@madamswer Hi & thanks for the reply. I have always considered...

@madamswer

Hi & thanks for the reply.

I have always considered termination payments and impairment of trade receivables (or bad debts) as costs of doing business and not extraordinary or one-off items. Removing them from the underlying numbers entirely is overstating the result in my mind.

At best you could probably check historical records and smooth them a bit, but it's prudent to keep them in any underlying numbers despite companies themselves (or even broker analysts) protesting otherwise.

For instance, with redundancy / termination payments / staff restructuring you could smooth these based on historical expenditure, but to do this you would need to keep in mind fluctuating staff levels over the cycle and relevant wage / business growth rates etc (which increase these costs naturally over time). That's starting to get into pretty complicated territory though and the assumptions pile up a bit.

(I recalled we had this conversation once about Skilled Group).

On the other hand, corporate activity and acquisition costs or cost reversals aren't underlying earnings.

They're also definitely not part of what constitutes free cash flow. It's money you didn't end up spending on a business acquisition because it didn't meet the agreed upon hurdle rate.