Holiday Inn 2009 Annual Report Download - page 36

34 IHG Annual Report and Financial Statements 2009
Business review continued
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 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 completed review was as at 31 March
2006, and the formal review as at 31 March 2009 is required to be completed by 30 June 2010.
The Group is exposed to
funding risks in relation to the
defined benefits under its
pension plans
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 the
risks related to information
security
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 required to
comply with data privacy
regulations
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 exposed to a
variety of risks associated
with its ability to borrow and
satisfy debt covenants
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 may face
difficulties insuring its
business