Identified items after tax 1,410 (20) (32) Divestment gains/(losses) (94) (2,746) (536) Impairments (486) (267) (7) Redundancy and restructuring -- (994) -- Provisions for onerous contracts Fair value accounting of commodity derivatives and 365 (864) 838 certain gas contracts (110) 157 (366) Impact of exchange rate movements on tax balances 25 (147) -- Other 1,112 (4,881) (104) Impact on CCS earnings Of which: 1,112 (1,089) (331) Integrated Gas 133 (1,344) (1,154) Upstream (227) (2,315) 849 Oil Products (41) (14) (2) Chemicals 134 (118) 535 Corporate 1,112 (4,871) (104) Impact on CCS earnings attributable to shareholders -- (10) -- Impact on CCS earnings attributable to non-controlling interest ------------------ --------- --------- ----------------------------------------------------------- Page 17 ROYAL DUTCH SHELL PLC 1ST QUARTER 2021 UNAUDITED RESULTS --------------------------------------- The identified items categories above may include after-tax impacts of identified items of joint ventures and associates which are fully reported within "Share of profit of joint ventures and associates" in the Consolidated Statement of Income, and fully reported as identified items before tax in the table above. Identified items related to subsidiaries are consolidated and reported across appropriate lines of the Consolidated Statement of Income. Only pre-tax identified items reported by subsidiaries are taken into account in the calculation of underlying operating expenses (Reference F). Provisions for onerous contracts: Provisions for onerous contracts that relate to businesses that Shell has exited or to redundant assets or assets that cannot be used. Fair value accounting of commodity derivatives and certain gas contracts: In the ordinary course of business, Shell enters into contracts to supply or purchase oil and gas products, as well as power and environmental products. Shell also enters into contracts for tolling, pipeline and storage capacity. Derivative contracts are entered into for mitigation of resulting economic exposures (generally price exposure) and these derivative contracts are carried at period-end market price (fair value), with movements in fair value recognised in income for the period. Supply and purchase contracts entered into for operational purposes, as well as contracts for tolling, pipeline and storage capacity, are, by contrast, recognised when the transaction occurs; furthermore, inventory is carried at historical cost or net realisable value, whichever is lower. As a consequence, accounting mismatches occur because: (a) the supply or purchase transaction is recognised in a different period, or (b) the inventory is measured on a different basis. In addition, certain contracts are, due to pricing or delivery conditions, deemed to contain embedded derivatives or written options and are also required to be carried at fair value even though they are entered into for operational purposes. The accounting impacts are reported as identified items. Impacts of exchange rate movements on tax balances represent the impact on tax balances of exchange rate movements arising on (a) the conversion to dollars of the local currency tax base of non-monetary assets and liabilities, as well as losses (this primarily impacts the Upstream and Integrated Gas segments) and (b) the conversion of dollar-denominated inter-segment loans to local currency, leading to taxable exchange rate gains or losses (this primarily impacts the Corporate segment). Other identified items represent other credits or charges that based on Shell management's assessment hinder the comparative understanding of Shell's financial results from period to period. B. Adjusted Earnings per share Adjusted Earnings per share is calculated as Adjusted Earnings (see Reference A), divided by the weighted average number of shares used as the basis for basic earnings per share (see Note 3). C. Cash capital expenditure Cash capital expenditure represents cash spent on maintaining and developing assets as well as on investments in the period. Management regularly monitors this measure as a key lever to delivering sustainable cash flows. Cash capital expenditure is the sum of the following lines from the Consolidated Statement of Cash flows: Capital expenditure, Investments in joint ventures and associates and Investments in equity securities. Quarters $ million Q1 2021 Q4 2020 Q1 2020 3,885 5,206 4,263 Capital expenditure Investments in joint ventures and 69 269 559 associates 21 28 147 Investments in equity securities 3,974 5,503 4,970 Cash capital expenditure Of which: 1,015 1,664 882 Integrated Gas 1,534 1,654 2,521 Upstream 668 1,310 580 Oil Products 730 830 846 Chemicals 28 46 141 Corporate ---------- --------- --------- -------------------------------------- Page 18 ROYAL DUTCH SHELL PLC 1ST QUARTER 2021 UNAUDITED RESULTS --------------------------------------- D. Return on average capital employed Return on average capital employed ("ROACE") measures the efficiency of Shell's utilisation of the capital that it employs. Shell uses two ROACE measures: ROACE on a Net income basis and ROACE on a CCS basis excluding identified items, both adjusted for after-tax interest expense. With effect from the second quarter 2020, the after-tax interest expense adjustment is calculated using an applicable blended statutory tax rate. This change is implemented to eliminate the distorting volatility effects of the effective tax rate. There is no significant impact on prior periods comparatives, which therefore have not been revised. Both measures refer to Capital employed which consists of total equity, current debt and non-current debt. ROACE on a Net income basis In this calculation, the sum of income for the current and previous three quarters, adjusted for after-tax interest expense, is expressed as a percentage of the average capital employed for the same period. $ million Quarters Q1 2021 Q4 2020 Q1 2020 Income - current and previous three quarters (15,727) (21,534) 10,252 Interest expense after tax - current and previous three quarters 2,728 2,822 2,854 Income before interest expense - current and previous three quarters (12,999) (18,712) 13,106 Capital employed -- opening 278,444 286,887 292,797 Capital employed -- closing 269,323 266,551 278,444 Capital employed -- average 273,883 276,719 285,620 ROACE on a Net income basis (4.7)% (6.8)% 4.6% -------------------------------------------------------- -------- -------- ------- ROACE on a CCS basis excluding identified items In this calculation, the sum of CCS earnings excluding identified items for the current and previous three quarters, adjusted for after-tax interest expense, is expressed as a percentage of the average capital employed for the same period. $ million Quarters Q1 2021 Q4 2020 Q1 2020 CCS earnings - current and previous three quarters (18,125) (19,702) 13,256 Identified items - current and previous three quarters (23,562) (24,777) (1,266) Interest expense after tax -- current and previous three quarters 2,728 2,822 2,854 CCS earnings excluding identified items before interest expense - current and previous three quarters 8,165 7,898 17,376 Capital employed -- average 273,883 276,719 285,620 ROACE on a CCS basis excluding identified items 3.0% 2.9% 6.1% ---------------------------------------------------------- -------- -------- ------- E. Gearing Gearing is a measure of Shell's capital structure and is defined as net debt as a percentage of total capital. 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. Management considers this adjustment useful because it reduces the volatility of net debt caused by fluctuations in foreign exchange and interest rates, and eliminates the
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