Royal Dutch Shell’s share price jumps despite reporting full year earnings 80 per cent down as it confirms it will cut 10,000 jobs
Royal Dutch Shell is hurting like everybody else, with falling oil prices causing an 80 per cent decline in its full year earnings – but the company's share price jumped 3.44 per cent in early morning trading.
The figures
Royal Dutch Shell reported full year earnings on a current costs of supplies basis of $3.8bn (£2.61bn), compared with $19bn in 2014 – an 80 per cent decline.
Fourth quarter earnings on the same measure – often preferred by analysts – were $1.84bn, down from $4.2bn in the same quarter of 2014.
Excluding exceptional terms, full year earnings were 53 per cent down at £10.7bn.
The company said its divi for the fourth quarter of 2015 dividend will be $0.47 per ordinary share and $0.94 per American Depositary Share.
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Why it's interesting
Royal Dutch Shell is the latest in a string of companies to announce how hard the sliding price of oil has hit it.
Bad news though it is, it won't come as too much of a shock, given Shell warned on profits two weeks ago and the price of oil has tumbled over the last 15 months. In other words, there has been a fundamental supply side shock.
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Shell also confirmed that it will cut 10,000 jobs in 2015-16.
The job cuts are part of cost-cutting chief executive Ben van Beurden said the company has undertaken over the last year in order to manage costs in the difficult period.
"Along with the other oil majors the main focus of concern is the dividend policy as well as the risks of cutting expenditure too deep, and in the process curtailing its ability to react quickly to a turnaround in the oil price, as the supply and demand dynamics shift away from the current glut," said Michael Hewson, chief markets analyst at CMC Markets.
"The bigger problem comes if oil prices remain at their current levels for a significant period of time, which could prompt some concern later on into 2016, particularly if margins continue to shrink."
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The results came after Shell shareholders last week gave the green light for a takeover of its rival BG Group. BG Group will report its results tomorrow.
The results also follow in the tracks of BP, which reported a worse-than-expected $2.2bn fourth quarter loss on Tuesday on the back of falling oil prices. Yet, BP and Shell are both paying a dividend.
In fact, analysts had warned investors they should be ready for a "messy" set of fourth quarter results.
What Shell said
Royal Dutch Shell chief executive Ben van Beurden said:
The completion of the BG transaction, which we are expecting in a matter of weeks, marks the start of a new chapter in Shell, rejuvenating the company, and improving shareholder returns.
We are making substantial changes in the company, reorganising our Upstream, and reducing costs and capital investment, as we refocus Shell, and respond to lower oil prices. As we have previously indicated, this will include a reduction of some 10,000 staff and direct contractor positions in 2015-16 across both companies.
As a result of our actions in 2015, we have retained a strong balance sheet position, with 14 per cent gearing. Shell will take further impactful decisions to manage through the oil price downturn, should conditions warrant that. Shell’s dividends for 2015 were $1.88 per share, and are expected to be at least $1.88 per share in 2016, as previously announced.
In short
As expected, Shell's profits dropped massively as the company continues to battle with the falling price of oil.