Notes to the financial statements

for the year ended 31 March 2012

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04 Segmental analysis

Management has determined the operating segments based on the reports reviewed by the KCOM Group PLC Board that are used to make strategic decisions. The chief operating decision maker of the Group is the KCOM Group PLC Board. The Board considers the performance of the four brands and the PLC function in assessing the performance of the Group and making decisions about the allocation of resources. These are the Group’s operating segments.

The KC brand addresses the needs of our Hull and East Yorkshire customers and the Eclipse, Kcom and Smart421 brands serve enterprise, public sector organisations and small business markets across the UK.

The Board assessed that the Kcom, Smart421 and Eclipse brands have similar profiles offering similar products and services, similar production and distribution processes and are operating in a consistent regulatory environment. In line with IFRS 8, the Kcom, Smart421 and Eclipse brands are aggregated together and reported as the ‘Kcom’ segment for the year ended 31 March 2012. The remaining brands of KC and the PLC function are reported respectively in the ‘KC’ segment and ‘PLC’ segment. This reporting is also consistent with the reporting to the KCOM Group PLC Board.

For the year ended 31 March 2011, the Group considered the brands KC and Eclipse and the brands Kcom and Smart421 as two reporting segments presented as ‘KC & Eclipse’ and ‘Kcom & Smart421’. In the year ended 31 March 2012, the Eclipse brand has become increasingly focused on the national SME business market and has increased its level of cross-over with the customer bases of the Kcom brand.

Segmental disclosures for 31 March 2011 have been restated to reflect the change in the allocation of the Eclipse brand from the 'KC' segment into the 'Kcom' segment. The segment information provided to the KCOM Group PLC Board for the reportable segments, for the year ended 31 March 2012 and for the year ended 31 March 2011(restated), is as follows:

Revenue EBITDA
2012
£’000
Restated
2011
£’000
2012
£’000
Restated
2011
£’000
Before exceptional items
KC 103,595 102,536 53,223 51,593
Kcom 289,316 297,218 31,043 32,020
PLC1 (5,595) (4,342) (6,391) (7,650)
Activities before exceptional items 387,316 395,412 77,875 75,963
Exceptional items
KC (149)
Kcom 1,100 (10,951)
PLC1 (1,100) 2,763
Total (note 7) (8,337)
Total 387,316 395,412 77,875 67,626

1. PLC includes Public Company central and share scheme expenses, inter-segment eliminations and the costs, excluding current and past service costs, associated with the Group’s defined benefit pension schemes
and the related assets and liabilities.

A reconciliation of total EBITDA to profit before tax is provided as follows:

Notes 2012
£’000
2011
£’000
EBITDA post-exceptional items 77,875 67,626
Depreciation 16 (17,591) (18,464)
Amortisation 15 (2,514) (8,868)
Finance costs 9 (6,633) (7,393)
Share of profit/(loss) of associate 17 (15) 11
Profit before tax 51,122 32,912

Disclosure has not been made of segmental assets and liabilities. This is in accordance with IFRS 8 as this measure is not provided regularly to the KCOM Group PLC Board.

The split of total revenue between external customers and inter-segment revenue is as follows:

2012
£’000
Restated
2011
£’000
Revenue from external customers
KC 97,562 97,804
Kcom 288,916 296,830
PLC1 838 778
Total 387,316 395,412
Inter-segment revenue
KC 6,033 4,732
Kcom 400 388
PLC1 (6,433) (5,120)
Total
Group total 387,316 395,412

1. PLC includes Public Company central and share scheme expenses, inter-segment eliminations and the costs, excluding current and past service costs, associated with the Group’s defined benefit pension schemes
and the related assets and liabilities.

Inter-segment sales are charged at prevailing market prices.

None of the revenue, operating profit or net operating assets arising outside the United Kingdom are material to the Group.

The Group is not dependent upon a single or small number of external customers.

The analysis of the Group’s revenue between sale of goods, the provision of services and revenue from its network build contract is as follows:

2012
£’000
2011
£’000
Sale of goods 19,375 20,226
Provision of services 356,240 362,086
Revenue from Network Build contract 11,701 13,100
Group total 387,316 395,412

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