The Hindu Business Line : Segment reporting: Some pattern, some revelation

JUDGING by the published results for the October-December 2001 quarter, it is seen that a large number of corporates have abided by the SEBI stipulation for segment reporting. However, the published results also suggest that on the final count the number of corporates which have failed to follow the SEBI fiat may not be that small.

In this context, it may be mentioned that originally the SEBI stipulation was to be complied with by corporates for the results of the quarter ending September 2001, which were scheduled to be made public in the course of October 2001. But, around the time the results were to start coming in, SEBI changed its decision and advised corporates that segment reporting would be applicable for the results of the October-December 2001 onwards.

Thus, companies were spared of the responsibility of segment reporting. But, before SEBI's new decision was announced, a few companies had come out with the results for the July-September 2001 quarter. A notable example was that of Hindustan Lever Ltd, which duly complied with the stipulation for segment reporting.

A sample study of segment reporting done by companies for the October-December 2001 quarter suggests some pattern and in some cases, the figures and explanatory notes forming part of segment reporting are somewhat revealing.

A good number of IT firms are generally found to have segmented their revenues as from the US and Rest of the World (ROW). In some cases, India and Europe also figure in the segmentation made. A common refrain in regard to the `capital segment (segment assets minus segment liabilities)' is that the assets used cannot be specifically identified with any of the segments and, therefore, it is not possible to give exact details of capital employed segment-wise. Also, fixed assets and outside liabilities are interchangeable between segments, it has been contended.

Wipro has observed that a significant portion of the segment assets is in India and that as far as revenue from the geographic segments (India, the US and ROW) is concerned, it has gone by the criterion of domicile of the customers.

GTL Ltd (formerly Global Tele-Systems Ltd) has followed the service segmentation -- software and application services, enterprise network services and network engineering. It has given information only on segment revenue.

Companies exclusively in the business of producing and selling tea have simply pointed out that tea constitutes the only segment for them and, therefore, there is no question of giving the kind of information sought in SEBI's fiat. However, George Williamson (Assam) Ltd, which is exclusively into tea business, is seen as an exception in that it has opted for segmenting as `tea - domestic sales' and `tea - export sales'. Tata Tea has given the required information in three segments -- tea, others and trading in commodities.

It has clarified that the `others' segment includes coffee and other minor crops (the reference obviously is to spices).

Gujarat Mineral Development Corporation is one of the few companies to go in for segmentation on the basis of (i) head office, (ii) location-wise lignite, fluorspar and power projects, (iii) leasing business and (iv) other projects.

Companies for whom operations both within the country and abroad are important are found to have devised two segments -- operations in India, operations outside India. An example is of Dredging Corporation of India.

There is no reference to segment reporting in the results published by banks. An exception appears to be UTI Bank, which has given the required information under four segments - corporate banking, retail banking, treasury, others. It has mentioned that in determining segment revenue, it has made use of the funds transfer pricing mechanism it presently follows.

Steel Authority of India Ltd, which after a gap of some years gave plant-wise profit and loss figures in the annual for 2000-01, has done plant-wise segmentation - Bhilai, Durgapur, Rourkela, Bokaro, Alloy Steels Plant, Salem Steel Plant and Visvesvaraya Iron & Steel. SAIL's last segmentation is `others', which possibly includes Central Marketing Organisation, R & D centre at Ranchi, the outfit for environment etc.

In the case of Hindustan Lever, it is seen that unallocable corporate assets less corporate liabilities at Rs.2,534.53 crore work out to 83 per cent of the total capital employed of Rs.3,043.7 crore.

It has clarified that unallocable corporate assets mainly relate to investments. Another example worth citing is regarding HLL's personal products segment which in 2001 gave a revenue of Rs.2,217.94 crore and earned profit before interest and tax of Rs.670.14 crore. But, capital employed for the segment is minus Rs.46.24 crore.

It may be at least two years before corporates are able to follow in entirety the format prescribed by SEBI for segment reporting, says a senior practising company secretary.

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