Annual Report and Accounts 2006
Notes to the Financial Statements
15. Other intangible assets
| Brand intangibles £m |
Customer relationships and franchise intangibles £m |
Total acquisition intangibles £m |
Software £m |
|
|---|---|---|---|---|
| Cost | ||||
| At 29 December 2003 | 3,446 | – | 3,446 | 185 |
| Exchange differences | (175) | – | (175) | (3) |
| Additions | – | – | – | 22 |
| Write-off | – | – | – | (31) |
| At 2 January 2005 | 3,271 | – | 3,271 | 173 |
| Exchange differences | 290 | – | 290 | 7 |
| Recognised on acquisition of a subsidiary | 25 | – | 25 | – |
| Additions | – | – | – | 19 |
| Transfers to discontinued operations | (370) | – | (370) | (5) |
| At 1 January 2006 | 3,216 | – | 3,216 | 194 |
| Exchange differences | (345) | (24) | (369) | (3) |
| Recognised on acquisition of a subsidiary | 20 | 424 | 444 | – |
| Additions | 9 | – | 9 | 12 |
| Transfers from assets in course of construction | – | – | – | 27 |
| Transfers to discontinued operations | – | – | – | – |
| At 31 December 2006 | 2,900 | 400 | 3,300 | 230 |
| Amortisation | ||||
| At 29 December 2003 | (3) | – | (3) | (8) |
| Charge for the year | (7) | – | (7) | (21) |
| At 2 January 2005 | (10) | – | (10) | (29) |
| Charge for the year | (6) | – | (6) | (19) |
| Transfers to discontinued operations | – | – | – | 3 |
| At 1 January 2006 | (16) | – | (16) | (45) |
| Exchange differences | – | – | – | 3 |
| Charge for the year | (6) | (17) | (23) | (33) |
| Transfers to discontinued operations | – | – | – | – |
| At 31 December 2006 | (22) | (17) | (39) | (75) |
| Carrying amount | ||||
| At 2 January 2005 | 3,261 | – | 3,261 | 144 |
| At 1 January 2006 | 3,200 | – | 3,200 | 149 |
| At 31 December 2006 | 2,878 | 383 | 3,261 | 155 |
The Group does not amortise over 99% of its brands by value. In arriving at the conclusion that a brand has an indefinite life, management considers the fact that the Group is a brands business and expects to acquire, hold and support brands for an indefinite period. The Group supports its brands through spending on consumer marketing and through significant investment in promotional support, which is deducted in arriving at revenue.
The franchise intangible and customer relationships additions in the year arose on the acquisition of CSBG. See Note 31 for further information about the acquisition. No amortisation is charged on franchise rights acquired through acquisitions where the rights relate to brands owned by the Group and these brands have been assigned an indefinite life. This is because the Group believes that these rights will extend indefinitely. Franchise rights to brands not owned by the Group are amortised consistent with the life of the contract. Customer relations are amortised over their expected useful life which is between 5 to 10 years. The amortisation period for software intangibles is no greater than 8 years.
The Group tests indefinite life brand intangibles annually for impairment, or more frequently if there are indications that they might be impaired. The recoverable amounts of the brand intangibles are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the brand intangibles. The growth rates are based on industry growth forecasts. Changes in selling price and direct costs are based on past practices and expectations of future changes in the market.
While revenue growth of the Snapple brand since its acquisition in 2000 has been below the acquisition case, significant cost synergies have been generated through the integration with our other US beverage businesses. Management have stated their commitment to further invest behind the Snapple brand, principally through the launch of new products in the super-premium and mainstream segments of the US ready-to-drink tea market. Management expect these product launches to drive revenue growth of these brands in 2007. Management have concluded that no impairment of the brand has been required to date.
The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next four years and extrapolates cash flows for no more than five years, using a steady growth rate applicable to the relevant market (between 2% and 6%). This rate does not exceed the average long-term growth rate for the relevant markets
Significant intangible assets details
| Description | Carrying amount £m |
Remaining amortisation period |
|
|---|---|---|---|
| Acquisition intangibles | |||
| Dr Pepper/7 UP | Carbonated soft drink | 919 | Indefinite life |
| Snapple | Non-carbonated soft drink | 379 | Indefinite life |
| Hawaiian Punch | Non-carbonated soft drink | 105 | Indefinite life |
| Halls | Candy | 315 | Indefinite life |
| Trident | Gum | 226 | Indefinite life |
| Dentyne | Gum | 127 | Indefinite life |
| Dr Pepper/7 UP franchise agreements | Carbonated soft drink distribution rights | 286 | Indefinite life |