Notes to the financial statements

On transition to IFRS on 1 April 2004, the Group took advantage of the exemption available under IFRS1 “First-Time Adoption of International Financial Reporting Standards” and did not separately identify any intangible assets arising on consolidation in respect of acquisitions prior to the transition date. It is anticipated that intangible assets arising on the acquisition of voice broking businesses have a finite life. The Group reviews the performance of the businesses and reassesses the likely period over which the acquired intangible asset is likely to continue to add value to the business each year. As a result some businesses will have no impairment in a particular year while others will. The Group has booked an impairment in the year of £7m relating to First Brokers (2008 – £8m).

Impairment testing of intangible assets arising on consolidation

Goodwill and other intangible assets arising on consolidation are allocated to a cash generating unit (CGU) at acquisition. A CGU is the smallest segment on which it is practicable to report, each of which represents one of the Group’s businesses. The carrying amounts are presented below:

Goodwill is not amortised but is tested for impairment at least annually. The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections which extend forward to a terminal value and which take account of the approved budget for the year ending 31 March 2010 together with assumptions surrounding the expected life of the asset, management’s view of the trading cycles and growth profile facing each CGU and any adjustments required to the discount factor to take account of country or business risk.

The value-in-use calculations are sensitive to changes in these assumptions and in particular long-term growth rates. With the exception of Traiana, ICAP Shipping and First Brokers, the base model assumes that the budgeted cash flows for 2010 grew at 2% per annum to a terminal value in year ten and when discounted showed significant headroom. The base case was then stress tested using a zero growth assumption and continued to show no impairment. Management view these assumptions as conservative and do not believe that any reasonable change in the assumptions would cause the carrying value of these CGU’s to exceed the recoverable amount.

Traiana, ICAP Shipping and First Brokers each exhibit different trading characteristics from ICAP’s other businesses during the forecast period.

First Brokers’ cash flows have been modelled on the basis of flat performance for a remaining life of six years. As a result of this analysis the investment in First Brokers was impaired by £7m in 2009 (2008 - £8m).

The performance of ICAP’s shipping business is influenced by a combination of global trading volumes and imbalances in the world fleet. The industry has historically exhibited trading peaks and troughs every three to four years and, in modelling the future cash flows, management has assumed that revenues peak in 2012/13 and 2017/18 at levels up 50% and 80% respectively on 2007/08 performance when proforma cash flows were £10m and that the terminal cash flow represents the average achieved over the previous cycle. While these assumptions are viewed as conservative, it remains unclear when the next cycle will commence. Management has therefore stress tested its assumptions further by assuming flat trading performance through 2011 and 2012. Under this scenario the carrying value of the CGU equates to the recoverable amount.

The relatively early stage of development of Traiana makes modelling cash flows difficult and, as such, in determining the value-in-use for this business management commissioned an external review of the business model to determine the likely profile for the next five years and then assumed flat performance thereafter. In stress testing management noted that the discount factor applied to the cash flows could rise to 29%, or the cash flows fall to 25% of forecast using a 10% discount factor, before any impairment was required.

The Group applied a discount factor of 10% (2008 – 8%) which was weighted to take account of country risk, where investments have been made outside the UK and North America, and/or business risk which, in the case of Traiana, was doubled to 20% to take account of the risks associated with modelling a business in its early stage of development.

No assets were impaired, except as noted above.

(b) Intangible assets arising from development expenditure

Intangible assets arising from development expenditure consist of the software development costs of electronic trading platforms and other assets and are generally amortised over three to five years. The Group reviews the useful economic lives of these assets on a regular basis.

The amortisation and impairment of assets arising on development expenditure is included within profit before amortisation and impairment of intangibles arising on consolidation and exceptional items in the income statement.