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Royal Dutch ShellFinancial Analysis
October 2013
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Royal Dutch Shell: overview
� Royal Dutch Shell (Shell) is a leading a public limited company registered in England
and Wales and headquartered in the Netherlands
� Thanks to a long time operating history the company is one of the most important
independent, that is not state owned players in the Oil and Gas industry
� The group operates all around the world with a presence around the world which is
quite balanced. Revenues come from all around the world with Europe and Asia
leading the sales
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Royal Dutch Shell: overview
� Shell manages all the different phases of the industry cycle: both upstream and
downstream activities
� Downstream is the most important revenue source although upstream is leading
according to invested capital
Upstream Downstream
Main activities
- Exploration right
acquisition
- Exploration
- Development
- Drilling
- extraction
Main activities
- Refining (oil)
- Purifying (gas)
- Marketing
- Distribution
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Royal Dutch Shell: overview
� Downstream is the most important revenue source although upstream is leading
according to invested capital
Revenues segmentation
USD mln 2010 2011 2012 2011 2012Ustream 68,198 91,691 94,550 17.6% 18.2%Downstream 336,216 428,646 424,410 82.4% 81.8%Corporate 57 47 84 0.0% 0.0%Revenues 404,471 520,384 519,044 100% 100%Source: company 20 F
Net Capital Investment
USD mln 2010 2011 2012 2011 2012Upstream 21,222 19,083 25,320 81.2% 85.0%Downstream 2,358 4,342 4,275 18.5% 14.3%Corporate 100 78 208 0.3% 0.7%Total 23,680 23,503 29,803 100% 100%Source: company 20 F
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Royal Dutch Shell: strategies
Strategies
UPSTREAM
Growth reserves:
- Acquire
exploration rights
- Find new reserves
to replenish
quantities sold
New fields
- Develop Deep
Water oil field
- Minimize
environmental
impact
DOWNSTREAM
Improve efficiency
- Optimize capital
invested
- Reduce wastes
- Sell non
strategically assets
Bio-fuels
- Improve refining
capacity
Current strategies aim to:
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Royal Dutch Shell: question point
StrategiesFinancial
performance ?
� Are these strategies able to deliver value to Shell shareholders ?
� Does the company face financial risks ?
Liquidity risk
Solvency risk
Efficiency
Profitability
Dividend policy
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Royal Dutch Shell: liquidity risk
� Main findings:
• Quite short cash cycle
• No inventory obsolescence
• Short term capital structure balanced
• Suitable amount of cash and cash equivalents to meet liquidity demand
No significant liquidity risk
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Royal Dutch Shell: liquidity risk and competitors
� Shell liquidity ratios are in line with its competitors. All the companies in the sample
exhibit high liquidity and very favorable cash collection cycles
� Chevron has a large amount of cash and cash equivalents and hence has the highest
liquidity ratios
Liquidity ratios
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012Current Ratio 1.20 1.24 1.26 0.94 0.95 1.01 1.31 1.29 1.45 2.14 1.96 2.06Quick ratio 0.91 0.96 0.95 0.65 0.67 0.70 0.86 0.86 0.95 1.68 1.56 1.61Acid ratio 0.13 0.11 0.19 0.13 0.17 0.15 0.28 0.20 0.30 0.72 0.71 0.77
Receivable dd 78 69 58 34 33 30 53 48 42 46 38 40Inventory dd 38 29 30 24 21 20 44 33 35 17 13 16Payable dd (cost of sales) 104 86 76 92 77 70 78 67 58 60 54 59Cash Cycle 12 12 12 -34 -24 -19 19 15 19 3 -2 -3
Shell Exxon BP Chevron
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Royal Dutch Shell: efficiency
� Main findings:
• Quite efficient operations
• Efficiency is positively related to oil prices; it improves when oil prices increase
• Company does not face goodwill impairment risks
• Difficult to analyze in a deeper manner efficiency since balance sheet notes do not
give more insights
Shell operational efficiency is slightly better than its main competitors
Efficiency ratio
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012Fixed asset turnover 2.58 3.09 2.71 1.71 2.02 1.85 2.70 3.04 3.00 1.72 1.87 1.54LT asset turnover 1.83 2.17 1.97 1.40 1.68 1.56 1.70 1.91 1.86 1.34 1.49 1.25Total asset turnover 1.14 1.36 1.30 1.13 1.31 1.26 1.10 1.29 1.26 0.97 1.09 0.94Capital exenditures / Sales 6.0% 4.4% 6.1% 6.9% 4.6% 6.3% 1.5% 7.2% 3.5% 10.9% 13.1% 14.2%
Shell Exxon BP Chevron
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Royal Dutch Shell: solvency risk
� Main findings:
• Low financial gearing
• Financial debt is mainly composed of
long term notes and borrowings
• Capital structure is well balanced with
short term assets covering short term
liabilities and long term assets being
financed by equity and long term
liabilities
Balance Sheet common size
2010 2011 2012ASSETSCurrent AssetsCash 4.2% 3.3% 5.1%Receivables 24.5% 25.7% 20.6%Inventories 9.1% 8.4% 8.5%Current Assets 37.8% 37.4% 34.3%
Intangible Assets 1.6% 1.3% 1.2%Property, Plant & Equipment 44.2% 44.0% 47.8%Equity accounted investments 10.4% 11.0% 10.6%Investment in securities 1.2% 1.6% 1.4%Other LT Assets 4.9% 4.7% 4.6%Long Term assets 62.2% 62.6% 65.7%
ASSETS 100% 100% 100%
LIABILITIESCurrent liabilitiesPayables 25.0% 25.1% 21.4%Other ST liabilities 3.3% 3.2% 3.6%ST Interest Bearing 3.1% 1.9% 2.2%Current liabilities 31.4% 30.3% 27.2%
LT Interest Bearing 10.7% 8.8% 8.3%Other LT liabililities 11.5% 11.4% 11.8%Long term liabilities 22.1% 20.2% 20.1%
Shareholders' equityCapital stock 0.2% 0.2% 0.2%Retained earnings 45.7% 48.9% 52.2%Group Equity 45.9% 49.1% 52.3%Minority Interests 0.5% 0.4% 0.4%Equity 46.4% 49.5% 52.7%
SOURCES 100% 100% 100%
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Royal Dutch Shell: solvency risk and competitors
� All the other companies have modest financial gearing. Chevron has an overall
negative financial position (it means it has net cash)
� Debt is composed mainly by long term maturities
� Companies seem to be quite solvent and assuming a stable pattern and absence of
extraordinary events (such as oil disasters) solvency risk should remain low
Solvency ratios
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012Financial Gearing 17.3% 13.2% 9.2% 4.3% 2.5% 1.0% 20.8% 20.9% 19.4% -5.6% -8.9% -7.7%Debt / Equity 1.2 1.0 0.9 1.1 1.1 1.0 1.9 1.6 1.5 0.8 0.7 0.7LT borrowings % 77.6% 81.9% 79.3% 85.0% 56.1% 70.5% 67.7% 79.6% 79.4% 98.4% 96.7% 99.0%
Shell Exxon BP Chevron
Solvency ratios
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012Financial Debt / OCF 8.4x 2.3x 2.1x 0.3x 0.1x 0.1x 2.3x neg 2.9x -0.5x -0.9x -1.2xDividend / OCF 189.1% 45.6% 43.7% 35.0% 26.1% 34.9% 27.3% neg 55.1% 48.9% 55.5% 87.4%Dividend Pay-out n.a. 36.3% 24.8% n.a. 30.6% 25.4% n.a. -106.2% 21.3% n.a. 32.6% 25.6%
Shell Exxon BP Chevron
• High generation of operating cash flow (OCF) allow to cover investment
requirements and financial debt
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Royal Dutch Shell: profitability
� Quite stable profitability in the period although there is some evidence, in 2011, that
high oil price are positively related with higher profit margins
� Upstream leading higher margins than downstream
Earning/losses by segment
USD mln 2010 2011 2012 2011 2012Upstream 15,935 24,455 22,162 79.1% 83.3%Downstream 2,950 4,289 5,350 13.9% 20.1%Other 1,242 2,174 -920 7.0% -3.5%Total 20,127 30,918 26,592 100% 100%
Source: company 20 F
Profitability ratios
2010 2011 2012
Ebitda mrg % 11.4% 11.9% 11.2%Ebit mrg % 7.1% 9.1% 8.0%
Pretax income % 9.6% 11.8% 10.8%Net Income % 5.5% 6.6% 5.7%
Shell
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Royal Dutch Shell: profitability and competitors
� In the period of analysis BP profitability was adversely impacted by costs related to the
Gulf of Mexico platform disaster
� Pretax income for all the companies benefit of the income from financial management
and by interest and income generate by associated companies
� Chevron lead the group thanks to higher profitability but notes in its financial
statements do not help to appreciate the reasons for this leadership. Although it has a
lower incidence in selling, distribution and administration and in purchases, no other
and more deeper analysis can be made according to data disclosed.
Profitability ratios
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012Ebitda mrg % 11.4% 11.9% 11.2% 16.1% 16.1% 15.6% -0.8% 11.4% 6.9% 21.4% 22.4% 22.2%
Ebit mrg % 7.1% 9.1% 8.0% 11.7% 12.5% 11.9% -5.1% 7.8% 1.9% 14.1% 16.7% 16.0%Pretax income % 9.6% 11.8% 10.8% 15.5% 16.9% 18.7% -1.8% 10.2% 4.8% 17.8% 20.8% 21.2%Net Income % 5.5% 6.6% 5.7% 8.9% 9.5% 10.7% -1.4% 6.7% 2.9% 10.6% 11.8% 12.0%
Shell Exxon BP Chevron
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Royal Dutch Shell: profitability and competitors
� All the companies have quite good return on the capital invested as a result o good
profitability and favorable efficiency ratios
� There is however a deep positive relationship with profitability results with chevron
leading thanks to its superior profitability ratios
Return on capital ratios
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012ROE % 13.8% 18.4% 14.2% 21.4% 27.3% 28.7% -3.9% 23.0% 9.5% 18.2% 22.3% 19.3%ROIC % 11.3% 15.8% 12.8% 19.2% 24.9% 25.9% -3.0% 18.0% 7.6% 19.1% 24.1% 20.6%ROI % 8.1% 12.4% 10.4% 13.3% 16.4% 15.0% -5.6% 10.0% 2.4% 13.7% 18.3% 15.0%
ROIC = NI / Invested capital
Shell Exxon BP Chevron
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Royal Dutch Shell: ROE disaggregation
� Main findings:
• Satisfactory ROE level on average
• Positive contribution on ROE of Interest burden (e.g. contribution form associates
and low interest expense values)
• Positive contribution from efficiency (asset turnover)
• Positive contribution from leverage (e.g. liabilities both operating and financial)
ROE Disaggregation
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012EBIT Margin 7.1% 9.1% 8.0% 11.7% 12.5% 11.9% -5.1% 7.8% 1.9% 14.1% 16.7% 16.0%Interest Burden 134.7% 130.3% 134.1% 132.0% 135.4% 157.8% 34.9% 130.7% 254.9% 126.3% 124.4% 132.3%Pretax Margin 9.6% 11.8% 10.8% 15.5% 16.9% 18.7% -1.8% 10.2% 4.8% 17.8% 20.8% 21.2%Tax Burden 57.9% 56.0% 53.4% 59.3% 57.6% 60.6% 69.1% 67.0% 62.1% 59.7% 56.7% 56.8%Profit Margin 5.6% 6.6% 5.7% 9.2% 9.7% 11.3% -1.2% 6.8% 3.0% 10.6% 11.8% 12.1%Total Asset Turnover 1.14 1.36 1.30 1.13 1.31 1.26 1.10 1.29 1.26 0.97 1.09 0.94Return on Assets 6.3% 9.0% 7.4% 10.4% 12.8% 14.3% -1.4% 8.8% 3.8% 10.4% 12.9% 11.3%Leverage 2.18 2.04 1.91 2.06 2.14 2.01 2.86 2.62 2.52 1.76 1.73 1.71Return on Equity 13.8% 18.4% 14.2% 21.4% 27.3% 28.7% -3.9% 23.0% 9.5% 18.2% 22.3% 19.3%
Shell Exxon BP Chevron
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Royal Dutch Shell: dividend policy
� Main findings:
• Significant pay-out ratios
• Dividend was however a modest ratio of operating cash flow
• Buy back policies undertaken to reduce equity and distribute cash flow to investors
2010 2011 2012Dividend / OCF 189.1% 45.6% 43.7%Dividend Pay-out n.a. 36.3% 24.8%
Shell
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Royal Dutch Shell: findings and recommendation
� Main findings:
• A recognized leader in the oil & gas industry
• Quite good profitability
• Quite good efficiency in employing the capital
• Both profitability and efficiency positively related to oil prices
• No liquidity risk
• No solvency risk
• Generous dividend policy and buy back policies
