A Very Quick Look At Royal Dutch Shell's Earnings

Published in Company Comment on 19 October 2012

Are profits at Royal Dutch Shell (LSE: RDSB) distorted by unusual items?

Right now I'm trawling through the FTSE 100 (UKX) and double-checking for blue chips that may be flattering their profits.

You see, many companies these days report 'underlying' earnings, which are calculated by excluding costs the firm deems to be 'exceptional'. Trouble is, some companies are more cavalier than others when it comes to sweeping awkward expenses away from the headline figures.

Today I'm looking at Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) to see if its reported earnings have been distorted significantly by exceptional, one-off or unusual items. I've extracted the following statistics courtesy of S&P Capital IQ:

Year to 31 December20072008200920102011
Profit before unusual items (£m)23,36232,34113,43221,35733,646
Gains on sales of assets and investments (£m)2,1642,7944842,098-
Asset writedowns (£m)(79)(255)(903)(746)(749)

While annual figures can provide some insight into how a business has performed, I reckon looking back over several years provides a better view of possible problems in relation to one-off costs.

So between 2007 and 2011, my stats tell me Shell reported cumulative profits before exceptional items and tax of £124.1 billion. However, aggregate exceptional costs came to £4.8 billion -- equivalent to just 4% of cumulative 'underlying' profits.

Shell's profit and loss accounts look cleaner than the other big companies I've looked at recently in the series.

Asset writedowns have been very small in relation to its overall profits, and less than half the amount written down by BP (LSE: BP) (NYSE: BP.US) over the same five-year period.

But Shell has also consistently made profits each year by selling assets and investments, suggesting it's also been fairly prudent when it comes to valuing items in its accounts.

Somebody who always studies earnings numbers in detail is Neil Woodford, the UK's leading equity income fund manager. Mr Woodford's portfolios thrashed the FTSE 100 during the 15 years to 2011 and this exclusive Motley Fool report -- which can be downloaded free today -- reviews his favourite blue-chip shares for 2013 and beyond.

Are you looking to profit from this uncertain economy? "10 Steps To Making A Million In The Market" is the very latest Motley Fool guide to help Britain invest. Better. We urge you to read the report today -- it's free.

Further Motley Fool investment opportunities:

> Stuart does not own any share mentioned in this article.

Share & subscribe


The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

QuantumDealer 19 Oct 2012 , 3:41pm

Thanks for the article on earnings but could you possibly go a step further and examine RDSB's dividends and the specific lack of any increase over the past 3 or so years please? I cannot understand why they have not got a more progressive dividend policy and have passed through additional shareholder return via dividends recently.

Join the conversation

Please take note - some tags have changed.

Line breaks are converted automatically.

You may use the following tags in your post: [b]bolded text[/b], [i]italicised text[/i]. All other tags will be removed from your post.

If you want to add a link, please ensure you type it as http://www.fool.co.uk as opposed to www.fool.co.uk.

Hello stranger

To add your own comment, please login.

Not yet registered? Register now.