FGV Annual Report 2015

255 WHO WE ARE & WHAT WE DO OUR STRATEGIC INTENT & PERFORMANCE HOWWE ARE GOVERNED CREATING SUSTAINABLE VALUE OUR NUMBERS ADDITIONAL INFORMATION DETAILS OF THE ANNUAL GENERAL MEETING Notes to the Financial Statements For The Financial Year Ended 31 December 2015 ADDRESSING OUR RISKS & OPPORTUNITIES Felda Global Ventures Holdings Berhad Annual Integrated Report 2015 21 INTANGIBLE ASSETS (CONTINUED) (a) Impairment test for goodwill (continued) (i) Sugar business operations in Malaysia The goodwill relates to the acquisition of the sugar business by the Group and is allocated MSM Holdings Berhad Group. This represents the lowest level at which goodwill is monitored for internal management purposes. The recoverable amount of the CGU is determined based on a fair value less cost to sell basis (Level 3 fair value computation) using cash flows projections based on financial budgets approved by the Directors covering a three-year period and applying a terminal value growth rate multiple using longer-term sustainable growth rates. The key assumptions used for the CGU’s fair value less cost to sell calculation are: 2015 2014 Gross margin 18%-23% 19%-22% Terminal value growth rate 1% 1% Discount rate 10% 10% (i) Gross margin The basis used to determine the value assigned to the budgeted gross margin is the average gross margin achieved in the year immediately before the budgeted year, adjusted for market and economic conditions, which includes expectations of raw sugar pricing and expected efficiency improvements. (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, which is post-tax, reflects specific industry risks relating to the sugar business. The Group’s review includes an impact assessment of changes in key assumptions. Based on the sensitivity analysis performed, a 0.5% decrease in the growth rate, with all other variables being held constant, would result in the recoverable amount of the sugar business to still exceed the carrying value by RM102.1 million. A 0.5% increase in the discount rate, with all other variables being held constant, would result in the recoverable amount of the sugar business to still exceed the carrying value by RM39.1 million. No reasonable change in the gross margin assumption would cause the carrying amount of the CGU to exceed the recoverable amount. (ii) Palm upstream operations in Malaysia Goodwill of RM640,184,000 for palm upstream operations in Malaysia comprise of RM512,946,000 for APL (Note 22(c)(iii)) and RM127,238,000 for PUP. The Group’s estates in Malaysia are combined for the purposes of goodwill impairment testing as they represent the lowest level within the Group at which goodwill is monitored for internal management purpose.