FGV Annual Report 2012

63 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 20 INTANGIBLE ASSETS (continued) (a) Impairment test for goodwill (continued) (i) Sugar business operations in Seberang Prai, Malaysia (continued) (i) Gross margin The basis used to determine the value assigned to the budgeted gross margin is the average gross margin achieved in the financial year immediately before the budgeted financial year, adjusted for market and economic conditions, which includes expectations of raw sugar pricing under long term contracts and subsidies receivable from the Government of Malaysia, and expected efficiency improvement. (ii) Terminal value growth rate The terminal growth rate used is based on long term growth rates in the sugar industry in Malaysia. (iii) Discount rate Discount rate used reflects specific industry risks relating to the sugar business, on a pre-tax basis. Management believes that there is no reasonably possible change in any of the above key assumptions which would cause the carrying amount of the CGU to exceed the recoverable amount. (ii) Refined food oil business operation in Canada Financial year ended 31 December 2011 In the previous financial year, the Group had a goodwill balance of RM42,792,000 allocated to refined food oil business operation in Canada. As at 31 December 2011, the Group performed its annual goodwill impairment assessment by estimating the recoverable amount of the CGU (the goodwill and the property, plant and equipment as stated in Note 18) using a fair value less cost to sell calculation. The key assumptions used for the fair value less cost to sell calculation are: (i) The tolling fee is based on average estimated compound annual growth rate of approximately 3% from 2011 to 2016. The basis used was in line with executed Tolling Fee Agreement dated 9 December 2012 between Bunge-ETGO L.P. and TRT ETGO. (ii) The share of results from Bunge ETGO L.P., a jointly controlled entity set up during the financial year was derived from the 2012 Initial Budget prepared by Bunge ETGO L.P. and for 2013 to 2016 were based on preliminary assumptions made by management taking into consideration 2012 Initial Budget prepared by Bunge ETGO L.P. and its projected capacity. (iii) Discount rate used is 12.4% which reflects specific risks relating to the business operation. (iv) Terminal value is based on 2016 earnings before interest, taxes, depreciation and amortisation (“EBITDA”) multiplied by a terminal value multiplier of 7.6. Based on the fair value less cost to sell calculation, the Group has fully impaired the goodwill of RM42,792,000 which is recorded as an impairment loss in other operating expenses for the financial year ended 31 December 2011.