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CITY LODGE HOTELS LIMITED - Group preliminary results for the year ended 30 June 2019

Release Date: 16/08/2019 07:10
Code(s): CLH     PDF:  
 
Wrap Text
Group preliminary results for the year ended 30 June 2019

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 2019

Condensed consolidated statement of comprehensive income
                                                                         (Reviewed)                    (Audited)   
                                                                              Year                         Year    
                                                                             ended                        ended    
                                                                           30 June           %          30 June    
R000's                                                       Note             2019      change             2018    
Revenue                                                                  1 547 984           3        1 498 426    
Other income                                                                 4 475                       21 923    
Administration and marketing costs                                        (106 432)                     (99 841)    
BEE transaction charges                                         2             (352)                      (2 267)    
Impairment loss on trade and other receivables                              (2 198)                           -    
Operating costs excluding depreciation                                    (961 422)                    (845 483)    
                                                                           482 055         (16)         572 758    
Depreciation and amortisation                                             (117 471)                    (105 217)    
Results from operating activities                                          364 584         (22)         467 541    
Interest income                                                              2 233                        4 031    
Total interest expense                                                     (59 842)                     (63 867)    
Interest expense                                                            (4 650)                      (5 857)    
Notional interest on BEE shareholder loan                       2                -                       (6 472)    
BEE interest expense                                            2           (4 187)                      (4 425)    
BEE preference dividend                                         2          (51 005)                     (47 113)    
                                                                                                                    
Profit before taxation                                                     306 975         (25)         407 705    
Taxation                                                                  (101 519)                    (128 267)    
Profit for the period                                                      205 456         (26)         279 438    
Other comprehensive income                                                                                          
Items that are or may be reclassified to profit or loss                                                             
Foreign currency translation differences                                    (2 397)                      27 825    
Total comprehensive income for the period                                  203 059         (34)         307 263    
Basic earnings per share (cents)                                                                                    
- undiluted                                                                  562,0         (27)           764,7    
- diluted                                                                    560,7         (27)           762,9    


Condensed consolidated statement 
of financial position
                                                                                (Reviewed)              (Audited)    
                                                                                  30 June                30 June    
R000's                                                                               2019                   2018    
ASSETS                                                                                                              
Non current assets                                                              2 722 355              2 352 684    
Property, plant and equipment                                                   2 630 411              2 285 396    
Intangible assets and goodwill                                                     55 358                 54 678    
Investments                                                                           800                    200    
Other investments                                                                  13 073                      -    
Deferred taxation                                                                  22 713                 12 410    
Current assets                                                                    303 373                333 046    
Inventories                                                                         7 978                  7 298    
Trade receivables                                                                  77 369                 79 167    
Other receivables                                                                 128 468                159 021    
Taxation                                                                           11 935                  8 282    
Other investments                                                                   6 577                 26 185    
Cash and cash equivalents                                                          71 046                 53 093    
Total assets                                                                    3 025 728              2 685 730    
EQUITY AND LIABILITIES                                                                                              
Capital and reserves                                                            1 106 701              1 057 866    
Share capital and premium                                                         179 503                179 503    
BEE investment and incentive scheme shares                                       (518 014)              (524 984)    
Retained earnings                                                               1 307 529              1 265 174    
Other reserves                                                                    137 683                138 173    
Non-current liabilities                                                         1 701 435              1 446 619    
Interest-bearing borrowings                                                       660 000                450 000    
BEE interest-bearing borrowings                                                    44 120                 44 120    
BEE preference shares                                                             355 000                367 600    
BEE shareholder's loan                                                             50 000                 50 000    
BEE preference share dividend accrual                                             315 604                273 477    
Other non-current liabilities                                                      78 899                 86 275    
Deferred taxation                                                                 197 812                175 147    
Current liabilities                                                                                                 
Trade and other payables                                                          217 592                181 245    
Total liabilities                                                               1 919 027              1 627 864    
Total equity and liabilities                                                    3 025 728              2 685 730    

Note: The company has authorised capital commitments of R392 million of which approximately R175 million 
      has been contracted. It is anticipated that approximately R333 million will be spent by 30 June 2020.


Condensed consolidated statement 
of changes in equity
                                                                                  BEE 
                                                                           investment 
                                                                        and incentive 
                                                      Share capital            scheme        Other       Retained
                                                        and premium            shares     reserves       earnings         Total
R000's                                                                                                                             
Balance at 1 July 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    
Total comprehensive income for the period                         -                 -       (2 397)       205 456       203 059    
Profit for the period                                                                                     205 456       205 456    
Other comprehensive income                                                                                                         
Foreign currency translation differences                                                    (2 397)                      (2 397)    
Transactions with owners, recorded directly in equity             -             6 970        1 907       (163 101)     (154 224)    
Incentive scheme shares                                                         6 970       (6 350)        (3 001)       (2 381)    
Share compensation reserve                                                                   8 257                        8 257    
Dividends paid                                                                                           (160 100)     (160 100)    
Balance at 30 June 2019                                     179 503          (518 014)     137 683      1 307 529     1 106 701    


Condensed consolidated statement of cash flows
                                                                                 (Reviewed)             (Audited)    
                                                                                   30 June               30 June    
R000's                                                                                2019                  2018    
Operating cash flows before working capital changes                                461 479               563 572    
Decrease in working capital                                                         31 288                57 315    
Cash generated by operations                                                       492 767               620 887    
Interest received                                                                    2 233                 4 031    
Interest paid                                                                      (64 774)              (44 347)   
Taxation paid                                                                      (95 101)             (128 415)   
Dividends paid                                                                    (160 100)             (178 904)   
Cash inflows from operating activities                                             175 025               273 252    
Cash utilised in investing activities                                             (371 965)             (436 151)    
- investment to maintain operations                                                (71 785)              (81 936)    
- investment to expand operations                                                 (335 346)             (343 669)    
- expenditure refundable on operating leases                                        35 554               (35 554)    
- purchase of investment                                                              (600)                    -    
- proceeds on disposal of property, plant and equipment                                212                25 008    
Cash inflows from financing activities                                             195 019               100 288    
- proceeds from issue of ordinary shares                                                 -                   126    
- purchase of incentive scheme shares                                               (2 381)              (15 088)    
- increase in interest-bearing borrowings                                          210 000               130 000    
- redemption of BEE preference shares                                              (12 600)              (14 600)    
- distribution by BEE structured entity                                                  -                  (150)    
Net decrease in cash and cash equivalents                                           (1 921)              (62 611)   
Cash and cash equivalents at beginning of period                                    53 093               115 664    
Reclassification of other investments to cash and cash equivalents                  20 398                     -    
Effect of movements in exchange rates on other investments                            (430)               (1 968)   
Effect of movements in exchange rates on cash held                                     (94)                2 008    
Cash and cash equivalents at end of period                                          71 046                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 repaid back to depositors.


Condensed segment report

Primary segment
                                              Courtyard            City Lodge           Town Lodge           Road Lodge    
R000's                                       2019     2018       2019      2018       2019      2018       2019      2018  
Revenue                                    66 139   67 410    805 992   783 558    219 638   217 507    312 385   312 373  
EBITDAR                                    17 345   24 759    425 024   445 407     88 672    97 564    156 310   169 612  
Land and hotel                                                                                                             
building rental                                                                                                   
EBITDA                                                                                                                     
Depreciation                               (4 072)  (4 004)   (24 999)  (21 728)    (7 538)   (7 320)   (10 438)  (11 345) 
Results from operating activities

Primary segment (continued)
                                          Central office and
                                            rest of Africa                  Total
R000's                                     2019       2018              2019        2018    
Revenue                                 143 830    117 578         1 547 984   1 498 426    
EBITDAR                                 (89 161)   (58 770)          598 190     678 572    
Land and hotel                                                                
building rental                        (116 135)  (105 814)         (116 135)   (105 814) 
EBITDA                                                               482 055     572 758    
Depreciation                            (70 424)   (60 820)         (117 471)   (105 217)   
Results from operating activities                                    364 584     467 541    


Geographic information                               
                                          South Africa                Rest of Africa                   Total
R000's                                  2019           2018         2019          2018           2019           2018
Revenue                            1 404 154      1 380 848      143 830       117 578      1 547 984      1 498 426
Non-current assets -               
Property, plant                                             
and equipment                      1 436 111      1 329 443    1 194 300       955 953      2 630 411      2 285 396
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    
                                                                                             %            2018    
R000's                                                         Note            2019     change                   
1.  Headline earnings reconciliation                                                                              
    Profit for the period                                                   205 456                    279 438    
    Profit on sale of property, plant and equipment                            (170)                   (21 923)    
    Taxation effect                                                              48                      4 911    
    Headline earnings                                                       205 334        (22)        262 426    
    Number of shares in issue (000's)                                        43 574                     43 574    
    Weighted average number of shares in issue for     
    EPS calculation (000's)                                       3          36 556                     36 543    
    Weighted average number of shares in issue for     
    diluted EPS calculation (000's)                               3          36 642                     36 629    
    Headline earnings per share (cents)                           4                                               
    - undiluted                                                               561,7        (22)          718,1    
    - diluted                                                                 560,4        (22)          716,4    
2.  Normalised headline earnings reconciliation*                                                                  
    Headline earnings                                                       205 334                    262 426    
    BEE transaction charges                                                     352                      2 267    
    Notional interest charge on BEE shareholder loan                              -                      6 472    
    BEE interest on interest-bearing borrowings                               4 187                      4 425    
    Preference dividends paid by the BEE entities                            51 005                     47 113    
    Deferred tax on BEE transactions                                              -                     (1 812)    
    10th anniversary employee share trust              
    transaction charges and Dividend Tax                                        (43)                       (41)    
    IFRS 2 share-based payment charge for the          
    10th anniversary employee share trust                                     4 148                      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)                              11 487                      6 078    
    Normalised headline earnings                                            267 067        (19)        331 069    

* Normalised headline earnings is headline earnings adjusted for the effects of transactions relating to BEE 
  or those of a non-recurring/core nature.

                                                                          (Reviewed)                  (Audited)  
                                                                               Year                       Year   
                                                                              ended                      ended   
                                                                            30 June                    30 June   
                                                                                             %            2018      
R000's                                                                         2019     change                   
3.  Number of shares (000's)
    Weighted average number of shares in issue 
    for EPS calculation                                                      36 556                     36 543    
    BEE shares treated as treasury shares                                     6 390                      6 390    
    10th anniversary employees share trust                   
    treated as treasury shares                                                  506                        509    
    Weighted average number of shares in issue               
    for normalised EPS calculation                                           43 452                     43 442    
    Weighted average number of shares in issue               
    for diluted EPS calculation                                              36 642                     36 629    
    BEE shares treated as treasury shares                                     6 390                      6 390    
    10th anniversary employees share trust treated           
    as treasury shares                                                          506                        509    
    Weighted average number of shares in issue               
    for diluted normalised EPS calculation                                   43 538                     43 528    

4.  Normalised headline earnings per share (cents)                                                                
    - undiluted                                                               614,6        (19)          762,1    
    - diluted                                                                 613,4        (19)          760,6    

5.  Dividends declared per share (cents)                                      366,0        (19)          454,0    
    - interim                                                                 229,0         (9)          253,0    
    - final                                                                   137,0        (32)          201,0    
                                                                                                                  
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                                         33,9                       24,1    

8.  Return on equity (%)                                                                                          
    - calculated on a normalised basis                                         14,0                       18,5    

9.  Net asset value per share (cents)                                                                             
    - calculated on a normalised basis                                        4 471                      4 289    


Commentary
Average occupancies for the group in the 12 months to 30 June, 2019 declined from 59% in the previous financial year
to 55%.

In South Africa, occupancies decreased from 61% to 58%, in line with the three percentage points decline in the six
months to 31 December 2018. Low levels of business and consumer confidence, high unemployment, uncertainty around Eskom's
sustainability and land expropriation, as well as negative growth in the first quarter of 2019, resulted in difficult
trading conditions.

Down by three percentage points at the half year, Botswana occupancies improved slightly in the second half, with the
improvement continuing into the current year. Town Lodge Windhoek performed below expectations on weak economic growth
in Namibia, but the hotel is improving on a month-by- month basis. After a welcome improvement in the first half with
occupancies up by four percentage points, Kenyan operations experienced a weaker second half due to increased hotel supply
and economic growth not translating into commercial activity. Occupancies were two percentage points lower for the full
year. City Lodge Hotel at Two Rivers Mall continues to improve, but at a slower pace than expected.

In Tanzania, City Lodge Hotel Dar es Salaam had a disappointing first few months of trading due to increased hotel
supply, a challenging business environment and a shift in some commercial activity as a result of government administration
offices relocating to the capital of Dodoma.

Total revenue increased by 3% to R1,5 billion. In South Africa, achieved room rates rose by less than inflation due to
increased competitor discounting.

On a normalised basis, total operating costs increased by 11,4%, but by 7,2% in South Africa where the majority of the
group's operations are located. The total normalised headline EBITDA margin decreased by six percentage points to 32%,
resulting in normalised headline EBITDA for the group decreasing to R489,5 million. Depreciation and amortisation
increased by 12%, while interest income was R1,8 million lower and interest expense was R1,2 million lower as a result of
borrowing costs being capitalised during construction activities.

Normalised headline profit before tax for the group decreased by 19,5% to R369,6 million, while normalised headline
earnings decreased by 19,3% to R267,1 million. Diluted normalised headline earnings per share decreased by 19,4% to 
613,4 cents.

In line with the group's established policy of paying out 60% of normalised earnings adjusted for unrealised foreign
exchange gains and losses, a gross final dividend of 137,0 cents per share has been declared, bringing the total dividend
for the year to 366,0 cents, which is a decrease of 19,4% on the previous year.

The group's application for an investment deduction allowance on the development of the City Lodge Hotel at Two Rivers
Mall in Nairobi awaits finalisation 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 repaid 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 repaid in three equal instalments between August 2019 and August 2021 , with a portion being
classified as current.

Development activity
South Africa
The first 76 rooms have opened at the 154-room Town Lodge Umhlanga, with the balance expected to be opened in early
September.

Construction of the 168-room Courtyard Hotel Waterfall City is progressing well with the first rooms on track for
opening in November 2020 and the balance becoming available at the beginning of 2021.
 
Southern Africa
The completion of the 148-room City Lodge Hotel Maputo has been delayed due to contractor-related delays and disputes.
Final timelines are uncertain at this stage.

With the opening of this hotel in due course, the group will have completed its initial targeted expansion into
Southern Africa and East Africa. It will then comprise 63 hotels with 8 070 rooms in six countries (South Africa, Botswana,
Namibia, Mozambique, Kenya and Tanzania). The focus now is on ensuring the success of the recently opened hotels through
effective sales and marketing campaigns and building brand preference in the markets where we operate.

Outlook
Given the current economic situation in South Africa, the weaker trend of the past year has extended into the new
financial year. New catalysts are needed to boost investment confidence and spur economic growth.

Against this backdrop, there are some encouraging signs, such as the notable efforts by the National Department of
Tourism to develop and grow this industry that is so important to the future of South Africa.

Our portfolio of hotels in South Africa, Southern Africa and East Africa is in excellent shape after ongoing
refurbishments and the addition of exciting new properties. Our entire operational team is highly motivated to deliver 
on our brand promise and grow market share in a depressed environment, ideally positioning the group to benefit from better
trading conditions as they arise.

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 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, except for the adoption of IFRS 9
Financial instruments and IFRS 15 Revenue from contracts with customers which have not had a significant impact on the
group.

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.

Impact of IFRS 16 Leases
The group anticipates a material change as a result of the adoption of IFRS 16 Leases in 2019 using the modified
retrospective approach. The material change relates to the capitalising of leased hotels onto the statement of financial
position in the form of a right of use asset, together with the corresponding lease liability. Changes to the statement of
comprehensive income will result in the current operating lease costs being replaced by an amortisation of the
right-of-use asset and calculated lease finance costs on the interest line. Other areas of the statutory metrics that will be
impacted by the adoption of the standard include EBITDA, earnings per share and normalised headline earnings. The majority
of the leases are long leases with additional renewal periods available. Additional disclosure will be provided in the
publication of our 2019 annual financial statements.

Review report of the independent auditor
These condensed consolidated financial statements for the year ended 30 June 2019 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's
report on the supplementary information is available for inspection at the issuer's registered office.

Declaration of dividend
The board has approved and declared final dividend number 61 of 137 cents per ordinary share (gross) in respect of the
year ended 30 June 2019.
 
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 137 cents per ordinary share for shareholders exempt from the Dividend Tax;
- The net local dividend amount is 109,6 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, 3 September 2019    
 Shares commence trading ex dividend        Wednesday, 4 September 2019    
 Record date                                   Friday, 6 September 2019    
 Payment of dividend                           Monday, 9 September 2019    

Share certificates may not be dematerialised or rematerialised between Wednesday, 4 September 2019 and Friday, 
6 September 2019, both days inclusive.

The JSE link to the announcement is https://senspdf.jse.co.za/documents/2019/jse/isse/CLH/ye2019.pdf.

For and on behalf of the board

Bulelani Ngcuka
Chairman

Andrew Widegger
Chief executive officer

14 August 2019


Administration

Registered office
The Lodge
Bryanston Gate Office Park
Corner Homestead Avenue and Main Road Bryanston, 2191

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

Date: 16/08/2019 07:10:00
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