188 ITV plc Annual Report and Accounts 2023 ITV plc Annual Report and Accounts 2023 189 F I NOTES TO THE FINANCIAL STATEMENTS NAN SECTION 3: OPERATING ASSETS AND LIABILITIES CONTINUED C I AL Other intangible assets Impairment S T Intangible assets other than goodwill are those that are distinct and can be sold separately or which arise from legal rights. Goodwill is not subject to amortisation and is tested annually for impairment and when circumstances indicate that A T the carrying value may be impaired. E The main intangible assets the Group has valued are formats, brands, licences, contractual arrangements, customer M E N contracts and relationships and libraries. Other intangible assets are subject to amortisation and are reviewed for impairment whenever events or changes in T circumstances indicate that the amount carried in the Consolidated Statement of Financial Position is less than its S Within ITV, there are two types of other intangible assets: those assets directly purchased by the Group for day-to-recoverable amount. day operational purposes (such as software licences and development) and intangible assets identified as part of an acquisition of a business. Determining whether the carrying amount of intangible assets has any indication of impairment requires judgement. Any impairment is recognised in the Consolidated Income Statement. Intangible assets acquired directly by the Group are stated at cost less accumulated amortisation. Those separately identified intangible assets acquired as part of an acquisition or business combination are shown at fair value at the An impairment test is performed by assessing the recoverable amount of each asset, or for goodwill the cash- date of acquisition less accumulated amortisation. generating unit (CGU), or group of CGUs, related to the goodwill. Total assets (which include goodwill) are grouped at the lowest levels for which there are separately identifiable cash flows. The Directors have identified three CGUs, Each class of intangible assets’ valuation method on initial recognition, amortisation method and estimated useful Media & Entertainment, ITV Studios and SDN. life is set out in the table below: The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The value in use is Class of intangible asset Amortisation method Estimated useful life Valuation method based on the present value of the future cash flows expected to arise from the asset. Brands Straight-line 8 to 14 years Applying a royalty rate to the expected future revenue over the life of the brand In testing for impairment, estimates are used in deriving cash flows and the discount rates. Such estimates reflect Formats Straight-line up to 8 years Expected future cash flows from those assets existing current market assessments of the risks specific to the asset and the time value of money. The estimation process Customer Straight-line or up to 6 years at the date of acquisition are estimated. If applicable, is complex due to the inherent risks and uncertainties associated with long-term forecasting. If different estimates contracts reducing balance a contributory charge is deducted for the use of other of the projected future cash flows or a different selection of an appropriate discount rate or long-term growth rate as appropriate assets needed to exploit the cash flow. The net cash were made, these changes could materially alter the projected value of the cash flows of the asset, and as a Customer relationships Straight-line 5 to 10 years flow is then discounted back to present value consequence materially different amounts would be reported in the financial statements. Contractual Straight-line up to 13 years Expected future cash flows from those contracts Impairment losses in respect of goodwill cannot be reversed. In respect of assets other than goodwill, an impairment arrangements depending on the existing at the date of acquisition are estimated. loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An contract terms If applicable, a contributory charge is deducted impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount for the use of other assets needed to exploit the that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. cash flow. The net cash flow is then discounted back to present value There is a wide range of potential outcomes regarding the possible future performance of each of ITV Group’s cash- Licences Straight-line 11 to 29 years Start-up basis of expected future cash flows existing generating units, Media & Entertainment, ITV Studios and SDN. In the impairment review the Directors used the depending on at the date of acquisition. If applicable, a contributory scenarios utilised for the viability statement. The Directors, however, do not consider that any reasonably possible term of licence charge is deducted for the use of other assets needed changes in the key assumptions would cause the recoverable amount of the Group’s cash-generating units to fall to exploit the cash flow. The net cash flow is then below their carrying values and therefore they are not considered key sources of estimation uncertainty. discounted back to present value. Public service broadcasting (PSB) licences are valued as a start-up business with only the licence in place Libraries and other Sum of digits or up to 20 years Initially at cost and subsequently at cost less straight-line as accumulated amortisation appropriate Software licences and Straight-line 1 to 10 years Initially at cost and subsequently at cost less development accumulated amortisation Cloud computing arrangements Cloud computing arrangements are reviewed to determine if they are within the scope of IAS 38 ‘Intangible Assets’, IFRS 16 ‘Leases’, or a service contract. This is to determine if the Group has control of the software intangible asset. Control is assumed if the Group has the right to take possession of the software and run it on its own or a third- party’s computer infrastructure or if the Group has exclusive rights to use the software whereby the supplier cannot make the software available to other customers. Configuration of the software involves the setting of various flags or switches within the application software or defining values to set up the software’s existing code to function in a specified way. Customisation involves modifying the software code in the application or writing additional code. Customisation generally changes or creates additional functionalities within the software. In both situations, the Group also needs to assess if there is a separate intangible asset. If no separate intangible asset is identified, then these costs are expensed when incurred. If an asset is identified, it is capitalised and amortised over the life of the asset. Fair value on acquisition Determining the fair value of the purchase consideration allocated to intangible assets arising on acquisition requires judgement. The Directors make estimates regarding the timing and amount of future cash flows derived from exploiting the assets being acquired. The Directors then estimate an appropriate discount rate to apply to the forecast cash flows. Such estimates are based on current budgets and forecasts, extrapolated for an appropriate period taking into account growth rates, operating costs and the expected useful lives of assets. Judgements are also made regarding whether, and for how long, licences will be renewed; this drives our amortisation policy for those assets. The Directors estimate the appropriate discount rate that reflects current market assessments of the time value of money and the risks specific to the assets or businesses being acquired. Amortisation tement over the estimated useful lives of intangible assets Amortisation is charged to the Consolidated Income Sta unless such lives are judged to be indefinite. Indefinite life assets, such as goodwill, are not amortised but are tested for impairment at each year end.