Non-GAAP measures reconciliations

These non-GAAP measures, also known as alternative performance measures, are financial measures other than those defined in International Financial Reporting Standards, which Shell considers provide useful information.

Earnings on a current cost of supplies basis

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. The current cost of supplies adjustment does not impact cash flow from operating activities in the "Consolidated Statement of Cash Flows". For "Reconciliation of CCS earnings to income for the period", please refer to Note 7 to the "Consolidated Financial Statements".

Adjusted Earnings per share

Adjusted Earnings per share were calculated as Adjusted Earnings (see below), divided by the weighted average number of shares used as the basis for basic earnings per share (see Note 30 to the "Consolidated Financial Statements"). Adjusted Earnings per share were $4.20 in 2023 (2023 Adjusted Earnings: $28,250 million; 2023 weighted average number of shares 6,733.5 million) and $5.43 in 2022 (2022 Adjusted Earnings $39,870 million; 2022 weighted average number of shares: 7,347.5 million).

Adjusted Earnings, Adjusted Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA), and Cash flow from operating activities

The "Adjusted Earnings" measure is presented on a CCS basis and 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 adjusted for current cost of supplies. 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.

The "Adjusted EBITDA" measure is presented on a CCS basis and used by management to evaluate Shell’s performance in the period and over time. 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.

Adjusted Earnings, Adjusted Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) and Cash flow from operating activities

Identified items

The objective of identified items is to remove material impacts on net income/loss arising from transactions which are generally uncontrollable and unusual (infrequent or non-recurring) in nature or giving rise to a mismatch of accounting and economic results, or certain transactions that are generally excluded from underlying results in the industry.

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 on certain deferred tax balances, and other items. Identified items in the table below are presented on a net basis.

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 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.

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.

Cash capital expenditure

Cash capital expenditure monitors investing activities on a cash basis, excluding items such as lease additions which do not necessarily result in cash outflows in the period. The measure comprises the following lines from the Consolidated Statement of Cash Flows: Capital expenditure, Investments in joint ventures and associates and Investments in equity securities. The reconciliation of "Capital expenditure" to "Cash capital expenditure" is presented in Note 7 to the "Consolidated Financial Statements".

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. See Note 7 to the "Consolidated Financial Statements" for reconciliation of total operating 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.

Total spend on goods and services

Total spend on goods and services represents the amounts paid to our suppliers globally and is comprised of both Capital Expenditure and Operating Expenditure. Employee costs are excluded from Operating costs as these do not relate to 3rd party/supplier spend.

The total spend on goods and services is used to demonstrate the company’s societal contribution towards suppliers, contractors and communities where Shell operates and is disclosed annually in the Sustainability Report.

The calculation of Total spend on goods and services has changed, with data published in previous years being limited to spend for Operated assets that has been contracted with the support of the Contracting and Procurement team, calculated on a cash payments basis.

Structural cost reduction

The structural cost reduction target was introduced during Capital Markets Day in 2023 for the purpose of demonstrating how management drives cost discipline across the entire organisation, simplifying our processes, portfolio and streamlining the way we work.

Structural cost reduction describes decrease in underlying operating expenses as a result of operational efficiencies, divestments, workforce reductions and other cost saving measures that are expected to be sustainable compared with 2022 levels.

The total change between periods in underlying operating expenses will reflect both structural cost reductions and other changes in spend, including market factors, such as inflation and foreign exchange impacts, as well as changes in activity levels and costs associated with new operations.

Estimates of cumulative annual structural cost reduction may be revised depending on whether cost reductions realised in prior periods are determined to be sustainable compared to 2022 levels. Structural cost reductions are stewarded internally to support management’s oversight of spending over time. 2025 target reflects annualized saving achieved by end-2025.

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 an Adjusted Earnings plus Non-controlling interest basis, both adjusted for after-tax interest expense.

Both measures refer to Capital employed which consists of total equity, current debt and non-current debt.

Net debt and gearing

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 risk 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. See also Note 20 to the "Consolidated Financial Statements".

Gearing is a measure of Shell’s capital structure and is defined as net debt (total debt less cash and cash equivalents) as a percentage of total capital (net debt plus total equity).

Cash flow from operating activities excluding working capital movements

Working capital movements are defined as the sum of the following items in the Statement of Cash Flows: (increase) or decrease in inventories, (increase) or decrease in current receivables, and increase or (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.

Shareholder distribution and Shareholder distribution as percentage of CFFO

Shareholder distribution is used to evaluate the level of cash distribution to shareholders. It is defined as the sum of Cash dividends paid to Shell plc shareholders and Repurchases of shares, both of which are reported in the Consolidated Statement of Cash Flows.

Shareholder distribution as percentage of CFFO is a new target introduced during Capital Markets Day 2023 that is used to measure the company’s progress on increasing returns to shareholders.

This measure is calculated by dividing the Shareholder distribution by the annual CFFO as presented in the Consolidated Statement of Cash Flows.

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.

Free cash flow and organic free cash flow

Free cash flow is used to evaluate cash available for financing activities, including shareholder distributions and debt servicing, after investment in maintaining and growing our business.

Organic free cash flow is defined as Free cash flow excluding the cash flows from acquisition and divestment activities. It is a measure used by management to evaluate generation of cash flow without these activities.

Price-normalised free cash flow growth and Price-normalised free cash flow growth per share

Price-normalised free cash flow growth (of 6% average growth over the 2022-2030 period) and Price-normalised free cash flow growth per share (of 10% average per annum over the 2022-2030 period) are business targets introduced during Capital Markets Day (CMD) in 2023 for the purposes of demonstrating progress in value creation towards achieving our Powering Progress strategy, to be reported on an annual basis.

Price-normalisation refers to the process of removing the impact of macro-economic price movements, so as to determine a more comparable basis for calculating the growth in free cash flow year on year. Shell believes this is a more meaningful basis for investors to be able to assess the Company’s performance over time.

Price-normalised cash flow from operating activities (CFFO) is determined by normalising the actual cash flow for the period by applying the price set communicated during CMD of: Brent, Henry Hub and related gas markers on a real term 2022 basis, based on business plan 2022 long term price guidance till 2030 and, historical average Refining Margin $4-$6 per tonne (nominal) and historical average Chemicals Margin $150-$250 per tonne (nominal). The Price-normalised CFFO is added to Cash flow from Investments to achieve the Price-normalised free cash flow.

The Price-normalised free cash flow growth is determined by comparing the Price-normalised free cash flow of the current year to the previous year.

The Price-normalised free cash flow growth per share is calculated by first dividing the Price-normalised free cash flow for the year by the number of shares outstanding at the end of the period (the number of shares excludes shares held in trust), then comparing the current year Price-normalised free cash flow growth per share to the previous year.

Calculation of the price-normalisation

For each of the price markers shown in the table below, a comparison is made between the average prices for the period (published on our website Shell.com) against the price set shown below, which is based on the prices published at CMD.

The price sensitivities shown in the table following, indicate the estimated impact in CFFO for the change in each price marker. The price sensitivities are applied to the price variance of each price marker to determine the impact on CFFO.

No price adjustments are made for Marketing and Renewables and Energy Solutions.

Taxes paid and collected

Taxes paid and collected represents the total taxes paid to governments as disclosed in the annual Tax Contribution Report. It comprises Corporate income tax and government royalties as well as excise duties, sales taxes and similar levies on our fuel and products that are collected on behalf of the governments.