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CLH
CLH - City Lodge Hotels Limited - Unaudited interim report for the six months
ended 31 December 2008
CITY LODGE HOTELS LIMITED
Registration number 1986/002864/06
Share code: CLH
ISIN: ZAE 000117792
UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2008
81% Average occupancy
+15% Normalised diluted headline EPS
+15% Dividend per share
39% Normalised ROE
INCOME STATEMENT
(Audited)
Six months Six months Year
ended ended ended
31 December % 31 December 30 June
R000's 2008 change 2007 2008
Revenue 342 013 16 296 029 599 902
Administration and (23 228) (22 203) (46 002)
marketing costs
BEE transaction Note (64 468) - -
charges 1
Operating costs (129 989) (108 102) (214 801)
excluding
depreciation
124 328 (25) 165 724 339 099
Depreciation (16 931) (13 702) (26 934)
Operating profit 107 397 (29) 152 022 312 165
Interest income 7 547 7 623 14 592
Total interest (22 656) (1 040) (1 338)
expense
Interest expense - (2 756) (1 040) (1 338)
other
BEE preference Note (19 900) - -
dividend 1
Share of profit from 4 408 4 178 8 527
joint venture
Profit before 96 696 (41) 162 783 333 946
taxation
Taxation (59 735) (55 585) (108 299)
Profit for the 36 961 (66) 107 198 225 647
period
Headline earnings
reconciliation
Net profit 36 961 107 198 225 647
Loss on sale of - - (188)
equipment
Taxation effect - - 53
Headline earnings 36 961 107 198 225 512
Number of shares in 42 645 42 523 42 602
issue (000's)
Weighted average Note 36 233 42 499 42 519
number of shares in 2
issue for EPS
calculation (000's)
Weighted average Note 36 660 43 091 42 965
number of shares in 2
issue for diluted
EPS calculation
(000's)
Basic earnings per
share (cents)
- diluted 100,8 (59) 248,8 525,2
- undiluted 102,0 (60) 252,2 530,7
Headline earnings Note
per share (cents) 3
- diluted 100,8 (59) 248,8 524,9
- undiluted 102,0 (60) 252,2 530,4
Dividend declared 203,0 15 177,0 371,0
per share (cents)
RECONCILIATION OF MOVEMENT IN CAPITAL AND RESERVES
Share
capital
R000's and Treasury Other Retained Total
premium shares reserves earnings
Balance at 30 June 138 008 - 3 522 392 910 534 440
2007
Issue of new 867 867
ordinary shares
Profit for the 107 198 107 198
period
Recognised gains (615) (615)
and losses
Share compensation 1 972 1 972
reserve
Dividends paid (62 884) (62 884)
Balance at 31 138 875 - 4 879 437 224 580 978
December 2007
Issue of new 1 559 1 559
ordinary shares
Profit for the 118 449 118 449
period
Recognised gains (840) (840)
and losses
Share compensation 1 655 1 655
reserve
Dividends paid (75 274) (75 274)
Balance at 30 June 140 434 - 5 694 480 399 626 527
2008
Issue of new 934 934
ordinary shares
Profit for the 36 961 36 961
period
Recognised gains (783) (783)
and losses
Share compensation 4 254 4 254
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 (70 277) (70 277)
Balance at 31 141 368 (486 051) 61 946 447 083 164 346
December 2008
STATEMENT OF RECOGNISED GAINS AND LOSSES
(Audited)
Six months Six months Year
ended ended ended
31 December 31 December 30 June
R000's 2008 2007 2008
Actuarial loss and section 58 (1 088) (866) (2 004)
limit on defined benefit plan
Deferred taxation thereon 305 251 561
Deferred taxation rate change - - (12)
Net loss recognised directly (783) (615) (1 455)
in equity
Profit for the period 36 961 107 198 225 647
Total recognised gains and 36 178 106 583 224 192
losses for the period
SUMMARISED CASH FLOW
(Audited)
Six months Six months Year
ended ended ended
31 December 31 December 30 June
R000's 2008 2007 2008
Cash generated by operations 170 505 164 908 364 114
Net interest received 1 191 6 583 11 714
Dividends paid (70 277) (62 884) (111 251)
Taxation paid (55 212) (59 350) (138 158)
Cash inflow from operating 46 207 49 257 126 419
activities
Cash utilised in investing (80 318) (71 643) (157 380)
activities
- investment to maintain (33 671) (7 614) (21 568)
operations
- investment to expand (46 079) (63 462) (134 620)
operations
- investments and loans (568) (567) (1 192)
Cash flows from financing 9 738 867 2 426
activities
- proceeds from issue of 934 867 2 426
ordinary shares
- issue of BEE preference 440 700 - -
shares
- redemption of BEE preference (8 400) - -
shares
- B preference share dividend 11 731 - -
capitalised
- BEE shareholder's loan 12 582 - -
- notional interest on BEE 824 - -
shareholder's loan
- equity component of BEE 37 418 - -
shareholder's loan
- BEE treasury shares (486 051) - -
Net cash (decrease)/increase (24 373) (21 519) (28 535)
BALANCE SHEET
(Audited)
31 December 31 December 30 June
R000's 2008 2007 2008
ASSETS
Non-current assets 758 557 622 525 695 142
Property, plant and equipment 709 978 575 091 647 159
Investments 33 853 34 322 34 148
Loan receivable 11 757 10 095 10 894
Deferred taxation 2 969 3 017 2 941
Current assets 59 570 92 888 83 391
Inventory 1 832 1 582 1 625
Trade receivables 22 941 26 621 25 472
Other receivables 8 313 6 812 5 437
Cash and cash equivalents 26 484 57 873 50 857
Total assets 818 127 715 413 778 533
EQUITY
Capital and reserves 164 346 580 978 626 527
Share capital and premium 141 368 138 875 140 434
BEE treasury shares (486 051) - -
Retained earnings 447 083 437 224 480 399
Other reserves 61 946 4 879 5 694
LIABILITIES
Non-current liabilities 609 920 102 154 104 256
Interest-bearing borrowings 40 000 40 000 40 000
BEE preference shares 444 031 - -
BEE shareholder's loan 13 406 - -
Fair value of BEE interest 34 092 - -
rate swap
Other non-current liabilities 7 244 6 326 6 710
Deferred taxation 71 147 55 828 57 546
Current liabilities 43 861 32 281 47 750
Trade and other payables 40 751 28 764 45 763
Taxation payable 3 110 3 517 1 987
Total equity and liabilities 818 127 715 413 778 533
Note: The company has authorised capital commitments of R1,015 billion of which
approximately R271 million has been contracted. It is anticipated that
approximately R175 million will be spent by 30 June 2009. Of the authorised
commitments R392 million is in respect of building leases of which R195 million
will be funded by City Lodge during construction and refunded on completion by
the landlord. The balance of R197 million will be funded directly by the
landlord. The City Lodge portion of the total commitments will be funded from
operating cash flows and additional borrowings.
NOTES
(Audited)
Six months Six months Year
ended ended ended
31 December % 31 December 30 June
2008 change 2007 2008
1. Normalised headline
earnings reconciliation
R000's
Headline earnings 36 961 107 198 225 512
BEE transaction charges 64 468 - -
- IFRS 2 share-based 25 840 - -
payment charge
- Loss on fair value of 34 092 - -
interest rate swap
- Sundry expenses 4 536 - -
Notional interest charge
on BEE
shareholder loan net of 593 - -
deferred tax
Preference dividends 19 900 - -
paid/payable by the BEE
entities
IFRS 2 share-based 1 489 456 912
payment charge for the
10th anniversary employee
share trust
Normalised headline 123 411 15 107 654 226 424
earnings
2. Number of shares
(000's)
Weighted average number
of shares in
issue for EPS calculation 36 233 42 499 42 519
BEE shares treated as 6 390 - -
treasury shares
Weighted average number
of
shares in issue for
normalised
EPS calculation 42 623 42 499 42 519
Weighted average number
of shares in
issue for diluted EPS 36 660 43 091 42 965
calculation
BEE shares treated as 6 390 - -
treasury shares
Weighted average number
of shares in issue for
diluted normalised
EPS calculation 43 050 43 091 42 965
3. Normalised headline
earnings
per share (cents)
- undiluted 289,5 14 253,3 532,5
- diluted 286,7 15 249,8 527,0
4. Dividend cover (times)
- as presented 0,5 1,4 1,4
- calculated on
normalised headline
earnings 1,4 1,4 1,4
5. Effective tax rate (%)
- as presented 61,8 34,1 32,4
- calculated on 32,7 34,1 32,3
normalised profit before
taxation
6. Interest-bearing debt
to total
capital and reserves (%)
- as presented 302,7 6,9 6,4
- calculated on a 6,0 6,9 6,4
normalised basis
7. Return on equity (%)
- calculated on a 38,7 36,5 38,9
normalised basis
8. Net asset value per
share (cents)
- as presented 385 1 366 1 471
- calculated on a 1 572 1 366 1 471
normalised basis
Note: Net asset value is calculated using the depreciated historical cost of
buildings and not the current estimated relacement cost of R2,4 billion.
COMMENTARY
RESULTS
At 81%, occupancies across the group's four brands remained at high levels
during the period. This was 2,5 percentage points lower than the record
occupancy rate of 83,5% achieved in the prior year, reflecting the effects of
the slowdown in the economy and a slightly softer demand, especially on weekends
and over the December holiday period.
In spite of lower occupancies, the number of rooms sold increased due to the
increased capacity that was available during the period. This together with
higher achieved room rates resulted in turnover rising by 16% to R342,0 million.
On a normalised basis (excluding the effects of the BEE transaction as described
below), the EBITDA margin decreased by 0,5 percentage points to 55,6% largely as
a result of lower occupancies and substantial increases in expenses such as
property rates and taxes, and utilities. Normalised EBITDA showed a rise of 15%
to R190,3 million.
Interest income was slightly lower than the prior year while the interest
expense rose to R2,8 million from R1,0 million, impacted by higher interest
rates and the notional R824 000 charge on the shareholder's loan in the BEE
entity, described below.
Despite slightly lower occupancies, the group's share of profit from the
Courtyard joint venture increased by 6% to R4,4 million.
Profit before tax on a normalised basis increased by 13% to R183,4 million while
the effective tax rate on normalised profit before tax at 32,7% was 1,4
percentage points lower than in the prior year. This reduced tax rate was due to
lower corporate tax and Secondary Tax on Companies rates than in the prior
period.
Normalised headline earnings rose by 15% to R123,4 million whilst normalised
headline earnings per share, on a fully diluted basis, increased by 15% to 286,7
cents.
An interim dividend of 203 cents per share has been declared, which is a 15%
increase on the previous corresponding period. This has been calculated on
normalised earnings and represents a 1,4 times cover.
OUTLOOK
The second half of the financial year will benefit from the opening of the 90-
room Road Lodge Potchefstroom in December 2008.
Good progress is being made on the construction of the 125-room Road Lodge
Umhlanga Ridge, which is scheduled to open in the first quarter of the next
financial year.
Construction has commenced on the 303-room City Lodge OR Tambo Airport and the
211-room City Lodge Fourways, both of which are expected to open in the second
quarter of 2010. Construction work on the 204-room Town Lodge Port Elizabeth
has been delayed pending the outcome of a legal dispute.
Regulatory approvals are being awaited before construction can begin on the
90-room Road Lodge Port Elizabeth Airport, the 66-room Road Lodge Bloemfontein
Airport, and the 118-room Road Lodge Southgate. Agreements in respect of the
182-room City Lodge Hatfield and the 211-room City Lodge Lynnwood are expected
to be concluded shortly and it is anticipated that construction of all five of
these hotels will commence before the end of the current financial year, for
completion towards the end of the 2010 financial year.
In addition, a site has been acquired adjacent to the existing Town Lodge
Grayston Drive with a view to extending this hotel by 70 rooms.
The group currently has 43 hotels offering 4863 rooms across its four brands. On
completion of the above expansion plans, the portfolio will rise to 53 hotels
offering 6 443 rooms.
While occupancies are expected to remain under pressure during the short term,
the A1 Grand Prix, tours by the Australian cricket team and the British and
Irish Lions rugby team, along with the Confederations Cup soccer tournament,
will provide additional demand during the remainder of the financial year.
Whilst it is difficult to predict the extent and degree of the reduced demand,
growth in normalised earnings for the full year is anticipated.
In the longer term, expected cuts in interest rates, the build-up to the 2010
FIFA Soccer World Cup and continued government infrastructural spending are
likely to provide the impetus for further increases in earnings.
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 IFRS 2 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 R12,7 million proceeds from the payment of the City Lodge
final dividend in September 2008, the SPV's declared a preference dividend of
R9,7 million of which R4,3 million in respect of the "A" Preference shares was
paid and R5,4 million in respect of the "B" Preference shares was accrued and
added to the balance sheet as part of the BEE Preference Share liability. At the
same time "A" Preference shares to the value of R8,4 million were redeemed.
- An amount of R10,9 million was accrued in respect of the preference
dividend payable between the date of the above declaration and 31 December 2008.
Of this R4,6 million is in respect of the "A's" which is payable in April 2009
and is included in Current Liabilities. The balance of R6,3 million 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 current rate payable in respect of the Preference shares. The
result is that a net settlement of R700 000 is due to the SPV's as at 31
December 2008 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 31 December 2008 was determined and
resulted in a loss of R34,1 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
R593 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.
DECLARATION OF DIVIDEND
Notice is hereby given that ordinary dividend number 40 of 203,0 cents per share
for the six months ended 31 December 2008 (2007: 177,0 cents) has been declared.
Shareholders are advised that the last day to trade cum dividend will be Friday,
13 March 2009. The shares will trade ex dividend as from Monday, 16 March 2009
and the record date will be Friday, 20 March 2009. The dividend is payable on
Monday, 23 March 2009.
Share certificates may not be dematerialised or rematerialised between Monday,
16 March 2009 and Friday, 20 March 2009, 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 2008.
For and on behalf of the board
Hans R Enderle Clifford Ross
Chairman Chief executive 12 February 2009
Registered office: "The Lodge", Bryanston Gate Office Park, cnr. 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
Sponsor:
J.P. Morgan Equities Limited
Date: 12/02/2009 15:25:03 Produced by the JSE SENS Department.
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