Britain's two biggest oil companies reported this week. They're neck and neck except in one important area.
This week, Britain's two largest companies unveiled their first quarter results. On Tuesday, we heard from BP (LSE: BP). A day later, it was the turn of Royal Dutch Shell (LSE: RDSB).
Perhaps predictably, there wasn't much difference in the headline numbers. BP's results showed a 62% drop in profits thanks to falling oil prices and the recession. And, thanks to falling oil prices and the recession, Shell's results -- yawn -- showed a 58% drop in profits. Despite this, both companies felt confident about the future. BP increased its dividend by 4%. Shell -- yawn -- increased its dividend by 5%.
From an investor's perspective, it would be tempting to conclude that little separated these two oil behemoths. Tempting, but mistaken.
Spot the difference
In fact, there's a rather striking difference that's almost immediately apparent to anyone who takes the trouble to go online and view the quarterly results.
Shell's presentation of its results take a form that's familiar to many of us -- explanatory text, interspersed with tables of data, with the overall conclusions to be drawn being well-signposted and laid out very clearly. A lot like an annual report, but shorter.
BP's results take a more staccato approach -- and one that's heavy on data, and rather lighter on the words to explain and amplify that data. Here's a table. Here are some bullet points of brief explanation. Here's the next table. And here are some more bullet points.
I don't know about you, but I find Shell's approach to presenting its quarterly results a lot more investor-friendly. Rather than being presented with a bald set of figures, some notes and a handful of key conclusions, Shell takes the trouble to walk investors through its results in much the same way that it might do if it were speaking to them at, say, a presentation.
Let me be clear: both companies' annual reports are -- as these things go -- models of clarity. It's the quarterly updates that I'm referring to. I read Shell's quarterly update, and -- in short -- I understand more.
Why does this matter?
There is a very important investing tenet -- advanced by investment greats as diverse as Benjamin Graham and Warren Buffett -- that goes: don't invest in businesses that you don't understand.
One reason for Buffett's success isn't just his skill at spotting winners, it's also his careful avoidance of putting money into businesses where he feels out of his depth. Ten years ago, while others were piling into soon-to-be dotcom disasters, Buffett stayed with companies making bricks, paint and similar boring-but-understandable products. If he didn't understand the business model, he didn't invest in it.
And -- to repeat the point -- reading Shell's quarterly results, I find that I understand more about what's going on in its business than when I read BP's statement. Which is worrying, on two counts. First, my holding is with BP, not Shell. Oops. And second, I'm paid to be able to understand company accounts. Heaven help the small investor who isn't accounting literate.
Does BP agree?
I put these points to BP. The company's shareholders are financially skilled, it said -- at least those who attended the annual meeting each year. Well, maybe so. But that still leaves many thousands who don't attend the meeting, and whose financial prowess can't -- and shouldn't -- be taken for granted.
The company also pointed out that investors can download its presentation to analysts, including the script and slides. Well, yes. But Shell manage to get much of that kind of content into just the one document, communicated to shareholders without them having to separately download it.
More significantly, the company did concede that the format of the results had been unchanged for many years. In which case, I think that it's time that the format was revisited.
Twenty years ago, just out of public ownership, BP was known for its sclerotic, inward-looking management culture. Lord Browne, its former chief executive, did much to change that. Tony Hayward, the current chief executive, is continuing to sweep away old traditions that have outlived their usefulness.
So if it's not already on your 'To Do' list, Tony, I have a suggestion for one more tradition you might like to ditch -- the way the quarterly results are presented. And for guidance on how to do it better, look no further than Shell.
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Malcolm Wheatley owns shares in BP.
