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City Lodge shares fall more than 8% on negative trading update

Group expects a double-digit drop in earnings for the year to June.
Locals are increasingly choosing to stay with friends or family, business travel is down due to budget cuts, and visa restrictions are contributing to stagnant overseas tourist arrivals. Picture: Moneyweb

City Lodge is set to report a decline of 17-22% in normalised headline earnings for the year ending June 2019 this week.

The JSE-listed hotel group revealed this in a trading statement on the JSE on Thursday, ahead of the Women’s Day long weekend. This saw its share price fall more than 8% on the day to below the key R100-a-share level for the first time in seven years.

The group is the latest JSE-listed company to put out a trading statement alerting the market to lower earnings for the current reporting season. City Lodge’s warning comes as the accommodation sector and broader tourism industry has hit headwinds in the face of SA’s poor economic growth and stagnant overseas tourism arrivals.

Read: Tourism could reboot SA in no time at all; it’s time it was allowed to

In terms of the JSE’s listings requirements, a company is required to publish a trading statement as soon as it is reasonably certain that the financial results for the current reporting period will be more than 20% different to those of the prior comparative period.

Earnings could be down as much as 22%

City Lodge advised shareholders in its trading statement that for the year ended June 30, the company expects to report normalised headline earnings of between R274.8 million and R258.2 million. This will represent a decrease of between 17% and 22% compared to the figure of R331.1 million for the year ended June 30, 2018.

“Normalised headline earnings represent headline earnings adjusted for the effects of transactions relating to BEE and those of a non-recurring and/or core nature,” it explained.

According to the statement, normalised diluted headline earnings per share (EPS) would come in at between 631.3 cents and 593.3 cents. This would see EPS also decreasing between 17% and 22% compared the 2018 financial year.

It said basic EPS would decrease by between 24% and 29%, while basic headline EPS would decrease by between 20% and 25% for its 2019 financial year.

“Shareholders are advised that the financial information on which this trading statement is based has not been reviewed or reported on by the company’s auditors. City Lodge’s results for the year ended 30 June 2019 will be released on SENS on or about 15 August 2019,” it added.

Industry woes

City Lodge’s poor performance comes as the Tourism Business Index (TBI) released by the Tourism Business Council of SA (TBCSA) in April warned of “the industry’s woes” continuing in 2019.

The TBCSA said at the time: “With the lowest recorded index results, 2018 proved to be the most challenging trading year for the tourism sector since the inception of the TBI in 2010.” It added that the “major contributors to significantly below normal business performance” included the “lack of demand from domestic and overseas leisure tourists” as well as “lack of domestic business tourism”.

Speaking to Moneyweb on Sunday, TBCSA CEO Tshifhiwa Tshivhengwa said the decline in earnings at the City Lodge group is “a reflection of SA’s depressed economy.” He says the hotel and broader tourism sector is also being negatively impacted by the country’s economic woes.

Read: Attacq to build high-rise apartments and hotels at Waterfall City 

“The City Lodge group relies on government and corporate business,” says Tshivhengwa. “With both government and corporates cutting spending in a tough economy, this is having a negative impact on hotel occupancies and, ultimately, earnings.”

Foreign arrivals stagnating

He adds that overseas tourist arrivals to SA are stagnating. Furthermore, while Statistics SA has reported an uptick in domestic tourism, he says that with consumers being under pressure and facing uncertainty around their jobs, most are choosing to stay with friends and family when travelling.

“Inbound overseas tourist arrivals from key markets tracked lower in the first half of the year and for the next six months it is not looking good either,” he says.

“We need to fast-track the moves towards easing visa restrictions and implementing online visa applications. This will go some way towards stimulating the inbound tourism market and will hopefully result in some sort of fast turnaround,” says Tshivhengwa.

“The issue of unabridged birth certificates for travelling minors is still lingering and needs to be addressed,” he adds.

“The water issue in Cape Town is also having a lingering impact. Election years generally do affect tourism, but other issues like the land expropriation without compensation debate and general poor confidence levels in the country also negatively affect tourism.”

Tshivhengwa also notes the impact of Airbnb on the sector, saying that while the hotel industry needs to be responsive to changing markets, there is still a need for regulation of Airbnb.

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“We need to fast-track the moves towards easing visa restrictions and implementing online visa applications. This will go some way towards stimulating the inbound tourism market and will hopefully result in some sort of fast turnaround,” says Tshivhengwa.

“The issue of unabridged birth certificates for travelling minors is still lingering and needs to be addressed,” he adds.

There goes one of the biggest own goals of all time thanks to Gigaba’s time at home affairs. That it remains to be fixed is quite as mindboggling.

But that’s the ANC. If it’s not broke, break it.

The NHI, about to turn every healthcare professional into a government employee will preside over the biggest exodus of doctors and surgeons seen in any country – as well as the emigration of anyone with the means to leave and who can afford their health – ie, what’s left of Tax base.

You don’t know whether to laugh or cry. It’s like this country is determined to commit suicide.

Or look at everything that successful countries have done, and then do the opposite.

There really are no words for this.

The money spent on the world cup was pretty much wasted in terms of tourism by this own goal. Turns out it really was just a vanity project.

“Turns out it really was just a vanity project”…. which enriched dozens of ANC cadres.

“But that’s the ANC. If it’s not broke, break it.”

Perfectly said …. and coming to a medical professional in your neighbourhood soon!

The NHI!!!

Sat this morning with the printer rep, have to decide whether to renew the contract for another 5 years. Should I? Can I? Looked around at the magazines received monthly for the waiting room- excellent service, cheap, the bills for consumables, computers, licences, the staff happily at work, The cleaner talks about “job security”- only person in her family of five adults working and my throat constricts. The equipment, the person who services it.., I spoke to agents at a med aid call center, the people from the bureau that handles our accounts, and such a heaviness came over me that I can hardly handle it. All these people, including ourselves, out of work, according to the grand plan, which inter alia does not cater for specialists. My daughter who needs sophisticated medication to stay alive and bring up her little boys, whilst running her own successful business and who will not be able to get it. And die. My husband and I who will, being over 60, need expensive interventions, if any are needed. And who will not even be able to buy it. Millions of tax payers in the private sector to become unemployed, for a plan to be funded by tax payer money. Have we worked hard for decades, sacrificing family time, all the stress and hardship, only to be killed along with our children for a communist cause the policy makers know cannot work? Which has no basis in logic? But affords wonderful opportunities for corruption and theft.

Less tax from them Mr. Kieswetter. Just like many others.

This is a sure sign of a country on the back foot. So we have to borrow more just like Eskom and we all know the result of that.

The new dawn ja right.

The rates being charged by SA’s hospitality industry, which approach those being charged in Europe, even in rand terms, are a big part of the problem. This is especially true in the Western Cape. R2000 per night for a mediocre City Lodge room (Cape Town) is simply too much.

Agree. All over the country, even hovels masquerading as “genteel chic” are exorbitant by comparison to Some European countries. And then we have restaurant costs …

I agree 100% . i am presently holidaying in Europe , able to walk freely without expecting to be mugged or killed – very relaxed .
as i have stated before Cape Town is expensive and overrated , they can keep their “cute” kayalytshia tours

A direct, palpable and absolute judgement of the country and the consequences of ANC rule by an entirely objective market that votes with their wallet.

I wonder what the impact of AirBnb is on City Lodge? Seems that Airbnb has a lot to offer. Chiefly, authentic places to stay at any price – and if it’s a great experience then you have made a repeat customer too. I don’t know how City Lodge compares to this…maybe it’s a bigger factor than realised.

The other problem is all the bad news lately. Your average would-be tourist probably has a fairly negative view of SA: political problems, radical politicians who’ll tweet anything, attacks on tourists, madcap policy utterances and woeful financial management and so on.

The locals, like us, who live here have grown a thick skin over the years and know not to take all the utterances seriously. Foreigners who are thinking of visiting SA don’t have that cultural firewall. Hence they might decide to holiday somewhere else. After all, people go on holiday to get away of the madness.

Getting expensive too but still better than any hotel, fior the time being.

Like with investment I think the question is if it is the absolute best you can do with your money?

The answer is not too difficult.

End of comments.





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