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City Lodge reports R486m net loss, won’t be paying dividends

Only expects to reach break-even levels in its 2022 financial year.
If its rights offer is not successful, the group’s ability to continue as a going concern may be in doubt. Image: Supplied

JSE-listed City Lodge Hotels on Thursday reported a net loss of R486.6 million for the year to June as it was severely impacted by the Covid-19 lockdown. It doesn’t expect to reach break-even earnings before interest, tax, depreciation and amortisation (Ebitda) until about the last quarter of its 2021 financial year.

The lockdown resulted in the temporary closure of almost all of the group’s 62 hotels. It assumes that occupancy and trading levels will only return to 2019 financial year levels within its 2022 financial year.

City Lodge also has bad news for investors on the dividend front.

Its board decided that no final dividend will be paid for the year to June and it does not intend to pay dividends in the short term.

Hospitality sector in a state of disaster

This is because of the impact of Covid-19 on its operations and the minimal revenue earned since the declaration of National State of Disaster in South Africa.

“The declaration of future dividends remains subject to satisfying solvency and liquidity requirements,” it said.

The group is implementing a number of measures to reduce costs, preserve cash, and stem the significant losses incurred because of the severe negative impact of the Covid-19 lockdown.

Analysts in June predicted a grim future for hotel groups because of the lockdown, highlighting that they have incurred billions in debt to buy assets or expand existing properties – and now need to service that debt with almost no cash flow.

The plight of the hospitality sector led to the Tourism Business Council of South Africa (TBCSA) in June 2020 pushing for the earlier phased reopening of international tourism to South Africa this year.

Results

City Lodge made a net loss of R486.6 million, compared to a profit of R205.5 million in the previous year, as average occupancy levels in its hotels plummeted from 55% to 38%.

This loss resulted largely from the impairment of property, plant and equipment by R245.5 million and right-of-use assets by R242.9 million as a consequence of the downward short to medium-term trading expectations due to the global pandemic.

Occupancies in South Africa decreased from 58% in the previous financial year to 41%, which is a further 16 percentage point decline from the occupancy for the six months to end-December 2019.

This contributed to total revenue decreasing by 25% to R1.16 billion from R1.55 billion, while operating costs excluding depreciation decreased by 24% to R735.4 million from R961.4 million.

The group reported a headline loss per share of 388.1 cents compared to headline earnings per share of 561.7 cents in the previous year.

Shares in City Lodge dropped 1.8% on Thursday to close at R2.72.

 

City Lodge share price over the past year

 

City Lodge CEO Andrew Widegger said this year has been one of the most challenging in the group’s history due to the impact of the pandemic on global and local economies and the travel and hospitality industry in particular.

‘Significant adverse impact’

Widegger said the restricted operational and economic environment arising from the declaration of the state of disaster on March 15 had a significant adverse impact on the group’s results for the year to June 2020.

“The impact of the Covid-19 pandemic on the group’s business and results of operations generally increased in magnitude and severity following the commencement of strict lockdown protocols in South Africa on March 27 2020. Similar lockdown protocols were followed shortly thereafter in the other African countries where the group operates.

“These measures resulted in the temporary closure of almost all of the group’s 62 hotels, except for those hotels which remained open on a limited basis providing quarantine facilities to repatriated citizens, and hotels providing support to government authorities and essential and critical business continuity services,” he said.

Widegger added that the easing of lockdown measures has resulted in the gradual reopening of about 32 of the group’s hotels across South Africa and its rest-of-Africa operations based on demand.

Cost containment initiatives implemented by the group include:

  • The suspension of capital expenditure for all non-essential and uncommitted spend.
  • Obtaining rent deferral or other rental discounts for the majority of the group’s leased properties for three months, mainly from April to June.
  • Implementing 50% salary reductions for all employees who are not able to work remotely due to the nature of their work, with effect from April 2020 for an initial period of three months, extended by a further two months from July.
  • The board and 14 members of the executive and senior management team have agreed to forego 20% of their fees and salaries over the commensurate five-month period.
  • Suspend certain large key contracts for services now being performed inhouse.
  • Reduce fixed service contracts due to reduced frequency of services, such as lift maintenance.
  • Culling of variable expenses until trading and occupancy levels return to pre-Covid levels.

City Lodge successfully raised R1.2 billion through a rights offer in August and intends to use the net proceeds to repay a substantial portion of amounts owing under its secured facilities, retain on deposit an amount equal to the settlement of the company’s guarantee for its BEE transaction, and to improve liquidity.

The group warned that if the rights offer was not successful, a material uncertainty exists that could cast significant doubt on the group’s ability to continue as a going concern.

In regard to its liquidity, City Lodge reported on Thursday that apart from other measures it has also secured the waiver of the borrowing covenants for both the June 2020 and December 2020 measurement periods.

It added: “In preparing the cash flow forecasts utilised to assess the going concern [aspect], the impact of the pandemic on the group’s operations and liquidity was considered.

“The cash flow statements remain challenging in the short term, however, the longer-term outlook over the next five years remains positive.”

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And the share lost 80% of its value over the last 2,5 years..was R12 at the beginning of February 2018-its not even R 3 now

Blame lockdown all you want, Sweden didn’t go into a lockdown and hotel occupancy was still at 7% during the period.

50% salary cuts for staff and 20% fee waiver for board members

It will be a buy below 100c. When the economy rebounds, and it will given time, it will be a good sweetner to have in one portfolio.

End of comments.

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