Skip Links

Menu Links

 

Notes to the Consolidated Financial Statements


< Previous

Next >


12 Intangible assets

12 Intangible assets
All figures in millions Goodwill Software Acquired publishing rights Other intangibles acquired Total intangibles acquired Total
Cost
At 1 January 2003 3,610 146 - - - 3,756
Exchange differences (275) (10) - - - (285)
Additions 113 26 - - - 139
Disposals (4) (2) - - - (6)
Acquisition through business
combination
- - - 44 44 44
At 31 December 2003 3,444 160 - 44 44 3,648
Exchange differences (201) (8) - (3) (3) (212)
Additions 22 24 - - - 46
Disposals (4) (11) - - - (15)
Acquisition through business
combination
- - 10 5 15 15
Transfer to non-current assets
held for sale
(101) - - - - (101)
At 31 December 2004 3,160 165 10 46 56 3,381
Exchange differences 345 15 2 4 6 366
Transfers - (13) - - - (13)
Additions 155 24 - - - 179
Disposals (6) (10) - - - (16)
Acquisition through business
combination
- - 56 33 89 89
At 31 December 2005 3,654 181 68 83 151 3,986
Amortisation
At 1 January 2003 - (75) - - - (75)
Exchange differences - 7 - - - 7
Charge for the year - (28) - (4) (4) (32)
Disposals - 2 - - - 2
Acquisition through business
combination
- - - - - -
At 31 December 2003 - (94) - (4) (4) (98)
Exchange differences - 8 - 1 1 9
Charge for the year - (20) - (5) (5) (25)
Disposals - 11 - - - 11
Acquisition through business
combination
- - - - - -
At 31 December 2004 - (95) - (8) (8) (103)
Exchange differences - (10) - - - (10)
Charge for the year - (18) (5) (6) (11) (29)
Disposals - 10 - - - 10
Acquisition through business
combination
- - - - - -
At 31 December 2005 - (113) (5) (14) (19) (132)
Carrying amounts
At 1 January 2003 3,610 71 - - - 3,681
At 31 December 2003 3,444 66 - 40 40 3,550
At 31 December 2004 3,160 70 10 38 48 3,278
At 31 December 2005 3,654 68 63 69 132 3,854

Other intangibles acquired include customer lists and relationships, technology, trade names and trademarks. Amortisation of 4m (2004: 3m; 2003: 5m) is included in the income statement in cost of sales and 25m (2004: 22m; 2003: 27m) in administrative and other expenses.

Impairment tests for cash-generating units containing goodwill

Impairment tests have been carried out where appropriate as described below. The recoverable amount for each unit tested exceeds its carrying value.

Goodwill is allocated to the Group's cash-generating units identified according to the business segment. Goodwill has been allocated as follows:
All figures in millions 2005 2004 2003
Higher Education 1,106 950 1,007
School Book 861 739 783
School Assessment and Testing 271 232 246
School Technology 385 330 350
Other Assessment and Testing 245 211 223
Other Government Solutions 234 201 213
Other Book 70 60 63
Pearson Education total 3,172 2,723 2,885
Penguin US 149 122 138
Penguin UK 146 146 146
Pearson Australia 45 42 44
Penguin total 340 310 328
IDC 138 123 127
FT Publishing 4 4 4
Recoletos - - 100
Total goodwill 3,654 3,160 3,444

The Group has adopted IFRS 3 'Business Combinations' with effect from the date of transition to IFRS. In accordance with IFRS 3, goodwill is no longer amortised but rather tested for impairment on an annual basis. Goodwill has been allocated for impairment purposes to twelve cash generating units. The recoverable amount of each cash generating unit is based on value in use calculations, with the exception of IDC which is assessed on a market value basis.

The value in use calculations use cash flow projections based on financial budgets approved by management covering a five year period. The key assumptions used by management in the value in use calculations were:

Discount rate - The discount rate is based on the risk-free rate for government bonds, adjusted for a risk premium to reflect the increased risk in investing in equities. The risk premium adjustment is assessed for each specific cash generating unit. The average pre-tax discount rates used are in the range of 8.5% to 11.5% for the Pearson Education businesses, 8% to 13% for the Penguin businesses and 8.5% to 11.5% for the FT Publishing businesses.

Perpetuity growth rates - The cash flows subsequent to the approval budget period are based upon the long-term historic growth rates of the underlying territories in which the cash generating unit operates and reflect the long-term growth prospects of the sectors in which the cash generating unit operates. The perpetuity growth rates used vary between 3.0% to 4.0%. The perpetuity growth rates are consistent with appropriate external sources for the relevant markets.

Cash flow growth rates - The cash flow growth rates are derived from forecast sales growth taking into consideration past experience of operating margins achieved in the cash generating unit. Historically, such forecasts have been reasonably accurate.

The valuation of IDC is determined using an observable market price for each share. Other than goodwill there are no intangible assets with indefinite lives.

back to top