Shell plc — FY2020 Form 20-F summary
Reporting period: Year ended December 31, 2020; filed March 10, 2021. This is an annual report, not a standalone fourth-quarter filing. Financial statements use IFRS as issued by the IASB and are presented in US dollars unless stated otherwise. The auditor issued an unqualified opinion on the financial statements and internal controls.
Financial performance and position
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $180.5bn | $344.9bn |
| Net income (loss) | $(21.5)bn | $16.4bn |
| Loss attributable to Shell shareholders | $(21.7)bn | $15.8bn |
| Adjusted earnings, non-GAAP | $4.8bn | $16.5bn |
| Cash flow from operating activities | $34.1bn | $42.2bn |
| Free cash flow, non-GAAP | $20.8bn | $26.4bn |
| Cash capital expenditure, non-GAAP | $17.8bn | $23.9bn |
| Total debt, including lease liabilities | $108.0bn | $96.4bn |
| Net debt | $75.4bn | $79.1bn |
| Gearing | 32.2% | 29.3% |
| Cash and cash equivalents | $31.8bn | $18.1bn |
| Dividend per share | $0.65 | $1.88 |
Shell reported a $26.97bn loss before tax and a $5.43bn tax credit. The largest unusual item was $27.46bn of impairment losses, principally reflecting lower long-term commodity-price and refining-margin outlooks, COVID-19 impacts, and portfolio changes. After-tax identified items totaled $(24.78)bn; adjusted earnings therefore remained positive but fell sharply year over year. ROACE declined to (6.8)% from 6.7%.
Revenue fell substantially amid the pandemic-driven collapse in demand and commodity prices. Comparability is also affected by a reporting change: additional contracts classified as held for trading were reported net rather than gross from 2020, reducing reported revenue by $46.3bn. Oil Products revenue and sales volumes were also affected by this change.
Operating cash flow decreased mainly with lower earnings, while working capital provided a $4.6bn cash inflow. Investing cash outflow was $13.3bn. Cash dividends paid to Shell shareholders were $7.4bn and share repurchases were $1.7bn. Year-end current assets were $90.7bn versus current liabilities of $74.0bn. Shell reported $22.65bn of undrawn committed facilities, including a COVID-related facility due to expire in April 2021.
Operating results and changes versus prior year
- Integrated Gas: segment loss of $6.3bn versus earnings of $8.6bn. Results included $9.3bn of impairment charges; lower realised prices and weaker trading contributions also weighed on earnings. LNG liquefaction volumes fell 6% to 33.2 million tonnes.
- Upstream: segment loss of $10.8bn versus earnings of $3.9bn, reflecting lower prices and volumes and impairment charges. Production available for sale fell 10% to 3.386 million boe/day.
- Oil Products: segment loss of $0.5bn versus earnings of $6.1bn, including $6.5bn of identified net charges, largely impairments. Refinery utilisation fell to 72% from 78%; reported sales volumes fell 28%, including the effect of net revenue reporting.
- Chemicals: segment earnings rose to $0.8bn from $0.5bn, helped by improved margins, lower costs and favourable tax movements. Sales volumes were down 1%.
- Production and reserves: total proved reserves fell to 9.124bn boe from 11.096bn boe. The decline reflected production, revisions and reclassifications, including lower prices and reduced planned investment.
Benchmark Brent averaged $42/barrel in 2020, 34% below 2019. Industry refining margins weakened; for example, the Rotterdam Complex marker averaged $0.4/barrel versus $2.3. Refinery and chemical plant availability improved to 95.5% from 90.8%, while project delivery on schedule declined to 48% from 90%.
Outlook, management commentary and risks
- In February 2021, Shell launched its “Powering Progress” strategy, targeting a net-zero emissions energy business by 2050, in step with society. It set net-carbon-intensity reduction targets of 6–8% by 2023, 20% by 2030, 45% by 2035 and 100% by 2050, compared with 2016.
- Near-term financial framework: annual cash capital expenditure of $19–22bn, operating costs no higher than $35bn, and divestments of about $4bn per year. Shell targets AA-equivalent credit metrics through the cycle.
- Subject to Board approval, management aims to grow the dividend by about 4% annually. Once net debt reaches $65bn, Shell targets shareholder distributions of 20–30% of operating cash flow, through dividends and potentially buybacks. The first-quarter 2021 interim dividend was expected to be $0.1735 per share.
- COVID-19 continued to create uncertainty around demand, commodity prices and operations. Management warned that production, LNG, refining and chemicals activity could be curtailed, affecting earnings and cash flow.
- Key exposures include volatile oil, gas and product prices; climate regulation and energy-transition risks; large-project delivery and reserve replacement; political, fiscal and legal disputes; operational and environmental incidents; cyber and trading risks; pension funding; and uncertainty over divestments. Material legal matters include climate litigation, Groningen earthquake claims, Nigerian disputes and investigations relating to OPL 245. Shell said outcomes and potential financial effects are uncertain; some cannot be reliably estimated.
- Shell plans to reduce 7,000–9,000 jobs by the end of 2022. Costs of $650–850m for the initial phase were expected to be recognised in Q1 2021. The discount rate used for decommissioning provisions was reduced from 3% to 1.75%, contributing to higher provisions; total decommissioning and other provisions were $30.9bn at year-end.
Most important facts for investors to verify
- How much of the $27.46bn impairment charge is reflected in the asset values and earnings outlook, and how sensitive recoverable values are to commodity prices and refining margins.
- Whether reserve reductions, especially revisions and reclassifications, affect expected production, project economics or future cash generation.
- Progress toward the $65bn net-debt target, the maturity and refinancing profile, and the expiry of the additional COVID-related credit facility.
- Delivery of 2021 spending, cost and divestment plans, and whether the stated dividend growth and distribution framework remain affordable.
- Developments in climate litigation, OPL 245, Groningen, Nigeria and other contingencies, including any changes in estimated liabilities.
- Execution and economics of the energy-transition strategy, including emissions targets and the returns on renewables, power, hydrogen, carbon capture and nature-based investments.