FGV Annual Report 2017

FELDA GLOBAL VENTURES HOLDINGS BERHAD FINANCIAL STATEMENTS 208 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 18 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Impairment of property, plant and equipment Financial year ended 31 December 2017 Continuing losses in an indirect subsidiary, Felda Rubber Industries Sdn. Bhd., was identified as indicator for an impairment test to be performed for property, plant and equipment in relation to the CGU for rubber processing operation. The recoverable amount of the CGU is determined based on independent valuation carried out by registered professional valuer. As a result of the impairment assessment, the recoverable amount of the CGU is RM23,900,000. Hence, an impairment of RM10,000,000 had been recognised in profit or loss of the Group during the financial year. The amount has been included as part of the impairment loss of Logistics and Others Sector in the Group’s segment reporting (Note 17). Financial year ended 31 December 2016 (a) Difficult operating conditions in the previous 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 recoverable amount of the CGU is RM104,105,000 and a result, 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 20) and RM1,760,000 for prepaid lease payments (Note 24) 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) In the previous 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.