Shell's earnings slump by nearly 60 per cent, as warnings are raised over dividend

Catherine Neilan
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Shell Announce Record Profits
Shell is keeping busy trying to offset the tough trading environment. (Source: Getty)

Shell's earnings have slumped by nearly 60 per cent, with the energy giant freezing its dividend for the first quarter - prompting warnings that it could be "unsustainable".

The figures

Earnings attributable to shareholders, excluding identified items, dropped 58 per cent from $3.74bn last year to $1.55bn. It was also down on the last quarter of 2015, when it stood at $1.57bn.

Income attributable to shareholders dropped 89 per cent to $484m, down from $4.4bn in the same quarter last year and $939m in the fourth quarter of 2015.

Shell said its figures were affected by "the decline in oil, gas and LNG prices and weaker refining industry conditions".

"Earnings benefited from lower operating expenses, as steps taken by Shell to reduce costs more than offset the increase in operating expenses associated with BG," the group said.

Gearing has risen to 26.1 per cent, more than double the figure of 12.4 per cent at the end of the first quarter 2015, mainly as a result of the acquisition of BG.

A first quarter 2016 dividend has been announced of $0.47 per ordinary share and $0.94 per American Depositary Share.

Investors were unshaken by the news: Shell's share price fell 0.3 per cent this morning.

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Why it's interesting

This is the first set of figures published since the BG-Shell merger completed and chief executive Ben van Beurden set out plans to ramp up the completed combination of the two companies.

"The combination with BG is off to a strong start, as a result of detailed forward planning before the completion of the transaction," he said. "This will likely result in accelerated delivery of the synergies from the acquisition, and at a lower cost than we originally set out."

Cap ex will come in at a lower-than-expected figure of $30bn, rather than $33bn, because of the accelerated combination of the two groups. That means annual operating expenses will drop from $53bn in 2014 to around $40bn.

"In practice, we expect to absorb BG’s capital investment and operating expenses during 2016, with no net increase overall, compared with Shell stand alone in 2015," van Beurden said.

What Shell said

The energy boss added: "We will continue to manage spend, through dynamic decision-making across the organisation, taking advantage of opportunities from both the deflating market and the two companies coming together.

"The completion of the BG deal has reinforced our strategy and strength against the backdrop of hugely challenging times for our industry. For Shell and our shareholders, this is a unique opportunity to reshape and simplify the company.”

What analysts said

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "Royal Dutch Shell has taken a dramatic hit to revenues, but continues to maintain its dividend despite the storm that has hit global commodity prices.

"The dividend now accounts for $2 for each $1 that Shell earns, which is clearly unsustainable in the long term. The company will be hoping it gets bailed out by a recovery in oil and gas prices before it looks down and realises the ground it was running on has disappeared.

"On a positive note, capital expenditure is falling faster than previously expected, which shows that the company is making operational progress in adapting to lower prices."

In short

Shell is keeping busy trying to offset the tough trading environment.

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