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CITY LODGE HOTELS LIMITED - Unaudited interim report for the six months ended 31 December 2014

Release Date: 18/02/2015 11:41
Code(s): CLH     PDF:  
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Unaudited interim report for the six months ended 31 December 2014

City Lodge Hotels Limited        
Registration number: 1986/002864/06
Share code: CLH         
ISIN: ZAE 000117792

Unaudited interim report for the six months ended 31 December 2014  

- Average occupancies - SA operations            68% 
- Normalised diluted headline EPS               +15% 
- Return on equity                               25% 
  
  
Statement of financial position  
                                                                                           (Audited)  
                                                         31 Dec            31 Dec            30 Jun   
  R000’s                                                   2014              2013              2014    
  ASSETS 
  Non-current assets                                  1 533 778         1 271 752         1 512 124   
  Property, plant and equipment                       1 478 566         1 058 216         1 457 426   
  Intangible assets                                      21 581                 -            15 297   
  Investments in joint ventures                          29 484           209 138            35 762   
  Deferred taxation                                       4 147             4 398             3 639   
  Current assets                                        223 611           132 176           191 785   
  Inventories                                             6 828             3 261             6 551   
  Trade receivables                                      74 504            63 091            66 330   
  Other receivables                                      42 939            25 660            32 539   
  Taxation                                                1 869             2 231             4 065   
  Cash and cash equivalents                              97 471            37 933            82 300   
  Total assets                                        1 757 389         1 403 928         1 703 909   
  EQUITY                                                                                              
  Capital and reserves                                  628 004           461 100           565 915   
  Share capital and premium                             159 713           155 916           158 255   
  BEE investment and incentive scheme shares           (515 728)         (526 825)        (526 822)   
  Retained earnings                                     876 091           724 907           820 543   
  Other reserves                                        107 928           107 102           113 939   
  LIABILITIES                                                                                         
  Non-current liabilities                             1 035 212           820 050         1 016 917   
  Interest-bearing borrowings                           185 000                 -           185 000   
  BEE interest-bearing borrowings                        44 120            44 120            44 120   
  BEE preference shares                                 418 100           423 900           420 900   
  BEE shareholder’s loan                                 30 779            26 795            28 718   
  BEE preference share dividend accrual                 154 179           127 765           141 010   
  Fair value of BEE interest rate swap                        -               151                 -   
  Other non-current liabilities                         108 509           116 454           105 905   
  Deferred taxation                                      94 525            80 865            91 264   
  Current liabilities                                    94 173           122 778           121 077   
  Interest-bearing borrowings                                 -            35 000                 -   
  BEE preference share dividend accrual                   3 146             4 869             3 144   
  Fair value of BEE interest rate swap                      365             2 508             1 210   
  Trade and other payables                               85 714            80 401           102 339   
  Bank overdraft                                          4 948                 -            14 384   
  Total liabilities                                   1 129 385           942 828         1 137 994   
  Total equity and liabilities                        1 757 389         1 403 928         1 703 909   
  Note: The company has authorised capital commitments of R704 million of which approximately R71 million has been contracted. 
  It is anticipated that approximately R178 million of the authorised commitments will be spent by 30 June 2015. 
  

Statement of changes in equity   
                                                                Share            
                                                              capital                   
                                                                  and     Treasury         Other     Retained  
  R000’s                                                      premium       shares      reserves     earnings        Total
  Balance at 30 June 2013                                     154 662     (503 145)      102 236      672 200      425 953   
  Total comprehensive income for the period                         -            -          (165)     121 613      121 448   
  Profit for the period                                                                               121 181      121 181   
  Other comprehensive income                                                                                                 
  Defined-benefit plan remeasurements, net of tax                                                         432          432   
  Foreign currency translation differences                                                  (165)                     (165)   
  Transactions with owners, recorded directly in equity         1 254      (23 680)        5 031      (68 906)     (86 301)   
  Issue of new ordinary shares                                  1 254                                                1 254   
  10th anniversary employee share trust shares                             (18 680)                                (18 680)   
  Incentive scheme shares                                                   (5 000)                                 (5 000)   
  Share compensation reserve                                                               5 031                     5 031   
  Dividends paid                                                                                      (65 158)     (65 158)   
  Consolidation of 10th anniversary employee share trust                                               (1 653)      (1 653)   
  Distribution by 10th anniversary employee share trust                                                (2 095)      (2 095)   
  Balance at 31 December 2013                                 155 916     (526 825)      107 102      724 907      461 100   
  Total comprehensive income for the period                         -            -         1 574      168 973      170 547   
  Profit for the period                                                                               156 202      156 202   
  Other comprehensive income                                                                                                 
  Defined-benefit plan remeasurements, net of tax                                                      12 771       12 771   
  Foreign currency translation differences                                                 1 574                     1 574   
  Transactions with owners, recorded directly in equity         2 339            3         5 263      (73 337)     (65 732)   
  Issue of new ordinary shares                                  2 339                                                2 339   
  10th anniversary employee share trust shares                                   2                                       2   
  Incentive scheme shares                                                        1                                       1   
  Share compensation reserve                                                               5 263                     5 263   
  Dividends paid                                                                                      (73 300)     (73 300)   
  Distribution by BEE structured entity                                                                   (35)         (35)   
  Distribution by 10th anniversary employee share trust                                                    (2)          (2)     
  Balance at 30 June 2014                                     158 255     (526 822)      113 939      820 543      565 915   
  Total comprehensive income for the period                         -            -         6 212      134 337      140 549   
  Profit for the period                                                                               134 337      134 337   
  Other comprehensive income                                                                                                 
  Foreign currency translation differences                                                 6 212                     6 212   
  Transactions with owners, recorded directly in equity         1 458       11 094       (12 223)     (78 789)     (78 460)   
  Issue of new ordinary shares                                  1 458                                                1 458   
  Incentive scheme shares                                                   11 094       (21 048)      (8 127)     (18 081)   
  Share compensation reserve                                                               8 825                     8 825   
  Dividends paid                                                                                      (70 662)     (70 662)   
  Balance at 31 December 2014                                 159 713     (515 728)      107 928      876 091      628 004   


Summarised statement of cash flows 
                                                                                  Six             Six        (Audited)  
                                                                               months          months            Year  
                                                                                ended           ended           ended   
                                                                               31 Dec          31 Dec          30 Jun   
  R000’s                                                                         2014            2013            2014  
  Operating profit before working capital changes                             285 451         235 023         454 914   
  Increase in working capital                                                 (35 532)        (29 478)        (14 303)  
  Cash generated by operations                                                249 919         205 545         440 611   
  Interest received                                                             1 475           1 988           5 210   
  Interest paid                                                               (16 499)        (12 655)        (26 133)  
  Taxation paid                                                               (55 622)        (46 829)        (98 356)  
  Dividends paid                                                              (70 662)        (65 158)       (138 458)  
  Cash inflow from operating activities                                       108 611          82 891         182 874   
  Cash utilised in investing activities                                       (67 643)        (30 042)       (250 239)  
  - investment to maintain operations                                         (51 405)        (29 477)        (90 355)   
  - investment to expand operations                                           (18 405)           (672)           (806)   
  - investments in joint ventures                                               2 167             107        (159 570)   
  - proceeds on disposal of property, plant and equipment                           -               -             492   
  Cash (outflow)/inflow from financing activities                             (19 423)         (3 127)        146 178   
  - proceeds from issue of ordinary shares                                      1 458           1 254           3 593   
  - purchase of incentive scheme shares                                       (18 081)         (5 000)         (4 999)  
  - increase in interest-bearing borrowings                                         -               -         150 000   
  - redemption of BEE preference shares                                        (2 800)           (300)         (3 300)  
  - distribution by BEE structured entity                                           -               -             (35)  
  - effect of consolidation of 10th anniversary employee share trust                -             919             919   
  Net increase in cash and cash equivalents                                    21 545          49 722          78 813   
  Cash and cash equivalents at beginning of the period                         67 916         (11 789)        (11 789)  
  Effect of movements in exchange rates on cash held                            3 062               -             892   
  Cash and cash equivalents at end of the period                               92 523          37 933          67 916   

  
Statement of comprehensive income 
                                                                                          Six                          Six         (Audited)  
                                                                                       months                       months             Year   
                                                                                        ended                        ended            ended   
                                                                                       31 Dec          %            31 Dec           30 Jun   
  R000’s                                                               Note              2014     change              2013             2014   
  Revenue                                                                             642 394         20           533 949        1 062 749   
  Administration and marketing costs                                                  (48 025)                     (42 220)         (83 300)   
  BEE transaction charges                                                 2              (159)                        (388)            (480)   
  Operating costs excluding depreciation                                             (328 721)                    (267 220)        (542 816)   
                                                                                      265 489         18           224 121          436 153   
  Depreciation and amortisation                                                       (42 386)                     (40 574)         (78 421)   
  Results from operating activities                                                   223 103         22           183 547          357 732   
  Interest income                                                                       1 475                        1 988            5 210   
  Total interest expense                                                              (30 891)                     (23 856)         (50 349)  
  Interest expense                                                                     (7 334)                      (2 383)          (5 749)   
  Notional interest on BEE shareholder’s loan                             2            (2 061)                      (1 794)          (3 717)   
  BEE interest expense                                                    2            (2 019)                      (1 786)          (3 638)   
  BEE preference dividend                                                 2           (19 477)                     (17 893)         (37 245)   
  Fair value gain on remeasurement of investment in joint venture                           -                            -           44 671   
  Share of profit from joint ventures                                                   1 029                       11 847           21 327   
  - Courtyard Hotels                                                                    1 029                        1 818            2 895   
  - East Africa (after tax)                                                                 -                       10 029           18 432   
  Profit before taxation                                                              194 716         12           173 526          378 591   
  Taxation                                                                            (60 379)                     (52 345)        (101 208)   
  Profit for the period                                                               134 337         11           121 181          277 383   
  Other comprehensive income                                                                                                                     
  Items that will never be reclassified to profit and loss                                                                                       
  Defined benefit plan remeasurements                                                       -                          600           18 337   
  Income tax on other comprehensive income                                                  -                         (168)          (5 134)   
  Items that are or may be reclassified to profit and loss                                                                                     
  Foreign currency translation differences                                              6 212                         (165)           1 409   
  Total comprehensive income for the period                                           140 549         16           121 448          291 995   
   
   
Supplementary Information                                                                                                                        
  1. Headline earnings reconciliation                                                                                                               
  Profit for the period                                                               134 337                      121 181          277 383   
  Fair value gain on remeasurement of investment in joint                                                                      
  venture                                                                                   -                            -          (44 671)  
  Gain on bargain purchase                                                                  -                            -             (621)  
  Write-off of net investment in joint venture                                          4 111                            -                -   
  Loss on sale of equipment                                                                 -                            -               14   
  Taxation effect                                                                           -                            -               (4)  
  Headline earnings                                                                   138 448         14           121 181          232 101   
  Number of shares in issue (000’s)                                                    43 248                       43 149           43 221   
  Weighted average number of shares in                                    3            36 203                       35 923           35 936   
  issue for EPS calculation (000’s)                                                                                                           
  Weighted average number of shares in issue for diluted                                                                       
  EPS calculation (000’s)                                                 3            36 509                       37 002           36 850   
  Basic earnings per share (cents)                                                                                                            
  - undiluted                                                                           371,1         10             337,3            771,9   
  - fully diluted                                                                       368,0         12             327,5            752,7   
  Headline earnings per share (cents)                                     4                                                                   
  - undiluted                                                                           382,4         13             337,3            645,9   
  - fully diluted                                                                       379,2         16             327,5            629,9   
  
  2. Normalised headline earnings reconciliation                                                                                              
  Headline earnings                                                                   138 448                      121 181          232 101   
  BEE transaction charges                                                                 159                          388              480   
  - Loss on fair value of interest rate swap                                               51                          269              235   
  - Sundry expenses                                                                       108                          119              245   
  Notional interest charge on BEE shareholder’s loan                                    2 061                        1 794            3 717   
  BEE interest on interest-bearing borrowings                                           2 019                        1 786            3 638   
  Preference dividends paid/payable by the BEE entities                                19 477                       17 893           37 245   
  Deferred tax on BEE transactions                                                       (577)                        (503)          (1 041)   
  Notional interest income on 10th anniversary employee                                                                        
  share trust loan                                                                      2 154                        1 849            3 845   
  10th anniversary employee share trust transaction                                                                            
  charges and DWT                                                                        (111)                          48               44   
  IFRS 2 share based payment charge for the 10th                                                                              
  anniversary employee share trust                                                      1 581                          788            1 563   
  Normalised headline earnings                                                        165 211         14           145 224          281 592   
  
  3. Number of shares (000’s)                                                                                                                 
  Weighted average number of shares in issue for EPS                                                                           
  calculation                                                                          36 203                       35 923           35 936   
  BEE shares treated as treasury shares                                                 6 390                        6 390            6 390   
  10th anniversary employees share trust treated as                                                                            
  treated as treasury shares                                                              549                          549              549   
  Weighted average number of shares in issue for                                                                               
  normalised EPS calculation                                                           43 142                       42 862           42 875   
  Weighted average number of shares in issue for                                                                               
  diluted EPS calculation                                                              36 509                       37 002           36 850   
  BEE shares treated as treasury shares                                                 6 390                        6 390            6 390   
  10th anniversary employees share trust treated as                                                                            
  treasury shares                                                                         549                          549              549   
  Weighted average number of shares in issue for                                                                               
  diluted normalised EPS calculation                                                   43 448                       43 941           43 789   
  
  4. Normalised headline earnings per share (cents)                                                                                           
  - undiluted                                                                           382,9         13             338,8            656,8   
  - fully diluted                                                                       380,2         15             330,5            643,1   
  
  5. Dividend declared per share (cents)                                                230,0         14             202,0            391,0   
  
  6. Dividend cover (times)                                                                                                                   
  - calculated on normalised headline earnings                                            1,7                          1,6              1,7   
  
  7.  Interest-bearing debt to total capital and                                                                                              
  reserves (%)                                                                                                                                
  - calculated on a normalised basis                                                     14,1                          3,1             14,9   
  
  8. Return on equity (%)                                                                                                                     
  - calculated on a normalised basis                                                     24,8                         25,6             24,6   
  
  9. Net asset value per share (cents)                                                                                                        
  - calculated on a normalised basis                                                    3 039                        2 601            2 865   


Segment report 
  
  Primary segment                                City Lodge                 Town Lodge                 Road Lodge            Central office and other                 Total                           
  R000’s                                     2014         2013           2014        2013           2014        2013            2014          2013             2014           2013   
  Revenue                                 334 186      302 915        108 444      97 601        129 839     117 489          69 925        15 944          642 394        533 949   
  EBITDAR                                 201 849      184 801         52 427      46 510         71 705      65 913         (25 312)      (42 721)         300 669        254 503   
  Land and hotel building rental                                                                                             (35 180)      (30 382)         (35 180)       (30 382)  
  EBITDA                                                                                                                                                    265 489        224 121   
  Depreciation and amortisation           (11 330)     (12 427)        (3 744)     (3 348)        (6 460)     (5 750)        (20 852)      (19 049)         (42 386)       (40 574)  
  Results from operating activities                                                                                                                         223 103        183 547   
  Share of profit from joint ventures                                                                                          1 029        11 847            1 029         11 847   
                                                                                                                                                                                                                               
                                                                                                       South Africa               Rest of Africa                     Total                           
  Geographic information                                                                            2014          2013          2014          2013             2014           2013   
  Revenue                                                                                        583 155       527 119        59 239         6 830          642 394        533 949   
  Share of profit from joint ventures                                                              1 029         1 818             -        10 029            1 029         11 847   
  Non-current assets - property, plant and equipment                                           1 074 520     1 043 808       404 046        14 408        1 478 566      1 058 216   
  EBITDAR represents earnings after BEE transaction charges but before interest, taxation, depreciation and rental. 
  EBITDA represents earnings after BEE transaction charges but before interest, taxation and depreciation.

Commentary
Average occupancies at the group’s South African hotels rose to 68% in the six months to 31 December 2014, an increase
of 4 percentage points from the 64% achieved in the previous interim reporting period.

Revenue at the South African operations increased by 10,6% to R583,2 million due to the higher occupancies and a below
inflation increase in achieved room rates. Total revenue, including the Kenyan operations, which weren’t consolidated in
the prior year, rose by 20,3% to R642,4 million. Kenyan occupancies were lower than in the previous year as a result of 
the perceived Ebola threat and numerous foreign travel advisories in relation to the terror threat in the region.

Unlike the previous year, the Road Lodge brand also achieved higher occupancies, whilst occupancies at the Courtyard
Hotel brand were lower, reflecting the ongoing over-supply in the four star market.

South African operating costs, on a normalised basis, increased by 6,7% on a per room sold basis, resulting in a 0,8
percentage point decrease in the normalised EBITDA margin for the South African operations to 42,0%. Total normalised
EBITDA increased by 20,4% to R271,4 million. Depreciation was slightly higher, interest income was lower and interest
expense was higher as a result of additional borrowings for the Kenyan operations acquired in May 2014.

As a consequence of lower occupancies, the contribution from the Courtyard joint venture fell to R1,0 million from
R1,8 million. This performance was also affected by the closure of Courtyard Hotel Cape Town.

Profit before tax on a normalised basis rose by 14% to R226,3 million, while normalised headline earnings also
increased by 14% to R165,2 million. Fully diluted normalised headline earnings per share increased by 15% to 380,2 cents.

In line with the group’s policy of paying out 60% of normalised earnings, an interim dividend of 230 cents has
been declared, 14% higher than the previous year’s interim dividend.

Development activity 
Several major refurbishments have been completed or are underway, which is in keeping with the group’s ongoing
commitment to maintaining and upgrading its portfolio across all locations and brands.

The first 35 rooms of the 149-room City Lodge Hotel Waterfall City were opened in mid-December, with the rest of the
hotel becoming operational at the beginning of February 2015.
 
City Lodge Hotel Newtown is progressing well and is on track to open its 148 rooms towards the end of calendar 2015. 
Construction of the 90-room Road Lodge Pietermaritzburg will commence next week, with completion scheduled for early
November.

Detailed design work is at an advanced stage for the development of the 169-room City Lodge Hotel Two Rivers, Nairobi
and the 147-room City Lodge Hotel Dar es Salaam, and it is expected that earthworks will commence at each of the
locations during the second quarter of 2015. Both hotels are expected to open during the fourth quarter of 2016.
A memorandum of understanding (MOU), which is subject to finalisation of a financial feasibility study, has been
signed regarding a land and building lease in Kampala, Uganda, for the development of a 150-room City Lodge Hotel.

Similarly, an MOU, which is subject to certain conditions, has been signed in respect of a land and building lease for
a 140 to 150-room Town Lodge in Windhoek, Namibia. Negotiations are at an advanced stage for the acquisition of land in
Maputo, Mozambique, with a view to constructing a 150 to 160-room City Lodge Hotel.

Outlook 
The trend of higher than previous year occupancies extended into January and the first half of February. It is
expected that this trend will continue given the combined effect of gradual GDP growth and limited supply of new hotel
capacity.

Directorate 
Mr Nigel Matthews retired from the board effective 31 December 2014 after 25 years of distinguished service. The board 
thanks Nigel for his leadership and valued contribution and wishes him well in his retirement.

The board was pleased to announce the appointment of Mr Deon Huysamer as an independent non-executive director with effect
from 1 January 2015 and welcomes him to the team.

In addition, a number of changes to the various committees were announced on SENS on 17 December 2014.

Basis of preparation
The condensed consolidated interim financial statements are prepared in accordance with International Financial
Reporting Standard, IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides issued by the Accounting
Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and the requirements of
the Companies Act of South Africa.

The accounting policies applied in the preparation of these interim financial statements are in terms of International
Financial Reporting Standards and are consistent with those applied in the previous annual financial statements. 

The condensed group financial information has been presented on the historical cost basis, except for financial
instruments carried at fair value, and are presented in Rand thousands, which is City Lodge’s functional and presentation
currency.

These condensed interim financial statements were prepared under the supervision of Mr AC Widegger CA(SA), 
in his capacity as group financial director.

Declaration of dividend
The board has approved and declared interim dividend number 52 of 230 cents per ordinary share (gross) in respect of
the six months ended 31 December 2014.                    
The dividend will be subject to Dividends Withholding Tax (DWT). In accordance with paragraphs 11.17 (a) (i) to (x)
and 11.17(c) of the JSE Listings Requirements, the following additional information is disclosed: 
   The dividend has been declared out of income reserves.
   The local Dividends Tax rate is 15% (fifteen per centum). 
   There are no Secondary Tax on Companies (STC) credits utilised.
   The gross local dividend amount is 230 cents per ordinary share for shareholders exempt from the Dividends Tax.
   The net local dividend amount is 195,5 cents per ordinary share for shareholders liable to pay the Dividends Tax.
   The Company currently has 43 247 993 ordinary shares in issue.
   The Company’s income tax reference number is 9041001711.
   
Shareholders are advised of the following dates:

Last date to trade cum dividend                Friday, 6 March 2015
Shares commence trading ex dividend            Monday, 9 March 2015
Record date                                   Friday, 13 March 2015
Payment of dividend                           Monday, 16 March 2015

Share certificates may not be dematerialised or rematerialised between Monday, 9 March 2015 and Friday, 
13 March 2015, both days inclusive.

For and on behalf of the board

Bulelani Ngcuka            Clifford Ross
Chairman                 Chief executive
17 February 2015

Registered office: “The Lodge”, Bryanston Gate Office Park, cnr. Homestead Avenue and Main Road, Bryanston, 2191. 
 
Transfer secretaries: Computershare Investor Services Proprietary Limited, 70 Marshall Street, Johannesburg, 2001.
   
Directors: BT Ngcuka (Chairman), C Ross (Chief executive)*, GG Huysamer, FWJ Kilbourn, N Medupe, SG Morris, 
Dr KIM Shongwe, W Tlou, AC Widegger*   

Company secretary: MC van Heerden 

Sponsor: JP Morgan Equities South Africa Proprietary Limited     
*executive

www.clhg.com

Date of release 18 February 2015
Date: 18/02/2015 11:41:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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