INTERCONTINENTAL HOTELS GROUP PLC /NEW/ (ifrs-full:DisclosureOfIntangibleAssetsExplanatory)

13. Goodwill and other intangible assets


	Goodwill $m			Brands $m		Software $m			Management contracts $m			Other intangibles $m			Total $m
Cost
At 1 January 2016		371			193		498			465			263			1,790

Additions		—			—		127			—			53			180
Capitalised interest		—			—		4			—			—			4
Disposals		—			—		(45	)		—			(7	)		(52	)
Exchange and other adjustments		(1	)		—		(1	)		(21	)		(13	)		(36	)

At 31 December 2016		370			193		583			444			296			1,886

Additions		—			—		168			—			73			241
Capitalised interest		—			—		6			—			—			6
Disposals		—			—		(14	)		—			(3	)		(17	)
Exchange and other adjustments		7			—		2			22			10			41

At 31 December 2017		377			193		745			466			376			2,157

Amortisation and impairment
At 1 January 2016		(138	)		—		(202	)		(139	)		(85	)		(564	)

Provided		—			—		(41	)		(11	)		(14	)		(66	)
System Fund expense		—			—		(26	)		—			—			(26	)
Disposals		—			—		45			—			3			48
Exchange and other adjustments		—			—		1			9			4			14

At 31 December 2016		(138	)		—		(223	)		(141	)		(92	)		(594	)

Provided		—			—		(40	)		(10	)		(18	)		(68	)
System Fund expense		—			—		(30	)		—			—			(30	)
Disposals		—			—		14			—			2			16
Exchange and other adjustments		(2	)		—		(2	)		(8	)		(2	)		(14	)

At 31 December 2017		(140	)		—		(281	)		(159	)		(110	)		(690	)

Net book value
At 31 December 2017		237			193		464			307			266			1,467

At 31 December 2016		232			193		360			303			204			1,292

At 1 January 2016		233			193		296			326			178			1,226

Goodwill and brands

During 2015, the Group acquired Kimpton (see note 10) resulting in the recognition of goodwill of $167m and brands of $193m, together with management contracts of $71m.

The Kimpton brands are considered to have an indefinite life given their strong brand awareness and reputation in the upscale boutique hotel sector, and management’s commitment to continued investment in their growth. The brands are protected by trademarks and there are not believed to be any legal, regulatory or contractual provisions that limit the useful lives of the brands. In the hotel industry there are a number of brands that have existed for many years and IHG has brands that are over 60 years old.

The Group tests goodwill and indefinite life intangible assets for impairment annually, or more frequently if there are any indicators that an impairment may have arisen. The year-end carrying value of goodwill and indefinite life brands have been allocated to cash-generating units (CGUs) for impairment testing purposes as follows:


	2017				2016
	Goodwill $m		Brands $m		Goodwill $m		Brands $m
CGU
Americas Managed		63		193		63		193
Americas Franchised		37		—		37		—
Europe Managed		21		—		21		—
Europe Franchised		10		—		10		—
AMEA Managed and Franchised		106		—		101		—

		237		193		232		193

The recoverable amounts of the CGUs are determined from value in use calculations. These calculations include a three-year period using pre-tax cash flow forecasts derived from the most recent financial budgets approved by management, incorporating growth rates based on management’s past experience and industry growth forecasts. The key assumptions that underpin the financial budgets are RevPAR growth and net System size growth. Cash flows beyond the three-year period are extrapolated using terminal growth rates that do not exceed the average long-term growth rates for the relevant markets. A 10% contingency factor is applied to reduce all cash flow projections before being discounted using pre-tax rates that are based on the Group’s weighted average cost of capital adjusted to reflect the risks specific to the business model and territory of the CGU being tested.

The terminal growth rates and discount rates used, which are considered to be key assumptions, are as follows:

Terminal growth rate

Discount rate

2017
%

2016
%

2017
%

2016
%

Americas Managed

2.0

2.0

10.4

9.8

Americas Franchised

2.0

2.0

9.4

8.8

Europe Managed

2.0

2.0

10.8

9.3

Europe Franchised

2.0

2.0

9.8

8.4

AMEA Managed and Franchised

3.5

3.5

14.1

13.0

Impairment was not required at either 31 December 2017 or 31 December 2016.

Given the contingency factor applied to the cash flow projections and the significant amounts by which the recoverable amounts of the CGUs exceed their carrying amounts, management have determined that impairment charges would not arise from reasonably possible changes in the key assumptions.

Software

Software includes $234m relating to the development of the next-generation Guest Reservation System with Amadeus. The asset was not amortised during the year as the roll-out to hotels is expected to commence in 2018.

Substantially all software additions are internally developed.

Management contracts

In addition to the management contracts acquired with the Kimpton acquisition in 2015 (see note 10), management contracts relate to contract values recognised as part of the proceeds for hotels sold.

At 31 December 2017, the net book value and remaining amortisation period of the principal management contracts were as follows:


	2017				2016
	Net book value $m		Remaining amortisation period Years		Net book value $m		Remaining amortisation period Years
Hotel
InterContinental Hong Kong		61		35		62		36
InterContinental New York Barclay		37		46		38		47
InterContinental London Park Lane		31		45		29		46
InterContinental Paris – Le Grand		34		47		31		48

The weighted average remaining amortisation period for all management contracts is 30 years (2016: 31 years).

INTERCONTINENTAL HOTELS GROUP PLC /NEW/ | CIK:0000858446 |

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