IFRS 18 MPMs Telecom Software – Purpose and positioning
Telecom and software businesses have long reported performance through non-IFRS measures.
“Service EBITDA” and “Operating Profit ex SBC” fill the gap between statutory subtotals and how these companies actually steer their networks or platforms. Under IFRS 18 – Presentation and Disclosure in Financial Statements, these measures move from investor slide decks into the audited financial statements.
IFRS 18.117–125 define Management Performance Measures (MPMs) as subtotals of income and expenses not defined by IFRS but used in public communications. IFRS 18 requires every MPM to be reconciled to the nearest IFRS subtotal, to explain why it is useful (IFRS 18.123 (a)), how it is calculated (IFRS 18.123 (b)), and to show tax and non-controlling-interest effects (IFRS 18.123 (d); IFRS 18.B141).
For telecom operators, the story revolves around network scale and recurring service revenue; for software vendors, around margins and share-based compensation (SBC).
This cornerstone demonstrates how IFRS 18 turns those narratives into verifiable metrics:
- Service EBITDA – a telecom measure that reconciles from Operating profit and exposes the recurring cash engine of connectivity.
- Non-IFRS Operating Profit ex SBC – a software measure that adjusts for non-cash share-based compensation and capitalisation differences to show underlying operating leverage.
Both illustrate how IFRS 18 anchors communication in governance: boards must define them precisely, apply them consistently, and document their controls.
Read more on IFRS 18 and Management Performance Measures (MPMs): The New Language of Performance, the cornerstone blog in this serie on IFRS 18.
2 Core Editorial Principles Applied
- Authority and discipline. Interpretations follow IFRS 18.117–125 and IFRS 18.B134–B141, together with IFRS 2 (Share-based compensation), IAS 38 (Intangibles), IFRS 15 (Service Revenue) and IAS 37 (Provisions).
- Governance embedded. Every reconciling item must be policy-based and auditable; definitions approved by the Audit Committee.
- Comparability over creativity. IFRS 18.124–125 require consistent use of definitions; changes must be retrospectively restated or explained.
- Usefulness explained. Each MPM must justify its existence (IFRS 18.123 (a)) and describe how it enhances understanding of performance.
- Faithful representation. IFRS 18.BC 354–BC 358 prohibit filtering out normal variability; MPMs cannot serve as smoothing devices.
- Integration with controls. Because MPMs now sit inside audited statements, they form part of Internal Control over Financial Reporting (ICFR) and are subject to audit testing.
Here is a link to IFRS 18, IAS 38, IFRS 15 and IAS 37.
3 Telecommunications Industry: Service EBITDA
3.1 Definition and IFRS 18 Context
Service EBITDA = Operating profit + Depreciation + Amortisation + Impairment losses – Equipment margin adjustment + Lease cost reclassification
Telecom CFOs manage networks through EBITDA, not statutory operating profit.
It reflects the recurring cash capacity of service operations before capital intensity and financing.
Under IFRS 18.117–125, this qualifies as a Management Performance Measure because it adds back defined expenses to the IFRS subtotal Operating profit and is widely used in public communications.
3.2 Reconciliation Table
| Reconciling item | Amount (CU m) | Tax effect (CU m) | NCI effect (CU m) |
|---|---|---|---|
| Operating profit (IFRS subtotal) | 8 950 | – | – |
| Add back: Depreciation and amortisation of network assets (IAS 16 / IAS 38) | +7 600 | –1 900 | –50 |
| Add back: Impairment losses on towers and licenses (IAS 36) | +240 | –60 | –2 |
| Subtract: Equipment margin adjustment (device sales and handsets) | –420 | +105 | –3 |
| Add back: Lease cost reclassification (from IFRS 16 depreciation to service costs) | +320 | –80 | 0 |
| Service EBITDA | 16 690 |
Notes: Tax and NCI effects per IFRS 18.123 (d) and IFRS 18.B141. Figures illustrative.
3.3 Explanation of Adjustments
Depreciation and amortisation – Telecom infrastructure is capital-intensive. Adding these back isolates operating cash generation before network investment. Governance requires disclosing useful lives and capitalisation policy (IAS 16 / 38).
Impairment losses – added back to remove one-off valuation adjustments and show ongoing service performance. IFRS 18.123 (a) demands disclosure of why this is useful.
Equipment margin adjustment – device sales have low margins and distort service EBITDA; subtracting them aligns the measure with core connectivity.
Lease cost reclassification – IFRS 16 transfers rent expense into depreciation and interest; management adds back depreciation to retain comparability with pre-IFRS 16 EBITDA.
Read more in our blog on Lessee accounting under IFRS 16, IAS 36 – Impairment of Assets: Significant Judgements and Estimates that Define Value, and
3.4 Interpretation and Governance Perspective
Service EBITDA shows how much cash the network produces before capital spending and financing. For CFOs and boards, it is the “pulse” of the telecom engine. Audit committees must confirm that each add-back is objectively defined and consistently applied.
Under IFRS 18.124–125, changes in definition trigger restatement or disclosure.
Investors interpret Service EBITDA as the starting point for enterprise valuation and debt capacity. Governance should ensure that the measure does not mask operational inefficiency by capitalising too much cost.
Effective oversight links Service EBITDA to network ROI and spectrum amortisation policies, making this MPM a quantitative proof of how sustainably the infrastructure earns its keep.
Browse to the IFRS 18 PDF at ifrs.org.
4 Software Industry: Non-IFRS Operating Profit ex SBC
4.1 Definition and IFRS 18 Contex
Non-IFRS Operating Profit ex SBC = Operating profit + Share-based compensation expense + Amortisation of acquired intangibles + Capitalised development amortisation adjustment − Cloud transition restructuring charges
Software companies typically steer performance by adjusted operating profit measures that remove heavy non-cash or acquisition-related items.
Under IFRS 18.117–125, this qualifies as a Management Performance Measure because it modifies the IFRS subtotal Operating profit and is disclosed externally.
The standard now requires every element to be defined, reconciled and justified.
Browse to the IFRS 18 PDF at ifrs.org.
4.2 Reconciliation Table
| Reconciling item | Amount (CU m) | Tax effect (CU m) | NCI effect (CU m) |
|---|---|---|---|
| Operating profit (IFRS subtotal) | 5 420 | – | – |
| Add back: Share-based compensation expense (IFRS 2) | +1 030 | –260 | –8 |
| Add back: Amortisation of acquired intangibles (IFRS 3 / IAS 38) | +480 | –120 | –3 |
| Add back: Capitalised development amortisation adjustment (IAS 38) | +220 | –55 | 0 |
| Subtract: Cloud transition restructuring charges (IAS 37) | –150 | +38 | –2 |
| Non-IFRS Operating Profit ex SBC | 7 000 |
Notes: Tax and NCI effects per IFRS 18.123 (d) and IFRS 18.B141. Figures illustrative.
4.3 Explanation of Adjustments
Share-based compensation (SBC) – expense recognised under IFRS 2 for equity-settled awards. Management often adds it back to show economic profitability before non-cash dilution. IFRS 18.123 (a) requires disclosing why it is useful and that it does not conceal recurring cost. Governance requires a transparent policy stating vesting schedules and valuation basis.
Amortisation of acquired intangibles – arises from purchase accounting; it doesn’t recur without new acquisitions. Add-backs must tie to IFRS 3 disclosures and show duration of amortisation.
Capitalised development amortisation adjustment – reconciles differences between capitalised and expensed software development under IAS 38. It clarifies whether margin improvement stems from true efficiency or accounting policy.
Cloud transition restructuring charges – deducted to neutralise one-time migration costs. Evidence: approved plan, quantified impact, disclosure of completion date per IAS 37.
Browse to the IFRS 18 PDF at ifrs.org.
4.4 Interpretation and Governance Perspective
Non-IFRS Operating Profit ex SBC portrays the underlying operating leverage of a software platform—how recurring subscription revenue scales after normalising for non-cash equity costs and acquisition noise.
It lets boards distinguish between accounting drag and real margin improvement.
But IFRS 18’s rigour transforms this from a marketing label into a controlled measure.
Audit committees must check that every adjustment is documented, consistent and tax-traced.
Recurring SBC must not vanish silently; paragraph IFRS 18.124 requires disclosure of policy changes, and IFRS 18.BC 354-358 warn against filtering ordinary variability.
Well-governed, this MPM becomes the meeting point of financial performance, equity strategy and incentive design: the bridge between “growth at any cost” and sustainable profitability.
5 Industry Examples – How Leaders Communicate Performance
Deutsche Telekom AG
Reports “Adjusted EBITDA AL” (after leases), adding back depreciation, amortisation, and lease interest. Under IFRS 18.123 (a–d), this becomes a formal MPM note: each add-back explained, reconciled, and tax-traced. The definition of “AL” (After Leases) must be disclosed transparently, aligning with IFRS 16.
Vodafone Group
Uses “Adjusted EBITDAaL” and “Operating Profit excluding special items.” IFRS 18 demands explicit linkage to Operating profit and requires that “special items” be defined by policy, not circumstance.
AT&T Inc.
Reports “Adjusted Operating Income before Depreciation and Amortisation.” IFRS 18 will bring that bridge into the notes, with tax and NCI columns per IFRS 18.B141, showing how recurring service revenue supports network investment.
Microsoft Corporation
Discloses “Operating Income excluding SBC and acquisition-related integration.” IFRS 18 mandates reconciliation to Operating profit and requires an explanation of why removing SBC enhances understanding (IFRS 18.123 (a)).
SAP SE
Presents “Non-IFRS Operating Profit,” adjusting for SBC and purchased-intangible amortisation. Under IFRS 18, this note will sit within the audited statements, turning investor relations metrics into evidence-based disclosures.
6 IFRS 18-Compliant Disclosure Note (Template)
Management-defined performance measures
The Group presents two MPMs used internally and communicated externally: (1) Service EBITDA and (2) Non-IFRS Operating Profit ex SBC.
These measures are defined as subtotals of income and expenses not specified by IFRS but consistent with management’s internal performance evaluation (IFRS 18.117–118).
Reconciliations to Operating profit are provided in the table above in accordance with IFRS 18.123 (a–d).
Management believes Service EBITDA reflects the recurring cash-generating capacity of telecom operations, while Non-IFRS Operating Profit ex SBC isolates core operating efficiency in software activities.
Both measures have been reviewed and approved by the Audit Committee, and no changes to definitions or methodology were made during the year.
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7 Governance and Quality Assurance
Policy ownership: Each MPM definition resides in the group accounting manual with cross-references to IFRS 18 paragraphs.
Audit Committee oversight: Adjustments and reconciliation formats reviewed annually.
ICFR integration: Data sources, calculations, and review controls included in SOX/ICFR frameworks.
External audit procedures: Auditors test existence, accuracy, classification, and neutrality of adjustments under ISA 330.
Comparability: Definitions must remain stable across reporting periods (¶124–125); any change requires restatement or disclosure.
Assurance narrative: Every MPM tells a story of governance maturity—showing not only what the company earned, but how management validated its numbers.
Governance elevates these MPMs from investor slides to auditable performance indicators, turning “adjusted” metrics into tools of accountability.
8 Conclusion – Performance with Evidence
Telecom and software companies have always spoken their own performance language—ARPU, churn, bookings, backlog, EBITDA, non-IFRS profit. IFRS 18 doesn’t silence that language; it gives it grammar and auditability.
Service EBITDA quantifies the operating heartbeat of connectivity—how much cash the network produces before reinvestment. Non-IFRS Operating Profit ex SBC translates digital scalability into numbers investors can trust, showing whether margin growth comes from operating leverage or accounting optics.
For boards, IFRS 18 transforms these measures from narrative choices into governance obligations. For CFOs, it standardises communication and protects credibility. For investors, it offers a single truth: performance explained, reconciled, and independently verifiable.
In a sector where intangibles dominate and technology cycles shift overnight, IFRS 18 establishes one enduring principle—performance is persuasive only when it is evidenced.
FAQ’s – IFRS 18 MPMs Telecom Software
IFRS 18 MPMs Telecom Software
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FAQ – 1 Why is Service EBITDA so widely used in telecom reporting?
Because telecom operations are capital-intensive and stable, management and investors focus on cash generation before depreciation and financing. Service EBITDA isolates that recurring service performance. Under IFRS 18, it qualifies as a Management Performance Measure and must be reconciled to Operating profit. The add-backs (depreciation, amortisation, lease costs) explain how much the network earns before reinvestment. The new standard transforms what was once a “headline metric” into a formally disclosed subtotal with tax and NCI effects shown. Audit committees must ensure depreciation lives and capitalisation policies are consistent; otherwise, EBITDA loses comparability. For investors, the reconciliation clarifies whether margin changes come from real operational improvement or accounting shifts.
FAQ – 2 How does IFRS 16 affect Service EBITDA?
IFRS 16 brought lease liabilities onto the balance sheet, moving rent expense into depreciation and interest. That inflated EBITDA for companies with large site portfolios, such as telecoms. IFRS 18 now requires management to explain and reconcile this effect transparently. Service EBITDA therefore adds back depreciation and lease costs, but the note must disclose how these are calculated and why this measure is useful (IFRS 18.123 (a–b)). The “AL” (After Leases) variant used by Deutsche Telekom and Vodafone will need explicit definition within the notes. Governance practice: document the policy for adjusting IFRS 16 impacts and apply it consistently. Investors can then compare cash generation across lease-heavy and asset-light operators, knowing precisely what adjustments were made and how they affect valuation metrics.
FAQ – 3 What does IFRS 18 require when presenting Non-IFRS Operating Profit ex SBC?
This measure adds back share-based compensation (SBC) and acquisition-related amortisation to show underlying profitability. IFRS 18.123 requires full disclosure: (a) why the adjustment is useful, (b) how it is calculated, (c) a reconciliation to Operating profit, and (d) tax/NCI effects. The SBC component must link to IFRS 2 disclosures so readers understand valuation and vesting assumptions. Removing SBC does not eliminate its economic cost; it highlights the non-cash nature of the expense. Governance practice: disclose vesting periods, grant types and policy rationale; ensure consistency with remuneration committee reports. By embedding the measure inside audited notes, IFRS 18 ends “non-GAAP ambiguity”: every adjustment now carries an audit trail.
Technology companies rely heavily on SBC to attract and retain talent. While it is a real cost to shareholders, it does not reflect short-term operating efficiency. Many CFOs remove SBC to reveal underlying margin trends. IFRS 18 does not prohibit this but requires disclosure discipline: the note must explain usefulness (IFRS18.123 a), show the amount and method (IFRS18.123 b), and present tax/NCI effects (IFRS18.123 d). Consistency is essential—if SBC is adjusted out, reversals or forfeitures must be treated symmetrically. Boards must avoid creating an “evergreen exclusion.” The audit committee should review the reconciliation each quarter to confirm the measure’s neutrality. Done properly, the add-back becomes a transparency tool rather than an excuse for inflated performance.
FAQ – 5 How does IFRS 18 improve comparability between telecom and software companies?
Before IFRS 18, each company published bespoke metrics—EBITDAaL, Adjusted EBIT, Non-IFRS Operating Profit—without a standard definition. The new standard imposes structure: every Management Performance Measure must reconcile to an IFRS subtotal, explain its usefulness, and disclose tax effects. That means analysts can now compare telecom cash-flow generation (Service EBITDA) with software operating leverage (Operating Profit ex SBC) on a consistent basis. Paragraphs 124–125 enforce continuity: definitions must stay stable across periods. Cross-industry comparability improves because the same disclosure logic applies, even if the drivers differ. In practice, this transforms “alternative metrics” into harmonised, audit-ready measures—bridging sectors that once spoke different financial languages.
FAQ – 6 What are common pitfalls when defining MPMs in these sectors?
The main risks are over-adjustment and inconsistency. Telecoms may exclude recurring maintenance or integration costs under the label “one-off,” while software firms may continually adjust for SBC without clear policy. IFRS 18.BC354–BC358 warn against filtering out normal variability. Each adjustment must be supported by policy and evidence that it is exceptional or strategic. Another pitfall is neglecting tax and NCI effects—paragraph IFRS 18.123(d) makes them mandatory. Finally, many entities forget that changes in definition require restatement or disclosure (IFRS 18.124–125). The best safeguard is a documented MPM framework reviewed annually by the Audit Committee and tested by Internal Audit.
FAQ – 7 How should companies disclose tax and NCI effects of MPM adjustments?
IFRS 18.123 (d) and IFRS 18.B141 require showing income-tax and non-controlling-interest effects for each reconciling item. Companies may use the statutory rate, a pro-rata allocation, or another reasonable method—but they must disclose which method is used. Each adjustment in the reconciliation table should have corresponding tax and NCI columns. Transparency in this area ensures users can assess the post-tax relevance of adjustments and prevents overstating “after-tax” profitability. Governance practice: prepare a template reviewed by the tax department and auditors before year-end, with documented methodology applied consistently across periods. This transforms what was once an opaque “gross” presentation into a fully traceable statement of economic impact.
FAQ – 8 How does IFRS 18 affect capitalisation of software development costs?
IAS 38 allows capitalisation of development costs if strict criteria are met, but companies apply it differently. IFRS 18 makes those differences visible. When a company presents an MPM adjusting for capitalised or amortised development, it must explain why this enhances understanding (IFRS18.123 a), describe the calculation (IFRS18.123 b), and reconcile to Operating profit (IFRS18.123 c). The note should link to IAS 38 disclosures and quantify both expensed and capitalised portions. Audit committees must ensure that adjustments reflect policy differences, not opportunistic smoothing. Over time, these reconciliations will standardise transparency about software investment and help investors judge whether profit growth stems from true efficiency or accounting deferral.
FAQ – 9 What internal-control framework supports IFRS 18 compliance?
MPMs now fall within Internal Control over Financial Reporting (ICFR). Effective frameworks define owners, workflows, and documentation for each measure. Typical structure:
1️⃣ Defined policy and threshold per MPM.
2️⃣ Automated extraction of reconciling items from the ledger.
3️⃣ Independent review and sign-off by finance management.
4️⃣ Storage of evidence for tax/NCI allocations.
5️⃣ Audit Committee approval of definitions annually.
Internal Audit tests design and operation; External Audit reviews accuracy and neutrality under ISA 330. Embedding these steps turns MPMs into assured, repeatable disclosures.
FAQ – 10 Why is IFRS 18 especially significant for investor relations?
Because it converts the metrics investors already use into audited, comparable disclosures. Instead of debating “adjusted” versus “statutory” results, analysts will see both, connected by a transparent bridge. CFOs can communicate strategy through evidence: each adjustment shows management’s control levers. Audit committees gain a structured oversight tool; regulators gain consistency across industries. The result is higher market confidence and reduced scepticism about non-IFRS reporting. In an era where valuation depends on trust in future cash flows, IFRS 18 gives the narrative a backbone—a reconciliation chain that links story to statement.
