Page 269 - Annual Report 2020

6.1.1 Definition and calculation of Alternative Performance Measures

Alternative Performance Measure (APM) Reasons why we believe the APMs are useful Calculation methodology
Underlying attributable profit Allows the comparability of underlying financial Profit after taxation attributable to BHP shareholders Strategic Report
performance by excluding the impacts of exceptional excluding any exceptional items attributable to
items and is a performance indicator against which BHP shareholders.
short-term incentive outcomes for our senior
executives are measured. It is also the basis on
which our dividend payout ratio policy is applied.
Underlying basic earnings per share On a per share basis, allows the comparability of Underlying attributable profit divided by the
underlying financial performance by excluding the weighted basic average number of shares.
impacts of exceptional items.
Underlying EBITDA Used to help assess current operational profitability Earnings before net finance costs, depreciation,
excluding the impacts of sunk costs (i.e. depreciation amortisation and impairments, taxation expense,
from initial investment). Each is a measure that Discontinued operations and exceptional items. Governance at BHP
management uses internally to assess the Underlying EBITDA includes BHP’s share of profit/
performance of the Group’s segments and make (loss) from investments accounted for using the
decisions on the allocation of resources. equity method including net finance costs,
depreciation, amortisation and impairments and
taxation expense/(benefit).
Underlying EBITDA margin Underlying EBITDA excluding third party product
EBITDA, divided by revenue excluding third party
product revenue.
Underlying EBIT Used to help assess current operational profitability Earnings before net finance costs, taxation
excluding net finance costs and taxation expense expense, Discontinued operations and any
(each of which are managed at the Group level), exceptional items. Underlying EBIT includes
as well as Discontinued operations and any BHP’s share of profit/(loss) from investments Remuneration Report
exceptional items. accounted for using the equity method including
net finance costs and taxation expense/(benefit).
Profit from operations Earnings before net finance costs, taxation expense
and Discontinued operations. Profit from operations
includes Revenue, Other income, Expenses
excluding net finance costs and BHP’s share of profit/
(loss) from investments accounted for using the
equity method including net finance costs and
taxation expense/(benefit).
Capital and exploration expenditure Used as part of our Capital Allocation Framework Purchases of property, plant and equipment and Directors’ Report
to assess efficient deployment of capital. exploration expenditure.
Represents the total outflows of our operational
investing expenditure.
Free cash flow It is a key measure used as part of our Capital Net operating cash flows less Net investing
Allocation Framework. Reflects our operational cash cash flows.
performance inclusive of investment expenditure,
which helps to highlight how much cash was
generated in the period to be available for the
servicing of debt and distribution to shareholders.
Net debt Net debt shows the position of gross debt less Interest bearing liabilities less liability associated with
index-linked freight contracts offset by cash index-linked freight contracts less cash and cash
immediately available to pay debt if required and any equivalents less net cross currency and interest rate Financial Statements
associated derivative financial instruments. Liability swaps less net cash management related
associated with index-linked freight contracts are instruments for the Group at the reporting date.
excluded from the net debt calculation due to the
short term volatility of the index they relate to not
Gearing ratio aligning with how the Group uses net debt for Ratio of Net debt to Net debt plus Net assets.
decision making in relation to the Capital Allocation
Framework. Net debt, along with the gearing ratio, is
used to monitor the Group’s capital management by 6
relating net debt relative to equity from shareholders.
Net operating assets Enables a clearer view of the assets deployed to Operating assets net of operating liabilities, including
generate earnings by highlighting the net operating the carrying value of equity accounted investments
assets of the business separate from the financing and and predominantly excludes cash balances, loans to
tax balances. This measure helps provide an indicator associates, interest bearing liabilities, derivatives
of the underlying performance of our assets and hedging our net debt and tax balances. Additional information
enhances comparability between them.
Underlying Return on Capital Indicator of the Group’s capital efficiency and is Profit after taxation excluding exceptional items and
Employed (ROCE) provided on an underlying basis to allow comparability net finance costs (after taxation) divided by average
of underlying financial performance by excluding the capital employed.
impacts of exceptional items. Profit after taxation excluding exceptional items and
net finance costs (after taxation) is profit after taxation
from Continuing and Discontinued operations
excluding exceptional items, net finance costs and the
estimated taxation impact of net finance costs. These Shareholder information
are annualised for a half-year end reporting period.
The estimated tax impact is calculated using a prima
facie taxation rate on net finance costs (excluding
any foreign exchange impact).
Average capital employed is calculated as the
average of net assets less net debt for the last two
reporting periods.

BHP Annual Report 2020 267