Notes 11-15

12. Intangible assets

Goodwill

The movements in 2008 and 2007 were as follows:

  £m
Cost:
1 January 2007 5,823.6
Additions1 603.7
Exchange differences 59.9
31 December 2007 6,487.2
Additions1 1,351.1
Exchange differences 1,802.3
31 December 2008 9,640.6

Accumulated impairment losses and write-downs:
1 January 2007 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
Goodwill write-down relating to
utilisation of pre-acquisition tax losses
1.5
Impairment losses for the year 79.7
Exchange differences 50.7
31 December 2008 547.4

Net book value:
31 December 2008 9,093.2
31 December 2007 6,071.7
1 January 2007 5,434.5

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 and joint ventures in note 14.

Significant components of goodwill as at 31 December 2008 and 2007 are:


 
2008
£m
2007
£m
Young & Rubicam 3,207.0 2,372.6
Grey 1,247.7 1,010.2
Mediaedge:cia 1,208.3 879.7
TNS 1,132.7
Other 2,297.5 1,809.2
Total goodwill 9,093.2 6,071.7

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 2008 and 2007 were as follows:


 
 
 
Brands
with an
indefinite
useful life

Acquired
intan-
gibles

 
 
Other

 
 
Total
  £m £m £m £m
Cost:
1 January 2007 811.4 336.5 96.5 1,244.4
Additions 21.2 21.2
Disposals (9.1) (9.1)
New acquisitions 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
Additions 23.8 23.8
Disposals (9.2) (9.2)
New acquisitions 730.1 9.6 739.7
Other movements 2.2 2.2
Exchange differences 275.2 233.9 49.5 558.6
31 December 2008 1,073.2 1,377.6 203.6 2,654.4

Amortisation and impairment:
1 January 2007 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
Charge for the year 78.4 23.4 101.8
Disposals (8.1) (8.1)
Other movements (0.9) 2.8 1.9
Exchange differences 42.8 35.5 78.3
31 December 2008 221.7 136.9 358.6

Net book value:
31 December 2008 1,073.2 1,155.9 66.7 2,295.8
31 December 2007 798.0 312.2 44.4 1,154.6
1 January 2007 811.4 271.9 32.1 1,115.4

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 £641.9 million at 31 December 2008 (2007: £481.6 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 2008 goodwill impairment review was initially undertaken as at 30 June 2008 and then updated as at 31 December 2008. The review assessed whether the carrying value of goodwill was supported by the net present value of future cash flows, using a pre-tax discount rate of 11.5% and management forecasts for a projection period of up to five years, followed by an assumed annual long-term growth rate of 3.0% and no assumed improvement in operating margin. Management have made the judgement that this long-term growth rate does not exceed the long-term average growth rate for the industry. In relation to the Young and Rubicam Group, for impairment testing purposes, the methodology above indicated an amount of £775 million as the excess of recoverable amount over carrying value at 31 December 2008. For an impairment charge to arise the actual cumulative annual growth in Young and Rubicam cashflows over the next five years would have to be less than half the level assumed in the management forecasts over that period.

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 £84.1 million and £44.1 million were recorded in the years ended 31 December 2008 and 2007 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. For the year ended 31 December 2008, an impairment charge of £8.4 million (2007: £1.5 million) was recorded in relation to acquired intangible assets. This charge resulted from a decline in value of certain brands and customer relationships held within Branding & Identity, Healthcare and Specialist Communications.

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 has made 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.

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