ROYAL DUTCH SHELL FINANCIAL RESULTS FOR 2ND QUARTER 2004
SUMMARY RESULTS AND BUSINESS INDICATORS
SECOND QUARTER US$ million HALF YEAR
2004 2003 % 2004 2003 %
As restated As restated
4,002 2,604 +54 Net income* 8,661 8,126 +7
Estimated current
cost of supplies (CCS)
adjustment for Oil
Products segment - see note 2
234 (653) 604 (382)
3,768 3,257 +16 CCS earnings* 8,057 8,508 -5
* includes:
Special credits/
(charges)
- - - see note 3 - 1,036
Asset retirement
obligations
- - - see note 1 - 255
SECOND QUARTER US$ million HALF YEAR
2004 2003 2004 2003
As restated As restated
SUMMARY INDICATORS
Cash from operations
4,813 5,425 (US$ million) 12,610 12,113
Cash from operations
excluding working
capital movements
6,658 4,604 (US$ million) 12,956 11,329
Capital investment
3,352 3,402 (US$ million) 6,303 6,139
Return on Average
Capital Employed on a
Net income basis(%) 15.5% 17.0%
Upstream production
3,578 3,763 (thousand boe/d) 3,821 3,983
SEGMENT EARNINGS ($ MILLION)
Exploration and
1,935 1,994 Production 4,681 5,014
338 452 Gas & Power 863 1,958
Oil Products
1,555 975 (CCS basis) 2,678 2,031
371 61 Chemicals 553 115
Other segments/
Corporate/Minority
(431) (225) Interests (718) (610)
GROUP FINANCIAL STATEMENTS
STATEMENT OF INCOME
QUARTERS US$ million HALF YEAR
Q2 Q1 Q2
2004 2004 2003 %(1) 2004 2003 %
As As As As
restated restated restated restated
80,418 76,209 64,862 +24 Sales proceeds 156,627 134,214 +17
Sales taxes,
excise duties and
and
17,869 18,131 16,804 similar levies 36,000 32,364
------ ------ ------ ------- -------
62,549 58,078 48,058 +30 Net proceeds 120,627 101,850 +18
51,725 47,579 40,323 Cost of sales 99,304 84,114
------ ------ ------ ------- -------
10,824 10,499 7,735 +40 Gross profit 21,323 17,736 +20
Selling,
distribution
and
administrative
3,661 3,395 3,427 expenses 7,056 6,450
880 125 152 Exploration 1,005 400
Research and
159 136 145 development 295 277
------ ------ ------ ------- -------
Operating
profit of
6,124 6,843 4,011 +53 Group companies 12,967 10,609 +22
Share of
operating
profit of
associated
1,569 1,295 787 companies 2,864 2,064
------ ------ ------ ------- -------
Operating
7,693 8,138 4,798 +60 profit 15,831 12,673 +25
Interest and
205 610 175 other income 815 1,644
307 312 300 Interest expense 619 674
Currency exchange
(41) (26) (102) gains/(losses) (67) (119)
------ ------ ------ ------- -------
Income before
7,550 8,410 4,571 +65 taxation 15,960 13,524 +18
3,400 3,609 1,912 Taxation 7,009 5,499
------ ------ ------ ------- -------
Income after
4,150 4,801 2,659 +56 taxation 8,951 8,025 +12
Minority
148 142 55 interests 290 154
Cumulative
effect of a
change in
accounting
principle, net
of tax, for
asset retirement
- - - obligations - 255
------ ------ ------ ------- -------
4,002 4,659 2,604 +54 NET INCOME 8,661 8,126 +7
------ ------ ------ ------- -------
(1) - Q2 on Q2 change
EARNINGS BY SEGMENT
QUARTERS US$ million HALF YEAR
Q2 Q1 Q2
2004 2004 2003 %(1) 2004 2003 %
As As As As
restated restated restated restated
Exploration and
Production:
World outside
1,246 1,998 1,345 -7 USA 3,244 3,630 -11
689 748 649 +6 USA 1,437 1,384 +4
------ ------ ------ ------- -------
1,935 2,746 1,994 -3 4,681 5,014 -7
------ ------ ------ ------- -------
Gas & Power:
World outside
380 448 356 +7 USA 828 1,828 -55
(42) 77 96 - USA 35 130 -73
------ ------ ------ ------- -------
338 525 452 -25 863 1,958 -56
------ ------ ------ ------- -------
Oil Products:
World outside
1,094 960 839 +30 USA 2,054 1,768 +16
461 163 136 +239 USA 624 263 +137
------ ------ ------ ------- -------
1,555 1,123 975 +59 2,678 2,031 +32
------ ------ ------ ------- -------
Chemicals:
World outside
305 231 166 +84 USA 536 362 +48
66 (49) (105) - USA 17 (247) -
------ ------ ------ ------- -------
371 182 61 +508 553 115 +381
------ ------ ------ ------- -------
Other industry
(9) (14) (27) segments (23) (67)
------ ------ ------ ------- -------
TOTAL OPERATING
4,190 4,562 3,455 +21 SEGMENTS 8,752 9,051 -3
------ ------ ------ ------- -------
Corporate:
Interest
(193) (163) (178) income/(expense) (356) (437)
Currency
exchange
- (9) (19) gains/(losses) (9) (29)
Other -
including
(96) 21 85 taxation (75) 86
------ ------ ------ ------- -------
(289) (151) (112) (440) (380)
------ ------ ------ ------- -------
Minority
(133) (122) (86) interests (255) (163)
------ ------ ------ ------- -------
3,768 4,289 3,257 +16 CCS EARNINGS 8,057 8,508 -5
------ ------ ------ ------- -------
CCS adjustment
234 370 (653) for Oil Products 604 (382)
------ ------ ------ ------- -------
4,002 4,659 2,604 +54 NET INCOME 8,661 8,126 +7
------ ------ ------ ------- -------
(1) - Q2 on Q2 change
SUMMARIZED STATEMENT OF ASSETS AND LIABILITIES
US$ million
June 30 Mar 31 June 30
2004 2004 2003
Fixed assets: As restated As restated
Tangible fixed
assets 85,802 86,853 81,599
Intangible fixed
assets 4,710 4,708 4,747
Investments 22,677 22,637 21,785
------- ------- -------
113,189 114,198 108,131
------- ------- -------
Other long-term
assets 10,322 9,915 8,059
Current assets:
Inventories 14,558 13,615 12,038
Accounts receivable 32,552 30,664 28,316
Cash and cash
equivalents 2,448 5,732 1,937
------- ------- -------
49,558 50,011 42,291
------- ------- -------
Current liabilities:
Short-term debt 6,888 7,548 9,564
Accounts payable and
accrued liabilities 33,892 32,377 30,762
Taxes payable 9,673 9,950 7,209
Dividends payable to
Parent Companies 3,880 5,091 2,520
------- ------- -------
54,333 54,966 50,055
------- ------- -------
Net current
assets/(liabilities) (4,775) (4,955) (7,764)
------- ------- -------
Total assets less
current liabilities 118,736 119,158 108,426
------- ------- -------
Long-term
liabilities:
Long-term debt 9,503 9,728 7,209
Other 6,551 6,189 6,104
------- ------- -------
16,054 15,917 13,313
------- ------- -------
Provisions:
Deferred taxation 12,880 13,392 12,639
Other 9,556 9,300 9,469
------- ------- -------
22,436 22,692 22,108
------- ------- -------
Minority interests 4,161 3,788 3,259
------- ------- -------
NET ASSETS 76,085 76,761 69,746
------- ------- -------
SUMMARISED STATEMENT OF CASH FLOWS (NOTE 6)
QUARTERS US$ million HALF YEAR
Q2 Q1 Q2
2004 2004 2003 2004 2003
As As As As
restated restated restated restated
CASH FLOW PROVIDED
BY OPERATING
ACTIVITIES:
4,002 4,659 2,604 Net income 8,661 8,126
Depreciation,
depletion and
3,130 2,617 2,431 amortisation 5,747 4,963
(Profit)/loss on
(22) (663) (149) sale of assets (685) (1,450)
Decrease/(increase)
in net working
(1,845) 1,499 821 capital (346) 784
Associated
companies:
dividends
more/(less) than
(15) (297) 217 net income (312) (90)
Deferred taxation
and other
(52) 357 2 provisions 305 355
(385) (375) (501) Other (760) (575)
------ ------ ------ ------ ------
Cash flow provided
by operating
4,813 7,797 5,425 activities 12,610 12,113
------ ------ ------ ------ ------
CASH FLOW USED IN
INVESTING
ACTIVITIES:
(2,881) (2,427) (3,081) expenditure (5,308) (5,254)
Proceeds from sale
125 728 105 of assets 853 373
Net investments in
associated
(67) (425) 130 companies (492) (191)
Proceeds from sale
and other movements
10 942 44 in investments 952 1,719
------ ------ ------ ------- ------
Cash flow used in
investing
(2,813) (1,182) (2,802) activities (3,995) (3,353)
------ ------ ------ ------- ------
CASH FLOW PROVIDED
BY/ (USED IN)
FINANCING ACTIVITIES:
Net increase/(decrease)
(409) (40) 306 in long-term debt (449) (103)
Net increase/(decrease)
(84) (3,003) (445) in short-term debt (3,087) (3,416)
Change in minority
311 277 (465) interests 588 (453)
Dividends paid to:
(4,586) - (3,779) Parent Companies (4,586) (3,779)
(72) (46) (108) Minority interests (118) (151)
------ ------ ------ ------- ------
Cash flow provided
by/(used in)
financing
(4,840) (2,812) (4,491) activities (7,652) (7,902)
------ ------ ------ ------- ------
Parent Companies'
shares: net
sales/(purchases)
and dividends
(416) (8) (253) received (424) (568)
Currency
translation
differences
relating
to cash and cash
(28) (15) 67 equivalents (43) 91
------ ------ ------ ------- ------
INCREASE/(DECREASE)
IN CASH AND CASH
(3,284) 3,780 (2,054) EQUIVALENTS 496 381
------ ------ ------ ------- ------
BASIC EARNINGS PER SHARE (NOTE 8)
QUARTERS US$ million HALF YEAR
Q2 Q1 Q2
2004 2004 2003 2004 2003
As As As As
restated restated restated restated
ROYAL DUTCH
Net income per
0.98 1.10 0.68 share (EUR) 2.08 2.19
Net income per
1.18 1.38 0.77 share ($) 2.56 2.39
CCS earnings
per share
0.92 1.01 0.84 (euro ) 1.94 2.28
CCS earnings
1.11 1.27 0.96 per share ($) 2.38 2.50
SHELL
TRANSPORT
Net income per
9.3 10.7 6.8 share (pence) 20.0 21.2
Net income per
1.02 1.17 0.66 ADR ($) 2.19 2.04
CCS earnings
per share
8.8 9.8 8.4 (pence) 18.6 22.2
CCS earnings
0.95 1.08 0.82 per ADR ($) 2.03 2.14
DILUTED EARNINGS PER SHARE (NOTE 8)
QUARTERS US$ million HALF YEAR
Q2 Q1 Q2
2004 2004 2003 2004 2003
As As As As
restated restated restated restated
ROYAL DUTCH
Net income per
0.98 1.10 0.68 share (EUR) 2.08 2.19
Net income per
1.18 1.37 0.77 share (US$) 2.56 2.39
CCS earnings
per share
0.92 1.01 0.84 (EUR) 1.94 2.28
CCS earnings
1.11 1.26 0.96 per share(US$) 2.38 2.50
SHELL
TRANSPORT
Net income per
9.3 10.7 6.8 share (pence) 20.0 21.2
Net income per
1.01 1.17 0.66 ADR ($) 2.19 2.04
CCS earnings
per share
8.8 9.8 8.4 (pence) 18.6 22.2
CCS earnings
0.95 1.08 0.82 per ADR (US$) 2.03 2.14
NOTES
NOTE 1. Accounting policies
US accounting standard FAS 143 is effective for the Group from the first quarter of 2003 and required that an entity recognizes the discounted ultimate liability for an asset retirement obligation in the period in which it is incurred together with an offsetting asset. The cumulative effect of the change has been included within net income for the first quarter of 2003.
The quarterly Group financial statements reflect the impact of the reserves restatement, the change in accounting policy for inventories, the change in the treatment of exploration cost and the change in the treatment of certain gas contracts consistent with the 2003 annual report (see Note 2 to the Financial Statements of the Royal Dutch/Shell Group of Companies in the 2003 Annual Reports and Accounts on pages 52 to 54).
The Group's accounting policies are unchanged from those set out in Note 3 to the Financial Statements of the Royal Dutch/Shell Group of Companies in the 2003 Annual Reports and Accounts on pages 54 to 57.
The quarterly Group financial statements have been prepared on a US GAAP basis, which differs from accounting principles as required by Dutch law (Dutch GAAP). Net income on a Dutch GAAP basis amounted to a profit of US$8,577 million (under US GAAP US$8,661 million) in the first six months of 2004, compared to a profit of $8,042 million (under US GAAP $8,126 million) in the
same period a year ago.
On a Dutch GAAP basis basic earnings per share are euro 0.02 lower for Royal Dutch and 0.2 pence lower for Shell Transport for the period January to June 2004 and for the same period a year ago were euro 0.02 lower for Royal Dutch and 0.2 pence lower for Shell Transport. The difference between Dutch GAAP and U.S. GAAP is caused by the fact that goodwill is not amortized under U.S. GAAP but instead tested for impairment.
NOTE 2. Earnings on an estimated current cost of supplies (CCS) basis
To facilitate a better understanding of the underlying business performance, the financial results are also analyzed on an estimated current cost of supplies (CCS) basis as applied for the Oil Products segment earnings. It should be noted that CCS earnings is not a measure of financial performance under generally accepted accounting principles in the USA.
On this basis, for the Oil Products segment cost of sales of the volumes sold in the period is based on the cost of supplies of the same period (instead of using the first-in first-out (FIFO) method of inventory accounting) and allowance is made for the estimated tax effect. The adjustment from net income on to an estimated current cost of supplies basis has no related balance sheet entry. Earnings calculated on this basis do not represent an application of the last-in, first-out (LIFO) inventory basis and do not reflect any inventory draw down effects. Earnings on an estimated current cost of supplies basis provide useful information concerning the effect of changes in the cost of supplies on the Group's results of operations.
NOTE 3. Special items
With effect from the first quarter of 2003, certain items which would have been treated as special items under previous practice have not been so treated, in line with SEC Regulation G, on the grounds that items of a similar nature have occurred, or could occur, within a two-year period. Special items were those significant credits or charges resulting from transactions or events which, in the view of management, were not representative of normal business activities of the period and which affect comparability of earnings.
NOTE 4. Return on average capital employed (ROACE)
ROACE on a net income basis is the sum of the current and previous three quarters' net income plus interest expense, less tax and minority interest (both calculated at the average rate for the Group), as a percentage of the average of the Group share of closing capital employed and the opening capital employed a year earlier. The tax rate and the minority interest components are derived from calculations at the published segment level.
Components of the calculation (US$ million):
Net income (four quarters) 13,031
Group share of interest expense after tax 702
ROACE numerator 13,733
Group share of Capital employed - opening 85,770
Group share of Capital employed - closing 91,626
Group share of Capital employed - average 88,698
ROACE 15.5%
NOTE 5. Earnings by industry segment
Operating segment results exclude interest and other income of a non-operational nature, interest expense, non-trading currency exchange effects and tax on these items, which are included in the results of the Corporate segment, and minority interests.
NOTE 6. Statement of cash flows
This statement reflects cash flows of Group companies as measured in their own currencies, which are translated into US dollars at average rates of exchange for the periods and therefore excludes currency translation differences except for those arising on cash and cash equivalents.
NOTE 7. Contingencies and litigation - Reserves recategorization
In connection with the recategorization of certain hydrocarbon reserves announced on January 9, 2004, a number of shareholder class action complaints have been filed in the United States District Court of New Jersey, the Unites States Securities and Exchange Commission has issued a formal order of private investigation, the United States Department of Justice has commenced a criminal investigation, the UK Financial Services Authority has served formal notice of investigation under the Financial Services and Markets Act 2000 and Euronext Amsterdam and the Dutch Authority Financial Markets are investigating the issues related to the reserves recategorization. Management of the Group cannot currently predict the manner and timing of the resolution of these pending matters, is currently unable to estimate the range of possible losses from such matters and does not currently believe the resolution of these pending matters will have a material impact on the Group's financial condition, although such resolutions could have a significant effect on periodic results for the period in which they are recognized.
NOTE 8. Earnings per share
Group net income, before parent companies' own cost and income, is shared between Royal Dutch and Shell Transport in the proportion of 60:40 (as described in the Royal Dutch and Shell Transport 2003 Annual Reports and Accounts in Note 1 on page 52). For the purposes of these calculations, Group CCS earnings are shared in the proportion 60:40. For Royal Dutch and Shell Transport, earnings per share in euro and sterling respectively are translated from underlying US dollars at average rates for the period.
In the first quarter of 2001, Royal Dutch and Shell Transport each commenced a share buyback programme under authorisation granted at shareholders' meetings in May 2000. All Shell Transport shares bought as part of this programme are cancelled immediately. Royal Dutch shares bought as part of this programme can only be cancelled in arrears after such a resolution has been passed at the General Meeting of Royal Dutch shareholders. The last such resolution was on June 28, 2004 for shares bought under this programme since the previous General Meeting. For the purpose of earnings per share calculations all shares bought under the share buyback programme are deemed to have been cancelled upon the day of purchase.
With effect from the fourth quarter of 2003, shares of Royal Dutch and Shell Transport held by Group companies in respect of share options and other incentive compensation plans are deducted in determining basic earnings per share.
Basic earnings per share calculations, are based on the following weighted average number of shares:
Half Half
Q2 Q1 Q2 year year
2004 2004 2003 2004 2003
Royal Dutch shares
of euro 0.56
(millions) 2,029.1 2,033.2 2,036.7 2,031.2 2,040.2
Shell Transport
shares of 25
pence (millions) 9,501.9 9,519.3 9,525.0 9,510.7 9,538.7
Diluted earnings per share calculations, are based on the following weighted average number of shares. This includes dilutive number of shares (stock options currently in-the-money) and excludes shares held by Group companies:
Half Half
Q2 Q1 Q2 year year
2004 2004 2003 2004 2003
Royal Dutch shares
of euro 0.56
(millions) 2,031.1 2,034.4 2,037.4 2,032.7 2,040.7
Shell Transport
shares of 25
pence (millions 9,505.4 9,519.5 9,528.4 9,512.5 9,540.9
Shares at the end of the following periods are:
Q2 Q1 Q2
2004 2004 2003
Royal Dutch shares
of euro 0.56 (millions) 2,025.4 2,033.2 2,034.4
Shell Transport shares
of 25 pence (millions) 9,485.7 9,520.7 9,519.1
One American Depository Receipt (ADR) or New York Share is equal to six 25 pence Shell Transport shares.
All amounts shown throughout this report are unaudited.