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Notes 11-15

12. Intangible assets

Goodwill

The movements in 2007 and 2006 were as follows:

£m
Cost:
1 January 2006 6,049.5
Additions1 207.6
Exchange differences (433.5)
31 December 2006 5,823.6
Additions1 603.7
Exchange differences 59.9
31 December 2007 6,487.2

Accumulated impairment losses and write-downs:
1 January 2006 374.3
Goodwill write-down relating to
utilisation of pre-acquisition tax losses
8.8
Impairment losses for the year 20.1
Exchange differences (14.1)
31 December 2006 389.1
Goodwill write-down relating to
utilisation of pre-acquisition tax losses
1.7
Impairment losses for the year 33.7
Exchange differences (9.0)
31 December 2007 415.5

Net book value:
31 December 2007 6,071.7
31 December 2006 5,434.5
1 January 2006 5,675.2

Note

1 Additions represent goodwill arising on the acquisition of subsidiary undertakings. Goodwill arising on the acquisition of associate undertakings is shown within interests in associates in note 14.


Significant components of goodwill as at 31 December 2007 and 2006 are:

  2007
£m
2006
£m
Young & Rubicam 2,372.6 2,249.6
Grey 1,010.2 964.2
Mediaedge:cia 879.7 874.7
Other 1,809.2 1,346.0
Total goodwill 6,071.7 5,434.5

Other goodwill represents goodwill on a large number of acquisitions, none of which is individually significant in comparison to the total carrying value of goodwill.

Other intangible assets:

The movements in 2007 and 2006 were as follows:

  Brands
with an
indefinite
useful life
£m
Acquired
intan-
gibles
£m
Other
£m
Total
£m
Cost:
1 January 2006 897.0 356.6 77.4 1,331.0
Additions 16.7 16.7
Disposals (4.1) (4.1)
Acquired on acquisition of a subsidiary 20.3 20.3
Other movements 15.2 15.2
Exchange differences (85.6) (40.4) (8.7) (134.7)
31 December 2006 811.4 336.5 96.5 1,244.4
Additions 21.2 21.2
Disposals (9.1) (9.1)
Acquired on acquisition of a subsidiary 85.7 8.4 94.1
Other movements (1.1) (1.1)
Exchange differences (13.4) 0.5 2.7 (10.2)
31 December 2007 798.0 413.6 127.7 1,339.3

Amortisation and impairment:
1 January 2006 26.3 44.1 70.4
Charge for the year 43.3 13.5 56.8
Other movements 12.6 12.6
Exchange differences (5.0) (5.8) (10.8)
31 December 2006 64.6 64.4 129.0
Charge for the year 40.3 18.1 58.4
Disposals (2.4) (2.4)
Other movements (0.6) (1.6) (2.2)
Exchange differences (0.5) 2.4 1.9
31 December 2007 101.4 83.3 184.7

Net book value:
31 December 2007 798.0 312.2 44.4 1,154.6
31 December 2006 811.4 271.9 32.1 1,115.4
1 January 2006 897.0 330.3 33.3 1,260.6

Brands with an indefinite life represent JWT, Hill & Knowlton, Ogilvy & Mather Worldwide and the Young & Rubicam Group. These assets are carried at historical cost in accordance with the Group's accounting policy for intangible assets. The most significant of these is the Young & Rubicam Group with a carrying value of £481.6 million at 31 December 2007 (2006: £488.2 million). The carrying values of the JWT, Hill & Knowlton and Ogilvy & Mather Worldwide brands are not individually significant in comparison with the total carrying value of brands with an indefinite useful life.

In accordance with the Group's accounting policy, the carrying values of goodwill and intangible assets with indefinite useful lives are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.

The carrying values of brands with an indefinite useful life are assessed for impairment purposes by using the royalty and loyalty methods of valuation, both of which utilise the net present value of future cash flows associated with the brands.

The 2007 goodwill impairment review was initially undertaken as at 30 June 2007 and then updated as at 31 December 2007. The review assessed whether the carrying value of goodwill was supported by the net present value of future cash flows based on management forecasts for 2008, an assumed annual growth rate of 3.0% and a pre-tax discount rate of 11.0%. For a small number of businesses, the impairment review is instead based on management forecasts using a projection period of up to five years for each cash-generating unit. After this projection period, steady or declining growth has been assumed at rates not exceeding long-term average growth rates for the industry for each cash-generating unit, with no improvement in operating margin being assumed.

An impairment charge is required for both goodwill and other indefinite lived intangible assets when the carrying amount exceeds the recoverable amount. Goodwill impairment charges of £44.1 million and £35.5 million were recorded in the years ended 31 December 2007 and 2006 respectively. The impairment charges relate to certain under-performing businesses in the Group. In certain markets, the impact of current local economic conditions and trading circumstances on these businesses was sufficiently severe to indicate impairment to the carrying value of goodwill. At 31 December 2007 an impairment charge of acquired intangible assets was recorded for £1.5 million. This charge related to Branding & Identity, Healthcare and Specialist Communications for £0.7 million, and Information, Insight & Consultancy, for £0.8 million. This charge was the result of our review of certain customer relationships which had been lost during the year.

Under IFRS, an impairment charge is required for both goodwill and other indefinite-lived assets when the carrying amount exceeds the 'recoverable amount', defined as the higher of fair value less costs to sell and value in use. Our approach in determining the recoverable amount utilises a discounted cash flow methodology, which necessarily involves making numerous estimates and assumptions regarding revenue growth, operating margins, tax rates, appropriate discount rates and working capital requirements. These estimates will likely differ from future actual results of operations and cash flows, and it is possible that these differences could be material. In addition, judgements are applied in determining the level of cash-generating unit we identify for impairment testing and the criteria we use to determine which assets should be aggregated. A difference in testing levels could affect whether an impairment is recorded and the extent of impairment loss. Changes in our business activities or structure may also result in changes to the level of testing in future periods. Further, future events could cause the Group to conclude that impairment indicators exist and that the asset values associated with a given operation have become impaired. Any resulting impairment loss could have a material impact on the Group's financial condition and results of operations.

In 2007, the Group acquired 24/7 Real Media, Inc. for consideration of approximately £330 million. 24/7 significantly enhances the Group's digital capability and will make a major contribution to winning new business for the Group, primarily our Advertising and Media Investment Management businesses. For this reason, goodwill relating to 24/7 was reviewed for impairment against the net present value of future cash flows of this segment as the appropriate cash-generating unit.

Historically our impairment losses have resulted from a specific event, condition or circumstance in one of our companies, such as the loss of a significant client. As a result, changes in the assumptions used in our impairment model have not had a significant effect on the impairment charges recognised. The carrying value of goodwill and other intangible assets will continue to be reviewed at least annually for impairment and adjusted to the recoverable amount if required.