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

For the year ended 31 December 2010

12. Intangible assets

Goodwill

The movements in 2010 and 2009 were as follows:

  £m
Cost:  
1 January 2009 9,640.6
Additions1 21.1
Exchange differences (414.9)
31 December 2009 9,246.8
Additions1 246.3
Exchange differences 185.7
31 December 2010 9,678.8
   
Accumulated impairment losses and write-downs:  
1 January 2009 547.4
Impairment losses for the year 21.6
Exchange differences (19.7)
31 December 2009 549.3
Impairment losses for the year 8.3
Exchange differences 14.9
31 December 2010 572.5
   
Net book value:  
31 December 2010 9,106.3
31 December 2009 8,697.5
1 January 2009 9,093.2
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 (revised) 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 2010 and 2009 are:

  2010
£m
2009
£m
GroupM 2,105.0 2,044.3
Kantar 1,740.0 1,738.6
Y&R Advertising 1,092.7 1,019.2
Wunderman 1,143.8 958.7
Burson-Marsteller 545.9 516.1
Other 2,478.9 2,420.6
Total goodwill 9,106.3 8,697.5

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.

Other intangible assets

The movements in 2010 and 2009 were as follows:

  Brands with an
indefinite
useful life
£m
Acquired
intan-
gibles
£m
Other
£m
Total
£m
Cost:        
1 January 2009 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
Additions 27.0 27.0
Disposals (14.2) (14.2)
New acquisitions 25.5 0.7 26.2
Other movements 1.1 4.0 5.1
Exchange differences 40.5 8.9 0.6 50.0
31 December 2010 1,053.7 1,332.5 229.9 2,616.1
         
Amortisation and impairment:        
1 January 2009 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
Charge for the year 170.5 25.4 195.9
Disposals (14.0) (14.0)
Other movements (2.4) 2.3 (0.1)
Exchange differences 5.2 3.3 8.5
31 December 2010 550.8 160.8 711.6
         
Net book value:        
31 December 2010 1,053.7 781.7 69.1 1,904.5
31 December 2009 1,013.2 919.5 68.0 2,000.7
1 January 2009 1,073.2 1,155.9 66.7 2,295.8

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 at net book value at 31 December 2010 include brand names of £357.4 million (2009: £377.5 million), customer-related intangibles of £327.3 million (2009: £403.5 million), and other assets (including proprietary tools) of £97.0 million (2009: £138.5 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 2010 goodwill impairment review was initially undertaken as at 30 June 2010 and then updated as at 31 December 2010. 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 9.58% (2009: 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% (2009: 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.

Goodwill impairment charges of £10.0 million and £44.3 million were recorded in the years ended 31 December 2010 and 2009 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.

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.

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 and a reasonably possible change in assumptions would not lead to an impairment. 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.