Barclays 2011 Annual Report Download - page 245

26 Goodwill and intangible assets continued
Goodwill
Goodwill is allocated to business operations according to business segments as follows:
2011
£m
2010
£m
UK RBB 3,145 3,148
Europe RBB 64 505
Africa RBB 1,078 1,307
Barclaycard 505 585
Barclays Capital 102 133
Barclays Corporate 20 150
Barclays Wealth 391 391
Total net book value of goodwill 5,305 6,219
Impairment testing of goodwill
Total impairment charges of £597m (2010: £243m charge relating to Barclays Bank Russia) have been recognised during the year as the recoverable
amount of goodwill in FirstPlus and Spain was not supported based on the value-in-use calculations. The impairment charge of £47m (2010: nil) in
respect of all of the goodwill held by Barclaycard arising from the acquisition of FirstPlus reflected the continued run-off of the loan portfolio and the
impact of the payment protection insurance redress. Further details on the impairment of Spain goodwill are set out below.
Key assumptions
The key assumptions used for impairment testing are set out below for each significant goodwill balance. Other goodwill of £1,133m (2010: £1,253m)
was allocated to multiple cash-generating units which are not considered individually significant.
UK RBB
At 31 December 2011, goodwill relating to Woolwich was £3,130m (2010: £3,130m) of the total UK RBB balance. The recoverable amount of Woolwich
has been determined using cash flow predictions based on financial budgets approved by management and covering a five year period, with a terminal
growth rate of 3% (2010: 2%) applied thereafter. The forecast cash flows have been discounted at a pre-tax rate of 13% (2010: 13%). Based on these
assumptions, the recoverable amount exceeded the carrying amount including goodwill by £8.7bn (2010: £4.0bn). A one percentage point change in
the discount rate or the terminal growth rate would reduce the recoverable amount by £1.4bn (2010: £1.0bn) and £0.9bn (2010: £0.8bn) respectively.
A reduction in the forecast cash flows of 10% per annum would reduce the recoverable amount by £1.5bn (2010: £1.1bn).
Africa RBB
At 31 December 2011, goodwill relating to the Absa Group was £1,042m (2010: £1,271m) of the total Africa RBB balance. The recoverable amount of
the Absa Group has been determined using cash flow predictions based on financial budgets approved by management and covering a five year period,
with a terminal growth rate of 6% (2010: 6%) applied thereafter. The forecast cash flows have been discounted at a pre-tax rate of 14% (2010: 14%).
The recoverable amount calculated based on value in use exceeded the carrying amount including goodwill by £4.7bn (2010: £5.0bn). A one
percentage point change in the discount rate or the terminal growth rate would reduce the recoverable amount by £0.9bn (2010: £1.0bn) and £0.7bn
(2010: £0.8bn) respectively. A reduction in the forecast cash flows of 10% per annum would reduce the recoverable amount by £0.8bn (2010: £0.9bn).
Spain
At 31 December 2011, Barclays recognised an impairment charge of £550m (2010: nil) in respect of the whole goodwill balance held by Barclays
Corporate (£123m) and Europe RBB (£427m) arising from the acquisitions of the Iberia Woolwich business in 2000 and Zaragozano in 2003. The
cashflow forecasts were reassessed during the fourth quarter as a result of uncertainty in economic conditions in Spain and increased risk associated
with the future cash flows. The pre-tax discount rate was increased to 16% (2010: 12%) and the long term growth rate was reduced to 1% (2010: 2%).
Based on these assumptions the value-in-use was no longer able to support the recognition of the goodwill and it was fully impaired as at
31 December 2011.
Critical accounting estimates and judgements
Goodwill
Testing goodwill for impairment involves a significant amount of estimation. This includes the identification of independent cash generating units and
the allocation of goodwill to these units based on which units are expected to benefit from the acquisition. The allocation is reviewed following business
reorganisation. Cash flow projections necessarily take into account changes in the market in which a business operates including the level of growth,
competitive activity and the impacts of regulatory change. Determining both the expected pre-tax cash flows and the risk adjusted interest rate
appropriate to the operating unit require the exercise of judgement. The estimation of pre-tax cash flows is sensitive to the periods for which detailed
forecasts are available and to assumptions regarding the long-term sustainable cash flows.
Other intangible assets
Determining the estimated useful lives of intangible assets (such as those arising from contractual relationships) requires an analysis of circumstances
and judgement. The assessment of whether an asset is exhibiting indicators of impairment as well as the calculation of impairment, which requires the
estimation of future cash flows and fair values less costs to sell, also requires the preparation of cash flow forecasts and fair values for assets that may
not be regularly bought and sold. The most significant amounts of intangible assets relate to Absa and Lehman Brothers North American businesses.
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 243
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