Non-GAAP Measures (Alternative Performance Measures)

What adjusted profit is called in Nordic reports

There is no standard name. The same idea appears as adjusted EBIT (KONE), comparable operating profit or EBIT (Fortum, Nokia, UPM) and comparable EBITDA (Neste). What is removed is usually listed as “items affecting comparability” or “adjusting items”. Typical items are:

• restructuring and redundancy costs
• impairments of goodwill, other intangible assets or production plants
• gains and losses on selling businesses, shares or real estate
• acquisition and integration costs, and amortisation of intangible assets acquired in a business combination
• for energy and commodity companies, changes in the fair value of derivatives and inventory valuation gains or losses

The adjustments go both ways. A gain on selling a business is removed from adjusted profit just as a restructuring cost is added back.

The rules: ESMA guidelines and IFRS 18

Since July 2016, the ESMA Guidelines on Alternative Performance Measures have applied to listed companies in the EU and EEA. A company that uses an APM in its reports or releases must:

• define it and give it a name that reflects its content (not “operating profit” for a figure that is something else);
• reconcile it to the closest line, subtotal or total in the financial statements;
• explain why the measure is useful;
• present it with no more prominence than the figures from the financial statements;
• give comparatives for earlier periods and use it consistently over time, explaining any change in its definition.

IFRS 18, which applies to financial years beginning on or after 1 January 2027, moves part of this into the financial statements. Companies must disclose their management-defined performance measures, subtotals of income and expenses such as adjusted operating profit that they use in public communication, in a note. The note reconciles each measure to the closest IFRS subtotal and shows the tax and non-controlling interest effect of each adjustment, and it is audited as part of the financial statements. Measures that are not subtotals of income and expenses, such as free cash flow or net debt, stay outside the note.

How to read adjusted figures

• Start with the reconciliation. Every report has a table from the reported to the adjusted figure. Read the individual items, not just the total.
• Ask whether “one-off” keeps coming back. Restructuring costs every year are a cost of running the business. Add up the adjustments over three to five years and compare them with the adjusted profit over the same period.
• Check both directions. If adjustments only ever add to profit and gains are never removed, be sceptical.
• Use the same measure across years. A change in definition can make a trend look better than it is. Under the ESMA guidelines the company must explain any change.
• Compare companies on reported figures as well. Two companies’ adjusted figures are rarely calculated the same way, while the IFRS figures follow common rules.

The table below compares each company’s reported and adjusted figure for the latest quarter. A small difference is normal. A large one means the quarter contained items the company considers exceptional, and the reconciliation table in its report explains what they were.