FGV Annual Report 2017

ANNUAL INTEGRATED REPORT 2017 FINANCIAL STATEMENTS 287 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 45 LAND LEASE AGREEMENT (“LLA”) LIABILITY (CONTINUED) The land lease agreement is calculated based on the terms set out in the various agreements as follows: (continued) (vi) Clarification Letter On 17 July 2015, FELDA and FGVPM agreed upon the clarification of several terms within the LLA and its ancillary agreements, as follows: - Maintenance costs of utilities on the lands managed by FELDA in Sahabat shall be charged to FGVPM; - The refund of the security deposit paid by the company in respect of the LLA (Note 25) shall be by way of set-off towards any payment of the lease amount prior to expiry or sooner determination of the LLA; and - The agreed formula to compute the Implied Revenue with respect to calculating the average fresh fruit bunches (“FFB”) price used by FGVPM in the preparation of the statement of plantation operating profit is now clarified via a detailed formula and accompanying assumptions The leased land consists of planted oil palm and rubber areas. Based on the agreed leased area, the annual fixed lease amount payable is estimated to be RM244,164,000 (2016: RM264,227,000) per annum together with 15% (2016: 15%) of yearly plantation operating profit attributable to the land. 2017 RM’000 2016 RM’000 Non-current 4,067,794 4,125,032 Current 325,486 282,532 4,393,280 4,407,564 Movement in LLA liability is as follows: At 1 January 4,407,564 4,627,195 Fair value changes charged to profit or loss (Note 9) 292,845 68,275 Repayment during the financial year (307,129) (287,906) At 31 December 4,393,280 4,407,564 Fair value of the LLA liability has been measured using a discounted cash flow calculation using cash flow projections based on financial budgets approved by the Directors covering 94 years. In previous financial year, the cash flow projections model for the valuation of the LLA liability have been updated, taking into consideration factors including the long term growth trend to reflect impact of replanting periods on yield and production, decisions made by management to withdraw from converting palm to rubber for certain areas, changes in replanting hectarage and changes in region concentration mixture according to the updated approved business plans of the Group. The change in estimates had resulted in a reversal of LLA liability of RM335,300,000 in previous financial year.