IFRS 18 Management Performance Measures in Consumer Packaged Goods (CPG/FMCG)

The consumer-goods sector thrives on brand power and global scale. Yet it also suffers from volatility: commodity prices, advertising bursts, and the constant rhythm of brand relaunches.

For decades, CFOs have explained their results through “underlying EBIT”, “trading profit” or “core operating margin”. These measures show how the business really performs once episodic marketing or acquisition integration noise is removed.

IFRS 18 – Presentation and Disclosure in Financial Statements brings those measures inside the audited financial statements. Paragraph 18.117 requires that any subtotal of income and expenses not defined by IFRS but used publicly must now be presented as a Management Performance Measure (MPM), reconciled to the most directly comparable IFRS subtotal (usually Operating profit) and accompanied by tax and non-controlling-interest effects (18.123 d).

This article develops two sector-specific MPMs for CPG/FMCG:

Brand-Investment Adjusted EBIT (BI-EBIT) – Operating profit + one-time brand-relaunch spend + acquisition-related inventory step-ups.
Core Gross Profit after Mix (CGP-Mix) – Operating profit – operating OPEX + reclassification of specific production variances for mix comparability.

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 Brand-Investment Adjusted EBIT (BI-EBIT)

2.1 Definition and IFRS 18 Context

According to IFRS 18.117(a)–(c), an MPM must represent management’s view of performance, be used in public communications, and form a subtotal not otherwise defined by IFRS.
BI-EBIT satisfies all three: it reflects how FMCG groups manage brand cycles, features in every quarterly release, and aggregates IFRS line items into a new subtotal.

In practice, CFOs distinguish between ongoing advertising (a cost of sales) and brand-relaunch campaigns (large, episodic investments). Under IFRS 18, such campaigns can be adjusted out of Operating profit only if the reconciliation is complete, neutral, and transparent (IFRS 18.B134).

Formula:

BI-EBIT = Operating profit + Brand Relaunch Expenditure + Acquisition-related Inventory Step-ups

Explanation – Brand Relaunch Expenditure
Brand relaunch expenditure refers to large, non-recurring marketing and advertising outlays associated with repositioning or rejuvenating a brand.
Examples include new global packaging design, reformulated product recipes, or complete identity refreshes after decades of stable branding.
These are not the normal, cyclical advertising or trade-promotion costs that recur every year; they are strategic reinvestments approved at board level and often spanning multiple quarters.

In accounting terms, such spend is recognised immediately in profit or loss under IAS 38.68 because it does not create a separable intangible asset.
However, management frequently removes it from Operating profit in order to display underlying trading performance — essentially showing what margin the business earns when it is not relaunching its flagship brands.

Under IFRS 18.123(a), management must explain why this measure is useful, and under 18.123(d) disclose the tax and NCI impact of each adjustment.

From a governance perspective, the audit committee should ensure the company has a documented policy defining what qualifies as a “brand relaunch”, the materiality threshold (for example, more than 5 % of Operating profit), and that the rationale is disclosed consistently year over year.

Overuse of this line item signals to investors that “non-recurring” may, in fact, have become recurring.

Explanation – Acquisition-related Inventory Step-ups
When a CPG group acquires another company, IFRS 3.18 requires all identifiable assets, including inventory, to be measured at fair value on acquisition.
This often creates a temporary inventory step-up — the difference between fair value and the acquiree’s previous carrying amount.

As that inventory is sold, the step-up increases cost of sales, reducing gross and operating profit in the first post-acquisition periods.
The expense is real but temporary; it does not reflect ongoing manufacturing efficiency or brand profitability.

Therefore, CFOs frequently adjust it out when presenting Brand-Investment Adjusted EBIT, arguing that it distorts comparability between acquired and organic operations.

Under IFRS 18.123(c), this reconciling item must be quantified, shown net of tax and NCI per 18.123(d), and linked clearly to the IFRS 3 purchase-price allocation note.

Audit evidence for this adjustment includes the acquisition accounting worksheets, valuation reports supporting the step-up, and cost-of-sales journals proving when the inventory was released.

Governance good practice is to disclose how long the step-up amortisation will run, ensuring analysts can forecast when BI-EBIT converges back to Operating profit.

2.2 Reconciliation Table

Reconciliation from Operating profit to Brand-Investment Adjusted EBIT (BI-EBIT)
Reconciling item	Amount (CU m)	Tax effect (CU m)	NCI effect (CU m)
Operating profit (IFRS subtotal)	3 250	–	–
Add back: Brand relaunch campaigns (one-off)	+220	–55	0
Add back: Acquisition-related inventory step-up (amortised)	+90	–22	–3
Brand-Investment Adjusted EBIT (BI-EBIT)	3 560

Notes: Tax effects per IFRS 18.108 (c). NCI impact arises from minority holdings in regional subsidiaries. Figures illustrative.

2.3 Interpretation and Governance Perspective

Brand expenditure lies at the crossroads of marketing strategy and accounting discipline.

IFRS 18.BC359 highlights that MPMs must produce a faithful representation—complete, neutral and free from error; adjustments should target genuinely exceptional events.

Hence, a CFO must justify that each “brand relaunch” qualifies as a discrete, board-approved investment rather than recurring advertising.

Governance implications:

Audit committees must review the approval trail for every adjustment.
Investor-relations teams must ensure the same definition of BI-EBIT is used consistently in presentations.
Internal auditors should verify that the underlying campaign costs reconcile to ledger accounts tagged as brand-relaunch projects.

A well-governed BI-EBIT reconciles investor clarity with marketing freedom — management can still invest boldly, but the numbers reveal when those bursts occur.

2.4 Assurance and Internal Control Implications

Because BI-EBIT enters the audited notes, auditors test both accuracy and intent.
They examine whether the campaign truly relates to a strategic relaunch, whether capitalisation rules (IAS 38) are applied consistently, and whether acquisition inventory step-ups are measured per IFRS 3 and IFRS 18.
CFOs should integrate BI-EBIT into the ICFR matrix:

formal policy defining eligible brand projects;
approval workflow tied to marketing governance;
reconciliation control between project ledger and IFRS adjustments;
documentation of tax/NCI computations.

Audit committees should expect three layers of assurance — management self-review, internal-audit validation, external-audit testing.
When those layers operate, BI-EBIT evolves from an adjusted headline into a trustworthy economic signal.

3 Core Gross Profit after Mix (CGP-Mix)

3.1 Definition and IFRS 18 Context

CGP-Mix is designed to isolate the manufacturing and mix-management capability of a CPG company.
Formula:

CGP-Mix = Operating profit – Operating OPEX + Reclassification of specific production variances to Cost of Sales

It starts from Operating profit and rebuilds gross profit as if production variances and mix changes were accounted for consistently across product categories.

Under IFRS 18.117 (c), this qualifies as an MPM because it introduces a new subtotal not defined in IFRS but crucial for internal steering.

3.2 Reconciliation Table

Reconciliation from Operating profit to Core Gross Profit after Mix (CGP-Mix)
Reconciling item	Amount (CU m)	Tax effect (CU m)	NCI effect (CU m)
Operating profit (IFRS subtotal)	2 980	–	–
Subtract: Operating OPEX (marketing & overheads)	–1 150	+270	0
Add back: Reclassification of production variances to Cost of Sales	+180	–45	–2
Core Gross Profit after Mix (CGP-Mix)	2 010

3.3 Interpretation and Governance Perspective

Mix-adjusted profitability reveals how well a company converts volume and product mix into value.

IFRS 18 Management Performance Measures CPG

IFRS 18.123 (a) demands disclosure of why the measure is useful — CFOs should link CGP-Mix directly to manufacturing efficiency and category management.

Governance challenge: ensure that the reclassification of variances follows a documented policy; otherwise, management could shift costs to flatter margins.

3.4 Assurance and Internal Control Implications

Auditors and CFOs treat CGP-Mix like an internal manufacturing control.
Testing focuses on:

accuracy of variance identification (standard-cost vs. actual-cost analysis);
consistency of allocation bases between periods;
reconciliation of reclassified variances to production reports.

Under COSO ICFR, controls must document each reclassification with clear approval.

Audit committees should review the “mix-impact memo” each quarter — explaining which product lines drove the adjustment.

When verified, CGP-Mix provides a credible bridge between factory efficiency and reported profitability.

4 Industry Case Studies

Unilever

Unilever’s “Underlying Operating Margin” excludes restructuring and brand investment spend. IFRS 18 will move these reconciliations into the audited notes, compelling Unilever to show tax/NCI effects for each brand-investment adjustment. Expect BI-EBIT to mirror its existing practice.

Nestlé

Nestlé publishes “Trading Operating Profit” adjusted for one-off restructuring and portfolio rationalisation. Under IFRS 18.106, this becomes an MPM reconciled to Operating profit with transparent tax disclosure — setting a benchmark for CGP-Mix-style transparency in manufacturing variance reporting.

Procter & Gamble

P&G discloses “Core Operating Profit”, excluding restructuring and FX impacts. If converted to IFRS 18, this would map closely to LfL-EBIT logic: treasury-related FX separated from operations. The audit committee’s narrative around consistency would meet IFRS 18.112 requirements.

Reckitt

Reckitt’s “Adjusted Operating Profit” already adjusts for brand amortisation and portfolio integration costs. Under IFRS 18, those adjustments must be reconciled line by line. Its approach to one-time marketing campaigns anticipates BI-EBIT governance discipline.

Mondelez

Mondelez reports “Adjusted Gross Profit Margin” that isolates manufacturing and supply-chain variances — effectively a CGP-Mix before IFRS 18 existed. Under the new rules, those variances will require quantified tax effects and disclosure of rationale per IFRS 18.110.

Summary insight: these global CPG leaders already practise 80 % of IFRS 18’s intent. The standard now forces consistency, comparability, and assurance across the industry.

5 Disclosure Note Template

Management-defined performance measures

The Group uses two MPMs — Brand-Investment Adjusted EBIT (BI-EBIT) and Core Gross Profit after Mix (CGP-Mix) — to supplement IFRS results in assessing underlying brand and manufacturing performance.
Reconciliations to Operating profit are provided above in accordance with IFRS 18.123, including income-tax and NCI effects.
Definitions, rationale, and consistency statements are reviewed annually by the Audit Committee.

6 Governance and Quality Assurance

Strong governance converts Management Performance Measures from narrative to evidence.
Under IFRS 18.124, entities must disclose whether definitions have changed and explain any revisions.
That requirement gives the Audit Committee and the CFO clear accountability:

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Policy ownership. Every MPM must have a named owner (typically the Group Controller) and a written policy reviewed annually.
Audit Committee review. Minutes should show that the Committee examined each reconciliation, challenged recurring adjustments and approved the disclosure wording before sign-off.
Internal control integration. The ICFR framework should include specific control activities for MPM identification, calculation, and review, with evidence retained for audit testing.
External-audit coordination. Auditors validate both accuracy and neutrality; early dialogue prevents last-minute disagreements.
Disclosure governance. The published note must mirror the internal policy and remain consistent across interim and annual periods.

In well-run CPG groups, MPM governance now sits beside revenue recognition and inventory valuation in the control hierarchy.
When governance works, investors no longer need to guess what “underlying” means — they can trace it.

Conclusion – Performance with Evidence

IFRS 18 transforms what used to be “management commentary” into verifiable accounting.
For consumer-goods companies—where brand equity, innovation, and manufacturing discipline intersect—this change is more than cosmetic.
It hard-wires credibility into the numbers that tell the story of performance.

Brand-Investment Adjusted EBIT (BI-EBIT) gives investors a transparent view of how much profit the group generates once one-off brand-relaunch campaigns and acquisition accounting noise are removed.

Core Gross Profit after Mix (CGP-Mix) exposes the operational truth of factories and product-mix decisions.
Together they translate the everyday management dialogue of “growth, mix, and margin” into an IFRS-compliant, auditable framework.

For CFOs, the reward is two-fold: fewer questions about the reliability of adjusted metrics, and richer conversations about the drivers of long-term value.

For audit committees, the reconciliation tables become a tool of oversight rather than a technical appendix.

And for investors, the bridge from Operating profit to BI-EBIT and CGP-Mix turns management’s narrative into a line-by-line explanation of value creation.

In governance language, IFRS 18 aligns story, system, and stewardship.

It forces preparers to show not only what they earned, but how they earned it, and to prove that the same definition of “underlying” applies across years and brands.

That discipline is the real legacy of IFRS 18: performance supported by evidence, communication grounded in controls, and trust built into every subtotal.

FAQ’s – IFRS 18 Management Performance Measures CPG

FAQ 1 – Can recurring marketing really be excluded from IFRS 18 MPMs?

Not automatically. IFRS 18.BC205 emphasises that MPMs should not normalise routine expenditure or remove ordinary-course volatility. Marketing is part of operating performance; only exceptional, clearly documented brand relaunches may be adjusted.
A preparer must prove that the spend was (i) significant in size, (ii) linked to a strategic repositioning, and (iii) approved by the board as non-recurring.

CFOs should retain evidence of the business case and board minutes supporting this classification. Auditors will test those records and challenge repeated use of “brand-relaunch adjustments”. The governance question is: would an informed user expect these costs every year? If the answer is yes, they belong in Operating profit. Transparency, not optics, determines compliance.

FAQ 2 – How should tax and non-controlling-interest (NCI) effects be handled?

IFRS 18.108(c) requires entities to disclose both the income-tax and NCI effects for every reconciling item within an MPM. These are not optional notes but integral parts of the reconciliation. CFOs must coordinate with tax and consolidation teams to ensure that each adjustment’s tax effect is traced through deferred-tax schedules and that minority interests are calculated using legal-entity ownership percentages.

Presenting these effects clarifies which portion of the adjustment truly impacts shareholders. Aggregation is only permitted when the impact is demonstrably immaterial, supported by quantitative thresholds in the disclosure policy. In practice, the best companies maintain a “tax & NCI mapping sheet” linking each reconciling line to its tax code and subsidiary structure. This transforms what might appear bureaucratic into visible evidence of governance discipline.

FAQ 3 – What internal controls are required for MPMs under IFRS 18?

Management performance measures now sit inside the audited statements; therefore, they fall within Internal Control over Financial Reporting (ICFR). CFOs must establish policies defining each measure, documentation of eligibility criteria, approval workflows, and version-controlled calculation files.
A typical control chain includes (1) management self-review of each reconciling item, (2) internal audit validation, and (3) external audit testing.
Controls should verify both completeness (no hidden adjustments) and accuracy (correct amounts, tax and NCI splits). In multi-entity CPG groups, MPM data flow from marketing, manufacturing and consolidation systems, so data governance is essential: same codes, same definitions. When controls are formalised, MPMs evolve from “investor messaging” to verifiable accounting artefacts — aligning compliance, transparency, and credibility in a single process.

FAQ 4 – Does IFRS 18 replace ESMA’s Alternative Performance Measure (APM) Guidelines in Europe?

No. The two frameworks are complementary. IFRS 18 governs presentation inside the financial statements, while the ESMA APM Guidelines (2016, updated 2020) apply to performance measures in the management report, earnings releases, and investor presentations.

An EU issuer must comply with both. The key requirement is consistency: if “Brand-Investment Adjusted EBIT” appears in both places, the definition, reconciliation and labelling must be identical. IFRS 18 now makes it easier to demonstrate this consistency because the audited reconciliation note becomes the reference point for all external communications.

Many European CFOs already align APM and IFRS 18 disclosures to reduce regulatory risk and streamline audit effort. The practical tip: designate one MPM “owner” responsible for ensuring that the published APM bridge matches the IFRS 18 bridge word for word.

FAQ 5 – How will auditors verify BI-EBIT and CGP-Mix under IFRS 18?

Auditors apply the same rigour to MPMs as to any other line item. Testing covers existence, measurement, classification and disclosure. For BI-EBIT, they trace brand-relaunch projects to marketing-budget approvals, verify linkage to general-ledger accounts, and check tax/NCI computations.

For CGP-Mix, they inspect production reports, variance-allocation policies and consistency with cost-of-sales structures. They also assess whether definitions changed year-on-year and whether management communicated those changes transparently (IFRS 18.112).

Beyond numbers, auditors evaluate tone and neutrality — do adjustments favour management? A well-documented control environment (policy memos, reconciliations, approval logs) turns the audit into validation rather than investigation. The result: a measure that investors can rely on and that audit committees can confidently endorse.

FAQ 6 – What tangible benefit does IFRS 18 bring to CFOs in the CPG sector?

IFRS 18 disciplines how performance is communicated. By forcing reconciliations and tax/NCI transparency, it removes suspicion that “adjusted EBIT” is marketing spin. CFOs gain credibility with analysts and regulators, reduce risk of restatement, and create alignment between finance, marketing and supply-chain reporting. Over time, comparable MPMs such as BI-EBIT and CGP-Mix enable peer benchmarking across FMCG leaders.

The standard also simplifies audits: once reconciliations are standardised, assurance becomes repeatable. Most importantly, IFRS 18 bridges the gap between operational truth and reported truth. In a brand-driven sector where trust underpins valuation, that bridge is worth more than any short-term headline margin.