This article explains a standard market and accounting mechanism for educational purposes only. It is not investment advice, and it does not describe any specific company, security, or current event.
Two companies could report identical after-tax profit for the year, yet post very different earnings-per-share numbers the moment one of them books a large gain from selling a building. That is the exact problem South African accountants set out to solve, and the fix now appears in every set of results published by companies listed on the Johannesburg Stock Exchange (JSE): a figure called headline earnings per share, disclosed alongside the more familiar basic and diluted EPS. Understanding how it is built, and why the JSE insists on it, explains how one of the world’s more distinctive EPS conventions actually works.
Three EPS figures, three different jobs
Basic EPS, as defined under International Financial Reporting Standard IAS 33, divides profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period. Diluted EPS takes that same numerator and adjusts both profit and the share count for instruments that could convert into shares in future, such as convertible bonds, share options or warrants, giving investors a “worst case” view of what earnings per share would look like if every dilutive instrument were exercised.
Headline earnings per share, or HEPS, is not an IFRS measure at all. It is a South African construct, defined in guidance issued jointly by the South African Institute of Chartered Accountants (SAICA) and the JSE, and it starts from basic earnings but strips out a defined list of “non-operating” or “capital” items before dividing by the same weighted average share count used for basic EPS.
What SAICA guidance strips out
SAICA’s circular on headline earnings sets out a fairly mechanical list of remeasurements to reverse. Common examples include profits or losses on the disposal or scrapping of property, plant and equipment, impairments and reversals of impairment on goodwill and certain other assets, profits or losses arising on the disposal of subsidiaries, associates or joint ventures, and gains or losses from the sale of an entire business or a discontinued operation. Fair value adjustments and impairments that IFRS requires to run through profit or loss, but that reflect a change in the value of a long-term or capital asset rather than trading performance for the period, are generally reversed out as well.
The logic is consistent across the list. If an item relates to a capital transaction, a change in the carrying value of a long-term asset, or an event unlikely to recur in the ordinary course of trading, SAICA guidance treats it as distorting the picture of how the underlying business actually performed during the period, and HEPS backs it out of the earnings number.
Why the JSE makes disclosure mandatory
The JSE Listing Requirements oblige every listed issuer to present HEPS with the same prominence as basic and diluted EPS in its results announcements, not as an optional extra. The rationale is comparability. Because ordinary IFRS earnings can swing sharply in a single period due to a one-off asset sale or an impairment charge unrelated to trading conditions, a reader comparing one period against another, or comparing one JSE-listed company against another, could otherwise be comparing figures shaped by unrelated one-off events rather than by underlying operating performance.
By requiring a standardised definition of what gets stripped out, rather than leaving each company to decide for itself which items count as “exceptional,” the JSE and SAICA also close off a source of inconsistency: without a common rulebook, headline-style adjustments could vary from one company’s judgment to the next, making cross-company comparison unreliable. HEPS does not replace basic or diluted EPS, both of which remain the statutory, audited IFRS figures companies must also disclose. It sits alongside them, giving investors a third, standardised lens on South African corporate results, one built specifically to separate a company’s ongoing trading performance from the accounting noise of one-off, capital-nature events.
