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Financial Statements
14. Goodwill
| £m | |
|---|---|
| Cost at 1 April 2005 | 2,045 |
| Exchange adjustments | 111 |
| Cost at 31 March 2006 | 2,156 |
| Exchange adjustments | (192) |
| Acquisition of subsidiary undertakings | 157 |
| Reclassification to assets of businesses held for sale | (641) |
| Cost at 31 March 2007 | 1,480 |
| Accumulated impairment losses at 1 April 2005 and 1 April 2006 | 14 |
| Exchange adjustments | (1) |
| Impairment charge | 55 |
| Reclassification to assets of businesses held for sale | (68) |
| Accumulated impairment losses at 31 March 2007 | - |
| Net book value at 31 March 2007 | 1,480 |
| Net book value at 31 March 2006 | 2,142 |
Goodwill is reviewed annually for impairment. The amounts disclosed above as at 31 March 2007 include balances relating to our operations in New England of £915m (2006: £882m; 2005: £823m) and New York of £565m (2006: £639m; 2005: £592m).
Within the New England and New York operations, goodwill is allocated to the individual subsidiary companies. These are defined as cash generating units for impairment testing purposes. The recoverability of the goodwill as at 31 March 2007 that relates entirely to the New England and New York operations has been assessed by comparing the carrying value of these operations with the recoverable amount on a value-in-use basis. This has been calculated based on projections that incorporate our best estimates of future cash flows, customer rates, costs, future prices, growth, operating costs and the cash flows, prepared from internal forecasts for the next five years extrapolated into the future by using a 2% growth rate. Cash flow projections have been discounted to reflect the time value of money, using a discount rate of 6%. The discount rate is the post-tax weighted average cost of capital. On a pre-tax basis it is estimated that the discount rate would be approximately 10%.
Goodwill with respect to wireless infrastructure operations in the UK of £557m (2006: £557m; 2005: £557m) has been reclassified to assets of businesses held for sale as at 31 March 2007, as has goodwill with respect to our US wireless infrastructure operations of £16m (2006: £64m; 2005: £59m). The impairment charge for the year ended 31 March 2007 relates entirely to discontinued operations.
The recoverable amount of the goodwill relating to wireless infrastructure operations in the UK has been based on an assessment of the fair value of the operation. This has been determined by considering other recent transactions and external information on valuations placed on similar wireless infrastructure businesses, including National Grid Wireless. The key assumption used relates to the earnings multiples that might be applicable in the purchase or sale of wireless infrastructure networks.