IFRS 18 Management Performance Measures in Consumer Retail

IFRS 18 MPM Customer Retail – Retailing is one of the few sectors where margin language has become part of everyday conversation.
CFOs speak of “core retail margin”, “like-for-like trading EBIT”, “adjusted EBITDA before special items” — terms investors understand instinctively but which, until IFRS 18, had no formal definition inside IFRS financial statements.

IFRS 18 — Presentation and Disclosure in Financial Statements — changes that.
Paragraphs 18.100 to 18.115 introduce Management Performance Measures (MPMs) as subtotals of income and expenses not specified by IFRS but used in public communications.

For large retailers, these MPMs sit at the heart of how the market perceives execution quality.

This article shows, step-by-step, how two typical retail measures must now be defined, reconciled, disclosed and governed:

Retail Operating Margin excl. Markdown Programs (ROM-exM) – Operating profit adjusted for strategic markdowns and store-exit costs.
Like-for-Like Trading EBIT (LfL-EBIT) – Profit before financing and income taxes (PBFT) adjusted for treasury FX and property gains.

Reda more on IFRS 18 and Management Performance Measures (MPMs): The New Language of Performance.

2 ROM-exM — Retail Operating Margin Excluding Markdown Programs

2.1 Definition and IFRS 18 Context

Under IFRS 18.103(a)–(c), a Management Performance Measure (MPM) must:

Represent management’s own view of performance;
the measure must genuinely reflect how management monitors and evaluates the business, not a metric created solely for external perception.
Be used in public communications;
an MPM cannot live only in internal dashboards — it must appear in press releases, investor presentations, or other public documents that influence market understanding.
Be a subtotal of income and expenses not otherwise defined by IFRS;
the figure must be built from IFRS income-statement components but form a subtotal not explicitly specified in the standards (for example, Operating profit or PBFT).

Retail Operating Margin excl. Markdown Programs (ROM-exM) meets all three criteria.
It expresses management’s own lens on operational profitability (criterion 1), is routinely highlighted in results presentations and analyst briefings (criterion 2), and aggregates IFRS-based income and expense items into a customised subtotal that IFRS itself does not define (criterion 3).

More importantly, the measure embodies how retailers actually run their business: they monitor recurring trading margins separately from deliberate, strategic markdown actions. By mapping those internal steering concepts onto IFRS 18’s formal structure, ROM-exM becomes both authentic to management and auditable for investors — exactly what IFRS 18 seeks to achieve.

Retailers routinely explain their “underlying retail margin” by removing strategic markdowns (range resets) and store-exit costs.

Such markdowns are deliberate, strategic decisions to reposition assortments — not indicative of operating efficiency.

IFRS 18 doesn’t prohibit these adjustments; it demands transparency.

2.2 Calculation and Reconciliation

Below is the model reconciliation required by IFRS 18.106 – 108 and Illustrative Example IE6.

Reconciling item	Amount (CU m)	Tax effect (CU m)	NCI effect (CU m)
Operating profit (IFRS subtotal)	1 240	–	–
Add back: Strategic markdown programs (range resets)	+110	–27	0
Add back: Store network exit costs (leases, impairments, severance)	+75	–18	–3
ROM-exM (MPM)	1 425

Notes: Tax effects reflect statutory rates and deferred-tax impact (IFRS 18.108(b)). NCI effect shows minority share of store closures in joint ventures (i.e. Non-Controlling Interest).

2.3 The Reconciliation: from arithmetic to understanding

A reconciliation under IFRS 18 is more than a maths exercise; it is the story of management’s judgement.
Paragraphs 18.109–110 require every adjustment to be “described and explained”, with a clear statement of why the resulting measure gives a better picture of performance.

Each reconciling line therefore becomes a window into how management thinks about value creation and risk.

Strategic markdown programs
Markdowns are not just discounts — they are decisions. A retailer may clear entire product ranges to reposition its assortment or protect brand perception. When that happens, the CFO must show the audit committee that the markdown is part of a documented strategy, not a routine margin plug.

The purpose of removing these costs from Operating profit is to show investors what the business earns when it is not reinventing itself.

Overuse, however, tells its own story: frequent “strategic” markdowns suggest that pricing strategy or buying discipline may be unstable. IFRS 18 does not judge motives, but disclosure allows the market to do so.

Store-network exit costs
IFRS 18 allows adjustments for restructuring, but IFRS 18.BC203 cautions that comparability suffers when “non-recurring” becomes annual.

A genuine exit program — say, a one-off retreat from a market or format — can rightly be isolated to explain core performance.

Yet when closures recur every year, the better governance question is: is this still exceptional, or simply how the company operates?

The answer determines whether investors view the company as agile or unsettled.

Tax and non-controlling-interest (NCI) effects
Under IFRS 18.108(c), every reconciling item must show its income-tax and NCI consequences. That requirement is not bureaucracy; it is fairness.
Tax effects reveal whether the adjustment genuinely affects shareholders’ earnings or is offset elsewhere.

NCI disclosure ensures minority investors see their share of those decisions.

Boards should ask one simple question: can our finance team trace each reconciling adjustment — and its tax and NCI impact — through to the consolidation journals?

If the answer is yes, the company has transformed transparency from compliance into confidence.

2.4 Assurance and Internal Control Implications

Under IFRS 18, an MPM sits inside the audited financial statements, not beside them.
That single relocation changes everything.

What was once an investor-relations metric now falls under the same internal-control and assurance expectations as revenue, tax, or inventory valuation.

A. Scope of assurance
Auditors must now test whether:

each reconciling item is complete and accurately measured;
the tax and non-controlling-interest (NCI) effects are correctly allocated; and
the disclosure wording faithfully reflects management’s definition.

This extends beyond numerical accuracy. Auditors will examine governance evidence — board papers, policy statements, and sign-off trails — to confirm that “strategic markdowns” or “store exit costs” were approved as exceptional items rather than routine expenses.

Expect audit teams to integrate MPM testing into both the substantive procedures and controls testing phases of the engagement.

B. Internal-control responsibilities for CFOs
For preparers, IFRS 18 effectively adds a new layer to Internal Control over Financial Reporting (ICFR).
CFOs should ensure that:

every MPM is formally defined in the accounting policy manual, including eligibility criteria for adjustments;
data used for adjustments (e.g., markdown programs, lease-exit costs) are traceable to the general ledger;
reconciliations are reviewed by finance leadership and documented with management representations; and
calculation spreadsheets or system routines are version-controlled and access-restricted.

Think of each MPM as a mini-control environment within the income statement.

Where controls are weak — for example, when a single analyst manually curates reconciling items — the risk of bias or error mirrors that of any misstatement in statutory profit.

C. Role of the audit committee
The audit committee’s oversight duty expands accordingly.

Under the governance codes of most jurisdictions, committees must now review the integrity of all financial information, which by definition includes IFRS 18 MPMs.

That means:

challenging management’s rationale for each adjustment;
verifying that recurring exclusions are disclosed transparently;
ensuring the external auditor has access to supporting documentation; and
approving the final wording of the MPM disclosure note before publication.

Well-governed committees already perform this for non-GAAP metrics; IFRS 18 turns that good practice into an expectation.

D. Documentation and audit trail
Every reconciling adjustment must be supported by a clear chain of evidence:

Source transaction or journal entry;
Management’s justification memo;
Tax and NCI computation worksheets;
Disclosure table in the notes.
Maintaining that traceability reduces the audit burden and supports the auditor’s conclusion under ISA 330 and ISA 700 on presentation and disclosure.

E. Technology and data governance
In multi-entity retailers, MPM data often originate in ERP sub-ledgers, FP&A tools, or BI dashboards.

CFOs should integrate MPM definitions into data-governance taxonomies so that systems classify adjustments consistently.

When the same definition drives both internal dashboards and published MPMs, assurance becomes more efficient and less error-prone.

F. Strategic payoff
Treating MPMs as control objects is not compliance for its own sake.

It strengthens investor confidence, reduces the risk of restatement, and aligns finance, risk, and audit functions under one reporting architecture.

When the reconciliation between Operating profit and ROM-exM is supported by a verified audit trail, management’s credibility rises — because every narrative about “underlying performance” is backed by evidence.

In the language of governance, transparency becomes a controllable process, not a press-release claim.

3 Like-for-Like Trading EBIT (LfL-EBIT)

3.1 Definition and IFRS 18 Context

Under IFRS 18.103(a)–(c) and 18.106–108, an entity may present a management-defined subtotal of income and expenses if:

It reflects how management views performance;
meaning it is genuinely used by the Chief Operating Decision Maker (CODM) to steer the business.
It appears in public communications;
for instance, in investor decks or quarterly trading updates — not merely inside internal dashboards.
It represents a subtotal not otherwise defined by IFRS.
The measure must sit between prescribed subtotals such as Operating profit and Profit before financing and income taxes (PBFT) but not replace them.

Like-for-Like Trading EBIT (LfL-EBIT) meets these criteria in the retail sector.
It isolates the earnings power of comparable stores — the steady heartbeat of retail performance — by stripping out currency noise from treasury management and one-off property transactions.
Under IFRS 18, that is precisely what an MPM is meant to achieve: to translate internal management insight into a form that investors can audit and compare.

Formal definition used in this guide:
LfL-EBIT = PBFT + Financing FX on trade balances (treasury-managed) – Property disposal gains (investing activities)
This formula converts the CFO’s operational steering measure into an IFRS-compliant subtotal, capable of full reconciliation and assurance.

3.2 Rationale for Preparers and CFOs
Retailers operate in multiple currencies, often sourcing goods in USD or CNY while reporting in EUR or GBP. FX swings on trade payables and receivables can move reported PBFT by tens of millions, even when those exposures are hedged or managed centrally by treasury.

From an operating perspective, these gains or losses do not belong to store trading; they reflect financing strategy.

Conversely, gains on property disposals — frequent in sale-and-leaseback transactions or portfolio optimisation — can inflate PBFT in a good year, masking weaker underlying store performance.

Under IFRS 18.110, any such “clean” performance measure must be reconciled and explained so that users understand how management separates recurring trading from peripheral activity.

In governance terms, LfL-EBIT answers three practical CFO questions:

How much of our reported profit comes from actual retail operations rather than currency movements or property deals?
Does our risk management over- or under-state operational performance?
Can analysts rebuild the number from our financial statements without ambiguity?

A well-constructed LfL-EBIT reconciles those perspectives — internal steering, risk control, and external communication — within a single, IFRS-defined framework.

It transforms what was once an informal management metric into a disciplined disclosure that enhances trust in both the figures and the leadership behind them.

3.3 Reconciliation Table (From PBFT)

Reconciling item	Amount (CU m)	Tax effect (CU m)	NCI effect (CU m)
Profit before financing and income taxes (PBFT)	1 180	–	–
Add back: Financing FX on trade balances (treasury-managed)	+22	–5	0
Subtract: Gains on property disposals / sale-and-leaseback	–35	+8	–1
LfL-EBIT (MPM)	1 167

Notes: All reconciling items are directly traceable to general-ledger accounts. Tax and NCI effects follow IFRS 18.108(c). Entities should cross-reference to the property and treasury notes in the financial statements.

3.4 Interpretation and Governance Perspective

IFRS 18.110 requires preparers to explain why each adjustment makes the measure more useful.

For CFOs, that means articulating the logic in both the audit-committee report and external communications:

Financing FX on trade balances. These arise because sourcing and settlement currencies differ. When treasury centrally manages those exposures, it is legitimate to remove the resulting FX gains/losses from operating EBIT — but only if treasury risk management is demonstrably separate from store operations (IFRS 18.BC205).
Property disposals. Sale-and-leasebacks can deliver large accounting gains. IFRS 18.111 discourages excluding such gains selectively; they must be treated consistently period-to-period. Audit committees should ensure that recurring disposal programs are not mis-presented as exceptional.

Governance test: If an adjustment materially affects remuneration metrics or analyst guidance, the rationale must appear verbatim in the MPM disclosure note. That is how transparency prevents “metric shopping”.

3.5 Assurance and Internal Control Implications

Under IFRS 18, Like-for-Like Trading EBIT carries the same audit weight as any other subtotal within the financial statements. Once disclosed as an MPM, it falls squarely under the umbrella of Internal Control over Financial Reporting (ICFR) and the auditor’s assurance mandate.

A. Assurance scope
Auditors will approach LfL-EBIT in two dimensions — data integrity and judgement integrity.

Data integrity means verifying that each reconciling item — FX adjustments and property gains — can be traced to the general ledger and tie back to treasury and fixed-asset sub-ledgers.
Judgement integrity focuses on whether management’s classification of those items as “non-operating” is consistent with policy and with prior periods.
Audit teams will review treasury documentation, hedge-accounting positions, and sale-and-leaseback contracts to confirm that only transactions meeting the published eligibility criteria are adjusted.

B. Internal controls for preparers
CFOs should treat LfL-EBIT as a control environment of its own. Under COSO principles, this means:

a written policy defining which FX effects and property gains may be excluded and how significance is determined;
documented management approval for every adjustment at period end;
segregation of duties between operating finance, treasury, and property accounting teams; and
an automated reconciliation control linking MPM disclosures to the underlying accounting records.

This formula converts the CFO’s operational steering measure into an IFRS-compliant subtotal, capable of full reconciliation and assurance.

3.2 Rationale for Preparers and CFOs

Retailers operate in multiple currencies, often sourcing goods in USD or CNY while reporting in EUR or GBP. FX swings on trade payables and receivables can move reported PBFT by tens of millions, even when those exposures are hedged or managed centrally by treasury.

From an operating perspective, these gains or losses do not belong to store trading; they reflect financing strategy.

Conversely, gains on property disposals — frequent in sale-and-leaseback transactions or portfolio optimisation — can inflate PBFT in a good year, masking weaker underlying store performance.

Under IFRS 18.110, any such “clean” performance measure must be reconciled and explained so that users understand how management separates recurring trading from peripheral activity.

In governance terms, LfL-EBIT answers three practical CFO questions:

How much of our reported profit comes from actual retail operations rather than currency movements or property deals?
Does our risk management over- or under-state operational performance?
Can analysts rebuild the number from our financial statements without ambiguity?

A well-constructed LfL-EBIT reconciles those perspectives — internal steering, risk control, and external communication — within a single, IFRS-defined framework.

It transforms what was once an informal management metric into a disciplined disclosure that enhances trust in both the figures and the leadership behind them.

4 Industry Examples – How Leaders Communicate Performance

Ahold Delhaize (Netherlands)

Its 2024 Annual Report discloses “Underlying Operating Margin” reconciled from IFRS Operating profit, excluding restructuring and integration costs — very similar to ROM-exM. Under IFRS 18, those tables will move from the MD&A to the financial-statement notes with tax/NCI effects shown line by line.

Tesco (UK)

Uses “Retail Operating Profit before adjusting items”. Adjustments include property transactions, pension charges and litigation costs. IFRS 18 will require reconciliation to Operating profit with tax columns and a consistency statement per IFRS 18.112.

Walmart (US, IFRS converted example)

Walmart reports “Adjusted Operating Income” excluding currency effects and restructuring. Although reported under US GAAP, the logic aligns with IFRS 18 MPMs. Future IFRS adopters will need to show tax and NCI allocations explicitly for similar measures.

Carrefour (France)

Publishes “Recurring Operating Income”. This already reconciles to IFRS Operating profit and is audited — a model example of how IFRS 18 intends MPMs to work.

Target (US)

Reports “Adjusted EBITDA and EBIT”. If Target were reporting under IFRS 18, each adjustment (e.g., data-breach costs, store closure charges) would require a tax/NCI split and narrative justification in the notes.

Take-away: Across these retailers, the common trend is toward cleaner, auditable bridges between IFRS subtotals and management metrics. IFRS 18 formalises what the best companies already do voluntarily.

5 IFRS 18-Compliant Disclosure Note (Template for Preparers)

Management-defined performance measures

The Group uses two MPMs to supplement its IFRS results: (1) Retail Operating Margin excl. Markdown Programs (ROM-exM) and (2) Like-for-Like Trading EBIT (LfL-EBIT). Both represent subtotals of income and expenses not defined by IFRS but used in public communications (IFRS 18.103).

Reconciliations to Operating profit and PBFT are shown above in accordance with IFRS 18.106–108, including the tax and non-controlling interest effects of each reconciling item.

Management believes ROM-exM is useful in assessing ongoing trading margin by excluding episodic markdown and store-exit costs. LfL-EBIT is useful in evaluating comparable-store performance excluding treasury FX volatility and property disposals.

Both MPMs are reviewed by the Audit Committee and consistent with the Group’s compensation framework. No changes were made to definitions in 2025. Any future changes will be disclosed in accordance with IFRS 18.112.

6 Governance and Quality Assurance

Audit Committee Oversight: Ensure MPM policies are approved and minutes document rationale for each adjustment.
Control Design: Establish ICFR controls over identification and calculation of MPMs.
External Audit: Auditors test reconciliation accuracy and tax/NCI splits (IFRS 18.108(c)).
Comparability Monitoring: Finance teams should benchmark against peer disclosures and flag inconsistencies to the board.

7. Conclusion – Performance with Evidence

IFRS 18 turns performance communication from storytelling into structured reporting. For retailers, ROM-exM and LfL-EBIT bridge the gap between store execution and statutory results. When properly governed, these MPMs provide investors with a clear, auditable view of operational strength.
CFOs who embrace the discipline of IFRS 18 — reconciliation, tax and NCI transparency, board oversight — will find that their numbers not only comply but convince.

FAQ’s – IFRS 18 MPM Customer Retail

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Q1. Is ROM-exM compliant if strategic markdowns recur annually?

Only if management can demonstrate that each program is discrete and board-approved. IFRS 18.BC203 warns that recurring “exceptional” items undermine comparability. Disclosure should quantify frequency and impact.

Q2. Can tax effects be presented in aggregate?

IFRS 18.108 requires tax and NCI effects for each reconciling item. Aggregation is permitted only when immaterial and disclosed as such.

Q3. Do ESMA APM requirements still apply in the EU?

Yes. IFRS 18 governs financial statements; ESMA APMs cover the management report. Entities must ensure consistency between the two sets of disclosures.

Q4. How will auditors verify MPMs?

Auditors test that each reconciling item exists, is accurately measured, and is appropriately classified. Expect review of policy documents and board approvals.

Q5. Are KPIs like “sales per square meter” MPMs?

No. They are operational ratios outside IFRS 18 scope unless they form part of an income/expense subtotal. If communicated as “financial performance”, a reconciliation is advised.

Q6. What should CFOs do first to implement IFRS 18?

Inventory all existing non-GAAP metrics; identify those used publicly; draft formal definitions and reconciliations; design ICFR controls; educate investor-relations teams. This reduces audit findings and restatement risk.