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.

+

OUR material issues and strategic priorities

In determining our material issues — those that have the greatest potential impact on our success — City Lodge is informed by a range of internal and external factors, as well as the concerns raised by our stakeholders.

The group follows a process to assess the input gathered and identify those issues that are of the greatest strategic importance to us. In particular, we gather information through internal and external engagement processes using these key sources:

1

THE EXTERNAL ENVIRONMENT

We are informed by trends in the external environment, which are discussed as a regular item at the company’s executive committee and board meetings. These include economic and industry trends, shifts in the competitive landscape and stakeholder concerns.

2

THE REGULATORY ENVIRONMENT AND INDEPENDENT BODIES

We consider the regulatory environment, assessing the materiality and impact of various regulations and legislation – both existing and those being developed – on the company. This includes legislation affecting our engagement with our workforce, the treatment of customers, marketplace behaviour, governance and environmental responsibility. We also participate in forums with governing bodies responsible for the development of legislation.

3

STAKEHOLDER ENGAGEMENT

Engaging with our stakeholders and understanding their concerns is critical to helping our company identify its most material issues. Information gathered as part of our various stakeholder engagement processes feeds directly into decision-making and drives our business strategy.

4

IDENTIFYING OUR MATERIAL ISSUES

Following an internal workshop, inputs gathered from these key sources were assessed, summarised and recorded into an enterprise risk management toolkit. Each item was assessed in terms of severity and likelihood of impact, with an assessment of the item’s inherent risk exposure, the risk mitigation strategies and an evaluation of the residual risk exposure. This process ultimately resulted in a ranking of our business risks, which are encompassed in our material issues which were presented to the board for its approval for inclusion in this IR. Since 2016, there has been some movement in the assessment of one of the material issues as a result of shifting operating conditions, which is presented in the adjacent graph. The issues identified were mapped according to their materiality as shown. As the final step in the process, this information was fed directly into the articulation of our current business strategy.

MATERIAL ISSUES HEAT MAP

MATERIAL ISSUES HEAT MAP
Strategic risk profile 2017
Issues included in this area of the grid have only a minor impact on the company and are thus not reported on.
Issues included in this area have a relatively moderate impact on our company. All issues shown in this area are discussed partially in this report.
Issues included in this area are of high significance and impact for both stakeholders and the company. All issues shown in this area are discussed fully in this report.
Issue numbers (refer pages 18 to 21).

 

MATERIAL ISSUES     DESCRIPTION   MITIGATING STRATEGY   STRATEGIC PRIORITIES/FOCUS   OVERVIEW   OUTCOME   KPI
1. Industry trends – over-supply
    Continuous increases in capacity and the low utilisation thereof result in a subdued short-term outlook for the hospitality industry. In the large centres, growth in the shared economy has also introduced additional capacity.  
  • Active management which informs decisions on pricing and capacity.
  • Tracking and analysing industry trends and data.
 
To consolidate our position within South Africa.
  Through continued focus on quality of service and product, we aim to maintain our position as a leading provider of quality selected services hotel accommodation to our guests.  
  • Increased occupancy.
  • Maintained/increased average daily rates.
  • Increased focus on cost base.
  • Managed debt levels.
  • Consistently high standard of product and service.
 
  • Occupancy %
  • Average daily rate (“ADR”)
  • EBITDA margin
  • Brand perception score
  • Guest satisfaction survey %
  • Return on equity (“RoE”)
2. Industry trends – travel patterns
    Shifting travel patterns as a result of budgetary constraints, flight availability and enhanced technology have seen a decrease in overnight travel and reservation lead times are typically short.  
  • Active management which informs decisions on pricing and capacity.
  • Tracking and analysing industry trends and data.
               
3. Industry trends – yield management
    Our ability to manage our own inventory and pricing strategy could impact our market share as travellers shop around for the best available deal.  
  • Active management which informs decisions on pricing and capacity.
  • Tracking and analysing industry trends and data.
               
4. B-BBEE deal funding and compliance
    In the short term, the terms of the B-BBEE funding deal contain specific covenants to be complied with, along with minimum redemption levels, which are solely dependent on dividend flows from the group.  
  • Continuous engagement with banks regarding performance and terms of funding.
               
5. Exposure to South African macro-economic environment
    As a result of the bulk of our operations being concentrated within the borders of South Africa, we are directly affected by the spending habits of the South African business traveller and consumer, influenced for example by a rising cost of living, the political landscape and low business confidence and economic growth.  
  • Geographic spread of portfolio and active brand management.
  • Exploring non-South African opportunities.
  • Maintain a price/value advantage.
               
6. Safeguarding our assets
    High levels of crime occurring in and around our hotels.  
  • Awareness in this regard is addressed through participation in industry security and local policing forums.
  • 24-hour on premises security at all sites.
               
7. Failure to provide required service levels
    Inability to meet the diverse needs of travellers.  
  • Extensive in-house training for all employees.
               
8. Changing labour environment
    The current environment around collective bargaining by unions and the establishment of new unions may change current processes and the implementation of stringent penalties for missed employment equity targets.  
  • Regular engagement with labour unions and service providers.
  • Compliance function to monitor changing legislative requirements.
  • EE plans developed at individual hotel level.
               
MATERIAL ISSUES     DESCRIPTION   MITIGATING STRATEGY   STRATEGIC PRIORITIES/FOCUS   OVERVIEW   OUTCOME   KPI
9. Limitation on availability of funding for future projects and the cost thereof
    In order for City Lodge to expand its footprint both locally and internationally in future, access to funding may be limited due to current macro-economic circumstances, however, some additional borrowing capacity may be created following the settlement of the BEE debt funding. The cost and terms at which such funding is granted may affect the group’s ability to expand and grow.  
  • Continuous engagement with bank regarding facilities available.
  • Consideration of alternative sources of funding.
 
To expand our footprint beyond South Africa’s borders.
  By obtaining a detailed understanding of our continent, we will be able to introduce the same quality product our guests have grown to love to other African countries.  
  • Detailed feasibility studies into foreign markets.
  • Established footprint in new markets.
 
  • Number of hotels beyond South African borders.
10. Exposure to emerging markets – macro factors
    City Lodge’s strategy to expand beyond the borders of South Africa could be affected by various risks prevalent in these countries, including political and regulatory uncertainty, transparency around land ownership, threat of terrorism, corruption and the timeframe to obtain operating licences.  
  • Clear guidelines and expectations, direct in-depth investigation and feasibility studies on countries and specific locations by dedicated resources.
  • On-site visits.
               
11. Exposure to emerging markets – operational challenges
    There are a host of operational challenges involved in expanding beyond South African borders, eg availability of electricity, operating supplies, potable water and sewerage treatment.  
  • Extensive evaluation conducted by external specialists.
  • On-site visits.
               
MATERIAL ISSUES     DESCRIPTION   MITIGATING STRATEGY   STRATEGIC PRIORITIES/FOCUS   OVERVIEW   OUTCOME   KPI
12. B-BBEE
    Compliance to legislative requirements and the achievement of revised targets, particularly in light of the settlement of the BEE loan funding.  
  • Regular monitoring and forecasting of BEE targets.
 
To continue to transform the group in line with the B-BBEE Codes of Good Practice.
  By remaining committed to the principles contained in the Codes of Good Practice, the group will transform itself, thereby ensuring its long-term sustainability.  
  • Increased ownership in the hands of black South Africans.
  • Increased representation at all levels in the group.
  • Improved level of skills and experience.
  • Development and support of sustainable supply chain.
  • Positive influence on local communities.
 
  • B-BBEE rating
  • Various HR targets
MATERIAL ISSUES     DESCRIPTION   MITIGATING STRATEGY   STRATEGIC PRIORITIES/FOCUS   OVERVIEW   OUTCOME   KPI
13. Environmental sustainability
    Development, implementation and maintenance of sustainable environmentally friendly business practices.  
  • Regular monitoring and decision-making by the environmental sustainability steering committee.
 
To be a leader within the hospitality sector in environmentally sustainable business practices.
  By clearly understanding the impact our business has on the environment, we are able to change the way we operate, and in so doing have a positive influence on our planet and its sustainability over the short, medium and long term.  
  • Increased awareness of environment issues.
  • Understanding of the group’s impact on the environment.
  • Reduced energy and water consumption.
  • Minimisation and recycling of waste.
 
  • CO2 footprint
  • Recognised sustainability certification
  • Consumption per room sold
MATERIAL ISSUES     DESCRIPTION   MITIGATING STRATEGY   STRATEGIC PRIORITIES/FOCUS   OVERVIEW   OUTCOME   KPI
14. Reliance on IT infrastructure
    As a result of the wide distribution of our hotels throughout sub-Saharan Africa, we have an established IT infrastructure in order to support our operations. Our hotels are reliant on this infrastructure daily in order to perform optimally and securely.  
  • Continuous upgrading and maintenance of IT infrastructure.
  • Implementation of a detailed disaster recovery plan.
  • Making use of third-party hosting facilities.
  • Regular reviews and updates to IT security infrastructure.
 
To maintain and implement an innovative technology platform.
  By remaining aware of current trends and introducing innovative IT services to enhance our guests’ experiences and drive efficiency.  
  • Increased innovation.
  • Enhanced guest satisfaction.
  • Streamlined processes.
  • Secure data and infrastructure.
 
  • Results from reviews and testing.
  • Guest satisfaction survey %.
15. Changing needs of the business traveller
    Technological advancements result in changing guest expectations, which place additional reliance on the IT infrastructure and require the group to be innovative in its offering and refurbishments.  
  • Dedicated resources engage internally to assess and implement new projects.
               
MATERIAL ISSUES     DESCRIPTION   MITIGATING STRATEGY   STRATEGIC PRIORITIES/FOCUS   OVERVIEW   OUTCOME   KPI
16. Perception of brand and service offerings
    City Lodge has been offering a consistently good product since its inception. As a result of the new capacity created in the industry, consumers are spoilt for choice and may perceive the brand unfavourably given its relative age and due to a lack of understanding thereof. Further, the direction of the marketing campaigns may influence consumer perceptions.  
  • A targeted marketing strategy to educate guests about the various brand offerings.
  • Regular market research is conducted to understand the views and needs of travellers, which informs future decision-making.
  • Engaging external specialist branding and marketing consultants and keeping up with current consumer trends.
 
To continue embedding our refreshed brands, and realise growing benefits from a channel marketing strategy.
  The refreshed brand identity will continue to result in a shift in the level of awareness and perception of our brands among current and future guests, demonstrating how the experience of our product has kept up with market trends.  
  • Improved level of awareness of the group’s brands.
  • Increased level of differentiation of the group’s offering.
  • Improved digital and social media presence.
  • Increased occupancy.
 
  • Level of brand awareness
  • Digital presence
  • Occupancy %
17. Fair remuneration philosophy
    There is a global trend towards evaluating income disparity within an organisation and benchmarking these to similar industry participants. Further, the introduction of a pay-for-performance culture aligns employee interests with those of shareholders.  
  • Extensive evaluation conducted by external specialists.
  • Monitoring and implementation of remuneration philosophy is a function of the remuneration committee.
               
18. Legislative changes and compliance with laws and regulations
    Compliance with new and changing legislation.  
  • Continuous monitoring of legislative changes affecting the industry and providing commentary when requested to do so.
  • Dedicated legal and compliance function.