| Thu 13 Aug 2009, 15:50 | | CLH - City Lodge Hotels Limited - Reviewed Group Preliminary Results For The |
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CLH
CLH
CLH - City Lodge Hotels Limited - Reviewed Group Preliminary Results For The
Year Ended 30 June 2009
CITY LODGE HOTELS LIMITED
Registration number 1986/002864/06
Share code: CLH
ISIN: ZAE 000117792
REVIEWED GROUP PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 2009
- Average occupancies 77%
- Normalised diluted HEPS +4%
- ROE 35%
Income statement
Year Year
ended Ended
30 June % 30 June
R000`s Note 2009 change 2008
Revenue 665 029 11 599 902
Administration and marketing costs (46 977) (46 002)
BEE transaction charges 1 (56 962) -
Operating costs excluding (251 320) (214 801)
depreciation
309 770 (9) 339 099
Depreciation (34 858) (26 934)
Operating profit 274 912 (12) 312 165
Interest income 11 486 14 592
Total interest expense (45 465) (1 338)
Interest expense (2 320) (1 338)
Notional interest on BEE shareholder 1 (1 778) -
loan
BEE preference dividend 1 (41 367) -
Share of profit from joint venture 8 952 8 527
Profit before taxation 249 885 (25) 333 946
Taxation (117 919) (108 299)
Profit for the period 131 966 (42) 225 647
Headline earnings reconciliation
Profit for the period 131 966 225 647
Profit on sale of equipment (215) (188)
Taxation effect 60 53
Headline earnings 131 811 (42) 225 512
Number of shares in issue (000`s) 42 744 42 602
Weighted average number of shares in
issue for EPS calculation (000`s) 2 36 257 42 519
Weighted average number of shares in
issue for diluted EPS calculation 2 36 592 42 965
(000`s)
Basic earnings per share (cents)
- fully diluted 360,6 (31) 525,2
- undiluted 364,0 (31) 530,7
Headline earnings per share (cents) 3
- fully diluted 360,2 (31) 524,9
- undiluted 363,5 (31) 530,4
Dividends declared per share (cents) 361,0 (3) 371,0
NOTES
1. Normalised headline earnings
reconciliation
Headline earnings 131 811 225,512
BEE transaction charges 56 962 -
- IFRS 2 share based payment charge 25 840 -
- Loss on fair value of interest 26 480 -
rate swap
- Sundry expenses 4 642 -
Notional interest charge on BEE 1 280 -
shareholder loan net of deferred tax
Preference dividends paid/payable by 41 367 -
the BEE entities
STC on accrued preference share 1 603 -
dividends
IFRS 2 share based payment charge 2 978 912
for the 10th anniversary employee
share trust
Normalised headline earnings 236 001 4 226 424
2. Number of shares (000`s)
Weighted average number of shares in 36 257 42 519
issue for EPS calculation
BEE shares treated as treasury 6 390 -
shares
Weighted average number of shares in 42 647 42 519
issue for normalised EPS calculation
Weighted average number of shares in 36 592 42 965
issue for diluted EPS calculation
BEE shares treated as treasury 6 390 -
shares
Weighted average number of shares in
issue for diluted normalised EPS 42 982 42 965
calculation
3. Normalised headline earnings per
share (cents)
- fully diluted 549,1 4 527,0
- undiluted 553,4 4 532,5
4. Dividend cover (times)
- as presented 1,0 1,4
- calculated on normalised headline 1,5 1,4
earnings
5. Effective tax rate (%)
- as presented 47,2 32,4
- calculated on normalised profit 33,0 32,3
before taxation
6. Interest bearing debt to total
capital and reserves (%)
- as presented 304,7 6,4
- calculated on a normalised basis 19,2 6,4
7. Return on equity (%)
- calculated on a normalised basis 34,7 38,9
8. Net asset value per share (cents)
- as presented 513 1 471
- calculated on a normalised basis 1 714 1 471
NOTE: Net asset value is calculated using the depreciated historical cost of
buildings and not the directors current estimated replacement cost of R2, 5
billion.
Reconciliation of movement in capital and reserves
Share
capital
and Treasury Other Retained
R000`s premium shares reserves earnings Total
Balance at 138 008 - 3 522 392 910 534 440
30 June 2007
Issue of new 2 426 2 426
ordinary shares
Profit for the 225 647 225 647
period
Recognised IAS 19 (1 455) (1 455)
gains and losses
Share 3 627 3 627
compensation
reserve
Dividends paid (138 158) (138 158)
Balance at 140 434 - 5 694 480 399 626 527
30 June 2008
Issue of new 2 713 2 713
ordinary shares
Profit for the 131 966 131 966
period
Recognised IAS 19 2 294 (2 294) -
gains and losses
transferred
Recognised IAS 19 (6 322) (6 322)
gains and losses
Share 8 820 8 820
compensation
reserve
BEE share-based 25 840 25 840
payment reserve
BEE treasury (486 051) (486 051)
shares
Equity component 26 941 26 941
of BEE
shareholder`s
loan
Dividends paid (143 884) (143 884)
Distribution by (32) (32)
BEE SPV
Balance at 143 147 (486 051) 69 589 459 833 186 518
30 June 2009
Balance sheet
30 June 30 June
R000`s 2009 2008
ASSETS
Non-current assets 815 238 695 142
Property, plant and equipment 765 897 647 159
Investments 33 654 34 148
Loan receivable 12 689 10 894
Deferred taxation 2 998 2 941
Current assets 155 539 83 391
Inventory 1 773 1 625
Trade receivables 32 654 25 472
Other receivables 103 754 5 437
Cash and cash equivalents 17 358 50 857
Total assets 970 777 778 533
EQUITY AND LIABILITIES
Capital and reserves 186 518 626 527
Share capital and premium 143 147 140 434
BEE treasury shares (486 051) -
Retained earnings 459 833 480 399
Other reserves 69 589 5 694
Non-current liabilities 681 095 104 256
Interest-bearing borrowings 100 000 40 000
BEE preference shares 428 300 -
BEE shareholder`s loan 14 360 -
BEE B preference share dividend accrual 23 906 -
Fair value of BEE interest rate swap 26 480 -
Other non-current liabilities 15 621 6 710
Deferred taxation 72 428 57 546
Current liabilities 103 164 47 750
Interest-bearing borrowings 40 000 -
Trade and other payables 53 339 45 763
Taxation 9 825 1 987
Total equity and liabilities 970 777 778 533
NOTE: The company`s portion of capital commitments amounts to R525 million which
will be funded from operating cash flows and additional borrowings which have
been secured. The total authorised commitment is R917 million of which R150
million has been contracted. Of the total, R544 million is in respect of
building leases of which R195 million will be funded by City Lodge during
construction and refunded by the landlord on completion and R197 million will be
funded directly by the landlord.
Cash flow statement
Year Year
ended ended
30 June 30 June
R000`s 2009 2008
Cash generated by operations 344 343 364 114
Net interest (paid)/received (5 518) 11 714
Taxation paid (103 274) (111 251)
Dividends paid (143 884) (138 158)
Cash inflow from operating activities 91 667 126 419
Cash utilised in investing activities (245 780) (157 380)
- investment to maintain operations (80 200) (21 568)
- investment to expand operations (73 181) (134 620)
- expenditure refundable on operating leases (91 098) -
- investments and loans (1 301) (1 192)
Cash flows from financing activities 120 614 2 426
- proceeds from issue of ordinary shares 2 713 2 426
- increase in long term borrowings 100 000 -
- issue of BEE preference shares 440 700 -
- redemption of BEE preference shares (12 400) -
- B preference share dividend capitalised 23 906 -
- BEE shareholder`s loan 12 582 -
- notional interest on BEE shareholder`s 1 778 -
loan
- distribution by BEE SPV (32) -
- equity component of BEE shareholder`s loan 37 418 -
- BEE treasury shares (486 051) -
Net cash decrease (33 499) (28 535)
Statement of recognised gains and losses
Year Year
ended ended
30 June 30 June
R000`s 2009 2008
Actuarial loss and section 58 limit on (8 781) (2 004)
defined benefit plan
Deferred taxation thereon 2 459 561
Deferred taxation - rate change - (12)
Net loss recognised directly in equity (6 322) (1 455)
Profit for the period 131 966 225 647
Total recognised gains and losses for the 125 644 224 192
period
COMMENTARY
Against the backdrop of a weak economy, the group is pleased to announce a 77%
average occupancy level for the year to 30 June 2009, five percentage points
lower than the record annual occupancy of 82% achieved in the previous financial
year.
In addition to the difficult trading conditions, the second half of the year was
adversely affected by the number of public holidays in April, particularly by
the additional mid-week holiday for the general election.
Despite the lower occupancies, the number of rooms sold increased marginally,
due to additional capacity being available relative to the prior year. This,
together with higher achieved room rates, led to turnover increasing by 11% to
R665, 0 million.
On a normalised basis (excluding the effects of the BEE transaction as described
below), the EBITDA margin decreased by 1,1 percentage points to 55,6%, mainly
due to the lower occupancies and significant increases in municipal services
expenses. Normalised EBITDA rose by 9% to R369, 7 million.
As a result of the additional capacity and the significantly higher capital
expenditure, depreciation increased by 29,4%. Interest income was R3, 1 million
lower whilst non-BEE interest expense was R982 000 higher.
Despite lower occupancies, the group`s share of profit from the Courtyard Joint
Venture increased by 5,0% to R9, 0 million.
Profit before tax on a normalised basis increased by 5,4% to R353, 0 million
while normalised headline earnings increased by 4,2% to R236, 0 million and
normalised headline earnings per share, on a fully diluted basis, also rose by
4,2% to 549,1 cents.
Given the extensive development program, the board has resolved to drop the
payout ratio for the final dividend from 70% to 60% of normalised net profit.
The result is a full year dividend per share of 361,0 cents (2008 - 371,0
cents).
OUTLOOK
The group currently has nine new hotels and one extension to an existing hotel
in various stages of development, all of which will be completed by the end of
calendar 2010.
The 125-room Road Lodge Umhlanga Ridge will open its first rooms in mid-August
and be fully operational by the end of September. City Lodge Fourways (211
rooms) is on track to open its first rooms in December and be fully operational
in the first quarter of 2010. City Lodge OR Tambo Airport (303 rooms) is
scheduled to open the first of its rooms towards the end of the first quarter of
2010 and the remaining rooms in time for the 2010 FIFA Soccer World Cup.
In Pretoria, City Lodge Lynnwood (205 rooms) is expected to be 75% operational
by mid-June 2010 while City Lodge Hatfield (187 rooms) is likely to open in the
third quarter of 2010.
Following the favourable settlement of a legal dispute, construction has begun
on Town Lodge Port Elizabeth (203 rooms), completion of which is expected in the
fourth quarter of 2010.
Construction will commence shortly on Road Lodge Port Elizabeth Airport (90
rooms) and Road Lodge Bloemfontein Airport (66 rooms), both of which are
scheduled for completion in the second quarter of 2010.
Final approvals are imminent regarding Road Lodge Southgate (118 rooms) and Town
Lodge Grayston Drive, where 70 rooms are to be added to the existing hotel. It
is anticipated that both projects will be completed by mid-June 2010.
An additional site has been secured for the development of a Town Lodge in
Umhlanga Ridge (187 rooms). The approval process is underway and it is envisaged
that construction will commence by October 2009 for completion towards the end
of calendar 2010. Further sites have been secured with a view to providing
future development opportunities.
On completion of the abovementioned developments the group will have increased
the number of hotels from 43 to 53 hotels across its four brands offering 6 629
rooms, an increase of 36%.
The group has secured long term debt facilities of R400 million to facilitate
the funding of the above new developments. As at 30 June 2009, R100 million had
been utilised.
The group is well positioned and prepared for the 2010 FIFA Soccer World Cup. It
is important to note however, that only half of the event will take place within
the 2010 financial year.
There are some signs of improving demand but trading conditions are expected to
remain soft in the near term. Occupancies are not expected to normalise until
the 2011 financial year, which will also benefit from half of the World Cup, an
anticipated recovery in local and global economies and contributions from the
new hotels being added to the group`s portfolio.
ACCOUNTING FOR THE BEE TRANSACTION
The scheme of arrangement in respect of the BEE transaction was implemented on
28 July 2008. In terms of the scheme, the Injabulo Staff Trust (Staff Trust)
acquired 6% of the then issued share capital, Vuwa Investments (Pty) Limited
(Vuwa) 6% and the University of Johannesburg School of Tourism and Hospitality
Education Trust (Education Trust) 3%.
The total scheme consideration of R490, 7 million was funded by the issuing of
preference shares, which have been guaranteed by City Lodge, in the amount of
R440, 7 million and an equity contribution of R50 million by Vuwa.
At the time of implementation, an interest rate swap agreement was entered into
whereby the rate was fixed for the period of the outstanding debt.
As a result of the residual risk in the transaction being borne by City Lodge,
the three Special Purpose Vehicles (SPV`s) are deemed to be controlled by City
Lodge and they are therefore consolidated for accounting purposes.
The accounting effects of the transactions are as follows:
- The terms of the funding are deemed to constitute an option and in the case of
Vuwa and the Education Trust there is an upfront, once off IFRS2 expense of R25,
84 million which is reflected in Note 1 as part of the BEE Transaction Charges
and in the Balance Sheet under Other Reserves.
- On consolidation, the preference share funding is reflected in the Balance
Sheet as part of Non-Current Liabilities as BEE Preference Shares whilst the
preference dividends paid/accrued are included with the Interest Expense under
BEE Preference Dividend.
- Utilising the proceeds from the payment of the City Lodge final dividend in
September 2008 and interim dividend in March 2009, the SPV`s declared a
preference dividend of R31, 9 million of which R13, 6 million in respect of the
A Preference shares was paid and R18, 3 million in respect of the B Preference
shares was accrued and added to the Balance Sheet as part of the BEE Preference
Share liability. In addition, A Preference shares to the value of R12, 4 million
were redeemed.
- An amount of R27, 8 million was accrued in respect of the preference dividends
payable as at 30 June 2009. Of this R3, 9 million is in respect of the A`s which
is payable in October 2009 and is included in Current Liabilities. The balance
of R23, 9 million is in respect of the B`s and has been added to the BEE
Preference Share liability as it is payable beyond one year`s time.
- In terms of the interest rate swap, the interest rate was fixed at a rate
slightly below the average rate payable in respect of the Preference shares
during the period. The result was a net settlement of R33 000 due to the SPV`s
as at 30 June 2009 in respect of the period under review. This is credited to
the BEE Preference Dividend expense.
- In terms of IAS 39, the interest rate swap is required to be carried at fair
value and marked up or down to market value through the Income Statement at each
period end. The market value as at 30 June 2009 was determined and resulted in a
loss of R26, 5 million. This is reflected as part of the BEE Transaction Charges
in Note 1 and as a liability in the Balance Sheet under Non-Current Liabilities.
- In terms of IAS 39, the shareholder`s loan by Vuwa to the SPV is required to
be written down to its present value at the time it was advanced because it is
interest free. The written down amount is reflected under Non-Current
Liabilities as BEE Shareholder`s Loan, whilst the balance, after providing for
deferred tax at 28% is included in Other Reserves. At each period end a notional
interest charge, net of deferred tax, will be expensed through the Income
Statement and the value of the loan in the Balance Sheet increased by the
corresponding amount. The net notional interest charge for the current period is
R1 280 000 and is reflected in Note 1.
- The investment in 6 390 365 City Lodge ordinary shares by the SPV`s is treated
as treasury shares and reflected as a deduction from Capital and Reserves. In
addition, they are deducted from the weighted average number of shares in issue
when calculating earnings per share.
- The dividends received by the SPV`s on the City Lodge shares held by them are
deducted from the dividends paid by City Lodge on consolidation.
- The majority of the sundry expenses reflected in Note 1 as part of the BEE
transaction charges relate to the stamp duties, legal fees, bank and other
charges incurred as part of negotiating and arranging the transaction.
BASIS OF PREPARATION
These condensed annual financial statements have been prepared in accordance
with the recognition and measurement requirements of International Financial
Reporting Standards (IFRS) and have been prepared in accordance with the
presentation and disclosure requirements of IAS 34 Interim Financial Reporting.
The accounting policies used are consistent with those used in the annual
financial statements for the year ended 30 June 2009.
AUDIT REVIEW
The group`s auditors KPMG Inc. have reviewed the preliminary results for the
year ended 30 June 2009. A copy of the unmodified review report is available for
inspection at the company`s registered office.
DECLARATION OF DIVIDEND
Notice is hereby given that ordinary dividend number 41 of 158,0 cents per share
(2008 - 194,0 cents) for the year ended 30 June 2009 has been declared.
Shareholders are advised that the last day to trade cum dividend will be Friday,
11 September 2009. The shares will trade ex dividend as from Monday, 14
September 2009 and the record date will be Friday, 18 September 2009. The
dividend is payable on Monday, 21 September 2009.
Share certificates may not be dematerialised or rematerialised between Monday,
14 September 2009 and Friday, 18 September 2009, both days inclusive.
For and on behalf of the board
Hans R Enderle Clifford Ross
Chairman Chief executive
13 August 2009
Registered office: "The Lodge", Bryanston Gate Office Park, corner Homestead
Avenue and Main Road, Bryanston
Transfer secretaries: Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
Directors: HR Enderle (Chairman), C Ross (Chief executive)*, FWJ Kilbourn, IN
Matthews, N Medupe, SG Morris, BT Ngcuka, Dr KIM Shongwe, AC Widegger*
*Executive
Company secretary: MC van Heerden
www.citylodge.co.za
Sponsor:
J.P. Morgan Equities Limited
Date: 13/08/2009 15:50:01 Produced by the JSE SENS Department.
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