BT 2011 Annual Report Download - page 123

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13. Intangible assets continued
The key assumptions used in performing the value in use calculations in 2011 were as follows:
BT Retail
BT Global
Services BT Consumer BT Business BT Ireland BT Enterprises
Discount rate 10.0% 10.0% 10.0% 10.0% 10.0%
Perpetuity growth rate 2.5% 2.0% 2.0% 2.0% 2.0%
The key assumptions used in performing value in use calculations in 2010 were as follows:
BT Retail
BT Global
Services BT Consumer BT Business BT Ireland BT Enterprises
Discount rate 10.8% 10.8% 10.8% 10.8% 10.8%
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 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 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.
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 £895m. 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 0.7% decline or more
•an increase in the discount rate from the 10.0% assumption applied to a revised assumption of 12.2% or more
•a reduction in the projected operating cash flows across five years by 25% or more.
120
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
OVERVIEWBUSINESS REVIEWFINANCIAL REVIEWREPORT OF THE DIRECTORSFINANCIAL STATEMENTSADDITIONAL INFORMATION