Economia
Shell Plc 1st Quarter 2024 Unaudited Results
1.Q1 on Q4 change
2.Effective first quarter 2024, the definition has been amended and comparative information has been revised. See Reference D.
Quarter Analysis1
Income attributable to Shell plc shareholders , compared with the fourth quarter 2023, reflected lower operating expenses, higher margins from crude and oil products trading and optimisation, and higher refining margins, partly offset by lower LNG trading and optimisation margins, and unfavourable tax movements in comparison to the fourth quarter 2023.
First quarter 2024 income attributable to Shell plc shareholders also included unfavourable movements due to the fair value accounting of commodity derivatives, and favourable differences in exchange rates and inflationary adjustments on deferred tax. These items are included in identified items amounting to a net loss of $0.6 billion in the quarter. This compares with identified items in the fourth quarter 2023 which amounted to a net loss of $6.0 billion, and included net impairment charges and reversals ($3.9 billion), and unfavourable movements due to the fair value accounting of commodity derivatives.
Adjusted Earnings and Adjusted EBITDA2 were driven by the same factors as income attributable to Shell plc shareholders and adjusted for the above identified items and the cost of supplies adjustment of negative $0.3 billion.
Cash flow from operating activities for the first quarter 2024 was $13.3 billion, and primarily driven by Adjusted EBITDA, partly offset by a working capital outflow of $2.8 billion, and tax payments of $2.6 billion. The working capital outflow mainly reflected accounts receivable and payable movements, and inventory movements due to higher crude and oil products prices.
Cash flow from investing activities for the quarter was an outflow of $3.5 billion, and included cash capital expenditure of $4.5 billion, and divestment proceeds of $1.0 billion.
Net debt and Gearing: At the end of the first quarter 2024, net debt was $40.5 billion, compared with $43.5 billion at the end of the fourth quarter 2023, mainly reflecting free cash flow, partly offset by share buybacks, cash dividends paid to Shell plc shareholders, interest payments, and lease additions. Gearing was 17.7% at the end of the first quarter 2024, compared with 18.8% at the end of the fourth quarter 2023, driven by lower net debt.
Shareholder distributions
Total shareholder distributions in the quarter amounted to $5.0 billion comprising repurchases of shares of $2.8 billion and cash dividends paid to Shell plc shareholders of $2.2 billion. Dividends declared to Shell plc shareholders for the first quarter 2024 amount to $0.3440 per share. Shell has now completed $3.5 billion of share buybacks announced in the fourth quarter 2023 results announcement. Today, Shell announces a share buyback programme of $3.5 billion which is expected to be completed by the second quarter 2024 results announcement.
This Unaudited Condensed Interim Financial Report, together with supplementary financial and operational disclosure for this quarter, is available at www.shell.com/investors 3.
1.All earnings amounts are shown post-tax, unless stated otherwise.
2.Adjusted EBITDA is without taxation.
3.Not incorporated by reference.
FIRST QUARTER 2024 PORTFOLIO DEVELOPMENTS
Upstream
In January 2024, we reached an agreement to sell The Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance. Completion of the transaction is subject to approvals by the Federal Government of Nigeria and other conditions.
Chemicals and Products
In January 2024, we announced the final investment decision to convert the hydrocracker of the Wesseling site at the Energy and Chemicals Park Rheinland in Germany into a production unit for Group III base oils, used in making high-quality lubricants such as engine and transmission oils. Crude oil processing will end at the Wesseling site by 2025 but will continue at the Godorf site.
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PERFORMANCE BY SEGMENT
1.Q1 on Q4 change
2.Segment earnings, Adjusted Earnings and Adjusted EBITDA are presented on a CCS basis (see Note 2).
Integrated Gas includes liquefied natural gas (LNG), conversion of natural gas into gas-to-liquids (GTL) fuels and other products. It includes natural gas and liquids exploration and extraction, and the operation of the upstream and midstream infrastructure necessary to deliver these to market. Integrated Gas also includes the marketing, trading and optimisation of LNG.
Quarter Analysis 1
Segment earnings , compared with the fourth quarter 2023, reflected the net effect of lower contributions from trading and optimisation and higher realised prices (decrease of $1,153 million), partly offset by favourable deferred tax movements ($327 million), higher volumes (increase of $276 million), and lower operating expenses (decrease of $213 million).
First quarter 2024 segment earnings also included unfavourable movements of $887 million due to the fair value accounting of commodity derivatives. As part of Shell's normal business, commodity derivative hedge contracts are entered into for mitigation of economic exposures on future purchases and sales. As these commodity derivatives are measured at fair value, this creates an accounting mismatch over periods. These unfavourable movements are part of identified items and compare with the fourth quarter 2023 which included unfavourable movements of $1,587 million due to the fair value accounting of commodity derivatives, and impairment charges of $547 million.
Adjusted Earnings and Adjusted EBITDA2 were driven by the same factors as the segment earnings and adjusted for identified items.
Cash flow from operating activities for the quarter was primarily driven by Adjusted EBITDA and working capital inflows of $275 million, partly offset by net cash outflows related to derivatives of $1,080 million, and tax payments of $467 million.
Total oil and gas production compared with the fourth quarter 2023 increased by 10% mainly due to lower maintenance at Prelude and Pearl GTL. LNG liquefaction volumes increased by 7% mainly due to lower maintenance at Prelude.
1.All earnings amounts are shown post-tax, unless stated otherwise.
2.Adjusted EBITDA is without taxation.
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1.Q1 on Q4 change
2.Segment earnings, Adjusted Earnings and Adjusted EBITDA are presented on a CCS basis (see Note 2).
The Upstream segment includes exploration and extraction of crude oil, natural gas and natural gas liquids. It also markets and transports oil and gas, and operates the infrastructure necessary to deliver them to the market.
Quarter Analysis 1
Segment earnings, compared with the fourth quarter 2023, reflected deferred tax help in the fourth quarter 2023 resulting in unfavourable tax movements ($852 million) and higher well write-offs (increase of $383 million).
Furthermore, the first quarter 2024 segment earnings included a gain of $460 million related to the impact of inflationary adjustments in Argentina on a deferred tax position, partly offset by net impairment charges and reversals of $102 million. These gains and charges are part of identified items, and compare with the fourth quarter 2023 which included net impairment charges and reversals of $454 million, charges of $424 million related to the impact of the weakening Argentine peso on a deferred tax position, and legal provisions of $358 million, partly offset by a gain of $182 million due to the impact of the discount rate change on provisions.
Adjusted Earnings and Adjusted EBITDA2 were driven by the same factors as the segment earnings and adjusted for identified items.
Cash flow from operating activities for the quarter was primarily driven by Adjusted EBITDA, partly offset by tax payments of $1,802 million.
Total production was in line with the fourth quarter 2023. Higher scheduled maintenance was fully offset by improved performance and new oil delivery.
1.All earnings amounts are shown post-tax, unless stated otherwise.
2.Adjusted EBITDA is without taxation.
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1.Q1 on Q4 change
2.Segment earnings, Adjusted Earnings and Adjusted EBITDA are presented on a CCS basis (see Note 2).
3.Wholesale commercial fuels, previously reported in the Chemicals and Products segment, is reported in the Marketing segment (Mobility) with effect from Q1 2024. Comparative information for the Marketing segment and the Chemicals and Products segment has been revised.
The Marketing segment comprises the Mobility, Lubricants, and Sectors and Decarbonisation businesses. The Mobility business operates Shell's retail network including electric vehicle charging services and the Wholesale commercial fuels business which provides fuels for transport, industry and heating. The Lubricants business produces, markets and sells lubricants for road transport, and machinery used in manufacturing, mining, power generation, agriculture and construction. The Sectors and Decarbonisation business sells fuels, speciality products and services including low-carbon energy solutions to a broad range of commercial customers including the aviation, marine, and agricultural sectors.
Quarter Analysis 1
Segment earnings, compared with the fourth quarter 2023, reflected lower operating expenses (decrease of $234 million), offset by higher tax charges (increase of $160 million) due to incidental tax helps in the fourth quarter 2023. Marketing margins were in line with the fourth quarter 2023 and included higher Lubricants margins due to seasonality offset by lower Mobility margins due to seasonality and lower Sectors and Decarbonisation margins.
Adjusted Earnings and Adjusted EBITDA2 were driven by the same factors as the segment earnings and adjusted for identified items.
Cash flow from operating activities for the quarter was primarily driven by Adjusted EBITDA, the timing impact of payments relating to emission certificates and biofuel programmes of $427 million, non-cash cost-of-sales (CCS) adjustments of $153 million and dividends (net of profits) from joint ventures and associates of $93 million. These inflows were partly offset by working capital outflows of $792 million and tax payments of $175 million.
Marketing sales volumes (comprising hydrocarbon sales), compared with the fourth quarter 2023, decreased mainly due to seasonality.
1.All earnings amounts are shown post-tax, unless stated otherwise.
2.Adjusted EBITDA is without taxation.
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1.Q1 on Q4 change
2.Segment earnings, Adjusted Earnings and Adjusted EBITDA are presented on a CCS basis (see Note 2).
3.Wholesale commercial fuels, previously reported in the Chemicals and Products segment, is reported in the Marketing segment (Mobility) with effect from Q1 2024. Comparative information for the Marketing segment and the Chemicals and Products segment has been revised.
The Chemicals and Products segment includes chemicals manufacturing plants with their own marketing network, and refineries which turn crude oil and other feedstocks into a range of oil products which are moved and marketed around the world for domestic, industrial and transport use. The segment also includes the pipeline business, trading and optimisation of crude oil, oil products and petrochemicals, and Oil Sands activities (the extraction of bitumen from mined oil sands and its conversion into synthetic crude oil).
Quarter Analysis 1
Segment earnings, compared with the fourth quarter 2023, reflected higher Products margins (increase of $1,197 million) mainly driven by higher margins from trading and optimisation and higher refining margins due to higher utilisation and global supply disruptions. Segment earnings also reflected higher Chemicals margins (increase of $291 million) due to improved margin environment and utilisation and also included higher income from joint ventures and associates. In addition, the first quarter 2024 reflected lower operating expenses (decrease of $174 million).
First quarter 2024 segment earnings also included unfavourable movements of $319 million due to the fair value accounting of commodity derivatives and impairment charges of $152 million. These unfavourable movements and charges are part of identified items, and compare with the fourth quarter 2023 which included net impairment charges and reversals of $1,968 million mainly relating to the Chemicals assets in Singapore, and charges of $78 million related to redundancy and restructuring partly offset by favourable movements of $138 million due to the fair value accounting of commodity derivatives.
Adjusted Earnings and Adjusted EBITDA2 were driven by the same factors as the segment earnings and adjusted for identified items. In the first quarter 2024, Chemicals had negative Adjusted Earnings of $113 million and Products had positive Adjusted Earnings of $1,729 million.
Cash flow from operating activities for the quarter was primarily driven by outflows relating to working capital of $2,639 million, commodity derivatives of $402 million, the timing impact of payments relating to emission certificates and biofuel programmes of $185 million, and legal provisions of $180 million. These outflows were partly offset by Adjusted EBITDA, and non-cash cost-of-sales (CCS) adjustments of $207 million.
Chemicals manufacturing plant utilisation was 73% compared with 62% in the fourth quarter 2023, due to lower planned and unplanned maintenance in North America.
Refinery utilisation was 91% compared with 81% in the fourth quarter 2023, due to lower planned maintenance in North America.
1.All earnings amounts are shown post-tax, unless stated otherwise.
2.Adjusted EBITDA is without taxation.
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1.Q1 on Q4 change
2.Segment earnings, Adjusted Earnings and Adjusted EBITDA are presented on a CCS basis (see Note 2).
3.Physical power sales to third parties; excluding financial trades and physical trade with brokers, investors, financial institutions, trading platforms, and wholesale traders.
4.Physical natural gas sales to third parties; excluding financial trades and physical trade with brokers, investors, financial institutions, trading platforms, and wholesale traders. Excluding sales of natural gas by other segments and LNG sales.
Renewables and Energy Solutions includes activities such as renewable power generation, the marketing and trading and optimisation of power and pipeline gas, as well as carbon credits, and digitally enabled customer solutions. It also includes the production and marketing of hydrogen, development of commercial carbon capture and storage hubs, investment in nature-based projects that avoid or reduce carbon emissions, and Shell Ventures, which invests in companies that work to accelerate the energy and mobility transformation.
Quarter Analysis 1
Segment earnings , compared with the fourth quarter 2023, reflected lower margins (decrease of $233 million) mainly due to trading and optimisation, partly offset by lower operating expenses (decrease of $231 million).
First quarter 2024 segment earnings also included favourable movements of $306 million due to the fair value accounting of commodity derivatives. As part of Shell's normal business, commodity derivative hedge contracts are entered into for mitigation of economic exposures on future purchases, sales and inventory. As these commodity derivatives are measured at fair value, this creates an accounting mismatch over periods. These favourable movements are part of identified items and compare with the fourth quarter 2023 which included impairment charges of $551 million, partly offset by favourable movements of $125 million due to the fair value accounting of commodity derivatives.
Adjusted Earnings and Adjusted EBITDA2 were driven by the same factors as the segment earnings and adjusted for identified items. Loss-making Renewables and Energy Solutions activities were more than offset by the positive Adjusted Earnings from trading and optimisation.
Cash flow from operating activities for the quarter was primarily driven by net cash inflows related to derivatives of $1,979 million, working capital inflows of $481 million, and Adjusted EBITDA, partly offset by tax payments of $244 million.
1.All earnings amounts are shown post-tax, unless stated otherwise.
2.Adjusted EBITDA is without taxation.
Additional Growth Measures
1.Q1 on Q4 change
2.Shell's equity share of renewable generation capacity post commercial operation date. It excludes Shell's equity share of associates where information cannot be obtained.
3.Shell's equity share of renewable generation capacity under construction and/or committed for sale under long-term offtake agreements (PPA). It excludes Shell's equity share of associates where information cannot be obtained.
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1.Segment earnings, Adjusted Earnings and Adjusted EBITDA are presented on a CCS basis (see Note 2).
2.From the first quarter 2024, Shell's longer-term innovation portfolio is managed centrally and hence reported as part of the Corporate segment (previously all other segments). Prior period comparatives have been revised to conform with current year presentation with an offsetting impact on all the other segments.
The Corporate segment covers the non-operating activities supporting Shell. It comprises Shell's holdings and treasury organisation, headquarters and central functions, self-insurance activities and centrally managed longer-term innovation portfolio. All finance expense, income and related taxes are included in Corporate segment earnings rather than in the earnings of business segments.
Quarter Analysis1
Segment earnings, compared with the fourth quarter 2023, reflected favourable movements in currency exchange rate effects and lower operating expenses, partly offset by an unfavourable movement in tax credits.
Adjusted EBITDA2 was mainly driven by favourable currency exchange rate effects and lower operating expenses.
1.All earnings amounts are shown post-tax, unless stated otherwise.
2.Adjusted EBITDA is without taxation.
OUTLOOK FOR THE SECOND QUARTER 2024
Cash capital expenditure for full year 2024 is expected to be within $22 - $25 billion.
Integrated Gas production is expected to be approximately 920 - 980 thousand boe/d. LNG liquefaction volumes are expected to be approximately 6.8 - 7.4 million tonnes. Production and LNG liquefaction outlook reflects seasonality (higher maintenance).
Upstream production is expected to be approximately 1,630 - 1,830 thousand boe/d. Production outlook reflects the scheduled maintenance across the portfolio.
Marketing sales volumes are expected to be approximately 2,700 - 3,200 thousand b/d.
Refinery utilisation is expected to be approximately 87% - 95%. Chemicals manufacturing plant utilisation is expected to be approximately 72% - 80%.
Corporate Adjusted Earnings are expected to be a net expense of approximately $400 - $600 million in the second quarter and a net expense of approximately $1,700 - $2,300 million for the full year 2024. This excludes the impact of currency exchange rate and fair value accounting effects.
FORTHCOMING EVENTS
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UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1.See Note 2 “Segment information”.
2.See Note 8 “Other notes to the unaudited Condensed Consolidated Interim Financial Statements”.
3.See Note 4 “Earnings per share”.
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1. See Note 8 “Other notes to the unaudited Condensed Consolidated Interim Financial Statements”.
2. See Note 7 “Derivative financial instruments and debt excluding lease liabilities”.
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1. See Note 5 “Share capital”.
2. See Note 6 “Other reserves”.
3. The amount charged to retained earnings is based on prevailing exchange rates on payment date.
4. Includes shares committed to repurchase under an irrevocable contract and repurchases subject to settlement at the end of the quarter.
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1.See Note 8 “Other notes to the unaudited Condensed Consolidated Interim Financial Statements”.
2.To further enhance consistency between working capital and the Balance Sheet and the Statement of Cash Flows, from January 1, 2024, onwards movements in current other provisions are recognised in 'Decommissioning and other provisions' instead of 'Increase/(decrease) in current payables'. Comparatives for the fourth quarter 2023 and first quarter 2023 have been reclassified accordingly by $653 million and $126 million respectively to conform with current period presentation.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
These unaudited Condensed Consolidated Interim Financial Statements of Shell plc (“the Company”) and its subsidiaries (collectively referred to as “Shell”) have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board ("IASB") and on the basis of the same accounting principles as those used in the Company's Annual Report and Accounts (pages 244 to 316) for the year ended December 31, 2023 as will be filed with the Registrar of Companies for England and Wales and as filed with the Autoriteit Financiële Markten (the Netherlands) and Form 20-F (pages 217 to 290) for the year ended December 31, 2023 as filed with the US Securities and Exchange Commission, and should be read in conjunction with these filings.
The financial information presented in the unaudited Condensed Consolidated Interim Financial Statements does not constitute statutory accounts within the meaning of section 434(3) of the Companies Act 2006 (“the Act”). Statutory accounts for the year ended December 31, 2023 were published in Shell's Annual Report and Accounts, a copy of which was delivered to the Registrar of Companies for England and Wales, and in Shell's Form 20-F. The auditor's report on those accounts was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain a statement under sections 498(2) or 498(3) of the Act.
2. Segment information
Segment earnings are presented on a current cost of supplies basis (CCS earnings), which is the earnings measure used by the Chief Executive Officer for the purposes of making decisions about allocating resources and assessing performance. On this basis, the purchase price of volumes sold during the period is based on the current cost of supplies during the same period after making allowance for the tax effect. CCS earnings therefore exclude the effect of changes in the oil price on inventory carrying amounts. Sales between segments are based on prices generally equivalent to commercially available prices.
From the first quarter 2024, Wholesale commercial fuels forms part of Mobility with inclusion in the Marketing segment (previously Chemicals and Products segment). The change in segmentation reflects the increasing alignment between the economic characteristics of wholesale commercial fuels and other Mobility businesses, and is consistent with changes in the information provided to the Chief Operating Decision Maker. Prior period comparatives have been revised to conform with current year presentation with an offsetting impact between the Marketing and the Chemicals and Products segment (see below). Also, from the first quarter 2024, Shell's longer-term innovation portfolio is managed centrally and hence reported as part of the Corporate segment (previously all other segments). Prior period comparatives have been revised to conform with current year presentation with an offsetting impact on all the other segments (see below).
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1.Includes revenue from sources other than from contracts with customers, which mainly comprises the impact of fair value accounting of commodity derivatives. First quarter 2024 included income of $1,643 million (fourth quarter 2023: $3,021 million income; first quarter 2023: $4,809 million income). This amount includes both the reversal of prior gains of $257 million (fourth quarter 2023: $711 million gains; first quarter 2023: $1,369 million gains) related to sales contracts and prior losses of $235 million (fourth quarter 2023: $248 million losses; first quarter 2023: $772 million losses) related to purchase contracts that were previously recognised and where physical settlement took place in the first quarter 2024.
2.From January 1, 2024, onwards Wholesale commercial fuels has been reallocated from the Chemicals and Products segment to the Marketing segment. Comparatives for the fourth quarter 2023 and the first quarter 2023 have been reclassified accordingly, by $5,333 million and $5,766 million respectively for Third-party revenue and by $82 million and $47 million respectively for CCS earnings to conform with current period presentation. For Inter-segment revenue the reallocation and revision of comparative figures for the fourth quarter 2023 and the first quarter 2023 led to an increase in inter-segment revenue in the Marketing segment of $1,058 million and $1,164 million respectively and an increase in the Chemicals and Products segment of $9,553 million and $10,228 million respectively.
3.From January 1, 2024, onwards costs for Shell's centrally managed longer-term innovation portfolio are reported as part of the Corporate segment. Prior period comparatives for Corporate for the fourth quarter 2023 and the first quarter 2023 have been revised by $42 million and $18 million respectively, with a net offsetting impact in all other segments to conform with current period presentation.
4.See Note 3 "Reconciliation of income for the period to CCS Earnings, Operating expenses and Total Debt".
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Cash capital expenditure is a measure used by the Chief Executive Officer for the purposes of making decisions about allocating resources and assessing performance.
1.From January 1, 2024, onwards Wholesale commercial fuels has been reallocated from the Chemicals and Products segment to the Marketing segment. Comparatives for the fourth quarter 2023 and the first quarter 2023 have been reclassified accordingly by $46 million and $52 million respectively for capital expenditure and cash capital expenditure to conform with current period presentation.
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3. Reconciliation of income for the period to CCS Earnings, Operating expenses and Total Debt
4. Earnings per share
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5. Share capital
At Shell plc's Annual General Meeting on May 23, 2023, the Board was authorised to allot ordinary shares in Shell plc, and to grant rights to subscribe for, or to convert, any security into ordinary shares in Shell plc, up to an aggregate nominal amount of approximately €161 million (representing approximately 2,307 million ordinary shares of €0.07 each), and to list such shares or rights on any stock exchange. This authority expires at the earlier of the close of business on August 22, 2024, or the end of the Annual General Meeting to be held in 2024, unless previously renewed, revoked or varied by Shell plc in a general meeting.
6. Other reserves
The merger reserve and share premium reserve were established as a consequence of Shell plc (formerly Royal Dutch Shell plc) becoming the single parent company of Royal Dutch Petroleum Company and The “Shell” Transport and Trading Company, p.l.c., now The Shell Transport and Trading Company Limited, in 2005. The merger reserve increased in 2016 following the issuance of shares for the acquisition of BG Group plc. The capital redemption reserve was established in connection with repurchases of shares of Shell plc. The share plan reserve is in respect of equity-settled share-based compensation plans.
7. Derivative financial instruments and debt excluding lease liabilities
As disclosed in the Consolidated Financial Statements for the year ended December 31, 2023, presented in the Annual Report and Accounts and Form 20-F for that year, Shell is exposed to the risks of changes in fair value of its financial assets and liabilities. The fair values of the financial assets and liabilities are defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Methods and assumptions used to estimate the fair values at March 31, 2024, are consistent with those used in the year ended December 31, 2023, though the carrying amounts of derivative financial instruments have changed since that date.
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The movement of the derivative financial instruments between December 31, 2023 and March 31, 2024 is a decrease of $2,368 million for the current assets and a decrease of $610 million for the current liabilities.
The table below provides the comparison of the fair value with the carrying amount of debt excluding lease liabilities, disclosed in accordance with IFRS 7 Financial Instruments: Disclosures.
1. Mainly determined from the prices quoted for these securities.
8. Other notes to the unaudited Condensed Consolidated Interim Financial Statements
Consolidated Statement of Income
Interest and other income
Depreciation, depletion and amortisation
Impairments recognised in the first quarter 2024 of $382 million pre-tax ($332 million post-tax) include various smaller impairments in various segments. Impairments recognised in the fourth quarter 2023 of $5,508 million pre-tax ($4,044 million post-tax) related to various assets in Chemicals and Products ($2,490 million), Upstream ($1,161 million), Integrated Gas ($873 million), Renewables and Energy Solutions ($614 million) and Marketing ($370 million). Impairments in the first quarter 2023 mainly related to an asset in Integrated Gas.
Taxation charge/credit
On June 20, 2023, the UK substantively enacted Pillar Two Model Rules, effective as from January 1, 2024.
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As required by IAS 12 Income Taxes, Shell has applied the exception to recognising and disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes.
Condensed Consolidated Balance Sheet
Assets classified as held for sale
Assets classified as held for sale and associated liabilities at March 31, 2024 principally relate to an asset in Chemicals and Products in Europe, a Renewables and Energy Solutions project in North America and an asset in Marketing in Asia. The major classes of assets and liabilities classified as held for sale at March 31, 2024, are Inventories ($380 million; December 31, 2023: $463 million) and Property, plant and equipment ($228 million; December 31, 2023: $250 million).
Consolidated Statement of Cash Flows
Cash flow from operating activities - Other
'Cash flow from operating activities - Other' for the first quarter 2024 includes $188 million of net inflows (fourth quarter 2023: $875 million net outflows; first quarter 2023: $69 million net outflows) due to the timing of payments relating to emission certificates and biofuel programmes in Europe and North America. It also includes net inflows of $253 million in relation to reversal of currency exchange losses on Cash and cash equivalents (fourth quarter 2023: net outflows of $398 million; first quarter 2023: net outflows of $288 million).
Cash flow from investing activities - Other investing cash outflows
'Other investing cash outflows' for the first quarter 2024 includes $645 million of debt securities acquired in the Corporate segment.
Legal proceedings and other contingencies
Shell has several matters in dispute involving Shell non-operated ventures and the Republic of Kazakhstan, including court proceedings in respect of a Sulphur permitting inspection outcome and arbitrations under the applicable production-sharing contracts. Statements of Claim have been filed in the arbitration matters, however it is not possible to reliably estimate the magnitude and timing of any possible obligations or payments in respect of the matters above or whether any payments will be due. There remains a high degree of uncertainty regarding the ultimate outcomes, as well as the potential effect on future operations, earnings, cash flows and Shell's financial condition.
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ALTERNATIVE PERFORMANCE (NON-GAAP) MEASURES
A. Adjusted Earnings, Adjusted earnings before interest, taxes, depreciation and amortisation (“Adjusted EBITDA”) and Cash flow from operating activities
The “Adjusted Earnings” measure aims to facilitate a comparative understanding of Shell's financial performance from period to period by removing the effects of oil price changes on inventory carrying amounts and removing the effects of identified items. These items are in some cases driven by external factors and may, either individually or collectively, hinder the comparative understanding of Shell's financial results from period to period. This measure excludes earnings attributable to non-controlling interest.
We define “Adjusted EBITDA” as “Income/(loss) for the period” adjusted for current cost of supplies; identified items; tax charge/(credit); depreciation, amortisation and depletion; exploration well write-offs and net interest expense. All items include the non-controlling interest component. Management uses this measure to evaluate Shell's performance in the period and over time.
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Identified Items
Identified items comprise: divestment gains and losses, impairments, redundancy and restructuring, provisions for onerous contracts, fair value accounting of commodity derivatives and certain gas contracts and the impact of exchange rate movements and inflationary adjustments on certain deferred tax balances, and other items. Identified items in the tables below are presented on a net basis.
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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/(loss) of joint ventures and associates" in the Consolidated Statement of Income, and fully reported as identified items included in Income/(loss) before taxation 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.
Impact of exchange rate movements and inflationary adjustments on tax balances represents the impact on tax balances of exchange rate movements and inflationary adjustments 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.
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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 4).
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.
See Note 2 “Segment information” for the reconciliation of cash capital expenditure.
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. Effective first quarter 2024, the definition of capital employed has been amended to reflect the deduction of cash and cash equivalents. In addition, the numerator applied to ROACE on an Adjusted Earnings plus non-controlling interest basis has been amended to remove interest on cash and cash equivalents for consistency with the revised capital employed definition. Comparative information has been revised to reflect the updated definition.
Also, the presentation of ROACE on a net income basis has been discontinued, as this measure is not routinely used by management in assessing the efficiency of capital employed.
The measure refers to Capital employed which consists of total equity, current debt, and non-current debt reduced by cash and cash equivalents.
Management believes that the updated methodology better reflects Shell's approach to managing capital employed, including the management of cash and cash equivalents alongside total debt and equity as part of the financial framework.
In this calculation, the sum of Adjusted Earnings (see Reference A) plus non-controlling interest (NCI) excluding identified items for the current and previous three quarters, adjusted for after-tax interest expense and after-tax interest income, is expressed as a percentage of the average capital employed excluding cash and cash equivalents for the same period.
E. Gearing and Net debt
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 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
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the balance sheet. Collateral balances are reported under “Trade and other receivables” or “Trade and other payables” as appropriate.
F. Operating expenses and Underlying 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.
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1.From the first quarter 2024, Wholesale commercial fuels forms part of Mobility with inclusion in the Marketing segment (previously Chemicals and Products segment). Prior period comparatives have been revised to conform with current year presentation with an offsetting impact between Marketing and Chemicals and Products segments (see Note 2). Also, from the first quarter 2024, Shell's longer-term innovation portfolio is managed centrally and hence reported as part of the Corporate segment (previously all other segments). Prior period comparatives have been revised to conform with current year presentation with an offsetting impact on all the other segments (see Note 2).
G. Free cash flow and Organic 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.
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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 and 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.
1.To further enhance consistency between working capital and the Balance Sheet and the Statement of Cash Flows, from January 1, 2024, onwards movements in current other provisions are recognised in 'Decommissioning and other provisions' instead of 'Increase/(decrease) in current payables'. Comparatives for the fourth quarter 2023 and first quarter 2023 have been reclassified accordingly by $653 million and $126 million respectively to conform with current period presentation.
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 free cash flow.
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CAUTIONARY STATEMENT
All amounts shown throughout this Unaudited Condensed Interim Financial Report are unaudited. All peak production figures in Portfolio Developments are quoted at 100% expected production. The numbers presented throughout this Unaudited Condensed Interim Financial Report may not sum precisely to the totals provided and percentages may not precisely reflect the absolute figures, due to rounding.
The companies in which Shell plc directly and indirectly owns investments are separate legal entities. In this Unaudited Condensed Interim Financial Report, “Shell”, “Shell Group” and “Group” are sometimes used for convenience where references are made to Shell plc and its subsidiaries in general. Likewise, the words “we”, “us” and “our” are also used to refer to Shell plc and its subsidiaries in general or to those who work for them. These terms are also used where no useful purpose is served by identifying the particular entity or entities. ''Subsidiaries'', “Shell subsidiaries” and “Shell companies” as used in this Unaudited Condensed Interim Financial Report, refer to entities over which Shell plc either directly or indirectly has control. The term “joint venture”, “joint operations”, “joint arrangements”, and “associates” may also be used to refer to a commercial arrangement in which Shell has a direct or indirect ownership interest with one or more parties. The term “Shell interest” is used for convenience to indicate the direct and/or indirect ownership interest held by Shell in an entity or unincorporated joint arrangement, after exclusion of all third-party interest.
Forward-Looking Statements
This Unaudited Condensed Interim Financial Report contains forward-looking statements (within the meaning of the U.S. Private Securities Litigation Reform Act of 1995) concerning the financial condition, results of operations and businesses of Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Shell to market risks and statements expressing management's expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as “aim”; “ambition”; ''anticipate''; ''believe''; “commit”; “commitment”; ''could''; ''estimate''; ''expect''; ''goals''; ''intend''; ''may''; “milestones”; ''objectives''; ''outlook''; ''plan''; ''probably''; ''project''; ''risks''; “schedule”; ''seek''; ''should''; ''target''; ''will''; “would” and similar terms and phrases. There are a number of factors that could affect the future operations of Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this Unaudited Condensed Interim Financial Report, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for Shell's products; (c) currency fluctuations; (d) drilling and production results; (e) reserves estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, judicial, fiscal and regulatory developments including regulatory measures addressing climate change; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; (m) risks associated with the impact of pandemics, such as the COVID-19 (coronavirus) outbreak, regional conflicts, such as the Russia-Ukraine war, and a significant cybersecurity breach; and (n) changes in trading conditions. No assurance is provided that future dividend payments will match or exceed previous dividend payments. All forward-looking statements contained in this Unaudited Condensed Interim Financial Report are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Additional risk factors that may affect future results are contained in Shell plc's Form 20-F for the year ended December 31, 2023 (available at www.shell.com/investors/news-and-filings/sec-filings.html and www.sec.gov). These risk factors also expressly qualify all forward-looking statements contained in this Unaudited Condensed Interim Financial Report and should be considered by the reader. Each forward-looking statement speaks only as of the date of this Unaudited Condensed Interim Financial Report, May 2, 2024. Neither Shell plc nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this Unaudited Condensed Interim Financial Report.
Shell's Net Carbon Intensity
Also, in this Unaudited Condensed Interim Financial Report we may refer to Shell's “Net Carbon Intensity” (NCI), which includes Shell's carbon emissions from the production of our energy products, our suppliers' carbon emissions in supplying energy for that production and our customers' carbon emissions associated with their use of the energy products we sell. Shell's NCI also includes the emissions associated with the production and use of energy products produced by others which Shell purchases for resale. Shell only controls its own emissions. The use of the terms Shell's “Net Carbon Intensity” or NCI are for convenience only and not intended to suggest these emissions are those of Shell plc or its subsidiaries.
Shell's Net-Zero Emissions Target
Shell's operating plan, outlook and budgets are forecasted for a ten-year period and are updated every year. They reflect the current economic environment and what we can reasonably expect to see over the next ten years. Accordingly, they reflect our Scope 1, Scope 2 and NCI targets over the next ten years. However, Shell's operating plans cannot reflect our 2050 net-zero emissions target, as this target is currently outside our planning period. In the future, as society moves towards net-zero emissions, we expect Shell's operating plans to reflect this movement. However, if society is not net zero in 2050, as of today, there would be significant risk that Shell may not meet this target.
Forward-Looking Non-GAAP measures
This Unaudited Condensed Interim Financial Report may contain certain forward-looking non-GAAP measures such as cash capital expenditure and divestments. We are unable to provide a reconciliation of these forward-looking non-GAAP measures to the most comparable GAAP financial measures because certain information needed to reconcile those non-GAAP measures to the most comparable GAAP financial measures is dependent on future events some of which are outside the control of Shell, such as oil and gas prices, interest rates and exchange rates. Moreover, estimating such GAAP measures with the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort. Non-GAAP measures in respect of future periods which cannot be reconciled to the most comparable GAAP financial measure are calculated in a manner which is consistent with the accounting policies applied in Shell plc's consolidated financial statements.
The contents of websites referred to in this Unaudited Condensed Interim Financial Report do not form part of this Unaudited Condensed Interim Financial Report.
We may have used certain terms, such as resources, in this Unaudited Condensed Interim Financial Report that the United States Securities and Exchange Commission (SEC) strictly prohibits us from including in our filings with the SEC. Investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575, available on the SEC website www.sec.gov.
This Unaudited Condensed Interim Financial Report contains inside information.
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May 2, 2024
Contacts:
- Caroline J.M. Omloo, Company Secretary
- Media: International +44 (0) 207 934 5550; USA +1 832 337 4355
LEI number of Shell plc: 21380068P1DRHMJ8KU70
Classification: Inside Information
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