City explores oil giant Royal Dutch Shell's prospects

Published on Saturday 13 March 2010 14:19

ATTEMPTS by Royal Dutch Shell to address its production difficulties will be in the spotlight this week, alongside updates from retailers Debenhams and French Connection.

Shell chief executive Peter Voser faces a tough challenge on Tuesday when he presents the oil major's strategy update to a sceptical City.

The Anglo-Dutch firm has to convince that it means to turn around years of sliding production and strip out costs.

The pressure on Voser – less than nine months in post – has increased due to improvements at rival BP, where Tony Hayward is leading a resurgence.

Panmure Gordon analyst Peter Hitchens said: "If you look at the way Shell is positioned, it is losing ground. BP and Exxon are moving ahead."

Production at Shell has slid to around 3.2 million barrels per day, compared with 4 million at BP, as the firm pays the price for exploration cutbacks in previous years, Hitchens added.

With a large part of its oil assets maturing, it is having to spend at a time when refining margins have been hit by weak demand and overcapacity.

The $28 billion (19bn) it plans to spend this year is around as much as its far bigger rival Exxon and well ahead of BP. But there is a big gap between committing money and producing oil.

Shell has also been slow out of the blocks on cost-savings. BP stripped out $4bn (2.5bn) last year. Shell's savings amounted to just half of that figure.

The fashion retailer French Connection is expected to report back on a six-month overhaul of the business when it unveils annual results on Wednesday.

The group, which announced a restructuring in September, has trimmed 50 head office jobs in London, New York and Hong Kong, while pulling out of Northern Europe and Japan.

But the market is waiting for news of further initiatives following a dire first half last year that saw pre-tax losses more than double to 12.8m from 5.4m a year earlier.

In late November, the chain said like-for-like sales growth in its UK and European business – accounting for more than half its revenues – slowed to 0.3 per cent between August and 24 November, down from 1 per cent the previous year.

Its ladieswear and Toast mail order business saw stronger sales, but menswear was still stuck in the doldrums, despite a recent revamp of the range.

Amid hopes for a better Christmas season, analysts at Numis Securities are predicting full-year underlying losses of 13.3m, up from 7.5m a year earlier. The market consensus is for losses of 13.8m.

January's cold snap is likely to have put sales growth at department store Debenhams into reverse when it posts its pre-close update on first-half trading on Tuesday.

In the 18 weeks to 2 January, like-for-like sales crept 0.1 per cent higher, but Singer analyst Matthew McEachran expects sales to be 3 per cent lower in a more difficult final eight weeks to the end of February.

The comparison with last February, when snow again hit the UK, may help, but rivals with winter ranges are likely to have fared better.

"Given the relatively low weighting of January and February relative to the rest of the year, though, we are not overly concerned about weaker sales trends at the end of the second quarter, so long as seasonal spring weather arrives to kick-start the season this month," McEachran added.

In January, chief executive Rob Templeman said the group increased its profit margins over Christmas by moving away from concessions into own-bought merchandise and refusing to cut prices. It will step up its store refit programme – put on hold last year – after revamping its Cardiff store.

Chairman John Lovering steps down after seven years next month. He will hand over to Nigel Northridge, whose CV includes 32 years at Benson & Hedges firm Gallaher.