FGV Annual Report 2013

Felda Global Ventures Holdings Berhad 235 19 PROPERTY, PLANT AND EQUIPMENT (ConT’D.) (a) Financial year ended 31 December 2013 (i) The termination of the joint venture with Bunge ETGO L.P. (Note 15), adverse market conditions during the financial year and continuing losses in a subsidiary, 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 using cash flow 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 stated below. The key assumptions used for the CGU’s fair value less cost to sell calculation are as follows: 2013 Gross margin 4.4% Terminal value growth rate 2% Discount rate 13.25% (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 improvement. (ii) Terminal value growth rate The terminal growth rate approximating inflation rate was used and this was in line with the current forecast of gross domestic product (“GDP”). (iii) Discount rate Discount rate used is 13.25% which is pre-tax and reflect specific risks relating to the business operation. Based on the fair value less cost to sell calculation, the Group has impaired the property, plant and equipment by RM40,000,000 which is recorded as an impairment loss within 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 RM36,700,000. (ii) Included in the property, plant and equipment are assets under grant from FELDA and Investissement Quebac (“Grantor”), an agency of the Quebec provincial government for TRT ETGO amounting to RM13,730,000 and RM23,390,000 respectively. Capital grant received from FELDA were in respect of grant contribution for the development of the Biotechnology Centre in Enstek, Nilai and for the “Green Rubber” project in Palong. Capital grant received from Grantor relates to a reimbursement of 5% of the cost incurred to develop and construct the oilseed crushing plant in Canada. There are no grants recognised as at 31 December 2013 that related to unfulfilled conditions or other contingencies.