FGV Annual Report 2012

64 Felda Global Ventures Holdings Berhad 20 INTANGIBLE ASSETS (continued) (b) Impairment test for intangible assets other than goodwill 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. This resulted in a reversal of impairment of RM23,878,000. The recoverable amount of the CGU is determined based on value in use calculations using cash flows projections based on financial budgets approved by the Directors covering a five-year period and applying a terminal value multiple using longer-term sustainable growth rates stated below. The key assumptions used for the CGU’s value in use calculation are: 2012 2011 Gross margin 8% – 10% 6% – 10% Terminal value multiple 7.95 times of 2017 EBITDA 6.10 times of 2016 EBITDA Discount rate 12% 13% (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, and expected efficiency improvements. (ii) Terminal value multiple The terminal value is based on 2017 earnings before interest, taxes, depreciation and amortisation (“EBITDA”) multiplied by a terminal value multiplier of 7.95. The terminal value multiple used is consistent with comparable companies in the same industry in USA. (iii) Discount rate Discount rate used reflects specific risks relating to the business operation, and is a pre-tax rate. As a result of the impairment assessment of the CGU, the Group has recognised a reversal of impairment of RM39,375,000 (2011: nil) which represents RM23,878,000 allocated on a pro-rata basis for intangible assets other than goodwill and RM15,497,000 for property, plant and equipment (refer Note 18) which are recorded in other income and cost of sales respectively. 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. Notes to the Financial Statements for the financial year ended 31 December 2012