BT 2007 Annual Report Download - page 104
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12. INTANGIBLE ASSETS continued
Impairment tests of goodwill
During the 2007 financial year the group made a number of acquisitions. INS, Counterpane and I3IT have been fully integrated into
BT Global Services, which is considered to be the relevant cash generating unit (CGU). The group also acquired dabs.com and
PlusNet, for which the relevant CGUs are considered to be the Enterprises and Consumer divisions of BT Retail, respectively. In
addition, the group reorganised its structure with effect from 1 April 2006 such that the Irish operations were transferred from BT
Global Services to BT Retail and BT Ireland now also represents a separate CGU. For the purposes of goodwill impairment testing,
the group therefore had four relevant CGUs at 31 March 2007. These are the smallest identifiable groups of assets that generate
cash inflows that have goodwill and are largely independent of the cash inflows from other assets or groups of assets.
Goodwill is allocated to the group’s CGUs as follows:
BT Retail
BT Global
Services Consumer Enterprises BT Ireland Total
£m £m £m £m £m
At 1 April 2005 360 – 37 7 404
Acquisition through business combinations 111 – 1 9 121
Exchange differences 17 – 1 – 18
At 1 April 2006 488 – 39 16 543
Acquisition through business combinations 223 57 16 – 296
Exchange differences (20) – – – (20)
At 31 March 2007 691 57 55 16 819
The recoverable amount of each CGU is based on value in use calculations. These are determined using cash flow projections derived
from financial budgets approved by the board covering a four year period. They reflect management’s expectation of revenue
growth, operating costs and margin for each CGU based on past experience. Cash flows beyond the four year period have been
extrapolated using estimated terminal growth rates ranging from 0% to 2%. These rates have been determined with regard to
projected growth rates for the specific markets in which the CGU participates and are not considered to exceed the long term
average growth rates for those markets. Discount rates applied to the cash flow forecasts are derived from the group’s pre-tax
weighted average cost of capital for regulated and non-regulated products. The discount rates applied range from 10.0% to 11.4%.
The forecasts are most sensitive to changes in projected revenue growth rates in the first four years of the forecast period.
However there is significant headroom and based on the sensitivity analysis performed we have concluded that no reasonably
possible changes in the base case assumptions would cause the carrying amount of the CGUs to exceed their recoverable amount.
BT Group plc Annual Report & Form 20-F 103
Financial statements