary decision making Unskilled and defined decision making % Black People 50% 30% 47% 61% 83% 100% % Black Women
0% 8% 16% 27% 26% 0% % White People 50% 70% 53% 39% 17% 0% % Black People % Black Women % White People Employment
Equity Skills Development Shell has a long-standing policy on the development of its employees because it believes in providing an environment in which people can learn to excel. 1% of Payroll was spent on Black Skills development Skills development Initiatives include: - Women in Oil and Energy Course (10 delegates) - Global initiatives (BUILD, RECOGNISE, CHOOSE) - Executive Development Leadership Program - Global leadership Programmes - Shell Life - Expatriate exchange Preferential Procurement Local Preferential Procurement has exceeded the Oil Industry Charter target of 25%. Year Target BEE % Actual BEE (>50%) %
7% BEE Procurement Policy in place 30% 43% 2005 27% 28% 27% 56% 2006 60% 24% 33% 57% Company and departmental targets set BEE standard item on Executive Management Meeting Agenda A BEE Team member appointed as permanent
member of Contracts Board Monitor BEE spend on a monthly basis All suppliers evaluated using Industry standard Preferential Procurement Crude Procurement: we purchase locally where availability and economics are attractive SHELL LOCAL PURCHASES 2003 Parastatals $12.4m BEE $0 Non-BEE $0 Total $12.4m 2004 $70.5m $0 $0 $70.5m 2005 $28.3m $37.3m $0 $65.6m
2006 $0 $36m $0 $36m Challenges: To be sustainable, crude trading (as opposed to purchasing) needs to be a global activity. No BEE trading house consistently offers crude on the global market. Shell South Africa, as a refiner, does not do true crude trading i.e. buy and sell for profit. In line with most oil companies, crude trading is a globalised central activity. Enterprise Development Shells enterprise development activities are aligned with the Liquid Fuels Charter Examples of Enterprise Development include: Mzanzi (Logistics Company) - R300k set up costs: R120m contract over 5 yrs: 17 Owner vehicle drivers in partnership Livewire Program
- Business skills training. Program has been running for over 10 years Black Retailer Dealer development programme - Training to develop Black dealers Supplier Development -SASDA investment via SAPIA - 2 full time employees SMME support startup, mentoring and financial assistance Energy through Empowerment Fund R20m underwritten by Shell Foundation Social Investment Our Corporate Social Investment aims at sustainable development initiatives as envisaged by the Liquid Fuels Charter About 2% of Net Profit After Tax is invested in CSI. Categories of investment include: Education especially Maths and Science Job creation Social development Health - AIDS Environment Grants to employees involved in community projects Road Safety program via SAPIA via Shell Oil Product Africa (Drive-to-Live) Supportive Culture Internally Shells organisational culture, systems and demographics builds upon individual differences to
stimulate creativity, remove barriers and thus create a competitive advantage Supportive Culture Led at strategic level by the Chairmen of Shells Companies Driven by the Transformation Committee: committee of the board BEE advancement part of formal performance targets Shell has a global Group Diversity and Inclusiveness Programme guided by Shell Group Business Principles. Involvement in SAPIA, BUSA and NBI Committees and structures to report on discrimination: - A staff Employment Equity Evaluation Committee - A staff Employee Consultative Committee We regard the stability and sustainability of our Retail Network critical to our business and customers Retail Network 41% Black owned and operated Retailer Shell has a dedicated programme in place to fast-track and support HDSA's to successfully own and operate retail sites. Shell provides business support to ensure changes of dealer ownership are viable and sustainable. - Apply an evaluation model to assess true value of site - On-going support Monitor operational and financial performance from a central
point Contact with dealers daily Ground staff trained to coach and mentor Field Staff provide for technical and business support Retail training outsourced to an active Black retailer with strong expertise. Reseller 21% Black owned In summary, our current assessment of transformation progress towards achieving the Liquid Fuels Charter 2010 aspirations Equity Ownership Priority Areas Conclude Phase II BEE deal Increase Women participation on board Increase Black and women representation in senior and professional levels Direct skills spend to core and critical skills and women development Further develop Black suppliers Continue to build a sustainable Retail network Management Control Employment Equity
Skills Development Preferential Procurement Enterprise Development Social Investment Supportive Culture Retail Network Shells Ethos Business Growth will not happen without parallel socioeconomic development Ongoing transformation is key to growing our business
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