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City Lodge’s R1bn African expansion strategy hit by delays

Timelines for completion uncertain.

The conclusion by JSE-listed City Lodge Hotels group of its initial R1 billion African expansion strategy is being held up by delays to the competition of its 148-room City Lodge Hotel Maputo because of “contractor-related delays and disputes”.

The African expansion strategy was launched in 2015 and involved the development of seven new hotels, including City Lodge hotels in Nairobi in Kenya, Dar es Salaam in Tanzania and Windhoek and Town Lodges in Namibia and Botswana.

Andrew Widegger, the chief executive of City Lodge Hotels, said on Friday the final timelines for the completion of the City Lodge Hotel Maputo were uncertain at this time.

The development of this hotel has been marred by several delays because of a cash-strapped contractor, many delays around the regulatory requirements and having to translate every document into Portuguese.

Widegger said that with the opening of this hotel in due course, the group would have completed its initial targeted expansion into Southern Africa and East Africa and would then comprise 63 hotels with 8 070 rooms in six countries.

“The focus now is on ensuring the success of the recently opened hotels through effective sales and marketing campaigns and building brand preference in the markets where we operate,” he said.

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

The group last week opened the 154-room Town Lodge Umhlanga, its 55th hotel in South Africa, and reported that construction of the 168-room Courtyard Hotel Waterfall City was progressing well, with the first rooms on track to open in November next year and the balance becoming available at the beginning of 2021.

Widegger said average occupancies across the group’s hotels fell to 55% from 59% in the year to June, which was attributed to the impact of challenging trading conditions in its markets.

He said South African average occupancies fell to 58% from 61% because of low levels of business and consumer confidence, high unemployment, uncertainty around Eskom’s sustainability and land expropriation, as well as negative economic growth in the first quarter of 2019.

Occupancies in the group’s African hotels were below expectations, with occupancies in Botswana improving slightly in the second half of the financial year after being three percentage points down at the half year.

Town Lodge Windhoek performed below expectations on the back of weak economic growth in Namibia but the group reported that its performance was improving on a month-by-month basis.

Widegger said the group’s Kenyan operations experience a weaker second half because of increased hotel supply and economic growth not translating into commercial activity after a welcome four percentage points improvement in the first half, with occupancies ending two percentage points lower for the full year.

He said the City Lodge Hotel Dar es Salaam in Tanzania had a disappointing first few months of trading due to increased hotel supply, a challenging business environment and a shift in some commercial activity as a result of government administration offices relocating to the capital of Dodoma.

Widegger said last year the group continued to assess opportunities in South Africa, Southern Africa and East Africa and this would be stepped up once the current expansion phase was completed but the group aimed to be more selective, as it further increased its African footprint, following initial disappointments and delays with its African expansion strategy.

City Lodge Hotels on Friday reported a 3% increase in total revenue to R1.5 billion in the year to June from R1.49 billion in the previous year.

Total operating costs increased on a normalised basis by 11.4% but by 7.2% in South Africa where most of the group’s hotels were situated.

Operating profit declined by 22% to R364.6 million from R467.5 million.

Diluted normalised headline earnings a share decreased by 19.4% to 613.4 cents.

A gross final dividend a share of 137 cents was declared, increasing the total dividend declared for the year to 366 cents, which was 19.4% lower than the previous year.

Commenting on the outlook for the 2019-20 financial year, Widegger said the weaker trend of the past year had extended into the new financial year and new catalysts were needed to boost investment confidence and economic growth.

Shares in City Lodge Hotels closed 2.56% lower on Friday at R95.00.

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