Cemex 2012 Annual Report Download - page 75

Notes to the
consolidated
financial
statements
75
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In connection with CEMEX’s assumptions included in the table above, as of December 31, 2012 and 2011, CEMEX made
sensitivity analyses to changes in assumptions, affecting the value in use of all groups of CGUs with an independent reasonable
possible increase of 1% in the pre-tax discount rate, and an independent possible decrease of 1% in the long-term growth rate. In
addition, CEMEX performed cross-check analyses for reasonableness of its results using multiples of Operating EBITDA. In order
to arrive at these multiples, which represent a reasonableness check of CEMEX’s discounted cash flow model, CEMEX determined
a weighted average of multiples of Operating EBITDA to enterprise value observed in the industry. The average multiple was
then applied to a stabilized amount of Operating EBITDA and the result was compared to the corresponding carrying amount
for each group of CGUs to which goodwill has been allocated. As of December 31, 2012 and 2011, CEMEX considered an
industry weighted average Operating EBITDA multiple of 10.3 times and 9.6 times, respectively. CEMEX’s own Operating EBITDA
multiples to enterprise value as of the same dates were 10.6 times in 2012 and 10 times in 2011. The lowest multiple observed
in CEMEX’s benchmark as of December 31, 2012 and 2011 was 7.2 times and 6.2 times, respectively, and the highest being
21.3 times and 22.1 times, respectively.
As of December 31, 2012, the impairment charges resulting from the sensitivity analyses that would have resulted from an
independent change of each one of the variables and/or by the use of multiples of Operating EBITDA, regarding the operating
segment that presented a relative impairment risk, would have been as follows:
As of December 31, 2012 Sensitivity analysis of described change in assumptions
Recognized Discount rate Long-term Multiples of
(Amounts in millions) impairment charges + 1pt growth rate-1pt Operating EBITDA
Spain U.S.$ – 99 – 39
United Arab Emirates – 8 – –
CEMEX will continue to monitor the evolution of the specific CGUs to which goodwill has been allocated that present relative
goodwill impairment risk and, in the event that the relevant economic variables and the related cash flows projections would be
negatively affected, it may result in a goodwill impairment loss in the future. As of December 31, 2011 and 2010, CEMEX made
the sensitivity analyses to changes in assumptions mentioned above.
CEMEX has experienced a significant decline in its market capitalization with respect to levels prior to the 2008 global crisis,
which CEMEX believes is due to factors such as: a) the contraction of the construction industry in the United States, which
has experienced a continued slow recovery after the crisis of 2008, that has significantly affected CEMEX’s operations in such
country and consequently its overall generation of cash flows; b) CEMEX’s significant amount of consolidated debt and its
operation over the last few years under the Financing Agreement (note 16A), has also significantly affected CEMEX’s valuation,
considering the high uncertainty perceived by stakeholders regarding CEMEX’s odds of successfully achieving the different
milestones established with its main creditors; and c) the transfer of capital during the last few years, mainly due to high
volatility generated by liquidity problems in certain European countries, from variable income securities in developing countries
such as Mexico to fixed income securities in developed countries such as the United States. The market price of CEMEX’s CPO
has recovered significantly after CEMEX entering into the Facilities Agreement (note 16A). In dollar terms, CEMEX’s market
capitalization increased by approximately 93% in 2012 compared to 2011, to approximately US$10.8 billion ($138.7 billion).
Goodwill allocated to the United States accounted for approximately 77% of CEMEX’s total amount of consolidated goodwill as of
December 31, 2012 and 2011. In connection with CEMEX’s determination of value in use relative to its groups of CGUs in the
United States as of December 31, 2011 and 2012, CEMEX has considered several factors, such as the historical performance
of such operating segment, including operating losses in recent years, the long-term nature of CEMEX’s investment, the recent
signs of recovery in the construction industry, the significant economic barriers for new potential competitors considering the
high investment required, and the lack of susceptibility of the industry to technology improvements or alternate construction
products, among other factors. CEMEX has also considered recent developments in its operations in the United States, such as
the 20% and 7% increase in ready-mix concrete volumes in 2012 and 2011, respectively, and the 4% and 3% increase in 2012
and 2011, respectively, of ready-mix concrete prices, respectively, which are key drivers for cement consumption and CEMEX’s
profitability, and which trends are expected to continue over the next few years, as anticipated in CEMEX’s cash flow projections.