CITY LODGE HOTELS LIMITED - Group preliminary results for the year ended 30 June 2018

Release Date: 16/08/2018 13:50
Code(s): CLH
 
Wrap Text
Group preliminary results for the year ended 30 June 2018

City Lodge Hotels Limited
Incorporated in the Republic of South Africa
Registration number: 1986/002864/06
Share code: CLH
ISIN: ZAE 000117792

Group preliminary results for the year ended 30 June 2018

- Average group occupancies 59%

- Normalised diluted HEPS -9% 

- Return on equity 19% 

Condensed consolidated statement Of comprehensive income
                                                                         (Reviewed)                    (Audited) 
                                                                              Year                         Year  
                                                                             ended                        ended  
                                                                           30 June           %          30 June  
R000's                                                       Note             2018      change             2017  
Revenue                                                                  1 498 426          (1)       1 520 410  
Other income                                                                21 923                            -  
Administration and marketing costs                                         (99 841)                     (94 844) 
BEE transaction charges                                         2           (2 267)                        (587) 
Operating costs excluding depreciation                                    (845 483)                    (825 850) 
                                                                           572 758          (4)         599 129  
Depreciation and amortisation                                             (105 217)                    (102 779) 
Results from operating activities                                          467 541          (6)         496 350  
Interest income                                                              4 031                        6 603  
Total interest expense                                                     (63 867)                     (77 558) 
Interest expense                                                            (5 857)                     (19 167) 
Notional interest on BEE shareholder loan                       2           (6 472)                      (5 635) 
BEE interest expense                                            2           (4 425)                      (4 597) 
BEE preference dividend                                         2          (47 113)                     (48 159) 
Profit before taxation                                                     407 705          (4)         425 395  
Taxation                                                                  (128 267)                    (130 254)  
Profit for the period                                                      279 438          (5)         295 141  
Other comprehensive income                                                                                       
Items that will never be reclassified to profit or loss                                                          
Defined benefit plan remeasurements                                              -                        (573)  
Income tax on other comprehensive income                                         -                          160  
Items that are or may be reclassified to profit or loss                                                          
Foreign currency translation differences                                    27 825                     (35 870)  
Total comprehensive income for the period                                  307 263          19         258 858   
Basic earnings per share (cents)                                                                                 
- undiluted                                                                  764,7          (6)           809,8  
- fully diluted                                                              762,9          (6)           807,5  


Condensed consolidated statement Of financial position
                                                                     (Reviewed)        (Audited)    
                                                                       30 June          30 June    
R000's                                                                    2018             2017    
ASSETS                                                                                             
Non current assets                                                   2 352 684        1 978 493    
Property, plant and equipment                                        2 285 396        1 917 022    
Intangible assets and goodwill                                          54 678           50 486    
Investments                                                                200              200    
Deferred taxation                                                       12 410           10 785    
Current assets                                                         333 046          372 367    
Inventories                                                              7 298            6 845    
Trade receivables                                                       79 167           95 092    
Other receivables                                                      159 021          130 549    
Taxation                                                                 8 282                -    
Other investments                                                       26 185           24 217    
Cash and cash equivalents                                               53 093          115 664    
Total assets                                                         2 685 730        2 350 860    
EQUITY AND LIABILITIES                                                                             
Capital and reserves                                                 1 057 866          934 311    
Share capital and premium                                              179 503          179 377    
BEE investment and incentive scheme shares                            (524 984)        (526 729)   
Retained earnings                                                    1 265 174        1 167 252    
Other reserves                                                         138 173          114 411    
Non-current liabilities                                              1 446 619          560 688    
Interest-bearing borrowings                                            450 000          320 000    
BEE interest-bearing borrowings                                         44 120                -    
BEE preference shares                                                  367 600                -    
BEE shareholder's loan                                                  50 000                -    
BEE preference share dividend accrual                                  273 477                -    
Other non-current liabilities                                           86 275           89 517    
Deferred taxation                                                      175 147          151 171    
Current liabilities                                                    181 245          855 861    
BEE interest-bearing borrowings                                              -           44 120    
BEE preference shares                                                        -          382 200    
BEE shareholder's loan                                                       -           43 528    
BEE preference share dividend accrual                                        -          236 466    
Trade and other payables                                               181 245          142 004    
Taxation payable                                                             -            7 543    
Total liabilities                                                    1 627 864        1 416 549    
Total equity and liabilities                                         2 685 730        2 350 860    
Note: The company has authorised capital commitments of R610 million of which approximately 
R460 million has been contracted. It is anticipated that approximately R560 million will be 
spent by 30 June 2019. In addition, R37 million had been authorised in respect of the construction 
of buildings to be leased, of which R36 million (included in other receivables) has been spent 
as at 30 June 2018. City Lodge is funding the expenditure during construction and will be refunded 
the entire amount by the landlord on completion.


Condensed consolidated statement Of changes in equity
                                                                                   BEE
                                                                            investment
                                                                         and incentive
                                                      Share capital             scheme          Other       Retained
R000's                                                  and premium             shares       reserves       earnings         Total
Balance at 1 July 2016                                      167 958           (524 228)       145 016      1 083 082       871 828    
Total comprehensive income for the period                         -                  -        (35 870)       294 728       258 858    
Profit for the period                                                                                        295 141       295 141    
Other comprehensive income                                                                                                            
Defined-benefit plan remeasurements, net of tax                                                                 (413)         (413)    
Foreign currency translation differences                                                      (35 870)                     (35 870)    
Other movements                                                                                                                       
Deferred tax on settlement and curtailment of                                                                            
defined benefit fund                                                                                          (1 095)       (1 095)    
Transactions with owners, recorded directly                                                                              
in equity                                                    11 419             (2 501)         5 265       (209 463)     (195 280)    
Issue of new ordinary shares                                 11 419                                                         11 419    
Incentive scheme shares                                                         (2 501)       (10 205)       (16 368)      (29 074)    
Share compensation reserve                                                                     15 470                       15 470    
Dividends paid                                                                                              (192 955)     (192 955)    
Distribution by BEE structured entity                                                                           (140)         (140)    
Balance at 30 June 2017                                     179 377           (526 729)       114 411      1 167 252       934 311    
Total comprehensive income for the period                         -                  -         27 825        279 438       307 263    
Profit for the period                                                                                        279 438       279 438    
Other comprehensive income                                                                                                            
Foreign currency translation differences                                                       27 825                       27 825    
Transactions with owners, recorded directly in equity           126              1 745         (4 063)      (181 516)     (183 708)    
Issue of new ordinary shares                                    126                                                            126    
Incentive scheme shares                                                          1 745        (14 371)        (2 462)      (15 088)    
Share compensation reserve                                                                     10 308                       10 308    
Dividends paid                                                                                              (178 904)     (178 904)    
Distribution by BEE structured entity                                                                           (150)         (150)    
Balance at 30 June 2018                                     179 503           (524 984)       138 173      1 265 174     1 057 866    


Condensed consolidated statement of cash flows
                                                                     (Reviewed)        (Audited)  
                                                                       30 June          30 June   
R000's                                                                    2018             2017   
Operating cash flows before working capital changes                    563 572          626 227   
Decrease/(increase) in working capital                                  57 315          (17 530)  
Cash generated by operations                                           620 887          608 697   
Interest received                                                        4 031            6 603   
Interest paid                                                          (44 347)         (35 915)  
Taxation paid                                                         (128 415)        (117 034)  
Dividends paid                                                        (178 904)        (192 955)  
Cash inflows from operating activities                                 273 252          269 396   
Cash utilised in investing activities                                 (436 151)        (267 630)  
- investment to maintain operations                                    (81 936)         (38 008)  
- investment to expand operations                                     (343 669)        (164 353)  
- expenditure refundable on operating leases                           (35 554)         (65 268)  
- purchase of investment                                                     -            (200)   
- proceeds on disposal of property, plant and equipment                 25 008              199   
Cash inflows from financing activities                                 100 288           16 905   
- proceeds from issue of ordinary shares                                   126           11 419   
- purchase of incentive scheme shares                                  (15 088)         (29 074)  
- increase in interest-bearing borrowings                              130 000           50 000   
- redemption of BEE preference shares                                  (14 600)         (15 300)  
- distribution by BEE structured entity                                   (150)            (140)  
Net (decrease)/increase in cash and cash equivalents                   (62 611)          18 671   
Cash and cash equivalents at beginning of period                       115 664          104 309   
Effect of movements in exchange rates on other investments              (1 968)           8 663   
Effect of movements in exchange rates on cash held                       2 008          (15 979)  
Cash and cash equivalents at end of period                              53 093          115 664   
Note: Cash and cash equivalents held with Chase Bank, Kenya, which was placed into receivership, 
have been reclassified as other investments pending the bank resuming full normal operations.


Condensed segment report

Primary segment                            Courtyard                City Lodge                Town Lodge     
R000's                                   2018      2017          2018       2017           2018       2017  
Revenue                                67 410    67 139       783 558    790 685        217 507    228 297  
EBITDAR                                24 759    25 274       445 407    470 078         97 564    110 094  
Land and hotel building rental                                                                              
EBITDA                                                                                                      
Depreciation                           (4 004)   (3 846)      (21 728)   (22 612)        (7 320)    (7 316) 
Results from operating activities

                                                                 Central office and
Primary segment                            Road Lodge              rest of Africa                Total
R000's                                   2018      2017          2018       2017           2018         2017  
Revenue                               312 373   296 104       117 578    138 185      1 498 426    1 520 410  
EBITDAR                               169 612   166 863       (58 770)   (76 656)       678 572      695 653  
Land and hotel building rental                               (105 814)   (96 524)      (105 814)     (96 524) 
EBITDA                                                                                  572 758      599 129  
Depreciation                          (11 345)  (11 670)      (60 820)   (57 335)      (105 217)    (102 779) 
Results from operating activities                                                       467 541      496 350  

Geographic information                                           South Africa               Rest of Africa               Total       
R000's                                                       2018           2017         2018          2017         2018           2017 
Revenue                                                 1 380 848      1 382 225      117 578       138 185    1 498 426      1 520 410 
Non-current assets - Property, plant and equipment      1 329 443      1 299 533      955 953       617 489    2 285 396      1 917 022 
EBITDAR represents earnings after BEE transaction charges but before interest, taxation, depreciation, amortisation and rental.
EBITDA represents earnings after BEE transaction charges but before interest, taxation, depreciation and amortisation.


Supplementary information
                                                                                               (Reviewed)                  (Audited)   
                                                                                                    Year                       Year    
                                                                                                   ended                      ended    
                                                                                                 30 June          %         30 June    
R000's                                                                                  Note        2018     change            2017    
1. Headline earnings reconciliation                                                                                                    
   Profit for the period                                                                         279 438                    295 141    
   (Profit)/loss on sale of property, plant and equipment                                        (21 923)                       249    
   Taxation effect                                                                                 4 911                        (75)    
   Headline earnings                                                                             262 426        (11)        295 315    
   Number of shares in issue (000's)                                                              43 574                     43 572    
   Weighted average number of shares in issue for EPS calculation (000's)                  3      36 543                     36 448    
   Weighted average number of shares in issue for diluted EPS calculation (000's)          3      36 629                     36 548    
   Headline earnings per share (cents)                                                     4                                           
   - undiluted                                                                                     718,1        (11)          810,2    
   - fully diluted                                                                                 716,4        (11)          808,0 

2. Normalised headline earnings reconciliation                                                                                         
   Headline earnings                                                                             262 426                    295 315    
   BEE transaction charges                                                                         2 267                        587    
   Notional interest charge on BEE shareholder loan                                                6 472                      5 635    
   BEE interest on interest-bearing borrowings                                                     4 425                      4 597    
   Preference dividends paid by the BEE entities                                                  47 113                     48 159    
   Deferred tax on BEE transactions                                                               (1 812)                    (1 578)    
   10th anniversary employee share trust transaction charges and DWT                                 (41)                         7    
   IFRS 2 share-based payment charge for the 10th anniversary employee share trust                 4 141                      4 306    
   Impairment of other investment in Chase Bank Kenya (net of tax)                                     -                     16 786    
   Gain on settlement and curtailment of defined benefit fund                                          -                   (11 629)    
   Pre-opening expenses write-off (net of tax)                                                     6 078                          -    
   Normalised headline earnings                                                                  331 069         (9)        362 185    
   
3. Number of shares (000's)                                                                                                            
   Weighted average number of shares in issue for EPS calculation                                 36 543                     36 448    
   BEE shares treated as treasury shares                                                           6 390                      6 390    
   10th anniversary employees share trust treated as treasury shares                                 509                        509    
   Weighted average number of shares in issue for normalised EPS calculation                      43 442                     43 347    
   Weighted average number of shares in issue for diluted EPS calculation                         36 629                     36 548    
   BEE shares treated as treasury shares                                                           6 390                      6 390    
   10th anniversary employees share trust treated as treasury shares                                 509                        509    
   Weighted average number of shares in issue for diluted normalised EPS calculation              43 528                     43 447
   
4. Normalised headline earnings per share (cents)                                                                                      
   - undiluted                                                                                     762,1         (9)          835,5    
   - fully diluted                                                                                 760,6         (9)          833,6 

5. Dividends declared per share (cents)                                                            454,0         (9)          500,0    
   - interim                                                                                       253,0         (7)          272,0    
   - final                                                                                         201,0        (12)          228,0    

6. Dividend cover (times)                                 
   - calculated on normalised headline earnings                                                      1,7                        1,7
   
7. Interest-bearing debt to total capital and reserves (%)     
   - calculated on a normalised basis                                                               24,1                       18,7 
   
8. Return on equity (%)                                                                                                                
   - calculated on a normalised basis                                                               18,5                       21,8 
   
9. Net asset value per share (cents)                                                                                                   
   - calculated on a normalised basis                                                              4 289                      3 928    


COMMENTARY
Average occupancies at the group's operations decreased by four percentage points to 59% in the year to 30 June 2018.

In South Africa, occupancies declined to 61% from 63% as trading conditions continued to be impacted by low business and 
consumer confidence. Expectations following new leadership in the ruling party have not yet translated into higher 
levels of economic activity. The anxiety caused due to a lack of clarity on the policy for land expropriation
without compensation is further impacting investor confidence.

Occupancies were also impacted by the Day Zero water campaign in the drought-affected greater Cape Town area which
caused some travellers to cancel or shorten their stays. In general, across the country, the length of business travel
stays has been shortened, partly due to budgetary constraints.

Botswana occupancies were in line with the prior year, but Kenya occupancies were markedly weaker over the year due to
the re-run of the country's elections and an overhang of hotel accommodation supply in Nairobi. There were, however,
encouraging signs of recovery in the second half of the year.

The 151-room Town Lodge Windhoek opened towards the end of 2017. The first few months of trading have been slow,
reflecting the economic recession in Namibia.

Group revenue for the year dropped by 1,0% to R1,5 billion. Against the backdrop of lower occupancies and increased
levels of discounting in the industry, room rates reflected below inflation increases.  

On a normalised basis, total operating costs, increased by 3,8%, while the headline EBITDA margin decreased
by 2,8% points to 37,8% resulting in headline EBITDA decreasing by 8,2% to R566,0 million. Depreciation and
amortisation rose by 2,4%, interest income was R2,6 million lower and interest expense was R13,3 million lower 
as a result of borrowing costs being capitalised during construction activities.

Normalised headline profit before tax decreased by 8,4% to R458,9 million while normalised headline earnings decreased
by 8,6% to R331,1 million. Normalised diluted headline earnings per share were down by 8,8% to 760,6 cents. 

The process of obtaining approval from the Kenya Revenue Authority for the Investment Deduction tax allowance on the
development of City Lodge Hotel at Two Rivers Mall in Nairobi, has commenced. This will lead to a zero normal tax charge
for the entire Kenyan operation, including Fairview and Town Lodge, until such time as the allowance is fully utilised.
The application is based on a claim of 150% of the cost incurred; however, only a 100% claim was accounted for until it
is finally approved. There is therefore a cash flow benefit due to the suspension of normal tax payments, until such
time as the allowance is fully utilised.

In line with the group's established policy of paying out 60% of normalised headline earnings, adjusted for unrealised
foreign exchange gains and losses, a final dividend of R2,01 was declared, bringing the total dividend for the year to
R4,54, which is a decrease of 9,2% on the previous year.

On 6 July 2018, the Central Bank of Kenya ("CBK") announced that SBM Bank (Kenya) had commenced with the acquisition
of certain assets and the assumption of certain liabilities of Chase Bank Kenya in receivership, in line with its
announcement of 17 April 2018. It also announced that this process would be completed by 17 August 2018. The announcement 
did not, however, give an indication as to when the funds held in the bank would become available to depositors, and as 
such no further adjustments were made to the impairment previously recognised. 

DEVELOPMENT ACTIVITY
South Africa
The first 39 of 62 additional rooms at City Lodge Hotel at OR Tambo International Airport were opened in the last
week of June. The remaining rooms are expected to become available in the next few weeks, taking the hotel's capacity 
to 365 rooms.

Construction is progressing well on the 154-room Town Lodge Umhlanga Ridge, while final approvals are still awaited
for the development of the  90-room Road Lodge Polokwane.

East Africa
The 171-room City Lodge Hotel at Two Rivers Mall in Nairobi opened 104 rooms in early 2018. This hotel has 
experienced a slow start. The final 67 rooms are expected to be completed by the end of the month, while the 147-room 
City Lodge Hotel Dar es Salaam in Tanzania is expected to open at the end of September.

Southern Africa
The 148-room City Lodge Hotel Maputo in Mozambique has experienced further delays and is now expected to open in
October. 

Once all these hotels are fully operational, the group will offer 7 991 rooms at 63 hotels in six countries.

The group continues to assess opportunities in South Africa, Southern Africa and East Africa. This effort will be
stepped up once the current expansion phase has been completed.

OUTLOOK
In South Africa, occupancies in the new financial year have continued the soft trend of the previous year. It is 
unlikely that there will be a meaningful change in sentiment until after the country has held its general election, 
which is likely to take place in the second quarter of 2019. The outlook for hotels located outside of South Africa,
has shown encouraging signs of improvement and the group will benefit from the opening of the new hotels.

DIRECTORATE
Following the group's announcement in May, long-serving chief executive, Clifford Ross, stepped down at the end of June 
due to ill health. The group is thankful to him for his 15 years of leadership and more than 30 years of contributions 
to operations and growth. We wish him well in his retirement.

Andrew Widegger succeeded Clifford Ross as chief executive officer from 1 July with Alastair Dooley becoming chief
financial officer. Lindiwe Sangweni-Siddo was appointed to the new role of chief operating officer.

BASIS OF PREPARATION
The condensed consolidated financial statements are prepared in accordance with the requirements of the JSE Limited
Listings Requirements for preliminary reports and the requirements of the Companies Act of South Africa. The Listings
Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and
recognition requirements of International Financial Reporting Standards ("IFRS") and the SAICA Financial Reporting Guides
as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting
Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The
accounting policies applied in the preparation of the condensed consolidated financial statements are in terms of IFRS and
are consistent with those applied in the previous consolidated annual financial statements. 

The condensed consolidated financial information has been presented on the historical cost basis, and are presented in
Rand thousands which is City Lodge's functional and presentation currency.

These condensed consolidated financial statements were prepared under the supervision of Mr A W Dooley CA(SA), in his
capacity as chief financial officer.

REVIEW REPORT OF THE INDEPENDENT AUDITOR
These condensed consolidated financial statements for the year ended 30 June 2018 have been reviewed by KPMG Inc., who
expressed an unmodified review conclusion. The auditor's report does not necessarily report on all of the information
contained in this announcement. Shareholders are therefore advised that, in order to obtain a full understanding of the
nature of the auditor's engagement, they should obtain a copy of the auditor's report together with the accompanying
financial information from the issuer's registered office.

PRO FORMA FINANCIAL INFORMATION
The supplementary information presented contains information presented on a normalised basis. This information is the 
responsibility of the company's directors and has been prepared for illustrative purposes only. It may not fairly present 
the company's financial position, changes in equity, results of operations or cash flows. The reporting accountant has 
provided assurance on the pro forma information and the report is available for inspection at the issuer's registered office.

DECLARATION OF DIVIDEND
The board has approved and declared final dividend number 59 of 201 cents per ordinary share (gross) in respect of the
year ended 30 June 2018.

The dividend will be subject to Dividend Tax. In accordance with paragraphs 11.17(a)(i) to (ix) 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 Dividend Tax rate is 20% (twenty per centum); 
- The gross local dividend amount is 201 cents per ordinary share for shareholders exempt from the Dividend Tax;
- The net local dividend amount is 160,8 cents per ordinary share for shareholders liable to pay the Dividend Tax;
- The company currently has 43 573 893 ordinary shares in issue; and
- The company's income tax reference number is 9041001711.

Shareholders are advised of the following dates in respect of the final dividend:

Last date to trade cum dividend              Tuesday, 4 September 2018    
Shares commence trading ex dividend        Wednesday, 5 September 2018    
Record date                                   Friday, 7 September 2018    
Payment of dividend                          Monday, 10 September 2018    

Share certificates may not be dematerialised or rematerialised between Wednesday, 5 September 2018 and Friday, 
7 September 2018, both days inclusive.

For and on behalf of the board

Bulelani Ngcuka
Chairman

Andrew Widegger
Chief executive officer

15 August 2018


Administration
Registered office
The Lodge
Bryanston Gate Office Park
Corner Homestead Avenue and Main Road 
Bryanston, 2191
Telephone: +27 11 557 2600
Facsimile: +27 11 557 2670
Email: info@clhg.com
www.clhg.com
www.bid2stay.co.za

Directors
B T Ngcuka (Chairman) A Widegger (Chief executive officer)*, A W Dooley*, G G Huysamer, F W J Kilbourn, 
M S P Marutlulle, N Medupe, S G Morris, V M Rague†, L G Siddo*, Dr K I M Shongwe 
*Executive    †Kenyan 

Transfer secretaries
Computershare Investor Services Proprietary Limited Rosebank Towers
15 Biermann Avenue
Rosebank, 2196

Company secretary
M C van Heerden

Sponsor
Nedbank Corporate and Investment Banking

www.clhg.com
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