Wrap Text
Unaudited interim report for the six months ended 31 December 2019
City Lodge Hotels Limited
Registration number: 1986/002864/06
Share code: CLH
ISIN: ZAE 000117792
Unaudited interim report for the six months ended 31 December 2019
Statements of comprehensive income
(Audited)
Six months Six months Year
ended ended ended
31 December % 31 December 30 June
R000 Note 2019 change 2018 2019
Revenue 809 251 0,2 807 414 1 547 984
Other income 2 891 - 4 475
Administration and marketing costs (55 761) (56 478) (106 432)
BEE transaction charges 2 (229) (132) (352)
Impairment loss on trade and other receivables (979) - (2 198)
Operating costs excluding depreciation 7 (470 470) (461 319) (961 422)
284 703 (2) 289 485 482 055
Depreciation and amortisation (64 189) (57 951) (117 471)
Depreciation - leases 7 (48 629)
Results from operating activities 171 885 (26) 231 534 364 584
Interest income 1 786 959 2 233
Total interest expense (97 436) (29 197) (59 842)
Interest expense (15 627) (1 189) (4 650)
Interest expense - leases 7 (53 942)
BEE interest expense 2 (2 135) (2 247) (4 187)
BEE preference dividend 2 (25 732) (25 761) (51 005)
Profit before taxation 76 235 (63) 203 296 306 975
Taxation (29 957) (64 713) (101 519)
Profit for the period 46 278 (67) 138 583 205 456
Other comprehensive income
Items that are or may be reclassified to profit or loss
Foreign currency translation differences 5 575 12 262 (2 397)
Total comprehensive income for the period 51 853 (66) 150 845 203 059
Basic earnings per share (cents)
- undiluted 126,4 (67) 378,9 562,0
- fully diluted 126,4 (67) 378,2 560,7
Statements of financial position
R000 (Audited)
As at As at Year ended
31 December 31 December 30 June
2019 2018 2019
ASSETS
Non-current assets 4 027 567 2 551 753 2 722 355
Property, plant and equipment 2 673 048 2 468 922 2 630 411
Right-of use-assets 1 261 397
Intangible assets and goodwill 52 215 52 560 55 358
Investments 800 800 800
Other investments 6 624 13 599 13 073
Deferred taxation 33 483 15 872 22 713
Current assets 310 729 324 873 303 373
Inventories 7 340 7 621 7 978
Trade receivables 84 850 101 873 77 369
Other receivables 149 056 161 132 128 468
Taxation 19 077 3 450 11 935
Other investments 6 540 6 799 6 577
Cash and cash equivalents 43 866 43 998 71 046
Total assets 4 338 296 2 876 626 3 025 728
EQUITY
Capital and reserves 1 107 520 1 136 806 1 106 701
Share capital and premium 179 503 179 503 179 503
BEE investment and incentive scheme shares (514 381) (518 014) (518 014)
Retained earnings 1 301 709 1 327 788 1 307 529
Other reserves 140 689 147 529 137 683
LIABILITIES
Non-current liabilities 3 012 846 1 557 211 1 701 435
Interest-bearing borrowings 660 000 530 000 660 000
BEE interest-bearing borrowings 44 120 44 120 44 120
BEE preference shares 353 000 362 800 355 000
BEE shareholder loan 50 000 50 000 50 000
BEE B preference share dividend accrual 337 220 294 679 315 604
Lease liabilities 1 357 614
Other non-current liabilities - 83 362 78 899
Deferred taxation 210 892 192 250 197 812
Current liabilities 217 930 182 609 217 592
Trade and other payables 173 006 169 972 217 592
Lease liabilities 20 303
Bank overdraft 24 621 12 637 -
Total liabilities 3 230 776 1 739 820 1 919 027
Total equity and liabilities 4 338 296 2 876 626 3 025 728
Note: The company has authorised capital commitments of R225 million of which approximately R59 million
has been contracted. It is anticipated that approximately R110 million of the authorised commitments
will be spent by 30 June 2020.
Statements of changes in equity
Share capital Treasury Other Retained
R000 and premium shares reserves earnings Total
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
Total comprehensive income for the period - - (14 659) 66 873 52 214
Profit for the period 66 873 66 873
Other comprehensive income
Foreign currency translation differences (14 659) (14 659)
Transactions with owners, recorded directly in equity - - 4 813 (87 132) (82 319)
Incentive scheme shares (11 944) (3 001) (14 945)
Share compensation reserve 16 757 16 757
Dividends paid (84 131) (84 131)
Balance at 30 June 2019 179 503 (518 014) 137 683 1 307 529 1 106 701
Total comprehensive income for the period - - 5 575 46 278 51 853
Profit for the period 46 278 46 278
Other comprehensive income
Foreign currency translation differences 5 575 5 575
Transactions with owners, recorded directly in equity - 3 633 (2 569) (52 098) (51 034)
Incentive scheme shares (2 940) 4 004 1 064
Share compensation reserve 6 573 (6 573) -
Dividends paid (52 098) (52 098)
Balance at 31 December 2019 179 503 (514 381) 140 689 1 301 709 1 107 520
Summarised statements of cash flows
(Audited)
Six months Six months Year
ended ended ended
31 December 31 December 30 June
R000 2019 2018 2019
Operating profit before working capital changes 299 892 271 065 461 479
(Increase)/decrease in working capital (67 989) (38 845) 31 288
Cash generated by operations 231 903 232 220 492 767
Interest received 1 786 959 2 233
Interest paid (41 322) (28 289) (64 774)
Interest paid - leases (53 942)
Taxation paid (33 770) (46 605) (95 101)
Dividends paid (52 098) (75 969) (160 100)
Cash inflow from operating activities 52 557 82 316 175 025
Cash utilised in investing activities (93 997) (197 460) (371 965)
- investment to maintain operations (46 795) (17 817) (71 785)
- investment to expand operations (47 202) (179 043) (335 346)
- expenditure refundable on operating lease - - 35 554
- purchase of investment - (600) (600)
- proceeds on disposal of property, plant and equipment - - 212
Cash inflows from financing activities (17 053) 73 670 195 019
- repayment of lease liability (12 113)
- purchase of incentive scheme shares (2 940) (1 530) (2 381)
- increase in interest-bearing borrowings - 80 000 210 000
- redemption of BEE preference shares (2 000) (4 800) (12 600)
Net decrease in cash and cash equivalents (58 493) (41 474) (1 921)
Cash and cash equivalents at beginning of the period 71 046 53 093 53 093
Reclassification of other investments to cash and cash equivalents 6 577 20 398 20 398
Effect of movements in exchange rates on other investments (91) (1 178) (430)
Effect of movements in exchange rates on cash held 206 522 (94)
Cash and cash equivalents at end of the period 19 245 31 361 71 046
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 2019 2018 2019 2018 2019 2018 2019 2018
Revenue 35 592 34 023 414 777 419 597 123 687 118 199 157 278 163 428
EBITDAR 8 511 10 418 213 583 227 843 46 271 50 819 74 671 83 987
Land and hotel building rental
EDITDA
Depreciation and amortisation (1 735) (2 044) (10 906) (12 529) (4 598) (3 660) (5 688) (5 219)
Depreciation - leases
Results from operating activities
Segment report
Central office and
Primary segment rest of Africa Total
R000 2019 2018 2019 2018
Revenue 77 917 72 167 809 251 807 414
EBITDAR (54 301) (26 473) 288 735 346 594
Land and hotel building rental (4 032) (57 109) (4 032) (57 109)
EDITDA 284 703 289 485
Depreciation and amortisation (41 262) (34 499) (64 189) (57 951)
Depreciation - leases (48 629) (48 629)
Results from operating activities 171 885 231 534
Geographic information South Africa Rest of Africa Total
R000 2019 2018 2019 2018 2019 2018
Revenue 731 334 735 247 77 917 72 167 809 251 807 414
Non-current assets - property, plant and equipment 1 457 604 1 360 567 1 215 444 1 108 355 2 673 048 2 468 922
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 2019 change 2018 2019
1. Headline earnings reconciliation
Profit for the period 46 278 138 583 205 456
Profit on sale of property, plant and equipment - - (170)
Taxation effect - - 48
Headline earnings 46 278 (67) 138 583 205 334
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 36 599 36 575 36 556
Weighted average number of shares in issue for
diluted EPS calculation (000's) 3 36 619 36 645 36 642
Headline earnings per share (cents) 4
- undiluted 126,4 (67) 378,9 561,7
- fully diluted 126,4 (67) 378,2 560,4
2. Normalised headline earnings reconciliation
Headline earnings 46 278 138 583 205 334
BEE transaction charges 229 132 352
BEE interest on interest-bearing borrowings 2 135 2 247 4 187
Preference dividends paid/payable by the BEE entities 25 732 25 761 51 005
10th anniversary employee share trust transaction
charges and DWT (244) (265) (43)
IFRS 2 share-based payment charge for the 10th anniversary
employee share trust 1 475 2 091 4 148
Reversal of impairment of other investment in Chase
Bank Kenya (net of tax) - (9 403) (9 403)
Pre-opening expenses write-off (net of tax) 4 834 4 178 11 487
Normalised headline earnings 80 439 (51) 163 324 267 067
3. Number of shares (000's)
Weighted average number of shares in issue for EPS calculation 36 599 36 575 36 556
BEE shares treated as treasury shares 6 390 6 390 6 390
10th anniversary employee share trust treated as
treasury shares 507 507 506
Weighted average number of shares in issue for normalised
EPS calculation 43 496 43 472 43 452
Weighted average number of shares in issue for diluted
EPS calculation 36 619 36 645 36 642
BEE shares treated as treasury shares 6 390 6 390 6 390
10th anniversary employee share trust treated as treasury
shares 507 507 506
Weighted average number of shares in issue for diluted
normalised EPS calculation 43 516 43 542 43 538
4. Normalised headline earnings per share (cents)*
- undiluted 184,9 (51) 375,7 614,6
- fully diluted 184,8 (51) 375,1 613,4
- fully diluted excluding IFRS 16 254,4 (32) 375,1 613,4
5. Dividend declared per share (cents) 153,0 (33) 229,0 366,0
6. Dividend cover (times)
- calculated on normalised headline earnings excluding IFRS 16 1,7 1,6 1,7
7. Effect of IFRS 16 Leases on normalised headline earnings
Normalised headline earnings 80 439
Net effect on adoption of IFRS 16 (69,6 cents) 30 269
Lease expense previously included in operating cost (60 576)
Depreciation - leases 48 629
Interest expense - leases 53 942
Taxation effect (11 726)
Normalised headline earnings excluding IFRS 16 110 708 (32) 163 324 267 067
8. Interest-bearing debt (excluding lease liabilities) to equity (%)
- calculated on a normalised basis 33,4 33,7 33,9
9. Return on average equity (%)
- calculated on a normalised basis 9,4 17,2 14,0
10. Net asset value per share (cents)
- calculated on a normalised basis 4 530 4 495 4 471
* Normalised headline earnings and equity are 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 2019 declined to 54% from 58% in the previous
interim period.
Occupancies in South Africa, where the group has the majority of its hotels, were also four percentage points lower,
declining to 57% from 61% in a challenging operating environment impacted by persistent low levels of economic growth
and business and consumer confidence. Despite all of the group's rest of African hotels - apart from the Fairview Hotel
in Nairobi - showing improved occupancies on the previous corresponding period, they continue to perform below
expectations.
Total revenue increased by 0,2% to R809,3 million with a decrease in revenue in South Africa being partially offset by
increased revenue in the other African countries. Room rate increases in South Africa were below inflation as a result
of increased capacity, competitor discounting and pressure on business and consumer travel budgets.
Due to the implementation of IFRS 16 Leases, reported operating costs increased by only 2%. Excluding the effects of
IFRS 16 normalised operating costs increased by 10,9% and the EBITDA margin decreased by six percentage points to 28,8%.
Operating costs in South Africa were contained to an increase of 5,7% resulting in an EBITDA margin of 31,9% and EBITDA
of R233,3 million, excluding the new Town Lodge Umhlanga, this increase was 3,7%.
Depreciation and amortisation on owned assets increased by 11% while a depreciation charge for right-of-use assets of
R48,6 million was raised for the first time. Interest income increased by R800 000 and the interest expense rose by
R14,4 million to R15,6 million as a result of lower borrowing costs being capitalised as the construction of new hotels
came to an end. An interest expense - leases of R53,9 million has now been raised in relation to the lease liabilities.
Normalised profit before tax for the group declined by 50% to R112,8 million while normalised headline earnings declined
by 51% to R80,4 million. Excluding the effects of IFRS 16, normalised headline earnings of R110,7 million were 32% lower
than the prior period. On the same basis, in South Africa, the normalised headline earnings at R132,6 million were down
by 14%.
Fully diluted normalised headline earnings per share ("HEPS") decreased by 51% to 184,8 cents. Excluding the effects
of IFRS 16, fully diluted normalised HEPS decreased by 32% to 254,4 cents. In line with the group's policy of paying out
60% of normalised headline earnings, adjusted for unrealised foreign exchange gains and losses and the effects of IFRS 16,
a gross interim dividend of 153 cents has been declared, 33% lower than in the previous year.
During the period, the group extended the maturity of the R450 million interest-bearing borrowings due for repayment by the
end of 2020 to the end of 2022, at an improved interest rate.
The group's application to the Kenyan authorities for an investment deduction allowance for City Lodge Hotel at Two
Rivers Mall in Nairobi was approved during the period at 100% of the approved building costs. This allowance will be
utilised against the taxable income of the Kenyan subsidiary.
In August 2019, and in line with the Kenyan Central Bank's announcement, the first of three equal instalments of cash
deposits previously held with Chase Bank Kenya (in receivership) were released to the company. The cash received was
reclassified to cash and cash equivalents. The remaining 25% of deposits remain as other investments, and will be
released in two further equal instalments in August 2020 and August 2021.
Development activity
South Africa
The 154-room Town Lodge Umhlanga became fully operational in October 2019, introducing an exciting new look and feel
for the Town Lodge brand for the discerning business and leisure travel market.
Construction of the 168-room Courtyard Hotel Waterfall City is progressing well and it is anticipated that the first
rooms will open in November 2020 and the balance in early 2021.
The roll-out of solar power generation capabilities at 25 of the group's hotels was completed during the period. These
systems will generate sufficient energy to supply approximately 30% of the individual hotel's energy demands, and will
lower the group's overall energy consumption from non-renewable sources by approximately 10%, further reducing its
overall carbon footprint.
Southern Africa
The 148-room City Lodge Hotel Maputo opened its first rooms in the second week of February with the balance scheduled to
become available by the end of March 2020. This will bring to an end the current phase of the group's targeted expansion
strategy in Southern and East Africa.
On completion of Courtyard Hotel Waterfall City, the group will offer 8 070 rooms at 63 hotels.
Directorate
Following the resignation of Alastair Dooley as chief financial officer (announced on 30 October, 2019), the group
welcomes Dhanisha Nathoo as chief financial officer and member of the board and risk committee with effect from
9 March 2020.
Outlook
The first seven weeks of the second half of the financial year have seen some better trends, with occupancies running
at similar levels to the prior year.
New catalysts are needed to improve the underperforming South African economy. It is hoped that the forthcoming National
Budget announcement, along with efforts to restructure Eskom and other state-owned enterprises, will help to revive the
economy.
The group is encouraged by some new government initiatives such as the e-Visa system being piloted with Kenya and the
long awaited scrapping of the requirement for unabridged birth certificates for foreign minors. These are both measures
that can assist the growth of inbound tourism to South Africa, yet on the other hand, the threat of the coronavirus may
have a negative impact on global travel.
The group's portfolio of hotels is in excellent shape to benefit from economic growth and improved business and
consumer confidence levels, as and when they occur.
Basis of preparation
These condensed consolidated interim financial statements are prepared in accordance with International Financial
Reporting Standards, 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 16 Leases.
The adoption of IFRS 16 was applied, using the modified retrospective approach, without restating comparative figures.
No adjustments were made to opening retained earnings. On transition, the straight-lining accrued liability was off-set
against the right-of-use asset. No other pronouncements had any material impact on the group.
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 A W Dooley CA(SA), in his
capacity as chief financial officer.
Implementation of IFRS 16 Leases
The group has changed its accounting policy following the adoption of IFRS 16 Leases in the preparation of these
interim results. Refer to note 7 of the supplementary information for further information on the effect on the
statement of comprehensive income.
IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both
parties to a contract, i.e. the customer ("lessee") and the supplier ("lessor"). IFRS 16 replaces the previous lease
standard, IAS 17, and related interpretations.
Under IAS 17, the group accounted for operating leases by charging lease payments to profit or loss on a straight-line
basis over the initial period of the lease. The group had no finance leases at 1 July 2019.
IFRS 16 has one model for lessees which results in leases previously classified as operating leases and recorded
off-balance sheet being capitalised on the balance sheet, requiring a right-of-use asset and a lease liability to be
recognised. At 1 July 2019, the group raised a right-of-use asset of R1,3 billion, and a lease liability of R1,4 billion.
Lease liabilities are measured at the present value of remaining lease payments discounted at the incremental borrowing
rate at the date of initial application. The group's respective weighted average incremental borrowing rate applied to
these lease liabilities on 1 July 2019 was 9,125%. The group has elected to measure right-of-use assets on transition
date at their carrying amounts as if IFRS 16 had applied since the lease commencement dates, discounted using the
incremental borrowing rate as at the date of initial application.
As part of the modified retrospective approach, the group has elected to apply the practical expedient which allows a
single discount rate to be applied to a portfolio of leases with reasonably similar characteristics. The group has
applied the recognition exemptions for short-term leases (leases which have a lease term of 12 months or less) and
leases of low-value items.
Pro forma financial information
The supplementary information, 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 and has not been reviewed or reported on by the
group's auditors.
Declaration of dividend
The board has approved and declared interim dividend number 62 of 153,0 cents per ordinary share (gross) in respect of
the six months ended 31 December 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 153,0 cents per ordinary share for shareholders exempt from the Dividend Tax;
- The net local dividend amount is 122,4 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, 10 March 2020
Shares commence trading ex dividend Wednesday, 11 March 2020
Record date Friday, 13 March 2020
Payment of dividend Monday, 16 March 2020
Share certificates may not be dematerialised or rematerialised between Wednesday, 11 March 2020 and Friday,
13 March 2020, both days inclusive.
The JSE link to the announcement is https://senspdf.jse.co.za/documents/2020/jse/isse/CLH/ie2019.pdf.
For and on behalf of the board
Bulelani Ngcuka Andrew Widegger
Chairman Chief executive officer
19 February 2020
Registered office: The Lodge, Bryanston Gate Office Park, corner Homestead Avenue and Main Road, Bryanston, 2191
Transfer secretaries: Computershare Investor Services Proprietary Limited, Rosebank Towers, 15 Biermann Avenue,
Rosebank, 2196
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*
+Kenyan *Executive
Company secretary: M C van Heerden
Sponsor: Nedbank Corporate and Investment Banking
20 February 2020
www.clhg.com
Date: 20-02-2020 10:49:00
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