CITY LODGE HOTEL GROUP

WHAT we do

The City Lodge Hotel Group is a multi-brand chain offering a variety of locations, features and budget choices to business and leisure travellers.

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CHAIRMAN and CHIEF EXECUTIVE'S review


  • Profitable and cash generative
  • Good return on equity

Dear stakeholder

While there is not a specific theme running through this year's Integrated Report, there is an underlying emphasis on the consistency of service delivery and our overall business model that has been a hallmark since the group's inception in 1985.

In times of economic weakness and low business and consumer confidence, our focus on always being consistent in whatever we do has certainly proven its value for all our stakeholders – our business, our guests, our suppliers, our staff and our shareholders.

Despite encountering a variety of strong headwinds in a difficult year for many business sectors, our group demonstrated the resilience and suitability of our chosen business model, as well as the strength of our highly regarded brands to remain highly profitable, strongly cash generative and growth focused.

Measuring and marketing our consistency has brought important benefits and fine-tuned our group's ability to concentrate on the things that help to distinguish our operations in an increasingly competitive environment.

Ongoing engagement with guests is an important part of this process. This has seen our footprint grow across various social media channels. From a sales point of view, our group's presence at various local, regional and international exhibitions, workshops and roadshows has maintained a strong profile for our brands in critical travel markets.

By constantly listening to guest feedback, monitoring international trends and consistently focusing on what's most important to our core market, our hotels continue to receive certificates of excellence from TripAdvisor and awards from online booking agencies such as Hotels.com and Expedia. This is useful reassurance that our operations are on the right track and that our brands are effectively meeting the discerning needs of business and leisure travellers.

As a highly committed, responsible and involved corporate citizen, it is pleasing to note the growing contributions that our group is making towards corporate social investment, supplier development, skills development, thereby complementing and reinforcing the broader impact of our operations in the societies where we operate and making a difference.

Consistently growing our presence in Southern Africa and Eastern Africa

After several years of carefully targeting a selective Southern African and Eastern African expansion strategy, our group is on the threshold of adding significant scale to existing operations in South Africa, Botswana and Kenya.

By the third quarter of 2018, our hotel footprint outside of South Africa will rise to seven, offering 929 rooms to travellers in five different countries – Botswana, Kenya, Mozambique, Namibia and Tanzania.

The 147-room Town Lodge Windhoek, Namibia, is making good progress and is expected to open in September 2017. This will become the group's third Town Lodge outside of South Africa and the 13th in the group.

Construction of the 148-room City Lodge Hotel Maputo, Mozambique, is well under way and the hotel is expected to open late in the second quarter or early in the third quarter of 2018.

Development of the 172-room City Lodge Hotel Two Rivers in Nairobi, Kenya, is nearing completion with the hotel expected to open in October 2017. The 147-room City Lodge Hotel Dar es Salaam, Tanzania, is progressing well and is expected to open in the first quarter of 2018.

In South Africa, lease and development agreements have been signed to extend the City Lodge Hotel OR Tambo Airport by 62 rooms to 365 rooms. Construction has commenced and the new rooms are expected to open in the first quarter of 2018. Plans are well advanced for the possible development of a 158-room Town Lodge in Umhlanga and a 90-room Road Lodge in Polokwane.

The group focuses on the long term and is confident that the country's political and economic issues will be resolved, enabling further development opportunities to be considered as and when they arise.

The group continues to assess other opportunities in Southern Africa and Eastern Africa.

Financial highlights

Average occupancies at the group's operations decreased by three percentage points to 63% in the year, 30 June 2017.

In South Africa, the drop in occupancy was similar and was a direct result of the continued deterioration in business and consumer confidence, ongoing political uncertainty and negligible economic growth. Coastal hotels fared slightly better than inland hotels, benefiting from inbound tourism. Weekend occupancies were particularly soft.

Occupancies in Botswana mirrored the overall downward trend in South Africa, with that country's economy closely linked to South Africa's. After showing an increase in the first six months, Kenyan occupancies weakened in the last three months of the year in the lead-up to the country's 8 August elections. Occupancies should improve now that the elections are over.

Total revenue grew by 1,8% to R1,52 billion. This was assisted by an inflationary increase in room rates. Total operating costs, on a normalised basis, increased by 5,0% resulting in a 1,2% decrease in the normalised EBITDA margin to 40,6%. Total normalised EBITDA decreased by 1,3% to 616,7 million. Depreciation and amortisation rose by 6,6%, interest income was R2,0 million higher and interest expense was R1,8 million lower than in the previous year.

Cash deposits of R48,4 million held by Chase Bank Kenya, which was placed into receivership in April 2016, were reclassified to other investments in the prior financial year. Given the length of time which has elapsed and the uncertainty regarding timing and extent of access once full banking operations are resumed, it was deemed prudent to impair the carrying value by 50%, resulting in an after tax charge to the income statement of R16,8 million. This has been reversed in the calculation of normalised earnings.

Normalised headline profit before tax for the group decreased by 2,1% to R501,3 million, while normalised headline earnings decreased by 3,1% to R362,2 million. Normalised diluted headline earnings per share were down by 3,1% to 833,6 cents. A final dividend of 228 cents per share was declared, taking the distribution for the year to 500 cents per share.

The funding associated with the group's BEE transaction, which was concluded in 2008, is due for redemption and/or repayment on 31 December 2017. As a result the associated liabilities on the balance sheet, which are well covered by the value of the underlying shares, have been reclassified from non-current to current.

Continuing to drive technology as a business enabler

Information technology continues to play an integral role in our group's service delivery at existing operations and in the ongoing development of new hotels in different countries. The group's expansion into new African territories has been a focal area for the group IT function, to ensure consistency in our guest experience while also providing systems that are reliable and consistent for our hotel operations.

Investment made into building our own systems – specifically the Lodgix property management system – has once again proved of great benefit in our expansion journey. As each territory has its own specific requirements – including regulations within the tourism industry or the country's revenue authority – we have been successful in developing these requirements within our existing systems. The IT infrastructure and data centre at our Kenyan operations has been upgraded to provide further capacity for the additional operations in the Eastern African region and to introduce upgraded technologies similar to those used in our South African operations. Importantly, the IT team in Kenya has been working closely with the South African IT team during this process, and have been upskilled in the various technologies required to deliver our services consistently.

Our successful Bid2Stay auction platform, used as an additional online channel for selling of excess inventory, has been successfully upgraded to provide a brand new experience with additional benefits beyond the reduced room rate offered through the system. The system is also integrated with our CLHG Rewards programme, allowing for the added potential for our guests to earn valuable rewards points as well as options such as complimentary breakfasts or drinks at the bar.

Significantly, our group had also developed additional direct connections with the larger external booking channels as well as through our own systems, enabling a further cost reduction in the making of reservations. Another vital development has been the increased focus on cyber security and resilience. This is a hugely important consideration for all organisations, especially for groups such as ours which are expanding their geographic footprint across national borders. User awareness and internal/external assessments are frequently carried out to confirm that our information security policies and actions align with global best practices and regulations.

As our group continues its targeted African expansion programme, the group IT function will support this growth and will constantly be working on new initiatives that will further enhance the guest experience and introduce greater efficiencies across our operations.

Growing our people and protecting the environment

Growing our group is not possible without growing our people. The past year was again an excellent year of growth for our people throughout the organisation. It is very pleasing to report that no fewer than 19 of our hotel general managers wrote and passed the Certified Hotel Administrator Programme. The City and Guilds programme continues to be an important part of our management training and growing numbers of our staff members are constantly involved in various programmes focused on accommodation services, hospitality operations and food and beverage proficiency.

Learnerships have also become important, enabling us to partner with organisations such as the South African Disability Development Trust to provide a number of disabled learners with valuable opportunities. More broadly in the learnership environment, it is encouraging to note that over the past two years, all of the Front Office learnerships we have offered have seen the candidates being employed by the group at the end of their programme or within six months of completing their programme.

As a group that is highly involved in staff improvement at all levels, it is also pleasing to report that we are continuing to assist several staff members to obtain their Grade 12 qualifications, providing them with a springboard for further career development. Many other staff members throughout the group have enrolled in a range of administration, executive development and university courses.

Our group has made great strides in improving energy efficiency and environmental friendliness over the past few years. A solar power pilot project was begun at our Road Lodge Centurion in February 2017 and is being evaluated for its effectiveness. If the project proves successful, installations will be considered for additional hotels. A grey water recycling pilot project is being evaluated at our Road Lodge Pietermaritzburg. This could also be rolled out to other hotels if it proves to be successful. Across the group, we continue to assess ways to reduce the amount of waste our hotels send to landfill sites.

OUTLOOK

Trading conditions and therefore occupancies have remained under pressure in the first two months of the new financial year without a much-needed trigger to re-ignite business and consumer confidence. It is hoped that a catalyst will soon emerge to improve sentiment and provide fresh economic growth impetus that will stimulate both business and leisure travel.

THANKS

Our thanks go to all the special stakeholders who have enabled our group to achieve more than 32 years of meeting the discerning needs of business and leisure travellers in South Africa and increasingly in other selected African countries. These stakeholders include our guests, staff, management, directors, shareholders and service providers, all of whom have played an integral part in the group's ongoing growth and success.