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Material issues

Our material matters are reflected in our key risks and opportunities. These represent both sides of issues that have the most impact on our ability to create sustainable value for our stakeholders. These issues change over time as new trends and developments shape the macro environment while our stakeholders' needs evolve.

During the period under review, the executive management team considered all matters that affect the group or may affect our ability to continue creating value. Having analysed the intricacies of the group's operating environment and our stakeholders' expectations, within the context of our vision and mission, the executive management team identified the material matters described below. These prioritised matters remain top of mind in all management decision-making processes.

NAVIGATING COVID-19

The hospitality industry was hit hard by Covid-19, with severe restrictions placed on travel and entertainment. Although the restrictions waxed and waned in line with infection rates, the fear instilled by, and the hype created through social media saw prospective travellers remaining cautious and delaying leisure travel. Disposable income also declined substantially following wide-scale retrenchments. Subdued business travel also had a negative impact on occupancy rates.

The group saw a steady improvement in occupancies following the initial lockdown period, when almost all hotels were temporarily closed. However, it's been a turbulent year as occupancies rose and declined with changing lockdown regulations. CLHG responded by opening or temporarily closing hotels as appropriate:

Occupancies based on total room inventory, and includes open and closed hotels.

2019/2020
1 WHO declares the novel coronavirus outbreak a public health emergency of international concern.
2 Lockdown restrictions commenced in South Africa: 27 March 2020.

2020/2021
3 Second wave of infection in South Africa: December 2020.
4 Third wave of infection in South Africa: June 2021.

While the pandemic prevails, CLHG must continuously adapt to the challenges and uncertainties of prolonged lockdown measures and the impact of reduced travel confidence.

How have we responded
Stringent health and safety protocols

We are familiar with the impact on our operations of changing regulatory requirements and staff can make the necessary adjustments swiftly to ensure guest safety. CLHG has stringent, multi-disciplinary measures in place to keep the front- and back-of-house clean and safe, including:

  • A Covid-19 rapid response team constantly monitoring the operating environment and keeping abreast of all pandemic-related developments
  • Health screenings for both guests and staff entering our hotels
  • Social distancing signage and enforcement of best practices by hotel management
  • Specialised deep cleaning programmes
  • Strict room cleaning policies to eliminate cross-contamination between rooms
  • Individually packaged food service to ensure guests receive a tasty meal with limited risk
  • Linen and towels washed on the hottest wash cycle to kill any potential viral matter
  • Personal protection equipment, such as face masks, gloves and aprons are worn by staff at all appropriate times. Guests wear face masks in public areas at all times
  • Ongoing training to keep our staff informed and well-versed in best practices
  • Periodic independent Covid-19 risk assessment audits by Food Consulting Services (FCS)
  • Accreditation by the World Travel and Tourism Council (WTTC) Safe Travels and the Tourism Business Council of South Africa (TBCSA)
  • A summary of our Covid-19 protocols is provided on our website.

We mastered the art and science of delivering tip-top, loving and clean hospitality during a pandemic. Our guests can be reassured that they can continue to stay safely at our hotels.

Low touch, high care approach

We capitalised on the slow-down to innovate the guest experience in preparation for a 'new normal'. This includes the introduction of a 'low touch, high care' approach to guest interactions. We offer a more streamlined, minimal contact check-in process while minimising the need to touch menus, pay points and other ancillary items.

We introduced creative meal offerings to provide comfort and safety, whether guests enjoy their meal in their rooms or communal spaces.

The introduction of WhatsApp Business has made it possible for the reception at all our hotels to be contactable via guest mobile devices, using our state-of-the-art WiFi facilities.

As lockdown restrictions eased, we reopened our restaurants on a socially distanced basis. We have used QR code technology to reduce the printed material in our rooms and restaurants. Guest services directories, restaurant menus, screening questionnaires are now all online, and accessible via a QR code.

Managing operating costs and occupancy rates

CLHG's revenues were substantially impacted when almost all our hotels in South Africa and across the continent were forced to temporarily suspend services as a result of the pandemic.

In response, we implemented several proactive cost containment measures to improve resilience during this period of operational weakness. These include freezing all uncommitted capital expenditure, culling variable costs, and reducing fixed costs.

As our hotels reopen, we are balancing travel demand and optimal room rates by offering flexible pricing based on AI predictive demand analysis and predictive models. Hotels are reopened based on demand assessed through guest enquiries, reservations on our booking platforms, or through sales team projections. We earmarked specific hotels in key locations where larger numbers of business travellers may reasonably be expected.

FINANCIAL STRENGTH AND ENDURANCE

The journey to profitability is ongoing and remains our biggest target and challenge. We are optimistic about the prospect of breaking even on a cash basis after interest and rent, but pre capex, based on monthly performance by the end of 2021.

The restricted operational and economic environment arising from the Covid-19 pandemic has severely impacted the group's revenue. CLHG must maintain an appropriate capital structure that ensures the business survives through challenging economic cycles, while providing room to improve the quality of our existing properties or acquire well-located, value-enhancing hotels as these opportunities arise. The group assessed and implemented various liquidity and capital measures to help ensure that its business can withstand the prolonged industry recovery period.

How we are responding
Rights offer

During the year City Lodge successfully raised gross proceeds of R1.2 billion through a fully subscribed rights offer. The net proceeds of the rights offer were used to repay a portion of amounts owing under its secured facilities and settlement of the company's guarantee of the B-BBEE special purpose vehicles (SPVs) interest-bearing borrowings, preference shares and accrued interest and dividends totalling R770.9 million, as at 14 December 2020. The remaining funds are being used to improve liquidity and support the working capital requirements of the group during the Covid-19 pandemic.

Loan facilities

The group's lenders have been very supportive during the ongoing operational challenges, the prolonged pandemic and the resurgent waves of infections. At financial year-end, the group had drawn R650 million of the R800 million total loan facilities available. The group also has access to an overdraft facility of R115 million and a waiver of the original debt covenants for each measurement period, up to September 2022, was secured. We maintain a productive dialogue with our funders and banks to ensure that the group has sufficient access to loan facilities.

Disposal of East African operations

CLHG is selling its stakes in three hotels in Kenya, as well as its City Lodge Hotel Dar es Salaam in Tanzania, to subsidiaries of the UK-based investment firm Actis Africa Real Estate 3 LP.

CLHG's 100% shareholding in Fairview Hotel Limited in Kenya will be disposed of for an aggregate consideration of R140.9 million. The disposal of 100% shareholding in CLHG Tanzania Limited in Tanzania will be disposed of for an aggregate consideration of R1 million and shareholder loan of R318.2 million will be repaid. The disposals are subject to the fulfilment of customary conditions precedent, including approvals or consent from competition or anti-trust authorities to the extent legally required, within 22 weeks from the date of signature, or such later date as may be agreed.

The East Africa operations have made significant losses for the year, including recognising net impairments losses of R345 million. The recovery time for the tourism and hospitality industries in these countries is expected to be longer than southern Africa, due to the major reliance on the North American and European source markets. In addition to the much needed liquidity from the receipt of proceeds, the sale will also shorten the route to profitability, as the group will not need to fund these operations while they continue to make losses.

ENSURING RESILIENCE INTO THE FUTURE

As we navigate this challenging time, our priority is to protect the longevity and sustainability of the business. While we anticipate a slow recovery of the hospitality sector, we are encouraged by how vaccination rollout programmes across the world are gaining momentum. These actions are expected to lead to improved travel confidence and to boost the recovery of the sector.

With demand gradually recovering, we expect high competition for both guests and room rates. CLHG must evolve, adjust, and reprioritise for greater efficiency and profit in an industry in flux. Hotels that fail to adapt may not survive, even when travel volumes approach pre-Covid-19 levels.

How we are responding
Boosting non-room revenue: Food and beverage

We are a trusted brand that has always offered a great breakfast. We are now expanding our food and beverage offering, with lunch and dinner evolving into important offerings in the City Lodge Hotel and Courtyard Hotel brands experience. While we do not serve dinners at Town Lodges, we have developed a new light bar snacks menu and we are developing an 'Eat-In' food concept. The group also launched an 'Eat-In' pizza offering at all CLHG brands. Guests can also enjoy meals delivered from a selection of trusted third-party suppliers, without leaving the safety of the hotel.

We will continue growing our food and beverage revenue as an adjacent income stream to room revenue. City Lodge Hotels' signature #Cafe restaurants have grown overall revenue significantly.

We have introduced food and beverage promotions to attract customers through special day events, such as Mother's Day, Father's Day, Valentine's Day and Heritage Day, as well as partnering with food and beverage brands to enhance the experience. These promotions often draw leisure guests who consequently choose our hotels when travelling for business.

Technology upgrades

Covid-19 has unquestionably accelerated the infusion of new technologies and applications into hotel operations. Tech features that might have been introduced as novelties or extra conveniences are becoming necessities in an era where some people are wary of even stepping outside their doors. As we move into the 'new normal' and hotels reopen for business, the expectation for customer experience is higher than ever. One of the biggest highlights for the year was the launch of our AI predictive demand analysis tool to assist general managers to understand demand trends and aid in determining the best available room rates for guests.

A second highlight was the introduction of our self-check-in functionality on our mobile app and website. This allows the guest to do contactless check-in. Covid-19 screening and temperature checks are also processed digitally, while QR codes provide guests with digital access to our restaurant menus and other service-related information.

Part of the CLHG 4.0 journey, aiming to maximise the benefits to be drawn from the Fourth Industrial Revolution, was streamlining our internal processes. With many of our administrative employees working remotely, this presented an opportunity to give our systems an overhaul, especially in terms of digitising processes that were previously paper-based.

Focus on environmental credentials

As our customers become more environmentally aware and climate change is recognised as a pressing concern, our environmental sustainability becomes increasingly important.

As our customers become more environmentally aware and climate change is recognised as a pressing concern, our environmental sustainability becomes increasingly important.

Courtyard Hotel Waterfall City is CLHG's first green star hotel. It received a Green Star 4-star Custom Design certified rating from the Green Building Council South Africa shortly before opening.

We aim to be more transparent by displaying our electricity and water consumption numbers to guests. We are developing the methodology for this and, should it be successful, we will roll it out to all our hotels.

Guests remain pleased with our new amenities range that is free from single-use plastic and the new hydration stations offering free, magnesium-enriched filtered water.

People caring for people – guest feedback

TOWN LODGE

Town Lodge Bellville
“I have been here before and I must say both times the staff and management were very friendly, helpful and polite. The best staff ever :-) Everything was wonderful and I enjoyed my stay. Will definitely be back there again :-)”
~ Ashleen

“Excellent service, and Covid-19 protocols! Hotel is in a fantastic condition! The attention to details is superb! Congratulations to the Hotel Manager [Liezel Vernon] and her friendly staff!”
~ Sharon

Town Lodge George
“Just a quick message to say that I had my first stay at this Town Lodge. I was very impressed with their service (especially Mr Heinrich). Staff were very friendly and very helpful; they will see me again. With service like that, I am proud to call myself a South African. Please share my message with them. Well done.”
~ Anonymous

Town Lodge Umhlanga
“I just wanted to say thank you so much for my stay at Town Lodge Umhlanga. I understand why my clients like staying there. Very nice hotel and very good service, clean and friendly staff.”
~ Jenna De Agrela, Panda Travel