Holiday Inn 2015 Annual Report Download - page 101

The future redemption liability, which is included in trade and
other payables, was $649m at 31 December 2015. Based on the
conditions existing at the balance sheet date, a one percentage point
decrease in the breakage estimate would increase this liability by
approximately $10m.
Kimpton acquisition – The Group acquired Kimpton Hotel and
Restaurant Group, LLC (Kimpton) on 16 January 2015 and has
recognised the identifiable assets and liabilities acquired at fair value,
with the difference between the fair value of net assets acquired and
the fair value of consideration paid as goodwill. The most significant
assets acquired were intangible assets and the Group engaged an
independent valuation specialist to assist with their identification
and valuation. The Group assessed the competence, capabilities and
objectivity of the specialist, as well as the reasonableness of their
conclusions having regard to the key assumptions including forecast
cash flows, discount rates, royalty rates and long-term growth rates.
As a result of the valuation exercise, management contract assets of
$71m, brand assets of $193m and goodwill of $167m were recognised.
The management contracts were valued using an excess earnings
approach and the brands using the relief-from-royalty method. A
10% reduction in the EBITDA margin applied to forecast management
contract fees would have reduced the management contract valuation
by $17m and a 0.5 percentage point increase in the assumed royalty
rate would have increased the brand valuation by $97m, with
corresponding adjustments to the amount of goodwill recognised.
For the reasons set out in note 13 to the accounts, the brands have
been deemed to have an indefinite life.
Impairment testing – intangible assets with definite useful lives, and
property, plant and equipment are tested for impairment when events
or circumstances indicate that their carrying value may not be
recoverable. Goodwill and intangible assets with indefinite useful lives
are subject to an impairment test on an annual basis or more frequently
if there are indicators of impairment. Assets that do not generate
independent cash flows are combined into cash-generating units.
The impairment testing of individual assets or cash-generating units
requires an assessment of the recoverable amount of the asset or
cash-generating unit. If the carrying value of the asset or cash-
generating unit exceeds its estimated recoverable amount, the asset
or cash-generating unit is written down to its recoverable amount.
Recoverable amount is the greater of fair value less costs of disposal
and value in use. Value in use is assessed based on estimated future
cash flows discounted to their present value using a pre-tax discount
rate that is based on the Group’s weighted average cost of capital
adjusted to reflect the risks specific to the business model and
territory of the cash-generating unit or asset being tested. The
outcome of such an assessment is subjective, and the result sensitive
to the assumed future cash flows to be generated by the cash-
generating units or assets and discount rates applied in calculating
the value in use.
At 31 December 2015, the Group had goodwill of $233m and brands
of $193m, both of which are subject to annual impairment testing.
Information on the impairment tests performed is included in note 13.
The Group also had property, plant and equipment and other
intangible assets with a net book value of $428m and $800m
respectively at 31 December 2015. An impairment charge of $27m was
recognised during the year in relation to two hotel properties in North
America. In respect of those assets requiring an impairment test and
depending on how recoverable amount was assessed, a 10% reduction
in fair value or estimated future cash flows would have resulted in a
further impairment charge of $6m.
Litigation – from time to time, the Group is subject to legal
proceedings the ultimate outcome of each being always subject
to many uncertainties inherent in litigation. A provision for litigation
is made when it is considered probable that a payment will be made
and the amount of the loss can be reasonably estimated. Significant
judgement is made when evaluating, amongst other factors, the
probability of unfavourable outcome and the ability to make a
reasonable estimate of the amount of potential loss. Litigation
provisions are reviewed at each accounting period and revisions
made for changes in facts and circumstances.
New standards issued but not effective
The new and amended accounting standards discussed below are
those which are expected to be relevant to the Group’s Financial
Statements.
From 1 January 2016, the Group will apply the amendments to
existing standards arising from the Annual Improvements to IFRSs
2012–2014 cycle.
From 1 January 2016, the Group will apply Amendments to IAS 16
and IAS 38 ‘Clarification of Acceptable Methods of Depreciation
and Amortisation’, Amendments to IFRS 11 ‘Accounting for Acquisition
of Interests in Joint Operations’, and Amendments to IAS 1
‘Disclosure Initiative’.
The Group will also apply Amendments to IFRS 10 and IAS 28 ‘Sale or
Contribution of Assets between an Investor and its Associate or Joint
Venture’ on the effective date of these amendments, which have been
deferred indefinitely.
The above amendments are not expected to have a material impact
on the Group’s reported performance or financial position.
IFRS 15 ‘Revenue from Contracts with Customers’ introduces a new
five-step approach to measuring and recognising revenue and is
effective from 1 January 2018.
IFRS 9 ‘Financial Instruments’ was issued as a final standard in July
2014 and is effective from 1 January 2018. The standard introduces
new requirements for classification and measurement of financial
assets and financial liabilities, impairment and hedge accounting.
IFRS 16 ‘Leases’ was issued in January 2016 and is effective from
1 January 2019. The standard eliminates the classification of leases as
either operating or finance leases and introduces a single accounting
model. Lessees will be required to recognise assets and liabilities in
respect of the minimum lease payment for all leases with a term of
more than 12 months, and show depreciation of leased assets and
interest on lease liabilities separately in the income statement.
The Group is currently assessing the impacts of IFRS 15, IFRS 9
and IFRS 16 and plans to adopt these standards on the required
effective dates.
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IHG Annual Report and Form 20-F 2015
STRATEGIC REPORT GOVERNANCE GROUP FINANCIAL STATEMENTS ADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS