Notes to the consolidated accounts
9 Goodwill and intangible assets
Indefinite-lived intangible assets principally comprise those trademarks for which there is no foreseeable limit to the period over which they are expected to generate net cash inflows. These are considered to have an indefinite life, given the strength and durability of our brands and the level of marketing support. Brands that are classified as indefinite have been in the market for many years, and the nature of the industry we operate in is such that brand obsolescence is not common, if appropriately supported by advertising and marketing spend. Finite-lived intangible assets, which primarily comprise patented and non-patented technology, know-how, and software, are capitalised and amortised in operating profit on a straight-line basis over the period of their expected useful lives, none of which exceeds ten years. The level of amortisation for finite-lived intangible assets is not expected to change materially over the next five years.
| At cost less amortisation and impairment | € million 2007 |
€ million 2006 |
|||
|---|---|---|---|---|---|
| Goodwill | 12 244 | 12 425 | |||
| Intangible assets: | 4 511 | 4 781 | |||
| Indefinite-lived intangible assets | 3 921 | 4 174 | |||
| Finite-lived intangible assets | 273 | 343 | |||
| Software | 317 | 264 | |||
| 16 755 | 17 206 |
| € million | € million | € million | € million |
€ million | |
|---|---|---|---|---|---|
| Movements during 2007 | Goodwill | Indefinite- lived intangible assets |
Finite- lived intangible assets |
Software | Total |
| Cost | |||||
| 1 January 2007 | 13 454 | 4 409 | 642 | 392 | 18 897 |
| Acquisitions of group companies | 334 | – | – | – | 334 |
| Disposals of group companies | (4) | (1) | – | – | (5) |
| Change in useful life assumptions | – | (2) | 2 | – | – |
| Additions | – | – | 3 | 133 | 136 |
| Disposals | – | – | – | (16) | (16) |
| Currency retranslation | (602) | (272) | (26) | (8) | (908) |
| 31 December 2007 | 13 182 | 4 134 | 621 | 501 | 18 438 |
| Amortisation and impairment | |||||
| 1 January 2007 | (1 029) | (235) | (299) | (128) | (1 691) |
| Amortisation for the year | – | – | (64) | (76) | (140) |
| Disposals | – | – | – | 16 | 16 |
| Currency retranslation | 91 | 22 | 15 | 4 | 132 |
| 31 December 2007 | (938) | (213) | (348) | (184) | (1 683) |
| Net book value 31 December 2007 | 12 244 | 3 921 | 273 | 317 | 16 755 |
| € million | € million | € million | € million |
€ million | |
|---|---|---|---|---|---|
| Movements during 2006 | Goodwill | Indefinite- lived intangible assets |
Finite- lived intangible assets |
Software | Total |
| Cost | |||||
| 1 January 2006 | 14 080 | 4 713 | 631 | 291 | 19 715 |
| Acquisitions of group companies | 60 | 8 | 1 | – | 69 |
| Disposals of group companies | (1) | – | – | – | (1) |
| Change in useful life assumptions | – | (32) | 32 | – | – |
| Additions | – | – | 3 | 110 | 113 |
| Currency retranslation | (685) | (280) | (25) | (9) | (999) |
| 31 December 2006 | 13 454 | 4 409 | 642 | 392 | 18 897 |
| Amortisation and impairment | |||||
| 1 January 2006 | (1 117) | (263) | (215) | (65) | (1 660) |
| Amortisation for the year | – | – | (94) | (63) | (157) |
| Impairment | (12) | – | – | (2) | (14) |
| Currency retranslation | 100 | 28 | 10 | 2 | 140 |
| 31 December 2006 | (1 029) | (235) | (299) | (128) | (1 691) |
| Net book value 31 December 2006 | 12 425 | 4 174 | 343 | 264 | 17 206 |
There are no significant carrying amounts of goodwill and intangible assets that are allocated across multiple cash generating units (CGUs).
Impairments charges in the year
There were no impairments in 2007. The impairments charged in 2006 principally related to business disposals that were completed during 2007.
In 2006, Slim·Fast was fully integrated into The Americas business as part of the North American beverage operations. As a result of the integration, Slim·Fast is no longer evaluated on a stand-alone basis but as part of the North American beverage CGU. The 2007 and 2006 impairment reviews on this basis did not result in any impairments (2005: €363 million).
Significant CGUs
The goodwill and indefinite-lived intangible assets (predominantly Knorr and Hellmann's) held in the global savoury and dressings CGU, comprising €11.1 billion (2006: €11.6 billion) and €3.2 billion (2006: €3.4 billion) respectively, are considered significant in comparison to the total carrying amounts of goodwill and indefinite-lived intangible assets at 31 December 2007. No other CGUs are considered significant in this respect.
During 2007, we conducted an impairment review of the carrying value of these assets. Value in use of the global savoury and dressings CGU has been calculated as the present value of projected future cash flows. A pre-tax discount rate of 10% was used.
The following key assumptions were used in the discounted cash flow projections for the savoury and dressings CGU:
- a longer-term sustainable growth rate of 4%, adjusted for market fade, used to determine an appropriate terminal value multiple;
- average near-term nominal growth for the major product groups within the CGU of 4%; and
- average operating margins for the major product groups within the CGU ranging from 15% to 18%.
The growth rates and margins used to estimate future performance are based on past performance and our experience of growth rates and margins achievable in our key markets as a guide. We believe that the assumptions used in estimating the future performance of the savoury and dressings CGU are consistent with past performance.
The projections covered a period of ten years as we believe this to be a suitable timescale over which to review and consider annual performance before applying a fixed terminal value multiple to the final year cash flows of the detailed projection. Stopping the detailed projections after five years and applying a terminal value multiple thereafter would not result in a value in use that would cause impairment.
The growth rates used to estimate future performance beyond the periods covered by our annual planning and strategic planning processes do not exceed the long-term average rates of growth for similar products.
We have performed sensitivity analysis around the base case assumptions and have concluded that no reasonably possible changes in key assumptions would cause the recoverable amount of the global savoury and dressings CGU to be less than the carrying amount.
