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Royal Dutch Shell plc (RDSA)

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Thursday 30 January, 2020

Royal Dutch Shell plc

ROYAL DUTCH SHELL PLC 4th QUARTER 2019 AND FULL YEAR UNAUDITED RESULTS

ROYAL DUTCH SHELL PLC 4th QUARTER 2019 AND FULL YEAR UNAUDITED RESULTS

 

ROYAL DUTCH SHELL PLC

4th QUARTER 2019 AND FULL YEAR UNAUDITED RESULTS

 
       


 

 
SUMMARY OF UNAUDITED RESULTS
Quarters$ million   Full year
Q4 2019¹Q3 2019¹Q4 2018   Reference2019¹2018%
965   5,879   5,590   -83 Income/(loss) attributable to shareholders   15,843   23,352   -32
871   6,081   7,334   -88 CCS earnings attributable to shareholders Note 2 15,270   23,833   -36
(2,060 ) 1,313   1,646     Of which: Identified items A (1,192 ) 2,429    
2,931   4,767   5,688   -48 CCS earnings attributable to shareholders excluding identified items   16,462   21,404   -23
125   149   120     Add: CCS earnings attributable to non-controlling interest   535   531    
3,056   4,917   5,808   -47 CCS earnings excluding identified items   16,997   21,935   -23
        Of which:        
1,986   2,674   2,363     Integrated Gas   8,955   9,399    
778   907   1,881     Upstream   4,744   6,775    
1,368   2,153   2,131     Downstream   6,680   7,567    
(1,075 ) (817 ) (567 )   Corporate   (3,383 ) (1,806 )  
10,267   12,252   22,021   -53 Cash flow from operating activities   42,179   53,085   -21
(4,862 ) (2,130 ) (5,312 )   Cash flow from investing activities   (15,779 ) (13,659 )  
5,405   10,122   16,709     Free cash flow H 26,400   39,426    
0.12   0.73   0.68   -82 Basic earnings per share ($)   1.97   2.82   -30
0.11   0.76   0.89   -88 Basic CCS earnings per share ($) B 1.89   2.88   -34
0.37   0.59   0.69   -46 Basic CCS earnings per share excl. identified items ($)   2.04   2.58   -21
0.47   0.47   0.47   Dividend per share ($)   1.88   1.88  

1.     IFRS 16 Leases (IFRS 16) was adopted with effect from January 1, 2019. See Note 8 “Adoption of IFRS 16 Leases”.

2.    Q4 on Q4 change.

 CCS earnings attributable to shareholders excluding identified items at $2.9 billion reflected lower realised oil, gas and LNG prices, weaker realised refining and chemicals margins as well as negative movements in deferred tax positions, compared with the fourth quarter 2018. This was partly offset by stronger contributions from LNG trading and optimisation.

Cash flow from operating activities excluding working capital movements at $12.3 billion reflected lower inflows related to commodity derivatives and lower cash earnings, partly offset by lower tax payments, compared with the fourth quarter 2018.

Total dividends distributed to shareholders in the quarter were $3.7 billion. Today, Shell launches the next tranche of the share buyback programme, with a maximum aggregate consideration of $1 billion in the period up to and including April 27, 2020. Since the launch of the programme, Shell has bought back almost $15 billion in shares for cancellation.

Royal Dutch Shell Chief Executive Officer Ben van Beurden commented: "The strength of Shell’s strategy and portfolio has enabled delivery of competitive cash flow performance in 2019 despite challenging macroeconomic conditions in refining and chemicals, as well as lower oil and gas prices. We generated $47 billion in cash flow from operating activities excluding working capital movements and distributed over $25 billion in dividends and share buybacks to our shareholders.

We remain committed to prudent capital discipline supported by world-class project delivery and are looking to further strengthen our balance sheet while we continue with share buybacks. Our intention to complete the $25 billion share buyback programme is unchanged, but the pace remains subject to macro conditions and further debt reduction."

  

 
ADDITIONAL PERFORMANCE MEASURES
Quarters$ million   Full year
Q4 2019Q3 2019Q4 2018   Reference20192018%
6,883 6,098 7,430   Cash capital expenditure² C 23,919 24,078  
8,003 7,759 7,879   Capital investment³ C 28,788 24,878  
3,763 3,563 3,788 -1 Total production available for sale (thousand boe/d)   3,665 3,666
56.60 55.99 59.89 -5 Global liquids realised price ($/b)   57.76 63.85 -10
4.42 4.19 5.75 -23 Global natural gas realised price ($/thousand scf)   4.57 5.13 -11
10,384 8,650 10,279 +1 Operating expenses G 37,893 39,316 -4
9,993 8,657 10,147 -2 Underlying operating expenses G 36,993 39,025 -5
6.7 % 8.6 % 9.4 %   ROACE (Net income basis) E 6.7 % 9.4 %  
6.9 % 8.1 % 8.7 %   ROACE (CCS basis excluding identified items)4 E 6.9 % 8.7 %  
29.3 % 27.9 % 20.3 %   Gearing F 29.3 % 20.3 %  

1.     Q4 on Q4 change.
2.   With effect from 2019, Cash capital expenditure has been introduced as a capital spent performance measure (see Reference C).
3.    With effect from 2019, the definition has been amended (see Reference C). Comparative information has been revised.
4.    With effect from 2019, the definition has been amended (see Reference E). Comparative information has been revised.

Supplementary financial and operational disclosure for this quarter is available at www.shell.com/investor.

The IFRS 16 impact on net debt in 2019 was an increase of $15,657 million. Fourth quarter 2019 reported Gearing was 29.3% on an IFRS 16 basis, comparable with 25.0% on an IAS 17 basis.

The impact of IFRS 16 is presented in Note 8 “Adoption of IFRS 16 Leases” and is not addressed in the performance analysis sections of this results announcement.

 

FOURTH QUARTER 2019 PORTFOLIO DEVELOPMENTS

Upstream

During the quarter, Shell and its Consortium partners announced the start of oil and gas production at P-68 FPSO, located at BM-S-11-A concession (Shell pre-unitisation interest 25%) in Berbigão, Sururu, and West Atapu, which can process up to 150 thousand barrels of oil and 6 million cubic metres of natural gas daily.


 

 

PERFORMANCE BY SEGMENT


 

 
INTEGRATED GAS
Quarters$ millionFull year
Q4 2019¹Q3 2019¹Q4 2018   2019¹2018%
1,897   2,597   3,579   -47 Segment earnings 8,628   11,444   -25
(89 ) (77 ) 1,216     Of which: Identified items (Reference A) (326 ) 2,045    
1,986   2,674   2,363   -16 Earnings excluding identified items 8,955   9,399   -5
3,457   4,224   5,786   -40 Cash flow from operating activities 15,311   14,617   +5
4,017   4,271   6,597   -39 Cash flow from operating activities excluding working capital movements (Reference I) 14,828   16,281   -9
1,323   894   1,262     Cash capital expenditure (Reference C)³ 4,299   3,819    
1,602   2,303   1,350     Capital investment (Reference C)4 6,706   4,259    
161   166   213   -25 Liquids production available for sale (thousand b/d) 156   214   -27
4,578   4,586   4,442   +3 Natural gas production available for sale (million scf/d) 4,442   4,311   +3
950   957   979   -3 Total production available for sale (thousand boe/d) 922   957   -4
9.21   8.95   8.78   +5 LNG liquefaction volumes (million tonnes) 35.55   34.32   +4
20.09   18.90   17.39   +16 LNG sales volumes (million tonnes) 74.45   71.21   +5

1.     IFRS 16 was adopted with effect from January 1, 2019. See Note 8 “Adoption of IFRS 16 Leases”.
2.    Q4 on Q4 change.
3.    With effect from 2019, Cash capital expenditure has been introduced as a capital spent performance measure (see Reference C).
4.    With effect from 2019, the definition has been amended (see Reference C). Comparative information has been revised.  

Fourth quarter identified items primarily reflected a charge of $508 million related to impairments and negative movements in deferred tax positions of $292 million, both mainly in Australia, partly offset by gains of $718 million related to the fair value accounting of commodity derivatives.

Compared with the fourth quarter 2018, Integrated Gas earnings excluding identified items primarily reflected lower realised LNG, oil and gas prices as well as higher operating expenses and depreciation, partly offset by stronger contributions from LNG, gas and power trading and optimisation. 

Compared with the fourth quarter 2018, total production decreased mainly due to the transfer of the Salym asset into the Upstream segment and divestments, largely offset by field ramp-ups in Australia and Trinidad and Tobago. LNG liquefaction volumes increased mainly as a result of additional capacity from the Prelude floating LNG facility and the Elba LNG facility compared with the fourth quarter 2018.

Compared with the fourth quarter 2018, cash flow from operating activities excluding working capital movements mainly reflected lower cash inflows related to commodity derivatives as well as lower cash earnings.

Full year identified items included impairments and write-offs of $1,021 million, mainly in Australia and Trinidad and Tobago, as well as negative movements in deferred tax positions of $282 million in Australia. These were partly offset by gains of $787 million related to the fair value accounting of commodity derivatives and a gain of $203 million on a sale of assets in Australia. 

Compared with the full year 2018, Integrated Gas earnings excluding identified items were impacted by lower realised oil, LNG and gas prices, higher operating expenses, and lower liquids production volumes, partly offset by significantly stronger contributions from LNG trading and optimisation.

Compared with the full year 2018, total production was impacted by divestments and the transfer of the Salym asset into the Upstream segment, partly offset by production from field ramp-ups in Australia and Trinidad and Tobago. LNG liquefaction volumes were higher in comparison with the full year 2018 because of the additional volumes due to increased feedgas availability and new LNG capacity from the Prelude floating LNG facility and Elba LNG, partly offset by divestments.

Compared with the full year 2018, cash flow from operating activities excluding working capital movements decreased mainly due to lower cash inflows related to commodity derivatives as well as lower cash earnings.


 

 
UPSTREAM
Quarters$ millionFull year
Q4 2019¹Q3 2019¹Q4 2018   2019¹2018%
(787 ) 1,722   1,601   -149 Segment earnings 4,195   6,798   -38
(1,564 ) 815   (280 )   Of which: Identified items (Reference A) (549 ) 23    
778   907   1,881   -59 Earnings excluding identified items 4,744   6,775   -30
4,185   4,448   6,869   -39 Cash flow from operating activities 19,528   22,661   -14
4,998   4,722   5,149   -3 Cash flow from operating activities excluding working capital movements (Reference I) 20,488   21,917   -7
2,795   2,639   3,636     Cash capital expenditure (Reference C)³ 10,277   12,582    
3,186   2,452   3,986     Capital investment (Reference C)4 11,075   12,785    
1,773   1,705   1,672   +6 Liquids production available for sale (thousand b/d) 1,720   1,589   +8
6,027   5,224   6,593   -9 Natural gas production available for sale (million scf/d) 5,935   6,494   -9
2,813   2,606   2,809   Total production available for sale (thousand boe/d) 2,743   2,709   +1

1.     IFRS 16 was adopted with effect from January 1, 2019. See Note 8 “Adoption of IFRS 16 Leases”.
2.    Q4 on Q4 change.
3.    With effect from 2019, Cash capital expenditure has been introduced as a capital spent performance measure (see Reference C).
4.    With effect from 2019, the definition has been amended (see Reference C). Comparative information has been revised.

Fourth quarter identified items primarily reflected a charge of $1,647 million related to impairments, mainly in unconventional gas assets in the US.

Compared with the fourth quarter 2018, Upstream earnings excluding identified items included negative movements in deferred tax positions, higher provisions related to restoration and decommissioning obligations, lower realised oil and gas prices, as well as higher well write-offs, mainly in Albania. These were partly offset by higher sales volumes associated with the timing of liftings.

Compared with the fourth quarter 2018, total production remained largely unchanged, mainly as field ramp-ups in the Permian, Gulf of Mexico and Santos basin were offset by the impact of divestments and field decline. Excluding portfolio impacts, production was 3% higher than in the same quarter a year ago.

Compared with the fourth quarter 2018, cash flow from operating activities excluding working capital movements mainly reflected lower cash earnings, largely offset by lower tax payments. 

Full year identified items reflected a charge of $1,930 million related to impairments, primarily in unconventional gas assets in the US and a drilling rig joint venture, partly offset by a gain of $1,609 million on sale of assets, mainly in Denmark and the US Gulf of Mexico.

Compared with the full year 2018, Upstream earnings excluding identified items reflected lower realised oil and gas prices, higher depreciation as well as higher well write-offs, partly offset by higher sales volumes associated with the timing of liftings.

Compared with the full year 2018, total production increased by 1%, mainly due to field ramp-ups in North America and Brazil as well as the transfer of the Salym asset from the Integrated Gas segment, partly offset by field decline and divestments.

Compared with the full year 2018, cash flow from operating activities excluding working capital movements reflected mainly lower cash earnings, partly offset by lower tax payments.


 

 
DOWNSTREAM
Quarters$ millionFull year
Q4 2019¹Q3 2019¹Q4 2018   2019¹2018%
1,037   2,574   2,918   -64 Segment earnings³ 6,277   7,601   -17
(331 ) 421   787     Of which: Identified items (Reference A) (404 ) 34    
1,368   2,153   2,131   -36 Earnings excluding identified items³ 6,680   7,567   -12
        Of which:      
1,433   1,929   1,835   -22 Oil Products 5,939   5,491   +8
462   448   834   -45 Refining & Trading 1,234   1,513   -18
971   1,481   1,001   -3 Marketing 4,705   3,978   +18
(65 ) 224   296   -122 Chemicals 741   2,076   -64
2,304   3,205   8,794   -74 Cash flow from operating activities 7,296   13,928   -48
3,294   3,169   1,224   +169 Cash flow from operating activities excluding working capital movements (Reference I) 11,916   10,764   +11
2,624   2,454   2,418     Cash capital expenditure (Reference C)4 8,926   7,408    
3,071   2,870   2,429     Capital investment (Reference C)5 10,542   7,565    
2,438   2,522   2,723   -10 Refinery processing intake (thousand b/d) 2,564   2,648   -3
6,435   6,731   6,906   -7 Oil Products sales volumes (thousand b/d) 6,561   6,783   -3
3,454   3,845   4,110   -16 Chemicals sales volumes (thousand tonnes) 15,223   17,644   -14

1.     IFRS 16 was adopted with effect from January 1, 2019. See Note 8 “Adoption of IFRS 16 Leases”.
2.    Q4 on Q4 change.
3.    Earnings are presented on a CCS basis (See Note 2).
4.    With effect from 2019, Cash capital expenditure has been introduced as a capital spent performance measure (see Reference C).
5.    With effect from 2019, the definition has been amended (see Reference C). Comparative information has been revised.

Fourth quarter identified items primarily reflected a loss of $217 million related to the fair value accounting of commodity derivatives as well as a charge of $85 million related mainly to impairments in Singapore and the US.

Compared with the fourth quarter 2018, Downstream earnings excluding identified items reflected weaker realised refining, chemicals and marketing margins, partly offset by lower operating expenses and tax charges.

Compared with the fourth quarter 2018, cash flow from operating activities excluding working capital movements benefited mainly from higher cash earnings and lower tax payments.

Oil Products

  • Refining & Trading earnings excluding identified items reflected lower realised refining margins and lower contributions from crude trading and optimisation. This is partly offset by stronger contribution from oil products trading and optimisation, mainly fuel oil, as well as lower operating expenses and depreciation, compared with the  fourth quarter 2018.

Refinery availability was 93% compared with 94% in the fourth quarter 2018, mainly due to higher planned downtime.

  • Marketing earnings excluding identified items reflected lower realised retail margins, partly offset by lower operating expenses, compared with the fourth quarter 2018.

Compared with the fourth quarter 2018, Oil Products sales volumes were 7% lower, mainly due to lower refining and trading volumes.

Chemicals

  • Chemicals earnings excluding identified items reflected lower realised chemicals margins as well as lower volumes. 

Chemicals manufacturing plant availability decreased to 85% from 93% in the fourth quarter 2018, mainly reflecting higher maintenance activities.

Full year identified items primarily reflected a charge of $341 million related to impairments as well as a charge of $237 million related to legal provisions in Chemicals, partly offset by a gain of $319 million on the sale of assets.

Compared with the full year 2018, Downstream earnings excluding identified items reflected lower realised base chemicals, intermediates and refining margins, partly offset by stronger contributions from oil products trading and optimisation, mainly fuel oil, as well as lower operating expenses.

Compared with the full year 2018, cash flow from operating activities excluding working capital movements mainly reflected lower cash earnings, partly offset by lower tax charges.

Oil Products

  • Refining & Trading earnings excluding identified items reflected lower realised refining margins, partly offset by stronger contributions from oil products trading and optimisation, mainly fuel oil, as well as lower operating expenses, compared with the full year 2018.

Refinery availability was 91%, at a similar level as in the full year 2018.

  • Marketing earnings excluding identified items reflected lower operating expenses as well as higher realised retail and lubricants margins, compared with the full year 2018.  

Compared with the full year 2018, Oil Products sales volumes decreased by 3%, mainly reflecting lower refining and trading volumes.

Chemicals

  • Chemicals earnings excluding identified items reflected lower realised base chemicals and intermediate margins, partly offset by lower operating expenses, compared with the full year 2018. 

Chemicals manufacturing plant availability decreased to 89% from 93% in the full year 2018, mainly reflecting higher maintenance activities.


 

 
CORPORATE
Quarters$ millionFull year
Q4 2019¹Q3 2019¹Q4 2018   2019¹2018
(1,151 ) (663 ) (644 ) Segment earnings (3,273 ) (1,479 )
(76 ) 154   (77 ) Of which: Identified items (Reference A) 109   327  
(1,075 ) (817 ) (567 ) Earnings excluding identified items (3,383 ) (1,806 )
321   375   572   Cash flow from operating activities 44   1,879  
(9 ) (80 ) (50 ) Cash flow from operating activities excluding working capital movements (Reference I) (274 ) 681  

1.     IFRS 16 was adopted with effect from January 1, 2019. See Note 2 “Segment information”.

Fourth quarter identified items primarily reflected a tax charge of $74 million related to the impact of the strengthening Brazilian real on financing positions.

Compared with the fourth quarter 2018, Corporate earnings excluding identified items reflected lower tax credits as well as adverse currency exchange rate effects. Earnings also included a negative impact of $161 million related to the implementation of IFRS 16. 

Full year identified items mainly reflected a gain of $55 million related to the impact of the weakening Brazilian real on financing positions and a gain of $51 million on the sale of assets.

Compared with the full year 2018, Corporate earnings excluding identified items reflected lower tax credits and higher net interest expense. Earnings also included a negative impact of $707 million related to the implementation of IFRS 16. 


 

PRELIMINARY RESERVES UPDATE

When final volumes are reported in the 2019 Annual Report and Form 20-F, Shell expects that SEC proved oil and gas reserves additions before taking into account production will be approximately 0.9 billion boe, and that 2019 production will be approximately 1.4 billion boe. As a result, total proved reserves on an SEC basis are expected to be approximately 11.1 billion boe. Acquisitions and divestments of 2019 reserves are expected to account for a net reduction of approximately 0.2 billion boe.

The proved Reserves Replacement Ratio on an SEC basis is expected to be 65% for the year and 48% for the 3-year average. Excluding the impact of acquisitions and divestments, the proved Reserves Replacement Ratio is expected to be 76% for the year and 90% for the 3-year average.

Further information will be provided in the 2019 Annual Report and 2019 Form 20-F, which are expected to be filed in March 2020.


 

OUTLOOK FOR THE FIRST QUARTER 2020

Integrated Gas production is expected to be 950 - 980 thousand boe/d. LNG liquefaction volumes are expected to be 9.0 - 9.5 million tonnes.

Upstream production is expected to be 2,625 - 2,775 thousand boe/d.

Refinery availability is expected to be 90% - 94%.

Oil Products sales volumes are expected to be 6,400 - 7,000 thousand b/d.

Chemicals manufacturing plant availability is expected to be 91% - 95%.

Corporate segment earnings excluding identified items are expected to be a net charge of $800 - 875 million in the first quarter 2020 and a net charge of $3,200 – 3,500 million for the full year 2020. This excludes the impact of currency exchange rate effects.

As of the first quarter 2020, the Egypt offshore assets will be transferred from the Upstream segment to the Integrated Gas segment, and Oil Sands will be transferred from the Upstream segment to the Refining and Trading sub-segment. The outlook numbers incorporate these changes.

Cash capital expenditure for 2020 is expected to be at the lower end of the $24 - 29 billion range.

Divestments are expected to amount to more than $10 billion over the 2019 - 2020 period.

 

FORTHCOMING EVENTS

The LNG Outlook will be held on February 20, 2020 in London.

The Annual General Meeting is scheduled to be held on May 19, 2020.

First quarter 2020 results and dividends are scheduled to be announced on April 30, 2020. Second quarter 2020 results and dividends are scheduled to be announced on July 30, 2020. Third quarter 2020 results and dividends are scheduled to be announced on October 29, 2020.



 

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 
CONSOLIDATED STATEMENT OF INCOME
Quarters$ millionFull year
Q4 2019¹Q3 2019¹Q4 2018   20192018
84,006   86,592   102,228   Revenue² 344,877   388,379  
719   769   1,351   Share of profit of joint ventures and associates 3,604   4,106  
340   2,180   1,047   Interest and other income 3,625   4,071  
85,066   89,541   104,626   Total revenue and other income 352,107   396,556  
60,570   63,900   78,680   Purchases 252,983   294,399  
7,247   6,002   6,803   Production and manufacturing expenses 26,438   26,970  
2,831   2,429   3,162   Selling, distribution and administrative expenses 10,493   11,360  
306   219   314   Research and development 962   986  
965   644   545   Exploration 2,354   1,340  
9,238   6,815   6,244   Depreciation, depletion and amortisation 28,701   22,135  
1,118   1,161   971   Interest expense 4,690   3,745  
82,275   81,169   96,719   Total expenditure 326,621   360,935  
2,791   8,372   7,907   Income/(loss) before taxation 25,486   35,621  
1,702   2,348   2,261   Taxation charge/(credit) 9,053   11,715  
1,089   6,024   5,646   Income/(loss) for the period² 16,433   23,906  
124   145   56   Income/(loss) attributable to non-controlling interest 590   554  
965   5,879   5,590   Income/(loss) attributable to Royal Dutch Shell plc shareholders 15,843   23,352  
0.12   0.73   0.68   Basic earnings per share ($)³ 1.97   2.82  
0.12   0.73   0.67   Diluted earnings per share ($)³ 1.95   2.80  

1.     See Note 8 “Adoption of IFRS 16 Leases”.
2.    See Note 2 “Segment information”.
3.    See Note 3 “Earnings per share”.


 

 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Quarters$ millionFull year
Q4 2019Q3 2019Q4 2018   20192018
1,089   6,024   5,646   Income/(loss) for the period 16,433   23,906  
      Other comprehensive income/(loss) net of tax:    
      Items that may be reclassified to income in later periods:    
1,467   (1,514 ) (354 ) -  Currency translation differences 344   (3,172 )
(2 ) 2     -  Debt instruments remeasurements 29   (15 )
(135 ) 213   1,499   -   Cash flow and net investment hedging gains / (losses) (267 ) 730  
(45 ) 5   (61 ) -  Deferred cost of hedging 66   (209 )
24   (45 ) 17   -  Share of other comprehensive income/(loss) of joint ventures and associates (76 ) (10 )
1,310   (1,339 ) 1,101   Total 95   (2,676 )
      Items that are not reclassified to income in later periods:    
2,553   (2,010 ) 426   -  Retirement benefits remeasurements (2,102 ) 3,588  
(5 ) (53 ) 50   -  Equity instruments remeasurements (28 ) (153 )
6   1   194   -  Share of other comprehensive income/(loss) of joint ventures and associates 1   193  
2,554   (2,062 ) 670   Total (2,129 ) 3,628  
3,863   (3,401 ) 1,771   Other comprehensive income/(loss) for the period (2,033 ) 952  
4,952   2,624   7,417   Comprehensive income/(loss) for the period 14,399   24,858  
143   124   34   Comprehensive income/(loss) attributable to non-controlling interest 625   383  
4,809   2,499   7,383   Comprehensive income/(loss) attributable to Royal Dutch Shell plc shareholders 13,774   24,475  


 

 
CONDENSED CONSOLIDATED BALANCE SHEET
$ million    
  December 31, 2019¹December 31, 2018
Assets    
Non-current assets    
Intangible assets 23,486   23,586  
Property, plant and equipment 238,349   223,175  
Joint ventures and associates 22,808   25,329  
Investments in securities 2,989   3,074  
Deferred tax 10,524   12,097  
Retirement benefits 4,717   6,051  
Trade and other receivables 8,085   7,826  
Derivative financial instruments² 689   574  
  311,648   301,712  
Current assets    
Inventories 24,071   21,117  
Trade and other receivables 43,414   42,431  
Derivative financial instruments² 7,149   7,193  
Cash and cash equivalents 18,054   26,741  
  92,689   97,482  
Total assets404,336   399,194  
Liabilities    
Non-current liabilities    
Debt 81,360   66,690  
Trade and other payables 2,342   2,735  
Derivative financial instruments² 1,209   1,399  
Deferred tax 14,522   14,837  
Retirement benefits 13,017   11,653  
Decommissioning and other provisions 21,799   21,533  
  134,249   118,847  
Current liabilities    
Debt 15,064   10,134  
Trade and other payables 49,208   48,888  
Derivative financial instruments² 5,429   7,184  
Taxes payable 6,693   7,497  
Retirement benefits 419   451  
Decommissioning and other provisions 2,811   3,659  
  79,625   77,813  
Total liabilities213,873   196,660  
Equity attributable to Royal Dutch Shell plc shareholders 186,476   198,646  
Non-controlling interest 3,987   3,888  
Total equity190,463   202,534  
Total liabilities and equity404,336   399,194  

1.     See Note 8 “Adoption of IFRS Leases”.
2.    See Note 6 “Derivative financial instruments and debt excluding finance lease liabilities”.


 

 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
  Equity attributable to Royal Dutch Shell plc shareholders    
$ millionShare capital¹Shares held in trustOther reserves²Retained earningsTotalNon-controlling interestTotal equity
At January 1, 2019 (as previously published)685   (1,260)16,615   182,606   198,646   3,888   202,534  
Impact of IFRS 16³       4   4     4  
At January 1, 2019 (as revised)685   (1,260)16,615   182,610   198,650   3,888   202,538  
Comprehensive income/(loss) for the period     (2,069 ) 15,843   13,774   625   14,399  
Transfer from other comprehensive income     (74 ) 74        
Dividends       (15,199 ) (15,199 ) (537 ) (15,735 )
Repurchases of shares (28 )   28   (10,286 ) (10,286 )   (10,286 )
Share-based compensation   197   (49 ) (613 ) (465 )   (465 )
Other changes in non-controlling interest       2   2   11   12  
At December 31, 2019657   (1,063)14,451   172,431   186,476   3,987   190,463  
At January 1, 2018696   (917)16,794   177,733   194,306   3,456   197,762  
Comprehensive income/(loss) for the period     1,123   23,352   24,475   383   24,858  
Transfer from other comprehensive income     (971 ) 971        
Dividends       (15,675 ) (15,675 ) (586 ) (16,261 )
Repurchases of shares (11 )   11   (4,519 ) (4,519 )   (4,519 )
Share-based compensation   (343 ) (342 ) 693   8     8  
Other changes in non-controlling interest       51   51   635   686  
At December 31, 2018685   (1,260)16,615   182,606   198,646   3,888   202,534  

1.     See Note 4 “Share capital”.
2.    See Note 5 “Other reserves”.
3.    See Note 8 “Adoption of IFRS 16 Leases”.


 

 
CONSOLIDATED STATEMENT OF CASH FLOWS
Quarters$ millionFull year
Q4 2019¹Q3 2019¹Q4 2018   2019¹2018
2,791   8,372   7,907   Income before taxation for the period² 25,486   35,621  
      Adjustment for:    
859   921   717   - Interest expense (net) 3,705   2,878  
9,238   6,815   6,244   - Depreciation, depletion and amortisation 28,701   22,135  
496   402   145   - Exploration well write-offs 1,218   449  
(36 ) (2,039 ) (927 ) - Net (gains)/losses on sale and revaluation of non-current assets and businesses (2,519 ) (3,265 )
(719 ) (769 ) (1,351 ) - Share of (profit)/loss of joint ventures and associates (3,604 ) (4,106 )
1,318   859   1,535   - Dividends received from joint ventures and associates 4,139   4,903  
(546 ) 813   7,694   - (Increase)/decrease in inventories (2,635 ) 2,823  
(2,448 ) 2,644   8,421   - (Increase)/decrease in current receivables (921 ) 1,955  
961   (3,289 ) (7,014 ) - Increase/(decrease) in current payables (1,223 ) (1,336 )
254   (149 ) 1,626   - Retirement benefits² (1,484 ) 799  
217   (634 ) 158   - Decommissioning and other provisions² (365 ) 390  
(141 ) (250 ) (781 ) - Other² (686 ) (1,754 )
(82 ) 67   545   - Derivative financial instruments (28 ) 1,264  
(1,894 ) (1,511 ) (2,898 ) Tax paid (7,605 ) (9,671 )
10,267   12,252   22,021   Cash flow from operating activities42,179   53,085  
(6,707 ) (5,992 ) (7,147 ) Capital expenditure (22,971 ) (23,011 )
(112 ) (30 ) (208 ) Investments in joint ventures and associates (743 ) (880 )
(65 ) (76 ) (75 ) Investments in equity securities² (205 ) (187 )
1,049   2,932   1,966   Proceeds from sale of property, plant and equipment and businesses 4,803   4,366  
1,032   922   475   Proceeds from sale of joint ventures and associates 2,599   1,594  
55   126   97   Proceeds from sale of equity securities² 469   4,505  
224   229   221   Interest received 911   823  
918   732   74   Other investing cash inflows² 2,921   1,373  
(1,255 ) (973 ) (715 ) Other investing cash outflows² (3,563 ) (2,242 )
(4,862)(2,130)(5,312)Cash flow from investing activities(15,779)(13,659)
(406 ) 44   20   Net increase/(decrease) in debt with maturity period within three months³ (308 ) (396 )
      Other debt:    
8,758   2,107   3,189   - New borrowings³ 11,185   3,977  
(2,731 ) (7,180 ) (4,680 ) - Repayments (14,292 ) (11,912 )
(1,232 ) (1,088 ) (926 ) Interest paid (4,649 ) (3,574 )
(124 ) 76     Derivative financial instruments² (48 )  
2     5   Change in non-controlling interest   678  
      Cash dividends paid to:    
(3,725 ) (3,773 ) (3,869 ) - Royal Dutch Shell plc shareholders (15,198 ) (15,675 )
(133 ) (133 ) (98 ) - Non-controlling interest (537 ) (584 )
(2,848 ) (2,944 ) (2,533 ) Repurchases of shares (10,188 ) (3,947 )
(618 ) (94 ) (27 ) Shares held in trust: net sales/(purchases) and dividends received (1,174 ) (1,115 )
(3,057)(12,985)(8,919)Cash flow from financing activities(35,211)(32,548)
289   (190 ) (161 ) Currency translation differences relating to cash and cash equivalents 124   (449 )
2,637   (3,054)7,629   Increase/(decrease) in cash and cash equivalents(8,687)6,429  
15,417   18,470   19,112   Cash and cash equivalents at beginning of period26,741   20,312  
18,054   15,417   26,741   Cash and cash equivalents at end of period18,054   26,741  

1.     See Note 8 “Adoption of IFRS 16 Leases”.
2.    See Note 7 “Change in presentation of Consolidated Statement of Cash Flows”.
3.    Q3 2019 has been revised to amend for commercial paper with maturity dates greater than 3 months, which was previously reported in "Net (decrease)/increase in debt with maturity period within three months". The amount previously reported as “Net increase / (decrease) in debt with maturity period within three months” was $2,009 million. The amount previously reported as "New borrowings" was $142 million.


 


 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of preparation

These unaudited Condensed Consolidated Financial Statements of Royal Dutch Shell plc (“the Company”) and its subsidiaries (collectively referred to as “Shell”) have been prepared on the basis of the same accounting principles as those used in the Annual Report and Form 20-F for the year ended December 31, 2018 (pages 167 to 214) as filed with the US Securities and Exchange Commission, except for the adoption of IFRS 16 Leases on January 1, 2019, and should be read in conjunction with that filing.

Under IFRS 16, all lease contracts, with limited exceptions, are recognised in financial statements by way of right-of-use assets and corresponding lease liabilities. Shell applied the modified retrospective transition method without restating comparative information. Further information in respect of the implementation of IFRS 16 is included in Note 8.

In March 2019, the IFRS Interpretations Committee (IFRIC) made its agenda decision regarding “Physical settlement of contracts to buy or sell a non-financial item (IFRS 9)”. The impact of this decision is under review.

The financial information presented in the unaudited Condensed Consolidated Financial Statements does not constitute statutory accounts within the meaning of section 434(3) of the Companies Act 2006 (“the Act”). Statutory accounts for the year ended December 31, 2018 were published in Shell’s Annual Report and Form 20-F and a copy was delivered to the Registrar of Companies for England and Wales. The auditor’s report on those accounts was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain a statement under sections 498(2) or 498(3) of the Act.

 

2. Segment information

Segment earnings are presented on a current cost of supplies basis (CCS earnings), which is the earnings measure used by the Chief Executive Officer for the purposes of making decisions about allocating resources and assessing performance. On this basis, the purchase price of volumes sold during the period is based on the current cost of supplies during the same period after making allowance for the tax effect. CCS earnings therefore exclude the effect of changes in the oil price on inventory carrying amounts. Sales between segments are based on prices generally equivalent to commercially available prices.

With the adoption of IFRS 16, the interest expense on leases formerly classified as operating leases is reported under the Corporate segment, while depreciation related to the respective right-of-use assets is reported in the segments making use of the assets. This treatment is consistent with the existing treatment for leases formerly classified as finance leases.

 
INFORMATION BY SEGMENT
Quarters$ millionFull year
Q4 2019Q3 2019Q4 2018   20192018
      Third-party revenue    
11,006   9,735   11,902   Integrated Gas 41,323   43,764  
2,728   2,347   3,205   Upstream 9,965   9,892  
70,263   74,499   87,117   Downstream 293,545   334,680  
9   12   4   Corporate 45   43  
84,006   86,592   102,228   Total third-party revenue¹344,877   388,379  
      Inter-segment revenue²    
1,117   1,025   1,326   Integrated Gas 4,279   5,031  
9,609   8,144   8,917   Upstream 36,448   37,841  
293   267   155   Downstream 1,132   917  
      Corporate    
      CCS earnings    
1,897   2,597   3,579   Integrated Gas 8,628   11,444  
(787 ) 1,722   1,601   Upstream 4,195   6,798  
1,037   2,574   2,918   Downstream 6,277   7,601  
(1,151 ) (663 ) (644 ) Corporate (3,273 ) (1,479 )
996   6,230   7,454   Total15,827   24,364  

1.     Includes revenue from sources other than from contracts with customers, which mainly comprises the impact of fair value accounting of commodity derivatives. Fourth quarter 2019 included income of $594 million (Q3 2019: $1,460 million income; full year 2019: $3,760 million income).
2.    Inter-segment revenue has been revised to amend for transactions within certain segments that were previously reported as inter-segment revenue and vice versa. Comparative information has been revised. The amounts previously reported as inter-segment revenue for Integrated Gas were Q4 2018: $1,252 million and full year 2018 $4,853 million. The amounts previously reported as inter-segment revenue for Downstream were Q4 2018: $1,078 million and full year 2018: $5,358 million.

 
RECONCILIATION OF INCOME FOR THE PERIOD TO CCS EARNINGS
Quarters$ millionFull year
Q4 2019Q3 2019Q4 2018   20192018
965   5,879   5,590   Income/(loss) attributable to Royal Dutch Shell plc shareholders 15,843   23,352  
124   145   56   Income/(loss) attributable to non-controlling interest 590   554  
1,089   6,024   5,646   Income/(loss) for the period16,433   23,906  
      Current cost of supplies adjustment:    
(69 ) 240   2,319   Purchases (784 ) 559  
13   (56 ) (551 ) Taxation 194   (116 )
(37 ) 22   40   Share of profit/(loss) of joint ventures and associates (16 ) 15  
(93)206   1,808   Current cost of supplies adjustment¹(606)458  
996   6,230   7,454   CCS earnings15,827   24,364  
      of which:    
871   6,081   7,334   CCS earnings attributable to Royal Dutch Shell plc shareholders 15,270   23,833  
125   149   120   CCS earnings attributable to non-controlling interest 557   531  

1.     The adjustment attributable to Royal Dutch Shell plc shareholders is a negative $94 million in the fourth quarter 2019 (Q3 2019: positive $202 million; Q4 2018: positive $1,744 million; full year 2019: negative $573 million; full year 2018: positive $481 million).


 

3. Earnings per share

 
EARNINGS PER SHARE
Quarters   Full year
Q4 2019Q3 2019Q4 2018   20192018
965   5,879   5,590   Income/(loss) attributable to Royal Dutch Shell plc shareholders ($ million) 15,843   23,352  
      Weighted average number of shares used as the basis for determining:    
7,907.2   8,017.5   8,227.8   Basic earnings per share (million) 8,058.3   8,282.8  
7,962.5   8,067.6   8,289.4   Diluted earnings per share (million) 8,112.5   8,348.7  


 

4. Share capital

 
ISSUED AND FULLY PAID ORDINARY SHARES OF €0.07 EACH1
  Number of sharesNominal value ($ million)
  ABABTotal
At January 1, 20194,471,889,296   3,745,486,731   376309685  
Repurchases of shares (320,101,779 ) (16,079,624 ) (27) (1) (28 )
At December 31, 20194,151,787,517   3,729,407,107   350308658  
At January 1, 20184,597,136,050   3,745,486,731   387309696  
Repurchases of shares (125,246,754 )   (11) (11 )
At December 31, 20184,471,889,296   3,745,486,731   376309685  

1.     Share capital at December 31, 2019 also included 50,000 issued and fully paid sterling deferred shares of £1 each.

At Royal Dutch Shell plc’s Annual General Meeting on May 21, 2019, the Board was authorised to allot ordinary shares in Royal Dutch Shell plc, and to grant rights to subscribe for, or to convert, any security into ordinary shares in Royal Dutch Shell plc, up to an aggregate nominal amount of €190 million (representing 2,720 million ordinary shares of €0.07 each), and to list such shares or rights on any stock exchange. This authority expires at the earlier of the close of business on August 21, 2020, and the end of the Annual General Meeting to be held in 2020, unless previously renewed, revoked or varied by Royal Dutch Shell plc in a general meeting.


 

5. Other reserves

 
OTHER RESERVES
$ millionMerger reserveShare premium reserveCapital redemption reserveShare plan reserveAccumulated other comprehensive incomeTotal
At January 1, 201937,298   154   95   1,098   (22,030)16,615  
Other comprehensive income/(loss) attributable to Royal Dutch Shell plc shareholders         (2,069 ) (2,069 )
Transfer from other comprehensive income         (74 ) (74 )
Repurchases of shares     28       28  
Share-based compensation       (49 )   (49 )
At December 31, 201937,298   154   123   1,049   (24,173)14,451  
At January 1, 201837,298   154   84   1,440   (22,182)16,794  
Other comprehensive income/(loss) attributable to Royal Dutch Shell plc shareholders         1,123   1,123  
Transfer from other comprehensive income         (971 ) (971 )
Repurchases of shares     11       11  
Share-based compensation       (342 )   (342 )
At December 31, 201837,298   154   95   1,098   (22,030)16,615  

The merger reserve and share premium reserve were established as a consequence of Royal Dutch Shell plc becoming the single parent company of Royal Dutch Petroleum Company and The “Shell” Transport and Trading Company, p.l.c., now The Shell Transport and Trading Company Limited, in 2005. The merger reserve increased in 2016 following the issuance of shares for the acquisition of BG Group plc. The capital redemption reserve was established in connection with repurchases of shares of Royal Dutch Shell plc. The share plan reserve is in respect of equity-settled share-based compensation plans.


 

6. Derivative financial instruments and debt excluding lease liabilities

As disclosed in the Consolidated Financial Statements for the year ended December 31, 2018, presented in the Annual Report and Form 20-F for that year, Shell is exposed to the risks of changes in fair value of its financial assets and liabilities. The fair values of the financial assets and liabilities are defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Methods and assumptions used to estimate the fair values at December 31, 2019 are consistent with those used in the year ended December 31, 2018, though the carrying amounts of derivative financial instruments measured using predominantly unobservable inputs have changed since that date.

The table below provides the comparison of the fair value with the carrying amount of debt excluding lease liabilities, disclosed in accordance with IFRS 7 Financial Instruments: Disclosures.

 
DEBT EXCLUDING LEASE LIABILITIES
$ millionDecember 31, 2019December 31, 2018
Carrying amount 65,887   62,798  
Fair value¹ 71,163   64,708  

1.     Mainly determined from the prices quoted for these securities.

7. Change in presentation of Consolidated Statement of Cash Flows

With effect from January 1, 2019, the starting point for the Consolidated Statement of Cash Flows is ‘Income before taxation’ (previously: Income). Furthermore, to improve transparency, “Retirement benefits” and “Decommissioning and other provisions” have been separately disclosed. The “Other” component of cash flow from investing activities has been expanded to distinguish between cash inflows and outflows. Prior period comparatives for these line items have been revised to conform with current year presentation. In addition, a new line item, “Derivative financial instruments”, has been introduced to cash flow from financing activities. Overall, the revisions do not have an impact on cash flow from operating activities, cash flow from investing activities or cash flow from financing activities, as previously published.


 

8. Adoption of IFRS 16 Leases

IFRS 16 was adopted with effect from January 1, 2019. Under the new standard, all lease contracts, with limited exceptions, are recognised in the financial statements by way of right-of-use assets and corresponding lease liabilities. Shell applied the modified retrospective transition method, and consequently comparative information is not restated. As a practical expedient, no reassessment was performed of contracts that were previously identified as leases, and contracts that were not previously identified as containing a lease applying IAS 17 Leases and IFRIC 4 Determining whether an Arrangement contains a Lease. At January 1, 2019, additional lease liabilities were recognised for leases previously classified as operating leases applying IAS 17. These lease liabilities were measured at the present value of the remaining lease payments, discounted using entity-specific incremental borrowing rates at January 1, 2019. In general, a corresponding right-of-use asset was recognised for an amount equal to each lease liability, adjusted by the amount of any prepaid or accrued lease payment relating to the specific lease contract, as recognised on the balance sheet at December 31, 2018. Provisions for onerous lease contracts at December 31, 2018 were adjusted to the respective right-of-use assets recognised at January 1, 2019.

The reconciliation of differences between the operating lease commitments disclosed under the prior standard and the additional lease liabilities recognised on the balance sheet at January 1, 2019 is as follows:

   
LEASE LIABILITIES RECONCILIATION  
$ million
Undiscounted future minimum lease payments under operating leases at December 31, 201824,219  
Impact of discounting1 (5,167 )
Leases not yet commenced at January 1, 2019 (2,586 )
Short-term leases2 (277 )
Long-term leases expiring before December 31, 20192 (192 )
Other reconciling items (net) 40  
Additional lease liability at January 1, 201916,037  
Finance lease liability at December 31, 2018 14,026  
Total lease liability at January 1, 201930,063  

1.     Under the modified retrospective transition method, lease payments were discounted at January 1, 2019 using an incremental borrowing rate representing the rate of interest that the entity within Shell that entered into the lease would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The incremental borrowing rate applied to each lease was determined taking into account the risk-free rate, adjusted for factors such as the credit rating of the contracting entity and the terms and conditions of the lease. The weighted average incremental borrowing rate applied by Shell upon transition was 7.2%.
2.    Shell has applied the practical expedient to classify leases for which the lease term ends within 12 months of the date of initial application of IFRS 16 as short-term leases. Shell has also applied the recognition exemption for short-term leases.

Compared with the previous accounting for operating leases under IAS 17, the application of the new standard has a significant impact on the classification of expenditures and cash flows. It also impacts the timing of expenses recognised in the statement of income.

With effect from 2019, expenses related to leases previously classified as operating leases are presented under Depreciation, depletion and amortisation and Interest expense (in 2018 these were mainly reported in Purchases, Production and manufacturing expenses, and Selling, distribution and administrative expenses).

With effect from 2019, payments related to leases previously classified as operating leases are presented under Cash flow from financing activities (in 2018 these were reported in Cash flow from operating activities and Cash flow from investing activities).

The adoption of the new standard had an accumulated impact of $4 million in equity following the recognition of lease liabilities of $16,037 million and additional right-of-use assets of $15,558 million and reclassifications mainly related to pre-paid leases and onerous contracts previously recognised. The detailed impact on the balance sheet at January 1, 2019, is as follows:

 
CONDENSED CONSOLIDATED BALANCE SHEET
$ million      
  December 31, 2018IFRS 16 impactJanuary 1, 2019
Assets      
Non-current assets      
Intangible assets 23,586     23,586  
Property, plant and equipment 223,175   15,558   238,733  
Joint ventures and associates 25,329     25,329  
Investments in securities 3,074     3,074  
Deferred tax 12,097     12,097  
Retirement benefits 6,051     6,051  
Trade and other receivables¹ 7,826   (814 ) 7,012  
Derivative financial instruments4 574     574  
  301,712   14,744   316,456  
Current assets      
Inventories 21,117     21,117  
Trade and other receivables 42,431   69   42,500  
Derivative financial instruments4 7,193     7,193  
Cash and cash equivalents 26,741     26,741  
  97,482   69   97,551  
Total assets399,194   14,813   414,007  
Liabilities      
Non-current liabilities      
Debt 66,690   13,125   79,815  
Trade and other payables² 2,735   (540 ) 2,195  
Derivative financial instruments4 1,399     1,399  
Deferred tax 14,837     14,837  
Retirement benefits 11,653     11,653  
Decommissioning and other provisions³ 21,533   (347 ) 21,186  
  118,847   12,238   131,085  
Current liabilities      
Debt 10,134   2,912   13,046  
Trade and other payables 48,888   (23 ) 48,865  
Derivative financial instruments4 7,184     7,184  
Taxes payable 7,497     7,497  
Retirement benefits 451     451  
Decommissioning and other provisions³ 3,659   (318 ) 3,341  
  77,813   2,571   80,384  
Total liabilities196,660   14,809   211,469  
Equity attributable to Royal Dutch Shell plc shareholders 198,646   4   198,650  
Non-controlling interest 3,888     3,888  
Total equity202,534   4   202,538  
Total liabilities and equity399,194   14,813   414,007  

1.     Mainly in respect of pre-paid leases.
2.    Mainly related to operating lease contracts that were measured at fair value under IFRS 3 Business Combinations following the acquisition of BG in 2016.
3.    Mainly in respect of onerous contracts.
4.    See Note 6 “Derivative financial instruments and debt excluding lease liabilities”.


 

ALTERNATIVE PERFORMANCE (NON-GAAP) MEASURES

Impact of IFRS 16 Leases

IFRS 16 Leases primarily impacts the following key measures of Shell’s financial performance: Segment earnings; Cash flow from operating activities; Cash flow from operating activities excluding working capital movements; Free cash flow; Capital investment and Cash capital expenditure; Operating expenses; Gearing; and Return on average capital employed.

As explained in Note 8 “Adoption of IFRS 16 Leases”, in accordance with Shell’s use of the modified retrospective transition method, comparative information for prior years is not restated, and continues to be presented as reported under IAS 17.

Additional information is provided in this section of the report to provide indicative impacts of Shell’s transition from IAS 17 to IFRS 16. In addition to the IFRS 16 reported basis, impacted Alternative Performance Measures are presented on an IAS 17 basis, to enable like-for-like comparisons between 2019 and 2018. For 2019, information on an IAS17 basis represents estimates for the purpose of transition.

  1. Identified items

Identified items comprise: divestment gains and losses, impairments, fair value accounting of commodity derivatives and certain gas contracts, redundancy and restructuring, the impact of exchange rate movements on certain deferred tax balances, and other items. These items, either individually or collectively, can cause volatility to net income, in some cases driven by external factors, which may hinder the comparative understanding of Shell’s financial results from period to period. The impact of identified items on Shell’s CCS earnings is shown as follows:

 
IDENTIFIED ITEMS
Quarters$ millionFull year
Q4 2019Q3 2019Q4 2018   20192018
      Identified items before tax    
128   2,039   927   Divestment gains/(losses) 2,611   3,283  
(2,941 ) (509 ) (438 ) Impairments (4,155 ) (1,020 )
616   47   1,639   Fair value accounting of commodity derivatives and certain gas contracts 602   1,145  
(59 ) 6   (32 ) Redundancy and restructuring (132 ) (203 )
(333 )   (167 ) Other

(770 ) (116 )
(2,589)1,584   1,929   Total identified items before tax(1,844)3,089  
      Tax impact    
(16 ) (283 ) (12 ) Divestment gains/(losses) (441 ) (219 )
700   79   22   Impairments 993   (92 )
(90 ) 44   (472 ) Fair value accounting of commodity derivatives and certain gas contracts 48   (282 )
13   (4 ) (4 ) Redundancy and restructuring 44   53  
29   (106 ) 19   Impact of exchange rate movements on tax balances (69 ) (338 )
(108 )   164   Other 100   218  
529   (271)(283)Total tax impact674   (660)
      Identified items after tax    
111   1,756   915   Divestment gains/(losses) 2,170   3,064  
(2,240 ) (430 ) (416 ) Impairments (3,162 ) (1,112 )
526   91   1,167   Fair value accounting of commodity derivatives and certain gas contracts 650   863  
(46 ) 2   (36 ) Redundancy and restructuring (89 ) (150 )
29   (106 ) 19   Impact of exchange rate movements on tax balances (69 ) (338 )
(441 )   (3 ) Other (670 ) 102  
(2,060)1,313   1,646   Impact on CCS earnings(1,170)2,429  
      Of which:    
(89 ) (77 ) 1,216   Integrated Gas (326 ) 2,045  
(1,564 ) 815   (280 ) Upstream (549 ) 23  
(331 ) 421   787   Downstream (404 ) 34  
(76 ) 154   (77 ) Corporate 109   327  
      Impact on CCS earnings attributable to non-controlling interest 22    
(2,060 ) 1,313   1,646   Impact on CCS earnings attributable to shareholders (1,192 ) 2,429  

The reconciliation from income attributable to RDS plc shareholders to CCS earnings attributable to RDS plc shareholders excluding identified items is shown on page 1.

The categories above represent the nature of the items identified irrespective of whether the items relate to Shell subsidiaries or joint ventures and associates. The after-tax impact of identified items of joint ventures and associates is fully reported within “Share of profit of joint ventures and associates” in the Consolidated Statement of Income, and fully reported as “identified items before tax” in the table above. Identified items related to subsidiaries are consolidated and reported across appropriate lines of the Consolidated Statement of Income. Only pre-tax identified items reported by subsidiaries are taken into account in the calculation of “underlying operating expenses” (Reference G).

Fair value accounting of commodity derivatives and certain gas contracts: In the ordinary course of business, Shell enters into contracts to supply or purchase oil and gas products, as well as power and environmental products. Shell also enters into contracts for tolling, pipeline and storage capacity. Derivative contracts are entered into for mitigation of resulting economic exposures (generally price exposure) and these derivative contracts are carried at period-end market price (fair value), with movements in fair value recognised in income for the period. Supply and purchase contracts entered into for operational purposes, as well as contracts for tolling, pipeline and storage capacity, are, by contrast, recognised when the transaction occurs; furthermore, inventory is carried at historical cost or net realisable value, whichever is lower. As a consequence, accounting mismatches occur because: (a) the supply or purchase transaction is recognised in a different period, or (b) the inventory is measured on a different basis. In addition, certain contracts are, due to pricing or delivery conditions, deemed to contain embedded derivatives or written options and are also required to be carried at fair value even though they are entered into for operational purposes. The accounting impacts are reported as identified items.

Impacts of exchange rate movements on tax balances represent the impact on tax balances of exchange rate movements arising on (a) the conversion to dollars of the local currency tax base of non-monetary assets and liabilities, as well as losses and (b) the conversion of dollar-denominated inter-segment loans to local currency, leading to taxable exchange rate gains or losses (this primarily impacts the Corporate segment).

Other identified items represent other credits or charges Shell’s management assesses should be excluded to provide additional insight, such as the impact arising from changes in tax legislation and certain provisions for onerous contracts or litigation. Q4 2019 reflects a charge associated with an update of an Australian deferred tax asset and the impact of a reduction in the discount rate used for provisions. 

B.         Basic CCS earnings per share

Basic CCS earnings per share is calculated as CCS earnings attributable to Royal Dutch Shell plc shareholders (see Note 2), divided by the weighted average number of shares used as the basis for basic earnings per share (see Note 3).

C.        Capital investment and Cash capital expenditure

Capital investment is a measure used to make decisions about allocating resources and assessing performance. It comprises Capital expenditure, Investments in joint ventures and associates and Investments in equity securities, exploration expense excluding well write-offs, leases recognised in the period and other adjustments.

The definition reflects two changes with effect from January 1, 2019, for simplicity reasons. Firstly, “Investments in equity securities” now includes investments under the Corporate segment and is aligned with the line introduced in the Consolidated Statement of Cash Flows from January 1, 2019. Secondly, the adjustments previously made to bring the Capital investment measure onto an accruals basis no longer apply. Comparative information has been revised.

“Cash capital expenditure” is introduced with effect from January 1, 2019, to monitor investing activities on a cash basis, excluding items such as lease additions which do not necessarily result in cash outflows in the period. The measure comprises the following lines from the Consolidated Statement of Cash flows: Capital expenditure, Investments in joint ventures and associates and Investments in equity securities.

The reconciliation of “Capital expenditure” to “Cash capital expenditure” and “Capital investment” is as follows. Information for 2019 is also presented on an “IAS 17 basis” to enable like-for-like performance comparisons with 2018.

 
Quarters$ millionFull year
Q4 2019Q4 2019Q3 2019Q4 2018   201920192018
As reported IAS 17 basis As reported As revised   As reported IAS 17 basis As revised
6,707   6,936   5,992   7,147   Capital expenditure 22,971   23,624   23,011  
112   112   30   208   Investments in joint ventures and associates 743   743   880  
65   65   76   75   Investments in equity securities 205   205   187  
6,883   7,113   6,098   7,430   Cash capital expenditure23,919   24,572   24,078  
        Of which:      
1,323   1,331   894   1,262   Integrated Gas 4,299   4,310   3,819  
2,795   3,016   2,639   3,636   Upstream 10,277   10,916   12,582  
2,624   2,624   2,454   2,418   Downstream 8,926   8,928   7,408  
141   141   111   114   Corporate 418   418   269  
469   469   244   400   Exploration expense, excluding exploration wells written off 1,137   1,136   889  
860   83   1,902   49   Leases recognised in the period 4,494   1,594   452  
(209 ) (209 ) (484 )   Other adjustments (762 ) (762 ) (541 )
8,003   7,456   7,759   7,879   Capital investment28,788   26,542   24,878  
        Of which:      
1,602   1,473   2,303   1,350   Integrated Gas 6,706   6,030   4,259  
3,186   3,218   2,452   3,986   Upstream 11,075   11,138   12,785  
3,071   2,624   2,870   2,429   Downstream 10,542   8,956   7,565  
143   141   134   114   Corporate 465   418   269  

D.        Divestments

Following completion of the $30 billion divestment programme for 2016-18, the Divestments measure was discontinued with effect from January 1, 2019.

E.         Return on average capital employed

Return on average capital employed (ROACE) measures the efficiency of Shell’s utilisation of the capital that it employs. Shell uses two ROACE measures: ROACE on a Net income basis and ROACE on a CCS basis excluding identified items.

Both measures refer to Capital employed which consists of total equity, current debt and non-current debt. Information for 2019 is also presented on an “IAS 17 basis” to enable like-for-like performance comparisons with 2018.

ROACE on a Net income basis
In this calculation, the sum of income for the current and previous three quarters, adjusted for after-tax interest expense, is expressed as a percentage of the average capital employed for the same period. The after-tax interest expense is calculated using the effective tax rate for the same period.

 
$ millionQuarters
  Q4 2019Q4 2019Q3 2019Q4 2018
  As reported IAS 17 basis As reported As reported
Income - current and previous three quarters 16,433 16,645 20,989 23,906
Interest expense after tax - current and previous three quarters 3,024 2,441 3,115 2,513
Income before interest expense - current and previous three quarters19,45719,08624,10526,419
Capital employed – opening 295,398 279,357 279,864 283,477
Capital employed – closing 286,887 271,226 281,505 279,358
Capital employed – average291,142275,292280,684281,417
ROACE on a Net income basis6.7%6.9%8.6%9.4%
         

ROACE on a CCS basis excluding identified items
In this calculation, the sum of CCS earnings excluding identified items for the current and previous three quarters, adjusted for after-tax interest expense, is expressed as a percentage of the average capital employed for the same period. The after-tax interest expense is calculated using the effective tax rate for the same period.

This definition reflects two changes with effect from January 1, 2019. Firstly, the calculation considers “CCS earnings excluding identified items” instead of “CCS earnings attributable to Royal Dutch Shell plc shareholders excluding identified items” used under the previous definition. This change ensures consistency with the basis for average capital employed. Secondly, the calculation adds back the after-tax interest expense. This change is made for consistency with peers. Comparative information has been revised.

 
$ millionQuarters
  Q4 2019Q4 2019Q3 2019Q4 2018
  As reported IAS 17 basis As reported As  revised
CCS earnings - current and previous three quarters 15,827 16,039 22,284 24,364
Identified items - current and previous three quarters (1,170) (1,170) 2,536 2,429
Interest expense after tax – current and previous three quarters 3,024 2,441 3,115 2,513
CCS earnings excluding identified items before interest expense - current and previous three quarters20,02119,65022,86424,448
Capital employed – average291,142275,292280,684281,417
ROACE on a CCS basis excluding identified items6.9%7.1%8.1%8.7%
         

F.         Gearing

Gearing is a key measure of Shell’s capital structure and is defined as net debt as a percentage of total capital. Net debt is defined as the sum of current and non-current debt, less cash and cash equivalents, adjusted for the fair value of derivative financial instruments used to hedge foreign exchange and interest rate risks relating to debt, and associated collateral balances. Management considers this adjustment useful because it reduces the volatility of net debt caused by fluctuations in foreign exchange and interest rates, and eliminates the potential impact of related collateral payments or receipts. Debt-related derivative financial instruments are a subset of the derivative financial instrument assets and liabilities presented on the balance sheet. Collateral balances are reported under “Trade and other receivables” or “Trade and other payables” as appropriate.

Information for 2019 is also presented on an “IAS 17 basis” to enable like-for-like performance comparisons with 2018.

 
$ millionQuarters
  Q4 2019Q4 2019Q3 2019Q4 2018
  As reported IAS 17 basis As reported As reported
Current debt 15,064 11,803 12,812 10,134
Non-current debt 81,360 68,964 76,112 66,690
Total debt¹ 96,424 80,767 88,924 76,824
Add: Debt-related derivative financial instruments: net liability/(asset) 701 701 1,013 1,273
Add: Collateral on debt-related derivatives: net liability/(asset) 23 23 148 72
Less: Cash and cash equivalents (18,054) (18,054) (15,417) (26,741)
Net debt79,09463,43774,66851,428
Add: Total equity 190,463 190,459 192,580 202,534
Total capital 269,557253,896267,249253,962
Gearing29.3%25.0%27.9%20.3%
         

1.     Includes lease liabilities of $30,537 million at December 31, 2019, $31,085 million at September 30, 2019, and finance lease liabilities of $14,026 million at December 31, 2018

G.        Operating expenses

Operating expenses is a measure of Shell’s cost management performance, comprising the following items from the Consolidated Statement of Income: production and manufacturing expenses; selling, distribution and administrative expenses; and research and development expenses. Underlying operating expenses measures Shell’s total operating expenses performance excluding identified items.

Information for 2019 is also presented on an “IAS 17 basis” to enable like-for-like performance comparisons with 2018.

 
Quarters$ millionFull year
Q4 2019Q4 2019Q3 2019Q4 2018   201920192018
As reported IAS 17 basis As reported As reported   As reported IAS 17 basis As reported
7,247     6,002   6,803   Production and manufacturing expenses 26,438     26,970  
2,831     2,429   3,162   Selling, distribution and administrative expenses 10,493     11,360  
306     219   314   Research and development 962     986  
10,384   10,920   8,650   10,279   Operating expenses37,893   39,791   39,316  
        Of which identified items:      
(58 ) (58 ) 7   (28 ) (Redundancy and restructuring charges)/reversal (130 ) (130 ) (187 )
(333 ) (333 )   (104 ) (Provisions)/reversal (639 ) (639 ) (104 )
        Other (131 ) (131 )  
(391)(391)7   (132)   (900)(900)(291)
9,993   10,529   8,657   10,147   Underlying operating expenses36,993   38,891   39,025  

H.        Free cash flow

Free cash flow is used to evaluate cash available for financing activities, including dividend payments and debt servicing, after investment in maintaining and growing the business. It is defined as the sum of “Cash flow from operating activities” and “Cash flow from investing activities”.

Cash flows from acquisition and divestment activities are removed from Free cash flow to arrive at the Organic free cash flow, a measure used by management to evaluate the generation of free cash flow without these activities.

Information for 2019 is also presented on an “IAS 17 basis” to enable like-for-like performance comparisons with 2018.

 
Quarters$ millionFull year
Q4 2019Q4 2019Q3 2019Q4 2018   201920192018
As reported IAS 17 basis As reported As reported   As reported IAS 17 basis As reported
10,267   8,720   12,252   22,021   Cash flow from operating activities 42,179   37,807   53,085  
(4,862 ) (4,718 ) (2,130 ) (5,312 ) Cash flow from investing activities (15,779 ) (16,059 ) (13,659 )
5,405   4,002   10,122   16,709   Free cash flow26,400   21,748   39,426  
2,135   2,135   3,979   2,538   Less: Cash inflows related to divestments1 7,871   7,871   10,465  
106   106   4   437   Add: Tax paid on divestments (reported under "Other investing cash outflows") 187   187   482  
551   551   484   71   Add: Cash outflows related to inorganic capital expenditure2 1,400   1,400   1,740  
3,928   2,525   6,630   14,679   Organic free cash flow320,116   15,464   31,183  
         
  1. Cash inflows related to divestments includes Proceeds from sale of property, plant and equipment and businesses, Proceeds from sale of joint ventures and associates, and Proceeds from sale of equity securities as reported in the Consolidated Statement of Cash Flows.
  2. Cash outflows related to inorganic capital expenditure includes portfolio actions which expand Shell's activities through acquisitions and restructuring activities as reported in capital expenditure lines in the Consolidated Statement of Cash Flows.
  3. Free cash flow less inflows related to divestments, adding back outflows related to inorganic expenditure.

I.          Cash flow from operating activities excluding working capital movements

Working capital movements are defined as the sum of the following items in the Consolidated Statement of Cash Flows: (i) (increase)/decrease in inventories, (ii) (increase)/decrease in current receivables, and (iii) increase/(decrease) in current payables.

Cash flow from operating activities excluding working capital movements is a measure used by Shell to analyse its operating cash generation over time excluding the timing effects of changes in inventories and operating receivables and payables from period to period.

Information for 2019 is also presented on an “IAS 17 basis” to enable like-for-like performance comparisons with 2018.

 
Quarters$ millionFull year
Q4 2019Q4 2019Q3 2019Q4 2018   201920192018
As reported IAS 17 basis As reported As reported   As reported IAS 17 basis As reported
10,267   8,720   12,252   22,021   Cash flow from operating activities42,179   37,807   53,085  
        Of which:      
3,457   3,064   4,224   5,786   Integrated Gas 15,311   14,079   14,617  
4,185   3,968   4,448   6,869   Upstream 19,528   18,715   22,661  
2,304   1,373   3,205   8,794   Downstream 7,296   4,975   13,928  
321   315   375   572   Corporate 44   38   1,879  
(546 ) (546 ) 813   7,694   (Increase)/decrease in inventories (2,635 ) (2,635 ) 2,823  
(2,448 ) (2,448 ) 2,644   8,421   (Increase)/decrease in current receivables (921 ) (921 ) 1,955  
961   961   (3,289 ) (7,014 ) Increase/(decrease) in current payables (1,223 ) (1,223 ) (1,336 )
(2,033)(2,033)168   9,101   (Increase)/decrease in working capital(4,779)(4,779)3,442  
12,300   10,753   12,083   12,920   Cash flow from operating activities excluding working capital movements46,958   42,586   49,643  
        Of which:      
4,017   3,624   4,271   6,597   Integrated Gas 14,828   13,597   16,281  
4,998   4,781   4,722   5,149   Upstream 20,488   19,674   21,917  
3,294   2,363   3,169   1,224   Downstream 11,916   9,595   10,764  
(9 ) (15 ) (80 ) (50 ) Corporate (274 ) (280 ) 681  


 

CAUTIONARY STATEMENT
All amounts shown throughout this announcement are unaudited. All peak production figures in Portfolio Developments are quoted at 100% expected production. The numbers presented throughout this announcement may not sum precisely to the totals provided and percentages may not precisely reflect the absolute figures, due to rounding.

The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate legal entities. In this announcement “Shell”, “Shell group” and “Royal Dutch Shell” are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words "we", "us" and "our" are also used to refer to Royal Dutch Shell plc and subsidiaries in general or to those who work for them. These terms are also used where no useful purpose is served by identifying the particular entity or entities. ‘‘Subsidiaries’’, “Shell subsidiaries” and “Shell companies” as used in this announcement refer to entities over which Royal Dutch Shell plc either directly or indirectly has control. Entities and unincorporated arrangements over which Shell has joint control are generally referred to as “joint ventures” and “joint operations”, respectively.  Entities over which Shell has significant influence but neither control nor joint control are referred to as "associates". The term “Shell interest” is used for convenience to indicate the direct and/or indirect ownership interest held by Shell in an entity or unincorporated joint arrangement, after exclusion of all third-party interest.

This announcement contains forward-looking statements (within the meaning of the US Private Securities Litigation Reform Act of 1995) concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as "aim", "ambition", "anticipate", "believe", "could", "estimate", "expect", "goals", "intend", "may", "objectives", "outlook", "plan", "probably", "project", "risks", "schedule", "seek", "should", "target", "will" and similar terms and phrases. There are a number of factors that could affect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this announcement, including (without limitation):    (a) price fluctuations in crude oil and natural gas; (b) changes in demand for Shell’s products; (c) currency fluctuations; (d) drilling and production results; (e) reserves estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including regulatory measures addressing climate change; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. No assurance is provided that future dividend payments will match or exceed previous dividend payments.  All forward-looking statements contained in this announcement are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Additional risk factors that may affect future results are contained in Royal Dutch Shell’s Form 20-F for the year ended December 31, 2018 (available at www.shell.com/investor and www.sec.gov). These risk factors also expressly qualify all forward-looking statements contained in this announcement and should be considered by the reader.  Each forward-looking statement speaks only as of the date of this announcement, January 30, 2020. Neither Royal Dutch Shell plc nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this announcement.

This Report contains references to Shell’s website. These references are for the readers’ convenience only. Shell is not incorporating by reference any information posted on www.shell.com.

We may have used certain terms, such as resources, in this announcement that the United States Securities and Exchange Commission (SEC) strictly prohibits us from including in our filings with the SEC. US investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575, available on the SEC website www.sec.gov.

This announcement contains inside information.

January 30, 2020

The information in this Report reflects the unaudited consolidated financial position and results of Royal Dutch Shell plc. Company No. 4366849, Registered Office: Shell Centre, London, SE1 7NA, England, UK.

Contacts:

- Linda M. Coulter, Company Secretary
- Investor Relations: International + 31 (0) 70 377 4540; North America +1 832 337 2034
- Media: International +44 (0) 207 934 5550; USA +1 832 337 4355

LEI number of Royal Dutch Shell plc: 21380068P1DRHMJ8KU70
Classification: Inside Information


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