-------------------------------------------------------- -------- -------- ------- 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 Q3 2020 Q2 2020 Q3 2019 CCS earnings - current and previous three quarters (14,272) (8,264) 22,284 Identified items - current and previous three quarters (21,957) (19,865) 2,536 Interest expense after tax -- current and previous three quarters 2,933 3,014 3,115 CCS earnings excluding identified items before interest expense - current and previous three quarters 10,618 14,616 22,864 Capital employed -- average 275,451 277,168 280,684 ROACE on a CCS basis excluding identified items 3.9% 5.3% 8.1% ---------------------------------------------------------- -------- -------- ------- E. Gearing Gearing is a key 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 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 24 ROYAL DUTCH SHELL PLC 3RD QUARTER 2020 UNAUDITED RESULTS --------------------------------------- $ million Quarters September 30, September 30, 2020 June 30, 2020 2019 Current debt 17,811 17,530 12,812 Non-current debt 91,245 87,460 76,112 Total debt(1) 109,056 104,990 88,924 Add: Debt-related derivative financial instruments: net liability/(asset) (564) 525 1,013 Add: Collateral on debt-related derivatives: net liability/(asset) 686 266 148 Less: Cash and cash equivalents (35,714) (27,939) (15,417) Net debt 73,463 77,843 74,668 Add: Total equity 160,341 160,445 192,580 Total capital 233,804 238,288 267,249 Gearing 31.4% 32.7% 27.9% ------------------------------------------------------ ------ ----- ------- --- ------- ----- 1. Includes lease liabilities of $28,930 million at September 30, 2020 and $29,073 million at June 30, 2020, and $31,085 million at September 30, 2019. 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 Nine Months Q3 2020 Q2 2020 Q3 2019 2020 2019 Production and manufacturing 5,496 5,822 6,002 expenses 17,299 19,191 Selling, distribution and 2,366 2,370 2,429 administrative expenses 7,130 7,662 233 232 219 Research and development 708 656 8,095 8,423 8,650 Operating expenses 25,137 27,509 Of which identified items: Redundancy and restructuring 25 (508) 7 (charges)/reversal (501) (72) (267) (411) -- (Provisions)/reversal (678) (306) -- -- -- Other -- (131) (242) (919) 7 (1,179) (509) 7,854 7,504 8,657 Underlying operating expenses 23,958 27,000 --------- --------- --------- ------------------------------- --------- -------- 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 25 ROYAL DUTCH SHELL PLC 3RD QUARTER 2020 UNAUDITED RESULTS --------------------------------------- Quarters $ million Nine Months Q3 2020 Q2 2020 Q3 2019 2020 2019 10,403 2,563 12,252 Cash flow from operating activities 27,818 31,913 (2,833) (2,320) (2,130) Cash flow from investing activities (7,871) (10,918) 7,571 243 10,122 Free cash flow 19,947 20,995 869 696 3,979 Less: Divestment proceeds (Reference I) 3,798 5,736 Add: Tax paid on divestments (reported under "Other -- -- 4 investing cash outflows") -- 80 Add: Cash outflows related to inorganic capital 12 199 484 expenditure1 614 849 6,713 (254) 6,630 Organic free cash flow2 16,763 16,189 --------- --------- --------- ------------------------------------------------------- --------- ---------- 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 Nine Months Q3 2020 Q2 2020 Q3 2019 2020 2019 10,403 2,563 12,252 Cash flow from operating activities 27,818 31,913 405 (3,713) 813 (Increase)/decrease in inventories 6,286 (2,089) (540) 3,959 2,644 (Increase)/decrease in current receivables 9,733 1,527 1,583 (4,226) (3,289) Increase/(decrease) in current payables (11,073) (2,184) 1,448 (3,980) 168 (Increase)/decrease in working capital 4,947 (2,746)
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