Notes to Condensed Consolidated Financial Statements (unaudited)
1. Basis of financial statement presentation
Business
The terms “Belmond” and the “Company” are used in this report to refer to Belmond Ltd. and Belmond Ltd. and its subsidiaries, unless otherwise stated.
At
September 30, 2018
, Belmond owned, partially-owned or managed
36
deluxe hotels and resort properties operating in the United States, Mexico, the Caribbean, Europe, Southern Africa, South America, and Southeast Asia,
one
stand-alone restaurant in New York,
seven
tourist trains in Europe, Southeast Asia and Peru,
one
river cruise business in Myanmar (Burma) and
one
canal boat business in France. In addition, there is
one
hotel scheduled for a first quarter 2019 opening, Belmond Cadogan Hotel in London, England.
Basis of presentation
The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for quarterly reporting on Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of the management of the Company, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of financial position, operating results and cash flows for the interim period have been included in these condensed consolidated financial statements.
The interim results presented are not necessarily indicative of results that may be expected for any subsequent interim period or the fiscal year ending
December 31, 2018
.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2017
. See Note 2 to the consolidated financial statements in the
2017
Annual Report on Form 10-K for additional information regarding significant accounting policies.
For interim reporting purposes, Belmond calculates its tax expense by estimating its global annual effective tax rate and applies that rate in providing for income taxes on a year-to-date basis. Belmond has calculated an expected annual effective tax rate, excluding significant or unusual items, and the tax effect of jurisdictions with losses for which a tax benefit cannot be recognized. The income tax expense (or benefit) related to all other items is individually computed and recognized when the items occur.
Accounting policies
The accounting policies used in preparing these condensed consolidated financial statements are the same as those applied in the prior year.
Accounting pronouncements adopted during the year
On January 1, 2018, the Company adopted Topic 606,
Revenue from Contracts with Customers
(“Topic 606”), using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while comparative information has not been restated and continues to be reported under the accounting standards in effect for the period presented. The adoption of Accounting Standards Codification (“ASC”) 606 did not have a material impact and as such no amounts for the cumulative effect from adopting the standard were required to be recorded in opening equity as of January 1, 2018. See Note 2. Belmond’s unconsolidated companies intend to adopt the standard in the annual period beginning January 1, 2019, as permitted by the SEC.
In October 2016, the FASB issued new guidance which is intended to simplify the tax consequences of certain types of intra-entity asset transfers. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted. Belmond adopted the new guidance on January 1, 2018, using a modified retrospective basis, recognizing a credit of
$641,000
to retained earnings as of the beginning of the year of adoption.
In November 2016, the FASB issued new guidance which clarifies the classification and presentation of restricted cash in the statement of cash flows, including disclosing the nature of restricted cash and restricted cash equivalent balances. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods therein, with early adoption permitted. Belmond adopted the new guidance on January 1, 2018, using a retrospective transition method to each period presented. As a result of adopting this guidance Belmond has included in its cash and cash equivalents balances in the statement of cash flows those amounts that are deemed to be restricted cash. In addition, as cash, cash equivalents and restricted cash are presented in more than one line item on the balance sheet, Belmond has, for each period that a statement of financial position is presented, provided a reconciliation of the totals in the statement of cash flows to the related captions in the statement of financial position together with disclosure on the nature of restricted cash balances (see Note 17).
In May 2017, the FASB issued new guidance on service concession arrangements. The guidance is effective on the same date the new revenue guidance is adopted, with early adoption permitted. Belmond adopted the new guidance on January 1, 2018. Belmond’s unconsolidated companies intend to adopt the standard in the annual period beginning January 1, 2019 in line with the adoption of the new revenue standard. Belmond is currently assessing the impact the adoption of this guidance will have on its unconsolidated companies.
Accounting pronouncements to be adopted
In February 2016, the FASB issued its new standard on accounting for leases, which introduces a lessee model that brings most leases on the balance sheet. Under the new standard, a lessee will recognize on its balance sheet a lease liability and a right-of-use asset for most leases, including operating leases. The new standard will also distinguish leases as either finance leases or operating leases. In January 2018, the FASB issued an update that clarified the application of the new leasing standard to land easements. Additionally, in July 2018, the FASB issued two updates to make targeted improvements to the new lease standard. The first update makes 16 separate narrow-scope amendments to the new leasing standard. The second update provides entities with relief from the costs of implementing certain aspects of the new leasing standard and with an additional (and optional) transition method on adoption. It also allows lessors to not separate non-lease components from the associated lease component if certain conditions are met. An entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The guidance is effective for annual periods beginning after December 15, 2018, and interim periods therein, with early adoption permitted. The Company intends to adopt the standard in the annual period beginning January 1, 2019. Belmond is currently assessing what impact the adoption of this guidance will have on its consolidated financial statements, but the Company expects that this standard may have a material effect on its consolidated balance sheet.
In August 2017, the Financial Accounting Standards Board (“FASB”) issued new guidance to make improvements to hedge accounting requirements. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods therein, with early adoption permitted. The Company intends to adopt the standard in the annual period beginning January 1, 2019. Belmond has assessed what impact the adoption of this guidance will have on its consolidated financial statements and concluded that it will not be significant.
In February 2018, the FASB issued new guidance on reclassifying certain tax effects from accumulated other income (AOCI). The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The Company intends to adopt the standard in the annual period beginning January 1, 2019. Belmond is currently assessing what impact the adoption of this guidance will have on its consolidated financial statements.
In July 2018, the FASB issued amendments to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification. Some of the amendments were effective upon issuance and others have transition guidance with effective dates for annual periods beginning after December 15, 2018. Belmond is currently evaluating the potential impact of those amendments that are not yet effective but it does not expect they will have a material impact on its consolidated financial statements.
In August 2018, the FASB issued two new standards to improve the effectiveness of disclosures in notes to the financial statements. The first standard removes, modifies and adds certain disclosure requirements related to fair value measurements in ASC 820 and is effective for fiscal years beginning after December 15, 2019, including interim periods therein, with early adoption permitted. The Company intends to adopt the standard in the annual period beginning January 1, 2020. The second standard modifies ASC 715-20 to improve disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans and is effective for fiscal years beginning after December 15, 2020, including interim periods therein, with early adoption permitted. The Company intends to adopt the standard in the annual period beginning January 1, 2021. Belmond is currently assessing what impact the adoption of this guidance will have on its consolidated financial statements.
2. Revenue recognition
On January 1, 2018, the Company adopted Topic 606,
Revenue from Contracts with Customers
(“Topic 606”), using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while comparative information has not been restated and continues to be reported under the accounting standards in effect for the period presented. The adoption of Topic 606 did not have a material impact and as such no amounts for the cumulative effect from adopting the standard were required to be recorded in opening equity as of January 1, 2018.
Significant accounting policy
Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a good or service to a customer. Estimates of variable consideration are included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur once the uncertainty is resolved. Revenue as presented in the statements of condensed consolidated operations consists entirely of amounts derived from contracts with customers.
Nature of goods and services
The following is a description of principal activities from which the Company generates revenue. Revenues are recognized when control of the promised goods or services are transferred to customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company generates all of its revenue from contracts with customers.
Hotels
Hotels revenue is recognized when the rooms are occupied and the services are performed. Revenue derived from other services, which primarily consist of food and beverage provided in the hotels, are recognized when the goods are consumed. The amount of revenue recognized is based on amounts stipulated in the contract. Payment is typically received upon check-out.
For hotels revenue, the Company recognizes revenue over time. The amount of revenue recognized is based on the relative standalone selling price of each room night. A time-elapsed output method is used to measure progress and provides a faithful depiction of the transfer of services to the customer as the value transferred to the customer is substantially the same every night of the stay.
For food and beverage revenue, the Company recognizes revenue at the time the goods and services have been provided as this is the point at which control is transferred to the customer.
Trains and cruises
Trains and cruises revenue is recognized ratably over a trip. Revenue derived from food and beverage provided on the trains and cruises is recognized when the goods are consumed. The amount of revenue recognized is based on amounts stipulated in the contract. Payment is typically received upfront.
For trains and cruises revenue, the Company recognizes revenue over time. A time-elapsed output method is used to measure progress and provides a faithful depiction of the transfer of services to the customer as the value transferred to the customer is substantially the same every night of the trip.
For food and beverage revenue, the Company recognizes revenue at the time the goods and services have been provided as this is the point at which control is transferred to the customer.
Management fees
Revenue under management contracts is recognized based upon on an agreed base fee and additional revenue is recognized on the attainment of certain financial results, primarily operating earnings, as specified in each contract. Management fees are typically billed and paid monthly.
For management fee revenue, the Company recognizes revenue over time. A time-elapsed output method is used to measure progress and provides a faithful depiction of the transfer of services to the customer as the value transferred to the customer is substantially the same every day. Fees are variable with the uncertainty of base fees being resolved monthly and the uncertainty
of incentive fees being resolved annually. These fees are included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur once the uncertainty is resolved.
Disaggregation of revenue
The following tables provide information about disaggregated revenue by type of service being provided, primary geographical market, and timing of revenue recognition, and includes a reconciliation of the disaggregated revenue with reportable segments:
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Three months ended September 30, 2018
|
|
|
Europe
|
|
|
North America
|
|
|
Rest of world
|
|
|
Owned trains & cruises
|
|
|
Part-owned hotels
|
|
|
Part-owned trains
|
|
|
Total
|
|
|
|
$’000
|
|
|
$’000
|
|
|
$’000
|
|
|
$’000
|
|
|
$’000
|
|
|
$’000
|
|
|
$’000
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods and services transferred at a point in time
|
|
35,764
|
|
|
13,554
|
|
|
9,584
|
|
|
1,541
|
|
|
—
|
|
|
—
|
|
|
60,443
|
|
Services transferred over time
|
|
73,624
|
|
|
13,990
|
|
|
16,258
|
|
|
24,824
|
|
|
1,055
|
|
|
2,967
|
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|
132,718
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|
|
|
|
|
|
|
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109,388
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|
27,544
|
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|
25,842
|
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|
26,365
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|
1,055
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|
2,967
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|
193,161
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Nine months ended September 30, 2018
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Europe
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North America
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Rest of world
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Owned trains & cruises
|
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Part-owned hotels
|
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|
Part-owned trains
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|
Total
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$’000
|
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|
$’000
|
|
|
$’000
|
|
|
$’000
|
|
|
$’000
|
|
|
$’000
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|
$’000
|
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Timing of revenue recognition
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|
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Goods and services transferred at a point in time
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73,412
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|
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39,766
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|
|
30,973
|
|
|
4,049
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|
|
—
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|
|
—
|
|
|
148,200
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Services transferred over time
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136,549
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|
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51,282
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|
|
54,549
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|
|
53,887
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|
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1,954
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8,067
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306,288
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|
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209,961
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|
91,048
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85,522
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57,936
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|
1,954
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|
|
8,067
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454,488
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|
Contract balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers:
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January 1, 2018
|
|
September 30, 2018
|
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|
$’000
|
|
$’000
|
|
|
|
|
|
Receivables
|
|
34,373
|
|
|
53,532
|
|
Contract assets
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|
—
|
|
|
—
|
|
Contract liabilities (deferred revenue)
|
|
32,786
|
|
|
50,797
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|
The amount of revenue recognized in the period that was included in the opening contract liabilities was
$28,132,000
. This revenue consists primarily of the provision of hotel and trains and cruises services.
Contract liabilities include payments received in advance of performance under the contract, and are realized with the associated revenue recognized under the contract.
For trains and cruises services, the timing of payment is typically upfront, therefore a contract liability is created when payment is made in advance of performance.
Practical expedients
The Company has elected certain of the optional exemptions from the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue. Accordingly, the Company applies the practical expedient to its management fee contracts. These contracts are typically long-term and the performance obligation consists of providing hotel management services to the owner. Revenue is recognized based upon an agreed base fee and additional revenue is recognized on the attainment of certain financial results, primarily operating earnings, as specified in each contract. As such, fees are variable with the uncertainty of base fees being resolved monthly and the uncertainty of incentive fees being resolved annually. These fees are included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur once the uncertainty is resolved.
The Company has elected the practical expedient to not disclose revenue related to remaining performance obligations that are part of a contract with an original expected duration of one year or less.
The Company has elected the practical expedient to not take into account the effects of significant financing components in the transaction price when the duration of financing is one year or less.
3. Earnings per share
The calculation of basic and diluted earnings per share including a reconciliation of the numerator and denominator is as follows:
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Three months ended
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Nine months ended
|
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September 30,
2018
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September 30,
2017
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September 30,
2018
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|
September 30,
2017
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Numerator ($'000)
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Net earnings/(losses) from continuing operations
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12,602
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|
|
7,673
|
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|
(3,865
|
)
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|
(15,403
|
)
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Net (losses)/earnings from discontinued operations
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|
(4
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)
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|
(3
|
)
|
|
(8
|
)
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125
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|
Net losses attributable to non-controlling interests
|
|
17
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|
96
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|
14
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|
|
11
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Net earnings/(losses) attributable to Belmond Ltd.
|
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12,615
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|
7,766
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(3,859
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)
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(15,267
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)
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Denominator (shares '000)
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Basic weighted average shares outstanding
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102,964
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|
102,327
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102,717
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|
102,114
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Effect of dilution
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1,929
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|
1,656
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—
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—
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Diluted weighted average shares outstanding
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104,893
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|
103,983
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102,717
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102,114
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$
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$
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$
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$
|
Basic earnings per share
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Net earnings/(losses) from continuing operations
|
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0.122
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|
0.075
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|
(0.038
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)
|
|
(0.151
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)
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Net (losses)/earnings from discontinued operations
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—
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|
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—
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|
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—
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|
0.001
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|
Net losses/(earnings) attributable to non-controlling interests
|
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—
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|
|
0.001
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|
|
—
|
|
|
—
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Net earnings/(losses) attributable to Belmond Ltd.
|
|
0.122
|
|
|
0.076
|
|
|
(0.038
|
)
|
|
(0.150
|
)
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|
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|
|
|
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Diluted earnings per share
|
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Net earnings/(losses) from continuing operations
|
|
0.120
|
|
|
0.074
|
|
|
(0.038
|
)
|
|
(0.151
|
)
|
Net (losses)/earnings from discontinued operations
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.001
|
|
Net losses/(earnings) attributable to non-controlling interests
|
|
—
|
|
|
0.001
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net earnings/(losses) attributable to Belmond Ltd.
|
|
0.120
|
|
|
0.075
|
|
|
(0.038
|
)
|
|
(0.150
|
)
|
The total number of share options and share-based awards excluded from computing diluted earnings per share was as follows:
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Three months ended
|
|
Nine months ended
|
|
|
September 30,
2018
|
|
September 30,
2017
|
|
September 30,
2018
|
|
September 30,
2017
|
|
|
|
|
|
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|
|
Share options
|
|
155,350
|
|
|
556,015
|
|
|
2,360,999
|
|
|
2,385,870
|
|
Share-based awards
|
|
—
|
|
|
—
|
|
|
1,473,592
|
|
|
1,333,089
|
|
|
|
|
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|
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|
Total
|
|
155,350
|
|
|
556,015
|
|
|
3,834,591
|
|
|
3,718,959
|
|
The number of share options and share-based awards unexercised at
September 30, 2018
was
3,834,591
(
September 30, 2017
-
3,718,959
).
4. Significant acquisitions
2018 Acquisitions
Castello di Casole
On February 7, 2018, Belmond acquired
100%
of
two
entities that together own Castello di Casole, a
39
-key luxury resort and estate in Tuscany, Italy, for a total transaction value of
€40,193,000
(equivalent to
$49,251,000
at February 7, 2018), including a cash purchase price of
€38,287,000
(
$46,934,000
), contingent consideration with a fair value of
€1,003,000
(
$1,226,000
) and acquisition-related costs of
€903,000
(
$1,091,000
). Belmond rebranded the resort as Belmond Castello di Casole on May 11, 2018, when the incumbent operator’s management agreement terminated. The property is the latest addition to Belmond’s family of ‘Italian Icons’, which includes Belmond Hotel Cipriani in Venice and Belmond Hotel Splendido in Portofino. Located within easy access of both Florence and Siena, the resort and estate span
1,500
hectares and comprise the
39
-key Castello di Casole hotel, together with vineyards, olive groves, extensive wooded Tuscan countryside, and
48
residential plots, of which
16
remain for sale. The Company plans to retain two of the plots to add two new villas to the resort and expects to sell the remaining 14 residential plots, with two already subject to non-binding reservation letters of intent to purchase.
The following table summarizes the consideration paid for the hotel and the preliminary allocation of the purchase price to the estimated fair value of assets acquired and liabilities assumed at the acquisition date. The acquisition has been accounted for in accordance with ASC 805,
Business Combinations
, using the acquisition method of accounting whereby the total purchase price has been allocated to the acquired assets and liabilities as at February 7, 2018. The estimated fair values are provisional and are subject to adjustment as the fair value analysis is finalized, which will be completed as soon as practicable, but no later than one year from the acquisition date.
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Fair value on
February 7, 2018
|
|
|
$'000
|
Consideration:
|
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|
|
|
Agreed cash consideration
|
|
46,934
|
|
Contingent consideration
|
|
1,226
|
|
Total purchase price
|
|
48,160
|
|
|
|
|
Assets acquired and liabilities assumed:
|
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|
|
|
|
Cash and cash equivalents
|
|
1,530
|
|
Other receivables
|
|
2,319
|
|
Current assets
|
|
1,355
|
|
Property, plant and equipment - hotel land and buildings
|
|
22,555
|
|
Property, plant and equipment - land plots
|
|
22,554
|
|
Other intangible assets
|
|
2,676
|
|
Current liabilities
|
|
(1,595
|
)
|
Accrued liabilities
|
|
(2,137
|
)
|
Deferred revenue
|
|
(1,261
|
)
|
Goodwill
|
|
164
|
|
Net assets acquired
|
|
48,160
|
|
The agreed cash consideration of
€38,287,000
(equivalent to
$46,934,000
at February 7, 2018) was funded from existing cash reserves.
The contingent consideration arrangement requires the Company to pay
50%
of the net proceeds from the sale of the two residential plots that are subject to non-binding reservation letters of intent to purchase (which are recorded as part of property, plant and equipment - land plots in the table above) to the vendor if the sales occur prior to September 30, 2018. The fair value of the contingent consideration at the acquisition date was
€1,003,000
(
$1,226,000
), determined using an income approach based on an analysis of the likelihood of the conditions for payment being met. As the sale of the two residential plots did not occur prior to September 30, 2018, the Company is no longer required to pay the contingent consideration and the subsequent change in fair value is recorded in the statements of condensed consolidated operations. As such, during the
three and nine months ended
September 30, 2018
, the change in fair value of the contingent consideration of
€1,003,000
(equivalent to
$1,197,000
at
September 30, 2018
) is recognized within other operating income in the statements of condensed consolidated operations.
Acquisition-related costs of
€903,000
(
$1,091,000
) are included within selling, general and administrative expenses in the statements of condensed consolidated operations for the
nine months ended
September 30, 2018
.
Other intangible assets of
$2,676,000
was assigned to trade names that are not subject to amortization. No other intangible assets were identified and recognized.
Goodwill arising on acquisition of
$164,000
was assigned to the Owned hotels in the Company’s Europe segment and consists largely of profit growth opportunities the hotel is expected to generate. None of the goodwill recognized is expected to be deductible for income tax purposes.
The results of operations of the hotel have been included in the consolidated financial results since the date of acquisition. The following table presents information for Castello di Casole included in the Company’s statements of condensed consolidated operations from the acquisition date to the period ending
September 30, 2018
:
|
|
|
|
|
|
|
2018
|
|
|
|
$'000
|
|
|
|
|
Revenue
|
|
8,768
|
|
Losses from continuing operations
|
|
(9,631
|
)
|
Belmond is unable to provide pro forma results of operations for the
nine months ended
September 30, 2018
and
2017
as if the acquisition had occurred on January 1, 2017 due to the lack of reliable historical financial information.
5. Assets held for sale and discontinued operations
(a) Results of discontinued operations
Belmond had been operating the hotel Ubud Hanging Gardens under a long-term lease arrangement with a third-party owner. The existing lease arrangement continues to 2030. Following the owner's unannounced dispossession of Belmond from the hotel in November 2013, Belmond was unable to continue to operate the hotel. Belmond believed that the owner's actions were unlawful and constituted a wrongful dispossession and has pursued its legal remedies under the lease. See Note 19. As Belmond is unable to operate Ubud Hanging Gardens for the foreseeable future, the hotel has been presented as a discontinued operation for all periods shown. The assets and liabilities of the hotel have not been classified as held for sale, as the hotel has not been disposed of through a sale transaction.
The Porto Cupecoy development was sold in January 2013, with the final unit disposed of in September 2014. Residual costs are presented within discontinued operations for the
three and nine months ended
September 30, 2018
and
2017
, respectively.
Summarized operating results of the properties classified as discontinued operations for the
three and nine months ended
September 30, 2018
and
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2018
|
|
|
Ubud Hanging Gardens
|
|
Porto Cupecoy
|
|
Total
|
|
|
$'000
|
|
$'000
|
|
$'000
|
|
|
|
|
|
|
|
Revenue
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Losses before tax, gain on sale and impairment
|
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
|
|
|
|
|
|
|
Losses before tax
|
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
|
|
|
|
|
|
|
Net losses from discontinued operations
|
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2017
|
|
|
Ubud Hanging Gardens
|
|
Porto Cupecoy
|
|
Total
|
|
|
$'000
|
|
$'000
|
|
$'000
|
|
|
|
|
|
|
|
Revenue
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Losses before tax, gain on sale and impairment
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
|
|
|
|
|
|
|
Losses before tax
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
|
|
|
|
|
|
|
Net losses from discontinued operations
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2018
|
|
|
Ubud Hanging Gardens
|
|
Porto Cupecoy
|
|
Total
|
|
|
$'000
|
|
$'000
|
|
$'000
|
|
|
|
|
|
|
|
Revenue
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Losses before tax, gain on sale and impairment
|
|
—
|
|
|
(8
|
)
|
|
(8
|
)
|
|
|
|
|
|
|
|
Losses before tax
|
|
—
|
|
|
(8
|
)
|
|
(8
|
)
|
|
|
|
|
|
|
|
Net losses from discontinued operations
|
|
—
|
|
|
(8
|
)
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2017
|
|
|
Ubud Hanging Gardens
|
|
Porto Cupecoy
|
|
Total
|
|
|
$'000
|
|
$'000
|
|
$'000
|
|
|
|
|
|
|
|
Revenue
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Earnings before tax, gain on sale and impairment
|
|
100
|
|
|
25
|
|
|
125
|
|
|
|
|
|
|
|
|
Earnings before tax
|
|
100
|
|
|
25
|
|
|
125
|
|
|
|
|
|
|
|
|
Net earnings from discontinued operations
|
|
100
|
|
|
25
|
|
|
125
|
|
(b) Assets and liabilities held for sale
There were
no
assets or liabilities classified as held for sale at
September 30, 2018
and
December 31, 2017
.
6. Variable interest entities
(a) VIEs of which Belmond is the primary beneficiary
Belmond holds a
19.9%
equity investment in Charleston Center LLC, owner of Belmond Charleston Place, Charleston, South Carolina. Belmond has also made a number of loans to the hotel. Belmond concluded that Charleston Center LLC is a VIE because the total equity at risk is insufficient for the entity to fund its operations without additional subordinated financial support, the majority of which has been provided by Belmond. Belmond is the primary beneficiary of this VIE because it is expected to absorb a majority of the VIE’s expected losses and residual gains through the subordinated financial support it has provided, and has the power to direct the activities that impact the VIE’s performance, based on the current organizational structure.
Assets of Charleston Center LLC that can only be used to settle obligations of the consolidated VIEs and liabilities of Charleston Center LLC whose creditors have no recourse to Belmond are presented as a footnote to the consolidated balance sheets. The third-party debt of Charleston Center LLC is secured by its net assets and is non-recourse to its members, including Belmond. The hotel's separate assets are not available to pay the debts of Belmond and the hotel's separate liabilities do not constitute obligations of Belmond. The assets of Charleston Center LLC that can be used only to settle obligations of Charleston Center LLC totaled
$201,979,000
at
September 30, 2018
(
December 31, 2017
-
$206,267,000
) and exclude goodwill of
$40,395,000
(
December 31, 2017
-
$40,395,000
). The liabilities of Charleston Center LLC for which creditors do not have recourse to the general credit of Belmond totaled
$168,187,000
at
September 30, 2018
(
December 31, 2017
-
$122,968,000
).
All deferred taxes attributable to the Company’s investment in the LLC arise at the investor level and are therefore not included in the footnote to the condensed consolidated balance sheets.
(b) VIEs of which Belmond is not the primary beneficiary
Belmond holds a
25%
equity investment in Eastern and Oriental Express Ltd., which operates the Eastern & Oriental Express luxury tourist train in Southeast Asia. Belmond concluded that the Eastern & Oriental Express joint venture is a variable interest entity because the total equity at risk is insufficient for it to fund its operations without additional subordinated financial support. The joint venture does not have a primary beneficiary because no one party has the power to direct the activities that most significantly impact the economic performance of the entity. The joint venture is accounted for under the equity method of accounting and included in earnings/(losses) before income taxes and earnings from unconsolidated companies in the statements of condensed consolidated operations.
The carrying amounts and maximum exposure to loss as a result of Belmond's involvement with its Eastern & Oriental Express joint venture are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts
|
|
Maximum exposure
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
September 30,
2018
|
|
December 31,
2017
|
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
Investment
|
|
2,496
|
|
|
2,642
|
|
|
2,496
|
|
|
2,642
|
|
Due from unconsolidated company
|
|
7,002
|
|
|
6,302
|
|
|
7,002
|
|
|
6,302
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
9,498
|
|
|
8,944
|
|
|
9,498
|
|
|
8,944
|
|
7. Investments in unconsolidated companies
Investments in unconsolidated companies represent equity interests of
50%
or less in which Belmond exerts significant influence, but does not have effective control and, therefore, accounts for these investments using the equity method. As at
September 30, 2018
, these investments include the
50%
ownership in rail and hotel joint venture operations in Peru, the
25%
ownership in Eastern and Oriental Express Ltd, and the Buzios land joint venture which is
50%
owned and is further described below.
In June 2007, a joint venture in which Belmond holds a
50%
equity interest acquired real estate in Buzios, a beach resort area in Brazil, for a cash consideration of
$5,000,000
. Belmond planned to build a hotel and villas on the acquired land and to purchase the remaining share of the joint venture company when the building permits were obtained from the local authorities. In February 2009, the Municipality of Buzios commenced a process for the expropriation of the land in exchange for a payment of fair compensation to the joint venture. In April 2011, the State of Rio de Janeiro took over the expropriation process as part of a broader State plan to develop a coastal environmental park. Under applicable law, the State had
five
years to carry out the expropriation in exchange for fair value, which it failed to do by the April 18, 2016 deadline. As a result, the land returned unencumbered to the joint venture, although it is subject to expropriation again. The Company and its joint venture partner are assessing their options, including negotiation with or litigation against the State to seek a permanent resolution of the status of the land, but in any case, the Company expects to recover its investment in the project.
Summarized financial data for Belmond’s unconsolidated companies are as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
|
$’000
|
|
$’000
|
|
|
|
|
|
Current assets
|
|
94,391
|
|
|
88,119
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated depreciation
|
|
220,618
|
|
|
228,970
|
|
Other non-current assets
|
|
51,466
|
|
|
55,605
|
|
Non-current assets
|
|
272,084
|
|
|
284,575
|
|
|
|
|
|
|
Total assets
|
|
366,475
|
|
|
372,694
|
|
|
|
|
|
|
Current liabilities, including $23,876 and $24,793 current portion of third-party debt
|
|
102,070
|
|
|
101,668
|
|
|
|
|
|
|
Long-term debt
|
|
130,035
|
|
|
143,187
|
|
Other non-current liabilities
|
|
5,093
|
|
|
7,892
|
|
Non-current liabilities
|
|
135,128
|
|
|
151,079
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
129,277
|
|
|
119,947
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
366,475
|
|
|
372,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
2018
|
|
September 30,
2017
|
|
September 30,
2018
|
|
September 30,
2017
|
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
62,659
|
|
|
59,085
|
|
|
164,951
|
|
|
153,685
|
|
|
|
|
|
|
|
|
|
|
Gross profit
1
|
|
43,850
|
|
|
41,163
|
|
|
111,191
|
|
|
106,134
|
|
|
|
|
|
|
|
|
|
|
Net earnings
2
|
|
7,928
|
|
|
7,567
|
|
|
17,381
|
|
|
15,115
|
|
1
Gross profit is defined as revenues less cost of services of the unconsolidated companies.
2
There were no discontinued operations or cumulative effects of a change in an accounting principle in the unconsolidated companies.
Included in unconsolidated companies are Belmond’s hotel and rail joint ventures in Peru, under which Belmond and the other
50%
participant must contribute equally additional equity needed for the businesses. If the other participant does not meet this obligation, Belmond has the right to dilute the other participant and obtain a majority equity interest in the affected joint venture company. Belmond also has rights to purchase the other participant’s interests, which rights are exercisable in limited circumstances such as the other participant’s bankruptcy.
There are contingent guarantees to unconsolidated companies which are not recognized in the condensed consolidated financial statements. The contingent guarantees for each Peruvian joint venture may only be enforced in the event there is a change in control of the relevant joint venture, which would occur only if Belmond’s ownership of the economic and voting interests in the joint venture falls below
50%
, an event which has not occurred and is not expected to occur. As at
September 30, 2018
, Belmond does not expect that it will be required to fund these guarantees relating to these joint venture companies.
Belmond has contingently guaranteed,
through 2021
,
$14,468,000
of debt obligations of the joint venture in Peru that operates
five
hotels and has contingently guaranteed the rail joint venture’s obligations relating to the performance of its governmental rail concessions, currently in the amount of
$11,586,000
,
through May 2019
.
8. Property, plant and equipment
The major classes of property, plant and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
|
$’000
|
|
$’000
|
|
|
|
|
|
Land and buildings
|
|
1,217,843
|
|
|
1,126,496
|
|
Machinery and equipment
|
|
180,680
|
|
|
181,670
|
|
Fixtures, fittings and office equipment
|
|
272,569
|
|
|
263,716
|
|
River cruise ship and canal boats
|
|
4,848
|
|
|
13,900
|
|
|
|
|
|
|
|
|
1,675,940
|
|
|
1,585,782
|
|
Less: Accumulated depreciation
|
|
(429,755
|
)
|
|
(417,738
|
)
|
|
|
|
|
|
Total property, plant and equipment, net of accumulated depreciation
|
|
1,246,185
|
|
|
1,168,044
|
|
The depreciation charge on property, plant and equipment for the
three and nine months ended
September 30, 2018
was
$14,847,000
(
September 30, 2017
-
$16,916,000
) and
$45,321,000
(
September 30, 2017
-
$45,458,000
).
The table above includes property, plant and equipment, net of accumulated depreciation, of Charleston Center LLC, a consolidated VIE, of
$194,044,000
at
September 30, 2018
(
December 31, 2017
-
$197,369,000
). See Note 6.
There was capitalized interest in the
three and nine months ended
September 30, 2018
of
$1,455,000
(
September 30, 2017
-
$Nil
) and
$3,257,000
(
September 30, 2017
-
$Nil
), respectively.
In the
nine months ended
September 30, 2018
, Belmond considered whether the decline in performance at Belmond Governor's Residence and Belmond Road to Mandalay as a result of the fall in tourist arrivals in Myanmar due to negative perceptions of the country indicated that the carrying amount of the businesses’ fixed assets may not be recoverable. Belmond concluded that an impairment trigger existed and an impairment test was required. Belmond compared the carrying value of the assets to management’s best estimate of the fair value based on an internally developed discounted cash flow analysis. The combined impairment charge of
$4,775,000
is included within impairment of property, plant and equipment and other assets in the statements of condensed consolidated operations.
In the
nine months ended
September 30, 2017
, Belmond considered whether the decline in performance of Belmond Road to Mandalay caused by increased competition in Myanmar indicated that the carrying amount of the business’s fixed assets may not be recoverable. Belmond concluded that an impairment trigger existed and an impairment test was required. The carrying value of assets was written down to management’s best estimate of the fair value based on an internally developed discounted cash flow analysis. The impairment charge of
$7,124,000
is included within impairment of property, plant and equipment and other assets in the statements of condensed consolidated operations.
In the
nine months ended
September 30, 2017
, Belmond considered whether the decline in performance of Belmond Northern Belle caused by a reduction in passenger numbers sourced mainly from regional markets in the U.K. indicated that the carrying amount of the business’s fixed assets may not be recoverable. Belmond concluded that an impairment trigger existed and an impairment test was required. The carrying value of assets was written down to fair value based on assumptions of potential market value. The impairment charge of
$1,092,000
is included within impairment of property, plant and equipment and other assets in the statements of condensed consolidated operations.
In September 2017, the islands of Anguilla and St Martin were hit by Hurricanes Irma and Jose when both Belmond La Samanna on St Martin and Belmond Cap Juluca on Anguilla were closed for the season. Both properties are included in Belmond’s global insurance program which provides combined property damage and business interruption cover for the Caribbean as well as separate flood insurance cover. In addition, Belmond La Samanna has a separate property damage insurance policy covering the eight villas at the resort. During the year ended
December 31, 2017
, the Company recorded a write-off to property, plant and equipment at the two properties, and a corresponding insurance receivable as recovery of those amounts was expected to be probable. In July 2018, a final settlement was agreed with the insurer of the global insurance program. To date, the Company has received
$32,600,000
of insurance proceeds related to the recovery of property damage and business interruption at Belmond La Samanna and Belmond Cap Juluca. In the
nine months ended
September 30, 2018
, the Company recognized
$11,160,000
in other operating income in the statements of condensed consolidated operations relating to gain contingencies at the two properties.
9. Goodwill
The changes in the carrying amount of goodwill for the
nine months ended
September 30, 2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2018
|
|
|
|
|
|
|
|
At September 30, 2018
|
|
|
Gross goodwill amount
|
|
Accumulated impairment
|
|
Net goodwill amount
|
|
Goodwill on acquisition
|
|
Impairment
|
|
Foreign currency translation adjustment
|
|
Gross goodwill amount
|
|
Accumulated impairment
|
|
Net goodwill amount
|
|
|
$'000
|
|
$'000
|
|
$'000
|
|
$'000
|
|
$'000
|
|
$'000
|
|
$'000
|
|
$'000
|
|
$'000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned hotels:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
70,660
|
|
|
(14,202
|
)
|
|
56,458
|
|
|
164
|
|
|
—
|
|
|
(2,650
|
)
|
|
68,174
|
|
|
(14,202
|
)
|
|
53,972
|
|
North America
|
|
71,601
|
|
|
(21,610
|
)
|
|
49,991
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
71,601
|
|
|
(21,610
|
)
|
|
49,991
|
|
Rest of world
|
|
20,530
|
|
|
(13,149
|
)
|
|
7,381
|
|
|
—
|
|
|
(2,195
|
)
|
|
(628
|
)
|
|
19,902
|
|
|
(15,344
|
)
|
|
4,558
|
|
Owned trains and cruises
|
|
7,052
|
|
|
(662
|
)
|
|
6,390
|
|
|
—
|
|
|
—
|
|
|
(214
|
)
|
|
6,838
|
|
|
(662
|
)
|
|
6,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
169,843
|
|
|
(49,623
|
)
|
|
120,220
|
|
|
164
|
|
|
(2,195
|
)
|
|
(3,492
|
)
|
|
166,515
|
|
|
(51,818
|
)
|
|
114,697
|
|
In the
nine months ended
September 30, 2018
, goodwill of
$164,000
was recognized on the acquisition of Castello di Casole. See Note 4.
During the
three months ended
September 30, 2018
, Belmond considered whether slower than anticipated growth at Belmond La Résidence d’Angkor indicated that it was more likely than not that its fair value was less than its carrying value. While Belmond concluded that there was no impairment trigger in the
three months ended
September 30, 2018
, it is carefully monitoring the situation. Belmond La Résidence d’Angkor had a goodwill balance of
$1,548,000
at
September 30, 2018
. The impairment test remains sensitive to changes in assumptions; factors that could reasonably be expected potentially to 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.
During the
nine months ended
September 30, 2018
, Belmond identified a non-cash goodwill impairment of
$2,195,000
at Belmond Governor’s Residence. Belmond determined that the impairment was triggered by the fall in tourist arrivals in Myanmar, due to negative perceptions of the country, adversely impacting the discounted cash flows, resulting in a full impairment of the goodwill balance. The goodwill impairment charge is included within impairment of goodwill in the statements of condensed consolidated operations.
10. Other intangible assets
Other intangible assets consist of the following as of
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable lease assets
|
|
Internet sites
|
|
Trade names
|
|
Total
|
|
|
$'000
|
|
$'000
|
|
$'000
|
|
$'000
|
|
|
|
|
|
|
|
|
|
Carrying amount:
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018
|
|
8,560
|
|
|
1,579
|
|
|
14,001
|
|
|
24,140
|
|
Additions
|
|
—
|
|
|
—
|
|
|
2,676
|
|
|
2,676
|
|
Impairment
|
|
(468
|
)
|
|
—
|
|
|
—
|
|
|
(468
|
)
|
Foreign currency translation adjustment
|
|
(323
|
)
|
|
(57
|
)
|
|
(1,164
|
)
|
|
(1,544
|
)
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2018
|
|
7,769
|
|
|
1,522
|
|
|
15,513
|
|
|
24,804
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018
|
|
3,092
|
|
|
1,270
|
|
|
|
|
4,362
|
|
Charge for the period
|
|
254
|
|
|
25
|
|
|
|
|
279
|
|
Impairment
|
|
(312
|
)
|
|
—
|
|
|
|
|
(312
|
)
|
Foreign currency translation adjustment
|
|
(140
|
)
|
|
(10
|
)
|
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2018
|
|
2,894
|
|
|
1,285
|
|
|
|
|
4,179
|
|
|
|
|
|
|
|
|
|
|
Net book value:
|
|
|
|
|
|
|
|
|
At September 30, 2018
|
|
4,875
|
|
|
237
|
|
|
15,513
|
|
|
20,625
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
|
5,468
|
|
|
309
|
|
|
14,001
|
|
|
19,778
|
|
Favorable lease intangible assets are amortized over the terms of the leases, which are between
19
and
60 years
. Internet sites are amortized over a period of
five
to
ten years
. Trade names have an indefinite life and therefore are not amortized, but are assessed for impairment annually or when events indicate that impairment may have occurred.
In the
nine months ended
September 30, 2018
, trade name additions of
$2,676,000
were recognized on the acquisition of Castello di Casole. See Note 4.
Amortization expense for the
three and nine months ended
September 30, 2018
was
$116,000
(
September 30, 2017
-
$136,000
) and
$279,000
(
September 30, 2017
-
$404,000
). Estimated total amortization expense for the remainder of the year ending
December 31, 2018
is
$93,000
and for each of the years ending December 31, 2019 to December 31, 2022 is approximately
$372,000
.
During the
nine months ended
September 30, 2018
, Belmond identified a non-cash favorable lease asset impairment of
$156,000
at Belmond Governor’s Residence. Belmond determined that the impairment was triggered by the fall in tourist arrivals in Myanmar, due to negative perceptions of the country, adversely impacting the discounted cash flows, resulting in a full impairment of the favorable lease asset balance. The favorable lease asset impairment charge is included within impairment of property, plant and equipment and other assets in the statements of condensed consolidated operations.
11. Debt and obligations under capital lease
(a) Long-term debt and obligations under capital lease
Long-term debt and obligations under capital lease consist of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
|
$’000
|
|
$’000
|
|
|
|
|
|
Loans from banks and other parties collateralized by tangible and intangible personal property and real estate with a maturity of 3 to 6 years (2017 - 20 months to seven years), with a weighted average interest rate of 4.35% (2017 - 4.11%)
|
|
760,800
|
|
|
724,208
|
|
Obligations under capital lease
|
|
15
|
|
|
22
|
|
|
|
|
|
|
Total long-term debt and obligations under capital lease
|
|
760,815
|
|
|
724,230
|
|
|
|
|
|
|
Less: Current portion
|
|
6,356
|
|
|
6,407
|
|
Less: Discount on secured term loan
|
|
2,761
|
|
|
3,092
|
|
Less: Debt issuance costs
|
|
11,634
|
|
|
13,979
|
|
|
|
|
|
|
Non-current portion of long-term debt and obligations under capital lease
|
|
740,064
|
|
|
700,752
|
|
On July 3, 2017, Belmond entered into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”), which had previously consisted of (a) a
seven
-year
$551,955,000
term loan facility consisting of a
$345,000,000
U.S. dollar tranche and a
€150,000,000
euro-denominated tranche (equivalent to
$206,955,000
at drawdown), scheduled to mature on March 21, 2021; and (b) a
$105,000,000
revolving credit facility scheduled to mature on March 21, 2019.
The Amended and Restated Credit Agreement provides the Company with (i) a seven-year
$603,434,000
secured term loan (the “Term Loan Facility”) that matures on July 3, 2024 and (ii) a
$100,000,000
revolving credit facility (the “Revolving Credit Facility”) that matures on July 3, 2022 (together, the “Secured Credit Facilities”).
The Term Loan Facility has
two
tranches, a U.S. dollar tranche (
$395,000,000
currently outstanding) and a euro-denominated tranche (
€176,763,000
currently outstanding, equivalent to
$205,133,000
as at
September 30, 2018
). The dollar tranche bears interest at a rate of
LIBOR
plus
2.75%
per annum, and the euro tranche bears interest at a rate of
EURIBOR
plus
3.00%
per annum. Both tranches are subject to a
0%
interest rate floor. The annual mandatory amortization is
1%
of the principal amount.
The Revolving Credit Facility has a maturity of
five years
and bears interest at a rate of
LIBOR
plus
2.50%
per annum, with a commitment fee of
0.4%
to be paid on the undrawn amount.
The Secured Credit Facilities are secured by pledges of shares in certain Company subsidiaries and by security interests in tangible and intangible personal property. There are no mortgages over real estate.
As at
September 30, 2018
, Belmond was financed with a
$600,133,000
Term Loan Facility and a
$100,000,000
Revolving Credit Facility that is undrawn.
On June 22, 2018, Charleston Center LLC amended its secured loan of
$112,000,000
increasing the amount of the loan to
$160,000,000
and extending its maturity from
August 27, 2019
to
June 22, 2021
. Proceeds from the additional borrowing were used to repay the outstanding balance on the Revolving Credit Facility in July 2018. The amended loan continues to bear interest at a rate of
LIBOR
plus
2.35%
per annum. The loan has no amortization and is non-recourse to Belmond.
The following is a summary of the aggregate maturities of consolidated long-term debt, including obligations under capital lease, at
September 30, 2018
:
|
|
|
|
|
|
|
$’000
|
|
|
|
Remainder of 2018
|
|
1,586
|
|
2019
|
|
6,359
|
|
2020
|
|
6,361
|
|
2021
|
|
166,126
|
|
2022
|
|
6,077
|
|
2023
|
|
6,077
|
|
2024 and thereafter
|
|
568,229
|
|
|
|
|
Total long-term debt and obligations under capital lease
|
|
760,815
|
|
The Company had guaranteed
$600,133,000
of the long-term debt of its subsidiary companies as at
September 30, 2018
(
December 31, 2017
-
$611,351,000
).
The tables above include the debt of Charleston Center LLC of
$160,667,000
at
September 30, 2018
(
December 31, 2017
-
$112,857,000
). The debt is non-recourse to Belmond and includes
$160,000,000
which was refinanced in June 2018.
Debt issuance costs related to the above outstanding long-term debt were
$11,634,000
at
September 30, 2018
(
December 31, 2017
-
$13,979,000
), including
$1,097,000
at
September 30, 2018
(
December 31, 2017
-
$533,000
) related to the debt of Charleston Center LLC, a consolidated VIE, and are amortized to interest expense over the term of the corresponding long-term debt.
(b)
Revolving credit and working capital facilities
Belmond had approximately
$100,579,000
of revolving credit and working capital facilities at
September 30, 2018
(
December 31, 2017
-
$100,598,000
) of which
$100,579,000
was available (
December 31, 2017
-
$100,598,000
).
12. Other liabilities
The major balances in other liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
|
$’000
|
|
$’000
|
|
|
|
|
|
Interest rate swaps (see Note 21)
|
|
125
|
|
|
—
|
|
Long-term income tax liability
|
|
1,769
|
|
|
2,143
|
|
Deferred gain on sale of Inn at Perry Cabin by Belmond
|
|
300
|
|
|
750
|
|
Deferred lease incentive
|
|
91
|
|
|
130
|
|
Other derivative instrument (see Note 21)
|
|
800
|
|
|
—
|
|
|
|
|
|
|
Total other liabilities
|
|
3,085
|
|
|
3,023
|
|
13. Pensions
Components of net periodic pension benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
2018
|
|
September 30,
2017
|
|
September 30,
2018
|
|
September 30,
2017
|
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest cost on projected benefit obligation
|
|
171
|
|
|
179
|
|
|
537
|
|
|
527
|
|
Expected return on assets
|
|
(262
|
)
|
|
(249
|
)
|
|
(823
|
)
|
|
(736
|
)
|
Net amortization and deferrals
|
|
183
|
|
|
195
|
|
|
576
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
92
|
|
|
125
|
|
|
290
|
|
|
367
|
|
From January 1, 2003, a number of non-U.S. Belmond employees participated in a funded defined benefit pension plan in the United Kingdom called the Belmond (UK) Ltd. 2003 Pension Scheme. On May 31, 2006, the plan was closed for future benefit accruals.
Belmond (UK) Ltd., the plan sponsor and a wholly owned subsidiary of the Company (“Belmond UK”), was previously obligated to pay
£1,272,000
(equivalent to
$1,654,000
at
September 30, 2018
) annually to the plan under the U.K. statutorily-mandated triennial negotiation with the plan’s trustees. With a new triennial arrangement that came into effect June 2017, Belmond UK’s funding obligation was reduced from
£106,000
to
£24,000
(equivalent to
$138,000
and
$32,000
, respectively, as at
September 30, 2018
) per month. Under the prior contribution level, the plan’s funding deficit was projected to be fully funded by the end of 2017. With the current funding level, Belmond UK is obligated to continue funding until the audited financials of the plan for the year ended December 31, 2018 are available. If no unfunded balance remains, Belmond UK shall be able to suspend further payments, but otherwise it will be expected to continue paying its monthly contribution, subject to any subsequent triennial negotiation with the plan’s trustees. However, pursuant to the terms of the new triennial arrangement, once the plan is fully funded, Belmond UK will remain obligated to restore the plan to a fully funded balance over the remainder of the period through December 31, 2021 should its position deteriorate. During the
three and nine months ended
September 30, 2018
, contributions of
£73,000
(
$99,000
) and
£219,000
(
$301,000
) were made to the pension plan and Belmond anticipates contributing an additional
£73,000
(
$79,000
) to fund the plan in 2018 for a total of
£292,000
(equivalent to
$380,000
as at
September 30, 2018
). During the
three and nine months ended
September 30, 2017
, contributions of
£47,640
(
$61,000
) and
£683,640
(
$856,000
) were made to the pension plan.
In May 2014, Belmond guaranteed the payment obligations of Belmond UK through 2023, subject to a cap of
£8,200,000
(equivalent to
$10,660,000
at
September 30, 2018
), which reduced commensurately with every payment made to the plan since December 31, 2012. As part of the recent triennial negotiation referred to above, Belmond has reinstated this guarantee effective July 1, 2017, for the period through 2026 and reset the cap from December 31, 2015 at
£8,200,000
, which as before will reduce with each payment made to the plan over the period.
14. Income taxes
In the
three and nine months ended
September 30, 2018
, the income tax provision was
$14,476,000
(
September 30, 2017
-
$20,732,000
) and
$5,905,000
(
September 30, 2017
-
$17,608,000
). The decrease in the tax provision and effective tax rate for the
three months ended
September 30, 2018
compared to the
three months ended
September 30, 2017
is mainly due to the jurisdictional profit mix of earnings from continuing operations. The reduction in tax provision in the
nine months ended
September 30, 2018
compared to the
nine months ended
September 30, 2017
is mainly as a result of recognizing a deferred tax credit of
$8,144,000
following the acquisition of Castello di Casole in February 2018. The deferred tax credit arises because the tax basis of property, plant and equipment is greater than the fair value attributed to those assets.
15. Interest expense
The balances in interest expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
2018
|
|
September 30,
2017
|
|
September 30,
2018
|
|
September 30,
2017
|
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
Interest expense on long-term debt and obligations under capital lease
|
|
8,950
|
|
|
7,653
|
|
|
25,340
|
|
|
21,863
|
|
|
|
|
|
|
|
|
|
|
Interest on legal settlements
|
|
182
|
|
|
(10
|
)
|
|
587
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and discount on secured term loan
|
|
720
|
|
|
1,350
|
|
|
2,236
|
|
|
2,826
|
|
|
|
|
|
|
|
|
|
|
Interest capitalized
|
|
(1,455
|
)
|
|
—
|
|
|
(3,257
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
8,397
|
|
|
8,993
|
|
|
24,906
|
|
|
24,536
|
|
16. Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
September 30,
2018
|
|
September 30,
2017
|
|
|
$’000
|
|
$’000
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
Interest
|
|
25,467
|
|
|
22,750
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
9,077
|
|
|
11,037
|
|
To reflect the actual cash paid for capital expenditure to acquire property, plant and equipment, increases in accounts payable for capital expenditure are non-cash and excluded from capital expenditure, while decreases are cash payments and included. The change in accounts payable was a decrease of
$120,000
for the
nine months ended
September 30, 2018
(
September 30, 2017
- decrease of
$18,000
).
17. Cash, cash equivalents and restricted cash
The major balances in cash, cash equivalents and restricted cash are as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
|
$’000
|
|
$’000
|
|
|
|
|
|
Cash and cash equivalents
|
|
145,459
|
|
|
180,153
|
|
Cash deposits required to be held with lending banks as collateral
|
|
860
|
|
|
801
|
|
Prepaid customer deposits which will be released to Belmond under its revenue recognition policy
|
|
3,849
|
|
|
2,488
|
|
Bonds and guarantees
|
|
44
|
|
|
633
|
|
|
|
|
|
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
|
|
150,212
|
|
|
184,075
|
|
Restricted cash classified as long-term and included in other assets on the condensed consolidated balance sheets at
September 30, 2018
was
$860,000
(
December 31, 2017
-
$801,000
).
18. Share-based compensation plans
At
September 30, 2018
, Belmond had
two
share-based compensation plans, the 2004 stock option plan and the 2009 share award and incentive plan. The compensation cost that has been charged to selling, general and administrative expense for these plans for the
three and nine months ended
September 30, 2018
was
$1,615,000
(
September 30, 2017
-
$1,471,000
) and
$4,229,000
(
September 30, 2017
-
$5,025,000
). The total compensation cost related to unexercised options and unvested share awards at
September 30, 2018
to be recognized over the period
October 1, 2018
to
September 30, 2022
was
$9,036,000
and the weighted average period over which it is expected to be recognized is
29
. Measured from the grant date, all awards of restricted shares have a maximum vesting period of
four
years (and those with performance criteria have a maximum vesting period of
three years
), and all awards of share options have a vesting period of
four years
with a maximum term of
ten
years. There were no grants under the 2004 stock option plan during the
nine months ended
September 30, 2018
.
During the
nine months ended
September 30, 2018
, the following restricted share awards were made under the 2009 share award and incentive plan on the following dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 share award and incentive plan
|
|
Class A common shares
|
|
Date granted
|
|
Vesting date
|
|
Purchase price
|
|
|
|
|
|
|
|
|
|
Restricted shares without performance criteria
|
|
2,850
|
|
|
June 24, 2018
|
|
June 24, 2020
|
|
$
|
0.01
|
|
Restricted shares without performance criteria
|
|
2,850
|
|
|
June 24, 2018
|
|
June 24, 2021
|
|
$
|
0.01
|
|
Restricted shares without performance criteria
|
|
2,850
|
|
|
June 24, 2018
|
|
June 24, 2022
|
|
$
|
0.01
|
|
Restricted shares without performance criteria
|
|
107,982
|
|
|
June 24, 2018
|
|
June 24, 2019
|
|
$
|
0.01
|
|
Restricted shares without performance criteria
|
|
25,232
|
|
|
June 24, 2018
|
|
On retirement
|
|
$
|
0.01
|
|
Restricted shares without performance criteria
|
|
59,100
|
|
|
March 24, 2018
|
|
March 24, 2019
|
|
$
|
0.01
|
|
Restricted shares without performance criteria
|
|
59,100
|
|
|
March 24, 2018
|
|
March 24, 2020
|
|
$
|
0.01
|
|
Restricted shares without performance criteria
|
|
59,100
|
|
|
March 24, 2018
|
|
March 24, 2021
|
|
$
|
0.01
|
|
Restricted shares with performance criteria
|
|
342,300
|
|
|
March 24, 2018
|
|
March 24, 2021
|
|
$
|
0.01
|
|
Restricted shares without performance criteria
|
|
59,100
|
|
|
March 24, 2018
|
|
March 24, 2022
|
|
$
|
0.01
|
|
Restricted shares without performance criteria
|
|
7,750
|
|
|
January 15, 2018
|
|
January 15, 2021
|
|
$
|
0.01
|
|
Restricted shares without performance criteria
|
|
7,750
|
|
|
January 15, 2018
|
|
January 15, 2022
|
|
$
|
0.01
|
|
Restricted shares without performance criteria
|
|
510
|
|
|
January 1, 2018
|
|
January 1, 2019
|
|
$
|
0.01
|
|
Restricted shares without performance criteria
|
|
510
|
|
|
January 1, 2018
|
|
January 1, 2020
|
|
$
|
0.01
|
|
Restricted shares without performance criteria
|
|
510
|
|
|
January 1, 2018
|
|
January 1, 2021
|
|
$
|
0.01
|
|
Restricted shares without performance criteria
|
|
510
|
|
|
January 1, 2018
|
|
January 1, 2022
|
|
$
|
0.01
|
|
19. Commitments and contingencies
Belmond Copacabana Palace
In February 2013, the State of Rio de Janeiro Court of Justice affirmed a 2011 decision of a Rio state trial court against Sea Containers Ltd (“SCL”) in lawsuits brought against SCL by minority shareholders in Companhia Hoteis Palace (“CHP”), the company that owns Belmond Copacabana Palace, relating to the recapitalization of CHP in 1995, but the Court reduced the total award against SCL to approximately
$27,000,000
. SCL further appealed the judgments during the second quarter of 2013 to the Superior Court of Justice in Brasilia. SCL sold its shares in CHP to the Company in 2000. Years later, in 2006, SCL entered insolvency proceedings in the U.S. and Bermuda that are continuing in Bermuda. Possible claims could be asserted against the Company or CHP in connection with this Brazilian litigation that has to date only involved SCL, although no claims have been asserted to date.
As a precautionary measure to defend the hotel, CHP commenced a declaratory lawsuit in the Rio state court in December 2013 seeking judicial declarations that no fraud was committed against the SCL plaintiffs when the shares in CHP were sold to the
Company in 2000 and that the sale of the shares did not render SCL insolvent. Pending rulings on those declarations, the court granted CHP an injunction preventing the SCL plaintiffs from provisionally enforcing their 2011 judgments against CHP, which judgment was subsequently reversed on appeal in May 2014. In September 2014, CHP sought reconsideration from the appellate court of this decision, but the court dismissed its request, resulting in the return of the declaratory lawsuit proceedings to the Rio State Court.
Management cannot estimate the range of possible loss if the SCL plaintiffs assert claims against the Company or CHP, and Belmond has made no accruals in respect of this matter. If any such claims were brought, Belmond would continue to defend its interests vigorously.
Ubud Hanging Gardens
In November 2013, the third-party owner of Ubud Hanging Gardens in Bali, Indonesia dispossessed Belmond from the hotel under long-term lease without prior notice. As a result, Belmond was unable to continue operating the hotel and, accordingly, to prevent any confusion to its guests, Belmond ceased referring to the property in its sales and marketing materials, including all electronic marketing.
Belmond believed that the owner's actions were unlawful and in breach of the lease arrangement and constituted a wrongful dispossession. Belmond pursued its legal remedies through arbitration proceedings required under the lease. In June 2015, a Singapore arbitration panel issued its final award in favor of Belmond, holding that the owner had breached Indonesian law and the lease, and granting monetary damages and costs to the Company in an amount equal to approximately
$8,500,000
. Since its receipt of the arbitral award, Belmond has been engaged in the process of enforcing this arbitral award in the Indonesian courts. Starting in April 2014, the Indonesian trial courts have dismissed
eight
separate actions filed by the owner for lack of jurisdiction due to the arbitration clause in the parties’ lease. The owner has appealed
five
of these decisions, all of which plead variations on the same facts, of which
four
have been affirmed by the Appellate Court with
two
of those affirmed by the Indonesian Supreme Court and the other
two
await a decision by the Indonesian Supreme Court. The fifth case was reversed in favor of the owner on appeal in October 2014 and affirmed by the Indonesian Supreme Court in December 2016. Belmond has sought review for reconsideration by the Supreme Court. In the meantime, Belmond filed with the Central Jakarta District Court in October 2017, as further support for the enforcement of Belmond’s arbitral claim, the decisions of four Indonesian trial courts enforcing the arbitration provision under the lease and ruling that the Indonesian courts had no jurisdiction over the parties’ 2013 dispute, along with four affirming decisions from the appellate courts and the two from the Indonesian Supreme Court.
Belmond does not believe there is any merit in the owner’s outstanding Indonesian actions and is vigorously defending its rights while it seeks to enforce the Singapore arbitral award. While the Company can give no assurances, it believes that it should ultimately be able to enforce its arbitral award. Given the uncertainty involved in this litigation, Belmond recorded in the year ended December 31, 2013, a non-cash impairment charge in the amount of
$7,031,000
relating to long-lived assets and goodwill of Ubud Hanging Gardens and has not booked a receivable in respect of the award.
As supplemental proceedings to its arbitration claim, Belmond commenced contempt proceedings in the High Court in London, England, where the owner resided, for pursuing the Indonesian proceedings contrary to an earlier High Court injunction, and obtained against the owner in July 2014 a contempt order, which subsequently resulted in the court issuing a committal order of imprisonment for 120 days. The owner left England before the court order was issued and has not yet served the sentence.
Belmond Hotel das Cataratas
In September 2014, the Brazilian Ministry of Planning, Budget and Management notified the Company that it was denying the Company's application to extend the term or reduce the rent under the lease for Belmond Hotel das Cataratas, which was entered into in 2007. Belmond had applied for the amendment in 2009 based on its claim that it suffered additional unanticipated and/or unforeseeable costs in performing the refurbishment of the hotel as required by the lease and related tender documentation in order to raise the standard of the property to a five star luxury standard.
Prior to August 2014, with the agreement of the Ministry, the Company had been paying the base annual rent without an annual adjustment for inflation as provided for in the lease, pending resolution of Belmond’s application. Throughout this period, the Company had expensed the full rental amount and has fully accrued the difference between the rental charge and the amount actually paid. Based on the Ministry’s decision denying any relief, the Ministry directed the Company that it would henceforth assess rent at the contractual rate, which has been included in the table of future rental payments as at
September 30, 2018
, and that it was required to pay the difference between the contractual rent and the rent that had been actually paid. On March 20, 2015, the Ministry provided notice to the hotel that an aggregate amount of approximately
R$17,000,000
(
$4,246,000
) was due on March 31, 2015 as a result of its rejection of any relief sought by Belmond.
The Company appealed to the Ministry to reconsider its decision on both procedural and substantive grounds. Pending this requested reconsideration and exhaustion of administrative remedies, the Company did not pay to the Ministry the amount claimed. The Company filed a lawsuit in the Federal Court in Paraná State in August 2016 against the Government of Brazil regarding the Ministry’s failure to properly consider and modify the lease concession for Belmond Hotel das Cataratas. The Federal Court granted the Company’s request for an injunction against the Government enforcing its claim and granted the Company’s request for a
25%
preliminary reduction in rent, pending a decision on the merits, which the Superior Court upheld on appeal in a decision rendered in September 2016. The Government appealed to a three-judge panel of the Superior Court, which upheld the decision of the Federal Court in favor of the Company in a judgment rendered in January 2017.
On October 17, 2017, the Federal Court issued a decision on the merits denying in part the Company’s claim for modification of the lease concession. The Court ruled although the lease is an administration agreement rather than a simple commercial lease, the Company had not overcome its burden of proof to show that a modification was justified. The Court further ordered that the Company must pay the stated rent in the lease rather than the reduced rent set by the Federal Court in September 2016. The Court also revoked the injunction issued in September 2016 that had been subsequently affirmed on appeal prohibiting the Federal Government from pursuing a claim against the Company to recover the difference between the stated rent and the amounts the Company actually paid during the period from 2009 to 2014. The Company appealed this decision and requested injunctive relief enjoining the Government from enforcing the decision of the Federal Court pending a hearing on the appeal. On December 22, 2017, the Federal Superior Court denied the Company's request for an injunction and affirmed the lower court's partial decision on the merits.
On April 25, 2018, a Federal Superior Court panel of three judges reversed the prior Superior Court’s decision in Belmond’s favor on all counts, so that the injunction against the Federal Government remains in place and the rent reduction was reinstated on a prospective basis. As a result, the Federal Government cannot seek to enforce its claim for the allegedly unpaid lease obligations. Nonetheless, the Company has reserved against this claim, and this accrual as at
September 30, 2018
totaled
R$28,091,000
(
$7,016,000
). The Company intends to continue to vigorously contest this litigation, which has been remanded to the first instance court for a trial on the merits.
Belmond Miraflores Park
The Company is contesting a claim against Belmond Miraflores Park Hotel (“BMP”) by the municipality of Miraflores in Lima, Peru, where BMP is located. The municipality alleges that BMP has generated noise and vibrations in violation of municipal nuisance ordinances resulting in the disturbance of certain apartment owners in an adjoining residential building. The local administrative court ruled in favor of the municipality, and levied a nominal fine and issued an order for injunctive relief that included the potential closure of BMP pending the elimination of the noise and vibrations. In March 2016, after the administrative court’s ruling was affirmed at the trial court and subsequently, the appellate court level, BMP appealed to the Supreme Court of Peru. Enforcement of the ruling of the appellate court has been stayed pending the Supreme Court appeal. On June 29, 2017, the Supreme Court issued a decision accepting BMP’s appeal rather than, as BMP had expected, summarily affirming the appellate court decision. Consequently, BMP expects that the Supreme Court will likely issue its opinion on this matter in the third quarter of 2018. Management believes that the risk of closure of BMP is low because BMP will have substantially completed its remediation by the time the Supreme Court issues its decision and expects to be in substantial compliance with municipal nuisance ordinances at that time. If the municipality determines that BMP is not compliant with the applicable ordinances by the time the Supreme Court renders its decision, BMP is confident that there are other alternatives it can pursue with the individual apartment owners to amicably resolve this claim. Accordingly, management does not believe that a material loss is probable and no accrual has been made in respect of this matter.
“Cipriani” Trademark
In May 2010, after prevailing in litigation at the trial and appellate court levels, Belmond settled litigation in the United Kingdom for infringement of its U.K. and Community (European wide) registrations for the “Cipriani” trademark. Defendants paid the amount of
$3,947,000
to Belmond in March 2010 with the balance of
$9,833,000
being payable in installments over
five years
with interest. Belmond received the final payment in the amount of
$1,178,000
in June 2015.
Subsequent to Belmond’s success before the U.K. courts, there have arisen a number of European trademark opposition and infringement cases relating to Belmond "Cipriani" and "Hotel Cipriani" Community trademarks. These include an ongoing invalidity action filed by Arrigo Cipriani in the European Trade Mark Office against Belmond’s "Cipriani" Community trademark. To date, Belmond has successfully rebutted this challenge at every level of administrative appeal, including before the EU General Court in Luxembourg which issued a decision on June 29, 2017 dismissing the Arrigo Cipriani appeal and ordering that appellant pay the costs of the court and the Company, and most recently in a decision on March 1, 2018, the EU General Court denied the
Cipriani family’s right to register a “Cipriani” Community trademark in the trademark class for drinks and beverages due to its likelihood to lead to confusion with Belmond’s registered “Cipriani” Community trademarks in the trademark class for hotels and restaurants. Belmond has also recently been successful in securing the cancellation in Portugal of a trademark application filed by an affiliated company of the Cipriani family for “Cipriani”. In addition, Belmond has been successful in obtaining cancellations of "Cipriani" trademark applications made by the Cipriani family's corporate entity in Russia, although the Cipriani family has recently commenced another action opposing Belmond’s “Cipriani” trademarks in Russia, which the Company intends to vigorously defend.
In addition, there are a number of ongoing trademark disputes with the Cipriani family in Italy: in January 2015, the Cipriani family and affiliated entities commenced proceedings against Belmond in the Court of Venice, asserting that a 1967 agreement pursuant to which the family sold their interest in the Hotel Cipriani constituted a coexistence agreement allowing both the Company to use “Hotel Cipriani”, and the Cipriani family to use “Cipriani”. In November 2017, the Court rejected the family's complaint and awarded costs to the Company. This decision was not subsequently appealed. In August 2015, pursuant to a separate claim filed by the Cipriani family, the Court of Venice ruled in favor of the Cipriani family, determining that its use of the full name (rather than just an initial with the family's surname), would not constitute infringement of the Company’s registered trademark. This ruling was overturned on appeal in favor of the Company on November 30, 2017. The Cipriani family has appealed this decision before the Italian Supreme Court, and in a separate filing to the appellate court has requested the reconsideration of that court's decision. While Belmond believes it has a meritorious case, Belmond cannot estimate the range of possible additional loss if it should not prevail in this matter and Belmond has made no accruals in respect of the matter. Separate proceedings brought by Belmond in Spain to defend Belmond’s marks against a use by the Cipriani family and its affiliated entities of “Cipriani” to promote a restaurant have been stayed pending the outcome of the Venice appeal.
Belmond Sanctuary Lodge
On November 28, 2017, Peru Belmond Hotels S.A., the Peruvian hotel joint venture in which the Company holds a
50%
interest ("PBH"), received notification of a complaint filed with the Court of Cusco by the Regional Government of Cusco seeking the annulment of the ten-year extension of the Belmond Sanctuary Lodge concession that commenced in May 2015. The Regional Government alleges that the President of the Region at the time of the execution of the extension did not have the sole authority to bind the Regional Government. This lawsuit is substantially similar to a complaint filed by the Regional Government against PBH in January 2015 that was dismissed by the Court of Cusco and, upon appeal by the Regional Government, was affirmed by the Superior Court of Cusco in favor of PBH in June 2016. The Company does not believe that there is any merit to the Regional Government's complaint.
Other
The Company and certain of its subsidiaries are parties to various legal proceedings arising in the normal course of business. These proceedings generally include matters relating to labor disputes, tax claims, personal injury cases, lease negotiations and ownership disputes. The outcome of each of these matters cannot be determined with certainty, and the liability that the relevant parties may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued for with respect to these matters. Where a reasonable estimate can be made, the additional losses or range of loss that may be incurred in excess of the amount recognized from the various legal proceedings arising in the normal course of business are disclosed separately for each claim, including a reference to where it is disclosed. However, for certain of the legal proceedings, management is unable to estimate the loss or range of loss that may result from these claims due to the highly complex nature or early stage of the legal proceedings.
Belmond had granted to James Sherwood, the founder, Chairman Emeritus and a former director of the Company, pursuant to a certain Amended and Restated Rights Agreement Regarding Hotel Cipriani Interests dated February 8, 2005, a right of first refusal to purchase the Belmond Hotel Cipriani in Venice, Italy in the event Belmond proposed to sell it. The purchase price would be the offered sale price in the case of a cash sale or the fair market value of the hotel, as determined by an independent valuer, in the case of a non-cash sale. Mr. Sherwood had also been granted an option to purchase the hotel, pursuant to an Amended and Restated Right of First Refusal and Option Agreement Regarding Indirectly Held Hotel Cipriani Interests dated February 8, 2005, at fair market value if a change in control of the Company occurred. Mr. Sherwood could have elected to pay
80%
of the purchase price if he exercised his right of first refusal, or
100%
of the purchase price if he exercised his purchase option, by a non-recourse promissory note secured by the hotel payable in
ten
equal annual installments with interest at
LIBOR
. This right of first refusal and purchase option were not assignable and were to expire
one year
after Mr. Sherwood’s death.
On July 6, 2018, the Company entered into an agreement with Mr. Sherwood that terminated the right of first refusal and purchase option. In exchange, Mr. Sherwood will receive an aggregate amount of
$3,000,000
, payable over a period of two years in three installments. Moreover, in the event of a sale of the hotel or a change in control of the Company within a ten year period following
execution of the agreement, the Company would pay to Mr. Sherwood
$10,000,000
if such an event happens within a year of the agreement, stepping down by
$1,000,000
a year to zero after ten years. Mr. Sherwood would also receive a payment of
$25,000,000
, less any payments already made under the agreement and with no additional payments due to him thereafter under the agreement, in the event of either (1) a public offer for the Company being made within six months after the execution of the agreement and the closing of a change of control transaction for the Company occurring within six months after such offer was made or (2) a sale of the hotel within one year after the execution of the agreement.
In January 2018, the Company, having concluded that without a material change in the cost structure at Belmond La Samanna, it could not justify reinvesting the insurance proceeds recovered following Hurricanes Irma and Jose alongside additional capital to restore and improve the asset, entered into a formal administrative process with the workforce at the property and the St. Martin labor authorities. During the
three months ended
September 30, 2018
, a restructuring plan was agreed with the Works Council at the property and approved by the labor authorities.
Capital Commitments
Outstanding contracts to purchase property, plant and equipment were approximately
$38,138,000
at
September 30, 2018
(
December 31, 2017
-
$19,464,000
). In addition, as discussed immediately above, the Company has agreed to pay Mr. Sherwood an aggregate amount of
$3,000,000
in cash, payable over a period of two years in three installments. See Note 21.
Since a restructuring plan was agreed with the Works Council at Belmond La Samanna and approved by the labor authorities in St Martin, the Company met the criteria to recognize a liability for restructuring costs.
During the
three and nine months ended
September 30, 2018
, restructuring costs at Belmond La Samanna of
$35,000
and
$14,896,000
, respectively were recognized within costs of services and selling, general and administrative expenses in the statements of condensed consolidated operations. Restructuring costs represent charges for employee termination costs and other associated costs. The costs are included in the results of the operation of Belmond La Samanna, which are included in Owned hotels in the Company’s North America segment.
The following table presents the Company’s restructuring reserve activity in respect of Belmond La Samanna during the
nine months ended
September 30, 2018
.
|
|
|
|
|
|
|
Liability for restructuring costs
|
|
|
$’000
|
|
|
|
Balance at December 31, 2017
|
|
—
|
|
Charges
|
|
14,896
|
|
Cash payments
|
|
(10,053
|
)
|
Balance at September 30, 2018 classified in "Accrued Liabilities"
|
|
4,843
|
|
The expected completion date for the workforce restructuring is
August 2019
.
Future rental payments and rental expense under operating leases
Future rental payments as at
September 30, 2018
under operating leases in respect of equipment rentals and leased premises are payable as follows:
|
|
|
|
|
|
|
$’000
|
|
|
|
Remainder of 2018
|
|
3,585
|
|
2019
|
|
10,235
|
|
2020
|
|
10,166
|
|
2021
|
|
10,632
|
|
2022
|
|
8,591
|
|
2023
|
|
8,637
|
|
2024 and thereafter
|
|
126,660
|
|
|
|
|
Future rental payments under operating leases
|
|
178,506
|
|
Rental expense for the
three and nine months ended
September 30, 2018
amounted to
$3,310,000
(
September 30, 2017
-
$3,917,000
) and
$10,433,000
(
September 30, 2017
-
$11,161,000
).
20. Fair value measurements
(a) Financial instruments recorded at fair value
The following tables summarize the valuation of Belmond’s financial instruments recorded at fair value by the fair value hierarchy at
September 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
September 30, 2018
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
Assets at fair value:
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
—
|
|
|
6,863
|
|
|
—
|
|
|
6,863
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
—
|
|
|
6,863
|
|
|
—
|
|
|
6,863
|
|
|
|
|
|
|
|
|
|
|
Liabilities at fair value:
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
—
|
|
|
(548
|
)
|
|
(13,066
|
)
|
|
(13,614
|
)
|
|
|
|
|
|
|
|
|
|
Total net liabilities
|
|
—
|
|
|
6,315
|
|
|
(13,066
|
)
|
|
(6,751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
December 31, 2017
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
Assets at fair value:
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
—
|
|
|
1,348
|
|
|
—
|
|
|
1,348
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
—
|
|
|
1,348
|
|
|
—
|
|
|
1,348
|
|
|
|
|
|
|
|
|
|
|
Liabilities at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
—
|
|
|
(430
|
)
|
|
—
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
—
|
|
|
918
|
|
|
—
|
|
|
918
|
|
During the
three and nine months ended
September 30, 2018
and
2017
, there were no transfers between levels of the fair value hierarchy.
Level 3 amounts relate to the costs to terminate the right of first refusal and purchase option as described in Note 21. An assessment of the fair value of any potential payment due on a change of control of the Company has been made based on the relative probabilities of a change of control and of the various possible outcomes discounted to present value using the Company’s incremental borrowing rate.
Unobservable inputs used in the fair value measurement for which there is no market information available include potential future payments based on the likelihood of a change of control within each of the 10 years covered by the agreement and management assumptions behind the relative probabilities of a change of control and of the various possible outcomes. Any significant increase/(decrease) in the discount rate or any change in likelihood of the change in control could result in a higher/(lower) fair value measurement.
Changes in Level 3 liabilities measured at fair value on a recurring basis for the
nine months ended
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2018
|
|
|
Fair Value as at July 6, 2018
|
|
|
Realized and Unrealized Gains/(Losses) in Earnings (1)
|
|
|
September 30, 2018
|
|
Liabilities
|
|
$’000
|
|
|
$’000
|
|
|
$’000
|
|
|
$’000
|
|
|
|
|
|
|
|
|
|
|
Contractual liabilities
|
|
—
|
|
|
(10,117
|
)
|
|
(2,949
|
)
|
|
(13,066
|
)
|
(1)
Movement in the period is due to the initiation of the Board’s review of strategic alternatives, which was announced on August 8, 2018. See Risk Factors in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended June 30, 2018.
|
(b) Other financial instruments
Certain methods and assumptions are used to estimate the fair value of each class of financial instruments. The carrying amount of current assets and current liabilities as disclosed on the condensed consolidated balance sheets approximate their fair value due to the short-term nature of those instruments.
The fair value of Belmond's long-term debt, excluding interest rate swaps and caps, is determined using the contractual cash flows and credit-adjusted discount curves. The fair value of the debt is the present value of those contractual cash flows which are discounted at the current market cost of debt and adjusted for the credit spreads. Credit spreads take into consideration general market conditions, maturity and collateral.
The estimated carrying values, fair values, and levels of the fair value hierarchy of Belmond's long-term debt as of
September 30, 2018
and
December 31, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
|
|
Carrying
amounts
$’000
|
|
Fair value
$’000
|
|
Carrying
amounts
$’000
|
|
Fair value
$’000
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, before deduction of discount on secured term loan and debt issuance costs, excluding obligations under capital leases
|
Level 3
|
|
760,800
|
|
|
762,102
|
|
|
724,208
|
|
|
728,994
|
|
(c) Non-financial assets measured at fair value on a non-recurring basis
The estimated fair values of Belmond’s non-financial assets measured at fair value on a non-recurring basis for the
nine months ended
September 30, 2018
and
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement inputs
|
|
|
|
|
Fair value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total losses in the nine months ended September 30, 2018
|
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement inputs
|
|
|
|
|
Fair value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total losses in the nine months ended September 30, 2017
|
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
5,955
|
|
|
—
|
|
|
—
|
|
|
5,955
|
|
|
(8,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement inputs
|
|
|
|
|
Fair value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total losses in the nine months ended September 30, 2018
|
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement inputs
|
|
|
|
|
Fair value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total losses in the nine months ended September 30, 2018
|
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(156
|
)
|
Property, plant and equipment
In the
nine months ended
September 30, 2018
, property, plant and equipment at Belmond Governor’s Residence and Belmond Road to Mandalay with a combined carrying value of
$4,775,000
was written down to fair value of
$Nil
, resulting in a non-cash impairment charge of
$4,775,000
.
In the
nine months ended
September 30, 2017
, property, plant and equipment at Belmond Road to Mandalay and Belmond Northern Belle with a combined carrying value of
$14,173,000
was written down to fair value of
$5,955,000
, resulting in a non-cash impairment charge of
$8,216,000
.
These impairments are included in earnings from continuing operations in the period incurred. See Note 8.
Goodwill
In the
nine months ended
September 30, 2018
, goodwill at Belmond Governor’s Residence with a carrying value of
$2,195,000
was written down to fair value of
$Nil
, resulting in a non-cash impairment charge of
$2,195,000
.
These impairments are included in earnings from continuing operations in the period incurred. See Note 9.
Other intangible assets
In the
nine months ended
September 30, 2018
, the favorable lease asset at Belmond Governor’s Residence with a carrying value of
$156,000
was written down to fair value of
$Nil
, resulting in a non-cash impairment charge of
$156,000
.
These impairments are included in earnings from continuing operations in the period incurred. See Note 10.
21. Derivatives and hedging activities
Belmond hedges its interest rate risk, ensuring that an element of its floating rate interest is fixed by using interest rate derivatives. Belmond designates these derivatives as cash flow hedges. Additionally, Belmond designates its foreign currency borrowings and currency derivatives as net investment hedges of overseas operations.
In connection with the Amended and Restated Credit Agreement and the June 2018 refinancing of the Charleston Center LLC debt, the interest rate derivatives associated with the previous term loan facility and the previous Charleston Center LLC secured loan were terminated. See Note 11. All amounts in other comprehensive income/(loss) relating to these derivatives will be amortized to interest expense over the remaining original life of the interest rate derivative under ASC 815
Derivatives and Hedging
. New interest rate derivatives were entered into to fix an element of the floating interest rate on the Amended and Restated Credit Agreement and the Charleston Center LLC debt.
Cash flow hedges of interest rate risk
As of
September 30, 2018
and
December 31, 2017
, Belmond had the following outstanding interest rate derivatives stated at their notional amounts in local currency that were designated as cash flow hedges of interest rate risk:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
|
’000
|
|
’000
|
|
|
|
|
|
Interest rate swaps
|
|
€
|
89,500
|
|
|
€
|
89,500
|
|
Interest rate swaps
|
|
$
|
280,000
|
|
|
$
|
243,000
|
|
Interest rate caps
|
|
$
|
48,000
|
|
|
$
|
17,200
|
|
Fair value
The table below presents the fair value of Belmond’s derivative financial instruments and their classification as of
September 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of September 30, 2018
|
|
Fair value as of
December 31, 2017
|
|
|
Balance sheet location
|
|
$’000
|
|
$’000
|
Derivatives designated in a cash flow hedging relationship:
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
Other assets
|
|
5,339
|
|
|
1,776
|
|
Interest rate derivatives
|
|
Other receivables
|
|
1,562
|
|
|
—
|
|
Interest rate derivatives
|
|
Accrued liabilities
|
|
(461
|
)
|
|
(858
|
)
|
Interest rate derivatives
|
|
Other liabilities
|
|
(125
|
)
|
|
—
|
|
Other derivative instruments
|
|
|
|
|
|
|
Contractual liabilities
|
|
Accrued liabilities
|
|
(12,266
|
)
|
|
—
|
|
Contractual liabilities
|
|
Other liabilities
|
|
(800
|
)
|
|
—
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
(6,751
|
)
|
|
918
|
|
Offsetting
There was no offsetting within derivative assets or derivative liabilities at
September 30, 2018
and
December 31, 2017
. However, these derivatives are subject to master netting arrangements.
Other comprehensive income/(loss)
Information concerning the movements in other comprehensive income/(loss) for cash flow hedges of interest rate risk is shown in Note 22. At
September 30, 2018
, the amount accounted for in other comprehensive income/(loss) which is expected to be reclassified to interest expense in the next 12 months is
$759,000
. Movement in other comprehensive income/(loss) for net investment hedges recorded through foreign currency translation adjustments for the
three and nine months ended
September 30, 2018
was a
$1,408,000
gain (
September 30, 2017
-
$6,822,000
loss) and a
$6,964,000
gain (
September 30, 2017
-
$19,867,000
loss).
Credit-risk-related contingent features
Belmond has agreements with some of its derivative counterparties that contain provisions under which, if Belmond defaults on the debt associated with the hedging instrument, Belmond could also be declared in default in respect of its derivative obligations.
As of
September 30, 2018
, the fair value of derivatives in a net asset position, which includes accrued interest and an adjustment for non-performance risk, related to these agreements was
$6,307,000
(
December 31, 2017
-
$918,000
net asset). If Belmond breached any of the provisions, it would be required to settle its obligations under the agreements at their termination value of
$6,347,000
inflow (
December 31, 2017
-
$942,000
inflow).
Non-derivative financial instruments — net investment hedges
Belmond uses certain of its debt denominated in foreign currency to hedge portions of its net investments in foreign operations against adverse movements in exchange rates. Belmond designates its euro-denominated indebtedness as a net investment hedge of long-term investments in its euro-functional subsidiaries. These contracts are included in non-derivative hedging instruments. The notional value of non-derivative hedging instruments was
$205,132,000
at
September 30, 2018
, being a liability of Belmond (
December 31, 2017
-
$213,350,000
).
Other derivative instrument - termination of the right of first refusal and purchase option
On July 6, 2018, the Company entered into an agreement with Mr. Sherwood that terminated a right of first refusal and purchase option. See Note 19. In exchange, Mr. Sherwood is entitled to an aggregate amount of
$3,000,000
, payable over a period of two years in three installments. Moreover, in the event of a sale of the Belmond Hotel Cipriani or a change in control of the Company within a ten year period following execution of the agreement, the Company would pay to Mr. Sherwood
$10,000,000
if such an event happens within a year of the agreement, stepping down by
$1,000,000
a year to zero after ten years. Mr. Sherwood would also receive a payment of
$25,000,000
, less any payments already made under the agreement and with no additional payments due to him thereafter under the agreement, in the event of either (1) a public offer for the Company being made within six months after the execution of the agreement and the closing of a change of control transaction for the Company occurring within six months after such offer was made or (2) a sale of the Belmond Hotel Cipriani within one year after the execution of the agreement.
The costs to terminate the right of first refusal and purchase option have been accounted for in accordance with
ASC 815, Derivatives and Hedging
as the recognition criteria for a derivative have been met, specifically that the agreement provides for a payment linked to an underlying variable as set forth in ASC 815. During the
three and nine months ended
September 30, 2018
, the Company has recognized a cost of
$13,066,000
following an assessment of the fair value of any potential payment due on a change of control of the Company which is based on the relative probabilities
of a change of control and of the various possible outcomes
discounted to present value using the Company’s incremental borrowing rate. This cost is included within selling, general and administrative expenses in statements of condensed consolidated operations. See Note 20.
22. Accumulated other comprehensive income/(loss)
Changes in accumulated other comprehensive income/(loss) (“AOCI”) by component (net of tax) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
Derivative financial instruments
|
|
Pension liability
|
|
Total
|
Nine months ended September 30, 2018
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018
|
|
(288,266
|
)
|
|
(1,304
|
)
|
|
(11,752
|
)
|
|
(301,322
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss)/income before reclassifications, net of tax (benefit)/provision of $Nil, $Nil, $Nil and $Nil
|
|
(32,672
|
)
|
|
5,129
|
|
|
576
|
|
|
(26,967
|
)
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from AOCI, net of tax provision of $Nil, $Nil, $Nil and $Nil
|
|
—
|
|
|
1,487
|
|
|
—
|
|
|
1,487
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive (loss)/income
|
|
(32,672
|
)
|
|
6,616
|
|
|
576
|
|
|
(25,480
|
)
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2018
|
|
(320,938
|
)
|
|
5,312
|
|
|
(11,176
|
)
|
|
(326,802
|
)
|
Reclassifications out of AOCI (net of tax) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from AOCI
|
|
|
|
|
Three months ended
|
|
|
|
|
September 30, 2018
|
|
September 30, 2017
|
|
|
Details about AOCI components
|
|
$’000
|
|
$’000
|
|
Affected line item in the statement of operations
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
Cash flows from derivative financial instruments related to interest payments made for hedged debt instruments
|
|
425
|
|
|
379
|
|
|
Interest expense
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
425
|
|
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from AOCI
|
|
|
|
|
Nine months ended
|
|
|
|
|
September 30, 2018
|
|
September 30, 2017
|
|
|
Details about AOCI components
|
|
$’000
|
|
$’000
|
|
Affected line item in the statement of operations
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
Cash flows from derivative financial instruments related to interest payments made for the hedged debt instrument
|
|
1,487
|
|
|
1,358
|
|
|
Interest expense
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
1,487
|
|
|
1,358
|
|
|
|
23. Segment information
Segment performance is evaluated by the chief operating decision maker based upon adjusted earnings before interest, tax, depreciation and amortization ("adjusted EBITDA"). Adjusted EBITDA excludes gains/(losses) on disposal, impairments, restructuring and other special items, interest income, interest expense, foreign currency, tax (including tax on earnings from
unconsolidated companies), depreciation and amortization and gains/(losses) on extinguishment of debt. Belmond notes that adjusted EBITDA is not a term defined under GAAP. As a result, Belmond provides reconciliations to the GAAP number immediately following tables using this non-GAAP term.
Belmond's operating segments are aggregated into
six
reportable segments primarily around the type of service being provided—hotels, trains and cruises, and management business/part ownership interests—and are secondarily organized by geography for the hotels, as follows:
|
|
•
|
Owned hotels in each of Europe, North America and Rest of world which derive earnings from the hotels that Belmond owns, including its
one
stand-alone restaurant in North America;
|
|
|
•
|
Owned trains and cruises which derive earnings from the train and cruise businesses that Belmond owns;
|
|
|
•
|
Part-owned/managed hotels which derive earnings from hotels that Belmond jointly owns or manages; and
|
|
|
•
|
Part-owned/managed trains which derive earnings from the train businesses that Belmond jointly owns or manages.
|
The following tables present information regarding these reportable segments.
Revenue from external customers by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
2018
|
|
September 30,
2017
|
|
September 30,
2018
|
|
September 30,
2017
|
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
Owned hotels:
|
|
|
|
|
|
|
|
|
Europe
|
|
109,388
|
|
|
96,658
|
|
|
209,961
|
|
|
180,772
|
|
North America
|
|
27,544
|
|
|
32,956
|
|
|
91,048
|
|
|
115,239
|
|
Rest of world
|
|
25,842
|
|
|
26,767
|
|
|
85,522
|
|
|
88,605
|
|
Total owned hotels
|
|
162,774
|
|
|
156,381
|
|
|
386,531
|
|
|
384,616
|
|
Owned trains and cruises
|
|
26,365
|
|
|
23,674
|
|
|
57,936
|
|
|
50,583
|
|
|
|
|
|
|
|
|
|
|
Part-owned/managed hotels
|
|
1,055
|
|
|
(405
|
)
|
|
1,954
|
|
|
368
|
|
Part-owned/managed trains
|
|
2,967
|
|
|
3,323
|
|
|
8,067
|
|
|
8,138
|
|
Total management fees
|
|
4,022
|
|
|
2,918
|
|
|
10,021
|
|
|
8,506
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
193,161
|
|
|
182,973
|
|
|
454,488
|
|
|
443,705
|
|
Reconciliation of consolidated losses from continuing operations to adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
2018
|
|
September 30,
2017
|
|
September 30,
2018
|
|
September 30,
2017
|
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
Owned hotels:
|
|
|
|
|
|
|
|
|
Europe
|
|
54,808
|
|
|
48,714
|
|
|
79,876
|
|
|
71,507
|
|
North America
|
|
5,110
|
|
|
2,245
|
|
|
25,159
|
|
|
21,790
|
|
Rest of world
|
|
3,840
|
|
|
3,544
|
|
|
14,359
|
|
|
15,899
|
|
Total owned hotels
|
|
63,758
|
|
|
54,503
|
|
|
119,394
|
|
|
109,196
|
|
Owned trains and cruises
|
|
8,343
|
|
|
5,342
|
|
|
11,535
|
|
|
5,289
|
|
|
|
|
|
|
|
|
|
|
Part-owned/managed hotels
|
|
2,802
|
|
|
2,502
|
|
|
5,880
|
|
|
5,266
|
|
Part-owned/managed trains
|
|
8,395
|
|
|
8,201
|
|
|
19,935
|
|
|
18,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted share of earnings from unconsolidated companies and management fees
|
|
11,197
|
|
|
10,703
|
|
|
25,815
|
|
|
23,401
|
|
|
|
|
|
|
|
|
|
|
Unallocated corporate:
|
|
|
|
|
|
|
|
|
Central costs
|
|
(6,538
|
)
|
|
(6,911
|
)
|
|
(27,493
|
)
|
|
(24,822
|
)
|
Share-based compensation
|
|
(1,615
|
)
|
|
(1,471
|
)
|
|
(4,910
|
)
|
|
(5,025
|
)
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
75,145
|
|
|
62,166
|
|
|
124,341
|
|
|
108,039
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from earnings/(losses) from continuing operations to adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(losses) from continuing operations
|
|
12,602
|
|
|
7,673
|
|
|
(3,865
|
)
|
|
(15,403
|
)
|
Depreciation and amortization
|
|
14,963
|
|
|
17,052
|
|
|
45,600
|
|
|
45,862
|
|
Interest income
|
|
(204
|
)
|
|
(240
|
)
|
|
(765
|
)
|
|
(582
|
)
|
Interest expense
|
|
8,397
|
|
|
8,993
|
|
|
24,906
|
|
|
24,536
|
|
Foreign currency, net
|
|
700
|
|
|
1,486
|
|
|
4,282
|
|
|
2,727
|
|
Provision for income taxes
|
|
14,476
|
|
|
20,732
|
|
|
5,905
|
|
|
17,608
|
|
Share of provision for income taxes of unconsolidated companies
|
|
2,371
|
|
|
2,026
|
|
|
5,099
|
|
|
4,079
|
|
|
|
53,305
|
|
|
57,722
|
|
|
81,162
|
|
|
78,827
|
|
|
|
|
|
|
|
|
|
|
Insurance gains and deductibles
|
|
1,224
|
|
|
—
|
|
|
(9,976
|
)
|
|
—
|
|
Labor restructuring cost
|
|
—
|
|
|
—
|
|
|
14,896
|
|
|
—
|
|
Net operating losses at two closed Caribbean properties
|
|
4,406
|
|
|
1,977
|
|
|
11,390
|
|
|
1,977
|
|
Cost to terminate right of first refusal and purchase option
|
|
13,066
|
|
|
—
|
|
|
13,066
|
|
|
—
|
|
Cost of Company's review of strategic alternatives
|
|
2,368
|
|
|
—
|
|
|
2,368
|
|
|
—
|
|
Other restructuring and special items
(1)
|
|
639
|
|
|
2,338
|
|
|
3,703
|
|
|
5,437
|
|
Acquisition-related costs
(2)
|
|
61
|
|
|
279
|
|
|
830
|
|
|
14,032
|
|
Gain on disposal of property, plant and equipment
|
|
(150
|
)
|
|
(150
|
)
|
|
(450
|
)
|
|
(450
|
)
|
Loss on disposal of property, plant and equipment in unconsolidated joint venture
|
|
226
|
|
|
—
|
|
|
226
|
|
|
—
|
|
Impairment of goodwill, property, plant and equipment and other assets
|
|
—
|
|
|
—
|
|
|
7,126
|
|
|
8,216
|
|
Adjusted EBITDA
|
|
75,145
|
|
|
62,166
|
|
|
124,341
|
|
|
108,039
|
|
|
|
|
|
|
|
|
|
|
(1) Represents costs in relation to restructuring, severance and redundancy costs, pre-opening costs, and other items, net.
|
(2) Represents acquisition fees in relation to the purchase of Castello di Casole in February 2018 and Cap Juluca in May 2017.
|
|
Earnings from unconsolidated companies, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
2018
|
|
September 30,
2017
|
|
September 30,
2018
|
|
September 30,
2017
|
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
Part-owned/managed hotels
|
|
751
|
|
|
747
|
|
|
1,418
|
|
|
1,213
|
|
Part-owned/managed trains
|
|
3,292
|
|
|
3,192
|
|
|
7,418
|
|
|
6,576
|
|
|
|
|
|
|
|
|
|
|
Total earnings from unconsolidated companies, net of tax
|
|
4,043
|
|
|
3,939
|
|
|
8,836
|
|
|
7,789
|
|
Reconciliation of capital expenditure to acquire property, plant and equipment by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
2018
|
|
September 30,
2017
|
|
September 30,
2018
|
|
September 30,
2017
|
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
Owned hotels:
|
|
|
|
|
|
|
|
|
Europe
|
|
3,823
|
|
|
4,269
|
|
|
23,822
|
|
|
17,043
|
|
North America
|
|
30,528
|
|
|
3,404
|
|
|
75,740
|
|
|
6,351
|
|
Rest of world
|
|
5,972
|
|
|
5,510
|
|
|
16,866
|
|
|
10,316
|
|
Total owned hotels
|
|
40,323
|
|
|
13,183
|
|
|
116,428
|
|
|
33,710
|
|
Owned trains and cruises
|
|
1,728
|
|
|
1,055
|
|
|
6,693
|
|
|
6,542
|
|
|
|
|
|
|
|
|
|
|
Unallocated corporate
|
|
945
|
|
|
1,359
|
|
|
2,754
|
|
|
2,760
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditure to acquire property, plant and equipment
|
|
42,996
|
|
|
15,597
|
|
|
125,875
|
|
|
43,012
|
|
Revenue from external customers in Belmond’s country of domicile and significant countries (based on the location of the property):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
2018
|
|
September 30,
2017
|
|
September 30,
2018
|
|
September 30,
2017
|
|
|
$’000
|
|
$’000
|
|
$’000
|
|
$’000
|
|
|
|
|
|
|
|
|
|
Bermuda
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Italy
|
|
91,177
|
|
|
70,704
|
|
|
166,291
|
|
|
120,322
|
|
United Kingdom
|
|
13,082
|
|
|
19,089
|
|
|
31,856
|
|
|
43,572
|
|
United States
|
|
24,771
|
|
|
24,597
|
|
|
78,250
|
|
|
82,879
|
|
Brazil
|
|
11,409
|
|
|
11,994
|
|
|
41,155
|
|
|
41,910
|
|
All other countries
|
|
52,722
|
|
|
56,589
|
|
|
136,936
|
|
|
155,022
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
193,161
|
|
|
182,973
|
|
|
454,488
|
|
|
443,705
|
|
24. Related party transactions
Belmond manages, under long-term contract, the tourist train owned by Eastern and Oriental Express Ltd., in which Belmond has a
25%
ownership interest. In the
three and nine months ended
September 30, 2018
, Belmond earned management fees from Eastern and Oriental Express Ltd. of
$2,000
(
September 30, 2017
-
$1,000
) and
$192,000
(
September 30, 2017
-
$137,000
), which are recorded in revenue. The amount due to Belmond from Eastern and Oriental Express Ltd. at
September 30, 2018
was
$7,002,000
(
December 31, 2017
-
$6,302,000
).
Belmond manages, under long-term contracts in Peru, Belmond Hotel Monasterio, Belmond Palacio Nazarenas, Belmond Sanctuary Lodge, Belmond Hotel Rio Sagrado, Belmond Las Casitas del Colca, PeruRail and Ferrocarril Transandino, in all of which Belmond has a
50%
ownership interest. Belmond provides loans, guarantees and other credit accommodation to these joint ventures. In the
three and nine months ended
September 30, 2018
, Belmond earned management and guarantee fees from its Peruvian joint ventures of
$4,610,000
(
September 30, 2017
-
$4,757,000
) and
$11,680,000
(
September 30, 2017
-
$11,464,000
), which are recorded in revenue. The amount due to Belmond from its Peruvian joint ventures at
September 30, 2018
was
$7,658,000
(
December 31, 2017
-
$6,029,000
).
Belmond owns
50%
of a company holding real estate in Buzios, Brazil. The amount due to Belmond from the joint venture at
September 30, 2018
was
$389,000
(
December 31, 2017
-
$431,000
).