Shell Q1 chemicals profits jump 171% to $268m

04 May 2000 20:06  [Source: ICIS news]

LONDON (CNI)--Increased sales volumes, lower costs and recovering markets continued to boost Shell Chemicals' fortunes despite high oil prices hitting unit margins, the Anglo-Dutch group said Thursday when reporting a massive jump in first quarter operating profits.

Shell Chemicals posted Q1 adjusted earnings*, excluding special items, up 171% to $268m (Euro294m) on revenues 36% higher at just over $3.8bn.

Profits in the US increased by a solid 20.6% to $82m but the main growth was driven by contributions from elsewhere - $186m from only $31m due to weak markets. Revenues from the US jumped 46.7% to just over $1.7bn while European sales improved 29% to more than $1.5bn.

The chemicals activities reported sales volumes 4% higher but, excluding the reduction due to Shell Chemicals divestment programme, the increase was 9%. Unit margins were cut 3% as product prices lagged rising feedstock costs pushed up by high oil prices. Margins in lower olefins, though, showed some improvement, the company said. Unit fixed costs were reduced 13% by the cost cutting and efficiency drives.

At group level, Royal Dutch/Shell posted adjusted earnings, excluding special items, up 118% to just over $3.1bn. Revenues were up 44% to almost $45.2bn. Group-wide there were net special charges of $48m against credits of $169m last time.

Mark Moody-Stuart, chairman of Royal Dutch/Shell, said of the improved results: "Of course we have had tremendous help from high oil prices and we were fortunate that other factors worked in our favour, but yet again we can also point to solid, underlying competitive improvements. I attribute this to our focus on costs, active portfolio management, disciplined capital investment and enhanced personal accountability."

Shell Chemicals took a net special charge of $49m in Q1 from rationalisation and divestment activities, including a write-down on the company's decision to abandon its Carilon aliphatic polyketone business after failing to find a buyer. The Carilon assets are in both the UK and US but the latter will be first to be closed. The charge compares to special credit of $80m last time.

In detail, charges taken in the US during the first quarter this year were: $82m against asset disposals/impairment compared to no charges in Q1-'99. Elsewhere, the figures were: a special credit of $44m on asset disposals/impairment compared to a credit of $80m last time; charges totalling $11m were taken against restructuring and redundancy while none were taken last time.

Including the net special charge of $49m, the chemicals earnings were $219m, which is 22% higher than the $179m in 1999.

Capital investment by Shell Chemicals decreased 21% to $198m.

In other divisions, the high oil price buoyed the fortunes of Shell's exploration and production activities, which posted adjusted earnings before special items up 222% to $2.3bn. The oil products division, however, suffered a fall of 8% in adjusted earnings before special items to $467m because of dollar supply costs and currency effects hitting the marketing performance. The downstream gas and power division posted adjusted earnings up 53% to $66m.

Moody-Stuart concluded: "We now have an organisation that's been transformed. It acts faster; it has a clear focus on returns and it is accountable from top to bottom." He added that "our task now is to exploit new opportunities, such as e-commerce".

* Adjusted earnings are taken on a current cost of supply basis.

By: Patrick Reynolds
+44 208 652 3214

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