BAE-annual-report-2014

Financial statements
NOTES TO THE GROUP ACCOUNTS
CONTINUED
9. INTANGIBLE ASSETS continued
Significant CGUs
Goodwill allocated to CGUs which are largely dependent on US government spending on defence, aerospace and security represents
£7.3bn (2013 £7.1bn) of the Group’s total goodwill balance. The Group monitors changes in defence budgets on an ongoing basis.
Cash-Generating Unit
Electronic Systems
Intelligence & Security
(within Cyber & Intelligence)
Land & Armaments
(within Platforms & Services (US))
Support Solutions
(within Platforms & Services (US))
Key assumptions
Continued demand from the US government for
electronic warfare systems (where the business
has a leadership position), other technology-based
solutions and growth in the commercial avionics
market
Continued demand in the US for the Group’s
services in the areas of homeland security, law
enforcement and counter-intelligence
Continued demand in the Group’s principal markets
for existing and successor military tracked
vehicles, naval guns, missile launchers, artillery
systems, munitions, upgrade programmes and
support
Continued demand in the US for complex
infrastructure, maritime and aviation services, and
operations support
Allocated goodwill
2014
£bn
2013 1
£bn
Pre-tax discount rate
2014
%
2013
%
3.2 3.1 9.4 10.8
1.0 0.9 9.4 10.8
2.2 2.2 8.8 9.6
0.9 0.9 9.3 10.8
1. Re-presented for the transfer of the UK Munitions business from Land & Armaments (within Platforms & Services (US)) to Platforms & Services (UK) from
1 January 2014.
The final year growth rate assumption in the value-in-use calculations is in the range 1% to 2%.
The headroom, calculated as the difference between net assets including allocated goodwill as at 31 December 2014 and the
value-in-use calculations, for the CGUs listed above, is shown below. The table also shows the headroom assuming a 1% reduction in
the terminal value growth rate assumption and a 1% increase in the discount rate used in the value-in-use calculations.
Cash-Generating Unit
Headroom as at
31 December
2014
£bn
2013
£bn
Headroom assuming
a 1% reduction in the
terminal value growth
rate assumption
2014
£bn
2013
£bn
Headroom assuming
a 1% increase in the
discount rate
Electronic Systems 1.6 0.3 0.8 (0.2) 0.6 (0.3)
Intelligence & Security 0.1 – (0.1) (0.1) (0.1) (0.2)
Land & Armaments 0.5 – – (0.3) (0.1) (0.4)
Support Solutions – 0.2 (0.2) – (0.2) (0.1)
Other CGUs
The remaining goodwill balance of £2.4bn (2013 £2.3bn) is allocated across multiple CGUs, including £0.5bn (2013 £0.5bn) in the
Applied Intelligence CGU, with no individual CGU exceeding 10% of the Group’s total goodwill balance. The majority of the projected cash
flows within these CGUs are underpinned by expected levels of primarily UK government spending on defence, aerospace and security,
and the Group’s ability to capture a broadly consistent market share. In the case of Applied Intelligence, the future cash flow projections
are based on the expectation of growth in cyber and intelligence, in the UK and overseas government markets, together with increasing
demand for products and services in commercial markets.
Impairment – goodwill
In 2014, the impairment charge of £161m comprises the Support Solutions CGU (£87m), reflecting performance issues at the US
commercial shipbuilding business, and the Land & Armaments CGU (£74m), reflecting the agreement to sell the Group’s 75% holding
in BAE Systems Land Systems South Africa (Pty) Limited at a price below its total carrying value.
In 2013, the impairment charge of £865m comprised the US Intelligence & Security (£417m) and Land & Armaments (£448m) CGUs.
Impairment – intangible assets
In 2014, the impairment charge of £9m relates to the Electronic Systems (£1m) and Platforms & Services (US) (£8m) reporting segments.
In 2013, the impairment charge of £22m related to the Electronic Systems (£4m), Cyber & Intelligence (£8m) and Platforms & Services
(US) (£10m) reporting segments.
2014
£bn
2013
£bn
120
BAE Systems
Annual Report 2014