FGV Annual Report 2016

ANNUAL INTEGRATED REPORT 2016 245 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016 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 to 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 VIU calculation 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 VIU calculation are: 2016 2015 Selling price, RM per metric tonne ("MT") 2,711 - 2,991 2,142 - 2,580 Terminal value growth rate 2% 2% Raw sugar price, US cents per pounds 17.3 – 20.3 14.0 – 14.4 Sales volume, MT'000 1,082.0 – 1,629.5 1,038 – 1,590.1 Discount rate 8% - 9% 11% (i) Selling price Selling price is assumed based on ceiling price set by Government for domestic. Industry and export selling prices is estimated based on raw sugar futures price and expected margins from refining of raw sugar. The selling prices are held constant in financial year 2018 and 2019. (ii) Terminal value growth rate The terminal growth rate used is based on long-term sustainable growth rates in the sugar industry in Malaysia. (iii) Raw sugar price Raw sugar price is projected in line with New York #11 raw sugar future contracts. The long term price beyond financial year 2019 is held constant consistent with selling prices. (iv) Sales volume The increase in sales volume arises from commissioning of a refinery in Johor with an expected production volume of 400,000 MT in year 1 and 500,000 MT in year 2 (2015: 500,000 MT in year 3). (v) Discount rate Discount rate used, reflects specific industry risks relating to the sugar business. Other than as disclosed below, there is no reasonably possible change in any of the above key assumptions, which would cause the carrying value of the CGU to exceed its recoverable amount.