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 and Life & Pensions. 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 one 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 11.4% is then applied to these projections.
| Compound growth rates (years 2–5) |
% |
| Property Consultancy |
10.0 |
| HR Solutions |
10.0 |
| Insurance & Specialist Services |
10.0 |
| Registrar Services |
8.5 |
| Financial Services |
8.5 |
| Life & Pensions |
10.4 |
| Balance of CGUs (weighted average growth rate) |
9.6 |
The growth rates used do not exceed published industry estimates.
Carrying amount of goodwill allocated to groups of cash generating units
| |
Property
Consultancy
£m |
HR Solutions
£m |
Insurance
& Specialist
Services
£m |
Registrar
Services
£m |
Financial
Services
£m |
Life &
Pensions
£m |
Balance
of CGUs
£m |
Total
£m |
| 2006 |
|
|
|
|
|
|
|
|
| Goodwill |
46.1 |
80.7 |
167.7 |
93.6 |
77.3 |
26.5 |
>97.5 |
589.4 |
| 2005 |
|
|
|
|
|
|
|
|
| Goodwill |
43.8 |
80.7 |
166.6 |
88.3 |
62.8 |
26.2 |
81.7 |
550.1 |
The key assumptions used in the impairment testing were as follows:
- Profit before interest and taxation
- Discount rates
- Rates of growth in CGUs for the years 2 to 5.
Profit before interest and taxation
The profit before interest and taxation is based on the margins achieved remaining at the levels currently being achieved.
Discount rate
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.
Rates of growth in cash generating units beyond the budget period
Growth rate assumptions are based on, as far as possible, published industry research.
Goodwill impairment
Management believes that no reasonably possible change in the key assumptions above would cause any of the identified CGUs to become impaired.