Key risks and opportunities

The Covid-19 pandemic led to travel restrictions, border closures, business suspension and closures, quarantines, isolation, and social distancing measures. These factors significantly reduced global travel and consumer demand for hotels.

Uncertainty prevails around Covid-19’s continued impact on revenue generation. The third wave of infections in South Africa, our main market, led to stricter lockdown measures being reinstated in 2021.

In addition, the group needs to ensure that it prepares for and adapts to the new normal in terms of how hotels operate. These include increased guest technology expectations, the importance of hygiene and social distancing, how hotel public spaces will be used, and an increased emphasis on sustainability.

• Implementing crisis management plans and survival strategies
• Enforcing and monitoring strict and disciplined Covid-19 protocols to mitigate the risk of employees, guests and other key stakeholders contracting the virus
• Continuing to update operating requirements as the Covid-19 levels change
• Closing and reopening hotels based on demand
• Repackaging our hotel services to make them safe and attractive in the post-Covid-19 era
• Evaluating every hotel’s performance, both before and during the pandemic, and proactively implementing turnaround strategies where necessary.

Almost without exception, our local and international markets were subject to travel restrictions as governments attempted to curb the spread of Covid-19. Countries like South Africa closed their borders and at times limited domestic travel. Some of our key international markets listed South Africa as a Covid-19 hotspot, bringing travel from those countries to a near-standstill.

Following the steep decline in travel and tourism, many hotels and smaller accommodation providers exited the market. Those who remain are competing to retain or gain market share, but they may stand to benefit once demand returns. Although CLHG is proving resilient in the face of the pandemic, we are subject to funding and liquidity restraints.

• Encouraging and capitalising on domestic travel
• Contributing to and participating in TBSCA initiatives and lobbying for governments to open international travel to the region
• Building internal capabilities and capacity to capitalise on returning travel demand, while maintaining business resilience and strictly managing working capital
• Phased reopening of hotels to actively manage the oversupply of hotel stock in the market
• Launching new offerings aimed at attracting the local market

Current trading conditions hamper revenue generation and profitability, an arduous journey that limits the group’s ability to invest in its properties. Failure to manage funding constraints may impact commercial performance, lead to financial loss and undermine stakeholder confidence.

• Focusing on improving operational and resource efficiencies
• Concluding a rights issue (R1.2 billion) to strengthen the group’s liquidity position
• Implementation of a cost containment programme which included salary reductions, freeze on discretionary capital expenditure, reduced maintenance programme and other operational cost reduction measures
• Continuous communication with the group’s funders, robust management of our covenants, and negotiating additional facilities as required
• Aligning our appetite for disposals and/or acquisitions to the performance of our existing portfolio, which is monitored by the board.

Economic volatility impacts business confidence, with a knock-on effect on business travel, while also affecting discretionary expenditure on leisure travel. In the wake of Covid-19, almost all our markets saw a decline in GDP. Increased unemployment is likely to affect us in the near and medium term.

Many African countries are subject to geo-political volatility, which not only hurts local business confidence but also dissuades international investors and travellers. The riots seen in South Africa during July 2021 are one example of a major event that causes international uncertainty.

• Hosting attractive marketing campaigns, including the WKND special and WOZA Friday
• Exploring alternative revenue products, such as #YourPrivateOffice
• Enhancing the food and beverage offering, giving guests more reason to stay in the hotel as opposed to dining out.

International competitors may have access to greater commercial, financial and marketing resources and more efficient technology platforms than CLHG. They could potentially expand and improve their presence in our geographies, thereby adversely affect our ability to maintain or increase our market share and/or occupancy rates.

• Expanding our weekend and leisure market share through attractive promotional offers
• Investing in quality properties, ensuring that we have a diversified portfolio across geographic locations and hotel gradings
• Investigating and identifying refurbishment projects across our portfolio
• Improving our customer experience and engagement.
• Utilising more online travel agents (OTAs) to reach non-traditional markets
• Make use of social media to reach non-traditional domestic market segments

In South Africa, transformation is a critical issue. CLHG’s transformation initiatives are not just about compliance – it is a moral and business imperative to help root out racial inequality.

Our 2020 rating maintained a Level 4 B-BBEE rating, the indirect share repurchase and debt settlement that formed part of the rights offer process resulted in the unwinding of our previous B-BBEE structure and the loss of some equity ownership.

• Strategising around B-BBEE and exploring ways of regaining our equity ownership, including optimising the share register credentials
• Creating new programmes to provide employment opportunities and training for youth.

Several new market entrants led to an oversupply in the market, especially in high-density areas. We are currently operating in an exceptionally low occupancy environment that is shifting the competition towards pricing and promotions. Coupled with the discounting already prevalent throughout the hospitality industry, pricing cuts exert downward pressure on the group’s revenue and profitability.

• Shifting from fixed room rates to a BAR philosophy
• Introducing an AI function to improve demand prediction and inform pricing strategy
• Working with tourism forums to find solutions and ways to attract international markets.

Data is a valuable asset for CLHG, providing insight into customer behaviour so that the business can provide a more customised, competitive service to our clients. Data breaches could lead to system unavailability, business disruption and reputational damage.

Over the last year, there was a significant rise in ransomware attacks across all industries. Remote working due to lockdown has increased the risk of cyber threats.

• Complying with the POPI Act, which came into effect on 1 July 2021
• Evaluating and refining our cyber infrastructure and security protocols, especially in light of the remote office trend
• Ensuring that we have adequate insurance.

We face increasingly complex compliance requirements, as well as policy uncertainty, including the possibility of land expropriation. At the same time, the cost of compliance is increasing while share prices are low.

Any breach of compliance with legislation, regulations, best practice, industry standards and licensing requirements could result in fines or sanctions that affect our profitability and may have adverse reputational consequences.

• Supporting the principles of sound corporate governance and continuously reviewing covenants
• Maintaining effective compliance controls throughout the organisation
• Monitoring government’s plans fortransformation
• Providing our management team and employees with regular training on amendments to legislation and policy.

Poor service delivery, limited infrastructure investment and funding challenges hamstrung South African municipalities’ capacity to supply water and electricity to ratepayers. Inconsistent water supply and unreliable electricity provision affect hotel operations and guest relations.

Shareholder returns are also impaired by additional rates and property taxes increases in conjunction with above-inflation growth in the cost of water and electricity.

• Reducing our dependency on the national energy grid with solar installations at 25 of our hotels
• Installing backup diesel generators at our hotels
• Investigating alternative water and energy supply options
• Maintaining sustainable energy management programmes at each hotel that focus on operational and technical efficiencies
• Using borehole water for property maintenance at some of our South African hotels
• Encouraging guests to help reduce water consumption, without minimising the guest experience.