Notes to the accounts

12 Intangible assets

	Goodwill £m	Development costs £m	Acquired intangibles (see table below) £m	Other £m	Total £m
Cost
At 1 August 2005	1,296.1	198.7	135.6	78.2	1,708.6
Exchange adjustments	(83.2)	(13.6)	(11.7)	(6.3)	(114.8)
Reclassification from property, plant and equipment		0.4		7.1	7.5
Acquisitions	30.6		13.3		43.9
Adjustments to prior year acquisitions	(1.9)		1.9
Additions at cost		108.2		33.5	141.7
At 5 August 2006	1,241.6	293.7	139.1	112.5	1,786.9
Exchange adjustments	(39.2)	(1.9)	(8.5)	(1.7)	(51.3)
Acquisitions	16.8		12.1		28.9
Finalisation of fair value adjustments	0.9		(0.9)
Additions at cost	2.2	44.1		18.0	64.3
Transfers to disposal group held for sale at year end		(1.2)		(1.1)	(2.3)
Transfer to disposal group sold by the year end	(301.0)	(283.5)	(10.4)	(50.2)	(645.1)
Disposals at cost			(0.1)	(1.2)	(1.3)
At 31 July 2007	921.3	51.2	131.3	76.3	1,180.1
Amortisation
At 1 August 2005	143.5	27.0	5.7	50.7	226.9
Exchange adjustments	(9.8)	(1.2)	(2.4)	(3.1)	(16.5)
Reclassification from property, plant and equipment				6.3	6.3
Charge for the period		13.7	16.9	9.0	39.6
At 5 August 2006	133.7	39.5	20.2	62.9	256.3
Exchange adjustments	(2.9)	(0.4)	(1.3)	(1.6)	(6.2)
Disposals				(0.1)	(0.1)
Transfers to disposal groups held for sale at year end				(0.4)	(0.4)
Transfer to disposal group sold by the year end	(56.0)	(33.2)	(4.8)	(28.7)	(122.7)
Charge for the period		6.6	15.0	8.1	29.7
Impairment	2.2				2.2
At 31 July 2007	77.0	12.5	29.1	40.2	158.8
Net book value at 31 July 2007	844.3	38.7	102.2	36.1	1,021.3
Net book value at 5 August 2006	1,107.9	254.2	118.9	49.6	1,530.6
Net book value at 1 August 2005	1,152.6	171.7	129.9	27.5	1,481.7

In addition to goodwill, the acquired intangible assets comprise:

	Patents, licences and trademarks £m	Technology £m	Customer relationships £m	Total acquired intangibles £m
Cost
At 1 August 2005	41.6	59.2	34.8	135.6
Exchange adjustments	(3.2)	(5.0)	(3.5)	(11.7)
Adjustments to prior year acquisitions			1.9	1.9
Acquisitions	0.5	4.4	8.4	13.3
At 5 August 2006	38.9	58.6	41.6	139.1
Exchange adjustments	(2.8)	(3.7)	(2.0)	(8.5)
Finalisation of fair value adjustments	0.6	0.2	(1.7)	(0.9)
Acquisitions (note 29)	3.6		8.5	12.1
Transfer to disposal group sold by the year end			(10.4)	(10.4)
Disposals	(0.1)			(0.1)
31 July 2007	40.2	55.1	36.0	131.3
Amortisation
At 1 August 2005	0.8	1.8	3.1	5.7
Exchange adjustments	(0.2)	(0.5)	(1.7)	(2.4)
Charge for the period	2.8	5.6	8.5	16.9
At 5 August 2006	3.4	6.9	9.9	20.2
Exchange adjustments	(0.1)	(0.6)	(0.6)	(1.3)
Transfer to disposal group sold by the year end			(4.8)	(4.8)
Charge for the period	2.3	5.6	7.1	15.0
At 31 July 2007	5.6	11.9	11.6	29.1
Net book value at 31 July 2007	34.6	43.2	24.4	102.2
Net book value at 5 August 2006	35.5	51.7	31.7	118.9
Net book value at 1 August 2005	40.8	57.4	31.7	129.9

Note

The additions at cost and amortisation charge represent the respective costs and charge for continuing operations, and discontinued operations and disposal groups for the period prior to becoming a disposal group.

Significant cash generating units

Goodwill is not amortised but is tested for impairment at least annually. Value-in-use calculations are utilised to determine the recoverable amount of goodwill held within each cash generating unit (CGU). Value in use is calculated as the net present value of the projected risk-adjusted post-tax cash-flows of the CGU in which the goodwill is contained, applying a discount rate of the Group’s post-tax weighted average cost of capital of 9%. This approximates to applying a pre-tax discount rate to pre-tax cash-flows. These forecast cash-flows are based on approved budgets and represent a best estimate of future performance.

Goodwill held in the Smiths Medical Critical Care and Smiths Detection Imaging Systems CGUs, comprising £283.7m (2006: £302.5m) and £224.4m (2006: £215.6m) at net book value respectively, are considered significant in comparison to the total carrying value of goodwill at 31 July 2007. The following key assumptions were used in the discounted cash-flow projections for the Critical Care and Imaging Systems CGUs:

growth rates of 2% (2006: 2%) have been used for the Critical Care and Imaging Systems CGUs to extrapolate beyond the most recent forecasts, representing a view of the long-term average growth rates for the industries in which the businesses operate. 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 growth rates for similar projects and do not reflect long-term planning assumptions used by the Group for investment planning; and
in addition to discount rates and long-term growth rates, the key assumptions used to determine the recoverable amounts of the Critical Care and Imaging Systems CGUs include future sales prices and volumes (with reference to specific customer relationships and product lines), operating margins, the cost structure of each CGU and the ability to realise planned productivity improvements.

The assumptions used in the discounted cash-flow forecasts incorporate past performance and historical growth rates and margins achievable in our key markets as a guide.

Sensitivity analysis performed around the base case assumptions has indicated that no reasonable changes in key assumptions would cause the carrying amount of the Critical Care and Imaging Systems CGUs to exceed their respective recoverable amount.

Smiths Group divisions:
Smiths Detection, Smiths Medical, Smiths Specialty Engineering