BT 2009 Annual Report Download - page 107

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
105BT GROUP PLC ANNUAL REPORT & FORM 20-F
FINANCIAL STATEMENTS
11. Intangible assets continued
The key assumptions used in performing the impairment test, by CGU, are shown below:
BT Retail
BT Global
Services Consumer BT Business BT Ireland Enterprises
Method of determining recoverable amount Value in use Value in use Value in use Value in use Value in use
Discount rate 11.1% 11.1% 11.1% 11.1% 11.1%
Perpetuity growth rate 2.5% 2.0% 2.0% 2.0% 2.0%
Recoverable amount
The value in use of each CGU is determined using cash flow projections derived from financial plans approved by the board covering a
three year period and a further two years approved by the line of business and group senior management team. They reflect
management’s expectations of revenue, EBITDA and operating cash flows, based on past experience and future expectations, for
performance of the businesses. The forecast operating cash flows for BT Global Services include the benefits expected to arise from the
revised operating model and the cash outflows associated with the restructuring charges. Cash flows beyond the five year period have
been extrapolated using perpetuity growth rates.
Discount rate
The discount rates applied to the cash flow forecasts are derived from the group’s pre-tax weighted average cost of capital, adjusted for
the different risk profiles of the individual CGUs. The assumptions used in the calculation of the group’s weighted average cost of capital
are benchmarked to externally available data.
Growth rates
The perpetuity growth rates are determined based on the long-term historical growth rates of the regions in which the CGU operates, and
they reflect an assessment of the long-term growth prospects of the sector in which the CGU operates. The growth rates have been
benchmarked against external data for the relevant markets. None of the growth rates applied exceed the long-term historical average
growth rates for those markets or sectors. The growth rates used in 2009 are higher than those used in previous years and are more closely
aligned to management’s assessment for each CGU’s long-term growth.
Sensitivities
For the BT Retail CGUs, significant headroom exists in each CGU and, based on the sensitivity analysis performed, no reasonably possible
changes in the assumptions would cause the carrying amount of the CGUs to exceed their recoverable amount.
For BT Global Services, the value in use exceeds the carrying value of the CGU by approximately £850m. The following changes in
assumptions would cause the recoverable amount to fall below the carrying value:
a reduction in the perpetuity growth rate from the 2.5% assumption applied to a revised assumption of 0.0% or less;
an increase in the discount rate from the 11.1% assumption applied to a revised assumption of 12.9% or more;
a reduction in the projected operating cash flows across five years by 18% or more. A reduction in forecast operating cash flows could
arise from the lower than anticipated realisation of cost savings from the revised operating model, particularly in the next two financial
years.