Holiday Inn 2015 Annual Report Download - page 160

Group information continued
The Group is reliant on the reputation of its brands and is exposed
to inherent reputation risks
Any event that materially damages the reputation of one or more of the
Group’s existing or new brands and/or fails to sustain the appeal of the
Group’s existing or new brands to its customers and owners may have
an adverse impact on the value of that brand and subsequent revenues
from that brand or business. In particular, if the Group is unable to
create consistent, valued, and quality products and guest experiences
across the owned, managed and franchised estates, or if the Group,
its franchisees or business partners fail to act responsibly, this could
result in an adverse impact on its brand reputation. In addition, the
value of the Group’s brands could be influenced by a number of
external factors outside the Group’s control, such as, but not limited
to, changes in sentiments against global brands, changes in applicable
regulations related to the hotel industry or to franchising, successful
commoditisation of hotel brands by online travel agents and
intermediaries, or changes in owners’ perceptions of the value of
the Group.
The Group is exposed to risks associated with its intellectual property
Given the importance of brand recognition to the Group’s business,
the protection of its intellectual property poses a risk due to the
variability and changes in controls, laws and effectiveness of
enforcement globally. Any widespread infringement, misappropriation
or weakening of the control environment could materially harm the
value of the Group’s brands and its ability to develop the business.
The Group is reliant upon the resilience of its reservation system
and other key technology platforms and is exposed to risks that could
cause the failure of these systems
The value of the Group is partly derived from the ability to drive
reservations through its reservation system and technology platforms
which are highly integrated with internal processes and linked to
multiple sales channels, including the Group’s own websites, call
centres, hotels, third-party intermediaries and travel agents.
Lack of resilience and operational availability of these systems
provided by the Group or third-party technology providers could
lead to prolonged service disruption and might result in significant
business interruption, impact the guest booking experience and
subsequently adversely impact Group revenues, reputation and
relationships with hotel owners.
The Group is exposed to a variety of risks associated with safety,
security and crisis management
There is a constant need to protect the safety and security of our
guests, employees and assets against natural and man-made threats.
These include, but are not limited to, exceptional events such as
extreme weather, civil or political unrest, violence and terrorism,
serious and organised crime, fraud, employee dishonesty, cyber
crime, pandemics, fire, and day-to-day accidents, incidents and petty
crime which impact the guest or employee experience, could cause
loss of life, sickness or injury and result in compensation claims, fines
from regulatory bodies, litigation and impact reputation. Serious
incidents or a combination of events could escalate into a crisis which,
if managed poorly, could further expose the Group and its brands
to significant reputational damage.
The Group requires the right people, skills and capability to manage
growth and change
In order to remain competitive, the Group must employ the right
people. This includes hiring and retaining highly skilled employees
with particular expertise or leadership capability. The implementation
of the Group’s strategic business plans could be undermined by failure
to build a resilient corporate culture, failure to recruit or retain key
personnel, unexpected loss of key senior employees, failures in the
Group’s succession planning and incentive plans, or failure to invest
in the development of key skills.
Some of the markets in which the Group operates are experiencing
economic growth, and the Group must compete against other
companies inside and outside the hospitality industry for suitably
qualified or experienced employees. Some emerging markets may
not have the required local expertise to operate a hotel and may not be
able to attract the right talent. Failure to attract and retain employees
may threaten the success of the Group’s operations in these markets.
Additionally, unless skills are supported by a sufficient infrastructure
to enable knowledge and skills to be passed on, the Group risks losing
accumulated knowledge if key employees leave the Group.
The Group is exposed to a variety of risks associated with its financial
stability and ability to borrow and satisfy debt covenants
While the strategy of the Group is to extend the IHG System through
activities that do not involve significant amounts of its own capital, the
Group does require capital to fund some development opportunities,
technological innovations and strategic acquisitions; and to maintain
and improve owned hotels. The Group is reliant upon having financial
strength and access to borrowing facilities to meet these expected
capital requirements. The majority of the Group’s borrowing facilities
are only available if the financial covenants in the facilities are complied
with. Non-compliance with covenants could result in the Group’s
lenders demanding repayment of the funds advanced. If the Group’s
financial performance does not meet market expectations, it may not
be able to refinance existing facilities on terms considered favourable.
The Group is exposed to the risk of litigation
Certain companies in the Group are the subject of various claims
and proceedings. The ultimate outcome of these matters is subject
to many uncertainties, including future events and uncertainties
inherent in litigation. In addition, the Group could be at risk of litigation
claims made by many parties, including but not limited to: guests,
customers, joint-venture partners, suppliers, employees, regulatory
authorities, franchisees and/or the owners of the hotels it manages.
Claims filed in the US may include requests for punitive damages as
well as compensatory damages. Unfavourable outcomes of claims
or proceedings could have a material adverse impact on the Group’s
results of operations, cash flow and/or financial position. Exposure
to significant litigation or fines may also affect the reputation of the
Group and its brands.
The Group is exposed to the risks related to information security
and data privacy
The Group is increasingly dependent upon the availability, integrity
and confidentiality of information, including, but not limited to: guest
and employee credit card, financial and personal data; and business
performance, financial reporting and commercial development.
The information is sometimes held in different formats such as digital,
paper, voice recordings and video and could be stored in many places,
including facilities managed by third-party service providers.
The threats towards the Group’s information are dynamic, and
include cyber attacks, fraudulent use, loss or misuse by employees
and breaches of our vendors’ security arrangements amongst others.
The legal and regulatory environment around data privacy and
requirements set out by the payment-card industry surrounding
information security across the many jurisdictions in which the Group
operates are constantly evolving. If the Group fails to appropriately
protect information and ensure relevant controls are in place to
enable the appropriate use and release of information through the
appropriate channels in a timely and accurate manner, IHG System
performance, guest experience and the reputation of the Group may
be adversely affected. This can lead to revenue losses, fines,
penalties, litigation and other additional costs.
158 IHG Annual Report and Form 20-F 2015