Barclays 2010 Annual Report Download - page 221

19 Goodwill and Intangible Assets continued
Goodwill
Goodwill is allocated to business operations according to business segments as follows:
2010
£m
2009
£m
UK Retail Banking 3,148 3,146
Barclaycard 585 552
Western Europe Retail Banking 505 520
Barclays Africa 36 39
Barclays Capital 133 105
Barclays Corporate 150 389
Barclays Wealth 391 391
Absa 1,271 1,090
Total Goodwill 6,219 6,232
Goodwill has been allocated to the revised business segments in line with the resegmentation communicated to the market in March 2010. This means
that the £243m of goodwill in Barclays Bank Russia was allocated to Barclays Corporate and goodwill in Spain of £565m was allocated between Western
Europe Retail Banking (£439m) and Barclays Corporate (£126m). The comparative figures for 2009 have been updated to reflect this resegmentation.
Impairment testing of goodwill
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.
The recoverable amount of each operation’s goodwill is based on value-in-use 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.
Key assumptions
The key assumptions used for impairment testing are set out below for each significant goodwill balance. Other goodwill of £1,253m (2009: £1,986m)
was allocated to multiple cash-generating units which are not considered individually significant.
UK Retail Banking
The recoverable amount of UK Retail Banking has been determined using cash flow predictions based on financial budgets approved by management
and covering a five-year period, with a terminal growth rate of 2% (2009: 3%) applied thereafter. The forecast cashflows have been discounted at a
pre-tax rate of 13% (2009: 14%). Based on the above assumptions, the recoverable amount exceeded the carrying amount including goodwill by £4.0bn
(2009: £1.2bn). A one percentage point change in the discount rate or the terminal growth rate would reduce the recoverable amount by £1.0bn
(2009: £0.7bn) and £0.8bn (2009: £0.5bn) respectively. A reduction in the forecast cash flows of 10% per annum would reduce the recoverable amount
by £1.1bn (2009: £0.8bn).
Absa
The recoverable amount of Absa has been determined using cash flow predictions based on financial budgets approved by management and covering
a five year period, with a terminal growth rate of 6% (2009: 6%) applied thereafter. The forecast cashflows have been discounted at a pre-tax rate of
14% (2009: 14%). The recoverable amount calculated based on value in use exceeded the carrying amount including goodwill by £5.0bn (2009:
£4.7bn). The result of the impairment test would not be materially different if alternative reasonably possible changes in key assumptions were applied.
Spain
The recoverable amount of the Spanish business has been determined using cash flow predictions based on financial budgets approved by management
covering a five-year period, with a terminal growth rate of 2% (2009: 2%) applied thereafter. The forecast cash flows have been discounted at a pre-tax
rate of 12% (2009: 13%). The recoverable amount calculated based on value in use exceeded the carrying amount including goodwill by £383m. The cash
flow projections include the estimated benefits from changes in product mix, improved product pricing and impairment levels coming back into line with
historic loan loss rates. There is no impact from any cost restructuring or any future planned investments included within the forecasts. An increase in the
discount rate to 15%, a decrease in the terminal growth rate to negative 1.3% or a reduction in the forecast cash flows by 26% per annum would reduce
the headroom over the carrying amount to nil.
Barclays Corporate – Russia
At 31st December 2010, Barclays recognised an impairment charge of £243 million (2009: nil) in respect of all of the goodwill held by Barclays Corporate
in Barclays Bank Russia (BBR), which arose from the Expo bank acquisition in 2008. The impairment principally reflects changes in expected future cash
flows arising from BBR as our activities there have been refocused. The recoverable amount of BBR was calculated based on the value in use approach
using a pre-tax rate of 17%.
Barclays PLC Annual Report 2010 www.barclays.com/annualreport10 219
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