BT 2014 Annual Report Download - page 150

147
Financial statements
Financial statements
12. 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, BT Business and BT Consumer. These are the smallest identiable groups of assets that
generate cash inows that are largely independent of the cash inows from other groups of assets, and to which goodwill is allocated. Goodwill is
allocated to the group’s CGUs as follows
BT Global
Services
£m
BT Business
£m
BT Consumer
£m
Total
£m
At 1 April 2012 1,082 192 65 1,339
Acquisitions (note 14) –33 –33
Disposals (8) – – (8)
Exchange dierences 43 3 – 46
At 1 April 2013 1,117 228 65 1,410
Acquisitions (note 14) ––15 15
Disposals and adjustments (12) – – (12)
Exchange dierences (75) (7) –(82)
At 31 March 2014 1,030 221 80 1,331
The discount rate used in performing the value in use calculation in 2013/14 was 9.6% (2012/13 8.8%) for all CGUs. The perpetuity growth rate for
BTGlobal Services was 2.5% (2012/13 2.5%) and 2.0% (2012/13 2.0%) for BT Business and BT Consumer.
Recoverable amount
The value in use of each CGU is determined using cash ow projections derived from nancial 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 reect management’s expectations of
revenue, EBITDA growth, capital expenditure, working capital and operating cash ows, based on past experience and future expectations of business
performance. Cash ows are also adjusted downwards to reect the dierent risk attributes of each CGU. Cash ows beyond the ve-year period have
been extrapolated using perpetuity growth rates.
Discount rate
The pre-tax discount rates applied to the cash ow 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 reect
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.
Impact of the simpliƬcation of our internal trading model on the goodwill impairment review
As set out in note 1 on page 127, eective from 1 April 2013 we have made a number of changes that simplify our internal trading and more closely
align our line of business nancial results and our regulatory accounts.
These changes impacted the cash ow projections for BT Global Services, BT Business and BT Consumer used in the annual goodwill impairment
review. They resulted in an increase in operating cash ows of BT Global Services of £206m in 2012/13 and £208m in 2011/12.
Sensitivities
There is signicant headroom in all CGUs. For BT Global Services, the value in use exceeds the carrying value of the CGU by approximately £2,826m.
Thefollowing changes (in isolation) in assumptions would cause the recoverable amount to fall below the carrying value
– reduction in the perpetuity growth rate from the 2.5% assumption applied to a revised assumption of a perpetual decline rate of 9% or more
– an increase in the discount rate from the 9.6% assumption applied to a revised assumption of 16% or more
– shortfalls in trading performance against forecast resulting in perpetuity operating cash ow decreasing by £350m or more.
For BT Business and BT Consumer no reasonably possible changes in the key assumptions would cause the carrying amount of the CGUs to exceed the
recoverable amount.