Shell plc (SHEL) Earnings Call Transcript

Welcome, Tjerk. Please go ahead.

Ladies and gentlemen, good afternoon, good morning. Thank you for joining us today. I'm Tjerk Huysinga, Executive Vice President, Investor Relations in Shell, and I will facilitate this Q&A session today. The session will be hosted by Andrew Mackenzie, Chair of the Board of Royal Dutch Shell plc. He is joined by Euleen Goh, our Senior Independent Director; Ben van Beurden, Shell's Chief Executive Officer; and Jessica Uhl, Chief Financial Officer. In this 1-hour session, we hope to address any outstanding questions shareholders may have in relation to the proposed share simplification and the rationale for the general meeting on the 10th of December 2021. Now let me briefly describe how the session will work. Andrew will provide a quick introduction, then we will move to your questions. [Operator Instructions] We will try to answer all your questions raised at the meeting, whether submitted via the online platform or asked via the telephone. For any unanswered questions, Investor Relations will aim to follow up with you soonest. Please also note this Q&A session will be recorded. Now let me hand over to Andrew Mackenzie, Chair of the Board of Royal Dutch Shell plc for a quick introduction. Thank you.

Yes. Thank you, Tjerk, and welcome, everyone, to this Q&A session, and we all look forward to your questions. But first, let me quickly update you on the proposal. The Board has proposed to change Shell's Articles of Association in order to simplify the share structure of Shell. And this proposal will enable Shell to change its dual A/B share structure to a single line of shares and to align its tax residence with this country of incorporation in the U.K. The simplification is designed to make Shell more competitive, to accelerate distributions to its shareholders and to speed up its transition to a net 0 emissions energy company. Shareholders will attain the same rights in Shell as they do today, and the company's shares will continue to be listed in Amsterdam, London and New York with FTSE UK index inclusion, and we expect that the AEX index inclusion will be maintained. Shell's corporate governance structure will also remain unchanged. Your Board believes that the proposal is in the best interest of shareholders, and we strongly recommend shareholders to vote in favor of the changes to Shell's articles, as Tjerk said, the general meeting scheduled for the 10th of December. So far, we have received positive feedback from our institutional shareholders. The business case does seem to be well understood. Having said that, we have arranged this call to ensure we can address any potential outstanding questions that you may have before voting ahead of the General Meeting on the 10th of December 2021. If the proposal is approved, the Board will make a final decision to proceed with the simplification in early 2022. And we will aim to execute the simplification soon thereafter. So with this short introduction, let's move now to your questions. And Tjerk, over to you, please, to moderate.

Thank you, Andrew. We will start with the questions on the audio line. Jake, let us have the first question, please. Thank you.

[Operator Instructions]

Can we have the first question?

There is no questions in the queue at this time.

Okay. Well, I have a question here at this moment. It's a question online, which is being posted by [ David Summers ]. And his question is, why is it necessary to retain Shell Petroleum energy in the proposed simplified structure? Over to you, Andrew.

Well, thanks, Tjerk. But if I may, Jessica, I think that's one for you, please.

Certainly. Thank you for the question. The simplification doesn't require any changes in the legal corporate structure that we have in place. We're simply moving the tax domicile, and there's no change to the kind of legal entity structure that currently exists that will continue. Now as we go on and run our business, we may make changes to our portfolio. And there may be reasons to shift different companies or assets within our legal structure, but that won't be driven by the simplification proposal. Thank you.

Thanks, Jessica.

Okay. Let me check whether there's another question online at this particular moment. I have another question here, Andrew. The question here is, the business case seems clear. Can you explain why you have made this decision now and not earlier?

Yes. We've made this decision now after many years of thinking about it, I think, as a Board, but it became clear to us that the possibilities of a reform of the withholding tax in the Netherlands, we're receding to almost nothing in our view. And as we look forward into the energy transition and the work that we have to do, we wanted to simplify our company so we could move more quickly, have a more transparent relationship with our shareholders and think about the various ways in which we might restructure the company, unencumbered by the complexity of the A/B structure. A short-term consideration, which, of course, became apparent when we sold our shale business -- or about to sale our shale business that we committed to return $7 billion of the proceeds to our shareholders as quickly as we could. And with this simplification, we'll be able to do that much quicker than we would be under the A/B structure.

Let me check again. The next question I have here, Andrew, what are the implications of moving your tax residence to the U.K., given it's outside of the EU? Why did you not move to the Netherlands?

Maybe, Ben, you might answer that question, please?

Yes. Thank you very much for the question. We -- first of all, we have looked at a number of different constructs as you can imagine. Indeed, the idea of moving our country of incorporation to the Netherlands and combined with the current tax base location was one of them. But there's 2 issues with it. First of all, it would not necessarily resolve the issue that we had with the dual line of shares. We have the dual line of shares to protect certain currently B shareholders from the withholding tax in the Netherlands who cannot claim this back. That situation would, of course, not be helped. Secondly, moving our country of incorporation to be the Netherlands would also, of course, require a shareholder vote, 75%, probably also a vote of 50% of the shareholders by number. And we thought that, that's with all the attendance consequences for our position in the U.K., position in the FTSE, et cetera, would not be something that would pass. We, of course, have seen other companies try that and also not succeed. So it wouldn't solve anything and it would create an additional problem. And therefore, we felt the best solution was the one that we are proposing. For completeness sake, we've, of course, also investigated other opportunities and other options. But for various reasons, we have decided that this is the most logical conclusion, which benefits most of our shareholders and actually has limited, if any, downsides.

Thanks, Ben. I have another question here online, and then we'll check whether there's someone actually want to ask a question on the phone. So Jake, bear with me. Here is a question from [ Colin Westwood Global Investments ]. If the Dutch government agrees to wait the withholding tax in an effort to keep you in the Netherlands, would you rethink the plan to move the headquarters? Over to you, Andrew.

Look, I think this is quite hypothetical. We don't see any indication that, that will occur soon. But at the time when the Board has to -- assuming the vote to the change in the Articles of Association is successful next week on the 10th when the Board has to take its decision to relocate its tax location and, of course, the CEO and the CFO to London, it will do that with all of the information available at that time. But right now, I think that, that is quite a hypothetical consideration.

Okay. Thanks, Andrew. Now let me go back to Jake. Jake, are there any questions on the phone at this particular moment?

[Operator Instructions]

Okay. Let me go back then online. I've got a question here from Roger Read. Will there be any net tax changes to Shell beyond the alteration of the dividend treatment? Are there any other tax or cash flow impacts which we should anticipate after this change? Over to you, Andrew.

I don't believe so. But maybe Jessica, you might want to add to that, please.

Thank you, Chair. No, there are no other material cash flow or other impacts associated with the simplification. There -- as noted in the document, there's a potential exit tax that would range between $0 million and $400 million. But beyond that, other than kind of normal advisory costs and things like that, all which would be relatively de minimis, there should be no other incremental costs associated with the simplification.

Thanks, Jessica.

Thanks, Jessica. I've got another question here from Allen Good. If the restructuring allows Shell to accelerate energy transition, why not retain some of the Permian sale proceeds and increase in investment in low-carbon businesses? Back to you, Andrew.

We are retaining a small amount of them. But right now, your company is very strongly cash positive. And we have the proceeds within that to invest in the future of your company with a bias, of course, to lower carbon businesses.

Okay. Let me have another look here online. We've got a question from [indiscernible]. Why can't you repurchase the $7 billion of shares that you guided to as part of the Permian sale immediately after the sale as opposed to 2022 without a simplification process? What is it that it prevents the buyback's? Given the stock pullback, it would seem prudent to do the buybacks as soon as the sale closures. Back to you, Andrew.

To pursue a buyback. But maybe, Jessica, you might give some of the details as to why the simplification for some part of the buyback would accelerate the return to shareholders.

Thank you for the question. So in terms of distributing the $7 billion to shareholders and share buybacks more generally, there are 2 matters to consider in terms of the pace that we can execute a share buyback program. The first is to consider how we do it most efficiently, if you will. And there, we look to have -- which share line can we buy back at the lowest cost. And currently, only our B shares are not subject to withholding tax. So we, therefore, have conducted our buyback program against the B line. The other piece that's important is the market abuse regulations, which [indiscernible] that's occurring in the market. So between limiting ourselves to the most efficient purchase, which is the B shares and the liquidity constraints because of regulations, that limits the quantum of buybacks that we can do. With the simplification what would happen is essentially we would have access to the full pool of shares, which, therefore, would double the liquidity, if you will, of the amount that we're able to buy in the market [indiscernible] amount as quickly as I could and do it next month, if that were possible. Unfortunately, because of those restrictions, it's not. And that's one of the main drivers for wanting to do the simplification is that we have all the levers at hand to distribute as efficiently and as effectively as we can.

[indiscernible] Jessica. I've got another question here from Sylvia from Robeco. She raised the following question. Can you confirm that our estimation of the exit tax charge, this dividend withholding exit tax charge is resulting in a possible tax liability of around $11.5 billion? Is this correct? If that would materialize, to what extent would this influence the final board decision on the simplification/relocation? Back to you, Andrew.

No, that is not our estimate. We, as a Board, consider a wide range of advice as to the viability or otherwise the probability of an exit tax charge. And we concluded that, that was highly unlikely to occur. And therefore, it is not really possible to come up with an estimate in that sense, and many of the inputs are very variable. But I repeat, we think it's highly unlikely as a Board that we will actually be faced with this exit charge. And therefore, we made our recommendation in the way we did for simplification and for the vote that we will take next week. I repeat, of course, that when we make the final decision, we will take account of all the circumstances prevailing at that time.

Thanks, Andrew. I've got a similar question, and I think partly you've already answered it. But in the spirit of answering all the questions, I'm just going to read it for you. Matthew Elias from Ashler Capital has raised. You've received multiple adviser opinions on the potential for the exit tax risk. Was there a difference in the assigned exit tax risk probability that each of the advisers indicated? Further, what is the risk that the exit tax could be passed and applicable for any point during the tax year. In other words, going to be retroactive even after the redomicile?

I think I have answered most of that question in the answer to my last question. But we had a range of opinions, both from the Dutch side and from the U.K. side. And when we combine those opinions, and they weren't that far apart, and applied our own judgment, we concluded that the likelihood of such attacks being imposed on Shell if we choose to come to the U.K. or move to the U.K. was small.

Thank you, Chair. I have a next question here from Sylvia from Robeco. Other than the dividend withholding tax considerations, has the Board in its decision to align Shell's tax residence with its country of incorporation in the U.K. instead of aligning Shell's registered office and corporate seats in the Netherlands considered or weighted other material factors such as corporate governance requirements and shareholder rights in the Netherlands versus the U.K., and possible inclusion in the EURO STOXX 50 and MSCI EMU Index versus a removal from the FTSE 100 index or even the impact of the Brexit? So Sylvia has asked here quite a few questions, but I think it is clear what is the underlying reason of her questions. So back to you, Andrew.

Yes. Look, I mean we -- of course, we looked at all the consequences of making this move, including many more than that are itemized in your question, and we concluded very strongly, they're on balance that the best interest of the shareholders going forward for Shell to create a more agile company, one that can restructure itself, have a very transparent relationship with shareholders, carry out buybacks more quickly than otherwise be the case or as we're proposing here to change our Articles of Association so that we could move the tax headquarters and the location -- in order to do that, the location of our CEO and CFO to the U.K. So we absolutely concluded that given all of those factors, it was the right thing to do.

Thank you, Andrew. Let me look again here online. I've just heard -- let me check with Jake. Jake any further questions on the phone at this particular moment?

There's none in the queue at this time.