(Alliance News) - Royal Dutch Shell on Thursday reported a significant fall in annual earnings, as a result of a decline in oil and gas prices, and it warned that debt reduction could take precedence over shareholder returns.
Shell's 2019 current cost of supplies earnings attributable to shareholders excluding items, its preferred profit metric, fell 23% to USD16.46 billion, which is short of market consensus of USD16.74 billion.
The figure for the fourth quarter of the year slumped 48% to USD2.93 billion, and was around half the third-quarter figure.
CCS earnings attributable to shareholders excluding items had risen 36% in 2018, boosted by higher commodity prices, but Shell said 2019 earnings "reflected lower realised oil, gas, and liquefied natural gas prices, and weaker realised refining and chemicals margins".
Shell's CCS earnings attributable to shareholders for the year dipped 36% to USD15.27 billion, with the fourth quarter figure down 88% to USD871 million.
Revenue fell 11% to USD344.88 billion. Production for 2019 was flat at 3.67 million barrels of oil equivalent per day, with the fourth quarter figure down 1% at 3.76 million barrels per day.
Shell is paying a USD0.47 quarterly dividend, as expected by the market, taking the annual total to USD1.88, again as expected. This means no annual dividend increase.
Shell is to start the next tranche of its ongoing USD25 billion share buyback for 2018 to 2020. It has so far bought back USD14.75 billion of that, and will purchase USD1 billion more to April 27.
Shell did warn that the pace of the current buyback programme is subject to macroeconomic conditions and the company's progress in reducing debt.
However, debt actually rose in 2019. Net debt as of the end of December was USD79.09 billion, rising 5.9% over the fourth quarter. Gearing increased 29.3% from 27.9%.
"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 USD25 billion share buyback programme is unchanged, but the pace remains subject to macro conditions and further debt reduction," said Chief Executive Ben van Beurden.
Shell B shares were down 3.6% in early London trade Thursday.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: down 0.8% at 7,424.37
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Hang Seng: closed down 2.7% at 26,441.72
Nikkei 225: closed down 1.7% at 22,977.75
DJIA: closed up 11.60 points at 28,734.45
S&P 500: closed down 0.1% at 3,273.40
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GBP: unchanged at USD1.3003
EUR: up at USD1.1011 (USD1.1000)
Gold: up at USD1,580.67 per ounce (USD1,569.44)
Oil (Brent): down at USD58.82 a barrel (USD59.94)
(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
China - Lunar New Year public holiday continues. Shanghai market closed; Hong Kong open.
1200 GMT UK Bank of England interest rate decision
1200 GMT UK BoE policy meeting minutes and Monetary Policy Report
1230 GMT UK Mark Carney's final press conference as BoE governor
1100 CET EU business & consumer surveys
1100 CET EU unemployment
1000 CET Germany unemployment
1400 CET Germany provisional consumer price index
0830 EST US advance estimate GDP
0830 EST US initial jobless claims
1030 EST US EIA weekly natural gas storage report
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Britain has begun its last full day in the EU after Prime Minister Boris Johnson's Brexit deal was given its final seal of approval. British MEPs are packing up their offices in Brussels and millions of new coins will go into circulation promising "friendship with all nations" as the country prepares to exit the bloc at 11pm on Friday. It comes as Johnson prepares to deliver a speech next week saying he is willing to accept border checks after Brexit, with sovereignty prioritised over frictionless trade. The prime minister's speech will come in apparent defiance of EU warnings that Britain must accept the bloc's standards on goods for the best trade agreement, The Daily Telegraph reports while citing Whitehall sources.
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UK Chancellor Sajid Javid is set to throw his weight behind the controversial HS2 rail project. Javid is minded to support the high speed train initiative at a meeting with Johnson and Transport Secretary Grant Shapps on Thursday. The PA news agency understands that having reviewed costs and alternatives the Chancellor will "broadly back" the high-speed line from London to Birmingham, Manchester and Leeds. Shapps has insisted that no decision on the controversial infrastructure project – the biggest in Europe – will be announced this week. It has been estimated the scheme, which was allocated GBP56 billion in 2015, could cost up to GBP106 billion.
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Johnson will meet with the US secretary of state as transatlantic tensions simmer over the decision to allow a Chinese tech giant to take part in Britain's 5G roll-out. Mike Pompeo will meet the UK prime minister in Downing Street after insisting Huawei presents a "real risk" to security. The pointed comments came after Johnson claimed allowing the Chinese company to be involved in the UK's 5G network would not damage transatlantic security co-operation.
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Car manufacturing in the UK fell for the third consecutive year and was lowest since 2010, data from the Society of Motor Manufacturers & Traders showed. According to data from the trade body, UK car production fell 14% in 2019 to 1.3 million, with a 6.4% drop in December rounding off a third year of decline. SMMT said car production output was affected by multiple factors, including weakened consumer and business confidence in the UK, slower demand in key overseas markets, a number of significant model production changes and a shift from diesel across Europe.
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China reported its biggest single-day jump in novel coronavirus deaths on Thursday, as confirmation that three Japanese evacuated from the outbreak's epicentre were infected deepened fears about a global contagion. The World Health Organization, which initially downplayed the severity of a disease that has now killed 170 nationwide, warned all governments to be "on alert" as it weighed whether to declare a global health emergency. As foreign countries evacuated their citizens from Wuhan, the locked-down city where the virus was first detected, concern over the economic impact has steadily intensified.
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The US Federal Reserve held its policy interest rate steady on Wednesday, but again said it is monitoring "global developments" to decide its next move. Fed Chairman Jerome Powell said however that while the global economy seems to have stabilized, the deadly virus outbreak in China presents a potential risk. "There will clearly be implications at least in the near term for Chinese output and I would guess for some of their close neighbors," Powell told reporters following the Fed's policy meeting.
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BROKER RATING CHANGES
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BARCLAYS RESUMES WH SMITH WITH 'OVERWEIGHT' - TARGET 2705 PENCE
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CITIGROUP CUTS HOMESERVE TO 'NEUTRAL' ('BUY')
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LIBERUM CUTS IG GROUP TO 'HOLD' ('BUY')
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COMPANIES - FTSE 100
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Unilever reported underlying sales growth below its multi-year target range, as expected. Underlying sales growth for 2019 was 2.9%, just below its target range of 3% to 5%. The consumer goods giant in December had warned that this would be the case, given continued trouble in west African markets and a slowdown in south Asia, one of its biggest markets. Revenue for 2019 amounted to EUR51.98 billion, up 2.0% from EUR50.98 billion the year before, while pretax profit dived by a third to EUR8.28 billion from EUR12.36 billion. This was as the company took a non-underlying charge of EUR1.24 billion versus a gain of EUR3.18 billion the year before. Looking ahead, the Hellman's mayonnaise maker said underlying sales growth in 2020 will be in the "lower half" of its 3% to 5% range. "While we expect an improvement from the fourth quarter of 2019 into the first half of 2020, first half underlying sales growth will be below 3%," said Chief Executive Alan Jope. "The impact of the coronavirus outbreak is unknown at this time," he added.
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Distiller Diageo said it expects full-year organic net sales growth towards the lower end of its mid-term 4% to 6% guidance range. Sales rose to GBP10.83 billion in the six months to December 31 from GBP10.36 billion a year ago. Organic net sales grew 4.2%. Organic operating profit grew ahead of net sales, the company noted, up 4.6%. Pretax profit slipped, however, to GBP2.46 billion from GBP2.63 billion. This was largely due to a non-repeating GBP146 million gain received in the year-ago period, which mainly related to the sale of a portfolio of 19 brands. Diageo lifted its interim dividend by 5% to 27.41 pence per share.
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Moody's Investors Service upgraded Barclays's long-term senior unsecured debt rating to Baa2 from Baa3 following an improved "operating performance and profitability", the credit ratings agency said late Wednesday. Moody's also changed the outlook to Stable from Positive following the debt rating upgrade. Moody's Senior Vice President Alessandro Roccati said: "Barclays' profitability has improved over the past year and its earnings are less volatile, benefiting from both stronger revenues, particularly from its non ring-fenced subsidiary, Barclays Bank PLC, improved efficiency and lower litigation and conduct charges."
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There have been two deaths in the UK potentially linked to vaping, the healthcare products regulator has said. The Medicines & Healthcare Products Regulatory Agency said it had received two reports of e-cigarette or vaping associated lung injury in which the patients had died. The regulator added that it had also received 20 reports describing 27 "serious respiratory events" linked to e-cigarettes, including pneumonia and lower respiratory tract infection. Public Health England said the deaths were "concerning" and it follows an outbreak of vaping-related illnesses in the US which had led to 60 deaths.
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COMPANIES - FTSE 250
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Frasers Group, formerly known as Sports Direct International, said part of its Belgian tax dispute has been resolved. Earlier, the Belgian Tax Authority had confirmed in writing that it expected to complete its review of 'Matter 1' early in 2020. 'Matter 1' accounts for EUR491 million, or 73%, of the total EUR674 million payment notice. "The Tax Authority has now confirmed in writing that it has completed its review of Matter 1 and that it is satisfied with the explanation provided. Accordingly, in respect of Matter 1, VAT has been correctly accounted for in Belgium, Matter 1 has been withdrawn from the proces verbal by the Belgian Tax Authority, and this aspect of the proces verbal has been resolved with no payment of VAT liabilities or associated penalties and interest to be made," Frasers said. The retailer said it will continue to "fully engage" and work with the tax authority to resolve smaller remaining issues. "Frasers Group management still believe that it is less than probable that material VAT and penalties will be due in Belgium as a result of the tax audit," the company said.
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COMPANIES - OTHER MAIN MARKET AND AIM
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Kore Potash said progress continues on its project located in the Republic of Congo, with consultants appointed. The potash exploration and development company said the pre-feasibility study for the potential Dougou extension of its flagship Sintoukola potash project is on track to be completed by the end of April. In the meantime, Kore Potash said diamond drilling from the base of the reverse circulation holes through the salt layers has commenced as planned in January.
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COMPANIES - INTERNATIONAL
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Deutsche Bank reported an annual loss but the lender stressed it is confident in its ability to restructure, based on the work of its Capital Release unit. In 2019, the Frankfurt-headquartered bank recorded a pretax loss of EUR2.63 billion compared to a EUR1.33 billion profit in 2018. The loss was blamed on EUR3 billion of charges related to its ongoing transformation. The lender's core bank operations - which excludes its "bad bank" Capital Release unit - made a pretax profit of EUR542 million in 2019. Total net revenue slipped 8% in the year to EUR23.17 billion from EUR25.32 billion in 2018. Deutsche said core bank revenue was "stable" in 2019, despite a "more challenging" interest rate environment and "uncertainties" in the global economic outlook.
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Swiss pharma giant Roche Holdings reported a strong rise in annual profit for 2019, driven by sales in its Pharmaceutical unit. In 2019, Roche recorded net income of CHF14.11 billion, about USD14.52 billion, which represents a 8% rise from CHF10.87 billion the year before. Diluted earnings per share were up 11% in 2019 to CHF20.16 from CHF18.14 in 2018. Group sales grew 8% year on year to CHF61.47 billion from CHF56.85 billion the year before. Roche's Pharmaceuticals unit saw revenue rise 10% to CHF48.52 billion while its Diagnostics unit reported a 1% rise to CHF12.95 billion.
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Thursday's Shareholder Meetings
Avon Rubber
Inspirit Energy
Hollywood Bowl Group
Adriatic Metals
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By Tom Waite; thomaslwaite@alliancenews.com
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