(Alliance News) - Royal Dutch Shell on Thursday announced a new cash allocation framework which it said will enable the oil company to reduce debt, increase distributions to shareholders, and allow for disciplined growth.
Shell said the cash allocation framework includes a target to reduce net debt to USD65 billion from USD73.5 billion as of September 30. Upon achieving this milestone, Shell targets to distribute a total of 20% to 30% of cash flow from operations to shareholders.
Increased shareholder distributions will be achieved through a combination of Shell's progressive dividend and share buybacks. Remaining cash will be allocated to "disciplined and measured" capital expenditure growth and further debt reduction, it added.
The Anglo-Dutch firm declared a third quarter dividend of 16.65 US cents, down 65% from USD0.47 paid out in the third quarter last year. However, it was up 4.0% from the 16.00 cents paid for the second quarter, and Shell confirmed on Thursday it will grow the dividend annually as part of its progressive dividend policy.
For the third quarter ended September 30, Shell reported attributable income of USD489 million, down 92% from USD5.88 billion in the third quarter last year. Current cost of supply earnings for the period were USD177 million, down 97% from USD6.08 billion.
Over the nine month period, Shell swung to a CCS loss of USD15.44 billion from USD14.40 billion profit.
Looking ahead, Shell said as a result of the coronavirus crisis there is significant uncertainty in macroeconomic conditions with an expected negative impact on demand for oil, gas and related products.
Shell sees fourth quarter Upstream production in a range of 2.3 million to 2.5 million barrels of oil equivalent per day.
"The fourth quarter 2020 outlook provides ranges for operational and financial metrics based on current expectations, but these are subject to change in the light of current evolving market conditions. Due to demand or regulatory requirements and/or constraints in infrastructure, Shell may need to take measures to curtail or reduce oil and/or gas production, LNG liquefaction as well as utilisation of refining and chemicals plants and similarly sales volumes could be impacted. Such measures will likely have a variety of impacts on our operational and financial metrics," Shell said.
On Tuesday, peer BP also had reported a sharp year-on-year drop in third-quarter earnings but an improvement on the previous second quarter in the absence of exploration write-offs and recovering demand. Underlying replacement cost profit was USD86 million for the three months to September 30, compared with a loss of USD6.68 billion in the second quarter, and USD2.25 billion profit for the third quarter of 2019.
BP declared a third-quarter dividend of 5.25 US cents, halved from 10.25 cents in the third quarter last year.
Shell A shares were up 3.0% early Thursday. BP shares were down 1.2%.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: up 0.4% at 5,605.39
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Hang Seng: closed down 0.4% at 24,606.54
Nikkei 225: closed down 0.4% at 23,331.94
DJIA: closed down 943.24 points, or 3.4%, at 26,519.95
S&P 500: closed down 3.5% at 3,271.03
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GBP: up at USD1.3010 (USD1.2985)
EUR: unchanged at USD1.1753 (USD1.1756)
Gold: soft at USD1,881.82 per ounce (USD1,883.33)
Oil (Brent): soft at USD38.93 a barrel (USD39.12)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Thursday's Key Economic Events still to come
0930 GMT UK monetary and financial statistics
1100 CET EU business & consumer surveys
1345 CET EU European Central Bank interest rate decision
1400 CET Germany provisional consumer price index
1430 CET EU press conference with ECB President Christine Lagarde
0830 EDT US advance estimate GDP
0830 EDT US initial jobless claims
1000 EDT US pending home sales index
1030 EDT US EIA weekly natural gas storage report
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UK car production fell to its lowest September level for 25 years. Just over 114,732 vehicles rolled off factory lines in September, down by 5.0% on the same month in 2019, said the Society of Motor Manufacturers & Traders. This was the worst September performance since 1995. Car-makers continued to wrestle with the uncertain economic and political environment combined with the impact of the coronavirus pandemic on global market conditions, said the SMMT. Production for UK buyers rose by 15% in the month to 27,199 cars, while exports declined by 9.7% with 87,533 units produced. Car production is down by 36% so far this year.
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More than half a million UK businesses are in "significant distress" due to the impact of the pandemic, according to new figures. The latest Begbies Traynor red flag alert report for the past quarter revealed that 557,000 businesses are in particular turmoil as restrictions continue to cause instability across enterprises. The insolvency specialists said the figures showed the biggest increase in distress among firms since 2017. They revealed 527,000 companies were in significant distress in the previous quarter. It comes despite lower than average insolvencies as a ban on lease forfeiture and winding-up petitions has caused a backlog in company collapses. Julie Palmer, partner at Begbies Traynor, said "a perfect storm is on the horizon" for the turn of the year as the end of support measures is expected to result in insolvencies and redundancies.
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US President Donald Trump and challenger Joe Biden will rally voters just hours apart in the Florida city of Tampa on Thursday, their campaign paths crossing for the first time as the rivals' fight for the White House enters its frenetic final days. Florida is a must-win prize, and polls show the candidates in a dead heat in America's third-largest state, which has sided with the winner in every presidential election since 1964, with one exception. The candidates' events are sure to be a study in contrasts, with Trump's largely mask-less and densely packed supporters gathering in the afternoon, and Biden holding a socially distanced drive-in meeting later in the evening. A day prior, Trump was stumping in Arizona, while Biden voted in his home state of Delaware and met with health experts, as he fine-tuned his pandemic response plan, seeking to reassure voters that he would use science to fight the contagion.
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Hurricane Zeta barrelled through the southern US as a Category 2 storm Wednesday, bringing dangerous winds and surging ocean waves as New Orleans residents were left without power. Zeta was "moving rapidly through Mississippi and Alabama with dangerous storm surge, strong gusty winds and heavy rain," according to the National Hurricane Center. The storm had weakened slightly, packing sustained winds of up to 80 miles per hour on Wednesday night.
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BROKER RATING CHANGES
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BARCLAYS RAISES WM MORRISON SUPERMARKETS TO 'EQUAL WEIGHT' ('UNDERWEIGHT') - TARGET 180 PENCE
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LIBERUM RAISES KAZ MINERALS PRICE TARGET TO 640 (470) PENCE - 'HOLD'
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COMPANIES - FTSE 100
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Lloyds Banking Group said it saw an encouraging business recovery in the third quarter and, with impairments significantly lower, a return to profitability in the third quarter. For the quarter ended September 30, net income was down 25% to GBP988 million from GBP1.32 billion last year, and net interest income was down 16% to GBP2.62 billion from GBP3.13 billion. Pretax profit for the quarter was GBP1.04 billion, up from just GBP50 million in the third quarter last year. The bank said activity levels picked up in the third quarter of 2020 after contraction in the first six months, particularly mortgage applications and consumer spending. It received its biggest quarterly surge in mortgage applications since 2008, booking new mortgage lending of GBP3.5 billion. Looking ahead, Lloyds said net interest margin is expected to remain broadly stable around 240 basis points in the fourth quarter, resulting in a full year margin of 250 basis points. It also expects its 2020 impairment charge to be at the lower end of the GBP4.5 billion to GBP5.5 billion previously guided range.
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Standard Chartered reported a sharp drop in third-quarter profit but believes its ongoing transformation will allow the bank to weather the pandemic in "good shape". In the three months to September 30, the Asia-focused lender recorded pretax profit of USD435 million, down 61% year on year from USD1.11 billion. StanChart booked a USD358 million credit impairment in the third quarter, up from USD280 million a year before, but noted it is down from the USD611 million credit charge taken in the second quarter. Operating income dipped 11% to USD3.51 billion from USD3.96 billion, as net interest income declined 16% to USD1.62 billion from USD1.94 billion.
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COMPANIES - GLOBAL
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Airbus said the global air travel recovery has been slower than anticipated, as it swung to a net loss for the third quarter of 2020. For the three months to September 30, the European aircraft maker recorded a net loss of EUR767 million compared with EUR989 million profit recorded a year ago. Revenue for the quarter dived 27% to EUR11.21 billion from EUR15.30 billion. The sharp fall in revenue was attributed to a difficult market environment in commercial aircraft due to Covid-19, with around 40% fewer deliveries year-on-year. A total of 341 commercial aircraft were delivered in the first nine months of 2020, down from 571 aircraft a year before. US arch rival Boeing on Wednesday posted a third-quarter net loss of USD466 million, swinging from a USD1.17 billion profit a year prior. Revenue was down 29% year-on-year to USD14.14 billion from USD19.98 billion.
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Sanofi posted an improvement in earnings for its third quarter driven by an increase in sales for Dupixent and demand for flu vaccines, as it announced a partnership with Merck & Co. The French pharmaceutical company said for the three months ended September 30, net sales were EUR9.48 billion, up 5.7% year-on-year at constant exchange rates but down 0.2% on a reported basis. Net income rose to EUR1.96 billion from EUR1.78 billion in the third quarter last year. By unit, Specialty Care sales grew 24%, driven by Dupixent sales which rose 69% to EUR918 million. Vaccines sales were up 14% driven by record flu sales. However, General Medicine sales declined 6.4% and CHC sales fell 1.1%. Sanofi said it has entered into an agreement with peer Merck & Co to conduct a Phase 2 clinical trial to evaluate the safety, pharmacokinetics and preliminary efficacy of THOR-707 combined with Merck's Keytruda in patients with various cancers. Under the agreement, Sanofi will sponsor the clinical trials while Merck will provide Keytruda, also known as pembrolizumab.
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Thursday's Shareholder Meetings
Scancell Holdings PLC - GM - re open offer and Redmile convertible loan notes issue
Rosslyn Data Technologies PLC - AGM
Zoltav Resources Inc - AGM
ITM Power PLC - AGM
Jarvis Securities PLC - EGM re 4 for 1 subdivision of shares
i3 Energy PLC - GM re reverse takeover of Toscana Energy Income
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By Tom Waite; thomaslwaite@alliancenews.com
Copyright 2020 Alliance News Limited. All Rights Reserved.
