Group occupancy: 58% | up 2% points | 2023: 56%
Revenue: R1.9bn | up 13% | 2023: R1.7bn
Adjusted EBITDAR R586m | up 14% | 2023: R516m
Profit for the year: R189m | up 15% | 2023: R164m
Headline earnings per share (diluted): 33.2c | up 10% | 2023: 30.3c
Adjusted headline earnings per share (diluted): 31.8c | up 37% | 2023: 23.2c
Total dividends declared: 15c | up 15% | 2023: 13c
Return on equity: 16.5% | up 0.9% | 2023: 15.6%
City Lodge Hotels continues to grow occupancies and revenues as its recovery from the legacy of the pandemic has progressed. The group is well positioned, with no outstanding debt, revenue up 13%, and group occupancies of 58%, two percentage points (pp) ahead of 2023. Food and beverage (F&B) revenue has grown by 22% in the year, complementing the City Lodge Hotels value-for-money, and service excellence offering.
Commentary
Dhanisha Nathoo, chief financial officer at City Lodge Hotels
“The year under review has been a tale of two halves,” says Dhanisha Nathoo, chief financial officer of City Lodge Hotels.
“The financial year kicked off with fervour and optimism with strong demand for occupancy in the first quarter which was approximately eight pp ahead of the prior year,” Nathoo notes. “However, the strain of the prolonged high inflation and interest rates, and the cumulative effects of continuous load shedding, together with poor investor and consumer confidence caused by the political uncertainty in the run up to the South African national elections, eroded corporate demand and consumer purchasing power. Government austerity measures put in place by National Treasury in October also contributed to subdued demand. These factors led to a one pp reduction in occupancy, between November 2023 and June 2024, compared to the prior year,” she explains.
Regionally, Western Cape continues to have the fastest recovery in both occupancy and rates. The greater Johannesburg area has also seen a slight recovery in demand as more business travellers are working from their offices, and travel needs increase. In contrast, however, leisure demand in KwaZulu-Natal has suffered in the year, due to the socio-economic challenges including sporadic closure of beaches, departure of many Durban beachfront businesses, and safety and security concerns.
Financial Review
“Against these headwinds, City Lodge has delivered stronger occupancies compared to the prior year, supported by improving rates of 8%,” points out Nathoo. “Total revenue for the year ended 30 June 2024 increased by 13% to R1.9bn (2023: R1.7bn). Rooms revenue increased by 11%. Our enhanced F&B offering across all brands has been well received, resulting in an increase of 22% to R363.3m (2023: R298.9m), and it now accounts for 19% (2023: 17%) of total revenue,” she reports.
The combination of increased occupancies, high inflation, and continued focus on consistent, and reliable service delivery to support the growing F&B offer, has resulted in a 10% increase in total operating costs.
The upskilling and general right-sizing of our F&B and general staff complement has resulted in an increase of 12% in salaries and wages to R553.3m. The group mitigated the general increases in property costs by utilising more solar power generated by the 16 additional hotels which have installed solar panels during the year.
Rooms related costs and F&B costs are largely variable in nature. However, the increase in corporate travel increased commissions paid, which is recorded in rooms related costs, resulting in a 19% increase to R226.2m (2023: R189.6m). Volume variable F&B costs increased by 17% to R146.2m (2023: R124.8m). F&B gross profit margins have improved to 60% from 58% in the prior year.
The group generated EBITDAR of R574.4m (2023: R556.3m) for the year, and an EBITDAR margin of 29.8% (2023: 32.4%). Adjusted EBITDAR margin, excluding unrealised foreign currency (losses)/gains, is 30.4% (2023: 30.1%).
Depreciation for the year of R171.3m (2023: R160.6m) includes depreciation of capitalised leases. The 7% increase relates to higher refurbishment capital expenditure incurred by the group compared to the prior year.
Lease related expenses (i.e. depreciation on right-of-use assets of R95m and interest expense on leases of R127.7m) exceed cash lease payments of R164.1m by R58.6m.
Taxation amounted to R65.8m (2023: R55.3m) increased by 19%. Taxation includes a R20m credit on the recognition of a deferred tax asset in Namibia.
The improved performance for the year has resulted in profit after tax of R188.7m (2023: R163.7m), and a 16% increase in diluted earnings per share to 33.2 cents (2023: 28.6 cents).
Diluted headline earnings per share increased by 10% to 33.2 cents (2023: 30.3 cents per share). Adjusted headline earnings per share, which excludes unrealised foreign currency (losses)/gains and exceptional items, and the impairment reversal of the deferred tax asset, has increased by 37% to 31.8 cents (2023: 23.2 cents).
Capital allocation
Andrew Widegger, chief executive officer at City Lodge Hotels
“The group has utilised its strong cash generated by operations of R576.7m (2023: R539.5m) to strengthen its balance sheet, return capital to shareholders, and continue with its investment in its hotels, to ensure it is more sustainable, resilient, and continues to deliver value from its well-equipped and maintained portfolio of hotels,” says Andrew Widegger, chief executive officer of City Lodge Hotels.
“The group has repaid its interest-bearing borrowings and is now debt-free, whilst still retaining access to R600m in debt facilities, and R115m in overdraft facilities,” he adds.
During the year, the group acquired 0.3 million shares in the odd-lot offer at an average price of R4.71 per share, which also reduced the number of shareholders by more than half. In addition, 11.4 million shares were repurchased at an average price of R4.37. Total consideration for all shares acquired totalled R51.6m.
The group embarked on an extensive capital expenditure programme, which includes:
- Completion of the phased refurbishment of rooms at City Lodge Hotel at OR Tambo International Airport and the renovation and refurbishment of the rooms at the City Lodge Hotel V&A Waterfront.
- Completion of phase two of our solar installations in December 2023 bringing the number of hotels with access to solar renewable energy to 41, and a total generating capacity of 2.6MW or 16.3% of the group's energy requirements. Battery storage has been added to two hotels as part of a battery pilot programme.
- The water supply resilience strategy has delivered a further three new boreholes and filtration plants, five new filtration plants to existing boreholes, and three additional water storage tanks.
- An additional pipeline of refurbishment projects is well underway at City Lodge Hotel Lynnwood, Town Lodge Bellville, Road Lodge Durban, Road Lodge N1 City, City Lodge Hotel Umhlanga Ridge and Town Lodge George.
The group’s enhanced investment and efforts in transformation and diversity has realised an improved B-BBEE level 2 scorecard rating.
Outlook
“The formation of the Government of National Unity is to be welcomed, which together with the potential interest rate cuts later this year will bring relief to a stagnant economy” notes Widegger. “The 2025 financial year holds promise for a reinvigorated South Africa and surrounding territories, as the economy grows and foreign investment is realised.”
“Total capital commitments of R459.4m have been authorised for the 2025 financial year. The funds will be applied to projects focused on deriving value through our modernisation programme, and delivering innovation and easy guest experiences through technology investments. Environmental sustainability and resilience solutions remains a priority for the group,” he says.
Widegger is pleased to announce: “The group is actively pursuing selected opportunities for new hotels in high growth areas within South Africa.”
The 2025 financial year has commenced with a cautious improvement in economic sentiment, compared to the last few months of the previous financial year, as the new government establishes itself.”
This sentiment has, however, not yet translated into occupancy trends, with softer occupancy for July 2024 of 56% (July 2023 – 61%), August 2024 of 55% (August 2023 – 61%) and month to date up to 5 September 2024 of 61% (5 September 2023 – 60%), having been experienced.
“We are optimistic that demand will continue to improve as business and consumer confidence returns and interest rates decrease, thereby contributing to improved disposable income in businesses and households,” he adds.
“Our award-winning brand messaging and campaign ‘Life is hard. Check into easy’ stands true to the ethos of City Lodge Hotels,” concludes Nathoo.
Declaration of dividend
The board has approved and declared a final dividend (number 66) of 9.00 cents per ordinary share (gross) (2023: 8.00 cents) in respect of the year ended 30 June 2024.
