Goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2017 and 2016 are as follows:



	Beginning balance at January 1, 2017									Ending balance at December 31, 2017
	Gross goodwill amount	Accumulated impairment		Net goodwill amount	Goodwill on acquisition	Impairment		Foreign currency translation adjustment		Gross goodwill amount	Accumulated impairment		Net goodwill amount
Year ended December 31, 2017	$'000	$'000		$'000	$'000	$'000		$'000		$'000	$'000		$'000

Owned hotels:
Europe	64,459	(14,202	)	50,257	—	—		6,201		70,660	(14,202	)	56,458
North America	66,101	(16,110	)	49,991	5,500	(5,500	)	—		71,601	(21,610	)	49,991
Rest of world	20,581	(13,149	)	7,432	—	—		(51	)	20,530	(13,149	)	7,381
Owned trains and cruises	6,325	(662	)	5,663	—	—		727		7,052	(662	)	6,390

Total	157,466	(44,123	)	113,343	5,500	(5,500	)	6,877		169,843	(49,623	)	120,220



	Beginning balance at January 1, 2016								Ending balance at December 31, 2016
	Gross goodwill amount	Accumulated impairment		Net goodwill amount	Goodwill on acquisition	Impairment	Foreign currency translation adjustment		Gross goodwill amount	Accumulated impairment		Net goodwill amount
Year ended December 31, 2016	$'000	$'000		$'000	$'000	$'000	$'000		$'000	$'000		$'000

Owned hotels:
Europe	64,263	(14,202	)	50,061	—	—	196		64,459	(14,202	)	50,257
North America	66,101	(16,110	)	49,991	—	—	—		66,101	(16,110	)	49,991
Rest of world	19,975	(13,149	)	6,826	—	—	606		20,581	(13,149	)	7,432
Owned trains and cruises	7,780	(662	)	7,118	—	—	(1,455	)	6,325	(662	)	5,663

Total	158,119	(44,123	)	113,996	—	—	(653	)	157,466	(44,123	)	113,343

In the year ended December 31, 2017, goodwill of $5,500,000 was recognized on the acquisition of Cap Juluca. See Note 4.

Belmond's annual impairment test date is October 1, when all reporting units with goodwill balances are reviewed for impairment. The impairment test compares the carrying value of each reporting unit to its fair value to determine if an impairment is indicated. The fair value of a reporting unit is determined using internally developed discounted future cash flow models, which include input from external valuation experts to provide discount and long term growth rates. A goodwill impairment charge is measured as the amount by which a reporting unit's carrying value exceeds its fair value, however the impairment charge not to exceed the carrying amount of goodwill allocated to that reporting unit.

During the year ended December 31, 2017, Belmond identified a non-cash goodwill impairment of $5,500,000 at Belmond Cap Juluca. Belmond determined that this impairment was triggered by the significant adverse change in use and physical condition of the hotel following Hurricanes Irma and Jose in September 2017. Significant increases in the estimated costs of repair to the hotel, estimated to be approximately in the range of $80,000,000 to $90,000,000, before recovery of insurance proceeds, negatively impacted the discounted cash flows, resulting in the full impairment of the goodwill balance.

In the three months ended December 31, 2017, Belmond considered whether the fall in tourist arrivals in Myanmar due to negative perceptions of the country indicated that it was more likely than not that the fair value of Belmond Governor’s Residence was less than its carrying value. Under the goodwill impairment test, the fair value of Belmond Governor’s Residence was approximately 14% in excess of its carrying value. Belmond Governor’s Residence had a goodwill balance of $2,195,000 at December 31, 2017. The impairment test remains sensitive to changes in assumptions. Factors that could reasonably be expected to potentially have

an adverse effect on the fair value of the reporting unit include the future operating projections of the hotel, volatility in debt or

equity markets that could result in changes to the discount rate, political instability, changes in future travel patterns or local

competitive supply. Any failure to meet these assumptions may result in a future impairment of goodwill.

There were no impairments to goodwill in the year ended December 31, 2016.

During the year ended December 31, 2015, the following non-cash goodwill impairment charges were identified and recorded:

•

An impairment charge of $4,098,000 at Belmond Grand Hotel Europe. Belmond determined that this impairment was triggered by the deterioration of the Russian economic environment which commenced in the second half of 2014 and failed to improve significantly in 2015 under economic sanctions. The continued sanctions and lack of economic recovery led management to reconsider its estimates for future profitability of the business, including future growth in ADR and occupancy rates and the related discount rates.

•

An impairment charge of $3,581,000 at Belmond Jimbaran Puri. Belmond determined that this impairment was triggered by declining performance over a number of periods, caused in part by the stronger U.S. dollar and increased relative expense of the region for European travelers in particular. Further weakness in performance that continued into the peak season in the second quarter led management to reconsider its estimates for future profitability of the business, including future growth in ADR and occupancy rates and the related discount rates.

•

An impairment charge of $1,455,000 at Belmond La Résidence Phou Vao. Belmond determined that this impairment was triggered by the declining popularity of the destination, increased relative expense of the region for European travelers as well as increased competition from smaller independent operators. After a weak winter period, the improvement in performance in 2015 was not as strong as expected, leading management to reconsider its estimates for future profitability of the business, including future growth in ADR and occupancy rates and the related discount rates.

•

An impairment charge of $662,000 at Belmond Northern Belle. Belmond determined that this impairment was triggered by declining performance caused by a reduction in passenger numbers sourced mainly from regional markets in the U.K. Continued softness in passenger numbers over the key summer period led management to reconsider its estimates for future profitability of the business, including future growth in ticket prices and passenger numbers and the related discount rates.