Barclays 2008 Annual Report Download - page 224

Notes to the accounts
For the year ended 31st December 2008
222 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08
21 Goodwill
2008 2007
£m £m
Net book value
At beginning of year 7,014 6,092
Acquisitions 400 879
Disposals (10) (17)
Impairment charge (111) –
Exchange and other adjustments 332 60
At end of year 7,625 7,014
Goodwill is allocated to business operations according to business segments identified by the Group under IFRS 8, as follows:
2008 2007
£m £m
UK Retail Banking 3,139 3,138
Barclays Commercial Bank 10 9
Barclaycard 413 408
GRCB – Western Europe 705 551
GRCB – Emerging Markets 292 45
GRCB – Absa 1,084 1,062
Barclays Capital 95 147
Barclays Global Investors 1,496 1,261
Barclays Wealth 391 393
Goodwill 7,625 7,014
Goodwill is reviewed annually for impairment, or more frequently when there are indicators that impairment may have occurred, by comparing the
carrying value to its recoverable amount.
Impairment testing of goodwill
The recoverable amount of each operation’s goodwill is based on value-in-use or fair value less costs to sell calculations. The calculations are based upon
discounting expected pre-tax cash flows at a risk adjusted interest rate appropriate to the cash generating unit, the determination of both of which
requires the exercise of judgement. The estimation of pre-tax cash flows is sensitive to the periods for which forecasts are available and to assumptions
regarding the long-term sustainable cash flows. While forecasts are compared with actual performance and external economic data, expected cash flows
naturally reflect management’s view of future performance.
At 31st December 2008, the goodwill allocated to UK Retail Banking was £3,139m (2007: £3,138m) including £3,130m (2007: £3,130m) relating to
Woolwich, the goodwill allocated toGRCB – Absa was £1,084m (2007: £1,062m) and the goodwill allocated to Barclays Global Investors was £1,496m
(2007: £1,261m). The remaining aggregate of goodwill of £1,915m (2007: £1,561m) consists of balances relating to multiple business operations which
are not considered individually significant.
Goodwill impairment of £111m (2007: £nil) reflects the full write-down of £74m relating to EquiFirst, a US non-prime mortgage originator and a partial
write-down of £37m relating to FirstPlus following its closure to new business in August 2008.
Key assumptions used in impairment testing for significant goodwill
UK Retail Banking
The recoverable amount of UK Retail Banking has been determined based on a value in use calculation. The calculation uses cash flow projections based
on financial budgets approved by management covering a three year period, and a discount rate of 17.48%. For the purposes of the calculations, cash
flows beyond that period have been extrapolated using a steady 3% growth rate. The growth rate does not exceed the long-term average growth rate for
the market in which UK Retail Banking operates. Management believes that any reasonable possible change in the key assumptions on which UK Retail
Banking’s recoverable amount is based would not cause its carrying amount to exceed its recoverable amount.
Global Retail and Commercial Banking – Absa
The recoverable amount of GRCB – Absa has been determined based on a value in use calculation. The calculation uses cash flow projections based on
financial budgets approved by management covering a three year period, and a discount rate of 14.10%. For the purposes of the calculations, cash flows
beyond that period have been extrapolated using a growth rate of 8% to cash flows for the two years 2012 to 2013, and a rate of 6% for the ten years
2014 to 2023. The growth rate does not exceed the long-term average growth rate for the market in which GRCB – Absa operates. Management believes
that any reasonable possible change in the key assumptions on which GRCB – Absa’s recoverable amount is based would not cause its carrying amount to
exceed its recoverable amount.
Barclays Global Investors
The recoverable amount of BGI has been determined based on a fair value methodology approach which includes both a discounted cash flow valuation
and comparable company valuation multiples based on revenue, EBITDA and assets under management. The calculation uses earnings projections based
on financial budgets approved by management covering a three year period and a discount rate of 11.5%. For the purposes of the calculations, cash flows
beyond that period have been extrapolated using growth rates of between 2% and 11% for cash flows from 2012 to 2017, and a terminal growth factor
of 4% for 2018 and beyond. The growth rate does not exceed the long-term average growth rate for the market in which BGI operates. Management
believes that any reasonable possible change in the key assumptions on which BGI’s recoverable amount is based would not cause its carrying amount to
exceed its recoverable amount.