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Notes to the consolidated financial statements
Year ended 31 July 2007
11. Intangible assets: goodwill
| £m | |
|---|---|
| Cost | |
| At 1 August 2006 | 1,173 |
| Exchange rate adjustment | (44) |
| Additions | 763 |
| At 31 July 2007 | 1,892 |
| Accumulated impairment losses | |
| At 1 August 2006 | – |
| Exchange rate adjustment | – |
| Impairment charge for the year | 2 |
| At 31 July 2007 | 2 |
| Net book amount at 31 July 2007 | 1,890 |
| £m | |
|---|---|
| Cost | |
| At 1 August 2005 | 815 |
| Exchange rate adjustment | (29) |
| Additions | 387 |
| At 31 July 2006 | 1,173 |
| Accumulated impairment losses | |
| At 1 August 2005 | – |
| Impairment charge for the year | – |
| At 31 July 2006 | – |
| Net book amount at 31 July 2006 | 1,173 |
The carrying value of goodwill by segment is as follows:
| 2007 £m |
2006 £m |
|
|---|---|---|
| UK and Ireland | 417 | 410 |
| France | 162 | 153 |
| Nordic | 655 | – |
| Central and Eastern Europe | 69 | 61 |
| Europe | 1,303 | 624 |
| North America | 587 | 549 |
| Group | 1,890 | 1,173 |
All goodwill has arisen from business combinations. On transition to IFRS, the balance of goodwill as measured under UK GAAP was allocated to cash generating units (CGUs). These are independent sources of income streams, and represent the lowest level within the Group at which the associated goodwill is monitored for management purposes, which may be at country, divisional, brand or regional level. Goodwill arising on business combinations after 1 August 2004 has been allocated to the CGUs that are expected to benefit from that business combination.
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.
The recoverable amounts of the CGUs are determined from value in use calculations. These calculations use cash flow projections based on five year financial forecasts approved by management. The key assumptions for these forecasts are those regarding revenue growth, net margin and the level of working capital required to support trading, which management estimates based on past experience and expectations of future changes in the market. To prepare value in use calculations, the cash flow forecasts are extrapolated after the five year period at an estimated average long-term nominal growth rate for each market (ranging from 1 to 4 per cent), and discounted back to present value. The key assumption is the discount rate, which uses an estimate of the Group’s weighted average cost of capital, based on the three month historic volatility of Wolseley shares and on benchmark interest rates, adjusted for the risk attributable to individual CGUs. The pre-tax discount rate ranges from 11 to 14 per cent.
Impairment tests were performed for all CGUs during the year ended 31 July 2007.
At Stock Building Supply, the US building materials business, revenue and trading profit have been adversely affected by the depressed US housing market and lower lumber and structural panel prices. The Group has announced branch closures in the midwest region and recognised an impairment loss in the year ended 31 July 2007 in respect of this CGU of £2 million relating to goodwill and £3 million relating to other intangible assets.