Section image

Cherries
oil on canvas
22 x 20 in
1981

Penny Machines
oil on canvas
23¾ x 29¾ in
1961

Stack of Books
oil on canvas
30 x 24 in
n.d.

Seven Suckers
oil on canvas
19 x 23 in
1970

Twin Jackpots
oil on canvas
30 x 46 in
1962

Ties
oil on canvas
20 x 26 in
1980

Cake Slices
oil on canvas
20 x 16 in
n.d.

Notes 11 - 15

12. Intangible assets

Goodwill
The movements in 2009 and 2008 were as follows:
 
  £m
Cost:  
1 January 2008 6,487.2
Additions1 1,351.1
Exchange differences 1,802.3
31 December 2008 9,640.6
Additions1 21.1
Exchange differences (414.9)
31 December 2009 9,246.8
   
Accumulated impairment losses and write-downs:  
1 January 2008 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
Impairment losses for the year 21.6
Exchange differences (19.7)
31 December 2009 549.3
   
Net book value:  
31 December 2009 8,697.5
31 December 2008 9,093.2
1 January 2008 6,071.7
Note
1
Additions represent goodwill arising on the acquisition of subsidiary undertakings including the effect of any revisions to fair value adjustments that had been determined provisionally at the immediately preceding balance sheet date, as permitted by IFRS 3 Business Combinations. The effect of such revisions was not material in either year presented. Goodwill arising on the acquisition of associate undertakings is shown within interests in associates and joint ventures in note 14.
Cash-generating units with significant goodwill as at 31 December 2009 and 2008 are:
  2009
£m
2008
£m
GroupM 2,044.3 2,116.0
Kantar 1,738.6 1,698.2
Y&R Advertising 1,019.2 1,076.3
Wunderman 958.7 991.3
Burson-Marsteller 516.1 557.6
Other 2,420.6 2,653.8
Total goodwill 8,697.5 9,093.2

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

The table of significant components of goodwill was changed in 2009 following the adoption of IFRS 8 Operating Segments and the corresponding amendment to IAS 36 Impairment of Assets, whereby a cash-generating unit or group of units can not be larger than an operating segment.

Other intangible assets
The movements in 2009 and 2008 were as follows:
       
  Brands
with an
indefinite
useful life
£m
Acquired
intangibles
£m
Other
£m
Total
£m
Cost:        
1 January 2008 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
Additions 33.5 33.5
Disposals (8.1) (8.1)
New acquisitions 6.6 6.6
Other movements 1.2 4.5 5.7
Exchange differences (60.0) (88.4) (21.7) (170.1)
31 December 2009 1,013.2 1,297.0 211.8 2,522.0
         
Amortisation and impairment:        
1 January 2008 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
Charge for the year 172.6 30.5 203.1
Disposals (8.1) (8.1)
Other movements (2.0) (3.1) (5.1)
Exchange differences (14.8) (12.4) (27.2)
31 December 2009 377.5 143.8 521.3
         
Net book value:        
31 December 2009 1,013.2 919.5 68.0 2,000.7
31 December 2008 1,073.2 1,155.9 66.7 2,295.8
1 January 2008 798.0 312.2 44.4 1,154.6

Brands with an indefinite life are carried at historical cost in accordance with the Group’s accounting policy for intangible assets. The carrying values of the separately identifiable brands are not individually significant in comparison with the total carrying value of brands with an indefinite useful life.

Acquired intangible assets include customer-related intangibles with a net book value at 31 December 2009 of £403.5 million (2008: £524.3 million), brand names of £377.5 million (2008: £440.3 million) and other assets (including proprietary tools) of £138.5m (2008: £191.3 million).

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 2009 goodwill impairment review was initially undertaken as at 30 June 2009 and then updated as at 31 December 2009. 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 10.27% 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.

Y&R Advertising is the only cash-generating unit with significant goodwill where a reasonably possible change in assumptions could lead to an impairment. The methodology above indicated an amount of £351.0 million as the excess of recoverable amount over carrying value at 31 December 2009. For an impairment charge to arise, the actual cumulative annual growth in Y&R Advertising cash flows over the next five years would have to be less than half the level assumed in the management forecasts over that period.

Goodwill impairment charges of £44.3 million and £84.1 million were recorded in the years ended 31 December 2009 and 2008 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 2009, no impairment charge (2008: £8.4 million) was recorded in relation to acquired intangible assets.

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, 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.

With the adoption of IFRS 8 Operating Segments on 1 January 2009 and the corresponding amendment to IAS 36 Impairment of Assets, management reviewed the level at which goodwill and indefinite lived intangible assets were tested for impairment and in certain instances lowered the testing level to comply with the new definition of an operating segment. No impairment charge resulted from this change.

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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