Impairment testing of goodwill
Goodwill acquired through business combinations has been allocated to the following cash-generating units ("CGU's") per region of operation.
(all amounts in Euro thousands)
| Carrying amount of goodwill (by geographical segment): |
2013 |
2012 |
| Greece and Western Europe |
13.605 |
14.405 |
| North America |
158.615 |
166.019 |
| South Eastern Europe |
56.946 |
57.014 |
| Eastern Mediterranean |
145.731 |
175.063 |
|
374.897 |
412.501 |
The provision of goodwill impairment is charged to the income statement.
Key assumptions
The recoverable amount of all CGUs has been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below.
The calculation of value-in-use for the Group's evaluated CGUs is most sensitive to the following assumptions:
- Sales volumes;
- Selling prices;
- Gross margin;
- Growth rate used to extrapolate cash flows beyond the specific projection period; and
- Discount rates
Sales volumes:
Volume assumptions have been provided by local management and reflect its best estimates as derived from sales forecasts for the development of which a combination of factors have been taken into consideration: past performance, local market growth estimates, infrastructure projects in which the company will participate (public investments), etc. In the USA sales volume growth rates are also based on published industry research and take into account demographic trends including population growth, household formation, and economic output (among other factors) in the states where the Group operates. In addition to demographic trends, long-term growth rates take into account cement/concrete intensity in construction which has historically varied from state to state based on building codes, availability of raw materials, and other factors.
Selling prices:
Price assumptions have been provided by local management and reflect its best estimates. Factors it had taken into consideration involve inflation, brand loyalty, growth rate of the regional economy, competition, production cost increases, etc. Τhe Group has assumed the following compound annual growth rates for sales for the five year period.
| Sales Growth |
2013 |
2012 |
| Greece and Western Europe |
6,1% - 18,9% |
11,4% - 23,8% |
| North America |
13,2% - 15,1% |
8,1% - 12,3% |
| South Eastern Europe |
0,7% - 9,8% |
4,3% - 12,5% |
| Eastern Mediterranean |
4,3%-12,7% |
3,2% - 11,8% |
Gross margin :
Illustrates all cost of goods sold related factors and incorporates among others, the evolution of energy cost. Τhe Group has assumed the following gross margin compound annual growth rates for the five year period:
| Gross margin Growth |
2013 |
2012 |
| Greece and Western Europe |
7%-34,6% |
24,3% - 30,6% |
| North America |
20,4%-34,5% |
18,9% -59,5% |
| South Eastern Europe |
5,3% - 16,9% |
9,3% - 27,3% |
| Eastern Mediterranean |
10,4% - 25,4% |
12,6% - 20% |
Perpetual growth rates:
Factors that have been taken into consideration are estimates from the local Central Banks in the countries where the Group operates relating to the growth of the local economies over the next years along with the co-relation that exists between the growth of the economy and that of the construction sector.
In the USA, following the five year specific forecast period, management used a fading-growth-rate model in its value-in-use calculation. Under this approach, cash flows are assumed to increase at a higher rate following the specific projection period before settling into a long-term growth rate. The growth rates have been estimated by management as follows:
| Perpetual Growth rates |
2013 |
2012 |
| Greece and Western Europe |
3% |
0%-4% |
| North America |
3%-4% |
3%-4% |
| South Eastern Europe |
2% |
2% |
| Eastern Mediterranean |
2%-4% |
2%-5% |
Discount rates:
Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Group’s investors. The cost of debt is based on the interest bearing borrowings the Group is obliged to service. Country-specific risk is incorporated by applying individual beta factors. The beta factors are evaluated annually based on publicly available market data.
| Discount rates |
2013 |
2012 |
| Greece and Western Europe |
12,7% |
9,1% - 10,5% |
| North America |
9,6% |
8,1% |
| South Eastern Europe |
8% -17,6% |
11,3%-14,2% |
| Eastern Mediterranean |
12,9%-17,6% |
12,5%-13,3% |
Sensitivity of recoverable amounts
As at December 31, 2013, the Group analyzed the sensitivities of the recoverable amounts to a reasonable possible change of a key assumption (notably to a change of one point in the discount rate or the perpetual growth rate). These analyses did not show a situation in which the carrying value of the main CGUs would exceed their recoverable amount. An exception is a quarrying site in Greece for which the Group recorded a €0.8 mil. impairment charge, due to the reduction in demand for building materials in the area in which the quarrying site is located.