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THE WALL STREET JOURNAL: Shell: Group Net Income Up $358M Under IFRS ( 21 April 05



April 21, 2005

Corrected April 21, 2005

Edited Press Release


LONDON -- Shell Transport said Thursday that the adoption of International Financial Reporting tandards (IFRS) will see 2004 Group net income increases of $358 million from $18.2bn under U.S. GAAP to $18.5bn under IFRS.


Main individual items contributing to the increase arise from the IFRS treatment of accounting for major inspection costs (+$0.2bn), additional impairments (-$0.3bn) and reversals of impairments (+$0.5bn), pension costs (-$0.2bn), share-based compensation (-$0.1bn) and lower charges for cumulative currency translation differences (CCTD) on divestments (+$0.1bn).


Net assets at transition on Jan. 1, 2004 decrease by $4.7bn. Net assets at Dec. 31, 2004 decrease by $4.5bn and total debt increases by $0.2bn.


Reported 'cash flow from operating activities' in 2004 has increased by $1.4bn with an offset in cash flow from investing and financing activities. This is mainly due to: The different presentation of interest (interest paid is now included in financing activities and interest received in investing activities) with an effect of $0.5bn; Write offs of previously capitalised exploratory well costs are now added back within 'cash flow from operating activities' in 'other' and not deducted from capital expenditure with an effect of $0.5bn; and Major inspection costs are capitalised (and therefore shown in 'investing activities') and were previously expensed. This has an effect of $0.4bn.


Unrecognised gains and losses related to defined benefit pension arrangements and other post retirement benefits at the date of transition (Jan. 1, 2004) have been recognised in the 2004 opening balance sheet, with a corresponding reduction in Group equity (net assets) of $4.9bn. During 2004 the pre-tax net liability recognised in the balance sheet under IFRS decreased from $5.8bn at Jan. 1, 2004 to $4.7bn at Dec. 31, 2004. Under U.S. GAAP the pre-tax net asset recognised increased from $1.7bn at Jan. 1, 2004 to $3.3bn at Dec. 31, 2004.


Under IFRS there is an additional charge in 2004 for defined benefit pension arrangements of $0.2bn after tax.


At transition (Jan. 1, 2004), the composition of net equity changed because the balance of cumulative currency translation differences (CCTD) under U.S. GAAP of $1.2bn was eliminated to increase retained earnings. Neither net assets nor equity in total were impacted. Because of this elimination, the amount of CCTD charged to income on disposals in 2004 was lower by $0.1bn under IFRS compared with U.S. GAAP.


In 2004 and going forward, CCTD will continue, reflecting currency translation effects on net assets of entities with non-U.S. dollar functional currencies.


Major inspection costs are capitalised using the 'Solomon' industry definition of major inspection. At transition (Jan. 1, 2004), net assets increased by $0.4bn.


The impact on income going forward is reflected in lower operating costs and higher depreciation, having a net positive effect on income in 2004 of $0.2bn.


Share options awards made after Nov. 7 2002 and not vested at Jan. 1, 2005 are expensed rather than the previous practice of pro forma disclosure in the notes to the financial statements. 2004 income was reduced by $0.1bn.


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