Holiday Inn 2005 Annual Report Download - page 19

The Group may experience a lack of selected acquisition
opportunities
While the strategy of the Group is to extend the hotel network
through activities that do not involve significant capital, in some
cases the Group may consider it appropriate to acquire new land
or locations for the development of new hotels. If the availability
of suitable sites becomes limited, this could adversely affect its
results of operations.
The Group is exposed to the risk of litigation
The Group could be at risk of litigation from its guests, customers,
joint venture partners, suppliers, employees, regulatory authorities,
franchisees and/or the owners of hotels managed by it for breach
of its contractual or other duties. Claims filed in the US may include
requests for punitive damages as well as compensatory damages.
Exposure to litigation or fines imposed by regulatory authorities
may affect the reputation of the Group even though the monetary
consequences are not significant.
The Group is exposed to a variety of risks associated with its
ability to borrow and satisfy debt covenants
The Group is reliant on having access to borrowing facilities to
meet its expected capital requirements and to maintain an efficient
balance sheet. The majority of the Group’s borrowing facilities are
only available if the financial covenants in the facilities are
complied with. If the Group is not in compliance with the covenants,
the lenders may demand the repayment of the funds advanced.
If the Group’s financial performance does not meet market
expectations it may not be able to refinance its existing facilities
on terms it considers favourable. The availability of funds for future
financing is in part dependent on conditions and liquidity in the
capital markets.
The Group is required to comply with data privacy regulations
Existing and emerging data privacy regulations limit the extent
to which the Group can use customer information for marketing
or promotional purposes. Compliance with these regulations in
each jurisdiction in which the Group operates may require changes
in marketing strategies and associated processes which could
increase operating costs or reduce the success with which
products and services can be marketed to existing or future
customers. In addition, non-compliance with privacy regulations
may result in fines, damage to reputation or restrictions on the
use or transfer of information.
The Group is exposed to funding risks in relation to the defined
benefits under its pension plans
The Group is required by law to maintain a minimum funding level
in relation to its ongoing obligation to provide current and future
pensions for members of its pension plans who are entitled to
defined benefits. In addition, if any plan of the Group is wound-up,
the Group could become statutorily liable to make an immediate
payment to the trustees to bring the funding of these defined
benefits to a level which is higher than this minimum. The
contributions payable by the Group must be set with a view to
making prudent provision for the benefits accruing under the
plans of the Group.
Some of the issues which could adversely affect the funding of
these defined benefits (and materially affect the Group’s funding
obligations) include: (i) poor investment performance of pension
fund investments; (ii) long life expectancy (which will make pensions
payable for longer and therefore more expensive to provide);
(iii) adverse annuity rates (which tend in particular to depend on
prevailing interest rates and life expectancy) as these will make
it more expensive to secure pensions with an insurance company;
and (iv) other events occurring which make past service benefits
more expensive than predicted in the actuarial assumptions by
reference to which the Group’s past contributions were assessed.
The trustees of the UK defined benefits plans can demand
increases to the contribution rates relating to the funding of those
pension plans, which would oblige the relevant members of the
Group to contribute extra amounts to such pension funds. The
trustees must consult the plans’ actuary and principal employer
before exercising this power. In practice, contribution rates are
agreed between the Group and the trustees on actuarial advice,
and are set for three-year terms. The last such review was as at
31 March 2004. As at 1 March 2006, being the latest practicable
date prior to publication of this document, the Directors are not
aware of any circumstances that would cause the trustees to deem
it necessary to unilaterally increase the contribution rates.
InterContinental Hotels Group 2005 17