Holiday Inn 2008 Annual Report Download - page 30

The Group may experience a lack of selected development
opportunities
While the strategy of the Group is to extend the hotel network
through activities that do not involve significant amounts of
its own capital, if the availability of suitable development sites
becomes limited for IHG and its prospective hotel owners,
this could adversely affect its results of operations.
The Group is exposed to risks related to corporate responsibility
The reputation of the Group and the value of its brands are
influenced by a wide variety of factors, including the perception
of key stakeholders and the communities in which the Group
operates. The social and environmental impacts of business are
under increasing scrutiny, and the Group is exposed to the risk
of damage to its reputation if it fails to demonstrate sufficiently
responsible practices in a number of areas such as safety and
security, sustainability, responsible tourism, environmental
management, human rights and support for the local community.
The Group is exposed to the risk of litigation
The Group could be at risk of litigation from many parties, including
guests, customers, joint venture partners, suppliers, employees,
regulatory authorities, franchisees and/or the owners of hotels
managed by it. 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 also
affect the reputation of the Group.
The Group may face difficulties insuring its business
Historically, the Group has maintained insurance at levels
determined by it to be appropriate in light of the cost of cover and
the risk profiles of the business in which it operates. However,
forces beyond the Group’s control including market forces, may
limit the scope of coverage the Group can obtain and the Group’s
ability to obtain coverage at reasonable rates. Other forces beyond
the Group’s control, such as terrorist attacks or natural disasters
may be uninsurable or simply too expensive to insure. Inadequate
or insufficient insurance could expose the Group to large claims
or could result in the loss of capital invested in properties, as well
as the anticipated future revenue from properties, and could leave
the Group responsible for guarantees, debt or other financial
obligations related to such properties.
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. 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 the risks related to information security
The Group is increasingly dependent upon the availability, integrity
and confidentiality of information and the ability to report
appropriate and accurate business performance, including
financial reporting, to investors and markets.
The reputation and performance of the Group may be adversely
affected if it fails to maintain appropriate confidentiality of
information and ensure relevant controls are in place to enable
the release of information only through the appropriate channels
in a timely and accurate manner.
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 UK pension plans who are entitled
to defined benefits. In addition, if certain plans of the Group are
wound up, the Group could become statutorily liable to make an
immediate payment to the trustees to bring the funding of 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.
In particular, the trustees of IHG’s UK defined benefit plan may
demand increases to the contribution rates relating to the funding
of this plan, which would oblige relevant employers of the Group
to contribute extra amounts. The trustees must consult the plan’s
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 2006.
28 IHG Annual Report and Financial Statements 2008
Business review continued