potential impact of related collateral payments or receipts. Debt-related derivative financial instruments are a subset of the derivative financial instrument assets and liabilities presented on the balance sheet. Collateral balances are reported under "Trade and other receivables" or "Trade and other payables" as appropriate. Page 19 ROYAL DUTCH SHELL PLC 1ST QUARTER 2021 UNAUDITED RESULTS --------------------------------------- $ million Quarters December 31, March 31, 2021 2020 March 31, 2020 Current debt 14,541 16,899 15,767 Non-current debt 87,828 91,115 79,298 Total debt 102,369 108,014 95,065 Of which lease liabilities 28,177 28,419 29,290 Add: Debt-related derivative financial instruments: net liability/(asset) (864) (1,979) 1,218 Add: Collateral on debt-related derivatives: net liability/(asset) 732 1,181 (58) Less: Cash and cash equivalents (30,985) (31,830) (21,811) Net debt 71,252 75,386 74,413 Add: Total equity 166,953 158,537 183,379 Total capital 238,205 233,923 257,792 Gearing 29.9% 32.2% 28.9% ------------------------------------------------------ -------- --- ------- ---- -------- --- F. Operating expenses Operating expenses is a measure of Shell's cost management performance, comprising the following items from the Consolidated Statement of Income: production and manufacturing expenses; selling, distribution and administrative expenses; and research and development expenses. Underlying operating expenses is a measure aimed at facilitating a comparative understanding of performance from period to period by removing the effects of identified items, which, either individually or collectively, can cause volatility, in some cases driven by external factors. Quarters $ million Q1 2021 Q4 2020 Q1 2020 6,808 6,701 5,982 Production and manufacturing expenses Selling, distribution and 2,462 2,751 2,393 administrative expenses 166 199 243 Research and development 9,436 9,652 8,618 Operating expenses Of which identified items: Redundancy and restructuring (747) (371) (18) (charges)/reversal -- (737) -- (Provisions)/reversal 35 -- -- Other (712) (1,108) (18) 8,724 8,544 8,600 Underlying operating expenses ---------- --------- --------- -------------------------------------- G. Free cash flow Free cash flow is used to evaluate cash available for financing activities, including dividend payments and debt servicing, after investment in maintaining and growing the business. It is defined as the sum of "Cash flow from operating activities" and "Cash flow from investing activities". Cash flows from acquisition and divestment activities are removed from Free cash flow to arrive at the Organic free cash flow, a measure used by management to evaluate the generation of free cash flow without these activities. Page 20 ROYAL DUTCH SHELL PLC 1ST QUARTER 2021 UNAUDITED RESULTS --------------------------------------- Quarters $ million Q1 2021 Q4 2020 Q1 2020 8,294 6,287 14,851 Cash flow from operating activities (590) (5,406) (2,718) Cash flow from investing activities 7,704 882 12,133 Free cash flow 3,412 212 2,233 Less: Divestment proceeds (Reference I) Add: Tax paid on divestments (reported under "Other -- -- -- investing cash outflows") Add: Cash outflows related to inorganic capital 89 202 404 expenditure1 4,381 871 10,304 Organic free cash flow2 ---------- --------- --------- ------------------------------------------------------- 1.Cash outflows related to inorganic capital expenditure includes portfolio actions which expand Shell's activities through acquisitions and restructuring activities as reported in capital expenditure lines in the Consolidated Statement of Cash Flows. 2.Free cash flow less divestment proceeds, adding back outflows related to inorganic expenditure. H. Cash flow from operating activities excluding working capital movements Working capital movements are defined as the sum of the following items in the Consolidated Statement of Cash Flows: (i) (increase)/decrease in inventories, (ii) (increase)/decrease in current receivables, and (iii) increase/(decrease) in current payables. Cash flow from operating activities excluding working capital movements is a measure used by Shell to analyse its operating cash generation over time excluding the timing effects of changes in inventories and operating receivables and payables from period to period. Quarters $ million Q1 2021 Q4 2020 Q1 2020 8,294 6,287 14,851 Cash flow from operating activities (3,426) (1,809) 9,594 (Increase)/decrease in inventories (6,829) (107) 6,314 (Increase)/decrease in current receivables 5,865 1,579 (8,430) Increase/(decrease) in current payables (4,390) (337) 7,478 (Increase)/decrease in working capital Cash flow from operating activities excluding working 12,683 6,624 7,373 capital movements Of which: 3,653 2,195 3,352 Integrated Gas 4,702 2,890 3,718 Upstream 3,313 782 353 Oil Products 1,045 775 189 Chemicals (30) (17) (239) Corporate ---------- --------- --------- --------------------------------------------------------- I. Divestment proceeds Divestment proceeds represent cash received from divestment activities in the period. Management regularly monitors this measure as a key lever to deliver sustainable cash flow. Quarters $ million Q1 2021 Q4 2020 Q1 2020 Proceeds from sale of property, plant and equipment 3,106 94 1,613 and businesses Proceeds from joint ventures and associates from sale, 275 111 547 capital reduction and repayment of long-term loans(1) 31 7 73 Proceeds from sale of equity securities 3,412 212 2,233 Divestment proceeds ---------- ----------- ----------- ---------------------------------------------------------- 1.As from 2021 renamed from 'Proceeds from sale of joint ventures and associates'. Page 21 ROYAL DUTCH SHELL PLC 1ST QUARTER 2021 UNAUDITED RESULTS --------------------------------------- J. Earnings before interest, taxes, depreciation and amortisation The "Adjusted EBITDA (FIFO basis)" and "Adjusted EBITDA (CCS basis)" measures are introduced with effect from January 1, 2021. Management uses both measures to evaluate Shell's performance in the period and over time. We define "Adjusted EBITDA (FIFO basis)" as "Income/(loss) attributable to Royal Dutch Shell plc shareholders" adjusted for identified items; tax charge/(credit); depreciation, amortisation and depletion; exploration well write-offs and net interest expense. We also use "Adjusted EBITDA" on a CCS basis as the current cost of supplies adjustment aims to remove the impact of price changes on our inventories in our Oil Products and Chemicals segments, therefore enabling comparisons over time. Quarters $ million Q1 2021 Q4 2020 Q1 2020 Income/(loss) attributable to Royal Dutch Shell plc 5,660 (4,014) (24) shareholders Less: Identified items attributable to Royal Dutch 1,112 (4,871) (104) Shell plc shareholders Add: Taxation charge/(credit) excluding tax impact 1,903 865 417 of identified items Add: Depreciation, depletion and amortisation excluding 5,812 6,255 6,344 impairments 136 199 83 Add: Exploration well write-offs
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