Segment Reporting

What IFRS 8 requires

• Segments follow internal reporting. A company reports the segments its management actually uses. Two companies in the same industry can therefore split their figures very differently.
• Thresholds. A segment must be reported separately if its revenue, profit or loss, or assets are at least 10% of the combined total of all segments. Reported segments must together cover at least 75% of the group’s external revenue.
• Measures. For each segment the company reports a measure of profit or loss, usually operating profit or adjusted operating profit, and the measures its management reviews, such as revenue or assets.
• Reconciliation. Segment totals are reconciled to the group figures. The difference consists of sales between segments (eliminations) and group functions that belong to no segment.
• Entity-wide information. Even a company with one segment discloses revenue by product or service, revenue by country, and any customer that accounts for 10% or more of revenue.

How to read segment figures

• Compare growth by segment. Group revenue growth is an average. A segment that grows fast and earns a high margin can carry the whole group’s value.
• Compare margins by segment. Service businesses often earn higher and steadier margins than new equipment sales. KONE, for example, reports its revenue by business line (New Building Solutions, Service and Modernization) as well as by region.
• Watch concentration. A company that earns most of its revenue in one region or from one product is more exposed to that market. The table on this page shows the largest segment’s share for each company we track.
• Check eliminations. Segment revenue can include sales to other segments, so segment totals can exceed group revenue. Use the reconciliation to see how large internal sales are.
• Note changes in segments. Companies reorganise and change their segments. They usually restate earlier periods, but long trends can still break at a reorganisation.

What segment figures do not tell you

• Allocation is the company’s choice. Group costs, such as headquarters and shared IT, can be allocated to segments or left in a separate line. The choice changes segment margins.
• Not every line is reported. Segments usually show revenue and operating profit, but rarely net income, cash flow or the capital each segment uses.
• Regions mean different things. Revenue by region can be based on where the customer is, or on where the selling unit is located. Read the definition in the note.
• Comparability across companies is low. Because segments follow internal reporting, two companies’ segments rarely match. Compare segment trends within a company over time rather than across companies.

On Finpendium company pages, the segment and business line charts show each company’s own split, using the names the company uses in its report.

How Nordic companies split their business

The companies we track use many kinds of segments, which shows how much the management approach varies:

• Business areas or divisions: for example UPM, Konecranes and Kesko report by business area or division.
• Regions: KONE, Nokia, Wärtsilä and Vaisala report revenue by geographical area.
• Customer groups: Elisa reports consumer and corporate customers separately.
• Therapy areas: Novo Nordisk reports by therapy area.

Many companies also give a second split, such as revenue by business line or product group, in addition to their reportable segments. Finpendium company pages show both where the company reports them.