FGV Annual Report 2012

101 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 42 LAND LEASE AGREEMENT (“LLA”) LIABILITY The land lease agreement is calculated based on the terms set out in the various agreements as disclosed in Note 21(c). The leased land consists of planted oil palm and rubber areas. Based on the agreed leased area, the annual fixed lease amount payable is estimated to be RM248,481,322 per annum together with 15% of yearly plantation operating profit attributable to the lands. 2012 2011 RM’000 RM’000 Non-current 5,167,831 – Current 496,938 – 5,664,769 – Movement in LLA liability is as follows: 2012 2011 RM’000 RM’000 At 1 January – – Acquisition of plantation estates (Note 21(c)) 5,842,694 – Fair value changes charged to profit or loss 210,178 – Repayment during the financial year (388,103) – At 31 December 5,664,769 – Fair value of the LLA liability has been measured using a discounted cash flow calculation using cash flow projections based on financial budgets approved by the Directors covering 99 years. The key assumptions used to compute the fair value of the LLA liability are as follows: (i) Implied discount rate 9.47% based on discount rates applied by relevant comparable companies (ii) CPO price RM2,468/MT to RM3,050/MT (iii) FFB price RM526/MT to RM634/MT (iv) Average FFB Yield (MT/ha) 18.3/MT to 26.9/MT (v) Estate replanting fixed cost • Matured - RM2,380 per hectare based on a 25 year cycle for oil palm • Immature - RM6,346 per hectare based on a 25 year cycle for oil palm (vi) Lease term Extension of lease term to 99 years will be obtained for all lands in the plantation estates The sensitivity of the LLA liability to changes in key assumptions is as follows: Key assumptions Change in assumption Impact on LLA liability (i) Discount rate Increase by 0.5% Decrease by RM142,000,000 Decrease by 0.5% Increase by RM160,000,000 (ii) CPO price Increase/decrease by RM100 per metric tonne Increase/decrease by RM37,000,000 (iii) Improvement/reduction in FFB yield Increase/decrease by 1% Increase/decrease by RM25,034,591 (iv) Change of total planted hectarage under LLA# Increase/decrease by 1,000 ha Increase/decrease by RM7,000,000 # Changes in land area as a result of adjustment arising from the ongoing land reconciliation exercise to ascertain the accurate land area as provided by the LLA, which is expected to be completed by July 2013.