BT 2016 Annual Report Download - page 187

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Overview The Strategic Report Governance Financial statements Additional information
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, BT Consumer and EE, since acquisition on 29 January 2016.
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 Global
Services
£m
BT Business
£m
BT Consumer
£m
EE
£m
Total
£m
At 31 March 2014 1,037 214 80 –1,331
Exchange differences 59 6 – – 65
At 31 March 2015 1,096 220 80 –1,396
Acquisitions (note 14) –439 1,103 4,888 6,430
Exchange differences 49 3 – – 52
At 31 March 2016 1,145 662 1,183 4,888 7,878
The amount of goodwill allocated to BT Business and BT Consumer relates to goodwill arising on the acquisition of EE and represents the
expected benefit to each of these CGUs from the synergies identified.
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. 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. The value in use calculation includes a fourth year estimate which is held flat from the last year
assumed in the financial plans approved by the Board. Cash flows beyond the fourth-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. The
discount rate used in performing the value in use calculation in 2015/16 was 8.8% (2014/15: 9.3%) for all CGUs.
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. The perpetuity growth rate for BTGlobal Services was 2.3% (2014/15: 2.2%), 2.0% (2014/15: 2.0%) for BT Business and
BTConsumer, and 2.0% for EE.
Sensitivities
There is significant headroom in all CGUs. For BT Global Services, the value in use exceeds the carrying value of the CGU by approximately
£6,900m. Thefollowing changes (in combination) in assumptions would cause the recoverable amount to fall below the carrying value:
– reduction in the perpetuity growth rate from the 2.3% assumption applied to a revised assumption of no growth
– an increase in the discount rate from the 8.8% assumption applied to a revised assumption of 15%
– shortfalls in trading performance against forecast resulting in operating cash flows decreasing by £210m or more in perpetuity.
For BT Business, BTConsumer and EE no reasonably possible changes in the key assumptions would cause the carrying amount of the
CGUs to exceed the recoverable amount.
From 1 April 2016, the CGUs that have associated goodwill reflect the reorganisation as disclosed in Note 31.