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.
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.
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.
“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.