FGV Annual Report 2014

19 Property, Plant and Equipment (continued) (i) 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 (Level 3 fair value computation) 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: 2014 2013 Gross margin 4% – 5% 4.4% Terminal value growth rate 2% 2% Discount rate 13.40% 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 13.40% (2013: 13.25%) which is post-tax and reflects specific risks relating to the business operation. Based on the fair value less cost to sell calculation, no impairment was recognised as the recoverable amount of the CGU exceeds the carrying amount. Based on sensitivity analysis performed by the Group, the impact of a 1% increase in the discount rate used, which is a key assumption, will result in an additional impairment loss of approximately RM29,000,000. In the previous financial year, based on the fair value less cost to sell calculation, the Group had impaired the property, plant and equipment by RM40,000,000 which was recorded as an impairment loss within cost of sales. The carrying amount written down to fair value less cost to sell is a Level 3 fair value computation. Introduction Performance Highlights About FGV Reports Financial Statements Others Strategy and Value Creation Performance Review & Progress Foreword to Shareholders Annual General Meeting Annual Report 2014 pg 229