The gloom spread virtually across all of Shell's main businesses. Exploration and production earnings fell because of the lower oil price and warmer weather, while downstream profits were hit by restructuring charges. Chemicals suffered from the strength of sterling and lower margins in certain product areas.
The figure that worried investors most, however, was the drop in Shell's return on capital employed to from 13.3 per cent to 11.4 per cent in the final quarter. Shell aims to get returns up to 15 per cent by 2001 and 13 per cent by the end of this year. But if the oil price does not improve, no amount of frantic cost-cutting will allow it to achieve that.
In fact, the only spot of light was the company's decision to raise the dividends paid by Shell Transport & Trading, its UK parent, to reflect the loss of the associated tax credit. The result is that brokers are now forecasting that the dividend will grow by at least 12 per cent this year and next.
So what to do with the shares? In the grand scheme of things, yesterday's 10.25p fall to 411.5p is probably a bit of an overreaction. If you have to hold an oil stock, Shell is probably the most attractive: it's less exposed to the oil sector than its peers and has the benefit of more restructuring to come. But, as always, change is going to be slow.Reuse content