2012 Annual Report - Italcementi Group

2012 Annual Report
Presentation 4
General information 14
Annual Report Consolidated Annual Report Directors’ report 30
Sustainability disclosure Italcementi S.p.A. Annual Report Consolidated financial statements 63
Extraordinary session 351
6.1 Goodwill impairment testing
Goodwill acquired in business combinations is allocated to the cash-generating units (CGUs). The Group tests
goodwill recoverability at least once a year or more frequently if indications of impairment emerge. The
methods used to determine the recoverable amount of CGUs are described in the basis of consolidation under
the section “Impairment” (note 1.11).
The recovery slowdown that was apparent in 2011 intensified in 2012, especially in the construction industry;
consequently, while the measures contemplated in the 2010-2014 Business Plan remain valid, a number of
macroeconomic and sector assumptions in the Plan have been revised. For the purposes of impairment
testing, determination of the future cash flows to be used was based on the 2013 Budget and, where necessary
for subsequent-year projections, on new assumptions and economic assessments deemed to reflect the new
conditions on the Group markets.
As in 2011, for the CGUs in the EU countries and North America, a 9-year explicit forecast period was used; in
this way we believe that projected cement consumption is structurally balanced and aligned with the related
long-term estimate implicit in the cement structural demand curve for each country.
The CGUs in the emerging countries are also subject in part to a change in cyclical patterns compared with the
recent past, but cement consumption is more likely to be influenced by exogenous factors relating to specific
macroeconomic events; testing was based on expected growth in cement demand over a five-year period.
Terminal value is generally estimated on the basis of CGU activity on the mid-cycle market and takes account
of the market cycle and the changes in the country in question after the explicit forecast period. For a number
of countries severely hit by the crisis like Greece, Italy and Spain, account was also taken of the presumed
expected level of cement consumption in 10-15 years, and also of a number of positioning indicators: the level
of market development, per-capita consumption and technical coefficients.
The projections are management’s best estimate of future trends and possible economic conditions in the
countries in which the Group operates.
For all CGUs, recoverable value coincides with value in use.
The discount rates, determined country by country, are obtained by applying the estimated long-term inflation
rate (source: Global Insight databank), adjusted in some cases with the country-risk premium (based on
Moody’s ratings) to the weighted average cost of capital (WACC). WACCs are computed on the basis of the
market value of own funds (risk-free rate based on 10-year government bonds in the euro zone and the USA –
source Bloomberg, average 12 months – except Greece – average 3 months; beta coefficient - average 5
years - source Bloomberg; market premium – average at 10 years – source Bloomberg, broker reports, analyst
consensus forecasting) and of sector debt (7Y swap – average 1 month), to which the mean sector coefficient
based on the debt/stock market capitalization ratio is applied (source Bloomberg).
93
www.italcementigroup.com