13. Goodwill and other intangible assets


	Goodwill $m			Brands $m			Software $m			Management contracts Restated $m			Other intangibles Restated $m			Total $m
Cost
At 1 January 2017		370			193			583			71			10			1,227
Additions		—			—			168			—			4			172
Capitalised interest		—			—			6			—			—			6
Disposals		—			—			(14	)		—			—			(14	)
Exchange and other adjustments		7			—			2			—			(1	)		8

At 31 December 2017		377			193			745			71			13			1,399
Acquisition of businesses (note 11)		83			58			0			6			0			147
Additions		0			0			107			0			5			112
Capitalised interest		0			0			5			0			0			5
Disposals		0			0			(72	)		0			0			(72	)
Exchange and other adjustments		(5	)		(1	)		(4	)		0			0			(10	)

At 31 December 2018		455			250			781			77			18			1,581

Amortisation and impairment
At 1 January 2017		(138	)		—			(223	)		(5	)		(3	)		(369	)
Provided		—			—			(40	)		(2	)		(1	)		(43	)
System Fund expense		—			—			(30	)		—			—			(30	)
Disposals		—			—			14			—			—			14
Exchange and other adjustments		(2	)		—			(2	)		—			—			(4	)

At 31 December 2017		(140	)		—			(281	)		(7	)		(4	)		(432	)
Provided		0			0			(36	)		(3	)		(1	)		(40	)
System Fund expense		0			0			(37	)		0			0			(37	)
Disposals		0			0			67			0			0			67
Exchange and other adjustments		(2	)		0			6			0			0			4

At 31 December 2018		(142	)		0			(281	)		(10	)		(5	)		(438	)

Net book value
At 31 December 2018		313			250			500			67			13			1,143
At 31 December 2017		237			193			464			64			9			967
At 1 January 2017		232			193			360			66			7			858

Goodwill and brands

During the year, the Group acquired Regent and the UK portfolio (see note 11) resulting in the recognition of goodwill of $83m and brands of $58m, together with management contracts of $6m. The Kimpton acquisition in 2015 resulted in the recognition of goodwill of $167m, brands of $193m and management contracts of $71m.

The Regent and Kimpton brands are both considered to have an indefinite life given their strong brand awareness and reputation, 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:


	2018				2017
	Goodwill $m		Brands $m		Goodwill $m		Brands $m
CGU
Americas Managed		69		203		63		193
Americas Franchised		37		0		37		—
EMEAA – Europe Managed		29		13		21		—
EMEAA – Europe Franchised		10		0		10		—
EMEAA – rest of region		113		23		106		—
Greater China		7		11		—		—

Allocated to CGUs (including Regent)		265		250		237		193
UK portfolio		48		0		—		—

		313		250		237		193

The UK portfolio goodwill remained unallocated at 31 December 2018 pending completion of the portfolio acquisition in early 2019.

The goodwill relating to the Regent and UK portfolio acquisitions are included in the Group statement of financial position at their acquisition date fair value. Otherwise, the recoverable amounts of the CGUs have been 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. RevPAR is based on market forecasts provided by Oxford Economics adjusted for historical experience of how the Group has performed compared to these expectations. 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:

2018

2017

Terminal
growth
rate %

Discount
rate %

Terminal
growth
rate %

Discount
rate %

Americas Managed

2.0

10.5

2.0

10.4

Americas Franchised

2.0

9.6

2.0

9.4

EMEAA – Europe Managed

2.0

11.4

2.0

10.8

EMEAA – Europe Franchised

2.0

10.5

2.0

9.8

EMEAA – rest of region

3.5

13.4

3.5

14.1

Greater China

2.5

12.3

2.5

13.6

Impairment was not required at either 31 December 2018 or 31 December 2017.

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 $273m relating to the development of the next-generation Guest Reservation System with Amadeus. Of this amount $109m relating to Phase 2 of the project was not amortised during the year as it has not been completed and rolled out to hotels.

Substantially all software additions are internally developed.

Management contracts

Management contracts comprise $61m (2017: $64m) in respect of Kimpton and $6m (2017: $nil) in respect of Regent.

The weighted average remaining amortisation period for all management contracts is 25 years (2017 restated: 27 years).