ANNUAL REPORT AND FINANCIAL STATEMENTS 2011 | 67


13. Goodwill and other intangible assets continued


Goodwill Goodwill has arisen from various business combinations and, reflecting the Group’s reportable operating segments disclosed in note 1, is represented by three cash generating units (CGUs), as follows:


31 December 31 December 2011 £m


2010 £m


F&C F&C REIT Thames River Capital


467.2 127.9 16.8


611.9


467.2 127.9 16.8


611.9


Goodwill is not amortised but is tested for impairment annually at individual CGU level, or when indicators of potential impairment are identified. The carrying value of goodwill attributable to each CGU was tested for impairment as at 31 December 2011, as described below; to date, none of the CGUs has suffered any impairment of goodwill.


Investment management contracts (management contracts) Management contracts predominantly relate to contracts arising from business acquisitions.


Management contracts are amortised over their expected useful lives and are tested for impairment only when indicators of potential impairment are identified. No such indicators have been identified since the last impairment review undertaken as at 31 December 2008 and therefore no impairment review of management contracts has been undertaken this year. Management contract impairment losses recognised in prior years relate entirely to the F&C operating segment; the accumulated impairment losses at 31 December 2011 were £218.3m (31 December 2010: £218.3m).


The foreign exchange losses recognised in the year arise from the relative weakening of the Euro over the course of 2011, decreasing the value of Euro-denominated contracts, (primarily F&C insurance contracts), in Sterling terms.


The categories of management contracts, their carrying amounts at the year end, remaining amortisation periods and estimated useful lives are as follows:


31 December 2011 Remaining


Net book amortisation values £m


RSAI insurance contracts


RSAI retail contracts/F&C OEICs F&C insurance contracts


F&C institutional contracts (fixed term/non-fixed term) F&C investment trust contracts


F&C advisory and sub-advisory contracts Private equity fund of funds REIT property contracts


Thames River Capital contracts


0.3 4.7


41.6 4.8 9.7


14.0 0.8


128.6 ½


½ – 3 3


3/– 4½ 3


13


period (years)


Estimated useful life


(years) 10


10 10


10/4 10 10 20


31 December 2010 Remaining


Net book values £m


1.0 9.1


58.1 6.7


11.8 19.3 0.9


175.5


Impairment testing of goodwill The recoverable amount of the CGUs has been determined on their value in use (including terminal value) at each respective testing date for 2010 and 2011. The value in use is calculated by discounting the cash flow projections based on the latest annual financial budget, and management’s forecasts. A long-term growth rate is used to extrapolate the cash flows reflecting the nature of the Group’s business and the Board’s current view that there is no reason to believe that the CGUs will not continue in operation in perpetuity.


The key assumptions adopted in these calculations for each operating segment are as follows: 31 December 2011


F&C Discount rate


Long-term market growth rate Inflation rate*


F&C REIT


4.30% 3.95%


TRC


10.15% 10.15% 12.15% 5.20% 3.95%


* The costs included in year one of the projections reflect those included in the budget for the respective year.


5.45% 3.95%


F&C


8.60% 5.30% 4.15%


31 December 2010 F&C REIT


8.60% 4.25% 4.15%


amortisation period (years)


1½


1½ – 4 4


4/– 5½ 4


14


Estimated useful life


(years) 10


10 10


10/4 10 10 20


37.3 47 47.5 57 15.4 34 21.1 44


TRC


10.60% 5.80% 4.15%


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