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CLH
CLH
CLH - City Lodge Hotels - Unaudited Interim Report For The Six Months Ended
31 December 2009
CITY LODGE HOTELS LIMITED
Registration number 1986/002864/06
Share code: CLH
ISIN: ZAE000117792
UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2009
- AVERAGE OCCUPANCIES 70%
- NORMALISED DILUTED HEADLINE EPS -14%
- RETURN ON EQUITY 31%
INCOME STATEMENT
(Audited)
Six months Six months Year
R 000`s ended ended ended
31 December % 31 December 30 June
2009 change 2008 2009
Revenue 339 047 (1) 342 013 665 029
Administration and (24 479) (23 228) (46 977)
marketing costs
BEE transaction Note 1 (4 333) (64 468) (56 962)
charges
Operating costs (142 185) (129 989) (251 320)
excluding
depreciation
168 050 35 124 328 309 770
Depreciation (21 285) (16 931) (34 858)
Operating profit 146 765 37 107 397 274 912
Interest income 3 544 7 547 11 486
Total interest (25 249) (22 656) (45 465)
expense
Interest expense (698) (1 932) (2 320)
Notional interest (1 031) (824) (1 778)
on BEE shareholder
loan
BEE preference Note 1 (23 520) (19 900) (41 367)
dividend
Share of profit 2 679 4 408 8 952
from joint venture
Profit before 127 739 32 96 696 249 885
taxation
Taxation (52 037) (59 735) (117 919)
Profit for the 75 702 105 36 961 131 966
period
Headline earnings
reconciliation
Net profit 75 702 36 961 131 966
Loss on sale of - - (215)
equipment
Taxation effect - - 60
Headline earnings 75 702 36 961 131 811
Number of shares in 42 786 42 645 42 744
issue (000`s)
Weighted average
number of shares in
issue for EPS Note 2 36 373 36 233 36 257
calculation (000`s)
Weighted average
number of shares in
issue for diluted Note 2 36 727 36 660 36 592
EPS calculation
(000`s)
Basic earnings per
share (cents)
- diluted 206,1 104 100,8 360,6
- undiluted 208,1 104 102,0 364,0
Headline earnings Note 3
per share (cents)
- diluted 206,1 104 100,8 360,2
- undiluted 208,1 104 102,0 363,5
Dividend declared 150,0 (26) 203,0 361,0
per share (cents)
NOTES:
1. NORMALISED HEADLINE EARNINGS
RECONCILIATION
Headline earnings 75 702 36 961 131 811
BEE transaction charges 4 333 64 468 56 962
- IFRS 2 share based payment charge - 25 840 25 840
- Loss on fair value of interest 4 186 34 092 26 480
rate swap
- Sundry expenses 147 4 536 4 642
Notional interest charge on BEE
shareholder loan
net of deferred tax 742 593 1 280
Preference dividends paid/payable by
the BEE entities 23 520 19 900 41 367
STC on accrued preference share 726 - 1 603
dividends
IFRS 2 share based payment charge
for
the 10th anniversary employee share 1 081 1 489 2 978
trust
Normalised headline earnings 106 104 (14) 123 411 236 001
2. Number of shares (000`s)
Weighted average number of shares in
issue for EPS calculation 36 373 36 233 36 257
BEE shares treated as treasury 6 390 6 390 6 390
shares
Weighted average number of shares in
issue for normalised EPS calculation 42 763 42 623 42 647
Weighted average number of shares in
issue for diluted EPS calculation 36 727 36 660 36 592
BEE shares treated as treasury 6 390 6 390 6 390
shares
Weighted average number of shares in
issue for diluted normalised EPS 43 117 43 050 42 982
calculation
3. Normalised headline earnings per
share (cents)
- undiluted 248,1 (14) 289,5 553,4
- diluted 246,1 (14) 286,7 549,1
4. Dividend cover (times)
- calculated on reported headline 1,4 0,5 1,0
earnings
- calculated on normalised headline 1,6 1,4 1,5
earnings
5. Effective tax rate (%)
- as presented 40,7 61,8 47,2
- calculated on normalised profit 32,6 32,6 33,0
before taxation
6. Interest bearing debt to total
capital and reserves (%)
- as presented 331,2 302,7 283,2
- calculated on a normalised basis 36,4 6,0 19,2
7. Return on equity (%)
-calculated on a normalised basis 31,0 38,7 35,7
8. Net asset value per share (cents)
- as presented 491 385 436
- calculated on a normalised basis 1 726 1 572 1 628
Note: Net asset value is calculated using the depreciated historical cost of
buildings and not the current estimated replacement cost of R2.7 billion
BALANCE SHEET
(Audited)
R000`s 31 December 31 December 30 June
2009 2008 2009
ASSETS
Non-current assets 957 692 758 557 815 238
Property, plant and equipment 907 587 709 978 765 897
Investments 33 407 33 853 33 654
Loan receivable 13 694 11 757 12 689
Deferred taxation 3 004 2 969 2 998
Current assets 174 343 59 570 155 539
Inventory 2,210 1 832 1 773
Trade receivables 31 829 22 941 32 654
Other receivables 140 304 8 313 103 754
Cash and cash equivalents - 26 484 17 358
Total assets 1 132 035 818 127 970 777
EQUITY
Capital and reserves 210 235 164 346 186 518
Share capital and premium 144 277 141 368 143 147
BEE investment in City Lodge (486 051) (486 051) (486 051)
Retained earnings 477 906 447 083 459 833
Other reserves 74 103 61 946 69 589
LIABILITIES
Non-current liabilities 862 619 609 920 681 095
Interest-bearing borrowings 260 000 40 000 100 000
BEE preference shares 427 500 432 300 428 300
BEE shareholder`s loan 15 390 13 406 14 360
BEE B preference share dividend 34 320 11 731 23 906
accrual
Fair value of BEE interest rate 30 666 34 092 26 480
swap
Other non-current liabilities 16 057 7 244 15 621
Deferred taxation 78 686 71 147 72 428
Current liabilities 59 181 43 861 103 164
Bank overdraft 8 783 - -
Interest-bearing borrowings - - 40 000
Trade and other payables 49 317 40 751 53 339
Taxation payable 1 081 3 110 9 825
Total equity and liabilities 1 132 035 818 127 970 777
Note: The company has authorised capital commitments of R371 million of which
approximately R259 million has been contracted. It is anticipated that
approximately R227 million will be spent by 30 June 2010. In addition, R167
million has been authorised in respect of the construction of buildings to be
leased, of which, R130 million (included in Other receivables) had been spent as
at 31 December 2009. City Lodge is funding the expenditure during construction
and will be refunded the entire amount, by the landlord, on completion. The
authorised commitments will be funded from operating cash flows and additional
borrowings which have been secured.
SUMMARISED CASH FLOW
(Audited)
6 months ended 6 months ended Year ended
R000`s 31 December 31 December 30 June
2009 2008 2009
Cash generated by operations 174 013 183 060 368 231
Interest income 2 539 6 684 9 691
Interest expense (9 691) (5 493) (15 208)
Taxation paid (54 464) (55 212) (103 274)
Dividends paid (57 461) (70 277) (143 884)
Cash inflow from operating 54 936 58 762 115 556
activities
Cash utilised in investing (201 407) (80 318) (243 985)
activities
- investment to maintain (31 689) (33 671) (80 200)
operations
- investment to expand (131 286) (46 079) (73 181)
operations
- expenditure refundable on (38 679) (91 098)
operating leases
- investments and loans 247 (568) 494
Cash flows from financing 120 330 (2 817) 94 930
activities
- proceeds from issue of 1 130 934 2 713
ordinary shares
- increase in long term 160 000 - 100 000
borrowings
- repayment of short term (40 000) - -
borrowings
- issue of BEE preference - 440 700 440 700
shares
- redemption of BEE (800) (8 400) (12 400)
preference shares
- BEE shareholders loan - 12 582 12 582
- distribution by BEE SPV - - (32)
- equity component of BEE - 37 418 37 418
shareholders loan
- BEE investment in City - (486 051) (486 051)
Lodge
Net cash decrease (26 141) (24 373) (33 499)
STATEMENT OF RECOGNISED GAINS AND LOSSES
Six months Six months (Audited)
ended ended Year ended
31 December 31 December 30 June 2009
2009 2008
Actuarial loss and section 58 (233) (1 088) (8 781)
limit on defined benefit plan
Deferred taxation thereon 65 305 2 459
Net loss recognised directly in (168) (783) (6 322)
equity
Profit for the period 75 702 36 961 131 966
Total recognised gains and losses 75 534 36 178 125 644
for the period
RECONCILIATION OF MOVEMENT IN CAPITAL AND RESERVES
Share Treasury Other Retained
capital
R000`s and premium shares reserves earnings Total
Balance at 140 434 - 5 694 480 399 626 527
30 June 2008
Issue of new 934 934
ordinary shares
Profit for the 36 961 36 961
period
Recognised (783) (783)
income and
expenses
Share 4 254 4 254
compensation
reserve
BEE share-based 25 840 25 840
payment reserve
BEE investment (486 051) (486 051)
in City Lodge
Equity component 26 941 26 941
of BEE
shareholder`s
loan
Dividends paid (70 277) (70 277)
Balance at 141,368 (486 051) 61 946 447 083 164 346
31 December 2008
Issue of new 1 779 1 779
ordinary shares
Profit for the 95 005 95 005
period
Recognised 3 077 (3 077) -
income and
expenses
transferred
Recognised (5 539) (5 539)
income and
expenses
Share 4 566 4 566
compensation
reserve
BEE share-based - -
payment reserve
BEE investment - -
in City Lodge
Equity component - -
of BEE
shareholder`s
loan
Dividends paid (73 607) (73 607)
Distribution by (32) (32)
BEE SPV
Balance at 143 147 (486 051) 69 589 459 833 186 518
30 June 2009
Issue of new 1 130 1 130
ordinary shares
Profit for the 75 702 75 702
period
Recognised (168) (168)
income and
expenses
Share 4 514 4 514
compensation
reserve
BEE share based - -
payment reserve
BEE investment - -
in City Lodge
Equity component - -
of BEE
shareholder`s
loan
Dividends paid (57 461) (57 461)
Balance at 31 144 277 (486 051) 74 103 477 906 210 235
December 2009
SEGMENT REPORT
R000`s City Lodge Town Lodge Road Lodge
2009 2008 2009 2008 2009 2008
Revenue 169 813 174 654 73 363 73 640 85 553 81 862
EBITDAR 106 189 111 885 40 245 42 462 50 773 52 033
Depreciation 4 958 3 877 3 159 2 926 3 716 2 840
Share of profit
from Courtyard
joint venture
SEGMENT REPORT
Central office
R000`s and other Total
2009 2008 2009 2008
Revenue 10 318 11 857 339 047 342 013
EBITDAR (26 348) (80 175) 170 859 126 205
Depreciation 9 452 7 288 21 285 16 931
Share of profit from 2 679 4 408 2 679 4 408
Courtyard joint venture
EBITDAR represents earnings before interest, taxation, depreciation and rental
SEGMENT INFORMATION
IFRS 8 Operating Segments requires a `management approach` whereby segment
information is presented on the same basis as that used for internal reporting
purposes to the chief operating decision-maker/s who have been identified as the
Group`s executive directors. These individuals review the Group`s internal
reporting by hotel brand in order to assess performance and allocate resources.
Depreciation for reportable segments is an asymmetrical expense as assets are
not classified by segment. The depreciation charge for each reportable segment
relates to furniture, fittings and equipment, whilst the majority of the charge
for central office and other relates to hotel buildings.
COMMENTARY
RESULTS
Despite weak trading conditions brought about by a slump in the domestic and
global economies, the group managed to achieve an overall occupancy rate of 70%
across its four brands during the period. While this rate was well above the
local hotel industry average, it was sharply lower than the 81% achieved by the
group during the corresponding period in the prior year.
The largest occupancy decline across the four brands occurred at Courtyard and
Road Lodge, reflecting buying down and increased sector capacity in the case of
Courtyard, and financial pressure on consumers and small and medium sized
businesses in the case of Road Lodge.
The sharp drop in occupancies was mitigated by higher achieved room rates. As a
result revenue fell by only 1% to R339.0 million. Due to the lower occupancies
and the high fixed nature of expenses, together with significant increases in
municipal charges, the normalised (excluding the effects of the BEE transaction)
EBITDA margin decreased by 4.4 percentage points to 50.8%. Normalised EBITDA
fell by 8.7% to R172.4 million.
Depreciation increased by 25.7% due to high levels of investment on new hotels,
together with the high maintenance capex in the prior financial year, whilst
interest income was lower as a result of the lower cash balances. Despite
additional borrowings of R160 million to fund the expansion programme, the
interest expense reduced, due to interest of R8.6 million having been
capitalised during the construction periods of the new hotels.
The group`s share of profit from the Courtyard Joint Venture fell by 39.2% to
R2.7 million as a direct result of lower occupancies.
Profit before tax on a normalised basis fell by 14% to R156.6 million while the
effective tax rate on normalised profit before tax at 32.6% was in line with the
prior year.
Normalised headline earnings fell by 14% to R106.1 million whilst normalised
headline earnings per share, on a fully diluted basis, also decreased by 14% to
246.1 cents.
Due to the lower profitability, as well as a reduction in the payout ratio from
70% to 60% of normalised headline earnings, an interim dividend of 150.0 cents
has been declared, 26% lower than in the previous corresponding period.
In November 2009, partly due to the transaction conducted in 2008, the group`s
Broad-Based Black Economic Empowerment rating was significantly upgraded to
Level Four from Level Six while its rating under the Tourism Sector Charter was
upgraded to Level Three. Excellent progress continues to be made with all
elements of transformation.
DEVELOPMENT PROGRAMME
Road Lodge Umhlanga Ridge (125 rooms) opened towards the end of August 2009, and
will make a full contribution in the second half of the financial year. City
Lodge Fourways (211 rooms) opened 61 of its rooms in mid-December and the
balance will come on stream by mid-March. City Lodge at OR Tambo Airport (303
rooms) will open 78 rooms at the beginning of March and the balance by the
beginning of May. Construction is progressing well on Road Lodge Port Elizabeth
Airport (90 rooms) and Road Lodge Bloemfontein Airport (66 rooms), both of which
are scheduled to open in late May. Road Lodge Southgate (118 rooms) is on track
to open in June.
Good progress is being made on City Lodge Lynnwood (205 rooms) with roughly half
of its rooms expected to be available for the 2010 FIFA Soccer World Cup. City
Lodge Hatfield (187 rooms) is on track to open during the fourth quarter while
Town Lodge Port Elizabeth (203 rooms) is scheduled to open at the end of the
calendar year. Town Lodge Grayston Drive`s 70-room extension has been affected
by weather delays, but it is still hoped it will be completed by mid June.
By the end of calendar 2010, the group will have a portfolio of 6 442 rooms
(2009 - 4 989 rooms) at 52 hotels around the country.
OUTLOOK
The group is fully primed and prepared for the Soccer World Cup. Bookings for
the duration of the tournament are looking promising, especially in the major
host cities. Certain hotels, particularly in the smaller cities, will have rooms
available for normal business and leisure travel throughout the tournament.
While there was no indication of an improvement in trading conditions in
January, it is anticipated that demand for hotel accommodation will increase in
the lead-up to the Soccer World Cup, enabling our business to show an
improvement in the second six months on the same period of last year. The group
still holds the view that trading conditions will begin to normalise only in
2011.
The group continues to research opportunities for growth in other parts of the
world, including in neighbouring countries and in emerging markets, such as
India.
DIRECTORATE
Hans Enderle, the group`s founder and Non-Executive Chairman, announced in
November that he would be retiring from the Board with effect from 1 August
2010, coinciding with the 25th anniversary of the company. An announcement
regarding his successor will be made in due course.
DECLARATION OF DIVIDEND
Notice is hereby given that ordinary dividend no. 42 of 150.0 cents per share
for the six months ended 31 December 2009 (2008: 203.0 cents) has been declared.
Shareholders are advised that the last day to trade cum dividend will be Friday,
12 March 2010. The shares will trade ex dividend as from Monday, 15 March 2010
and the record date will be Friday, 19 March 2010. The dividend is payable on
Tuesday, 23 March 2010.
Share certificates may not be dematerialised or rematerialised between Monday,
15 March 2010 and Friday, 19 March 2010, both days inclusive.
BASIS OF PREPARATION
These condensed, unaudited interim financial statements have been prepared in
accordance with the recognition and measurement requirements of International
Financial Reporting Standards ("IFRS") and 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, except for the adoption of
IFRS 8 Operating Segments which has no impact on the results but requires
additional information. The amendment to IFRS 8 relating to the non-disclosure
of segment assets has been early adopted.
For and on behalf of the board
Hans R Enderle Clifford Ross
Chairman Chief executive
18 February 2010
REGISTERED OFFICE
"The Lodge", Bryanston Gate Office Park,
cnr. Homestead Avenue and Main Road
Bryanston
www.citylodge.co.za
TRANSFER SECRETARIES
Computershare Investor Services 2004 (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*
COMPANY SECRETARY: MC van Heerden
*executive
Sponsor:
J.P. Morgan Equities Limited.
Date: 18/02/2010 14:36:02 Produced by the JSE SENS Department.
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