Royal Dutch Shell announced its third quarterly results with a cash reallocation strategy to reduce its debt and reshape its distribution network. Apart from the larger-than-expected Shell revenue, it also managed to lower net debt and snag strong cash flow.
The Anglo-Dutch company reported Q4 adjusted earnings of $955 million for the three months through to the end of September. It also confirmed a dividend per share growth by around 4% to 16.65 US cents for the third quarter 2020 and annually thereafter, subject to Board approval.
It aims to reduce net debt to $65 billion (from $73.5 billion as of September 30, 2020) and a target to distribute a total of 20-30% of cash flow from operations to shareholders.
Increased shareholder distributions will be achieved through a combination of Shell’s progressive dividend and share buybacks.
Net-zero emissions plan
Chair of the Board of Royal Dutch Shell, Chad Holliday commented: “The Board has reviewed Shell’s recent performance and its plans to grow its businesses of the future, and we are confident that Shell can sustainably grow its shareholder distributions as well as invest for growth. As a result, the Board has decided to increase the dividend per share to 16.65 US cents for the third quarter 2020. The Board has additionally approved a cash allocation framework for Shell, which, on reducing its net debt to $65 billion, will target total shareholder distributions of 20-30% of cash flow from operations.”
Refuelling at Shell UK Future Fuels, hydrogen refuelling station, Cobham, Surrey, UK. (Copyright: James Cannon)
These actions support Shell’s ambition to become a net-zero energy emissions business by 2050 or sooner.
“Our sector-leading cash flows will enable us to grow our businesses of the future while increasing shareholder distributions, making us a compelling investment case,” said Royal Dutch Shell Chief Executive Officer, Ben van Beurden. “We must continue to strengthen the financial resilience of our portfolio as we make the transition to become a net-zero emissions energy business. Our decisive actions taken earlier in the year have solidified our operational and cash delivery. The strength of our performance gives us the confidence to lay out our strategic direction, resume dividend growth and to provide clarity on the cash allocation framework, with clear parameters to increase shareholder distributions.””
Royal Dutch Shell Chief Executive Officer, Ben van Beurden (Copyright: Ed Robinson)
Shell shares of the company rose 1.9% to 883 pence as of 8:55 a.m. in London, but are still down about 60% this year.
Shell’s earnings have come as a pleasant surprise amidst the gloomy results shown by its peers in the old industry, which is seeing a major slump in oil prices and an abundance of supply.
Italy’s Eni SpA and Austria’s OMV AG both lost money in the third quarter, while Repsol SA did marginally better. BP Plc. managed to hold it’s won with respectable returns for the quarter but the future predictions were not rosy.
While van Beurden promised steady growth in cash returns, BP has fixed its dividend and said a resumption of share buybacks is at least a year away.
Shell’s adjusted net income was $955 million in the third quarter, down 80% from the same period a year ago. Shell earnings, as with others in the industry were hit by lower prices and a hut down of further supplies and refineries due to the pandemic, though rough losses were offset by reduced operating expenses.
The company’s other financial measures also offered some Gearing, a measure of debt to equity, dropped to 31.4% from 32.7% in the second quarter. Net debt fell to $73.5 billion, and Shell pledged to further increase shareholder distributions once that figure reaches $65 billion.
Shell has delivered a strong set of revenue that puts the company “back on the front foot” with investors, RBC analyst Biraj Borkhataria said in a note, reports Bloomberg.
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