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CITY LODGE HOTELS LIMITED - Unaudited interim report for the six months ended 31 December 2018

Release Date: 14/02/2019 12:24
Code(s): CLH     PDF:  
 
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Unaudited interim report for the six months ended 31 December 2018

City Lodge Hotels Limited
Registration number: 1986/002864/06
Share code: CLH
ISIN: ZAE000117792

Unaudited interim report for the six months ended 31 December 2018

- Average group occupancies 58% 
- Normalised diluted headline EPS -6%
- Return on equity 17%


Statements of comprehensive income
                                                                                                                       (Audited)   
                                                                        Six months                   Six months            Year    
                                                                             ended                        ended           ended    
                                                                       31 December           %      31 December         30 June    
R000                                                         Note             2018      Change             2017            2018    
Revenue                                                                    807 414           3          787 084       1 498 426    
Other income                                                                     -                       21 923          21 923    
Administration and marketing costs                                         (56 478)                     (52 562)        (99 841)    
BEE transaction charges                                         2             (132)                        (397)         (2 267)    
Operating costs excluding depreciation                                    (461 319)                    (445 931)       (845 483)    
                                                                           289 485          (7)         310 117         572 758    
Depreciation and amortisation                                              (57 951)                     (51 879)       (105 217)    
Results from operating activities                                          231 534         (10)         258 238         467 541    
Interest income                                                                959                        2 107           4 031    
Total interest expense                                                     (29 197)                     (33 146)        (63 867)   
Interest expense                                                            (1 189)                      (3 599)         (5 857)    
Notional interest on BEE shareholder loan                       2                -                       (3 124)         (6 472)    
BEE interest expense                                            2           (2 247)                      (2 253)         (4 425)    
BEE preference dividend                                         2          (25 761)                     (24 170)        (47 113)    
Profit before taxation                                                     203 296         (11)         227 199         407 705    
Taxation                                                                   (64 713)                     (69 909)       (128 267)    
Profit for the period                                                      138 583         (12)         157 290         279 438    
Other comprehensive income                                                                                                         
Items that are or may be reclassified to profit or loss                                                                            
Foreign currency translation differences                                    12 262                      (16 462)         27 825    
Total comprehensive income for the period                                  150 845           7          140 828         307 263    
Basic earnings per share (cents)                                                                                                   
- undiluted                                                                  378,9         (12)           430,4           764,7    
- fully diluted                                                              378,2         (12)           429,7           762,9    


Statements of financial position
                                                                                                                       (Audited)   
                                                                                         As at            As at      Year ended    
                                                                                   31 December      31 December         30 June    
R000                                                                                      2018             2017            2018    
ASSETS                                                                                                                             
Non-current assets                                                                   2 551 753        2 138 624       2 352 684    
Property, plant and equipment                                                        2 468 922        2 070 708       2 285 396    
Intangible assets and goodwill                                                          52 560           51 418          54 678    
Investments                                                                                800              200             200    
Other investments                                                                       13 599                -               -    
Deferred taxation                                                                       15 872           16 298          12 410    
Current assets                                                                         324 873          376 825         333 046    
Inventories                                                                              7 621           11 969           7 298    
Trade receivables                                                                      101 873           87 212          79 167    
Other receivables                                                                      161 132          108 622         159 021    
Taxation                                                                                 3 450                -           8 282    
Other investments                                                                        6 799           23 149          26 185    
Cash and cash equivalents                                                               43 998          145 873          53 093    
Total assets                                                                         2 876 626        2 515 449       2 685 730    
EQUITY                                                                                                                             
Capital and reserves                                                                 1 136 806          991 317       1 057 866    
Share capital and premium                                                              179 503          179 503         179 503    
BEE investment and incentive scheme shares                                            (518 014)        (524 984)       (524 984)    
Retained earnings                                                                    1 327 788        1 236 988       1 265 174    
Other reserves                                                                         147 529           99 810         138 173    
LIABILITIES                                                                                                                        
Non-current liabilities                                                              1 557 211        1 317 550       1 446 619    
Interest-bearing borrowings                                                            530 000          350 000         450 000    
BEE interest-bearing borrowings                                                         44 120           44 120          44 120    
BEE preference shares                                                                  362 800          375 800         367 600    
BEE shareholder's loan                                                                  50 000           46 652          50 000    
BEE B preference share dividend accrual                                                294 679          255 280         273 477    
Other non-current liabilities                                                           83 362           87 330          86 275    
Deferred taxation                                                                      192 250          158 368         175 147    
Current liabilities                                                                    182 609          206 582         181 245    
Trade and other payables                                                               169 972          160 663         181 245    
Taxation payable                                                                             -            4 693               -    
Bank overdraft                                                                          12 637           41 226               -    
Total liabilities                                                                    1 739 820        1 524 132       1 627 864    
Total equity and liabilities                                                         2 876 626        2 515 449       2 685 730    
Note: The company has authorised capital commitments of R415 million of which approximately R252 million has been contracted. 
      It is anticipated that approximately R257 million of the authorised commitments will be spent by 30 June 2019.


Statements of changes in equity
                                                        Share capital        Treasury           Other         Retained
R000                                                      and premium          shares        reserves         earnings            Total    
Balance at 30 June 2017                                       179 377        (526 729)        114 411        1 167 252          934 311    
Total comprehensive income for the period                           -               -          12 262          138 127          150 389    
Profit for the period                                                                                          138 127          138 127    
Other comprehensive income                                                                                                                 
Foreign currency translation differences                                                       12 262                            12 262    
Transactions with owners, recorded directly in equity             126           1 745           1 861          (87 554)         (83 822)    
Issue of new ordinary shares                                      126                                                               126    
Incentive scheme shares                                                        (4 255)           (500)          (1 437)          (6 192)    
Share compensation reserve                                                      6 000           2 361                             8 361    
Dividends paid                                                                                                 (86 117)         (86 117)    
Balance at 31 December 2017                                   179 503        (524 984)        128 534        1 217 825        1 000 878    
Total comprehensive income for the period                           -               -          15 563          141 311          156 874    
Profit for the period                                                                                          141 311          141 311    
Other comprehensive income                                                                                                                 
Foreign currency translation differences                                                       15 563                            15 563    
Transactions with owners, recorded directly in equity               -               -          (5 924)         (93 962)         (99 886)    
Incentive scheme shares                                                                       (13 871)          (1 025)         (14 896)    
Share compensation reserve                                                                      7 947                             7 947    
Dividends paid                                                                                                 (92 787)         (92 787)    
Distribution by BEE structured entity                                                                             (150)            (150)    
Balance at 30 June 2018                                       179 503        (524 984)        138 173        1 265 174        1 057 866    
Total comprehensive income for the period                           -               -          12 262          138 583          150 845    
Profit for the period                                                                                          138 583          138 583    
Other comprehensive income                                                                                                                 
Foreign currency translation differences                                                       12 262                            12 262    
Transactions with owners, recorded directly in equity               -           6 970          (2 906)         (75 969)         (71 905)    
Incentive scheme shares                                                        (1 530)          5 594                             4 064    
Share compensation reserve                                                      8 500          (8 500)                                -    
Dividends paid                                                                                                 (75 969)         (75 969)    
Balance at 31 December 2018                                   179 503        (518 014)        147 529        1 327 788        1 136 806    


Summarised statements of cash flows
                                                                                                                       (Audited)   
                                                                                    Six months       Six months            Year    
                                                                                         ended            ended           ended    
                                                                                   31 December      31 December         30 June    
R000                                                                                      2018             2017            2018    
Operating profit before working capital changes                                        271 065          294 078         563 572    
(Increase)/decrease in working capital                                                 (38 845)          56 277          57 315    
Cash generated by operations                                                           232 220          350 355         620 887    
Interest received                                                                          959            2 107           4 031    
Interest paid                                                                          (28 289)         (11 450)        (44 347)   
Taxation paid                                                                          (46 605)         (71 476)       (128 415)   
Dividends paid                                                                         (75 969)         (86 117)       (178 904)   
Cash inflow from operating activities                                                   82 316          183 419         273 252    
Cash utilised in investing activities                                                 (197 460)        (211 206)       (436 151)    
- investment to maintain operations                                                    (17 817)         (26 342)        (81 936)    
- investment to expand operations                                                     (179 043)        (197 171)       (343 669)    
- expenditure refundable on operating lease                                                  -          (12 693)        (35 554)    
- purchase of investment                                                                  (600)               -               -    
- proceeds on disposal of property, plant and equipment                                      -           25 000          25 008    
Cash inflows from financing activities                                                  73 670           17 534         100 288    
- proceeds from issue of ordinary shares                                                     -              126             126    
- purchase of incentive scheme shares                                                   (1 530)          (6 192)        (15 088)    
- increase in interest-bearing borrowings                                               80 000           30 000         130 000    
- redemption of BEE preference shares                                                   (4 800)          (6 400)        (14 600)    
- distribution by BEE structured entity                                                      -                -            (150)    
Net decrease in cash and cash equivalents                                              (41 474)         (10 253)        (62 611)   
Cash and cash equivalents at beginning of the period                                    53 093          115 664         115 664    
Reclassification of other investments to cash and cash equivalents                      20 398                -               -    
Effect of movements in exchange rates on other investments                              (1 178)           1 068          (1 968)   
Effect of movements in exchange rates on cash held                                         522           (1 832)          2 008    
Cash and cash equivalents at end of the period                                          31 361          104 647          53 093    
Note: The reclassification of other investments to cash and cash equivalents relates to the portion of deposits previously held 
      with Chase Bank, Kenya, which was placed into receivership and which have now been released back to depositors.


Segment report
Primary segment                               Courtyard                    City Lodge                   Town Lodge                  Road Lodge      
R000                                      2018         2017            2018          2017           2018         2017          2018           2017  
Revenue                                 34 023       36 663         419 597       414 690        118 199      117 503       163 428        162 422  
                                                                                                                                                    
EBITDAR                                 10 418       14 734         227 843       241 873         50 819       55 343        83 987         90 331  
Land and hotel building rental                                                                                                                      
EBITDA                                                                                                                                              
Depreciation and amortisation           (2 044)      (2 073)        (12 529)      (11 172)        (3 660)      (3 662)       (5 219)        (5 601) 
Results from operating activities                                                                                                                  

Segment report
Primary segment                        Central office and other               Total
R000                                      2018           2017           2018          2017    
Revenue                                 72 167         55 806        807 414       787 084    
                                                                                              
EBITDAR                                (26 473)       (46 596)       346 594       355 685    
Land and hotel building rental         (57 109)       (45 568)       (57 109)      (45 568)   
EBITDA                                                               289 485       310 117    
Depreciation and amortisation          (34 499)       (29 371)       (57 951)      (51 879)   
Results from operating activities                                    231 534       258 238    

Geographic information                                             South Africa                  Rest of Africa                  Total
                                                               2018           2017           2018            2017          2018            2017    
Revenue                                                     735 247        731 278         72 167          55 806       807 414         787 084    
Non-current assets - property, plant and equipment        1 360 567      1 276 386      1 108 355         794 322     2 468 922       2 070 708    
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.


Supplementary information
                                                                                                                                          (Audited)   
                                                                                            Six months                   Six months           Year    
                                                                                                 ended                        ended          ended    
                                                                                           31 December          %       31 December        30 June    
R000                                                                             Note             2018     Change              2017           2018    
1. Headline earnings reconciliation                                                                                                                   
Profit for the period                                                                          138 583                      157 290        279 438    
Profit on sale of property, plant and equipment                                                      -                      (21 923)       (21 923)   
Taxation effect                                                                                      -                        4 911          4 911    
Headline earnings                                                                              138 583         (1)          140 278        262 426    
Number of shares in issue (000's)                                                               43 574                       43 574         43 574    
Weighted average number of shares in                                                                                                                  
issue for EPS calculation (000's)                                                   3           36 575                       36 546         36 543    
Weighted average number of shares in                                                                                                                  
issue for diluted EPS calculation (000's)                                           3           36 645                       36 604         36 629    
Headline earnings per share (cents)                                                 4                                                                 
- undiluted                                                                                      378,9         (1)            383,8          718,1    
- fully diluted                                                                                  378,2         (1)            383,2          716,4    

2. Normalised headline earnings reconciliation*                                                                                                       
Headline earnings                                                                              138 583                      140 278        262 426    
BEE transaction charges                                                                            132                          397          2 267    
Notional interest charge on BEE shareholder loan                                                     -                        3 124          6 472    
BEE interest on interest-bearing borrowings                                                      2 247                        2 253          4 425    
Preference dividends paid/payable by                                                                                                                  
the BEE entities                                                                                25 761                       24 170         47 113    
Deferred tax on BEE transactions                                                                     -                         (875)        (1 812)    
10th anniversary employee share trust transaction charges and DWT                                 (265)                        (289)           (41)    
IFRS 2 share-based payment charge for                                                                                                                 
the 10th anniversary employee share trust                                                        2 091                        2 087          4 141    
Reversal of impairment of other investment in Chase Bank Kenya (net of tax)                     (9 403)                           -              -    
Pre-opening expenses write-off (net of tax)                                                      4 178                        3 127          6 078    
Normalised headline earnings                                                                   163 324         (6)          174 272        331 069    

3. Number of shares (000's)                                                                                                                           
Weighted average number of shares in                                                                                                                  
issue for EPS calculation                                                                       36 575                       36 546         36 543    
BEE shares treated as treasury shares                                                            6 390                        6 390          6 390    
10th anniversary employee share trust treated as treasury shares                                   507                          509            509    
Weighted average number of shares in issue for normalised EPS calculation                       43 472                       43 445         43 442    
Weighted average number of shares in                                                                                                                  
issue for diluted EPS calculation                                                               36 645                       36 604         36 629    
BEE shares treated as treasury shares                                                            6 390                        6 390          6 390    
10th anniversary employee share trust treated as treasury shares                                   507                          509            509    
Weighted average number of shares in issue for diluted normalised EPS calculation               43 542                       43 503         43 528    

4. Normalised headline earnings per share (cents)                                                                                                     
- undiluted                                                                                      375,7         (6)            401,1          762,1    
- fully diluted                                                                                  375,1         (6)            400,6          760,6    

5. Dividend declared per share (cents)                                                           229,0         (9)            253,0          454,0    

6. Dividend cover (times)                                                                                                                             
- calculated on normalised headline earnings                                                       1,6                          1,6            1,7    

7.  Interest-bearing debt to total capital and reserves (%)                                                                                           
- calculated on a normalised basis                                                                27,1                         19,8           24,1    

8. Return on equity (%)                                                                                                                               
- calculated on a normalised basis                                                                17,2                         19,7           18,5    

9. Net asset value per share (cents)                                                                                                                  
- calculated on a normalised basis                                                               4 495                        4 063          4 289    
* Normalised headline earnings is headline earnings adjusted for the effects of transactions relating to BEE or those
  of a non-recurring/core nature.


Commentary
Average occupancies for the group in the six months to 31 December 2018 declined to 58% from 63% in the
previous interim period.

In South Africa, where the group has most of its hotels, occupancies were down three percentage points to 61%, 
largely as a result of depressed business and consumer confidence levels ahead of the upcoming national elections. 
While occupancies in Botswana were three percentage points lower than in the previous year, Kenyan occupancies at 
the Fairview Hotel and Town Lodge, Upper Hill, Nairobi, reflected a welcome improvement, rising by four percentage
points. Similarly, occupancies in Namibia continued to improve. The overall operating environment for the period
was challenging across all the group's locations and brands.

Total revenue increased by 3% to R807,4 million, benefiting from the improvement in Kenya and a full period
contribution from Town Lodge Windhoek. City Lodge Hotel at Two Rivers Mall Nairobi was partially open during the
period and there was also a small contribution from City Lodge Hotel Dar es Salaam towards the end of the period.
In South Africa, achieved room rates increased by less than inflation due to tough economic conditions and a highly
competitive operating environment.

On a normalised basis, total operating costs increased by 6%, while the total normalised EBITDA margin was down by
two percentage points to 35%, resulting in normalised headline EBITDA for the group decreasing by 4% to
R284,3 million. Depreciation and amortisation increased by 12%, while interest income and interest expense
decreased by R1,1 million and R2,4 million respectively as a result of borrowing costs being capitalised during the
ongoing construction activities.

Normalised headline profit before tax for the group decreased by 6% to R226,1 million, while normalised headline
earnings decreased by 6% to R163,3 million. Fully diluted normalised headline earnings per share decreased by
6% to 375,1 cents.

In line with the group's policy of paying out 60% of normalised headline earnings adjusted for unrealised foreign
exchange gains or losses, a gross interim dividend of 229,0 cents per share has been declared, 9% lower than the
previous year.

The group's application for an investment deduction allowance on the development of City Lodge Hotel at Two
Rivers Mall in Nairobi awaits adjudication by the Kenya Revenue Authority.

On 18 August 2018, and in line with the Kenyan Central Bank's announcement, 38% of the cash deposits previously
held with Chase Bank Kenya (in receivership) were released to the company. As a result of the partial receipt of these
deposits, half of the impairment charge previously recognised in other investments amounting to R9,4 million (net of
tax) was reversed. The cash received was reclassified to cash and cash equivalents. The remaining 38% of deposits
remain as other investments, and will be released in three equal instalments between August 2019 and August 2021.

Development activity
South Africa
The 62-room extension at City Lodge Hotel at OR Tambo Airport was completed, with these additional rooms
opening on a phased basis during the period.

Construction of the 154-room Town Lodge Umhlanga Ridge is on schedule, with the opening on track for July 2019.
No further progress has however been made in gaining approvals for the development of a 90-room Road Lodge in
Polokwane.

Demonstrating the group's ongoing confidence in and commitment to South Africa, a lease and development agreement 
has been signed for a "new concept" Courtyard Hotel to be built in Waterfall City. It is anticipated that work on 
this 168-room hotel will start in March with completion expected in October 2020.

East Africa
Following lengthy delays, all 171 rooms at City Lodge Hotel at Two Rivers Mall, Nairobi, became available during
December. The first 95 rooms became available at City Lodge Dar es Salaam in November, with the balance of the
148 rooms becoming available earlier this month.

Southern Africa
Further delays have been experienced in Mozambique where the opening of the 148-room City Lodge Hotel Maputo
is now expected to take place during the course of April.

Following the opening of all the above hotels, the group will have 64 hotels in six countries in East and Southern
Africa, offering a total of 8 160 rooms.

Outlook
After an encouraging improvement in occupancies in Kenya, the January terror attack on a hotel and office complex
in Nairobi was a setback. It is however anticipated that given the swift and effective response by the Kenyan
authorities, the situation will normalise fairly quickly. This is already evident in positive forward bookings.

With trading remaining subdued at City Lodge Hotel at Two Rivers Mall, Nairobi, increased sales and marketing
efforts will be focused on to the region, including City Lodge Hotel Dar es Salaam, as well as the soon to be 
opened City Lodge Hotel Maputo.

In South Africa, trading conditions are expected to remain under pressure until the election has been held on
8 May 2019. In the first six weeks of the second half of the financial year, some improvement has been noted,
however these trends were not consistently observed. The group is encouraged by the overall economic trajectory
outlined and envisaged by President Cyril Ramaphosa, which could play an important role in improving sentiment
and activity.

Basis of preparation
These 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, with the exception of the adoption of IFRS 9 Financial instruments and IFRS 15 Revenue from contracts 
with customers.

The condensed group 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 interim financial statements were prepared under the supervision of Mr AW Dooley CA(SA), in his
capacity as Chief financial officer.

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.

Declaration of dividend
The board has approved and declared interim dividend number 60 of 229,0 cents per ordinary share (gross) in
respect of the six months ended 31 December 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 229,0 cents per ordinary share for shareholders exempt from the dividend tax;
- The net local dividend amount is 183,2 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:

Last date to trade cum dividend             Tuesday, 5 March 2019
Shares commence trading ex dividend       Wednesday, 6 March 2019
Record date                                  Friday, 8 March 2019
Payment of dividend                         Monday, 11 March 2019

Share certificates may not be dematerialised or rematerialised between Wednesday, 6 March 2019 and Friday,
8 March 2019, both days inclusive.

For and on behalf of the board

Bulelani Ngcuka                    Andrew Widegger
Chairman                           Chief executive officer

13 February 2019


Registered office: The Lodge, Bryanston Gate Office Park, cnr. Homestead Avenue and Main Road, Bryanston, 2191

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

Directors: BT Ngcuka (Chairman), A Widegger (Chief executive officer)*, AW Dooley*, GG Huysamer, 
FWJ Kilbourn, MSP Marutlulle, N Medupe, SG Morris, VM Rague?, LG Siddo*, Dr KIM Shongwe 
?Kenyan          *Executive

Company secretary: MC van Heerden

Sponsor: Nedbank Corporate and Investment Banking

www.clhg.com

14 February 2019
Date: 14/02/2019 12:24:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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