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Royal Dutch Shell shares drop as Q4 results confirm tough trading conditions

Profitability and cashflow dropped in the fourth quarter, and over the year as a whole.

Royal Dutch Shell Plc - Royal Dutch Shell shares drop as Q4 results confirm tough trading conditions

Royal Dutch Shell Plc (LON:RDSB) shares dropped in London on Thursday as the latest quarterly update confirmed a challenging period for the oil major.

The fourth-quarter performance was dented by lower commodity prices, weaker margins in refining and chemicals business among other influences.

Shell said that ‘CCS earnings attributable to shareholders’ – its preferred metric used to measure profitability – came in at US$2.9bn compared to US$4.76bn in the preceding quarter and US$5.6bn in the same period last year. The same metric for the whole of 2019’s performance stood at US$16.46bn versus US$21.4bn in 2018.

READ: Shell’s weakness “no surprise” says Berenberg as bank repeats ‘buy’

Cashflow from operating activities amounted to US$12.3bn for the quarter reflecting lower inflows from commodity derivatives and lower cash earnings. Cashflow for the year totalled US$42.17bn down from US$53.08bn.

Shell confirmed it will pay out US$3.7bn and said that in the next tranche of its share buyback programme will spend US$1bn. It noted that the overall programme has seen it buy-back almost US$15bn worth of equity for cancellation.

Chief executive Ben van Beurden said: “We generated US$47bn in cash flow from operating activities excluding working capital movements and distributed over US$25bn in dividends and share buybacks to our shareholders.

“We remain committed to prudent capital discipline supported by world-class project delivery and are looking to further strengthen our balance sheet while we continue with share buybacks.”

“Our intention to complete the $25 billion share buyback programme is unchanged, but the pace remains subject to macro conditions and further debt reduction."

In early afternoon trading in London, Shell's A shares down 3.6% at 2,053.50p.

Difficult period confirmed

Richard Hunter, head of markets at Interactive Investor, noted that the fourth quarter update confirms the “difficult period” envisaged in December’s profit warning has been confirmed.

“On most metrics, performance has slumped not just over the fourth quarter, but over the year as a whole, with a reduction in earnings, profit, refining margins and an increase in net debt giving headline headaches,” Hunter said in a note.

“The weakness in oil and gas prices is, of course, a major contributor to the weakness, while the general macro environment remains a serious challenge.”

Hunter added: “Meanwhile, capital expenditure is set to be at the lower end of expectations, which could temporarily crimp Shell’s ambitions in developing alternatives to the finite resource on which the company was formed.”

 -- Updates share price --

Quick facts: Royal Dutch Shell PLC

Price: 1234.4 GBX

LSE:RDSB
Market: LSE
Market Cap: £96.37 billion
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