The introduction of IFRS 2 in 2004 generated considerable debate about the best approach for handling ‘share-based payments’ (SBP). While it is clearly a cost to shareholders, which should be included in the statutory reporting lines through the P&L account, the question arose as to whether it should be part of our underlying EBIT calculation. Following discussion, it was decided to exclude SBP from the calculation of underlying EBIT in Hardman & Co research for the following reasons:
Fifteen years on, we now have to reconsider the decision to exclude SBP from our underlying EBIT calculations for the following reasons:
After lengthy discussion surrounding all the above-mentioned points, we have decided that SBP should now be included as part of underlying EBIT. This decision has not been taken lightly, because they are still very difficult to forecast – therefore we will keep them constant on the last reported year – and are a non-cash item.
However, this change does reflect better the true operating costs of the business, and it will mean that international comparisons can be made more easily. It will involve a significant amount of work to alter all the historical and forecast P&L calculations and to add back SBP into cashflow statements, so it will be introduced when the next research report is written on each company.
At the time of writing, we are unsure whether to continue to state SBP as a separate line in the P&L account, or to include them as part of administration costs (SG&A). The dilemma here is that, in the US, SEC filings have SBP split by COGS, SG&A and R&D, whereas, in Europe, SBP tend to be a single cost included only in SG&A. Whatever the decision, we will, as always, be as transparent and informative as possible.Download the full report
If you'd like to be introduced to the team at , get in touch.Request a meeting