Consolidated financial statements
Notes to the consolidated financial statements
for the year ended 30 September 2008
10 Goodwill
During the year the Group acquired the remaining 50% interest in GR SA, its 50% owned Brazilian joint venture; Propoco Inc (‘Professional Services’) a leading regional provider of facilities management services to the US healthcare market; and Medi-Dyn Inc, a US-based healthcare company. It also made seven other small infill acquisitions in various countries around the world and bought out minority interests in Japan and Italy (see note 27). This is reflected in the £155 million addition to goodwill shown below: Goodwill Cost At 1 October 2006 Additions Reclassified Business disposals – discontinued activities Business disposals – other activities Currency adjustment At 30 September 2007 At 1 October 2007 Additions 1 Reclassified Business disposals – discontinued activities Business disposals – other activities Currency adjustment At 30 September 2008 Impairment At 1 October 2006 Impairment charge recognised in the year At 30 September 2007 At 1 October 2007 Impairment charge recognised in the year At 30 September 2008 Net book amounts At 30 September 2007 At 30 September 2008
£m
3,558 12 – (413) – (65) 3,092 3,092 155 (2) – (2) 154 3,397 107 – 107 107 – 107 2,985 3,290
1 Comprised of £22 million of existing goodwill recognised on the acquisition of the remaining 50% interest in GR SA and £133 million of additional goodwill arising on the acquisition of GR SA and various other businesses (note 27).
Consolidated financial statements
Notes to the consolidated financial statements
for the year ended 30 September 2008
10 Goodwill continued
Goodwill acquired in a business combination is allocated at acquisition to the cash-generating units (‘CGUs’) that are expected to benefit from that business combination. A summary of goodwill allocation by business segment is shown below. Goodwill by business segment USA Rest of North America Total North America Continental Europe United Kingdom Rest of the World Total
2008 £m 2007 £m
939 93 1,032 170 1,734 354 3,290
757 87 844 161 1,733 247 2,985
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amount of a CGU has been determined from value in use calculations. The key assumptions for these calculations are longterm growth rates and pre-tax discount rates and use cash flow forecasts derived from the most recent financial budgets and forecasts approved by management covering a five year period. Cash flows beyond the five year period are extrapolated using estimated growth rates based on local expected economic conditions and do not exceed the long-term average growth rate for that country. The pre-tax discount rates are based on the Group’s weighted average cost of capital adjusted for specific risks relating to the country in which the CGU operates.
2008 Residual growth rates Pre-tax discount rates 2007 Residual growth rates Pre-tax discount rates
Growth and discount rates USA Rest of North America Continental Europe United Kingdom Rest of the World
4.6% 11.8% 2.8% 12.2% 2.4% 9.6% 2.2% 10.4% 2.4-4.5% 8.5-12.6% 0.6-2.7% 7.0-10.7% 3.8% 10.3% 2.5% 9.8% 1.7-11.5% 9.4-20.6% (0.3)-9.0% 6.5-17.6%