BT 2013 Annual Report Download - page 129

127
Financial statements
Financial statements
13. Intangible assets continued
Goodwill impairment review
The group performs an annual goodwill impairment review, based on its cash generating units (CGUs). The CGUs that have associated goodwill are
BT Global Services and BT Retail’s business units: BT Consumer, BT Business, BT Enterprises and BT Ireland. These are the smallest identifiable groups
of assets that generate cash inflows that are largely independent of the cash inflows from other groups of assets, and to which goodwill is allocated.
Goodwill is allocated to the group’s CGUs as follows:
BT Retail
BT Global
Services BT Consumer BT Business BT Enterprises BT Ireland Total
£m £m £m £m £m £m
At 1 April 2011 1,102 65 46 123 21 1,357
Disposals (7) – – – – (7)
Exchange differences (13) – – 2 – (11)
At 1 April 2012 1,082 65 46 125 21 1,339
Acquisition (note 15) – – – 33 – 33
Disposals (8) – – – – (8)
Exchange differences 43 – – 3 – 46
At 31 March 2013 1,117 65 46 161 21 1,410
The discount rate used in performing the value in use calculation in 2012/13 was 8.8% (2011/12: 9.2%) for all CGUs. The perpetuity growth rate
for BT Global Services was 2.5% (2011/12: 2.5%) and 2.0% (2011/12: 2.0%) for all BT Retail CGUs.
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 growth, capital expenditure, working capital and operating cash flows, based on past experience and future expectations of
business performance. Cash flows are also adjusted downwards to reflect the different risk attributes of each CGU. Cash flows beyond the five-year
period have been extrapolated using perpetuity growth rates.
Discount rate
The pre-tax discount rates applied to the cash flow forecasts are derived from the group’s post-tax weighted average cost of capital. 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 that sector. 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.
Sensitivities
For BT Global Services, the value in use exceeds the carrying value of the CGU by approximately £760m. 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 a 0.1% growth or less
—an increase in the discount rate from the 8.8% assumption applied to a revised assumption of 10.6% or more
—a reduction in the projected operating cash flows across five years by 22.8% or more.
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 the recoverable amount.