FGV Annual Report 2016

ANNUAL INTEGRATED REPORT 2016 239 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016 19 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Impairment of property, plant and equipment Financial year ended 31 December 2016 (a) Difficult operating conditions during the financial year and continuing losses in a subsidiary, FGV China Oils Ltd, were identified as indicators for an impairment test to be performed for the non-financial assets (including property, plant and equipment, intangible assets (other than goodwill) and prepaid lease payments) in relation to the CGU for palm oil refining operation in China. 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 covering a five-year period and applying 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: 2016 Revenue growth 6% Gross margin 2% Terminal value growth rate 3% Discount rate 13% As a result of the impairment assessment, the Group has recognised a total impairment of RM55,615,000 which comprise RM42,037,000 for property, plant and equipment, RM11,818,000 for intangible assets (other than goodwill) (Note 21) and RM1,760,000 for prepaid lease payments (Note 25) which are recorded in cost of sales. Based on the sensitivity analysis performed, a 1% increase in discount rate, with all other variables being held constant, would result in a further impairment loss of approximately RM10,360,000. (b) During the financial year, Felda Palm Industries Sdn. Bhd., Felda Rubber Industries Sdn. Bhd., and Felda Vegetable Oil Products Sdn. Bhd., indirect subsidiaries of the Company, had closed down four mills, two factories and a refinery respectively as part of the Group's rationalisation plan. As a result, an impairment of RM38,892,000 had been recognised in cost of sales of the Group. Financial year ended 31 December 2015 (a) A reversal of impairment of RM133,392,000 was recorded in the previous financial year, which arose from the disposal of Twin Rivers Technologies Enterprises De Transformation De Graines Oleagineuses Du Quebec Inc. ("TRT ETGO"), an indirect wholly-owned subsidiary of the Company on 3 November 2015. The recoverable amount was determined based on the fair value less cost to sell of the assets, with reference to the offer price provided by TRT ETGO's purchaser.