Capital disclosures and net debt

12 Months Ended

Dec. 31, 2020

Subclassifications of assets, liabilities and equities [abstract]

Capital disclosures and analysis of changes in net debt

Capital disclosures and net debt

The group defines capital as total equity plus net debt. We maintain our financial framework to support the pursuit of value growth for shareholders, while ensuring a secure financial base.

The group monitors capital on basis of gearing, that is, the ratio of net debt to net debt plus equity. Net debt is calculated as finance debt, as shown in the balance sheet, plus the fair value of associated derivative financial instruments that are used to hedge foreign exchange and interest rate risks relating to finance debt for which hedge accounting is applied, less cash and cash equivalents. Net debt and gearing are non-GAAP measures. bp believes these measures provide useful information to investors. Net debt enables investors to see the economic effect of finance debt, related hedges and cash and cash equivalents in total. Gearing enables investors to see how significant net debt is relative to total equity. The derivatives are reported on the balance sheet within the headings ‘Derivative financial instruments’. All components of equity are included in the denominator of the calculation.

At 31 December 2020, gearing was 31.3% (2019 31.1%).

			$ million
At 31 December	2020		2019
Finance debt	72,664		67,724
Less: fair value asset (liability) of hedges related to finance debta	2,612		(190)
	70,052		67,914
Less: cash and cash equivalents	31,111		22,472
Net debt	38,941		45,442
Total equityb	85,568		100,708
Gearing	31.3	%	31.1	%

a    Derivative financial instruments entered into for the purpose of managing interest rate and foreign currency exchange risk associated with net debt with a fair value liability position of $236 million (2019 liability of $601 million) are not included in the calculation of net debt shown above as hedge accounting was not applied for these instruments.

b    Total equity in 2020 includes perpetual hybrid bonds issued on 17 June 2020. See Note 32 for further information.

An analysis of changes in liabilities arising from financing activities is provided below.

					$ million
	Finance debt	Currency swapsa	Lease liabilities	Net partner payable for leases entered into on behalf of joint operations	Total liabilities arising from financing activities
At 1 January 2020	67,724	918	9,722	290	78,654
Exchange adjustments	349	—	181	4	534
Net financing cash flow	1,589	(226)	(2,442)	(40)	(1,119)
Fair value (gains) losses	2,612	(3,734)	—	—	(1,122)
New and remeasured leases/joint operation payables	—	—	1,579	20	1,599
Other movements	390	77	222	(7)	682
At 31 December 2020	72,664	(2,965)	9,262	267	79,228
At 1 January 2019	65,132	1,486	667	—	67,285
Adjustment on adoption of IFRS16	—	—	9,233	217	9,450
Exchange adjustments	(62)	—	(4)	8	(58)
Net financing cash flow	1,671	2	(2,372)	(14)	(713)
Fair value (gains) losses	924	(570)	—	—	354
New and remeasured leases/joint operations payables	—	—	2,614	82	2,696
Other movements	59	—	(416)	(3)	(360)
At 31 December 2019	67,724	918	9,722	290	78,654

a    Previously reported in this column were hedge accounted derivatives related to finance debt. This has been updated in 2020 as described below and comparatives provided on a consistent basis. Currency swaps include cross currency interest rate swaps.

The balances above do not include accrued interest, which is reported within other receivables and other payables on the balance sheet and for which the associated cash flows are presented as operating cash flows in the group cash flow statement. The currency swaps are reported on the balance sheet within the headings 'Derivative financial instruments' and are subsets of both derivatives held for trading and derivatives designated in fair value hedge relationships as detailed in Note 30. When hedge accounting is applied to these derivatives they are included in the calculation of net debt shown above.