Editor’s note: This is general educational information about a South African reporting rule, not investment advice, and it does not assess any company’s prospects. It is based on the official documents listed at the end.
Analysis: reading the gap rather than the number
The useful information in headline earnings is rarely the headline number itself. It is the size and direction of the reconciling line. Sasol’s 2023 accounts show earnings attributable to owners of R8 799 million against headline earnings of R33 777 million, a difference of R24 978 million in remeasurement items net of tax, driven by impairments of assets of R37 298 million partly offset by reversals. A reader who saw only basic EPS of R14,00 would conclude the year was far worse than the trading period the circular is trying to isolate; a reader who saw only HEPS of R53,75 would miss a very large writedown of the asset base.
The direction of the gap flips, which is the point. In the 2022 financial year Sasol’s basic EPS of R62,34 sat well above headline EPS of R47,58, because remeasurements added to earnings that year rather than subtracting from them. In 2021 basic EPS of R14,57 again ran below headline EPS of R39,53. Three consecutive years, three different relationships between the two numbers, all from the same rulebook.
What the rule establishes is comparability of method, not comparability of quality. Because the circular forbids company-level deviation and pins each adjustment to a specific standard, two JSE issuers reporting the same transaction should reach the same treatment, and a reader can compare their headline numbers without first auditing their definitions. What it does not establish is that the excluded items were unimportant. An impairment of R37 298 million is a statement about the value of a company’s productive assets, and the circular removes it from headline earnings precisely because it belongs to the platform, not because it does not matter.
The practical reading order follows from that. The reconciliation note, not the per-share summary, is where the year is described: which standards generated the exclusions, whether they are impairments or disposals, whether they recur across periods, and whether the same line has appeared in each of the past three years. Diluted headline earnings carries its own signal, since Sasol’s diluted headline figure of R50,76 against R53,75 reflects the same convertible bond and incentive shares that separate its basic and diluted EPS.
What the documents say
Sasol reported basic earnings of R14,00 a share for the year ended 30 June 2023. It reported headline earnings of R53,75 a share for the same year. Neither number is wrong, and neither is a company invention. The gap between them is the whole reason the Johannesburg Stock Exchange makes every listed issuer publish a third earnings-per-share figure that International Financial Reporting Standards do not require at all.
Two numbers the accounting standard demands
IAS 33 governs the calculation and presentation of earnings per share for entities whose ordinary shares or potential ordinary shares are publicly traded. The International Accounting Standards Board adopted it in April 2001, taking over a standard the International Accounting Standards Committee had issued in February 1997, and revised it in December 2003. The standard requires basic and diluted EPS to be presented with equal prominence in the statement of comprehensive income, and in consolidated accounts both are based on profit or loss attributable to ordinary equity holders of the parent.
Basic EPS divides that attributable profit by the weighted average number of ordinary shares outstanding. Diluted EPS assumes convertible instruments convert, options and warrants are exercised, and contingently issuable shares are issued, then recomputes the figure. Sasol’s own disclosure shows how much that second step can move: a basic weighted average of 628,4 million shares for the 2023 financial year became a diluted weighted average of 661,9 million once the potential conversion of a US$750 million convertible bond and the long-term incentive scheme were added in.
IAS 33 also sets the disclosure discipline around those numbers. An entity must give the amounts used as numerators and reconcile them to profit or loss, give the weighted average share counts used as denominators and reconcile those to each other, and describe instruments that could dilute basic EPS in future but were excluded from the current diluted calculation. In April 2024 the board amended IAS 33 through IFRS 18 to specify which numerators an entity may use when it discloses additional amounts per share.
The number that comes from the exchange, not the standard
Headline earnings is not an IFRS measure. It is defined in a circular that the South African Institute of Chartered Accountants issues at the request of the JSE, and the current version, Circular 1/2023, was revised and issued in June 2023 to replace Circular 1/2021. The lineage runs back to AC 306, issued in November 1995, then through Circular 7/2002 and a chain of replacements: 8/2007, 3/2009, 3/2012, 2/2013, 2/2015, 4/2018, 1/2019 and 1/2021. Disclosure of headline earnings has been a reporting requirement for JSE-listed companies since 2000.
The circular is blunt about its own limits. Headline earnings is one possible measure of performance, it may be presented in addition to IFRS revenue, expenses, gains and losses, and it is explicitly not a mechanism for adjusting results to reflect a disagreement with IFRS or to circumvent correct accounting treatment.
Enforcement runs through the listing rules and the audit. Under Section 8 of the JSE Listings Requirements, headline earnings and diluted headline earnings must be disclosed with a detailed reconciliation to the IAS 33 basic earnings number, and auditors carry an obligation to modify their opinion where a company has not complied with the headline earnings circular. IAS 33 paragraph 73 provides the accommodation that lets the extra per-share figures sit in the notes, requiring that basic and diluted amounts relating to such a component be disclosed with equal prominence.
What actually gets reversed out
The circular starts from the IAS 33 basic earnings number and excludes remeasurements, realised or unrealised, that relate to what it calls the platform of the entity. The platform is the capital base; operating or trading activities are those carried out using that base. A remeasurement of the platform reflects the resources committed to producing performance rather than the performance itself, so it comes out.
That framing replaced an earlier focus on capital items and is applied through a table that works standard by standard, covering IFRSs and interpretations issued as at 31 May 2022 and marking each separately disclosable item as included or excluded. The point of the table, set out when the calculation was reconsidered in 2007, is consistency: every JSE company must treat the same item the same way. Companies are not permitted to override a rule even where they believe the operating and platform distinction does not fit their business. The escape hatch is narrow and collective rather than individual, a sector-specific rules section that allows an alternative treatment for an entire sector, and a company that thinks a rule is inappropriate for its industry must take that to the JSE, which decides in consultation with the interested parties group.
