Holiday Inn 2014 Annual Report Download - page 165

to retain and secure franchise or management agreements.
Specifically, the Group is most exposed to the US market and,
increasingly, to Greater China.
Accordingly, the Group is particularly susceptible to adverse
changes in these economies as well as changes in their
currencies. In addition to trading conditions, the economic
outlook also affects the availability of capital to current and
potential owners, which could impact existing operations and
health of the pipeline.
The Group is exposed to the risk of events that adversely
impact domestic or international travel
The room rates and occupancy levels of the Group could
be adversely impacted by events that reduce domestic or
international travel, such as actual or threatened acts of
terrorism or war, political or civil unrest, epidemics or threats
thereof, travel-related accidents, travel-related industrial
action, increased transportation and fuel costs, and natural
disasters, resulting in reduced worldwide travel or other local
factors impacting specific countries, cities or individual hotels.
A decrease in the demand for hotel rooms as a result of such
events may have an adverse impact on the Group’s operations
and financial results. In addition, inadequate planning,
preparation, response or recovery in relation to a major
incident or crisis may cause loss of life, prevent operational
continuity, or result in financial loss and consequently impact
the value of the brands and/or the reputation of the Group.
The Group is exposed to the risks of the hotel industry supply
and demand cycle
The future operating results of the Group could be adversely
affected by industry overcapacity (by number of rooms) and
weak demand due, in part, to the cyclical nature of the hotel
industry, or other differences between planning assumptions
and actual operating conditions. These conditions could result
in reductions in room rates and occupancy levels, which would
adversely impact the financial performance of the Group.
The Group is subject to a competitive and changing industry
The Group operates in a competitive industry and must
compete effectively against traditional competitors such
as other global hotel chains, local hotel companies and
independent hotels to win the loyalty of guests, employees
and owners. The competitive landscape also includes other
types of businesses, such as web-based booking channels
(which include online travel agents and intermediaries), and
alternative sources of accommodation such as short-term
lets of private property. In order to grow and maintain its
competitiveness, the Group may consider undertaking strategic
transactions, including acquisitions. Failure to compete
effectively in traditional and emerging areas of the business
could impact the Group’s market share, System size,
profitability and relationships with owners and guests.
The Group is exposed to risks related to executing
and realising benefits from strategic transactions,
including acquisitions
The Group announced the acquisition of Kimpton Hotels &
Restaurants in December 2014 and may seek to make other
strategic transactions, including acquisitions, in the future.
The Group may not be able to identify opportunities or complete
transactions on commercially reasonable terms or at all and
may not realise the anticipated benefits from such transactions.
Strategic transactions come with inherent valuation, financial
and commercial risks, and regulatory and insider information
risks during the execution of the transactions. In addition, the
Group may face unforeseen costs and liabilities, divergence of
management attention, as well as longer-term integration and
operational risks, which could result in failure to realise benefits,
financial losses, fall in employee morale and loss of talent.
The Group is dependent upon a wide range of external
stakeholders and business partners
The Group is dependent upon the performance, behaviours
and reputation of a wide range of business partners and
external stakeholders, including, but not limited to, owners,
contractors, lenders, suppliers, vendors, joint venture
partners, online travel agents, third-party intermediaries
and other business partners which may have different ethical
values, interests and priorities. Further, the number and
complexity of interdependencies with stakeholders is evolving.
Breakdowns in relationships, contractual disputes, poor vendor
performance, insolvency, stakeholder behaviours or adverse
reputations, which may be outside of the Group’s control,
could adversely impact on the Group’s performance and
competitiveness, delivery of projects, guest experiences
or the reputation of the Group or its brands.
The Group is exposed to increasing competition from online
travel agents and intermediaries
A proportion of the Group’s bookings originate from large
multinational, regional and local online travel agents and
intermediaries with which the Group has contractual
arrangements and to which it pays commissions. These
websites offer a wide breadth of products, often across multiple
brands, have growing booking and review capabilities, and may
create the perception that they offer the lowest prices. Some of
these online travel agents and intermediaries have strong
marketing budgets and aim to create brand awareness and
brand loyalty among consumers and may seek to commoditise
hotel brands through price and attribute comparison. Further,
if these companies continue to gain market share, they will
impact the Group’s profitability, undermine the Group’s own
booking channels and value to its hotel owners and may be able
to increase commission rates and negotiate other favourable
contract terms.
Tactical risks
The Group is exposed to a variety of risks related to
identifying, securing and retaining franchise and
management agreements
The Group’s growth strategy depends on its success in
identifying, securing and retaining franchise and management
agreements. This is an inherent risk for the hotel industry
and franchise business model. Competition with other hotel
companies may generally reduce the number of suitable
franchise, management and investment opportunities offered
to the Group and increase the bargaining position of property
owners seeking to become a franchisee or engage a manager.
The terms of new franchise or management agreements may
not be as favourable as current arrangements; the Group may
not be able to renew existing arrangements on similarly
favourable terms or at all.
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STRATEGIC REPORT GOVERNANCE
GROUP FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS
ADDITIONAL INFORMATION