Download - Ferrovial - Annual Report 2012

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Consolidated financial statements at 31 December 2011 Ferrovial S.A. and Subsidiaries The remainder of the change related mainly to the exchange rate effect, with the most significant impacts at Amey (EUR 11 million) and Budimex (EUR -10 million). The following section describes the methodology and assumptions used in the impairment tests. A. Services Division goodwill (Amey and Cespa): Goodwill is tested for impairment in these two business areas by using cash flow projections for a five-year period. The residual value is based on the cash flow for the last year projected, provided this represents a cash flow with no exceptional factors, and the growth rate applied in no case exceeds the estimated long-term growth rate for the market in which the Company operates. Cash flows are discounted using a rate based on the weighted average cost of capital (WACC) for assets of this nature. In order to value companies, Ferrovial uses a risk-free rate usually taking as a reference a ten-year bond based on the location of the company in question and a market premium of 5.5%, based on recent studies of long-term premiums. Additionally, in order to reflect each company’s exposure, backlogs of comparable companies were selected to carry out regression analyses and obtain deleveraged betas. The betas obtained were compared with other sources habitually used by analysts and investment banks (Barra Beta, Bloomberg, etc.). The projected flows are based on the latest estimates approved by the Company, which take into account recent historical data. The discount rates (WACC) used to test for impairment range from 8.1% to 8.4% (compared with the rates of the prior year that ranged from 6.7% to 7.6%) and perpetuity growth rates (g) ranged from 2.0% to 3.0% Sensitivity analyses are performed on this goodwill, particularly in relation to the gross profit from operations, the discount rate and the perpetuity growth rate, so as to ensure that possible changes in the estimate do not have an impact on the possible recovery of the goodwill recognised. The Company considers that there are no reasonable changes in the main assumptions that would eliminate the excess recoverable amount. B. Construction Division goodwill (Webber and Budimex): As Budimex is listed on the Warsaw Stock Exchange, its possible impairment was analysed by verifying that the closing share price was higher than the carrying amount plus the goodwill allocated to it. In the case of Webber, the method used was similar to the method applied for the services companies, consisting of a discount rate (WACC) of 10.0% (compared with 8.5% in December 2010) and a perpetuity growth rate of 2.5%. The Company considers that the aforementioned WACC would be the maximum discount rate at which Webber should be valued as the market value of the ten-year US bond has been adjusted upwards. The projected flows are based on the latest estimates approved by the Company, which take into account recent historical data. Growth in sales and the other operating variables were projected on the basis of the backlog. Sensitivity analyses are performed on Webber’s goodwill, particularly in relation to the gross profit from operations, the discount rate and the perpetuity growth rate, so as to ensure that possible changes in the estimate do not have an impact on the possible recovery of the goodwill recognised. The Company considers that there are no reasonable changes in the main assumptions that would eliminate the excess recoverable amount. C. Toll Roads Division goodwill: The Toll Road Division goodwill amounted to EUR 392 million at 31 December 2011, of which EUR 101 million relate to US toll roads and EUR 291 million to European toll roads. The recoverable amount of the toll roads was calculated as the higher of fair value less estimated costs to sell and value in use. The value in use of concession operators with an independent financial structure and limited duration was calculated by discounting projected cash flows for the shareholder to the end of the concession term. The Company considers that value in use must be obtained using models that cover the entire concession term, as the assets are in different phases of investment and growth and there is sufficient visibility to use a specific economic and financial plan for each phase during the concession term. No residual value is considered to exist in these valuations. The projections were updated based on the historical evolution (and, in particular, the adverse trend in traffic during the year was taken into account, adjusting the future projections) and specific features of each asset, using sophisticated, long-term modelling tools to estimate traffic, extraordinary maintenance, etc. These models or tools for traffic estimation use variables obtained largely from public sources (evolution of GDP, inflation, population, car ownership, status of alternative roads, etc.), and there are also specific models for estimating extraordinary maintenance based on various different variables (road surface condition, expected traffic, etc.). Ferrovial, S.A. Consolidated financial statements at 31 December 2011 30
Consolidated financial statements at 31 December 2011 Ferrovial S.A. and Subsidiaries The forecast cash flows for the shareholder are discounted at an estimated cost of capital ranging from 8.7% to 13.4% (-8.9% to 11.9% in December 2010) based on a risk-free rate referenced to a 30-year bond, taking into account the location of each concession operator, a beta coefficient reflecting the company’s leverage and asset risk, and an estimated market premium of 5.5%. For toll roads where there is goodwill, the possible impairment was calculated by comparing the company’s carrying amount (equity plus net goodwill) with its value in use obtained by discounting cash flows, as described above. No evidence of the impairment of this goodwill was identified. The Company considers that there are no reasonable changes in the main assumptions that would eliminate the excess recoverable amount. The changes in “Goodwill" in the consolidated statement of financial position in 2010 were as follows: Millions of euros Investment / Balance at Exchange Balance at Disposal / Impairment 01/01/10 rate 31/12/10 CHANGES IN 2010 Other Airports 3,813 131 -75 -294 3,575 Heathrow 3,102 109 0 0 3,211 Other airports 711 21 -75 -293 364 Services 1,411 116 -638 0 889 Amey 426 15 0 0 441 Cespa 421 0 0 0 421 Swissport 545 101 -646 0 0 Other services 19 0 8 0 27 Construction 169 10 0 0 179 Webber 97 7 0 0 104 Budimex 72 3 0 0 75 Toll roads 1,559 6 -1,176 0 389 Total 6,952 263 -1,889 -294 5,032 The most significant change relating to the Airports Division (BAA) in 2010 were due to the impairment of “Other Airports” amounting to EUR 293 million (impact on Ferrovial’s net profit of EUR -162 million) and to the sale of Naples airport, as a result of which goodwill amounting EUR 75 million was derecognised. In the Services Division the main change related to the transfer of Swissport to “held for sale”, as a result of which goodwill totalling EUR 646 million was derecognised. In the Toll Roads Division, the main changes were due to the reclassification of the goodwill of Trados 45 (EUR 6 million) to “assets held for sale” and to the derecognition of the goodwill associated with the 407-ETR toll road, (EUR 1,081 million), a company that started to be accounted for using the equity method. 7. Intangible assets It should be noted that “Intangible Assets” does not include the intangible assets assigned to infrastructure projects, which are included under “Investments in Infrastructure Projects” (see Note 8). Ferrovial, S.A. Consolidated financial statements at 31 December 2011 31
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