3.06 The adjusted EBITDA KPI is said to exclude 'non-recurring' items, but the items it excludes recur every year
UK Company B · a UK-listed technology and logistics group · Presentation point
In brief
The KPI page, in both years, says adjusted EBITDA excludes 'material, non-recurring (adjusting) items'. The adjusting items it excludes include an organisational restructure charged in each of the last three years ([amounts]), an HR system transformation charged for three years ([amount] to date) and an [former subsidiary] IT programme that [wording masked]. The company's own adjusting-items policy says these items may be '[wording masked]', which is not what 'non-recurring' means.
The evidence, as filed
Screenshot withheld to protect the company’s identity: Annual Report 2025, page 11; Annual Report 2024, page 16; Annual Report 2025, page 270; Annual Report 2024, page 181; Annual Report 2025, page 202; Annual Report 2024, page 182; Annual Report 2025, page 203. Their wording or layout could lead back to the company even with names and figures masked; the evidence list below records what each page shows.
What the report shows, and what the rule requires
| What the annual report shows | What the rule requires |
|---|---|
| What the annual report shows p.11 (both years): adjusted EBITDA excludes 'material, non-recurring (adjusting) items'. Adjusting-items note: organisational restructure ([n]) in 2023, ([n]) in 2024, ([n]) in 2025; HR system transformation ([n]), ([n]), ([n]); [former subsidiary] IT and Finance systems transformation ([n]), ([n]), ([n]). | What the rule requires Describe adjusting items as the policy does (significant by size or nature, including multi-year programmes) and drop 'non-recurring'; or, if the label is kept, stop treating recurring restructuring and multi-year programmes as adjusting, and state the expected total cost and end date of each programme, as Note 2.5 already does for the HR system transformation (expected about [amount], completing in early FY26). |
What we checked: KPI pages of both reports; APM definitions; Note 2.5 tables and narratives for 2023, 2024 and 2025; the 2024 statement that the head-office reorganisation was the final one.
The rule
ESMA Guidelines on Alternative Performance Measures, paragraph 25
Version relied on: ESMA Guidelines on Alternative Performance Measures, ESMA/2015/1415, published October 2015, applying from July 2016; the FCA expects UK issuers to continue to apply them after EU exit
For example items that affected past periods and will affect future periods will rarely be considered as non-recurring, infrequent or unusual (such as restructuring costs or impairment losses)
Companies Act 2006, section 414C(3)
Version relied on: Companies Act 2006, revised text on legislation.gov.uk as in force for the financial year reviewed
The review required is a balanced and comprehensive analysis of— (a)the development and performance of the company’s business during the financial year
Why it applies here: the classification itself is a judgement the policy permits (aggregation of similar items, consistency with prior periods); the point is the label.
Why it matters
Readers of the KPI page are told that the gap between adjusted EBITDA and the statutory result consists of one-off items, when about [amount] of the 2025 gap is recurring restructuring and programme cost. The FRC's corporate reporting reviews regularly challenge 'non-recurring' labels on recurring restructuring.
Exposure
No fine. Possible FRC Corporate Reporting Review letter on APM labelling and an undertaking to amend the description in the next Annual Report.
Our workings
the KPI page of each report (p.11 in 2025, p.16 in 2024) explains adjusted EBITDA as excluding 'material, non-recurring (adjusting) items'. The APM section defines adjusting items more widely: items significant by size or nature, items consistent with prior-period treatment and items '[wording masked]'. Note 2.5 shows an organisational restructure charge in each of 2023, 2024 and 2025; the 2024 report called the 2024 head-office exercise a 'final partial reorganisation', yet 2025 carries a further [amount] restructure. The HR system transformation has cumulative costs of [amount]; the [former subsidiary] IT roadmap programme [wording masked]'.
the three recurring categories total [amount] in 2023, [amount] in 2024 and [amount] in 2025 (workings). The two continuing-operation categories in 2025 (restructure [amount] and HR transformation [amount]) total [amount], [n]% of the [amount] adjusted EBITDA.
The ESMA Guidelines, which the FCA expects listed issuers to keep applying, name restructuring costs as the example of items that 'will rarely be considered as non-recurring'. Calling them non-recurring on the page where most readers meet the KPI gives an impression the notes contradict.
| Adjusting item (£m, charge) | 2023 | 2024 | 2025 |
|---|---|---|---|
| Organisational restructure | [n] | [n] | [n] |
| The Company HR system transformation | [n] | [n] | [n] |
| [former subsidiary] IT and Finance systems transformation | [n] | [n] | [n] |
| Total of the three recurring categories | [n] + [n] + [n] = [n] | [n] + [n] + [n] = [n] | [n] + [n] + [n] = [n] |
| 2025 restructure + HR transformation | [n] + [n] = [n] | ||
| As % of 2025 adjusted EBITDA | [n] / [n] = [n]% |
Management’s best defence, and our reply
Management would say that 'non-recurring (adjusting)' is shorthand pointing to the defined term, that the APM section and Note 2.5 set out the full policy including multi-period items, and that each programme is time-limited (the HR programme ends in early FY26), so it is non-recurring in the sense of not being part of normal trading. The Audit Committee reviews the classification each year. However, ESMA names restructuring costs as the standard example of items that are rarely non-recurring, restructuring has been charged in each of the last three years after the 2024 report called the 2024 exercise final, and the KPI page is where most readers meet the measure; a defined term elsewhere does not cure an affirmative description on the KPI page.
The fix
- Replace 'material, non-recurring (adjusting) items' with 'adjusting items (items significant by size or nature, including multi-year transformation and restructuring programmes - see page 270)', and state for each multi-year programme its cumulative cost, expected total and end date, extending to the restructuring and the [former subsidiary] IT programme the disclosure Note 2.5 already gives for the HR system transformation.
Evidence relied on
| # | What it shows | Type | Where |
|---|---|---|---|
| 1 | 2025 KPI page describes the items excluded from adjusted EBITDA as non-recurring | Document | Annual Report 2025, page 11 |
| 2 | 2024 KPI page uses the same description | Document | Annual Report 2024, page 16 |
| 3 | The company's own APM definition admits adjusting items that recur or span several periods | Document | Annual Report 2025, page 270 |
| 4 | Restructure charged in 2025 and 2024 | Document | Annual Report 2025, page 202 |
| 5 | [former subsidiary] IT programme charged in 2025 and 2024 | Document | Annual Report 2025, page 202 |
| 6 | The [former subsidiary] IT programme [wording masked] | Document | Annual Report 2025, page 202 |
| 7 | HR transformation is a multi-year programme | Document | Annual Report 2025, page 203 |
| 8 | A further restructure in 2025 | Document | Annual Report 2025, page 203 |
| 9 | Restructure charged in 2024 and 2023 | Document | Annual Report 2024, page 181 |
| 10 | HR transformation charged in 2024 and 2023 | Document | Annual Report 2024, page 181 |
| 11 | [former subsidiary] IT programme charged in 2024 and 2023 | Document | Annual Report 2024, page 181 |
| 12 | The 2024 report called the 2024 reorganisation final; a further restructure followed in 2025 | Document | Annual Report 2024, page 182 |
Prepared by Pramanex from the company’s published annual reports, without the company’s involvement, to show how an annual report review reads. The company is not named, and nothing on this page is a statement about any identifiable company. Observations are not an audit, review or other assurance engagement, and not legal advice. A regulator-style question is a question, not a conclusion.
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