FGV Annual Report 2012

59 F i n a n c i a l S t a t e m e n t s 2 0 1 2 P e n y a t a K e w a n g a n 18 PROPERTY, PLANT AND EQUIPMENT (continued) (a) Financial year ended 31 December 2012 (i) The adverse market conditions during the financial year and the continuing losses in a subsidiary, Twin Rivers Technologies Enterprise de Transformation De Graines Oleagineuses Du Quebec Inc. (“TRT ETGO”) were identified as indicators for an impairment test to be performed for property, plant and equipment in relation to the CGU for refined food oil business operation in Canada. The recoverable amount of the CGU is determined based on fair value less cost to sell calculation. The key assumptions used for the CGU’s fair value less cost to sell calculation are: (i) The tolling fee is based on average estimated compound annual growth rate of approximately 2% over the period of the Tolling Fee Agreement. The basis used was in line with executed Tolling Fee Agreement dated 9 December 2012 between Bunge-ETGO L.P. and TRT ETGO. (ii) Discount rate used is 12.4% which reflects specific risks relating to the business operation. (iii) Terminal value is based on 2017 earnings before interest, taxes, depreciation and amortisation (“EBITDA”) at 2% growth rate. Based on the fair value less cost to sell calculation, the Group has impaired the property, plant and equipment by RM32,300,000 which is recorded as an impairment loss in cost of sales. Based on sensitivity analysis performed by the Group, the impact of 1% increase in the discount rate used, which is a key assumption, will result in an additional impairment loss of approximately RM30,737,000. (ii) Following improvements in the financial performance, a reassessment of the recoverable amount has been undertaken on the fatty acids business operation in USA.The assessment required an estimation of the value in use of the CGU to which the property, plant and equipment and intangible assets in respect of the fatty acids business operation in USA were allocated as described in Note 20. This resulted in a reversal of impairment of property, plant and equipment amounting to RM15,497,000. (iii) A subsidiary of the Group, Kilang Gula Felda Perlis Sdn Bhd (“KGFP”) had previously recorded an impairment loss of approximately RM3,566,000 on certain property, plant and equipment as their recoverable amounts were below their carrying values. The recoverable amounts of these assets were determined by reference to their fair value less costs to sell based on independent valuations by an external party using the comparison method by reference to recent transactions and sales evidences. As at 31 December 2012, a portion of the property, plant and equipments were disposed above their carrying values, resulting in a reversal of impairment of RM529,000. (iv) Included in the property, plant and equipment is a deferred grant granted from Investissement Quebec (“Grantor”), an agency of the Quebec provincial government amounting to RM23,290,000. Under the terms of the agreement, the Grantor will reimburse TRT ETGO, 5% of the cost incurred to develop and construct the oilseed crushing plant in Becancour. In the previous financial year, the grant was recorded as other payable due to non-compliance with the covenants attached. The covenants were complied with as at 31 December 2012 and as a result the grant was recorded as a reduction of the cost of the property, plant and equipment. (b) Financial year ended 31 December 2011 (i) Adverse market conditions, continuing losses and the internal restructuring in a subsidiary, Twin Rivers Technologies Enterprise de Transformation De Graines Oleagineuses Du Quebec Inc. (“TRT ETGO”) were identified as indicators for an impairment test to be performed for property, plant and intangible assets in relation to the CGU for refined food oil business operation in Canada as described in Note 20 which resulted in an impairment of RM160,798,000. Based on sensitivity analysis performed by the Group, the impact of 1% increase in the discount rate used, which is a key assumption, will result in additional impairment loss of approximately RM65,000,000. (ii) Certain property, plant and equipment in TRT ETGO amounting to RM388,669,000 were held as security for banking facilities granted to a subsidiary company.