Q3 2021 FINANCIAL RESULTS

$ million
Adj. Earnings ¹
Adj. EBITDA (CCS)
CFFO ex. WC
CFFO
Cash capex
Integrated Gas
1,680
3,768
7,871
5,674
1,272
Upstream
1,686
6,766
5,889
5,777
1,502
Oil Products
1,212
2,360
3,262
3,757
976
Refining & Trading
(3)
415
364
Marketing
1,215
1,945
612
Chemicals
395
715
684
840
1,053
Corporate
(732)
(147)
(233)
(22)
36
Less: Non-controlling interest
112
RDS
Q3 2021
4,130
13,460
17,472
16,025
4,840
Q2 2021
5,534
13,623
14,176
12,617
4,383

1 Income/(loss) attributable to shareholders for Q3 2021 is $(0.4) billion. Reconciliation of non-GAAP measures can be found in the unaudited results, available on www.shell.com/investors

QUARTERLY RESULTS PRESENTATION

ROYAL DUTCH SHELL PLC

THIRD QUARTER 2021 RESULTS

 

JESSICA UHL, CHIEF FINANCIAL OFFICER OF ROYAL DUTCH SHELL PLC

 

Welcome to our third quarter 2021 results presentation. Q3 has again shown the dynamic nature of energy markets with demand and supply factors leading to strengthened oil and gas prices. At the same time, the world prepares for COP26 as we look to rebuild the energy system for a net-zero future. In this context, businesses with a strong strategy, competitive portfolio, distinct capabilities, and solid delivery will thrive. Today, I will share how we are delivering on our strategy how we are expanding our absolute emissions target as part of our net-zero ambition. And how in Q3 we continued to deliver strong results in dynamic market conditions.

 

Let me start with an update on how we are delivering on our Powering Progress strategy. We are moving at pace to become a net-zero emissions energy business purposefully and profitably. And today, I want to focus on the progress we are making in Mobility and in our Energy and Chemicals park Rotterdam. Mobility is the face of Shell. It is the part of our Marketing business that serves consumers while they are on the move. In our retail sites, we offer traditional and low-carbon fuels as well as coffee, food and other everyday products in our convenience shops. Mobility is a key growth business for Shell, and we have distinct competitive advantages with our differentiated offerings, market presence and customer access to offer what our customers want today and in the future.

 

Through challenging market conditions, Mobility has demonstrated impressive resiliency. For example, our V-Power premium fuel penetration increased by 2 percentage points since 2020 to approximately 20% of all fuel sold. We have grown our loyalty program and have over 80 million members worldwide while reaching around 8 million fleet card holders. We are also pursuing higher margins from our existing sites by expanding our convenience shops and adding new offers such as the Shell Café which is now being launched in 13 markets at more than 700 locations.

 

And we are profitability growing our low-carbon businesses, including biofuels, hydrogen or electric vehicle charging, helping our customers decarbonize and reducing our scope 3 emissions. We successfully launched an IPO of our biofuels joint venture Raízen in Brazil, to fund further expansion in a key biofuels market. And we are also expanding our electric vehicle charging points, from around 80 thousand today to over 500 thousand globally by 2025. This growth in our electric vehicle charging business comes with attractive integrated margin. So, while we help our customers decarbonise, we are increasing our returns. Overall, our Marketing business is expected to deliver returns between 15 and 25%.

 

Now let's look at how we are transforming our Pernis refinery into the Energy and Chemicals Park Rotterdam. At this site, we are building a biofuels plant to produce renewable diesel and sustainable aviation fuel made from waste and certified vegetable oils. This is a step towards our ambition to produce around 2 million tonnes of sustainable aviation fuel a year by 2025 and help our customers decarbonise. Another step we took in Q3 is our partnership with BlueAlp to turn plastic waste into feedstock for sustainable chemicals. Further, we are working to integrate our Energy and Chemicals Park Rotterdam with Hydrogen Holland 1 as well as the Aramis and Porthos projects, which will capture carbon and store it under the North Sea. This is a great example of how we are transforming our refining portfolio into 5 integrated Energy and Chemicals parks by the end of the decade, from 12 today. We aim to reduce traditional fuel production from 100 million tonnes a year today to 45 by 2030 while also expanding our low-carbon products.

 

We expect to generate an internal rate of return, or IRR, between 10 and 15% in our Chemicals & Products business. All of this demonstrates the investments we are making into tangible assets, infrastructure, technology, business models and capability in order to provide real low-carbon energy solutions to our customers today and tomorrow. This brings me to my update on Shell's absolute emissions reduction target.

 

Since the launch of Shell’s Powering Progress strategy in February we have engaged extensively with our stakeholders, especially with our investors. We received the clear message to do more. That is why today we announce an absolute emissions reduction target of 50% on all Scope 1 and 2 emissions under Shell’s operational control by 2030, compared to 2016 levels on a net basis which complements our existing carbon intensity targets and is another step to become a net-zero emissions energy business. We will achieve this target through a combination of measures some I’ve already talked about, like transforming our refineries into 5 integrated Energy and Chemicals parks other measures include eliminating routine gas flaring from our Upstream operated assets by 2025, improving energy efficiency and carefully using carbon offsets through quality nature-based solutions. It is also an important step as we address the challenge of the Dutch Court’s ruling for our scope 1 and 2 emissions, which Shell expects to meet by 2030.

 

And let me also confirm that the capex and return profiles that we laid out in our Strategy Day earlier this year remain the same. The investments required to meet this target are part of our existing capex guidance and go hand in hand with our Powering Progress strategy. As we continue transforming our businesses to deliver value in the future, we also deliver value today, so let me now talk about our Q3 performance.

 

In Q3 we saw a dynamic energy market resulting in higher oil and gas prices, improved refining margins and mixed Chemicals margins. Throughout this we again delivered solid financial results for the quarter. Our Adjusted Earnings were $4.1 billion, and our adjusted EBITDA was $13.5 billion, boosted by another outstanding quarterly performance in our Marketing business which has delivered record Q3 year-to-date Adjusted Earnings. In Integrated Gas, our trading and optimisation results continued to be impacted by gas and LNG supply shortages while the assets benefited from higher prices. With most of our LNG sales linked to oil prices in long-term contracts, we saw limited benefit from higher spot gas prices in Q3. Looking forward, the supply shortages are expected to be mostly resolved over the course of 2022. Moving to cash, we saw once again very strong cash conversion across all of our businesses. We delivered $17.5 billion of cash flow from operations excluding working capital movements boosted by some $4 billion from commodity derivatives. This was our highest cash generation on record.

 

In Upstream, despite divestments and impacts from Hurricane Ida, we generated the highest cash flow from operations excluding working capital movements since Q3 2018. Also in Q3 we announced the divestment of the Permian shales assets for some $9.5 billion. We will distribute $7 billion of the divestment proceeds to our shareholders, with the remaining going towards balance sheet strengthening. And demonstrating capital discipline, we expect cash capex to be around $20 billion in 2021.

 

So today, I hope to have shown you how Shell is delivering on its strategic goals, purposefully and profitably. By serving our customers in our Mobility business, with premium fuels, electric vehicle charging and convenience retail. By transforming our traditional refineries so we can offer our customers the most advanced and low-emissions products. And by setting an absolute emissions reduction target, further bolstering our commitment to net-zero emissions by 2050.

 

All of this is supported by businesses that generate leading cash flows quarter after quarter.

Our established businesses generate the energy needed today while providing the cash to invest in the low carbon energy of tomorrow. That is what we call creating value for our customers, for wider society and for our shareholders. That is what we call Powering Progress.

 

Thank you.

 

 

Royal Dutch Shell plc

October 28, 2021

www.shell.com/investors

 

DEFINITIONS AND CAUTIONARY NOTE

 

Adjusted Earnings is the income attributable to RDS plc shareholders for the period, adjusted for the after-tax effect of oil price changes on inventory and for identified items. In this presentation, “earnings” refers to “Adjusted Earnings” unless stated otherwise. Adjusted EBITDA (FIFO basis) is the income/(loss) attributable to Royal Dutch Shell plc shareholders adjusted for identified items; tax charge/(credit); depreciation, amortisation and depletion; exploration well write-offs and net interest expense. Adjusted EBITDA on a CCS (current cost of supplies) basis is used to remove the impact of price changes on our inventories in our Oil Products and Chemicals segments, therefore enabling comparisons over time. In this presentation, “operating expenses”, “costs” and “underlying costs” refer to “Underlying operating expenses” unless stated otherwise. Underlying operating expenses represent “operating expenses excluding identified items”. Operating expenses consist of the following lines in the Consolidated Statement of Income: (i) production and manufacturing expenses; (ii) selling, distribution and administrative expenses; and (iii) research and development expenses. Cash flow from operating activities excluding working capital movements is defined as “Cash flow from operating activities” less 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. In this presentation, “capex” refers to “Cash capital expenditure” unless stated otherwise. Cash capital expenditure comprises the following lines from the Consolidated Statement of Cash Flows: Capital expenditure, Investments in joint ventures and associates and Investments in equity securities. Free cash flow is defined as the sum of “Cash flow from operating activities” and “Cash flow from investing activities”. Organic free cash flow is defined as free cash flow excluding inorganic cash capital expenditure, divestment proceeds and tax paid on divestments. In this presentation, “divestments” refers to “divestment proceeds” unless stated otherwise. Divestment proceeds are defined as the sum of (i) proceeds from sale of property, plant and equipment and businesses, (ii) proceeds from sale of joint ventures and associates, and (iii) proceeds from sale of equity securities. 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. Reconciliations of the above non-GAAP measures are included in the Royal Dutch Shell plc Unaudited Condensed Interim Financial Report for the nine months ended September 30, 2021.

This presentation contains the following forward-looking non-GAAP measures: Cash capital expenditure and Underlying operating expenses. We are unable to provide a reconciliation of the above forward-looking non-GAAP measures to the most comparable GAAP financial measures because certain information needed to reconcile the above non-GAAP measures to the most comparable GAAP financial measures is dependent on future events some of which are outside the control of the company, such as oil and gas prices, interest rates and exchange rates. Moreover, estimating such GAAP measures with the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort. Non-GAAP measures in respect of future periods which cannot be reconciled to the most comparable GAAP financial measures are estimated in a manner which is consistent with the accounting policies applied in Royal Dutch Shell plc’s consolidated financial statements.

The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate legal entities. In this presentation “Shell”, “Shell Group” and “Group” 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 its 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 presentation 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.

Shell’s operating plan, outlook and budgets are forecasted for a ten-year period and are updated every year. They reflect the current economic environment and what we can reasonably expect to see over the next ten years. Accordingly, Shell’s operating plans, outlooks, budgets and pricing assumptions do not reflect our net-zero emissions target. In the future, as society moves towards net-zero emissions, we expect Shell’s operating plans, outlooks, budgets and pricing assumptions to reflect this movement. Also, in this presentation we may refer to Shell’s “Net Carbon Footprint”, which includes Shell’s carbon emissions from the production of our energy products, our suppliers’ carbon emissions in supplying energy for that production and our customers’ carbon emissions associated with their use of the energy products we sell. Shell only controls its own emissions. The use of the term Shell’s “Net Carbon Footprint” is for convenience only and not intended to suggest these emissions are those of Shell or its subsidiaries.

This presentation contains forward-looking statements (within the meaning of the U.S. Private Securities Litigation Reform Act of 1995) concerning the financial condition, results of operations and businesses of 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”, “milestones”, “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 Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this presentation, 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, judicial, 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; (m) risks associated with the impact of pandemics, such as the COVID-19 (coronavirus) outbreak; and (n) 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 presentation 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 Ditch Shell’s plc’s Form 20-F for the year ended December 31, 2020 (available at www.shell.com/investors and www.sec.gov). These risk factors also expressly qualify all forward-looking statements contained in this presentation and should be considered by the reader. Each forward-looking statement speaks only as of the date of this presentation, October 28, 2021. 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 presentation. The content of websites referred to in this announcement does not form part of this announcement. We may have used certain terms, such as resources, in this presentation that the United States Securities and Exchange Commission (SEC) strictly prohibits us from including in our filings with the SEC. 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.

QUARTERLY RESULTS ANALYST Q&A SESSION

Ben van Beurden (CEO, Royal Dutch Shell plc), Jessica Uhl (CFO, Royal Dutch Shell plc) and Huibert Vigeveno (Downstream Director, Royal Dutch Shell plc) will host a results analyst webcast of the third quarter 2021 results on Thursday October 28th, at 14:00 BST (15:00 CEST and 09:00 EDT).