EirGrid plc Annual Report 2011

EirGrid plc Annual Report & Accounts 2011
10. Intangible Assets (continued)
The recoverable amount of the intangible assets allocated to a CGU has been determined by value in use
calculations, which use budgets and forecasts covering the period to 30 September 2017. This is the period
to which management believe that discrete forecasts regarding expected cash flows can reasonably be made.
The key assumptions for the value in use calculations are those regarding discount rates, growth rates and
anticipated regulatory recoveries arising from price controls.
The key assumptions used within the calculations include:
• SONI TSO and SEMO profitability levels have been based on the regulatory price controls agreed in 2011
and 2010 respectively. The SONI price control covers the period from 2010-2015, the SEMO price control
covers the period from 2010-2013. Estimated regulatory recoveries have been used to forecast profitability
levels in the period beyond the current price controls;
• Discount rates of 5.25% and 4.95% (2010: 5.31% and 5.52%) have been assumed for the SEMO and SONI
TSO CGUs respectively;
• Growth rates of 2.0% (2010: 2.0%) have been assumed into perpetuity for SEMO and SONI TSO regulatory
asset bases (RAB). A nil% growth rate (2010: 2.0%) has been assumed into perpetuity for the SEMO and
SONI TSO regulatory incentives. These assumptions reflect management’s expectation for long-term
growth.
At 30 September 2011, before impairment testing, goodwill of €3.5m and licence agreements of €14.5m were
allocated to SONI TSO, which derives its revenue acting as the Transmission System Operator for Northern
Ireland. On the basis of the above assumptions the Directors have concluded that there is an impairment to
goodwill of €3.5m. This impairment loss is recognised within operating costs in the Consolidated Income
Statement.
At 30 September 2010, before impairment testing, goodwill of €0.9m and licence agreements of €3.8m were
allocated to SEMO, which derives its revenue acting as the Market Operator for the wholesale electricity
market on the island of Ireland. On the basis of the 2010 assumptions, the Directors concluded that there was
an impairment to goodwill of €0.9m and an impairment of €1.0m to licence agreements. This impairment loss
was recognised within operating costs in the Consolidated Income Statement.
Impairment testing is dependent on management’s estimates and judgements, in particular in relation to the
forecasting of future cash flows, the discount rates applied to those cash flows and the expected long term
growth rates. The Group has conducted a sensitivity analysis on the impairment test of each of the CGU’s
carrying values. An increase in the discount rate of 0.5% would result in an impairment to the value of the
licence in the SEMO CGU of €0.2m and a further impairment to the value of the goodwill and license in the
SONI TSO CGU of €0.1m and €2.5m respectively. A decrease in the RAB perpetuity growth rate of 1% would
result in an impairment to the value of the licence in the SEMO CGU of €1.1m and a further impairment to the
value of the goodwill and licence in the SONI CGU of €0.1m and €3.0m respectively.
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