Page 270 - Annual Report 2020

6.1.1 Definition and calculation of Alternative Performance Measures continued

Alternative Performance Measure (APM) Reasons why we believe the APMs are useful Calculation methodology
Adjusted effective tax rate Provides an underlying tax basis to allow Total taxation expense/(benefit) excluding
comparability of underlying financial performance exceptional items and exchange rate movements
by excluding the impacts of exceptional items. included in taxation expense/(benefit) divided by
Profit before taxation and exceptional items.
Unit cost Used to assess the controllable financial Ratio of net costs of the assets to the equity share
performance of the Group’s assets for each unit of of sales tonnage. Net costs is defined as revenue less
production. Unit costs are adjusted for site specific Underlying EBITDA and excludes freight and other
non-controllable factors to enhance comparability costs, depending on the nature of each asset. Freight
between the Group’s assets. is excluded as the Group believes it provides a similar
basis of comparison to our peer group.
Petroleum unit costs exclude:
• exploration, development and evaluation
expense as these costs do not represent our cost
performance in relation to current production
and the Group believes it provides a similar basis
of comparison to our peer group;
• other costs that do not represent underlying
cost performance of the business.
Escondida unit costs exclude:
• by-product credits being the favourable impact
of by-products (such as gold or silver) to
determine the directly attributable costs
of copper production.
WAIO, Queensland Coal and NSWEC unit costs
exclude royalties as these are costs that are not
deemed to be under the Group‘s control, and the
Group believes exclusion provides a similar basis
of comparison to our peer group.

6.1.2 Definition and calculation of principal factors
The method of calculation of the principal factors that affect the period on period movements of Revenue, Profit from operations and
Underlying EBITDA are as follows:

Principal factor Method of calculation
Change in sales prices Change in average realised price for each operation from the prior period to the current period, multiplied
by current period sales volumes.
Price-linked costs Change in price-linked costs (mainly royalties) for each operation from the prior period to the current
period, multiplied by current period sales volumes.
Change in volumes Change in sales volumes for each operation multiplied by the prior year average realised price less variable
unit cost.
Controllable cash costs Total of operating cash costs and exploration and business development costs.
Operating cash costs Change in total costs, other than price-linked costs, exchange rates, inflation on costs, fuel and energy
costs, non-cash costs and one-off items as defined below for each operation from the prior period to the
current period.
Exploration and business development Exploration and business development expense in the current period minus exploration and business
development expense in the prior period.
Exchange rates Change in exchange rate multiplied by current period local currency revenue and expenses.
Inflation on costs Change in inflation rate applied to expenses, other than depreciation and amortisation, price-linked costs,
exploration and business development expenses, expenses in ceased and sold operations and expenses
in new and acquired operations.
Fuel and energy Fuel and energy expense in the current period minus fuel and energy expense in the prior period.
Non-cash Change in net impact of capitalisation and depletion of deferred stripping from the prior period to the
current period.
One-off items Change in costs exceeding a pre-determined threshold associated with an unexpected event that had
not occurred in the last two years and is not reasonably likely to occur within the next two years.
Asset sales Profit/(loss) on the sale of assets or operations in the current period minus profit/(loss) on sale of assets
or operations in the prior period.
Ceased and sold operations Underlying EBITDA for operations that ceased or were sold in the current period minus
Underlying EBITDA for operations that ceased or were sold in the prior period.
Share of profit/(loss) from equity Share of profit/(loss) from equity accounted investments for the current period minus share of profit/(loss)
accounted investments from equity accounted investments in the prior period.
Other Variances not explained by the above factors.

268 BHP Annual Report 2020