Page 267 - Annual Report 2020

APMs derived from Consolidated Balance Sheet
With effect from 1 July 2019, the net debt definition includes the fair value of derivative financial instruments used to hedge cash Strategic Report
and borrowings.
Management believes this amendment is useful because it reflects the Group’s risk management strategy of reducing the volatility
of net debt caused by fluctuations in foreign exchange and interest rates.
Net debt related derivative financial instruments are a subset of the other financial assets and liabilities represented on the Consolidated
Balance Sheet. Prior period comparatives have been restated to reflect the change in net debt calculation.
As a result of the adoption of IFRS 16 ‘Leases’ from 1 July 2019, the current period ‘Total Interest bearing liabilities’ includes all leases
under the new definition. The Group elected to apply the modified retrospective transition approach, with no restatement of comparative
periods. Refer to note 38 ‘New and amended accounting standards and interpretations’ in section 5.1.
Vessel lease contracts that are priced with reference to a freight index, which did not meet the definition of a lease under IAS 17, now meet
the definition of a lease under IFRS 16. These contracts are required to be remeasured at each reporting date to the prevailing freight Governance at BHP
index. While these liabilities are included in the Group interest bearing liabilities, they are excluded from the net debt calculation as they
do not align with how the Group assesses net debt for decision making in relation to the Capital Allocation Framework. In addition, the
freight index has historically been volatile which creates significant short-term fluctuation in these liabilities. As of 1 January 2020, the
Group excludes these liabilities from its net debt calculation.
Net debt and gearing ratio
2019 2018
2020 US$M US$M
Year ended 30 June US$M Restated Restated
Interest bearing liabilities – Current 5,012 1,661 2,736
Interest bearing liabilities – Non current 22,036 23,167 24,069 Remuneration Report
Total interest bearing liabilities 27,048 24,828 26,805
Comprising:
Borrowing 23,605 24,113 26,003
Lease liabilities (1) 3,443 715 802
Less: Lease liability associated with index-linked freight contracts 1,160 − −
Less: Cash and cash equivalents 13,426 15,613 15,871
Less: Net debt management related instruments (2) 433 (204) (805)
Less: Net cash management related instruments (3) (15) (27) 134 Directors’ Report
Less: Total derivatives included in net debt 418 (231) (671)
Net debt 12,044 9,446 11,605
Net assets 52,246 51,824 60,670
Gearing 18.7% 15.4% 16.1%
(1) Reflects the impact of IFRS 16. Refer to note 20 ‘Leases’ in section 5.1.
(2) Represents the net cross currency and interest rate swaps included within current and non-current other financial assets and liabilities.
(3) Represents the net forward exchange contracts included within current and non-current other financial assets and liabilities.
Net debt waterfall
2019 Financial Statements
2020 US$M
Year ended 30 June US$M Restated
Net debt at the beginning of the period (9,446) (11,605)
Net operating cash flows 15,706 17,871
Net investing cash flows (7,616) 2,607
Net financing cash flows (9,752) (20,528)
Net decrease in cash and cash equivalents from Continuing and Discontinued operations (1,662) (50) 6
Carrying value of interest bearing liability repayments 1,533 2,351
Carrying value of debt related instruments repayments 157 160
Carrying value of cash management related instruments proceeds (451) (427)
Fair value adjustment on debt (including debt related instruments) 88 44 Additional information
Foreign exchange impacts on cash (including cash management related instruments) (26) 94
IFRS 16 leases taken on at 1 July (1,778) −
Lease additions (363) −
Other (96) (13)
Non-cash movements (2,175) 125
Net debt at the end of the period (1) (12,044) (9,446)
(1) Includes US$1,633 million of additional leases due to the implementation of IFRS 16. Shareholder information

BHP Annual Report 2020 265