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Shell confirms slump in profits, sweetens dividend payout for shareholders

Cash preservation and cost-cutting performance allow for improved dividends, to paper over Shell's weakest profit numbers in two decades

Royal Dutch Shell PLC - Royal Dutch Shell confirms slump in profits, sweetens dividend payouts for shareholders

Royal Dutch Shell PLC (LON:RDSB) has posted fourth-quarter results that confirmed a 71% decline in adjusted underlying earnings (adjusted EBITDA) to US$4.8bn for 2020 as the coronavirus (COVID-19) pandemic hampered fuel demand.

Fourth-quarter profit was similarly down 87% in its year-on-year comparison. It marks Shell’s lowest profit for two decades.

Nonetheless, the oil major sweetened the results for shareholders as it promised progressive improvement in dividends going into the new year, as it also claimed that it started 2021 with a strengthened balance sheet.

The company said its fourth-quarter dividend will be US$0.1735 per share, up 4% on the same quarter a year earlier.

Cash preservation was said to be better-than-expected, versus the downgraded targets set in March 2020 as COVID-19 took hold.

Shell also said that it beat its guidance for cost-cutting, with cash capex for 2020 marked at US$18bn, versus a target of US$20bn, and compared to US$24bn in 2019. The group’s underlying operating costs similarly improved, reducing by US$4bn, against guidance which was pitched at US$3bn to US$4bn.

“2020 was an extraordinary year,” said Ben van Beurden, Shell chief executive in the results statement. “We have taken tough but decisive actions and demonstrated highly resilient operational delivery while caring for our people, customers and communities.

“We are coming out of 2020 with a stronger balance sheet, ready to accelerate our strategy and make the future of energy. We are committed to our progressive dividend policy and expect to grow our US dollar dividend per share by around 4% as of the first quarter 2021.”

Shell shares slipped 13.82p or 1.09% to change hands at 1,259p in Thursday morning’s deals.

“The Shell share price hit its lowest levels since the mid 1990’s last year as a combination of a plunging oil price, and the huge drop in demand caused by the pandemic cast doubt on the company’s ability to manage in a timely fashion, the twin challenges posed by the events of the last 12 months,” CMC Markets analyst Michael Hewson said in a note.

“While we’ve seen a decent recovery since then the shares are still sharply lower from a year ago with little likelihood of a turnaround if today’s results are any indication of a direction of travel.”

Susannah Streeter, Hargreaves Lansdown analyst was somewhat more metaphorical, commenting: ‘’Shell is like a hermit crab, trying to shed its fossil fuel exoskeleton and move into a new greener home in which to grow. But Covid 19 has shifted sands around it, with weak global demand making that ambitious journey to a new future even harder.

She added: “Production was 14 per cent lower than in the same quarter last year, with OPEC cuts, lower demand and hurricanes in the US Gulf of Mexico all taking their toll.

“It adds up to a torrid year for Shell with profit for 2020 falling to its lowest in at least twenty years.”

Quick facts: Royal Dutch Shell PLC

Price: 1429 GBX

LSE:RDSB
Market: LSE
Market Cap: £111.57 billion
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