Peachtree 2012 Annual Report Download - page 97

Overview
Performance
Governance
The Group conducts annual impairment tests on the carrying value of goodwill, based on the recoverable amount of CGUs to which goodwill has been allocated.
The recoverable amounts of CGUs are determined from value-in-use calculations. The key assumptions in the value-in-use calculations are the discount rate
applied, the long-term operating margin (EBITA) and the long-term growth rate of net operating cash flows. In all cases, the approved budget for the following
financial year formed the basis for the cash flow projections for a CGU. The approved cash flow projections in the four financial years following the budget year
reflected management’s expectations of the medium-term operating performance of the CGU and growth prospects in the CGU’s market.
The discount rate applied to a CGU represents a pre-tax rate that reflects the market assessment of the time value of money at the end of the reporting period
and the risks specific to the CGU. The discount rates applied to CGUs were in the range of 7.3% (2011: 6.8%) to 22.7% (2011: 19.9%).
The long-term operating margin assumed for a CGU’s operations is primarily based on past performance. For some CGUs, those for which management
has strong reason to believe that past operating margins are not indicative of future operating margins, expected future improvements are also included in
management’s assessment of the long-term operating margin. The long-term operating margin applied to CGUs was in the range of 21% (2011: 21%) to
62% (2011: 50%).
Long-term growth rates of net operating cash flows are assumed equal to the long-term growth rate in the gross domestic product of the country in which
the CGU’s operations are undertaken and were in the range of 1.8% (2011: 1.6%) to 5.5% (2011: 5.5%).
Goodwill impairment tests were conducted separately for each CGU.
Sensitivity to changes in assumptions
Management believes that no reasonable potential change in any of the above key assumptions would cause the carrying value of any CGU to exceed its
recoverable amount.
The value-in-use calculations are sensitive to changes in discount rates. The discount rates used are based on estimated weighted average costs of capital
in each country before tax and reflect specific risks relating to the relevant CGUs.
The largest CGU is Sage Business Solutions Division, which constitutes approximately 42% of the carrying value of goodwill at the end of the reporting period.
The discount rates applied to this CGU would have to increase by 54% to result in a value-in-use equal to the carrying value of the goodwill. This assumes all
other key assumptions applied within the value-in-use calculations remain constant.
5.2 Other intangible assets
Brands
£m
Technology
£m
Acquired
IPR&D
£m
Internal
IPR&D
£m
Computer
software
£m
Customer
relationships
£m
Total
£m
Cost at 1 October 2011 35.9 81.9 0.4 5.6 52.5 108.2 284.5
Continuing operations
– Additions – – – – 6.9 3.9 10.8
– Acquisition of subsidiaries 6.8 20.5 – – 0.6 14.3 42.2
– Disposals – – – – (5.2) – (5.2)
– Exchange movement (2.2) (4.5) – – (1.9) (5.2) (13.8)
At 30 September 2012 40.5 97.9 0.4 5.6 52.9 121.2 318.5
Accumulated amortisation at 1 October 2011 16.3 61.2 0.4 5.6 10.8 72.1 166.4
Continuing operations
– Charge for the year 3.1 6.6 – – 8.5 7.4 25.6
– Disposals – – – – (5.1) –(5.1)
– Exchange movement (1.0) (3.5) – – (0.3) (3.4) (8.2)
At 30 September 2012 18.4 64.3 0.4 5.6 13.9 76.1 178.7
Net book amount at 30 September 2012 22.1 33.6 – – 39.0 45.1 139.8
Financial statements
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The Sage Group plc | Annual Report & Accounts 2012