A Case Study on the Annual Report of Public Limited Company - Essay Example

Assessment Report Company background: Royal Dutch Shell plc, or commonly known as Shell is a global group of energy and petrochemicals companies operating in more than 90 countries and territories. Headquartered in the Hague, the Netherlands, the company is already a globally leading name in the oil and gas sector. As the statistical figures reveal, Shell produces 2% of the world’s oil and 3% of the world’s gas (source: Shell Website). The company offers a diverse range of products and services to be used in everyday life, in businesses and on the road. Statistically, the company provides transport fuel to around 10 million customers daily through its 44,000 service stations worldwide. The business solutions of the company are designed to meet a diverse range of business including construction industry, aviation, chemicals and shipping. Shell product lines include fuels for home and commercial fuels, gas and fuel cards, motor and bike oils, industrial lubricants, marine fuels, Liquefied Petroleum Gas (or LPG), and other chemical products. The company also engages in major projects and innovative technology solutions (including coal gasification technology) while overseeing safety and environment performance. One of the most significant operations of the company is to contribute effectively to sustainable development. Shell also focuses in the following aspects: Tackling greenhouse gas emissions Supporting economic growth and development of the society Taking an integrated approach for the safety and security of its people Working on a new energy future managing emissions, energy security, energy efficiency and energy diversity Accounting policies: Shell’s strategic policy implementation emphasises mainly on improving its performance and growth, both social and environmental (for instance, its emphasis on biodiversity (Schaltegger, Bennett and Burritt, 2006, p. 595)). The main focus on its strategy development includes three fields: nearer-term performance focus, medium-term growth delivery, and maturing new generation project options. The company reports have announced its strategy for 2010 and beyond. Some of the key aspects for the new strategy are listed below (source: Shell Website). Upstream production in 2012 is expected to reach 3.5 million barrels of oil equivalent per day, which is an increase of 11% from 2009. Its downstream business focuses on profitability, with plans to exit 15% of refining capacity and 30% of retail markets. With new projects on line, the company expects an increase of 50% in cash flow from operations from 2009 to 2012. While focusing on performance improvement, it plans for $1 billion of cost savings in 2010 and staff reduction of around 2000 positions by the year-end of 2011. Net capital investment is expected to be $25-27 billion per year for 2011-14, with $3 billion/year of asset sales and $25-30 billion/year of organic investment. With over 35 substantial new projects, the company is expected to sustain tremendous growth by 2020. It is significant to note that the company’s strategy is centred on strong operating performance and sustained investment on organic growth. Looking at the energy scenarios to 2050, Shell’s forecasts are mainly focused on the energy challenge faced by the world today. The primary motto of the company is to provide more energy and less carbon. Shell strongly believes that the development and implementation of CCS (Carbon Capture and Storage) technology is important for greenhouse gas emission control and employee safety issues, which by 2050 can contribute significantly to CO2 management. Financial performance analysis: Due to the weak global economy, the financial performance of Shell has been significantly affected in the fourth quarter of 2009. The key statistical figures in the financial report of the fourth quarter of 2009 are important compared to its results in the previous quarter (source: Shell Website). $ Million Q4 2009 Q3 2009 CCS earnings 1,177 2,990 Income attributable to shareholders 1,961 3,247 Basic CCS earnings per share ($) 0.19 0.49 Basic earnings per share ($) 0.32 0.53 Cash flow from operating activities 5,660 7,350 Cash flow from operating activities per share ($) 0.92 1.20 Dividend per share ($) 0.42 0.42 Significantly, the company’s CCS (current cost of supplies) earnings came down to $1.2 billion by the end of 2009 compared to $4.8 billion in 2008. Basic CCS earnings per share decreased by a significant 76% during this period. Due to the economic downturn in 2009, Shell’s downstream operations are having a tough time, but the company is making good progress to raise its competitive performance for recovery. The activities of Shell in 2009 witnessed a reduction of 10% in employment with around 5,000 employees leaving the company. Besides, reduction in underlying operating costs went by $1 billion in the fourth quarter of 2009 and by $2 billion in the full year compared to 2008. For 2010, the company targets further underlying operating cost reduction of $1 billion along with a reduction of around 1,000 employees. Apart from the significant low in its downstream operations, the company witnessed similar depression in its upstream operations as well. This is evident in the statistical figures of 2009 compared to those of 2008 (source: Shell Website). $ Million 2009 2008 Upstream earnings 8,354 26,506 Upstream cash flow from operations 19,935 38,681 Capital investment 23,951 32,166 Barrels of oil equivalent (thousand boe/d) 3,152 3,248 LNG sales volumes (million tonnes) 13.40 13.05 As evident in the table above, the company witnessed a reduction of 68% in upstream earnings in 2009 compared to 2008. It reflected the impact of significantly lower oil and gas prices as well as lower oil production volumes. Similar results are apparently evident in the downstream operations too. Downstream CCS earnings saw a significant low of 95% in 2009 compared to 2008. $ Million 2009 2008 Downstream CCS earnings 258 5,309 Downstream cash flow from operations 4,056 8,607 Capital investment 7,510 6,036 Refinery plant intake (thousand boe/d) 3,067 3,388 Oil products sales volumes (thousand boe/d) 6,156 6,568 Chemicals sales volumes (thousand tonnes) 18,311 20,327 The environmental performance (in %) of Shell for the period between 2003 and 2007 is reported below. 36 35 34 33 32 31 30 29 28 27 26 25 2003 2004 2005 2006 2007 Recommendation: Latest share price reports of Shell state that by April 2010, the company’s share prices (in pence) are stable at 1973.50. Some of the key figures in the share data are cited below (Shell Website). Share price (pence per ordinary share) 1973.50 Dividends paid (Q4, 2009) ($10,526 Million) Dividends paid per ordinary share 0.42 Dividends paid per ADR 0.84 Basic earnings per share ($ Million) 6,124.9 Diluted earnings per share ($ Million) 6,128.9 With the shareholding information of the company, following recommendations can be made: In order to improve its competitive performance, employee training and leadership programmes are recommended along with development and implementation of new technologies. To maintain its global activities, centralised development system is required for better and more effective organisational, management and production activities. In order to achieve global competitive advantages, the promotion of a global employee base is needed along with the notion of a multicultural organisational diversity. References: Schaltegger, S., Bennett, M. and Burritt, R. (eds.), 2006. Sustainability Accounting and Reporting. Dordrecht: Springer. Royal Dutch Shell, http://www.shell.com/. Appendix: Income Statement $ Million 2009 2008 Total revenue and other income 285,129 470,940 Income before taxation 21,020 50,820 Income for the period 12,718 26,476 Income attributable to shareholders 12,518 26,277 CCS earnings 9,804 31,366 Balance Sheet as on December 31, 2009 (figures in $ million) Total assets 292,181 Total liabilities 154,046 Equity attributable to shareholders 136,431 Total equity 138,135 Total liabilities and equity 292,181 Cash Flow Statement $ Million 2009 2008 Cash flow from operating activities 21,488 43,918 Cash flow from investing activities (26,234) (28,915) Cash flow from financing activities (829) (9,394) Increase/(decrease) in cash and cash equivalents (5,469) 5,532 Cash and cash equivalents at beginning of year 15,188 9,656 Cash and cash equivalents at end of year 9,719 15,188 Read More