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CLH
CLH
CLH - City Lodge Hotels Limited - Unaudited interim report for the six months
ended 31 December 2010
CITY LODGE HOTELS LIMITED
Registration number: 1986/002864/06
Share code: CLH
ISIN: ZAE000117792
UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2010
Average occupancies excluding new hotels 65%
Return on equity 28%
Normalised diluted HEPS -17%
Commentary
Results
Following the FIFA World Cup, trading conditions have been very weak, resulting
in the average occupancy rate for the six months to 31 December 2010, falling by
11 percentage points to 59% from 70% a year earlier. Occupancies were fairly
significantly affected by the large number of new hotel openings which can take
up to two years to operate at optimal levels. Excluding the new hotels,
occupancies averaged 65%.
This slowdown reflects the overall lack of economic activity in South Africa, a
lack of confidence emanating from our core business travel market and an
oversupply of hotel rooms in certain parts of the country. In many businesses
and industries, the trend is towards consolidation and cost-cutting with little
expansion taking place.
Despite the lower occupancies, given the increase in rooms inventory and an
increase in achieved room rates, revenue grew by 20% to R405,4 million. The
normalised EBITDA margin declined by eight percentage points to 43%, resulting
in normalised EBITDA of R172,7 million, reflecting an increase of only 0,2% on
the prior year.
Considering that the operating costs now reflect a R24,6 million rental charge
in respect of six of the new hotels, overheads were very well controlled. This
is evident in the fact that although operating costs increased by 42% overall,
they increased by only 25% excluding the rental, which is well in line with the
26% increase in rooms available. Municipal charges continued to show large
increases with electricity in particular increasing by 41% on a per room sold
basis.
Depreciation increased by 68% due to high levels of capital expenditure on the
new hotels which resulted in normalised operating profit declining by 9%.
Interest income was marginally lower and interest expense increased to R8,1
million from R698 000 previously, reflecting the increased borrowings to fund
the new hotels.
The group`s share of profit from the Courtyard joint venture fell by R2,1
million to R575 000, underlining particularly tough trading conditions in the
upper segment of the market.
Profit before tax on a normalised basis decreased by 18% while normalised
headline earnings fell by 17% to R88,2 million, which equated to normalised
headline earning per share (on a diluted basis) of 204,3 cents, also a 17%
reduction.
In line with the group`s policy of paying out 60% of normalised earnings, an
interim dividend of 124 cents has been declared, 17% lower than the previous
year`s interim dividend.
Development update
The final two hotels in the group`s current development pipeline, Town Lodge
Port Elizabeth and City Lodge Hatfield, were opened in late 2010. Town Lodge
Port Elizabeth`s 203 rooms are now all available while City Lodge Hatfield`s 184
rooms will be fully available during the course of this month. This brings the
group`s portfolio to 52 hotels (2009 - 44 hotels) offering 6 440 rooms (2009 - 4
989 rooms) across the four brands.
Within South Africa, the group continues to look for suitable sites for
expansion. Further afield, a comprehensive investigation into the Indian market
has been completed. While exciting opportunities do exist there, the group has
decided not to pursue this region for the time being.
Opportunities for expansion in Africa are still being examined.
Outlook
Trading conditions in January and the first half of February remain soft and are
unpredictable for the remainder of the financial year.
Whilst we will continue to manage costs and overheads as tightly as in the past,
management will remain focused on providing our guests with a superior product,
warm hospitality and efficient service.
It is expected that full year normalised profit will be below that of the prior
year which received a significant boost from the FIFA World Cup.
Declaration of dividend
Notice is hereby given that ordinary dividend no. 44 of 124,0 cents per share
for the six months ended 31 December 2010 (2009: 150,0 cents) has been declared.
Shareholders are advised that the last day to trade cum dividend will be Friday,
11 March 2011. The shares will trade ex dividend as from Monday, 14 March 2011
and the record date will be Friday, 18 March 2011. The dividend is payable on
Tuesday, 22 March 2011.
Share certificates may not be dematerialised or rematerialised between Monday,
14 March 2011 and Friday, 18 March 2011, 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 Listings Requirements of
the JSE Limited, the AC500 series issued by the Accounting Practices Board and
the Companies Act of South Africa, as amended.
The accounting policies used are consistent with those used in the annual
financial statements for the year ended 30 June 2010.
For and on behalf of the board
Bulelani Ngcuka Clifford Ross
Chairman Chief executive
16 February 2011
Statement of comprehensive income
(Audited)
Six months Six months Year
ended ended ended
31 December % 31 December 30 June
R000`s Note 2010 change 2009 2010
Revenue 405 397 20 339 047 749 099
Administration (30 263) (24 479) (56 338)
and marketing
costs
BEE 2 (8 091) (4 333) (15 135)
transaction
charges
Operating (202 483) 42 (142 185) (309 964)
costs
excluding
depreciation
164 560 (2) 168 050 367 662
Depreciation (35 836) (21 285) (47 334)
Operating 128 724 (12) 146 765 320 328
profit
Interest 3 047 3 544 6 980
income
Total interest (32 628) (25 249) (55 283)
expense
Interest (8 076) (698) (7 554)
expense
Notional 2 (1 184) (1 031) (2 135)
interest on
BEE
shareholder
loan
BEE preference 2 (23 368) (23 520) (45 594)
dividend
Share of 575 2 679 6 908
profit from
joint venture
Profit before 99 718 (22) 127 739 278 933
taxation
Taxation (45 045) (52 037) (111 302)
Profit for the 54 673 (28) 75 702 167 631
period
Other
comprehensive
income
Defined (70) (233) (771)
benefit plan
actuarial
losses
Income tax on 20 65 216
other
comprehensive
income
Total 54 623 75 534 167 076
comprehensive
income for the
period
Supplementary information
1. Headline earnings
reconciliation
Profit for the period 54 673 75 702 167 631
Profit on sale of - - (596)
equipment
Taxation effect - - 167
Headline earnings 54 673 75 702 167 202
Number of shares in 42 862 42 786 42 815
issue (000`s)
Weighted average 3 36 446 36 373 36 389
number of shares in
issue for EPS
calculation (000s)
Weighted average 3 36 754 36 727 36 709
number of shares in
issue for diluted EPS
calculation (000s)
Basic earnings per
share (cents)
- diluted 148,8 (28) 206,1 456,6
- undiluted 150,0 (28) 208,1 460,7
Headline earnings per 4
share (cents)
- diluted 148,8 (28) 206,1 455,5
- undiluted 150,0 (28) 208,1 459,5
Dividend declared per 124,0 (17) 150,0 327,0
share (cents)
2. Normalised headline
earnings
reconciliation
Headline earnings 54 673 75 702 167 202
BEE transaction 8 091 4 333 15 135
charges
- Loss on fair value 8 017 4 186 14 845
of interest rate swap
- Sundry expenses 74 147 290
Notional interest 1 184 1 031 2 135
charge on BEE
shareholder loan
Preference dividends 23 368 23 520 45 594
paid/payable by the
BEE entities
Deferred tax on BEE 167 437 849
transactions
IFRS 2 share based 644 1 081 2 163
payment charge for
the 10th anniversary
employee share trust
Normalised headline 88 127 (17) 106 104 233 078
earnings
3. Number of shares
(000`s)
Weighted average 36 446 36 373 36 389
number of shares in
issue for EPS
calculation
BEE shares treated as 6 390 6 390 6 390
treasury shares
Weighted average 42 836 42 763 42 779
number of shares in
issue for diluted
normalised EPS
calculation
Weighted average 36 754 36 727 36 709
number of shares in
issue for diluted EPS
calculation
BEE shares treated as 6 390 6 390 6 390
treasury shares
Weighted average 43 144 43 117 43 099
number of shares in
issue for diluted
normalised EPS
calculation
4. Normalised headline
earnings per share
(cents)
- undiluted 205,7 (17) 248,1 544,8
- diluted 204,3 (17) 246,1 540,8
5. Dividend cover
(times)
- calculated on 1,6 1,6 1,7
normalised headline
earnings
6. Effective tax rate
(%)
- calculated on 33,7 32,7 32,1
normalised profit
before taxation
7. Interest bearing debt
to total capital and
reserves (%)
- calculated on a 29,9 36,4 28,5
normalised basis
8. Return on equity (%)
- calculated on a 27,5 31,0 31,0
normalised basis
9. Net asset value per
share (cents)
- calculated on a 1 922 1 726 1 882
normalised basis
Statement of financial position
(Audited)
31 December 31 December 30 June
R000`s 2010 2009 2010
ASSETS
Non-current assets 1 181 088 957 692 1 123 931
Property, plant and 1 129 195 907 587 1 072 962
equipment
Investments 32 914 33 407 33 161
Loan receivable 15 949 13 694 14 778
Deferred taxation 3 030 3 004 3 030
Current assets 61 198 174 343 105 684
Inventory 2 669 2 210 3 012
Trade receivables 38 081 31 829 49 149
Other receivables 15 469 140 304 11 064
Taxation receivable 4 979 - -
Cash and cash equivalents - - 42 459
Total assets 1 242 286 1 132 035 1 229 615
EQUITY
Capital and reserves 249 068 210 235 252 603
Share capital and premium 146 502 144 277 145 137
BEE investment in City (486 051) (486 051) (486 051)
Lodge
Retained earnings 504 868 477 906 514 746
Other reserves 83 749 74 103 78 771
LIABILITIES
Non-current liabilities 869 623 862 619 863 406
Interest-bearing 200 000 260 000 230 000
borrowings
BEE preference shares 425 300 427 500 427 200
BEE shareholder`s loan 17 679 15 390 16 495
BEE "B" preference share 54 661 34 320 44 563
dividend accrual
Fair value of BEE interest 49 342 30 666 41 325
rate swap
Other non-current 34 841 16 057 22 278
liabilities
Deferred taxation 87 800 78 686 81 545
Current liabilities 123 595 59 181 113 606
Bank overdraft 46 156 8 783 -
Trade and other payables 77 439 49 317 109 164
Taxation payable - 1 081 4 442
Total equity and 1 242 286 1 132 035 1 229 615
liabilities
Note: The company has authorised capital commitments of R59 million of which
approximately R55 million has been contracted. It is anticipated that
approximately R45 million will be spent by 30 June 2011.
Segment report
City Lodge Town Lodge
R000`s 2010 2009 2010 2009
Revenue 218 581 169 813 78 335 73 363
EBITDAR 127 500 106 189 40 227 40 245
Depreciation 10 955 4 958 3 337 3 159
Share of profit from joint venture
EBITDAR represents earnings after BEE transaction charges but before interest,
taxation, depreciation and rental.
Segment report (continued)
Central office
and other
Road Lodge Total
R000`s 2010 2009 2010 2009 2010 2009
Revenue 98 826 85 553 9 655 10 318 405 397 339 047
EBITDAR 56 565 50 773 (32 873) (26 348) 191 419 170 859
Depreciation 4 981 3 716 16 563 9 452 35 836 21 285
Share of 575 2 679 575 2 679
profit from
joint
venture
EBITDAR represents earnings after BEE transaction charges but before interest,
taxation, depreciation and rental.
Summarised statement of cash flows
(Audited)
Six months Six months Year
ended ended ended
31 December 31 December 30 June
R000`s 2010 2009 2010
Cash generated by 161 833 174 013 436 752
operations
Interest income 1 877 2 539 4 891
Interest expense (17 276) (9 691) (25 673)
Taxation paid (48 191) (54 464) (107 384)
Dividends paid (64 501) (57 461) (112 058)
Cash inflow from operating 33 742 54 936 196 528
activities
Cash utilised in investing (91 822) (201 407) (262 212)
activities
- investment to maintain (6 745) (31 689) (39 490)
operations
- investment to expand (85 324) (131 286) (314 909)
operations
- expenditure refundable on - (38 679) 91 098
operating leases
- investments and loans 247 247 493
- proceeds on disposal of - - 596
property, plant and
equipment
Cash flows from financing (30 535) 120 330 90 785
activities
- proceeds from issue of 1 365 1 130 1 990
ordinary shares
- proceeds from long-term - 160 000 250 000
borrowings
- repayment of long-term (30 000) - (120 000)
borrowings
- repayment of short-term - (40 000) (40 000)
borrowings
- redemption of BEE (1 900) (800) (1 100)
preference shares
- distribution by BEE SPV - - (105)
Net cash (decrease) (88 615) (26 141) 25 101
/increase
Statement of changes in equity
Share
capital
and Treasury Other
R000`s premium shares reserves
Balance at 30 June 2009 143 147 (486 051) 69 589
Total comprehensive income for - - -
the period
Profit for the period
Recognised income and expenses
Transactions with owners,
recorded directly
in equity 1 130 - 4 514
Issue of new ordinary shares 1 130
Share compensation reserve 4 514
Dividends paid
Balance at 31 December 2009 144 277 (486 051) 74 103
Total comprehensive income for - - -
the period
Profit for the period
Recognised income and expenses
Transactions with owners,
recorded directly
in equity 860 - 4 668
Issue of new ordinary shares 860
Share compensation reserve 4 668
Dividends paid
Distribution by BEE SPV
Balance at 30 June 2010 145 137 (486 051) 78 771
Total comprehensive income for - - -
the period
Profit for the period
Recognised income and expenses
Transactions with owners,
recorded directly
in equity 1 365 - 4 978
Issue of new ordinary shares 1 365
Share compensation reserve 4 978
Dividends paid
Balance at 31 December 2010 146 502 (486 051) 83 749
Statement of changes in equity (continued)
Retained
R000`s earnings Total
Balance at 30 June 2009 459 833 186 518
Total comprehensive income for the period 75 534 75 534
Profit for the period 75 702 75 702
Recognised income and expenses (168) (168)
Transactions with owners, recorded directly
in equity (57 461) (51 817)
Issue of new ordinary shares 1 130
Share compensation reserve 4 514
Dividends paid (57 461) (57 461)
Balance at 31 December 2009 477 906 210 235
Total comprehensive income for the period 91 542 91 542
Profit for the period 91 929 91 929
Recognised income and expenses (387) (387)
Transactions with owners, recorded directly
in equity (54 702) (49 174)
Issue of new ordinary shares 860
Share compensation reserve 4 668
Dividends paid (54 597) (54 597)
Distribution by BEE SPV (105) (105)
Balance at 30 June 2010 514 746 252 603
Total comprehensive income for the period 54 623 54 623
Profit for the period 54 673 54 673
Recognised income and expenses (50) (50)
Transactions with owners, recorded directly
in equity (64 501) (58 158)
Issue of new ordinary shares 1 365
Share compensation reserve 4 978
Dividends paid (64 501) (64 501)
Balance at 31 December 2010 504 868 249 068
Registered office:
"The Lodge", Bryanston Gate Office Park,
cnr. Homestead Avenue and Main Road,
Bryanston, 2001
Transfer secretaries:
Computershare Investor Services 2004 (Proprietary) Limited,
70 Marshall Street, Johannesburg, 2001
Directors:
BT Ngcuka (Chairman), C Ross (Chief executive)*,
FWJ Kilbourn, IN Matthews, N Medupe, SG Morris, Dr KIM Shongwe,
AC Widegger*
*Executive
Company Secretary:
MC van Heerden
www.citylodge.co.za
Sponsor:
J.P. Morgan Equities Limited
Date: 16/02/2011 16:21:01 Produced by the JSE SENS Department.
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