22/11/2004
22 November 2004 - The Royal Dutch / Shell Group of Companies will today give a presentation on the accounting impacts of the adoption of International Financial Reporting Standards (IFRS) and aspects of Netherlands Generally Accepted Accounting Principles (GAAP) and US GAAP. The European Union has endorsed regulations that require listed European companies to comply with IFRS in 2005.
The presentation will be available via live audio webcast at 14:00 GMT (15:00 CET and 09:00 EST) on 22 November 2004. The highlights of that presentation are summarised below:
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| Financial
statements |
- The Royal Dutch / Shell Group will implement IFRS for
publication of their financial statements in 2005 and provide
comparative data for 2004. The 2005 Form 20-F will
provide reconciliation to US GAAP.
- Impacts from IFRS arise from first time adoption choices and
differences in accounting policies between US GAAP and IFRS.
|
| Group strategy
and financial framework |
- There is no impact on the Group strategy.
- There is no impact on the financial framework or cash flow.
|
Transition
balance sheet
1 January 2004 |
- The net assets on the balance sheet at transition, 1 January
2004, are expected to decrease by approximately $4.7 billion
and total debt to increase by approximately $0.2 billion.
This has a positive effect on ROACE on a net income basis
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Main topics covered:
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| Employee benefits
(pension funds) |
- There is no impact on the actuarial position or funding of
the pension funds, which continue to be well funded.
- Unrecognised gains and losses at the date of transition (1
January 2004) will be recognised in the 2004 opening balance
sheet with a corresponding reduction of retained earnings of
$4.9 billion.
- The use of the fair value of plan assets (rather than
market-related value) to calculate annual expected investment
returns and the changed approach to amortisation of investment
gains/losses can be expected to increase volatility in net
income going forward.
|
| Net equity and
CCTD |
- At transition (1 January 2004), the composition of net
equity changes because cumulative currency translation
differences (CCTD) will be recorded as part of retained
earnings.
- Retained earnings are increased by approximately $1.2
billion. Net equity and net capital employed are not impacted.
|
| Impairments and
reversal of impairments |
- IFRS and Netherlands GAAP require the use of discounted cash
flows for impairment testing and reversals. If
discounted cash flows exceed book value and impairment has
previously been taken, a reversal is required.
- Under this methodology, certain Exploration and Production
assets (Aera and Venezuela), previously impaired, will be
reversed in 2004 and certain US tolling assets in Gas &
Power require impairment in 2004.
- This has no impact on net income under US GAAP.
- There is no significant net impact expected on 2004
Netherlands GAAP net income
|
| Property, plant
and equipment |
- Major inspection costs will be capitalised using the
‘Solomon’ industry definition of major inspection.
At transition (1 January 2004), net assets increase by
approximately $0.4 billion.
Impact on quarterly net income going forward is reflected in
lower operating costs and an increase in depreciation.
|
| Joint ventures
consolidation |
- The upstream joint venture in the Netherlands will be
accounted for under the equity method under IFRS and
proportionately consolidated under US GAAP.
- There is no impact on net income or net assets.
|
| Share options |
- Share options awards made after 7 November 2002 and not
vested at 1 January 2005 will be expensed rather than the
current practice of pro forma disclosure in the notes to the
financial statements. 2004 net income will be
reduced by approximately $ 0.1 billion.
- Share option awards continue to be economically hedged
through treasury stock.
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The purpose of this briefing is to provide information on the expected impact of the adoption of International Financial Reporting Standards (IFRS). The figures are unaudited. They represent our current best estimates and may be impacted by business or other changes or by changes to IFRS standards or the interpretation thereof. They should be treated with appropriate caution.
Disclaimer statement
The following presentation contains forward-looking statements, that are subject to risk factors associated with the oil, gas, power, chemicals and renewables business. It is believed that the expectations reflected in these statements are reasonable, but may be effected by a variety of variables which could cause actual results or trends to differ materially, including, but not limited to: price fluctuations, actual demand, currency fluctuations, drilling and production results, reserve estimates, loss of market, industry competition, environmental risks, physical risks, the risk of doing business in developing countries, legislative, fiscal and regulatory developments including potential litigation and regulatory effects arising from recategorisation of reserves, economic and financial market conditions in various countries and regions, political risks, project delay or advancement, approvals and cost estimates.
Please refer to the Annual Report on Form 20-F for the year ended December 31, 2003 (as amended) for a description of certain important factors, risks and uncertainties that may affect the Companies' businesses. Neither of the Companies undertake any obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or otherwise.
The numbers contained in this announcement are based on IFRS expected to be in place at December 31, 2005 and certain of these standards are still subject to review and endorsement.
Cautionary Note to US Investors:
The United States Securities and Exchange Commission (‘SEC’) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions.
