Goodwill acquired through business combinations has been allocated for impairment testing purposes to the groups of cash generating units (CGUs) listed below. These represent the lowest level within the Group at which goodwill is monitored by management for internal reporting purposes.
The significant groups of CGUs identified are Property Consultancy, HR Solutions, Insurance & Specialist Services, Registrar Services, Financial Services, Life & Pensions and IT & Software Services. The remaining groups of CGUs are included in the ‘balance of CGUs’ column.
The recoverable amount of all the CGUs is based on a value in use calculation using cash flow projections based on the latest 1 year budget forecast extrapolated for 4 future years by a growth rate applicable to each unit; an appropriate terminal value based on a perpetuity calculation using nil real growth is then added. A discount rate of 10.0% (2007: 11.1%) is then applied to these projections.
The growth rates used do not exceed published industry estimates.
The key assumptions used in the impairment testing were as follows:
The profit before interest and taxation is based on the assumption that future margins will remain at the levels currently being achieved.
The discount rate reflects management’s estimate of the gross cost of capital employed for the groups of CGUs listed above. This is the benchmark established to assess operating performance and to evaluate future capital investment proposals. The rate applied to all CGUs is the same across all units, this reflects the Group’s funding arrangements where all units have equal access to the Group’s treasury functions and borrowing lines to fund their operations. No unit demonstrates abnormal levels of risk or funding profile and therefore the discount rate applied is deemed to be justified.
Growth rate assumptions are based on, as far as possible, published industry research (Ovum 2008). Where the cash generating unit does not correspond directly with the research undertaken then the growth rate used is that of the nearest possible match in relation to the risks experienced within the associated market. The rates used are further cross-checked with the senior operational management of the units in question.
Management believes that no reasonably possible change in the key assumptions above would cause any of the identified CGUs to become impaired.
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