CEMEX SAB DE CV (ifrs-full:DisclosureOfIntangibleAssetsAndGoodwillExplanatory)

15)

GOODWILL AND INTANGIBLE ASSETS, NET

15.1)

BALANCES AND CHANGES DURING THE PERIOD

As of December 31, 2017 and 2016, consolidated goodwill, intangible assets and deferred charges were summarized as follows:


		2017								2016
		Cost		Accumulated amortization			Carrying Amount			Cost		Accumulated amortization			Carrying Amount
Intangible assets of indefinite useful life:
Goodwill	Ps		195,474		—			195,474	Ps		206,319		—			206,319
Intangible assets of definite useful life:
Extraction rights			39,603		(6,480	)		33,123			40,995		(5,948	)		35,047
Industrial property and trademarks			929		(364	)		565			707		(350	)		357
Customer relationships			3,859		(3,852	)		7			4,343		(4,084	)		259
Mining projects			797		(96	)		701			961		(84	)		877
Others intangible assets			14,941		(9,902	)		5,039			13,814		(9,166	)		4,648

	Ps		255,603		(20,694	)		234,909	Ps		267,139		(19,632	)		247,507

The amortization of intangible assets of definite useful life was Ps2,037 in 2017, Ps1,950 in 2016 and Ps1,572 in 2015, and was recognized within operating costs and expenses.

Goodwill

Changes in consolidated goodwill in 2017, 2016 and 2015, were as follows:


		2017			2016			2015
Balance at beginning of period	Ps		206,319			184,156			160,544
Business combinations			1,965			—			64
Disposals, net (note 4.3)			—			(3,340	)		(552	)
Reclassification to assets held for sale and other current assets (notes 4.2, 4.3 and 12)			(1,804	)		(9,734	)		—
Impairment losses			(1,920	)		—			—
Foreign currency translation effects			(9,086	)		35,237			24,100

Balance at end of period	Ps		195,474			206,319			184,156

Intangible assets of definite life

Changes in intangible assets of definite life in 2017, 2016 and 2015, were as follows:


		2017
		Extraction rights			Industrial property and trademarks			Customer relations			Mining projects			Others¹			Total
Balance at beginning of period	Ps		35,047			357			259			877			4,648			41,188
Additions (disposals), net¹			278			(783	)		—			(148	)		424			(229	)
Business combinations (note 4.1)			—			—			—			4			72			76
Reclassifications (notes 4.1, 4.2 and 12)			—			—			(27	)		—			—			(27	)
Amortization for the period			(716	)		(110	)		(225	)		(12	)		(974	)		(2,037	)
Impairment losses			(38	)		—			—			—			(12	)		(50	)
Foreign currency translation effects			(1,448	)		1,101			—			(20	)		881			514

Balance at the end of period	Ps		33,123			565			7			701			5,039			39,435


		2016
		Extraction rights			Industrial property and trademarks			Customer relations			Mining projects			Others¹			Total			2015
Balance at beginning of period	Ps		30,327			622			1,004			805			3,808			36,566			32,940
Business combinations			—			—			—			—			—			—			616
Additions (disposals), net¹			201			(760	)		—			(382	)		343			(598	)		(186	)
Reclassifications (notes 4.1, 4.2 and 12)			—			—			—			—			—			—			1
Amortization for the period			(712	)		(293	)		(658	)		(12	)		(275	)		(1,950	)		(1,572	)
Impairment losses			(6	)		—			—			—			(19	)		(25	)		(10	)
Foreign currency translation effects			5,237			788			(87	)		466			791			7,195			4,777

Balance at the end of period	Ps		35,047			357			259			877			4,648			41,188			36,566

As of December 31, 2017 and 2016, “Others” includes the carrying amount of internal-use software of Ps2,981 and Ps2,544, respectively. Capitalized direct costs incurred in the development stage of internal-use software, such as professional fees, direct labor and related travel expenses, amounted to Ps1,422 in 2017, Ps769 in 2016 and Ps615 in 2015.

15.2)

ANALYSIS OF GOODWILL IMPAIRMENT

As of December 31, 2017 and 2016, goodwill balances allocated by operating segment were as follows:


		2017		2016
Mexico	Ps		7,371		7,529
United States			152,486		162,692
Europe
Spain			10,000		12,316
United Kingdom			6,335		6,371
France			4,796		4,524
Czech Republic			709		583
South, Central America and the Caribbean
Colombia			6,146		6,461
Dominican Republic			279		250
TCL			2,027		—
Rest of South, Central America and the Caribbean¹			985		1,036
Asia, Middle East and Africa
Philippines			1,817		1,911
United Arab Emirates			1,769		1,865
Egypt			232		231
Others
Other reporting segments²			522		550

	Ps		195,474		206,319

1	This caption refers to the operating segments in the Caribbean, Costa Rica and Panama.

2	This caption is primarily associated with Neoris N.V., CEMEX’s subsidiary involved in the sale of information technology and services.

For purposes of goodwill impairment tests, all cash-generating units within a country are aggregated, as goodwill is allocated at that level. Considering materiality for disclosure purposes, certain balances of goodwill were presented for Rest of South, Central America and the Caribbean, but this does not represent that goodwill was tested at a higher level than for operations in an individual country.

During the last quarter of each year, CEMEX performs its annual goodwill impairment test. Based on these analyses, during 2017, in connection with the Operating Segment in Spain, considering the uncertainty over the improvement indicators affecting the country’s construction industry, and consequently in the expected consumption of cement, ready-mix and aggregates, partially a result of the country’s complex prevailing political environment, which has limited expenditure in infrastructure projects, as well as the uncertainty in the expected price recovery and the effects of increased competition and imports, CEMEX’s management considered a reduction in the horizon of the related cash flows projections from 10 to 5 years and determined that the net book value of such Operating Segment in Spain, exceeded in Ps1,920 (US$98) the amount of the net present value of projected cash flows. As a result, CEMEX recognized an impairment loss of goodwill for the aforementioned amount as part of “Other expenses, net” in the income statement against the related goodwill balance.

During 2016 and 2015, CEMEX did not determine impairment losses of goodwill.

Impairment tests are significantly sensitive to, among other factors, the estimation of future prices of CEMEX’s products, the development of operating expenses, local and international economic trends in the construction industry, the long-term growth expectations in the different markets, as well as the discount rates and the long-term growth rates applied. CEMEX’s cash flow projections to determine the value in use of its CGUs to which goodwill has been allocated consider the use of long-term economic assumptions. CEMEX believes that its discounted cash flow projections and the discount rates used reasonably reflect current economic conditions at the time of the calculations, considering, among other factors that: a) the cost of capital reflects current risks and volatility in the markets; and b) the cost of debt represents the average of industry specific interest rates observed in recent transactions. Other key assumptions used to determine CEMEX’s discounted cash flows are volume and price increases or decreases by main product during the projected periods. Volume increases or decreases generally reflect forecasts issued by trustworthy external sources, occasionally adjusted based on CEMEX’s actual backlog, experience and judgment considering its concentration in certain sectors, while price changes normally reflect the expected inflation in the respective country. Operating costs and expenses during all periods are maintained as a fixed percent of revenues considering historic performance.

CEMEX’s pre-tax discount rates and long-term growth rates used to determine the discounted cash flows in the group of CGUs with the main goodwill balances were as follows:


	Discount rates			Growth rates
Groups of CGUs	2017	2016	2015	2017	2016	2015
United States	8.8%	8.6%	8.6%	2.5%	2.5%	2.5%
Spain	9.5%	9.5%	9.9%	1.7%	1.6%	1.9%
Mexico	10.2%	9.8%	9.6%	2.7%	2.9%	3.5%
Colombia	10.5%	10.0%	9.8%	3.7%	4.0%	4.0%
France	9.0%	9.1%	9.0%	1.8%	1.8%	1.6%
United Arab Emirates	10.4%	10.2%	10.2%	3.1%	3.4%	3.6%
United Kingdom	9.0%	8.8%	8.8%	1.7%	1.9%	2.3%
Egypt	11.8%	11.4%	12.5%	6.0%	6.0%	4.6%
Range of rates in other countries	9.1% - 11.7%	9.1% - 12.8%	9.0% - 13.8%	2.3% - 6.8%	2.2% - 7.0%	2.4% - 4.3%

As of December 31, 2017, the discount rates used by CEMEX in its cash flows projections in the countries with the most significant goodwill balances increased slightly as compared to the values determined in 2016. During the year, the funding cost observed in industry slightly decreased from 6.2% in 2016 to 6.1% in 2017 and the risk multiple associated to the Company also decreased from 1.29 in 2016 to 1.26 in 2017. Nonetheless, these decreases were offset by an increase in the risk free rate which change from 2.70% in 2016 to 2.76% in 2017, as well as by overall increases in the sovereign risk rate of the majority of the countries. As of December 31, 2016, the discount rates remained almost flat in most cases as compared to the values determined in 2015. Among other factors, the funding cost observed in industry decreased from 6.9% in 2015 to 6.2% in 2016, and the risk free rate decreased from approximately 3.2% in 2015 to 2.7 % in 2016. Nonetheless, these increases were offset by reductions in 2016 in the country specific sovereign yields in the majority of the countries where CEMEX operates. As of December 31, 2015, the discount rates remained almost flat in most cases as compared to the values determined in previous year. In respect to long-term growth rates, following general practice under IFRS, CEMEX uses country specific rates, which are mainly obtained from the Consensus Economics, a compilation of analysts’ forecast worldwide, or from the International Monetary Fund when the first are not available for a specific country.

In connection with the assumptions included in the table above, 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 the discounted cash flow models, CEMEX determined a weighted average multiple 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. CEMEX considered an industry weighted average Operating EBITDA multiple of 9.0 times in 2017, 2016 and 2015. CEMEX’s own Operating EBITDA multiple was 8.5 times in 2017, 8.9 times in 2016 and 8.7 times in 2015. The lowest multiple observed in CEMEX’s benchmark was 6.5 times in 2017, 5.9 times in 2016 and 5.8 times in 2015, and the highest being 18.9 times in 2017, 18.3 times in 2016 and 18.0 times in 2015.

As of December 31, 2017, 2016 and 2015, except for the Operating Segment in Spain described above, in which CEMEX determined an impairment loss of goodwill in 2017, none of the other CEMEX’s sensitivity analyses resulted in a potential impairment risk in CEMEX’s operating segments. CEMEX continually monitors the evolution of the specific CGUs to which goodwill has been allocated that have presented relative goodwill impairment risk in any of the reported periods 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, 2017 and 2016, goodwill allocated to the United States accounted for approximately 78% and 79%, respectively, of CEMEX’s total amount of consolidated goodwill. In connection with CEMEX’s determination of value in use relative to its groups of CGUs in the United States in the reported periods, CEMEX has considered several factors, such as the historical performance of such operating segment, including the operating results in recent years, the long-term nature of CEMEX’s investment, the signs of recovery in the construction industry over the last years, 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 decrease in ready-mix concrete volumes of approximately 1% in 2017, affected by the hurricanes occurred in Texas and Florida during the year, and the increases of 1% in 2016 and 13% in 2015, and the increases in ready-mix concrete prices of approximately 1% in 2017, 1% in 2016 and 5% in 2015, 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.

CEMEX SAB DE CV | CIK:0001076378 |

ifrs-full:DisclosureOfIntangibleAssetsAndGoodwillExplanatory