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portfolio of progress
CITY LODGE HOTELS LIMITED
CITY LODGE HOTELS LIMITED
A N N U A L R E P O R T 2 0 0 9
CITY LODGE HOTELS LIMITED
contents
Our vision – “People caring for people”We are committed to remaining the preferred, southern African, value for money,
selected services hotel group.
Through dedicated leadership and teamwork we will demonstrate our consistent commitment to delivering caring service with style and grace.
We will constantly enhance our guest experience through our passionate people, ongoing innovation and leading-edge technology.
Our integrity, values and ongoing investment in our people and hotels will provide exceptional returns to stakeholders and ensure continued, sustainable growth.
Our vision
Profi le of progress
Financial achievements
Our brands
Our directorate
Our executive team
Chairman’s and chief executive’s review
Seven-year fi nancial review
Responsible corporate citizenship and sustainability report
Administration
Annual fi nancial statements
Shareholders’ analysis
Value-added statement
Members’ diary
Notice of annual general meeting
Proxy form
Inside front fl ap124
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portfolio of progress
CITY LODGE HOTELS LIMITED
CITY LODGE HOTELS LIMITED
A N N U A L R E P O R T 2 0 0 9
CITY LODGE HOTELS LIMITED
contents
Our vision – “People caring for people”We are committed to remaining the preferred, southern African, value for money,
selected services hotel group.
Through dedicated leadership and teamwork we will demonstrate our consistent commitment to delivering caring service with style and grace.
We will constantly enhance our guest experience through our passionate people, ongoing innovation and leading-edge technology.
Our integrity, values and ongoing investment in our people and hotels will provide exceptional returns to stakeholders and ensure continued, sustainable growth.
Our vision
Profi le of progress
Financial achievements
Our brands
Our directorate
Our executive team
Chairman’s and chief executive’s review
Seven-year fi nancial review
Responsible corporate citizenship and sustainability report
Administration
Annual fi nancial statements
Shareholders’ analysis
Value-added statement
Members’ diary
Notice of annual general meeting
Proxy form
Inside front fl ap124
2225263438
6465
116117118119123
CIT
Y LO
DG
E H
OT
ELS
LIMIT
ED
AN
NU
AL
RE
PO
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20
09
City Lodge Hotels Limited Annual Report 2009 1
city lodge group profile of progress
The City Lodge Hotels group has come a long way from its relatively humble
beginnings – a 123-room City Lodge in Randburg, opened on 1 August 1985.
Through the vision of founder, Swiss-born Hans Enderle, the City Lodge Hotels
group has grown from a single hotel in 1985 to a multi-brand chain offering a variety
of locations, features and budget choices to business and leisure travellers.
From the start, emphasis was placed on quality accommodation, homely ambience
and friendly service – still important attributes of the group in the 21st century and
core reasons guests choose our hotels.
After pioneering the quality selected services hotel concept in South Africa, the
group has grown substantially and diversified its product offering to meet different
travellers’ needs.
Commitment to service excellence from a highly motivated and dedicated staff is
a common thread throughout the group’s hotels which have developed a loyal base
of regular clients over the years and an ever-growing number of new guests.
The group now has four district brands, offering 4 989 rooms, at 44 locations
throughout South Africa.
progress of our quality and style
2 City Lodge Hotels Limited Annual Report 2009
highlights financial achievements
For the year ended 30 June 2009 2009 % 2008
Revenue (R’m) 665,0 11 599,9
Normalised EBITDA (R’m) 369,7 9 340,0*
Normalised operating profit (R’m) 334,8 7 313,1*
Normalised headline earnings (R’m) 236,0 4 226,4*
Diluted normalised headline earnings per share (cents) 549,1 4 527,0*
Dividends declared per share (cents) 361,0 (3) 371,0
Normalised cash generated by operations (R’m) 372,8 3 364,1
Normalised net asset value per share (cents) 1 627 17 1 473*
*Prior year restated to normalised earnings. Refer to note 20 for details of BEE transactions.
0908070605
10
5 11
5
25
4
31
3 33
5
Normalised operating profit(million)
0908070605
20
3
23
8
29
3
37
1
36
1
Dividends per share(cents)
0908070605
11
2
10
8
17
7
22
6 23
6
Normalised headline earnings(million)
City Lodge Hotels Limited Annual Report 2009 3
Stock exchange performance – Ordinary share price (cents)
R334,8 mNormalised operating profi t
Normalised operating profi t for 2008/09 was R334,8 million, compared with R313,1 million in the previous year.
361,0 centsDividends per share
Dividends per share for 2008/09 was 361,0 cents, compared with 371,0 cents in the previous year.
R665,0 mRevenue
Group revenue for 2008/09 was R665,0 million, compared with R599,9 million in the previous year.
R236,0 mNormalised headline earnings
Normalised headline earnings for 2008/09 was R236,0 million, compared with R226,4 million in the previous year.
01 0002 0003 0004 0005 0006 0007 0008 0009 000
Jun09
Jun08
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Jun01
Jun00
Jun99
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Jun95
Jun94
4 City Lodge Hotels Limited Annual Report 2009
our brands operational overview
6 hotels – 451 rooms 11 hotels – 1 802 roomsOUR ROOMS OUR ROOMS
Studio, one or two-bedroom luxury rooms.Well-appointed bathroom(s).Fully equipped kitchenette.Personal electronic safe in each room
(big enough for laptops). International direct-dial telephone.
Television with M-Net and selected DStv channels.Air-conditioned.
Spacious air-conditioned room with queen-sized bed or twin beds.Television with M-Net and selected DStv channels.Bathroom with bath and separate shower.Tea and coffee-making facilities. Rooms with sleeper-sofa available at selected hotels on request.
Rooms with two separate beds for twin accommodation.Electronic safe large enough to accommodate a laptop.Desk with lighting and plugs for easy connectivity.Dedicated line to internet.
OUR SERVICES OUR SERVICES
Woolworths personalised shopping service. Intimate lounge area. Courtesy bar (17:00 – 19:00). 24-hour enhanced security. Free, secure parking just metres from your door. An elegant boardroom for guest use. Personal use of guest offi ce and internet. Sparkling pool in landscaped garden setting. Full English and continental breakfast daily. In-room dining by arrangement with local restaurants. Same-day laundry and dry-cleaning service. 24-hour laundrette. Ice machine. Wireless internet access.
Internet area. Mini gym. Boardroom. Convenient locations, close to major routes. Full English and continental breakfast daily. 24-hour reception and check-in. Sundowner bar. 24-hour vending machines stocked with snacks and cold
beverage items. Same-day laundry and dry-cleaning. Sparkling swimming pool. Free and convenient parking. Wireless internet access. Coffee shop serving light meals.
OUR CURRENT LOCATIONS OUR CURRENT LOCATIONS
Cape Town Johannesburg (Eastgate, Rosebank, Sandton) Pretoria (Arcadia)Port Elizabeth
Bloemfontein Cape Town (Pinelands, V&A Waterfront, GrandWest)Durban (Central, Umhlanga Ridge) Johannesburg (Bryanston, Johannesburg – Airport Barbara Road, Sandton, Katherine Street, Sandton Morningside)Port Elizabeth
OUR FUTURE LOCATIONS
Johannesburg (Fourways, OR Tambo Airport)Pretoria (Hatfi eld, Lynnwood)
City Lodge Hotels Limited Annual Report 2009 5
9 hotels – 1 041 rooms 18 hotels – 1 695 roomsOUR ROOMS OUR ROOMS
Fully carpeted, spacious air-conditioned room with double or twin beds.Television with M-Net and selected DStv channels.Interleading family rooms available.En-suite bathroom with maxi-shower. Tea and coffee-making facilities.
Desk with lighting and plugs for easy connectivity.
Fully carpeted and air-conditioned.Colour television with M-Net and radio channels.En-suite bathroom with shower, toilet and hand basin. Rooms with double or twin beds, with single sleeper chair available in selected rooms. Working desk.
OUR SERVICES OUR SERVICES
Convenient locations, close to major routes. Free, easy and secure parking. 24-hour reception and check-in. Full English and continental breakfast daily. Sundowner bar. 24-hour vending machine for snacks and beverages. Fax and photocopy services available. Same-day laundry and dry-cleaning. Wireless internet access.
A light breakfast is available daily. 24-hour vending machines stocked with snacks and
beverages. Free, ample and secure parking. 24-hour reception service. Coin and card call-boxes for trunk calls. Wireless internet access.
OUR CURRENT LOCATIONS OUR CURRENT LOCATIONS
Bellville GeorgeJohannesburg (Johannesburg Airport, Midrand, Roodepoort, Sandton Grayston Drive)NelspruitPolokwanePretoria (Menlo Park)
Cape Town (N1 City, Cape Town International Airport)Centurion Durban East London Johannesburg (Brakpan – Carnival City, Germiston Lake, Isando, Johannesburg Airport, Randburg, Rivonia) Kimberley Nelspruit Port Elizabeth Potchefstroom Richards Bay Rustenburg Umhlanga Ridge
OUR FUTURE LOCATIONS OUR FUTURE LOCATIONS
Port ElizabethUmhlanga Ridge
Bloemfontein AirportPort Elizabeth AirportSouthgate
6 City Lodge Hotels Limited Annual Report 2009
more reasons to make yourself at homeThe Courtyard Hotels offer the discerning guest an exclusive and gracious alternative to an ordinary hotel.
Each Courtyard Hotel has its own distinct atmosphere, although they all share an air of elegance and
charm not readily found today. There are several accommodation options available, from the studio
through to one or two-bedroomed units, each of which offers a lounge area with a dining table,
a kitchenette with refrigerator and microwave oven.
We also provide a personal shopping service. Should you wish to have your kitchenette stocked with the
fi nest quality food and beverages prior to your arrival, contact us for an itemised shopping list and we will
gladly make these arrangements for you.
our brands the courtyard hotel chain
“We were pleasantly surprised at the size of the room. It is fantastic.”
Courtyard, Sandton
– Guest Book
Courtyard – Eastgate
10 City Lodge Hotels Limited Annual Report 2009
we’ll make you feel like you’re at home
our brands the city lodge hotel chain (continued)
City Lodge has become a household name in the southern African market, providing guests with
comfortable and tastefully decorated rooms which are the ideal place to make your own when you
come home at the end of your day – whether you have been working or playing.
Each room has an en-suite bathroom where you may choose to soak in a hot bath or take a shower
while deciding where to dine that evening.
“I was really impressed with the calibre of staff – their professionalism, friendliness, attentiveness and overall neat and tidy appearance!! I travel a lot and I seldom see this art of consistent experience.”
City Lodge, Umhlanga Ridge
– Guest Book
City Lodge – Umhlanga Ridge
14 City Lodge Hotels Limited Annual Report 2009
stay smart
our brands the town lodge hotel chain (continued)
Very much like City Lodges, Town Lodges are also strategically located adjacent to motorways
and major routes.
The rooms are slightly smaller than City Lodge, but offer similar stylish decor and the
customary comfort. En-suite you will fi nd a maxi-shower with a glass door, a tiled built-in
seat, a wall-mounted and a hand-held showerhead.
“What a great stay, so convenient and with great service too. A perfect stop-over during a long journey. Thank you Town Lodge for making us feel so at home.”
Town Lodge, George
– Guest Book
Town Lodge – Polokwane
18 City Lodge Hotels Limited Annual Report 2009
why pay more?
our brands the road lodge hotel chain (continued)
The best value in the City Lodge family of hotels is undoubtedly to be found at the Road Lodge.
These hotels offer unbelievable value-for-money; the same rate whether there are one, two or even
three people sharing the comfortably furnished and tastefully decorated room.
“Helped me and my mom with a quiet room – helped me to locate several sites on a map. Gave exceptional, friendly service – a great credit to your establishment”.
Road Lodge, Port Elizabeth
– Guest Book
Road Lodge – Kimberley
22 City Lodge Hotels Limited Annual Report 2009
management our directorate
1.
2. 3. 4.
5.
8.
6.
9.
7.
1. Hans Enderle (67)† Non-executive chairman and founder 53 years experience in the hotel industry.
2. Frank Kilbourn (47) Director of companies BCom, LLM, BA (Hons), HDip Tax
Appointed to the board in 1996.
3. Nigel Matthews (64) † Director of companies MA (Oxon), MBA
Appointed to the board in 1989.
4. Ndumi Medupe (39) Auditor and financial consultant Chartered Accountant (SA)
Appointed to the board in 2006.
5. Stuart Morris (63) Director of companies Chartered Accountant (SA)
Appointed to the board in 2006.
6. Bulelani Ngcuka (55)† Director of companies BProc, LLB, MA (Webster University – Geneva)
Appointed to the board in 2008.
7. Clifford Ross (52)# Chief executive 34 years experience in the hotel industry.
8. Dr Keith Shongwe (45) Business development executive BSc, MBChB
Appointed to the board in 2002.
9. Andrew Widegger (43)# Financial director Chartered Accountant (SA)
16 years with the company.
Member of audit committee # Member of executive committee
† Member of remuneration and nomination committee
Member of risk committee Executive director
Independent non-executive
City Lodge Hotels Limited Annual Report 2009 23
1. Clifford Ross (52)# Chief executive 22 years with the company.
2. Andrew Widegger (43)# Financial director 16 years with the company.
3. Tony Balabanof (49)# Divisional director – operations 23 years with the company.
4. Gary Bisset (55)# Divisional director – operations 13 years with the company.
5. Alastair Dooley (30)# Divisional director – financial Joined 1 May 2009.
6. Marcel Kobilski (45)# Divisional director – human resources 13 years with the company.
7. Naynesh Parbhoo (36)# Divisional director – accounting 11 years with the company.
8. Ross Phinn (38)# Divisional director – operations 11 years with the company.
9. Heather Prinsloo (45)# Divisional director – transformation 1 year with the company.
10. Peter Schoeman (44)# Divisional director – sales and marketing 13 years with the company.
11. Patrick Tate (53)# Divisional director – operations 21 years with the company.
# Member of executive committee
Member of risk committee Executive director
24 City Lodge Hotels Limited Annual Report 2009
City Lodge Hotels Limited Annual Report 2009 25
management our executive team
1. 2.
3. 4. 5.
6.
9.
7.
10.
8.
11.
dear shareholder
Hans EnderleChairman
Clifford RossChief executive
Clifford Ross Hans Enderle
our chairman’s and chief executive’s review
26 City Lodge Hotels Limited Annual Report 2009
In our 25th year of operations, it is perhaps
fi tting for us to step back and review our
“Portfolio of Progress” as our group and
the whole of South Africa looks forward
with eager anticipation to our country’s
momentous hosting of the 2010 FIFA
Soccer World Cup.
Progress effectively means a combination
of forward movement, improvement,
growth and development and evolution,
all of which are integral to our ongoing
success in an increasingly discerning
consumer-driven hospitality environment.
City Lodge Hotels Limited Annual Report 2009 27
Progressing fi nancially
Against the backdrop of a weak economy, our
group did well to maintain average occupancies
at 77% in the year to 30 June 2009, compared
to the record occupancy rate of 82% achieved
in the previous fi nancial year.
In addition to the diffi cult trading conditions, the
second half of the year was adversely affected
by the number of public holidays in April,
exacerbated by the additional mid-week holiday
on 22 April for the general election.
Despite the lower occupancies, the number
of rooms sold increased marginally, due to
additional capacity being available relative to the
prior year. This, together with higher achieved
room rates, led to turnover increasing by 11%
to R665,0 million.
On a normalised basis (excluding the effects of
the BEE transaction), the EBITDA margin
decreased by 1,1 percentage points to 55,6%,
mainly due to the lower occupancies and
signifi cant increases in municipal services
expenses. Normalised EBITDA rose by 9%
to R369,7 million.
As a group, we are hugely excited about FIFA’s
four-yearly soccer extravaganza fi nally coming
to African soil, and our preparation has been
detailed and intensive. By the time the event
begins, we would have been running our “On
Top Of My Game” and “Gotcha Cup” service
excellence and staff motivation programmes for
no less than fi ve years, demonstrating our
commitment to this once-in-a-lifetime opportunity
to showcase City Lodge Hotels and South Africa
to the world. The “Gotcha Cup” will be presented
to the worthy winner at the end of June 2010.
Training of our hotel staff will continue right up
to the kick-off – including cultural diversifi cation
education and “do’s and don’ts” for dealing with
guests from a multitude of nations and traditions.
While we have contracted 80% of our rooms
inventory to MATCH for the World Cup, this has
been done so at rates which not only provide
us with a good return, but also maintain our
value-for-money reputation and South Africa’s
image as a value-for-money destination.
We are proud of the progress that has been
achieved – and continues to be achieved –
across all of our operations and activities.
28 City Lodge Hotels Limited Annual Report 2009
our chairman’s and chief executive’s review (continued)
growth in business and leisure travel throughout
South Africa.
Having opened our 44th hotel – the 125-room
Road Lodge Umhlanga Ridge – during August
and September 2009, the next addition to our
rapidly growing family will be the 211-room
City Lodge Fourways, which will open its first
rooms in December and be fully operational in
the first quarter of 2010.
Our biggest hotel to date – the 303-room City
Lodge OR Tambo Airport – is making good
progress towards opening its first rooms in the
first quarter of 2010 and the remaining rooms in
time for the World Cup.
Excellent progress is also being made on our two
new Pretoria hotels – the 205-room City Lodge
Lynnwood and the 187-room City Lodge Hatfield.
The former is expected to be 75% operational by
the start of the World Cup and the latter will open
in the third quarter of 2010.
In Port Elizabeth, construction has begun on a
203-room Town Lodge, scheduled for completion in
the fourth quarter of 2010. This will result in all four
of the group’s brands being available to guests in
close proximity to each other along the city’s prime
As a result of the additional capacity and the
significantly higher capital expenditure,
depreciation increased by 29,4%. Interest income
was R3,1 million lower, whilst non-BEE interest
expense was R982 000 higher.
Despite lower occupancies, the group’s share of
profit from the Courtyard Joint Venture increased
by 5,0% to R9,0 million.
Profit before tax on a normalised basis increased
by 5,4% to R353,0 million whilst normalised
headline earnings increased by 4,2% to
R236,0 million and normalised headline earnings
per share, on a fully diluted basis, also rose 4,2%
to 549,1 cents.
Given the extensive development programme, the
board resolved to drop the payout ratio for the
final dividend from 70% to 60% of normalised net
profit, resulting in a full year dividend per share of
361,0 cents (2008 – 371,0 cents).
Property progress
Without doubt we are currently in the most
exciting growth phase of our near quarter century
history. The new hotels we are developing will
position us ideally to take advantage of future
City Lodge Hotels Limited Annual Report 2009 29
Staffing up to handle our progress
Taking a pro-active approach, we have made
several central office appointments to manage the
group through this strong growth and development
phase. Additional capacity brings with it the need
for a larger management team and the inclusion
of some specific and focused responsibilities
requiring the skills of dedicated specialists.
The following appointments reflect this reality:
Ross Phinn, divisional director – operations
(there are now four divisional operations
directors overseeing the group’s existing and
upcoming hotels):
Alastair Dooley, divisional director – financial;
Henri Joubert, international business
development manager;
Maxine Muir, manager, orientation and
management development;
Kobus van Zyl, development manager;
Emile van der Merwe, property investment
manager; and
Cathy Bayne, design manager.
beach front. Construction will begin soon on a
90-room Road Lodge at Port Elizabeth Airport and a
66-room Road Lodge at Bloemfontein Airport, both
of which are scheduled to open in the second
quarter of 2010.
In Johannesburg, construction will soon begin on
the 118-room Road Lodge Southgate and adding
70 rooms to Town Lodge Grayston Drive, both of
which should be completed by mid-June 2010.
At Umhlanga Ridge, a site has been secured for
the development of a 187-room Town Lodge.
This surge in our property progress will result in our
group offering 53 hotels and 6,629 rooms across
its four brands, an increase of 36%.
Long term debt facilities of R400 million have been
secured to facilitate the funding of these
developments. As at 30 June 2009, R100 million
of this funding had been drawn.
Ensuring that our property portfolio keeps on
growing, further sites have been secured in carefully
chosen locations to take advantage of future
development opportunities.
30 City Lodge Hotels Limited Annual Report 2009
our chairman’s and chief executive’s review (continued)
People progress
People have always been and will always
continue to be at the heart of everything we do.
The appointment of Maxine Muir, previously
general manager of Courtyard Eastgate, to the
newly created position of manager, orientation
and management development, is in line with
our group’s constant commitment to building a
strong group of managers and management
potential to take us forward. Her “executive
coach” role is seen as particularly important at
a time when our group is in a major growth
phase and there is a shortage of external skills
to tap into in the broader South African market.
On the training front, our group has achieved
the internationally recognised Investors in People
accreditation which is essentially a business
improvement tool, designed to advance an
organisation’s performance through its people.
Ongoing training throughout our hotels focuses
on delivering excellent service, improving skills,
developing people and enabling our group to
comply with a range of statutory requirements.
Progressing our BBBEE status
As a group, we are committed to the spirit and
the practical implementation of South Africa’s
broad-based Black Economic Empowerment
legislation and associated requirements.
The Black Economic Empowerment transaction
which saw the Injabulo Staff Trust acquire a
6% shareholding, Vuwa Investments (Pty) Ltd – 6%
and the University of Johannesburg School of
Tourism and Hospitality Education Trust – 3%,
was effected in July 2008, has been fully implemented
and is working well for all parties.
In the first year since this transaction was
completed, we have achieved Level 6
certification in the Department of Trade and
Industry’s codes and will continue to make
progress in compliance and scorecard ratings.
With the government now having finalised its
policy regarding procurement by its departments
and agencies, our continually improving BBBEE
status should place us in a favourable position to
receive guests from this important sector of the
economy.
City Lodge Hotels Limited Annual Report 2009 31
Once staff members have been selected for
these pools, personal development plans are
drawn up to assist with their progress.
Technological progress
Technology has become an increasingly
important enabling tool in our industry, but it
requires modification and upgrades from time
to time to ensure that we remain in line with
the latest functionality and advancements.
Our central server environment is being
upgraded with live rollout scheduled for
November 2009 and we are also upgrading to
the latest Microsoft Windows operating system.
A VM Ware (virtual memory) platform is also
being introduced.
By adopting the eRes system as our new
internet booking engine, we have cleared the
way for direct links with outsourced booking
engines, increasing the online bookability of our
rooms. An electronic invoicing system is also in
the pipeline.
Wireless internet accessibility has been
extended to run throughout all our Courtyard,
City Lodge and Town Lodge hotels and all Road
Currently, we have 16 learnerships in place –
nine in front-of-house and seven in
housekeeping – and we have 45 staff
members undergoing cross-training to
broaden their skills.
The City Lodge Academy continues to make a
valuable contribution with 18 would-be managers
enrolled in the programme – seven in first year,
eight in second year, and three in their final year.
Our Accelerated Development and Deployment
Programme is gaining traction with three staff
members currently on the programme. This
one-year programme is specifically designed for
people with particular service oriented skills – not
necessarily hospitality skills – aimed at fast-
tracking them into senior management. One
individual has already successfully come through
this programme and been appointed as a
Road Lodge manager.
With succession planning being an important
consideration in our people-focused industry, our
Management Development and Succession
Committee continues to make good progress
with identifying staff to go into “succession pools”
for promotion into more responsible positions.
32 City Lodge Hotels Limited Annual Report 2009
our chairman’s and chief executive’s review (continued)
continued status as one of Johannesburg’s most
popular hotels.
Progressing internationally
Our recently appointed International Business
Development Manager, Henri Joubert, has made
good progress in identifying possible international
locations for our brands. This includes gathering
information and conducting intensive research into
various countries and locations.
Following a detailed feasibility study on Nigeria, it
has been decided to place this expansion project
on the “back burner” with a view to revisiting it
at a later stage. Global economic uncertainty,
scarcity of capital and the perceived risks of
doing business in that country have informed
the board’s decision.
India continues to be seen as an attractive expansion
destination and further research is underway into this
vast and intriguing country.
It is likely, however, that our first foray outside of
South Africa will be into a neighbouring country in
southern Africa. Ongoing research is being carried
out on expansion opportunities in Namibia, Botswana,
Zambia, Zimbabwe, Mozambique and Mauritius.
Lodges will be fully “wifi” enabled by the end of
June 2010.
Progressing our features and facilities
Keeping our hotels fresh, homely and relevant to
our guests’ needs has always been a hallmark of
our hospitality offerings. Through our guest
questionnaires and our own domestic and
international research, we are constantly staying
in touch with travellers’ needs.
Our flagship City Lodge brand has undergone a
major makeover that has focused on upgrading
and modernising the product it offers to guests.
This process has involved introducing coffee
shops to all City Lodges operating from 10:00 to
22:00, providing wireless internet access
throughout the hotels (not only in certain areas),
enhancing the boardrooms and further improving
the sleep experience.
For example, after a comprehensive
refurbishment, City Lodge Katherine Street,
one of our stalwart hotels in the Sandton area,
was re-introduced to corporates and the travel
industry at a function in July – and its new look
was extremely well-received, auguring well for its
City Lodge Hotels Limited Annual Report 2009 33
Genuine and heartfelt thanks must go to everyone
– guests, staff, management, directors and
suppliers – who has contributed to our group’s
progress to date, enabling us to look towards our
silver anniversary on 1 August 2010 with a sense of
confidence, excitement and celebration.
Hans Enderle
Chairman
Clifford Ross
Chief executive
Future progress
Our group is well positioned and prepared for the
2010 FIFA Soccer World Cup. It is important to
note, however, that only half of the event will fall
into the 2010 financial year.
While there are some signs of improving demand,
trading conditions are expected to remain soft in
the near term. Occupancies are not expected to
normalise until the 2011 financial year, which will
also benefit from half of the World Cup, an
anticipated recovery in local and global
economies and contributions from the new
hotels being added to our existing portfolio.
34 City Lodge Hotels Limited Annual Report 2009
IFRS SA GAAP
R’m 2009 2008 2007 2006 2005 2004 2003
Consolidated normalised income statementsRevenue 665,0 599,9 509,7 442,1 390,9 335,8 292,9
EBITDA* 369,7 340,0 281,1 237,0 206,3 173,9 151,7Depreciation and amortisation (34,9) (26,9) (26,7) (25,5) (24,9) (23,2) (22,3)
Operating profit 334,8 313,1 254,4 211,5 181,4 150,7 129,4Net interest income/(expense) 9,2 13,2 8,2 3,4 3,4 (0,6) (2,0)Income from joint venture 9,0 8,5 7,6 5,4 3,1 3,0 3,5
Profit before taxation 353,0 334,8 270,2 220,3 187,9 153,1 130,9Taxation (116,8) (108,3) (92,3) (76,4) (65,3) (52,5) (44,1)
Profit for the period 236,2 226,5 177,9 143,9 122,6 100,6 86,8
Determination of headline earningsProfit for the period 236,2 226,5 177,9 143,9 122,6 100,6 86,8(Profit)/loss on sale of equipment (0,3) (0,2) (0,3) 0,9 — — —Taxation effect 0,1 0,1 0,1 (0,2) — — —
Headline earnings 236,0 226,4 177,7 144,6 122,6 100,6 86,8
*Prior year restated to normalised results. Refer to note 20 for details of BEE transactions.
seven-year financial review
07 0806050403
292,
9
335,
8
390,
9
442,
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509,
7 599,
9
665,
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Revenue(R’m)
07 0806050403
86,8
100,
6
122,
6
144,
6 177,
7 226,
4
236,
0
Normalised headline earnings(R’m)
09 09
City Lodge Hotels Limited Annual Report 2009 35
IFRS SA GAAP
R’m 2009 2008 2007 2006 2005 2004 2003
Consolidated normalised balance sheetsAssetsNon-current assets 815,2 695,1 564,5 501,9 477,6 481,2 426,9
Property, plant and equipment 765,9 647,2 517,7 456,1 432,6 439,8 385,8Intangible assets — — — — — — 0,8Investments and loans 46,3 45,0 43,8 42,9 42,2 37,4 36,5Deferred taxation 3,0 2,9 3,0 2,9 2,8 4,0 3,8
Current assets 155,4 83,4 109,6 105,2 82,5 49,0 56,6
Total assets 970,6 778,5 674,1 607,1 560,1 530,2 483,5
EquityTotal shareholders’ funds 695,6 627,4 534,4 466,5 415,7 390,8 342,1
Share capital and premium 143,1 140,4 138,0 136,4 134,8 133,7 131,8Reserves* 552,5 487,0 396,4 330,1 280,9 257,1 210,3
LiabilitiesNon-current liabilities 176,5 104,3 98,0 106,0 102,8 98,7 98,1
Interest-bearing borrowings 100,0 40,0 40,0 55,2 54,5 53,0 61,1Other non-current liabilities 15,6 6,7 5,9 5,4 6,8 4,6 4,1Deferred taxation 60,9 57,6 52,1 45,4 41,5 41,1 32,9
Current liabilities 98,5 47,7 41,7 34,6 41,6 40,7 43,3
Total equity and liabilities 970,6 778,5 674,1 607,1 560,1 530,2 483,5
*Prior year restated to normalised results. Refer to note 20 for details of BEE transactions.
07 0806050403
Earnings and dividends per share(cents)
07 0806050403
260,
4
300,
3
354,
4
386,
4 521,
6 622,
2
649,
2
Net operating cash flow per share(cents)
09 09
Normalised diluted headline earnings per share
Dividends declared per share
205,
6
237,
1
287,
4
337,
9 413,
0 527,
0
549,
1
122,
0
168,
0
203,
0
238,
0
293,
0 371,
0
361,
0
36 City Lodge Hotels Limited Annual Report 2009
seven-year financial review (continued)
IFRS SA GAAP
2009 2008 2007 2006 2005 2004 2003
Ordinary share performanceShares in issue 000 42 744 42 602 42 482 42 368 42 214 42 125 41 962Normalised weighted average shares in issue 000 42 647 42 519 42 416 42 300 42 186 42 033 41 939Normalised diluted headline earnings per share cents 549,1 527,0* 413,0 337,9 287,4 237,1 205,6Dividends per share cents 361,0 371,0 293,0 238,0 203,0 168,0 122,0Normalised dividend cover times 1,5 1,4* 1,4 1,4 1,4 1,4 1,7Normalised net asset value per share cents 1 627 1 473* 1 258 1 101 985 928 815Normalised net operating cash flow per share cents 649,2 622,2 521,6 386,4 354,4 300,3 260,4
Profitability and liquidityEBITDA margin % 55,6 56,7* 55,1 53,6 52,8 51,8 51,8Operating margin % 50,3 52,2* 49,9 47,8 46,4 44,9 44,2Effective tax rate % 33,0 32,3* 34,1 34,7 34,8 34,3 33,7Return on ordinary shareholders’ funds % 34,7 38,9 35,5 32,8 30,2 27,4 26,9Interest-bearing debt to total shareholders’ funds % 19,2 6,4 7,5 11,8 13,1 15,6 19,6Net interest cover times n/a n/a n/a n/a n/a 266,7 66,4Current ratio :1 1,5 1,8 2,6 3,0 2,0 1,2 1,3
*Prior year restated to normalised results. Refer to note 20 for details of BEE transactions.
DEFINITIONS
Normalised headline earnings per share
Normalised profit before exceptional items divided by the weighted average number of ordinary shares in issue.
Normalised diluted headline earnings per share
Normalised headline earnings divided by the sum of the weighted average number of ordinary shares in issue and any outstanding share options in issue.
Dividend cover
Normalised diluted headline earnings per share divided by dividends declared per share.
Normalised net asset value per share
Total normalised shareholders’ funds divided by the number of ordinary shares in issue at the year-end.
Normalised net operating cash flow per share
Net cash inflow from operating activities, before dividends, divided by the weighted average number of ordinary shares in issue.
City Lodge Hotels Limited Annual Report 2009 37
IFRS SA GAAP
2009 2008 2007 2006 2005 2004 2003
Stock exchange performanceMarket price per ordinary share – Closing Rand 69,00 69,99 80,00 49,00 37,50 25,75 18,30– Highest Rand 79,00 89,86 82,50 58,50 39,80 28,50 18,65– Lowest Rand 57,00 65,00 46,27 36,00 24,50 17,60 11,20Total market capitalisation R’m 2 949,3 2 981,7 3 398,6 2 076,0 1 583,0 1 084,7 767,9Normalised fully diluted closing price earnings multiple times 12,6 13,3* 19,4 14,5 13,0 10,8 8,8Volume traded– Ordinary shares 000 13 991 12 062 17 134 25 916 10 999 10 007 5 594
OtherNumber of hotels 43 42 40 38 37 37 35Number of rooms 4 864 4 773 4 396 4 169 4 049 4 049 3 791Group average occupancy % 77 82 82 79 77 76 76
*Prior year restated to normalised results. Refer to note 20 for details of BEE transactions.
DEFINITIONS (continued)
EBITDA
Normalised earnings before interest, taxation, depreciation and amortisation.
EBITDA margin
Normalised EBITDA expressed as a percentage of revenue.
Operating margin
Normalised operating profit expressed as a percentage of revenue.
Effective tax rate
Taxation per the income statement expressed as a percentage of profit before taxation.
Return on ordinary shareholders’ funds
Normalised headline earnings attributable to ordinary shareholders expressed as a percentage of average ordinary shareholders’ funds.
Interest-bearing debt to total shareholders’ funds
Interest-bearing debt expressed as a percentage of total share- holders’ funds.
Net interest cover
Operating profit divided by interest paid less interest received.
Current ratio
Current assets divided by current liabilities.
38 City Lodge Hotels Limited Annual Report 2009
responsible corporate citizenship and sustainability report
Regulatory compliance
City Lodge Hotels Limited is incorporated in accordance
with the provisions of the Companies Act, 61 of 1973,
as amended (“the Companies Act”), and is listed on the
JSE. It subscribes to the principles incorporated in the
Code of Corporate Practices and Conduct as set out in
the second report of the King Commission on Corporate
Governance (“King Report”), the continuing obligations
of the JSE Limited Listings Requirements (“Listings
Requirements”) and the Companies Act, in the conduct
of its business.
The board is of the opinion that, for the financial year
under review, the company has complied substantially
with the King Report except for the recommendation
that the chairman of the board should be an
independent non-executive director. Although
Hans Enderle, being the founder of the company and
largest, single shareholder is not considered
independent, his considerable knowledge and
experience in the hotel industry together with his
management expertise and continued valuable
contribution to the board, makes him the ideal candidate
for chairman. The board is accordingly of the opinion
that this area of non-compliance with the King Report
does not impair governance integrity.
The board
Accountability and delegation of authority
While the board assumes ultimate responsibility for the
development and implementation of the company’s
strategy, operating and financial performance and
other matters reserved to itself, it has delegated
responsibility for the management of the day-to-day
affairs of the company to the chief executive and
executive committee (“exco”). Specific responsibilities
have been delegated to the board’s sub-committees.
However, delegating authority to board sub-
committees and/or the exco does not in any way
mitigate or dissipate the discharge by the board of
its duties and responsibilities.
Structure, composition and rotation
The company has a unitary board. As at 30 June 2009
the board comprised seven non-executive directors (of
whom six are independent non-executives) all of whom
have the necessary skill and experience to bring
judgement to bear independent of management and
two full-time salaried executive directors. The board is
of the opinion that the current mix of executive and
non-executive knowledge, skill and experience ensures
that no one individual or block of individuals has
unfettered powers of decision-making or can dominate
the board’s decision-making.
City Lodge Hotels Limited Annual Report 2009 39
Audit committee
Ndumi Medupe, a qualified chartered accountant, was
appointed to the committee as it was felt that her
knowledge and expertise in the field of finance would
serve to enhance the membership of the committee.
Remuneration and nomination committee
Bulelani Ngcuka was appointed to the committee
following Ndumi Medupe’s redeployment to the audit
committee.
Risk committee
Keith Shongwe was appointed to the committee with
effect from 1 August 2009.
The company’s articles of association require at least
one-third of the directors to retire by rotation at every
annual general meeting. The directors so retiring may, if
eligible, offer themselves for re-election. In addition, the
articles of association require new appointees to retire
at the first annual general meeting following their
appointment and to make themselves available for
re-election.
Brief biographical details of the directors retiring by
rotation and offering themselves for re-election are set
out on pages 22 and 23 of this annual report.
Procedures for appointments to the board are formal
and transparent and a matter for the board as a whole,
assisted where appropriate by the Remuneration and
Nomination Committee. Prior to any appointment,
potential board appointees are subject to a fit and
proper test, as required by the Listings Requirements.
Appointments, however, remain subject to shareholder
approval at the annual general meeting. New
appointees receive an induction pack from the
company secretary containing pertinent company
information and board documentation, are advised of
their fiduciary duties and responsibilities and visit the
company’s operations so as to gain a better
understanding of the company’s operations.
The board and its various sub-committees
continuously assess the composition of the board
and its sub-committees to ensure they possess the
appropriate balance of skills, knowledge and
experience to meet the company’s strategic objectives.
The year under review saw a number of changes
being effected to the board and its respective
sub-committees, commencing with the shareholder’s
endorsement of the appointment of Mr Bulelani
Ngcuka to the board at the company’s annual
general meeting on 6 November 2008. Details
regarding changes to the composition of the
various sub-committees are as follows:
40 City Lodge Hotels Limited Annual Report 2009
responsible corporate citizenship and sustainability report (continued)
Chairman of the board and chief executive
The running of the board and the executive responsibility
for the running of the company’s business are two
distinct tasks. Accordingly the roles of chairman of the
board and chief executive do not vest in the same
person. The chairman of the board assumes
responsibility for the working of the board, while the
chief executive is responsible for providing leadership
to exco, running the business and implementing the
policies and strategies adopted by the board.
Period of office and terms of employment of
directors
Executive directors are full-time salaried employees
of the company and are engaged on the company’s
standard terms and conditions of employment, subject
to short-term notice periods. Executive directors do not
receive fees by virtue of their membership of the board
and board sub-committees and termination of an
executive directors’ contract of employment will result
in resignation from the board.
Non-executive directors are not subject to a fixed term
of appointment and no service contracts have been
concluded with City Lodge.
In accordance with the board charter, the retirement age
for an executive director and non-executive director is
65 years and 70 years, respectively, subject to review
at the discretion of the board.
Board effectiveness and evaluation
A formal evaluation of the board’s performance and
its processes and procedures is undertaken every
second year.
The evaluation takes the form of a questionnaire
comprising a self-evaluation of the board as a whole,
probing composition, duties, responsibilities, process
and effectiveness. Responses are treated confidentially
and the results are collated by the company secretary
and reported to the chairman of the board and
respective board sub-committees, who in turn report
on the results at subsequent board and board sub-
committee meetings.
The current evaluation of the board and its sub-
committees commenced during August 2009 and
the findings will be reported on at a future meeting
of the board.
The performance of the chief executive is evaluated
annually by the chairman of the board, who consults the
non-executive directors prior to conducting the review.
The chairman of the Remuneration and Nomination
Committee reviews the performance and leadership
of the chairman of the board in an informal manner.
Conflicts of interests and other directorships
A process is in place to record and update directors’
interests in other boards and contracts on an annual
basis. Directors are also required to disclose to the
City Lodge Hotels Limited Annual Report 2009 41
necessary, special board meetings may be convened to
consider issues requiring urgent attention or decision,
alternatively decisions are taken by directors between
scheduled meetings by written resolution as provided for
in the company’s articles of association.
The board met four times during the year under review.
To ensure that the board functions effectively, the board
works to a formal agenda prepared by the company
secretary following consultation with the chairman of the
board. Any board member may request the inclusion of
an item to the agenda and will liaise with the company
secretary in this regard. Board papers comprising the
agenda and the relevant supporting documentation are
circulated to the directors in advance of each meeting in
order that they can adequately prepare and participate
fully, frankly and constructively in board discussions and
bring the benefit of their particular knowledge, skills and
abilities to the board table.
Individual director attendance at board and board
sub-committee meetings, the annual strategy session
and the annual general meeting appears in the table
below.
Where a director is unable to attend a board meeting
he or she tenders his or her apologies to the chairman
of the board and the company secretary and any
comments which he or she has arising out of the papers
to be considered at that meeting are relayed in advance
to the chairman of the board.
board any interests (including potential interests),
whether direct or indirect, in material contracts or
proposed contracts involving the company and any of its
subsidiary companies, as well as any other directorships,
as and when they arise.
Directors are required to recuse themselves from
discussion or decisions on those matters where they
have conflicts or potential conflicts of interest.
Executive directors may accept appointments to outside
boards. External board appointments must however be
discussed with the chairman of the board and will be
considered to the extent that such appointment is not in
conflict with the business of the company and will not
detrimentally affect their executive responsibilities.
Non-executive directors are required to consult the
chairman of the board with regards their outside
appointments. The board is satisfied that, for the period
under review, the non-executive directors devoted
sufficient time to their responsibilities to the company
and that none of the directors have a material interest in
any contract entered into by the company.
Board meetings
The board charter requires the board to convene at least
quarterly each financial year in order to monitor, review
and implement, inter alia, matters of a strategic,
financial, non-financial and operational nature. When
42 City Lodge Hotels Limited Annual Report 2009
responsible corporate citizenship and sustainability report (continued)
Summary of attendance:
Board and board sub-committee meetings and strategy session
1 July 2008 – 30 June 2009
BoardStrategy session
Annual general
meetingAudit
committeeRemuneration
committeeRisk
committee
No. of meetings 4 1 1 3 3 3H R Enderle 4 1 1 ~ 3 ~F W J Kilbourn 3 1 1 2 ~ 3I N Matthews 4 1 1 3 3 ~N Medupe 4 1 1 1 2 ~BT Ngcuka 4 1 1 ~ 1 ~S G Morris 4 1 1 3 ~ 3C Ross 4 1 1 3* 3* 3K I M Shongwe 2 1 1 ~ ~ †A C Widegger 4 1 1 3* ~ 3
~ not a member* by invitation appointed during the year under review resigned from committee during year under review
† appointed after the year ended 30 June 2009
Board meeting dates
13 August 2008
6 November 2008
11 February 2009
13 May 2009
Strategy session date
12 May 2009
Annual general meeting date
6 November 2008
City Lodge Hotels Limited Annual Report 2009 43
Details of the composition of the board and its various
sub-committees as at 30 June 2009, is as follows:
UNITARY BOARD
Non-executive chairman
6 Independent non-executive directors
2 Executivedirectors
Board Committees Management Committees
Audit, chaired by Stuart Morris, independent
non-executive
EXCO
Remuneration and Nomination, chaired by
Nigel Matthews, independent non-executive
MANDASCO
Risk, chaired by Frank Kilbourn, independent
non-executive
Board and management committees
The board has three standing sub-committees, namely
the Audit committee, remuneration and Nomination
committee and Risk committee, all of which operate
within pre-approved terms of reference, that assist it in
the execution of its duties, power and authorities. The
terms of reference are subject to periodic review in order
to ensure that they are aligned with best practice and
legislative and regulatory requirements.
Strategy review
While the board assumes ultimate responsibility for
determining the company’s strategic direction, the
implementation and achievement thereof vests with
exco. Accordingly the board and exco meets annually to
review the company’s strategic imperatives and evaluate
executive management’s progress in the achievement
thereof.
In addition to the annual review, the board is appraised
of the progress made with regards the achievement of
the strategic imperatives at the quarterly board
meetings.
Access to information
The directors have access, at reasonable times,
to all relevant company information and to senior
management to assist them in the discharge of their
duties and responsibilities.
Professional advice
Directors are entitled to seek independent professional
advice relating to the affairs of the company and in the
furtherance of their duties and responsibilities, at the
company’s expense.
44 City Lodge Hotels Limited Annual Report 2009
responsible corporate citizenship and sustainability report (continued)
Each board sub-committee is chaired by an independent
non-executive director who reports to the board at each
scheduled meeting of the board, on proceedings at
meetings held prior to the board meeting. Copies of
the minutes of meetings of the respective board
sub-committees, with the exception of the Remuneration
and Nomination Committee, are circulated with the
agenda and supporting documentation for each meeting
of the board.
The respective committee chairmen attend the annual
general meeting in order to address any questions
raised by shareholders falling within their respective
mandates.
Board sub-committee meetings were well attended
during the year under review.
The board sub-committees, like the board, are subject
to evaluation as to their effectiveness every two years
and they may, where necessary in order to carry out
their functions, take independent outside professional
advice.
The board has determined that the respective board
sub-committees have, for the year under review, fulfilled
their responsibilities in compliance with their respective
terms of reference and mandates.
Audit committee
The four member committee, which comprises only
independent non-executive directors, all of whom are
financially literate, convened three times during the year
under review to discharge its responsibilities as set out
in the committee’s terms of reference.
The chief executive, financial director, external audit
engagement partner and head of internal audit attend
meetings by invitation, but do not enjoy voting rights.
During the year under review the audit committee
discharged its functions as follows:
examined and reviewed the annual financial
statements and interim reports and recommended
that they be adopted by the board;
reviewed and approved the scope of the annual audit
and audit fees;
approved the internal audit plan and fee;
reviewed reports from the internal auditors;
considered material financial and operating issues
relating to the group subsidiary companies and
approved the subsidiary companies financial
statements;
pre-approved non-audit and ad hoc services to be
rendered by KPMG for the year ahead; and
reviewed and verified the independence of the external
auditor and recommended the re-appointment of
KPMG as external auditor, subject to shareholder
approval at the forthcoming annual general meeting.
City Lodge Hotels Limited Annual Report 2009 45
The primary function of the committee is to ensure that
the company’s executive and divisional directors are
remunerated for their individual contributions to the
overall performance of the company on a basis that is
reasonable, competitive and fair. In order to effectively
fulfil this function, the committee makes use of the
services of specialist remuneration consultants to
provide benchmarking data and advice.
Executive and divisional directors’ remuneration
packages comprise:
base salary;
benefits which include retirement funding, medical
cover and car allowance;
short-term incentives which are calculated with
reference to performance related formulae; and
long-term incentives through participation in the
company’s Share Appreciation Right Scheme and
Deferred Bonus Plan.
The committee, on the advice of executive management,
makes recommendations to the board in respect of the
fees to be paid to the non-executive directors for their
services as members of the board and its various
sub-committees. These fees are independent of the
company’s financial performance and once adopted, but
prior to implementation and payment, are submitted to
the shareholders for approval at the company’s annual
general meeting.
The company, and more specifically the audit
committee, is aware of the new Listings Requirement to
appoint a finance director to the board by 30 June
2009. The committee is pleased to report that this
requirement has already been met and is further satisfied
that the financial director has the necessary expertise
and experience to manage the company’s finance
function.
On the recommendation of the committee, the board
annually considers and assesses the going concern
assertion in the interpretation of financial statements
at year end. At the interim reporting period, a similar
process is followed to enable the board to consider
whether or not there is sufficient reason for this
conclusion to be affirmed.
The committee meets, at least once annually, with both
the external and internal auditors, and without
management present, in order to discuss any issues
relevant to the audit.
Remuneration and nomination committee
The committee which comprises three non-executive
directors, two of whom are independent, met three
times during the period under review.
The chief executive attends meetings by invitation,
but does not participate in discussions relating to
his remuneration and benefits.
46 City Lodge Hotels Limited Annual Report 2009
responsible corporate citizenship and sustainability report (continued)
The year under review saw the first awards being made
under the new Share Appreciation Right Scheme 2007
(“SAR Scheme”) and Deferred Bonus Plan 2007 (“DBP”).
Both the SAR Scheme and the DBP support the
principle of aligning management and shareholder
interests with performance conditions.
Risk committee
The committee’s primary function is the identification
of risk, to measure its potential impact and initiate,
implement and manage mitigating strategies to reduce
the company’s exposure to an acceptable level. Risk
management is therefore essentially an operational
function. As a result, the seven member committee
comprises a majority Exco members. The remaining
members of the committee are independent non-
executive directors, one of whom acts as chairman.
The committee met three times during the year under
review to:
conduct the annual review of the group risk register,
and where necessary, re-rank, in terms of severity and
probability, existing risks; add and rank new risks;
where necessary, delete certain risks; and identify
opportunities where effective risk management can be
turned into a competitive advantage;
consider the chief executive’s report on the current
status with regard to key risks;
consider whether any issues have come to light which
impact the risk profile of the company and require
amendment to, or inclusion in, the Risk Register;
consider health and safety requirements, particularly
food hygiene;
ensure that adequate disaster recovery processes are
in place; and
ensure that all insurable risks have been adequately
covered.
At an operational level the risk management process
is managed through the hotel risk register, which
comprises those risks in the group risk register that have
a direct impact on the hotel properties forming part of
the group. The hotel risk register is a standing agenda
item on the divisional directors’: operations, quarterly
operational visits.
The head of internal audit meets with the chief executive
and financial director on an annual basis in order to
determine whether internal audit will be able to provide
further assurance on the company’s risk management
controls. It was agreed, during the year under review,
that the internal auditors review the company’s
compliance with the third report of the King Commission
on Corporate Governance, once it is published, in order
to ascertain whether there are any areas of compliance
that require improvement. As at the date of this report,
the review has not commenced.
City Lodge Hotels Limited Annual Report 2009 47
on the City Lodge audit for a number of years. His
knowledge and expertise in the field of accounting
and finance is a welcome addition to Exco.
The period also saw an expansion to the portfolio of
Andrew Widegger, the financial director, with the
company’s property and development and international
expansion portfolios being entrusted to him.
In anticipation of the completion of the 10 announced
new hotels, Ross Phinn was appointed to Exco as the
fourth divisional director: operations. Ross has been with
the company for 11 years and has held various
managerial positions, with the most recent being that
of general manager of City Lodge Johannesburg –
Airport Barbara Road.
Exco now comprises 11 members.
Management development and succession
committee (“MANDASCO”)
The committee comprises eight members, Heather
Prinsloo and Ross Phinn having been appointed to the
committee during and post the year under review,
respectively.
The purpose of the committee is to meet the company’s
objectives of attracting and retaining the appropriate
level of talent, thereby ensuring that the company
maintains an adequate succession and talent
development plan. In addition, it supports the identified
talent in order that they may reach their potential and
Executive committee (Exco)
Exco meets every six to eight weeks and convened six
times during the year under review to assist the chief
executive in the discharge of the obligations delegated
to him by the board. These include ensuring the effective
control of the company’s operations, making
recommendations to the board with regard to the
company’s strategic imperatives and key policies,
implementing the policies and strategies adopted by
the board and delivering budgets and financial reports
to the board for consideration.
The year under review saw the following appointments
take place:
Heather Prinsloo – divisional director:
transformation
Heather is responsible for ensuring that the company,
following the implementation of the BEE transaction,
achieves its transformation objectives, including the
achievement of charter targets for procurement from
black empowered entities, investment in socially
responsible projects and assisting in the development
of black owned enterprises in a manner that is both
sustainable and that benefits the business of the
company; and
Alastair Dooley – divisional director: financial
Alastair is a qualified chartered accountant.
He comes to the group from KPMG, having served
48 City Lodge Hotels Limited Annual Report 2009
responsible corporate citizenship and sustainability report (continued)
develop the necessary proficiencies required to succeed
in an ever-changing and challenging environment, whilst
at the same time, ensuring that the company makes a
meaningful contribution to transformation initiatives by
achieving the targeted level of employment equity.
Three meetings were held during the year under review:
to ensure that the company maintains an adequate
succession and talent development plan by –
identifying suitable candidates to populate the
respective succession pools; and
compiling, executing and monitoring individual
development plans for succession pool members,
to enable them to reach their full potential and
develop the requisite skills and expertise
necessary to suitably qualify them for the position
for which they are being developed;
to monitor the company’s transformation initiatives
with regards reaching the targeted level of
employment equity by identifying individuals for
participation in the accelerated development and
deployment programme and monitoring the progress
of existing candidates.
Internal audit function
The internal audit function, as carried out by KPMG
Services (Pty) Limited, is an independent, objective,
assurance and consulting activity, designed to add value
and improve the company’s operations. Internal audit
operates within pre-approved terms of reference to
assist the company in meeting its objectives by bringing
a systematic, disciplined approach to evaluate and
improve the effectiveness of internal financial controls
and governance processes.
The internal audit function provides:
assurance that the management processes are
adequate to identify and monitor significant risks;
confirmation of the effective and efficient operation
of the established internal controls;
assurance that management’s actions are such that
they maintain or enhance the capability of the entity
as a going concern; and
objective confirmation that the board receives the
right quality of assurance and information from
management and that this information is reliable.
Internal audit reports to the audit committee, which in
turn approves the duties, areas and scope of audits and
costs for the year, taking account of changing business
needs and monitors performance against the plan.
While the head of internal audit is administratively
accountable to the financial director, she has
unrestricted access to the chief executive and chairman
of the audit committee. The internal auditors attend all
audit committee meetings, by invitation, at which they
present reports highlighting audit area ratings per
hotel and summarise internal audit activities.
Where necessary, follow-up audits and/or corrective
City Lodge Hotels Limited Annual Report 2009 49
Directors have unlimited access to the services of the
company secretary.
Price-sensitive information and share dealings
In terms of company policy, no director, the company
secretary and certain senior employees who, by virtue of
their employment, may have access to price sensitive
information may deal, whether directly or indirectly, in
City Lodge shares on the basis of unpublished price-
sensitive information.
Dealing in City Lodge shares is furthermore prohibited
during closed periods, namely:
from the end of the interim and annual reporting
periods until the day following the announcement of
the company’s results for the relevant period; and
any period when the company is trading under a
cautionary announcement or is negotiating a major
transaction and an announcement relating thereto
is imminent.
Directors and the company secretary are required to
obtain prior written approval from the chairman of
the board, or in his own case, any other designated
director, before dealing in City Lodge shares. Details
of dealings are advised to the JSE, via the
company’s sponsor, for publication on the Securities
Exchange News Service.
action is taken to address control deficiencies and where
opportunities present themselves, to improve existing
systems of control. The audit committee is pleased to
report that, during the year under review, no incidents
indicating a material breakdown in internal controls was
reported.
The audit committee, having regard to representations
by the internal and external auditors, remains confident
that despite the two audit functions being carried out by
the same audit firm, there is adequate segregation
between the two functions to ensure that their
independence is not compromised.
Company Secretary
The company secretary provides the board, as a whole,
and directors, individually, with guidance on the
discharge of their responsibilities. She serves as the
central source of information and advice to the board
and within the company on matters relating to good
governance.
It is the company secretary’s responsibility to ensure that
the proceedings and affairs of the board, the board
sub-committees, the company itself and, where
appropriate, shareholders are properly administered in
accordance with relevant legislation. She also assumes
responsibility for compliance with the Listings
Requirements and administers the statutory
requirements of the company and its subsidiaries
as well as the various share schemes.
50 City Lodge Hotels Limited Annual Report 2009
responsible corporate citizenship and sustainability report (continued)
All dealings in securities by directors and senior
employees are effected through the office of the
company secretary who maintains a record of requests
for dealing and clearances and a report of directors’
dealings is tabled at each meeting of the board.
Stakeholder communication
The company is committed to providing all stakeholders
with regular, timeous, honest and relevant information on
both financial and non-financial matters.
The chairman of the board, chief executive and financial
director regularly engage with institutional investors,
analysts and the media, with due regard for statutory,
regulatory and other directives and guidelines prohibiting
the dissemination of unpublished price-sensitive
information by the company and its directors.
Shareholders are encouraged to attend the annual
general meeting at which they are afforded the
opportunity to put questions to the board and chairmen
of the respective board sub-committees.
The company makes use of the City Lodge website,
www.citylodge.co.za, Securities Exchange News Service
and the print and radio media as a means of providing
interested parties with financial (including interim and
annual reports), business and other company related
information.
Litigation and legal
The company is subject to various legal proceedings,
actions and claims in the normal course of business,
which, being subject to risks and uncertainty, cannot be
reliably predicted. Notwithstanding the aforegoing, the
board does not believe that there is any legal action,
pending, threatened or ongoing, that will have a material
effect on the operations of the company.
Ethics and code of conduct
The company, in its pursuit of excellence, is bound to
the values and principles enshrined in the company’s
code of ethics which addresses its relationships with
shareholders, guests, suppliers, employees and
government.
Exco continuously monitors all matters of an ethical
nature. The company has also established the Business
Abuse Hotline, a 24-hour alert line outsourced to
Employer’s Mutual Protection Services (Pty) Limited
which affords employees the opportunity to report
perceived cases of unethical or corrupt behaviour,
anonymously. All reports are investigated and, where
appropriate, action is taken.
The company is pleased to report that no incident or act
indicating a material breach in the required standard of
ethical behaviour has been reported during the period
under review.
City Lodge Hotels Limited Annual Report 2009 51
environment. Therefore the following areas of its
operations are highlighted as being deemed to have an
impact:
Energy consumption (electrical).
Water consumption (cleaning, laundry and guest
usage).
Waste water (sewage, laundry and kitchen).
Air quality and pollution (laundry, kitchen emissions
and non-smoking areas).
Recyclable waste (paper, glass, aluminium cans and
steel cans).
Energy consumption
In its operations, the group uses only electrical energy
as supplied by Eskom or the relevant municipalities.
Energy efficient generators have been installed in all of
our hotels. The generators will provide only essential
services to minimise load and therefore diesel usage and
emissions. The majority of this consumption is divided
between hot water boilers, air-conditioning, lighting and
on-site laundry equipment.
As the majority of hotels do not have large public areas
this consumption is in turn dictated by the levels of room
occupancy enjoyed by the hotels. The group is in the
process of installing additional energy efficient lighting
and further exploring innovative ways of reducing our
energy consumption. Plans are afoot to drive an
awareness programme for both guests and employees
Environmental sustainability
Introduction
Corporate environmental responsibility is regarded as a
key performance area for all our hotel management and
as such their compliance with group policies in this
regard is taken into account when assessing their overall
performance. The group is guided in this regard by
Responsible Tourism guidelines, developed prior to the
World Summit on Sustainable Development in 2003, that
are in accordance with the World Tourism Organisation’s
code of ethics, broad ISO 14001 best practice and the
International Hoteliers Environmental Initiative.
The group continues to explore innovative ways to
reduce its carbon footprint. Increased consumer
awareness of global environmental issues has further
strengthened our commitment to apply more effective
energy and water management procedures and policies.
With our mission to educate and motivate environmental
lifestyles choices through our guests and staff, the
world’s largest and most experienced conservation
organisation, World Wide Fund for Nature (“WWF”) has
come on board to provide guidance and expertise.
Environmental impacts
While the nature and location of the group’s operations
are considered to be of low impact, the group
acknowledges that even at this level it, like any other
facility or household, does have an impact on the
52 City Lodge Hotels Limited Annual Report 2009
responsible corporate citizenship and sustainability report (continued)
with regards to their responsibility towards conserving energy. The group has determined that the measurement of total
energy consumption in a hotel should be expressed on a “per occupied room” basis, and by brand thus allowing for
comparative reporting with a view to maintaining or even reducing levels of consumption year-on-year, where possible.
Brand
kWh peroccupied room
(2008/2009)
kWh peroccupied room
(2007/2008)
Cost peroccupied room
(2008/2009)
Cost peroccupied room
(2007/2008)
Courtyard 355 348 R17,82 R9,34City Lodge 370 281 R12,10 R6,41Town Lodge 261 268 R15,68 R6,49Road Lodge 202 117 R9,30 R3,76
Water consumption
All water for supplying guest rooms and for use in the laundries and kitchens is drawn from municipal supply. In isolated
instances, borehole water is used to supplement municipal supply for garden watering purposes. In its endeavour to
reduce water consumption, the group has embarked on an awareness programme together with the World Wide Fund
for Nature. The majority of the group’s water is consumed in the hot water boilers and in the on-site laundries.
As with energy, this consumption is dictated by the levels of occupancy enjoyed by the hotels, and the group has
therefore determined that the measurement of total water consumption in a hotel should also be expressed on a “per
occupied room” basis and by brand, thus allowing for comparative reporting with a view to maintaining or even reducing
levels of consumption year-on-year, where possible.
Brand
kl peroccupied room
(2008/2009)
kl peroccupied room
(2007/2008)
Cost peroccupied room
(2008/2009)
Cost peroccupied room
(2007/2008)
Courtyard 0,72 0,62 R7,96 R3,95City Lodge 0,44 0,53 R3,99 R2,83Town Lodge 0,76 0,45 R5,76 R6,68Road Lodge 0,68 0,43 R4,06 R2,37
City Lodge Hotels Limited Annual Report 2009 53
may contribute to a decrease in consumption. The most
effective measures in use at present are as follows:
hot water boilers are set to heat water at night, in
off-peak periods. This hot water is then stored for use
the following day and distributed via heat pumps to
the rooms;
air-conditioners are set to switch off automatically at
four preset times every day. This curbs wasted energy
consumption when air-conditioners are inadvertently
left on by guests;
on-site laundry equipment usage is carefully monitored
and a programme of regular maintenance ensures that
equipment is operating optimally. Machines are
pre-set to operate on specific cycles, ensuring
efficient usage of energy;
the usage of energy-efficient globes continues to
contribute to a reduction in energy consumption; and
all hotels and staff continue to participate in a
programme called “Switch off Something” which
involves being aware of energy usage and taking
active steps to reduce it, such as switching off lights
and electrical equipment in vacated rooms,
storerooms and staff areas.
Water consumption
As with energy consumption, new technologies are
continually being assessed in order to ascertain how
the plumbing in new-builds should be set up and
Waste water
The addition of chemicals and kitchen greases to waste
water, as well as the discharge of swimming pool water,
constitute the main concerns in this regard.
Air quality and pollution
The group hardly has an impact in this regard and the
output of airborne emissions that the group is directly
responsible for, is limited to those created by laundry
and kitchen extraction. In addition, however, the group
considers and acts upon issues surrounding air quality
within its hotels, anti smoking legislation and ozone
harmful substances.
Recycling
Once again, although it does not engage in activities
which produce large amounts of recyclable waste
material, the group does leverage opportunities
which exist to recycle paper, glass, aluminium and
steel cans.
Mitigating strategies and actions
Energy consumption
The mitigating strategies put in place to alleviate
excessive consumption do not necessarily alter from
year to year, with successful programmes being followed
continuously. The group does, however, engage in an
ongoing review of technologies and methodologies that
54 City Lodge Hotels Limited Annual Report 2009
responsible corporate citizenship and sustainability report (continued)
what equipment should be put in place. New
legislation aimed at governing water usage is also in
the offing and the group is providing input into the
measures under consideration. Mitigating strategies
put in place to alleviate excessive consumption are
as follows:
guests are informed that water is a precious
resource and should be used sparingly.
Additionally, guests are given the option of retaining
towels by placing them on the towel rails, which
contributes to a reduction in the number of items
to be laundered and, consequently, the water
consumed;
rooms are fitted with dual-flush toilets to allow
guests the opportunity to use less water and hand
basins, showers and taps are fitted with diffusers
that restrict flow without detriment to pressure;
the use of laundry equipment is carefully monitored
and staff members are provided with
comprehensive training to ensure the correct
loading of machines and load planning;
the timing of garden watering is electronically
controlled to ensure minimal evaporation; and
all hotels and staff continue to participate in a
programme called “Close a Tap” which involves
being aware of water consumption and taking
active steps to reduce it, such as not running taps
while cleaning and attending to maintenance
issues.
Waste water
Mitigating strategies put in place to minimise the addition of
harmful effluent into the environment by way of municipal
sewerage systems include:
exclusive use of bio-degradable and eco-friendly chemicals
in all cleaning and laundry operations;
all guest supplies in the form of soaps, shampoos and foam
bath liquids are bio-degradable;
all hotels are fitted with grease traps to ensure that kitchen
and food greases are removed from waste water before it
enters municipal systems; and
salt chlorinators are used to maintain pool hygiene and
minimise the use of chemicals.
Air quality and pollution
Mitigating strategies put in place to minimise the effect the
group may have in this regard include:
the effective filtration of kitchen and laundry extraction with
regular monitoring and maintenance of the extraction and
filtration systems;
ensuring that cleaning materials and air fresheners are not
dispensed by aerosol;
compliance with legislation – where the group has ensured
that all public areas in its hotels are smoke-free areas, with at
least 30% of rooms in all hotels being smoke-free and certain
accommodation floors also declared completely smoke-free;
and
the use of ozone-friendly refrigerants in all cooling equipment.
City Lodge Hotels Limited Annual Report 2009 55
To develop and empower disadvantaged communities
in the social, economic and environmental spheres for
the sustainability and long-term growth of the company.
To build and improve relationships with the company’s
existing and potential stakeholders, through forming
mutually beneficial partnerships.
To create and enhance City Lodge’s reputation as a
caring corporate citizen.
To attract quality socially responsible staff to the
company, as well as retain and enhance the loyalty and
pride in the company of existing staff.
To increase customer goodwill and loyalty through the
strategic positioning of City Lodge as a leading
contributor in the development of disadvantaged people
in the hospitality industry.
Assistance provided includes:
Donations in cash and kind to various institutions and
organisations nationwide.
Experiential training opportunities are provided to
educational and community development institutions
that offer hospitality courses.
Lectures at institutions of higher learning and at high
schools.
Participation in career days.
Ubuntu Ba Bantu Social Responsibility Programme
In order to maximise our impact on the communities in
which we operate, we have divided our Ubuntu Ba
Bantu Programme into three initiatives, namely a
Recycling
The group continues in its partnership with a number of
organisations/companies which are engaged in this respect,
including SAPPI, Mondi, Enviroglass and Collect-a-Can, in
order to ensure the efficient and beneficial recycling of
materials.
Social sustainability
Introduction
City Lodge Hotels Limited recognises the historical disparity
of previously disadvantaged communities. The group has
therefore developed a Corporate Social Investment (“CSI”)
policy which is aligned to the company’s strategy and which
contributes to the company’s overall mission and vision.
The group’s CSI Programme is deliberate, focused,
coherent and progressive, with the intent purpose of
impacting the lives of communities in which we reside.
Corporate Social Investment
The City Lodge – Ubuntu Ba Bantu Social Responsibility
Programme
Objectives
The objectives of the City Lodge CSI Programme is as
follows:
To make a positive, sustainable impact on the
communities in which City Lodge operates through
investing in improving the quality of life of disadvantaged
communities.
56 City Lodge Hotels Limited Annual Report 2009
responsible corporate citizenship and sustainability report (continued)
e-CSI
Our guests continue to actively participate in this very
successful scheme, where guests are involved in the
decision making with regards to the allocation of part of the
group’s CSI spend. Guests, who book on-line, are
encouraged to nominate one of three organisations they
would like us to allocate the sum of R5,00 per reservation
they have made. There has been a significant increase in
the number of on-line bookers who have indicated a charity
of choice when making a reservation, resulting in a
significant growth in the amounts handed over to the
following organisations, who received biannual funding
from this programme:
Operation Hunger
The Society for Animals in Distress
The South African Golf Development Board
We have recognised that in order to maximise the impact of
e-CSI initiatives, they have to be aligned to the City Lodge
Hotels strategic objectives, as well as to the codes of good
practice. As a result we had to bid farewell to The Society
for Animals in Distress and consider a strategic green
partnership.
With our mission to educate and motivate our
guests and employees with environmental
lifestyle choices, we have partnered with World
Wide Fund for Nature (WWF). WWF’s mission
is to stop the degradation of the planet’s
natural environment and to build a future in
Flagship Project, Group Wide CSI Initiatives and an
individual Hotels’ SED (socio-economic development)
Programme.
Flagship Project
The group extended a call for proposals inviting
organisations to apply for funding for projects or
programmes providing skills training and development
in the hospitality sector. All respondents were
evaluated against the SA Social Investment Exchange
(SASIX) criteria. The funding was awarded to Jobstart
Training Centre, a programme of Catholic Welfare
Development, based in Cape Town. The funding
provided will enable Jobstart to empower
20 unemployed, historically disadvantaged people
and train them in marketable skills in the hospitality
Industry. The group has pledged to provide experiential
training opportunities to the trainees and further assist
Jobstart in an advisory capacity.
Group wide CSI Initiatives
Having a national footprint the group continues to
encourage staff and guests alike to meaningfully and
voluntarily embrace the valuable contribution they can
make toward social sustainability. We do this by
creating an opportunity for our guests to participate in
our e-CSI programme and Cuppa-for-Cansa project.
Our Staff are encouraged to voluntarily participate in
Payroll Giving.
City Lodge Hotels Limited Annual Report 2009 57
donations of linen and furnishings, staff volunteerism,
cash donations, prizes for fund raising, as well as the
organising of fundraising events:
Alexandra Society for the Care & Welfare of
the Aged
Avril Elizabeth Home
Banakekeleni Hospice
Boys & Girls Town
CANSA
C.H.A.N.C.E. (Children’s Home & Nurturing Centre)
Christelik-Maatskaplike Raad, Rustenburg
Chubby Chums for the Children’s Home
Cotlands
Ebenezer Village, Atlantis, Cape Town
Enochs Walk
EP Children’s Home
Institute for the Blind
Lions
Matla a bana
Muriel Brand School
Nkosi Foundation
Nomads Bowls Southern Africa
Oliver’s House
Rotary
Shanti Nilays Hospice-in-the-West
Shekinah Care Centre
St Johns Ambulance Foundation
which humans live in harmony with nature. WWF
becomes one of our new e-CSI beneficiaries.
Cuppa-for-Cansa
The group’s involvement in the project continues and sees
the Road Lodge brand hotels pitted against one another
annually to see which hotel can produce the largest
contribution for Cuppa-for-Cansa. Proceeds are drawn
from hot beverage sales in the public areas. Once again,
our Road Lodge N1 City has contributed the largest
amount to the project.
Payroll Giving
In line with our philosophy of being “People Caring for
People” we have facilitated a process with The Giving
Organisation, whereby our employees request a payroll
deduction every month to be paid over on their behalf to a
basket of organisations.
Hotel SED (Socio-economic Development)
The various hotels in the group, each support a local
NGO. The hotels support the NGOs listed below through
58 City Lodge Hotels Limited Annual Report 2009
responsible corporate citizenship and sustainability report (continued)
Empowerment and Transformation
Transformation is one of the group’s strategic imperatives.
The group’s approach to empowerment and transformation
is broad based and holistic and aims to create a culture of
shared vision as well as growth and development of the
group. A divisional director responsible for transformation
has been appointed to direct and focus the group’s
transformation strategy.
The group’s empowerment journey began with the
conclusion of the BEE Ownership deals and the verification
of their B-BBEE status against the dti Codes of Good
Practice. A consolidated verification certificate was issued
by EmpowerLogic, recognising City Lodge Hotels Limited
as a Level 6 contributor to B-BBEE.
Being a value adding vendor, City Lodge receives a BEE
Procurement Recognition level of 75%. It is the group’s
firm intention to become a level 5 contributor in the
short-term and a level 4 in the medium-term.
The Tourism Sector Codes were gazetted in May 2009.
The Tourism Sector Codes follow the same principles and
methodologies of calculating B-BBEE compliance as the
dti Codes of Good Practice. The group’s future scorecards
will be measured against these codes.
Preferential Procurement
City Lodge Hotels recognises preferential procurement as
an effective instrument to promote transformation. While
ensuring that all suppliers are treated fairly and within the
St Vincent’s School for the Deaf
Tents of Sharon
The Action for Blind and Disabled Children
The Haven Care Centre
The South African Red Cross Society
Tumelo Home
United Cerebral Palsy Association of South Africa
Vusababantu-Tsoabatho Aids Project
Wayside Shelters
Woodside Special Care Centre, Cape Town
City Lodge Hotels Limited Annual Report 2009 59
framework of its procurement policy, the group will
continue to make procurement readily available to
black suppliers. We continue to engage with our
non-compliant suppliers, encouraging them to transform
with the group. The group meets the definition of a
Level 5 contributor towards broad based black
economic empowerment in terms of the preferential
procurement of the company.
Enterprise Development
Enterprise Development is well integrated into our
transformation strategy. The group’s preferential
procurement framework and policy also acts as a
catalyst in identifying enterprise development initiatives.
The group currently supports several new black
entrepreneurs through our Enterprise Development
Support Programme. The group continues to provide
concierge desks to black owned tour operators in some
of our hotels in Cape Town and Durban. Enterprise
Development support has been provided to Afriboom
(Pty) Limited, a specialised cleaning company, in the
form of an interest free loan. Afriboom (Pty) Limited has
been successful in tendering for the cleaning contract
for our Gauteng Hotels. The support provided to
Afriboom has enabled them to employ 663 active staff
and further grow the enterprise by securing further
cleaning contracts.
Further opportunities, involving participants in the
group’s supply chain and through collaboration with
Tourism Industry Stakeholders, have been identified
and these will be pursued.
Employment equity
The group will submit its fourth employment equity plan
for the period 2009 to 2014 in October 2009. The
planned achievements in this fourth plan are intended
to mirror the targets that are reflected on the BBBEE
Scorecard for the same period. The employment equity
consultative committee meets at least bi-annually to
assess progress towards the achievement of
quantitative goals, as well as to consider the qualitative
elements which may influence the aforesaid
achievements.
The committee is representative of all individuals in
the company, and is currently chaired by the human
resources director and enjoys the participation of
the representative trade union.
60 City Lodge Hotels Limited Annual Report 2009
responsible corporate citizenship and sustainability report (continued)
The table hereunder indicates the achievements of the group against its planned goals in terms of its third employment
equity plan (2006 – 2009) at the end of the third year.
Planned Goals 2009 Achieved 2009
Occupational Category White Designated* % White Designated* %
Legislators / Senior Officials and Managers 111 118 52 127 118 48
Professionals 3 4 57 6 5 45
Clerks 95 190 50 90 230 72
Service and Sales Workers 3 135 100 1 135 100
Craft and related trade Workers 1 33 97 3 28 89Elementary Occupations 0 205 100 0 155 100
*Designated includes Africans, Coloureds, Indians and disabled
Legislation now requires that the following table be displayed in respect of the company’s employee profile
(as at 30 June 2009).
Male Female Foreign nationals
Occupational level African Coloured Indian African Coloured Indian White
Whitemale Male Female Total
Top management 1 1 8 10Senior management 3 1 1 20 30 55Middle management 4 1 1 7 2 1 13 24 53Junior management 23 9 48 14 4 18 21 137Discretionary decision making 81 23 3 144 45 10 68 20 1 1 396Defined decision making 72 11 125 36 3 247Total permanent 183 45 5 325 98 15 119 106 1 1 898Non permanent 4 1 11 2 4 1 23
Grand total 187 46 5 336 100 15 123 107 1 1 921
City Lodge Hotels Limited Annual Report 2009 61
qualifications framework upon which the group
places emphasis in terms of the achievement
of national qualifications.
The committee has had the opportunity of endorsing
the report on the achievements against the 2008/09
Workplace Skills Plan as well as to confirm
development and training needs as outlined in the
2009/10 Workplace Skills Plan. All grants available
to the company have now been paid out by THETA
for the previous period.
While the City Lodge Academy continues to form
the basis of the group’s efforts to develop a pool
of previously disadvantaged management level
employees the group has additionally developed
an Accelerated Development and Deployment
Programme in order to attract and retain suitable
external and internal candidates who are to be fast
tracked to senior management positions within
the group.
Remuneration, Benefits and Incentives
The group’s remuneration policy allows for the
attraction and retention of talent, and the market
is surveyed on a regular basis to ensure that this
remains the case. In addition to market-related
salaries, employees at all levels throughout the
group enjoy benefits such as retirement funding,
medical aid, annual bonuses and a loan scheme for
Human Capital
In a scarce skills environment, the group is
consistently growing its ability to attract and retain
talent. In this regard, the group is currently working
towards achieving group wide recognition against
the Investors in People standard, with all its hotels
having achieved the standard thus far and central
office currently undergoing assessment.
Achievement of the standard would demonstrate the
group’s ongoing commitment towards growing and
empowering its people. Clearly defined career
pathing and succession planning, along with market
related remuneration
and excellent working
conditions and benefits,
all contribute towards
making the group an
employer of choice in
the industry.
Training and development
The skills development committee continues to meet
several times annually in order to determine skills
development needs in the group. The committee
has been given the capacity to deal with skills
development issues and committee members are
therefore knowledgeable both with regards to
legislation surrounding skills development and the
administrative requirements of the national
62 City Lodge Hotels Limited Annual Report 2009
responsible corporate citizenship and sustainability report (continued)
The group currently recognises, and has a
relationship agreement, with one trade union,
SACCAWU, which is representative of less than
25% of its employees.
The group continues to use its programme
“High Performance People” as the model for its
ER, and courses are held periodically for supervisors
and management. This programme is also made
available to shop stewards to ensure complete
understanding of the company’s policies and
procedures. These procedures have also recently
been revised to reflect current best practice and a
fresh round of training for management, supervisors
and shop stewards has been completed.
Health and Safety
Although the group’s properties do not represent
dangerous working environments, all necessary
precautions and measures are taken to ensure the
safety of its employees and guests. All properties
adhere to strict guidelines in terms of monitoring and
implementing Health and Safety requirements.
Health and safety training, in respect of fire
prevention/fighting as well as basic first aid, is
mandatory for all staff, and competency gained in
this regard is recognised as prior learning in respect
assistance with the education of employees’
dependants. Long-service awards are also
presented at 5, 10 and 20-year anniversaries.
Top, senior and middle management employees are
entitled to participate in a performance and appraisal
linked bonus scheme “PAL” which measures both
quantitative and qualitative achievements in terms of
key performance areas. Top and senior management
are furthermore entitled to participate in the Share
Appreciation Rights Scheme.
All other levels of staff are participants in the 10th
Anniversary employee share trust scheme; also
know as Sizovuna or “Share Shares”. Participation in
this scheme allows for an annual dividend payout to
each participant as well as a distribution of shares,
which is dependent on the annual share price
performance. In addition to this scheme the newly
established “Injabulo” employee share ownership
scheme will, in time, allow further benefits to flow
to employees in this manner.
Employee and Industrial Relations (“ER”
and “IR”)
The group approaches ER and IR issues with an
inclusive view, preferring to invite participation on all
substantive issues that may have an effect on the
employment relationship or on employees’
conditions of work.
City Lodge Hotels Limited Annual Report 2009 63
highlighting the behaviour/practices which expose
them, and their communities, to the danger of
contracting HIV/AIDS.
This commitment to HIV/AIDS awareness includes:
the display of the City Lodge Policy on HIV/AIDS
and the availability of the Code of Good Practice
in each workplace in the company;
availability and display of HIV/AIDS related material
published by the Department of Health and
non-governmental organisations;
copies of the abovementioned literature
distributed on a regular basis;
training and refresher courses on the subject; and
the facilitation of easy and confidential access to
counselling for all employees.
In conjunction with the employment equity
committee and the representative trade union, the
group has ascertained the interventions required to
ensure that the number of employees infected with
HIV/AIDS is kept to a minimum and that efforts are
made to assist those who are infected to enjoy
quality of life, thereby allowing for their continued
contribution.
of generic health and safety units within various
National Qualifications available to staff.
Compliance with health and safety policy and
legislation is reviewed as a part of the internal audit
procedure. In addition, the group maintains its
commitment to ensuring that levels of hygiene,
compliant with HACCP (Hazard Analysis of Critical
Control Points) legislation, are maintained at all the
group’s properties.
The group also ensures that all contractors engaged
in the delivery of services to the group are equally
compliant in terms of their adherence to health and
safety requirements.
HIV/AIDS
The group’s policy on HIV/AIDS states that the
group endeavours to create an environment in the
workplace which is non-discriminatory towards, and
supportive of, employees living with HIV/AIDS.
The group has also recognised its social
responsibility towards assisting in the eradication of
the HIV/AIDS pandemic by informing all its
employees of the dangers of HIV/AIDS and
64 City Lodge Hotels Limited Annual Report 2009
administration and contact details
CITY LODGE HOTELS LIMITED
Incorporated in the Republic of South Africa
Registration number 1986/002864/06
ISIN: ZAE 00011 7792
Share code: CLH
COMPANY SECRETARY
M C van Heerden
REGISTERED OFFICE
The Lodge
Bryanston Gate Office Park
Corner Homestead Avenue and Main Road
Bryanston
PO Box 97
Cramerview, 2060
Telephone: +2711 557 2600
Facsimile: +2711 557 2670
Email: [email protected]
Websites: www.citylodge.co.za
www.bid2stay.co.za
TRANSFER SECRETARIES
Computershare Investor Services 2004 (Pty) Limited
70 Marshall Street
Johannesburg, 2001
PO Box 61051
Marshalltown, 2107
AUDITORS
KPMG Inc.
BANKERS
The Standard Bank of South Africa Limited
ATTORNEYS
Edward Nathan Sonnenbergs
SPONSOR
J P Morgan Equities Limited
City Lodge Hotels Limited Annual Report 2009 65
annual financial statements
Directors’ responsibility statement
Certificate by the company secretary
Independent auditor’s report
Directors’ report
Accounting policies
Balance sheets
Income statements
Cash flow statements
Statements of recognised income and expenses
Reconciliation of movement in capital and reserves
Notes to the financial statements
66
66
67
68
72
78
79
80
81
82
83
66 City Lodge Hotels Limited Annual Report 2009
The company’s directors are responsible for the preparation and fair presentation of the group annual fi nancial statements and separate parent annual fi nancial statements, comprising the balance sheets at 30 June 2009, and the income statements, the statements of recognised income and expenses and cash fl ow statements for the year then ended, signifi cant accounting policies and the notes to the fi nancial statements, and other explanatory notes, and the directors’ report, in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa.
The directors’ responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of these fi nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
The directors’ responsibility also includes maintaining adequate accounting records and an effective system of risk management as well as the preparation of the supplementary schedules included in these fi nancial statements.
The directors have made an assessment of the group’s and company’s ability to continue as a going concern and there is no reason to believe the businesses will not be going concerns in the year ahead.
The auditor is responsible for reporting on whether the group annual fi nancial statements and separate parent annual fi nancial statements are fairly presented in accordance with the applicable fi nancial reporting framework.
APPROVAL OF GROUP ANNUAL FINANCIAL STATEMENTS AND SEPARATE PARENT ANNUAL FINANCIAL STATEMENTS
The group annual fi nancial statements and separate parent annual fi nancial statements were approved by the board of directors on 30 September 2009 and signed on its behalf by:
C Ross A C Widegger
Chief executive Financial director
directors’ responsibility statement
I, the undersigned, in my capacity as company secretary, hereby confi rm to the best of my knowledge and belief that for the fi nancial year ended 30 June 2009, the company has lodged with the Registrar of Companies all returns required of a public company in terms of the Companies Act of South Africa and that all such returns are true, correct and up to date.
M C van Heerden
Company secretary
certificate by the company secretary
City Lodge Hotels Limited Annual Report 2009 67
REPORT ON THE FINANCIAL STATEMENTS
We have audited the group annual financial statements and the annual financial statements of City Lodge Hotels Limited, which comprise the balance sheets at 30 June 2009 and the income statements, the statements of recognised income and expenses and cash flow statements for the year then ended, significant accounting policies and the notes to the financial statements, and other explanatory notes, and the directors’ report as set out on pages 68 to 115.
DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OPINION
In our opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial position of City Lodge Hotels Limited at 30 June 2009, and its consolidated and separate financial performance and consolidated and separate cash flows for the period then ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa.
KPMG Inc.
Registered Auditor
Per G Parker
Chartered Accountant (SA) Registered Auditor Director
30 September 2009
KPMG Crescent
85 Empire Road
Parktown
Johannesburg
independent auditor’s report to the members of city lodge hotels limited
68 City Lodge Hotels Limited Annual Report 2009
NATURE OF BUSINESS
The group owns and operates high quality, affordable hotels targeted at the business community and leisure traveller.
FINANCIAL RESULTS
Group profit before taxation for the year amounted to R249,9 million (2008 – R333,9 million) whilst consolidated headline earnings totalled R131,8 million (360,2 cents per share, diluted) compared with headline earnings of R225,5 million (524,9 cents per share, diluted) for the previous year.
On a normalised basis, the consolidated headline earnings totalled R236,0 million (549,1 cents per share, diluted) compared with normalised headline earnings of R226,4 million (527,0 cents per share, diluted) for the previous year.
The company’s interest in its subsidiaries’ profit after taxation amounted to R7,3 million (2008 – R6,6 million).
DIVIDENDS
An interim dividend of 203,0 cents per share (2008 – 177,0 cents) was declared on 12 February 2009, payable to ordinary shareholders registered on 13 March 2009. A final dividend of 158,0 cents per share (2008 – 194,0 cents) was declared on 13 August 2009, payable to ordinary shareholders registered on 11 September 2009.
SHARE CAPITAL
There was no change in the authorised share capital of the company during the year under review.
The issued share capital increased by 142 050 shares as reflected in note 8.
The shares issued during the year were to participants in the executive employee share incentive scheme, in terms of share options exercised, at prices of between R6,50 and R57,33 per share.
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 (SPVs) are deemed to be controlled by City Lodge and they are therefore incorporated 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 20 as part of the BEE transaction charges and in the balance sheet under other reserves.
On incorporation, 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 proceeds from the payment of the City Lodge final dividend in September 2008 and interim dividend in March 2009, the SPVs declared a preference dividend of R31,9 million of which R13,6 million in respect of the A preference shares was paid and R18,3 million in respect of the B preference shares was accrued and added to the balance sheet as part of the BEE preference share liability. In addition, A preference shares to the value of R12,4 million were redeemed.
An amount of R27,8 million was accrued in respect of the preference dividends payable as at 30 June 2009. Of this R3,9 million is in respect of the A’s which is payable in October 2009 and is included in current liabilities. The balance of R23,9 million is in respect of the B’s and has
directors’ report for the year ended 30 June 2009
City Lodge Hotels Limited Annual Report 2009 69
been included in non-current liabilities 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 average rate payable in respect of the preference shares during the period. The result was a net settlement of R33 000 due to the SPVs as at 30 June 2009 in respect of the period under review. This is credited to the BEE preference dividend expenses.
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 30 June 2009 was determined and resulted in a loss of R26,5 million. This is reflected as part of the BEE transaction charges in note 20 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 recognised at its fair value (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 R1 280 000 and is reflected in note 20.
The investment in 6 390 365 City Lodge ordinary shares by the SPVs is 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 SPVs on the City Lodge shares held by them are deducted from the dividends paid by City Lodge on incorporation.
The majority of the sundry expenses reflected in Note 20 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.
THE CITY LODGE SHARE APPRECIATION RIGHT SCHEME
At a meeting of the shareholders on 7 November 2007, a new share scheme was created for directors and certain employees of the company. This scheme replaces the City Lodge Executive Employee Share Incentive Scheme.
In terms of the scheme, employees will receive annual grants of SARs, which are conditional rights to receive shares equal to the value of the difference between the exercise price and the grant price. Vesting of the SARs is subject to performance conditions. The duration and specific nature of the performance conditions and performance period will be stated in the letter of grant and will be determined by the RemCom on an annual basis in respect of each new grant of SARs. The performance conditions that will be imposed will be no less stretching than the requirement that headline earnings per share (HEPS) should increase by 2% (two percent) per annum above inflation over a 3 (three) year performance period. Retesting of the performance conditions will be allowed in year four and five. After vesting, the SARs will become exercisable. Upon exercise by a participant, the relevant Employer company will settle the value of the difference between the exercise price and the grant price by delivering shares, alternatively, as a fall-back provision only, by settling the value in cash. SARs not exercised within the SAR period will lapse.
Movement in rights granted in the company in terms of the share appreciation rights scheme during the year are summarised below:
Total rights at 30 June 2008 —
Rights granted 627 225
Rights exercised —
Rights forfeited (16 250)
Total rights at 30 June 2009 610 975
The share-based equity settled option expense for the year ended 30 June 2009 is R3 376 867 (2008 – nil). Refer note 23.
THE CITY LODGE DEFERRED BONUS PLAN
Employees will be permitted to use a portion of the after-tax component of their annual bonus to acquire bonus shares. A simultaneous conditional matching award of shares will be
70 City Lodge Hotels Limited Annual Report 2009
directors’ report for the year ended 30 June 2009 (continued)
made to the participant on the condition that the participant remains in the employ of an employer company and retains the bonus shares over the DBP period. The participant remains the owner of the bonus shares for the duration of the DBP period and will enjoy all shareholder rights in respect of the bonus shares. Bonus shares can be withdrawn from escrow at any stage, but the matching award is forfeited to the extent of the bonus shares withdrawn from escrow during the DBP period.
Movement in shares granted in the company in terms of the deferred bonus plan during the year are summarised below:
Total shares at 30 June 2008 —
Shares purchased 9 000
Shares sold —
Total shares at 30 June 2009 9 000
The share-based equity settled option expense for the year ended 30 June 2009 is R161 740 (2008 – nil). Refer to note 23.
THE CITY LODGE EXECUTIVE EMPLOYEE SHARE INCENTIVE SCHEME
Movements in options granted over shares in the company in terms of the executive employee share incentive scheme during the year are summarised as follows:
Total options at 30 June 2008 1 028 970
Options granted —
Options exercised (142 050)
Options cancelled (11 200)
Total options at 30 June 2009 875 720
Options are granted at the weighted average price of trades on the JSE during the ten trading days preceding the option date. The options are exercisable to the extent of 20% on the expiry of two years from the date of grant, a further 20% on the expiry of years three and four and the remaining 40% on the expiry of year five. In terms of the deed governing the scheme, a maximum of 7% of the issued ordinary shares may be utilised for purposes of the scheme. This option scheme has been
replaced by the City Lodge Share Appreciation Rights Scheme, but will remain in place for options granted under this scheme, until such time as these options are exercised or lapse. Details of options held by directors are included in note 16.
Share options are expensed in terms of IFRS 2. The current year’s expense was R2 302 748 (2008 – R2 714 264). Refer to note 23.
THE CITY LODGE 10TH ANNIVERSARY EMPLOYEES’ SHARE SCHEME
At a general meeting of shareholders on 18 December 1995, a share scheme was created for all employees other than those employees who participate in the City Lodge executive employee share incentive scheme. The company issued 1 000 000 new ordinary shares to the trust which were funded by means of an interest-free loan from the company for an amount of R34 million.
The following distributions were made in terms of the scheme:
Distribution date
Shares per eligible
employeeTotal shares distributed
December 1995 30 15 420
November 2005 55 38 445
November 2006 138 88 734
November 2007 214 137 388
279 987
In applying IAS 39 – Financial Instruments: recognition and measurement, on initial recognition, the carrying value of the loan is R12,7 million (2008 – R10,9 million) based on amortised cost.
SUBSIDIARIES AND JOINT VENTURES
Details relating to investments in subsidiaries and joint ventures are included in notes 2, 3 and 18.
City Lodge Hotels Limited Annual Report 2009 71
DIRECTORATE AND SECRETARY
The directors in office during the year under review were: H R Enderle (Chairman), F W J Kilbourn, I N Matthews, N Medupe, S G Morris, B T Ngcuka, C Ross (Chief executive), K I M Shongwe and A C Widegger (Financial director).
In terms of the articles of association, Mr F W J Kilbourn, Mrs N Medupe and Mr S G Morris, retire at the forthcoming annual general meeting but are eligible and available for re-election.
SEGMENTAL INFORMATION
The group has one business segment situated in South Africa which is subject to the same risk profile and as such the group has identified one segment whose results are the same as presented in the balance sheet, income statement, cash flow statement and related notes.
DIRECTORS’ INTEREST
The directors’ individual interests in the issued ordinary share capital of the company at 30 June were as follows:
Beneficial
Direct Indirect
Director 2009 2008 2009 2008
H R Enderle 29 691 34 930 4 496 479 5 289 975
F W J Kilbourn 17 000 20 000 — —
I N Matthews 416 489 — —
N Medupe — — — —
S G Morris — — — —
B T Ngcuka — — 444 521* —
C Ross 14 440 27 423 — —
K I M Shongwe — — — —
A C Widegger 31 750 15 000 — —
Total 93 297 97 842 4 941 000 5 289 975
Directors were interested in 385 040 (2008 – 442 040) options to acquire ordinary shares in the company at 30 June 2009 under the executive share incentive scheme. No changes have taken place since that date as this scheme has been replaced by the share appreciation rights scheme and the deferred bonus plan. Details of options held by individual directors are included in note 16.
*Mr Ngcuka’s indirect shareholding reflects his proportionate share of the 2 556 185 shares owned by Vuwa Investments (Pty) Limited.
GOING CONCERN
The directors consider that the company has adequate resources to continue operating for the foreseeable future and that it is therefore appropriate to adopt the going concern basis in preparing the company’s financial statements. The directors have satisfied themselves that the company is in a sound financial position and that it has access to sufficient borrowing facilities to meet its foreseeable cash requirements.
MATERIAL POST-BALANCE SHEET EVENTS
There are no material post-balance sheet events.
72 City Lodge Hotels Limited Annual Report 2009
REPORTING ENTITIES
City Lodge Hotels Limited (the “company”) is a company domiciled in South Africa. The consolidated financial statements of the company as at and for the year ended 30 June 2009 comprise the company and its subsidiaries (together referred to as the “group”) and the group’s interest in jointly controlled entities. The group operates in the hotel industry.
BASIS OF PREPARATION
Functional and presentation currency
The annual financial statements are presented in Rand, which is the company’s functional currency, rounded to the nearest thousand.
BASIS OF MEASUREMENT
The annual financial statements are prepared on the historical-cost basis and the accounting policies set out below have been applied consistently by all group entities to all periods presented in these financial statements.
The preparation of financial statements in conformity with International Financial Reporting Standards (IFRS) requires management to make judgements, estimates and assumptions that may affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period, or in the period of the revision and future periods if the revision affects both current and future periods.
In particular, information about significant areas of estimation, uncertainty and critical judgements, in applying accounting
policies that have the most significant effect on the amounts recognised in the financial statements is in relation to the following:
depreciation period for buildings (accounting policy note)
measurement of share-based payments (note 23)
measurement of impairment of trade receivables (note 26)
STATEMENT OF COMPLIANCE
The annual financial statements and group annual financial statements have been prepared in accordance with IFRS and its interpretations adopted by the International Accounting Standards Board and in accordance with the Companies Act of South Africa.
SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION
The group annual financial statements include the financial statements of the company and its subsidiaries. The results of subsidiaries are included from/to their effective dates of acquisition/disposal.
Investments in subsidiaries and joint ventures are carried at cost less impairment in the company financial statements.
Subsidiaries
Subsidiaries are entities controlled by the company. Control exists when the company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account.
Joint ventures
Joint ventures are those entities over which the group exercises joint control in terms of a contractual agreement. Investments in joint ventures are accounted for using the equity method. The group’s share of post-acquisition earnings of joint ventures is included in earnings attributable to ordinary shareholders from/to their effective dates of acquisition/disposal.
accounting policies
City Lodge Hotels Limited Annual Report 2009 73
Special purpose vehicles
The group has established a number of special purpose vehicles (SPVs) for the purposes of the BEE transaction. The group does not have any direct or indirect shareholdings in these entities. The group has guaranteed the funding of the SPVs and accounts for these SPVs as being agents acting on behalf of their principal, the Company, resulting in the incorporation of the SPVs into the company and group financial statements.
Transactions eliminated on consolidation
Intragroup transactions and balances, and any unrealised income or expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.
PROPERTY, PLANT AND EQUIPMENT
Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Costs include expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials, direct labour and any other costs directly attributable to bringing the asset to a working condition for its intended use. Where significant components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.
Freehold land is stated at cost and is not depreciated. Freehold and leasehold buildings are stated at cost and depreciated over periods of up to 50 years as deemed appropriate to reduce carrying values to estimated residual values over their useful lives.
The group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when the cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of the replaced item is derecognised. All other costs are recognised in the income statement as an expense as incurred.
Borrowing costs incurred on funds raised to erect hotel buildings (qualifying assets) are capitalised up to the date that
the activities necessary to prepare the hotel for its intended use are substantially complete.
Depreciation is charged to the income statement to write-off the cost of the asset to its estimated residual value on a straight-line basis over the estimated useful life of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are currently as follows:
Buildings 20 to 50 years
Furniture and equipment 3 to 5 years
The residual values, depreciation methods, and useful lives are reassessed annually.
Gains and losses arising on the disposal of property, plant and equipment in the normal course of the business are included in the income statement.
LEASES
Operating leases
Leases, where the lessor retains the risk and rewards of ownership of the underlying asset, are classified as operating leases.
Operating lease payments are expensed in the income statement on a straight-line basis over the period of the leases. Other contingent operating lease payments are charged against profit as they are incurred.
INTANGIBLE ASSETS
Internally developed trademarks are not recognised. Expenditure to enhance and maintain such trademarks is charged in full against profit.
IMPAIRMENT
Financial assets
A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset that can be measured reliably.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.
74 City Lodge Hotels Limited Annual Report 2009
accounting policies (continued)
An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in profit or loss.
Non-financial assets
The carrying amounts of the group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss
is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
PRE-OPENING EXPENSES
Pre-opening expenses of new hotels are charged directly against profit as incurred.
INVENTORY
Inventory is stated at the lower of cost and net realisable value, on a first-in first-out basis, and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated selling expenses.
TAXATION
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity.
Current taxation comprises taxation payable calculated on the basis of the expected taxable income for the year, using the taxation rates enacted or substantively enacted at the balance sheet date, and any adjustment of taxation payable for previous years.
Deferred taxation is provided using the balance sheet liability method, based on temporary differences. Temporary differences are differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax base. The amount of deferred taxation provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using taxation rates enacted or substantively enacted at the balance sheet date. Deferred taxation is charged to the income statement except to the extent that it relates to a transaction that is recognised directly in equity, or a business combination that is an acquisition. The effect on deferred taxation of any changes in taxation rates is recognised in the income statement, except to the extent that it relates to items previously charged or credited directly to equity.
City Lodge Hotels Limited Annual Report 2009 75
Deferred taxation is not recognised for the following temporary differences:
The initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that they will not reverse in the foreseeable future.
A deferred taxation asset is recognised to the extent that it is probable that future taxable profits will be available against which the associated unused taxation losses and deductible temporary differences can be utilised. Deferred taxation assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related taxation benefit will be realised.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
Secondary taxation on companies is recognised in the year dividends are declared.
FINANCIAL INSTRUMENTS
Measurement
Financial instruments are initially measured at fair value plus, for financial instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition, these instruments are measured as set out below:
FINANCIAL ASSETS
Investments
Investments that meet the criteria for classification as loans are carried at amortised cost using the effective interest method, less impairment losses.
Financial assets designated as financial assets at fair value through profit or loss are carried at fair value with any gains or losses being recognised in profit or loss. Fair value, for this purpose, is market value if listed. Attributable transaction costs are recognised in profit or loss when incurred.
Trade and other receivables
Trade and other receivables are measured at amortised cost, using the effective interest rate method, less impairment losses.
Cash and cash equivalents
Cash and cash equivalents are measured at fair value.
Derecognition
Financial assets are derecognised if the group’s contractual rights to the cash flows from the financial assets expire or if the group transfers the financial asset to another party without retaining control of substantially all risks and rewards of the asset. Financial liabilities are derecognised if the group’s obligations expire or are discharged or cancelled.
FINANCIAL LIABILITIES
Borrowings are stated at amortised cost using the effective interest method.
Any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement as interest expense over the period of the borrowings.
Derivatives are recognised initially at fair value, and any directly attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value with changes therein recognised in profit or loss.
The company uses an interest rate swap to hedge its exposure on certain borrowings to fluctuations in interest rates. The fair value is determined using appropriate coupon curve valuation techniques based on prevailing rates at year-end.
Trade and other payables are measured at amortised cost, using the effective interest method.
76 City Lodge Hotels Limited Annual Report 2009
accounting policies (continued)
OFFSET
Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when the company has a legally enforceable right to set off the recognised amounts, and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
SHARE CAPITAL AND EQUITY
Ordinary shares are classified as equity. Incremental external costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
PREFERENCE SHARES
Preference share capital is classified as a liability as it is redeemable on a specific date or at the option of the shareholders and as the dividend payments are not discretionary. Dividends thereon are recognised as interest expense in profit or loss as accrued.
PROVISIONS
Provisions are recognised when the group or company has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the liability.
REVENUE
Revenue comprises revenue received from hotel accommodation, food and beverage sales, but excludes value-added tax.
Revenue is measured at the fair value of the consideration received or receivable, net of returns and allowances and trade discounts. Revenue is recognised when the significant risks and rewards of ownership have been transferred, recovery of the consideration is probable, the associated costs can be estimated reliably and there is no continuing management involvement.
For the customer loyalty programme, the fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits (“Lodger-points”) and the other components of the sale. The group supplies all of the awards, being accommodation itself. The amount allocated to the Lodger-points is estimated by reference to the fair value of the accommodation for which they could be redeemed, since the fair value of the Lodger-points themselves is not directly observable. The fair value of the accommodation is estimated taking into account the expected redemption rate and the timing of such expected redemptions. Such amount is deferred and revenue is recognised only when the Lodger-points are redeemed and the group has fulfilled its obligations to supply the accommodation. The amount of revenue recognised in those circumstances is based on the number of Lodger-points that have been redeemed in exchange for accommodation, relative to the total number of Lodger-points that is expected to be redeemed.
RENTAL INCOME
Rental income from property leased out under operating leases is recognised on a straight-line basis over the term of the lease. The property leased is owner-occupied property.
FINANCIAL INCOME AND EXPENSE
Financial income comprises interest income on funds invested. Interest income is recognised as it accrues, using the effective interest method.
Financial expenses comprise interest expense on borrowings, dividends on preference shares classified as liabilities and unwinding of discounts on provisions. All borrowing costs, not directly attributable to the acquisition, construction or production of qualifying assets, are recognised in profit or loss using the effective interest method.
EMPLOYEE BENEFITS
Short-term employee benefits
The cost of all short-term employee benefits is recognised during the period in which the employee renders the related service.
City Lodge Hotels Limited Annual Report 2009 77
The accrual for employee entitlements to salaries, bonuses and annual leave represent the amounts which the group has a present obligation to pay as a result of employees’ services provided to the balance sheet date. The accruals have been calculated at undiscounted amounts based on current wage and salary rates.
Retirement benefits
Defined-contribution plans
Contributions to defined-contribution pension plans are recognised as an expense in the income statement as incurred.
Defined-benefit plans
The group’s net obligation in respect of the defined-benefit pension plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets is deducted. The discount rate is the yield at the balance sheet date on AAA credit-rated bonds that have maturity dates approximating to the terms of the group’s obligations and are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed by a qualified actuary using the projected unit credit method.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in the income statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the income statement.
All actuarial gains and losses are recognised directly in equity.
Where the calculation results in a benefit to the group, the recognised asset is limited to the net total of any unrecognised actuarial losses and past-service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan.
Share-based payment transactions
The share incentive schemes allow certain employees to acquire shares of the company. The fair value of rights granted are recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the rights. The fair value of the rights granted is measured using the stated models, taking into account the terms and conditions upon which the rights were granted. The amount recognised as an expense is adjusted to reflect the actual number of share rights that vest, except where forfeiture is due only to share prices not achieving the threshold for vesting.
Share-based payment arrangements in which the group receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the group.
EARNINGS PER SHARE
The group presents basic, diluted and normalised earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing profit for the period by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS is determined by dividing profit for the period by the weighted average number of ordinary shares outstanding plus all potential dilutive ordinary shares, which comprise share options granted to employees.
Normalised EPS is calculated by dividing profit for the period, excluding the effects of the BEE transactions, by the weighted average number of ordinary shares outstanding, excluding shares held by the BEE SPVs, during the period.
Normalised diluted EPS is determined by dividing profit for the period, excluding the effects of the BEE transactions, by the weighted average number of ordinary shares outstanding, excluding shares held by the BEE SPVs, plus all potential dilutive ordinary shares, which comprise share options granted to employees.
78 City Lodge Hotels Limited Annual Report 2009
balance sheets at 30 June 2009
Group Company
Note2009R000
2008R000
2009R000
2008R000
ASSETSNon-current assets 815 238 695 142 774 378 674 099
Property, plant and equipment 1 765 897 647 159 661 982 563 004Interest in subsidiaries 2 66 053 66 053Investments 3 33 654 34 148 33 654 34 148Loan receivable 4 12 689 10 894 12 689 10 894Deferred taxation 5 2 998 2 941
Current assets 155 539 83 391 164 045 80 325
Inventory 6 1 773 1 625 1 773 1 625Trade receivables 32 654 25 472 32 654 25 472Other receivables 7 103 754 5 437 112 930 3 988Cash and cash equivalents 17 358 50 857 16 688 49 240
Total assets 970 777 778 533 938 423 754 424
EQUITY Capital and reserves 186 518 626 527 137 538 584 818
Share capital and premium 8 143 147 140 434 143 147 140 434BEE investment in City Lodge (486 051) (486 051)Retained earnings 459 833 480 399 410 853 438 690Other reserves 9 69 589 5 694 69 589 5 694
LIABILITIESNon-current liabilities 681 095 104 256 680 746 103 941
Interest-bearing borrowings 10 100 000 40 000 100 000 40 000BEE preference shares 11 428 300 428 300BEE shareholder’s loan 12 14 360 14 360BEE B preference share dividend accrual 11 23 906 23 906Fair value of BEE interest rate swap 26 26 480 26 480Other non-current liabilities 13 15 621 6 710 15 621 6 710Deferred taxation 5 72 428 57 546 72 079 57 231
Current liabilities 103 164 47 750 120 139 65 665
Interest-bearing borrowings 10 40 000 40 000Trade and other payables 14 53 339 45 763 70 603 63 797Taxation payable 9 825 1 987 9 536 1 868
Total equity and liabilities 970 777 778 533 938 423 754 424
City Lodge Hotels Limited Annual Report 2009 79
income statements for the year ended 30 June 2009
Group Company
Note2009R000
2008R000
2009R000
2008R000
Revenue 665 029 599 902 665 029 599 902Administration and marketing costs (46 977) (46 002) (41 572) (40 760)BEE transaction charges 15 (56 962) (56 962)Operating costs excluding depreciation (251 320) (214 801) (274 875) (237 370)
309 770 339 099 291 620 321 772Depreciation (34 858) (26 934) (34 594) (26 630)
Operating profit 15 274 912 312 165 257 026 295 142Interest income 17.1 11 486 14 592 19 274 22 380Interest expense 17.2 (45 465) (1 338) (45 465) (1 338)Share of profit from joint venture 18 8 952 8 527 8 952 8 527
Profit before taxation 249 885 333 946 239 787 324 711Taxation 19 (117 919) (108 299) (115 092) (105 619)
Profit for the period 131 966 225 647 124 695 219 092
Earnings per share (cents) – basic 20 364,0 530,7Diluted earnings per share (cents) – basic 20 360,6 525,2Dividends declared per ordinary share (cents) 21 361,0 371,0
– interim paid 203,0 177,0 – final declared 158,0 194,0
80 City Lodge Hotels Limited Annual Report 2009
cash flow statements for the year ended 30 June 2009
Group Company
Note2009R000
2008R000
2009R000
2008R000
Cash generated by operations 25.1 368 231 364 114 338 686 360 936Interest income 9 691 13 052 17 479 20 840Interest expense (15 208) (1 338) (15 208) (1 338)Taxation paid 25.2 (103 274) (111 251) (100 594) (108 326)Dividends paid 21 (143 884) (138 158) (143 884) (138 158)
Cash inflow from operating activities 115 556 126 419 96 479 133 954Cash utilised in investing activities (243 985) (157 380) (223 961) (156 258)
Investment to maintain operations 25.3 (80 867) (22 021) (80 867) (22 021)Investment to expand operations 25.4 (73 181) (134 620) (53 157) (133 498)Expenditure refundable on operating leases (91 098) (91 098)Investments and loans 25.5 494 (1 192) 494 (1 192)Proceeds on disposal of property, plant and equipment 25.3 667 453 667 453
Cash flows from financing activities 94 930 2 426 94 930 2 426
Proceeds on issue of share capital 14 12 14 12Proceeds on issue of share premium 2 699 2 414 2 699 2 414Increase in long term borrowings 100 000 100 000Issue of BEE preference shares 440 700 440 700Redemption of BEE preference shares (12 400) (12 400)Proceeds of BEE shareholder’s loan 50 000 50 000
BEE shareholder’s loan 12 582 12 582Equity component of BEE shareholder’s loan 37 418 37 418
Distribution by BEE SPV (32) (32)BEE investment in City Lodge (486 051) (486 051)
Net (decrease) in cash and cash equivalents (33 499) (28 535) (32 552) (19 878)Cash and cash equivalents at beginning of period 50 857 79 392 49 240 69 118
Cash and cash equivalents at end of period 17 358 50 857 16 688 49 240
City Lodge Hotels Limited Annual Report 2009 81
statements of recognised income and expenses for the year ended 30 June 2009
Group Company
2009R000
2008R000
2009R000
2008R000
Actuarial loss and section 58 limit on defined-benefit plan (8 781) (2 004) (8 781) (2 004)
Deferred taxation thereon 2 459 561 2 459 561
Deferred taxation-rate change — (12) — (12)
Net loss recognised directly in equity (6 322) (1 455) (6 322) (1 455)
Profit for the period 131 966 225 647 124 695 219 092
Total recognised income and expense for the period 125 644 224 192 118 373 217 637
82 City Lodge Hotels Limited Annual Report 2009
reconciliation of movement in capital and reserves for the year ended 30 June 2009
R000 Note
Sharecapital
andpremium
Treasuryshares
Otherreserves
Retainedearnings Total
GROUP
Balance at 30 June 2007 138 008 — 3 522 392 910 534 440Issue of new ordinary shares 2 426 — — — 2 426Profit for the period — — — 225 647 225 647Recognised income and expenses — — (1 455) — (1 455)Share compensation reserve — — 3 627 — 3 627Dividends paid 21 — — — (138 158) (138 158)
Balance at 30 June 2008 140 434 — 5 694 480 399 626 527
Issue of new ordinary shares 2 713 — — — 2 713Profit for the period — — — 131 966 131 966Recognised income and expenses transferred — — 2 294 (2 294) —Recognised income and expenses — — — (6 322) (6 322)Share compensation reserve — — 8 820 — 8 820BEE share-based payment reserve — — 25 840 — 25 840BEE investment in City Lodge — (486 051) — — (486 051)Equity component of BEE shareholder’s loan 9 — — 26 941 — 26 941Dividends paid 21 — — — (143 884) (143 884)Distribution by BEE SPV — — — (32) (32)
Balance at 30 June 2009 143 147 (486 051) 69 589 459 833 186 518
COMPANYBalance at 30 June 2007 138 008 — 3 522 357 756 499 286Issue of new ordinary shares 2 426 — — — 2 426Profit for the period — — — 219 092 219 092Recognised income and expenses — — (1 455) — (1 455)Share compensation reserve — — 3 627 — 3 627Dividends paid 21 — — — (138 158) (138 158)
Balance at 30 June 2008 140 434 — 5 694 438 690 584 818
Issue of new ordinary shares 2 713 — — — 2 713Profit for the period — — — 124 695 124 695Recognised income and expenses transferred — — 2 294 (2 294) —Recognised income and expenses — — — (6 322) (6 322)Share compensation reserve — — 8 820 — 8 820BEE share-based payment reserve — — 25 840 — 25 840Equity component of BEE shareholder’s loan 9 — — 26 941 — 26 941BEE investment in City Lodge — (486 051) — — (486 051)Dividends paid 21 — — — (143 884) (143 884)Distribution by BEE SPV — — — (32) (32)
Balance at 30 June 2009 143 147 (486 051) 69 589 410 853 137 538
City Lodge Hotels Limited Annual Report 2009 83
notes to the financial statements for the year ended 30 June 2009
Group Company
2009R000
2008R000
2009R000
2008R000
1. PROPERTY, PLANT AND EQUIPMENTAt costLand 69 894 49 870 1 178 1 178Buildings 678 795 614 982 632 130 568 318
– freehold 560 451 496 638 513 786 449 974– leasehold 118 344 118 344 118 344 118 344
Buildings under construction 36 912 9 041 36 912 9 041Furniture and equipment 243 859 210 268 242 954 209 363
1 029 460 884 161 913 174 787 900
Accumulated depreciationBuildings 100 396 87 157 88 930 75 956
– freehold 71 194 61 327 59 728 50 126– leasehold 29 202 25 830 29 202 25 830
Furniture and equipment 163 167 149 845 162 262 148 940
263 563 237 002 251 192 224 896
Carrying valueLand 69 894 49 870 1 178 1 178Buildings 578 399 527 825 543 200 492 362
– freehold 489 257 435 311 454 058 399 848– leasehold 89 142 92 514 89 142 92 514
Buildings under construction 36 912 9 041 36 912 9 041Furniture and equipment 80 692 60 423 80 692 60 423
765 897 647 159 661 982 563 004
84 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
R000 Land Buildings
Furnitureand
equipment Total
1. PROPERTY, PLANT AND EQUIPMENT (continued)Movements for the yearGroup – carrying valueOpening balance – 30 June 2007 48 747 424 220 44 750 517 717Additions* 1 123 122 786 32 732 156 641Disposals (265) (265)Depreciation (10 140) (16 794) (26 934)
Opening balance – 30 June 2008 49 870 536 866 60 423 647 159
Additions* 20 024 91 684 42 340 154 048Disposals (452) (452)Depreciation (13 239) (21 619) (34 858)
Closing balance – 30 June 2009 69 894 615 311 80 692 765 897
Company – carrying valueOpening balance – 30 June 2007 1 178 388 452 44 750 434 380Additions* 122 787 32 732 155 519Disposals (265) (265)Depreciation (9 836) (16 794) (26 630)
Opening balance – 30 June 2008 1 178 501 403 60 423 563 004
Additions* 91 684 42 340 134 024Disposals (452) (452)Depreciation (12 975) (21 619) (34 594)
Closing balance – 30 June 2009 1 178 580 112 80 692 661 982
At 30 June 2009 properties with a carrying amount of R93,0 million are subject to a registered bond to secure bank loans (see note 10).A register of the land and buildings is available for inspection at the registered office of the company, a copy of which will be supplied to members of the public on request.
*Included in additions is interest capitalised of R3 287 000 (2008 – R3 650 000).
City Lodge Hotels Limited Annual Report 2009 85
Company
2009R000
2008R000
2. INTEREST IN SUBSIDIARIES
Issuedshare
capitalR
%held
Shares at cost less impairment lossBudget Hotels (Pty) Limited 100 100 1 073 1 073City Lodge (Airport Property) (Pty) Limited 3 350 100 4 4City Lodge (Randburg) (Pty) Limited 100 100 176 176Courtyard Management Company (Pty) Limited 100 100 * *Newshelf 892 (Pty) Limited# 100Newshelf 935 (Pty) Limited# 100Property Lodging Investments (Pty) Limited 100 100 2 000 2 000Vuwa Hotels (Pty) Limited# 100
3 253 3 253Current loanProperty Lodging Investments (Pty) Limited 62 800 62 800
Interest in subsidiaries 66 053 66 053
The current loan is unsecured, bears interest at 12% per annum (2008 – 12%) and is repayable on demand.Amounts included in other receivables and payablesAmounts due by subsidiaries 14 756 —Amounts due to subsidiaries (17 564) (18 299)These amounts are unsecured, interest-free and repayable on demand.The company also has an indirect, 100% shareholding in City Lodge Holdings (Share Block) (Pty) Limited and Twenty Third Floor Investments Seventeen (Pty) Limited.
*Less than R1 000.#City Lodge has guaranteed the funding of these BEE entities, resulting in their incorporation.
86 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
Group Company
2009R000
2008R000
2009R000
2008R000
3. INVESTMENTSInvestment in joint venture (see note 18)Cost of unlisted shares and equity loans 8 734 8 734 8 734 8 734Acquisition costs capitalised 108 108 108 108Increase in investment since acquisition– land and buildings 5 998 5 998 5 998 5 998– loans receivable 16 600 16 600 16 600 16 600– property, plant and equipment less depreciation 2 214 2 708 2 214 2 708
33 654 34 148 33 654 34 148
The investment in joint venture represents the acquisition of the shares and right of use of the assets of the Courtyard group of hotels with effect from 1 April 1995. The directors’ valuation of the investment is R124,4 million* (2008 – R117,6 million). The loans advanced are unsecured, have no fixed terms of repayment and bear interest at 14,25% per annum (2008 – 13,0%).
4. LOAN RECEIVABLECity Lodge 10th anniversary employees’ share trust 12 689 10 894 12 689 10 894
The City Lodge 10th anniversary employees’ share trust loan is secured by the pledge of 720 491 (2008 – 720 013) shares having a market value of R49 713 879 (2008 – R50 393 710), is interest-free and is repayable upon demand by the company at any time after the expiry of 20 years from the date of adoption of the scheme or in the event of the share price falling below R34,00 per share.The loan amount is measured at amortised cost of R12,689 million (2008 – R10,894 million). This increase was as a result of a notional credit to interest received in the current year of R1 795 000 (2008 – R1 540 000). The future value and nominal recoverable amount of the loan is R34,0 million.
* The directors’ valuation has been calculated by estimating the average earnings for the current and forthcoming year and applying an applicable price-earnings ratio.
City Lodge Hotels Limited Annual Report 2009 87
Group Company
2009R000
2008R000
2009R000
2008R000
5. DEFERRED TAXATIONMovement of deferred taxation assetsBalance at beginning of year 2 941 2 978Rate change — (103)Current year temporary differences – income statement 57 66
Balance at end of year 2 998 2 941
Analysis of deferred taxation assetsCapital allowances 2 998 2 941
Movement of deferred taxation liabilitiesBalance at beginning of year 57 546 52 086 57 231 51 793Rate change – income statement — (1 808) — (1 798) – balance sheet — 12 — 12Current year temporary differences – income statement 6 864 7 817 6 830 7 785 – balance sheet 8 018 (561) 8 018 (561)
Balance at end of year 72 428 57 546 72 079 57 231
Analysis of deferred taxation liabilitiesCapital allowances 70 817 63 399 70 468 63 084Defined benefit (3 351) (892) (3 351) (892)Income received in advance (2 062) (2 062)BEE preference share dividend STC 1 603 1 603BEE shareholder’s loan 9 980 9 980Operating lease accrual (2 027) (1 872) (2 027) (1 872)Prepayments 521 571 521 571Provisions (3 053) (3 660) (3 053) (3 660)
72 428 57 546 72 079 57 231
The expected manner of recovery of the deferred tax asset and settlement of the liability will be through use.The tax rate used to calculate the deferred tax balance is 28% (2008 – 28%).
6. INVENTORYFood, liquor and beverages 1 773 1 625 1 773 1 625
88 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
Group Company
2009R000
2008R000
2009R000
2008R000
7. OTHER RECEIVABLESLoans due from related parties (refer to note 27) 14 756 —Expenditure refundable on operating leases 91 098 — 91 098 —Prepayments 2 182 2 559 2 182 2 559Sundry receivables 10 474 2 878 4 894 1 429
103 754 5 437 112 930 3 988
Expenditure refundable on operating leases relates to the portion of expenditure on leased buildings required to be funded by City Lodge during construction and to be refunded by the landlord on completion.
8. SHARE CAPITAL AND PREMIUMShare capitalAuthorised50 000 000 ordinary shares of 10 cents each 5 000 5 000 5 000 5 000
Issued42 744 053 (2008 – 42 602 003) ordinary shares of 10 cents each 4 274 4 260 4 274 4 260
Balance at beginning of year 42 602 003 (2008 – 42 481 953) ordinary shares of 10 cents each 4 260 4 248 4 260 4 248Options exercised during the period 142 050 (2008 – 120 050) of 10 cents each 14 12 14 12
Share premium 138 873 136 174 138 873 136 174
Balance at beginning of year 136 174 133 760 136 174 133 760Premium on issue of new ordinary shares 2 699 2 414 2 699 2 414
143 147 140 434 143 147 140 434
The unissued shares are under the control of the directors until the forthcoming annual general meeting.
City Lodge Hotels Limited Annual Report 2009 89
Group Company
2009R000
2008R000
2009R000
2008R000
9. OTHER RESERVESShare-based payment reserve 42 648 7 988 42 648 7 988
Balance at beginning of year 7 988 4 361 7 988 4 361Expense for the year – share incentive scheme 8 820 3 627 8 820 3 627Expense for the year BEE share-based payment expense 25 840 — 25 840 —
The share-based payment reserve relates to the accumulated cost for the future settlement of obligations arising from the share incentive scheme.The BEE share-based payment expense relates to the once-off IFRS 2 charge in respect of the BEE transaction concluded during the year (refer note 15).Defined-benefit equity reserve — (2 294) — (2 294)
Balance at beginning of year (2 294) (839) (2 294) (839)Recognised income and expenses transferred to retained earnings 2 294 — 2 294 —Actuarial loss on defined-benefit plan — (2 004) — (2 004)Deferred tax thereon — 561 — 561Deferred tax rate-change — (12) — (12)
The defined-benefit equity reserve relates to all actuarial gains and losses and the section 58 limit, net of deferred taxation, recognised directly in equity.
Equity component of BEE shareholder’s loan 26 941 26 941
Balance at beginning of year — —Loan raised 37 418 37 418
Deferred tax thereon (10 477) (10 477)
The shareholder’s loan relates to the equity contribution received from Vuwa Investments (Pty) Limited in respect of the BEE transaction concluded during the year.
69 589 5 694 69 589 5 694
90 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
Group Company
2009R000
2008R000
2009R000
2008R000
10. INTEREST-BEARING BORROWINGSSecured bank loan 100 000 — 100 000 —The loan is secured over land and buildings with a carrying amount of R93,0 million and bears interest at the three-month JIBAR rate plus 2,75 percentage points. Interest repayments are made every six months in arrears.The loan capital is repayable in equal six-monthly instalments commencing 30 December 2011.The loan is the portion of the R400 million approved facility which was utilised during the current year to fund the group’s current expansion.The required bank covenants have been met.Unsecured bank loan 40 000 40 000 40 000 40 000The loan is unsecured and bears interest at the six-month JIBAR rate plus 1,45 percentage points. Interest repayments are made every six months in arrears.
The loan capital is repayable by 31 December 2009.
140 000 40 000 140 000 40 000Less amounts to be repaid within one year’s time (40 000) — (40 000) —
Non-current liabilities 100 000 40 000 100 000 40 000
11. BEE PREFERENCE SHARESProceeds from the issue of redeemable preference shares 440 700 440 700Redeemed during the year (12 400) (12 400)
428 300 428 300
A and B cumulative redeemable preference shares were issued in connection with the BEE transaction by the three Special Purpose Vehicles (SPVs) to fund a portion of the purchase price of investments in City Lodge Hotels Limited. These have been guaranteed by City Lodge resulting in the deemed control of the SPVs and their incorporation for accounting purposes. The preference dividend is determined using 70% and 71% of the prime lending rate for the A and B preference shares respectively. Preference dividends are declared once City Lodge dividends have been received by the SPVs.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 (refer note 26). An amount of R27,8 million was accrued in respect of preference dividends payable as at 30 June 2009. Of this R3,9 million in respect of A preference shares is included under trade and other payables (refer note 14) due in October 2009 and R23,9 million in respect of B preference shares payable beyond one year’s time.
City Lodge Hotels Limited Annual Report 2009 91
Group Company
2009R000
2008R000
2009R000
2008R000
11. BEE PREFERENCE SHARES (continued)Voluntary redemption of A and B preference shares may be made, with full redemption of the preference shares required by 28 July 2015 and 28 July 2013 respectively. The minimum scheduled redemptions in respect of A and B preference shares are as follows:– not later than one year — —– between one and five years 321 210 321 210– later than 5 years 107 090 107 090
12. BEE SHAREHOLDER’S LOANVuwa Investments (Pty) LimitedLoan granted 50 000 50 000Equity component of BEE shareholder’s loan (37 418) (37 418)Notional interest expense 1 778 1 778The BEE shareholder’s loan represents the equity contribution by Vuwa Investments (Pty) Limited to the Vuwa SPV as part funding to purchase shares in City Lodge Hotels Limited. The loan is measured at amortised cost of R14,360 million (2008 – nil). The notional debit to interest expense at a rate of 14,35% per annum was R1 778 000 (2008 – nil). The future value of the loan is R50 million.The loan is unsecured, bears notional interest at 14,35%, and is repayable on demand after 31 December 2017.
14 360 14 360
13. OTHER NON-CURRENT LIABILITIESOperating lease accrual 7 238 6 685 7 238 6 685Defined-benefit obligation (refer to note 23) 8 383 25 8 383 25
15 621 6 710 15 621 6 710
14. TRADE AND OTHER PAYABLESTrade payables 650 99 650 99Loans due to related parties (refer to note 27) 17 564 18 299Sundry accruals 39 604 40 025 39 502 39 930Other trade payables 8 511 5 639 8 313 5 469Preference dividend payable 3 858 3 858Interest swap accrual on preference dividend payable 716 716
53 339 45 763 70 603 63 797
92 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
Group Company
2009R000
2008R000
2009R000
2008R000
15. OPERATING PROFITOperating profit is arrived at after charging/(crediting)Auditors’ remuneration 1 524 1 668 1 448 1 609
Audit fees 1 072 837 996 778Fees for other services 452 831 452 831
BEE transaction charges 56 962 56 962
– IFRS 2 share-based payment charge (note 9 and 23) 25 840 25 840– Loss on fair value of interest rate swap 26 480 26 480– Sundry expenses 4 642 4 642
Defined-benefit plan expense (note 23) 4 019 2 318 4 019 2 318Defined-contribution plan expense 4 036 3 309 4 036 3 309Depreciation 34 858 26 934 34 594 26 630
– buildings 13 239 10 140 12 975 9 836– furniture and equipment 21 619 16 794 21 619 16 794
Directors’ emoluments 6 105 7 932
Fees paid to non-executive directors (note 16) 1 380 1 183Executive directors (note 16) 4 725 6 749
Impairment of trade receivables (227) 175 (227) 175Operating lease rentals– land 4 378 4 816 9 399 8 964– hotel buildings 263 264 9 732 9 650– office buildings 1 791 1 271 1 791 1 271Pre-opening expenses 309 975 309 975Profit on disposal of property, plant and equipment (215) (188) (215) (188)Salaries, wages and related benefits 119 465 108 609 117 097 106 497
– employed 105 176 96 890 102 808 94 778– sub-contracted 14 289 11 719 14 289 11 719
Rent received (859) (993) (859) (993)
Share-based payment expense (note 23) 8 820 3 627 8 820 3 627
– City Lodge 10th anniversary employees’ share trust 2 978 912 2 978 912– City Lodge deferred bonus plan 162 162– City Lodge executive share option scheme 2 303 2 715 2 303 2 715– City Lodge share appreciation right scheme 3 377 3 377
City Lodge Hotels Limited Annual Report 2009 93
R000Basicsalary
Per-formance
bonus
Fringebenefits
andallow-ances
Pensionfund
contri-butions
Totalannual
remune-ration
Gain onexerciseof shareoptions
Totalemolu-ments
16. DIRECTORS’ EMOLUMENTS
Executive directors2009C Ross* 2 139 — 261 303 2 703 2 589 5 292A C Widegger* 1 596 — 200 226 2 022 898 2 920
3 735 — 461 529 4 725 3 487 8 212
2008C Ross 1 925 1 370 258 308 3 861 — 3 861A C Widegger 1 438 1 024 196 230 2 888 — 2 888
3 363 2 394 454 538 6 749 — 6 749
* The IFRS 2 costs for C Ross and A Widegger are R565 068 (2008 – R558 292) and R356 043 (2008 – R349 880) respectively. These costs are not included in the above emoluments.
Non-executive directorsFees R000
2009 2008
H R Enderle 493 446F W J Kilbourn 182 159I N Matthews 197 188S G Morris 195 171N Medupe 125 107B T Ngcuka 98K I M Shongwe 90 112
1 380 1 183
No other payments were made to directors.
94 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
Date ofgrant
Grantprice
(R)
Holdingat
30 June2009
Lapsedate
Numbervesting at
30 June2009
16. DIRECTORS’ EMOLUMENTS (continued) Share appreciation rightsC Ross 01/09/2008 76,71 89 035 01/09/2015 —A C Widegger 01/09/2008 76,71 53 225 01/09/2015 —
142 260 —
Date ofoffer
Numberof bonus
shares
Share priceacquisition
priceMatching
sharesVesting
date
Deferred bonus planC Ross 01/09/2008 5 000 75,00 5 000 01/9/2011A C Widegger 01/09/2008 4 000 75,50 4 000 01/9/2011
9 000 9 000
For further information regarding the share appreciation rights and deferred bonus plan, refer to pages 69 and 70.
City Lodge Hotels Limited Annual Report 2009 95
Date ofgrant
Exerciseprice
(R)
Holdingat
30 June2008
Exer-cised
Holdingat
30 June2009 Lapse date
Numbervesting
at30 June
2009
16. DIRECTORS’ EMOLUMENTS (continued)
Directors’ share optionsC Ross 02/08/1999 8,75 16 000 16 000 — 02/08/2009 —
01/08/2000 7,30 26 000 26 000 — 01/08/2010 —01/08/2001 8,41 26 000 — 26 000 01/08/2011 26 00001/08/2002 11,75 26 000 — 26 000 01/08/2012 26 00001/08/2003 18,50 26 000 — 26 000 01/08/2013 26 00013/08/2004 28,40 38 000 — 38 000 13/08/2014 22 80015/08/2005 37,47 36 000 — 36 000 15/08/2015 14 40009/11/2006 58,59 52 650 — 52 650 09/11/2016 10 53008/05/2007 80,31 28 000 — 28 000 08/05/2017 —
274 650 42 000 232 650 125 730
A C Widegger 04/01/1999 6,50 10 000 10 000 — 04/01/2009 —02/08/1999 8,75 5 000 5 000 — 02/08/2009 —03/01/2000 9,30 10 000 — 10 000 03/01/2010 10 00001/08/2000 7,30 5 000 — 5 000 02/08/2010 5 00003/01/2001 7,75 10 000 — 10 000 03/01/2011 10 00001/08/2001 8,41 5 000 — 5 000 01/08/2011 5 00001/01/2002 8,60 10 000 — 10 000 01/01/2012 10 00001/08/2002 11,75 5 000 — 5 000 01/08/2012 5 00001/01/2003 16,80 10 000 — 10 000 01/01/2013 10 00001/08/2003 18,50 5 000 — 5 000 01/08/2013 5 00013/08/2004 28,40 23 000 — 23 000 13/08/2014 13 80015/08/2005 37,47 21 000 — 21 000 15/08/2015 8 40009/11/2006 58,59 31 590 — 31 590 09/11/2016 6 31808/05/2007 80,31 16 800 — 16 800 08/05/2017 —
167 390 15 000 152 390 88 518
96 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
Group Company
2009R000
2008R000
2009R000
2008R000
17. INTEREST17.1 Interest incomeBank interest 6 574 10 212 6 574 10 212Loans to Courtyard Joint Venture 3 113 2 840 3 113 2 840IAS 39 – effective interest 1 795 1 540 1 795 1 540Interest from subsidiaries 7 788 7 788Other 4 — 4 —
11 486 14 592 19 274 22 380
17.2 Interest expenseLong-term borrowings 5 362 4 920 5 362 4 920Short-term borrowings 245 68 245 68IAS 39 – effective interest 1 778 1 778Preference dividend 41 367 41 367
48 752 4 988 48 752 4 988Interest capitalised to property, plant and equipment (3 287) (3 650) (3 287) (3 650)
45 465 1 338 45 465 1 338
Interest is capitalised to property, plant and equipment at 12,33% (2008 – 10,89%) per annum.
18. INTEREST IN JOINT VENTUREThe group has a 50% interest in the Courtyard Share Block Companies as detailed below. The hotel operations are conducted in a rental pool. The group’s participation in the rental pools at the Courtyards Bruma Lake, Valkenberg and Arcadia is 50%. The participation in the rental pools at the Courtyards Rosebank and Sandton is 32,42% and 26,03% respectively.Management fees are paid by the respective rental pools to Courtyard Management Company (Pty) Ltd, which is a wholly owned subsidiary.The group’s proportionate share of the assets and liabilities and the results of the operations have been equity-accounted.The group’s proportionate share of the results of the operations of the joint venture is as follows: Revenue 32 153 31 208 Operating costs (19 595) (19 493)
Operating profit 12 558 11 715 Depreciation (493) (348) Interest paid (3 113) (2 840)
Net profit 8 952 8 527 Distributed (8 952) (8 527)
Accumulated profit — —
City Lodge Hotels Limited Annual Report 2009 97
Company
2009R000
2008R000
18. INTEREST IN JOINT VENTURE (continued)The group’s proportionate share of assets and liabilities of the joint venture is as follows: Operating assets 36 264 35 078 Current assets 9 157 8 403
Total assets 45 421 43 481
Long-term liabilities 37 153 37 944 Current liabilities 3 866 1 653
Total liabilities 41 019 39 597
The group’s proportionate share of the cash flows of the joint venture is as follows: Cash effects of operating activities 2 800 1 071 Cash utilised in investing activities (2 011) (476) Cash effects of financing activities (792) (666)
Net cash (utilised)/generated (3) (71)
Equity earnings from the joint ventures are distributed.
The group’s shareholding in the joint venture companies is as follows:
Issuedshare
capitalR % held
Gallic Courtyard (Arcadia) Share Block (Pty) Ltd 1 518 50Gallic Courtyard (Bruma Lake) Share Block (Pty) Ltd 2 584 50Gallic Courtyard (Rosebank) Share Block Ltd 2 456 50Gallic Courtyard (Sandown) Share Block Ltd 1 584 50Gallic Courtyard (Valkenberg) Share Block (Pty) Ltd 2 690 50
98 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
Group Company
2009R000
2008R000
2009R000
2008R000
19. TAXATIONSouth African normal taxationCurrent 94 187 86 865 91 337 84 244 Deferred – current 6 807 7 751 6 830 7 785 – rate change — (1 705) — (1 798)Secondary tax on companies 16 925 15 388 16 925 15 388
117 919 108 299 115 092 105 619
Reconciliation of taxation rate % % % %Standard rate 28,0 28,0 28,0 28,0Adjusted for:– BEE transactions 8,8 9,1– disallowable expenses 3,6 0,3 3,8 0,4– rate change — (0,5) — (0,6)– secondary tax on companies 6,8 4,6 7,1 4,7
Effective rate of taxation 47,2 32,4 48,0 32,5
City Lodge Hotels Limited Annual Report 2009 99
Group
2009R000
2008R000
20. HEADLINE EARNINGS PER SHAREDetermination of headline earnings and normalised headline earningsProfit for the period 131 966 225 647Profit on sale of property, plant and equipment (215) (188)Taxation effect 60 53
Headline earnings 131 811 225 512
BEE transaction charges 56 962
– IFRS 2 share-based payment charge 25 840– Loss on fair value of interest rate swap 26 480– Sundry expenses 4 642
Notional interest charge on BEE shareholder loan net of deferred tax 1 280Preference dividends paid/payable by the BEE entities 41 367STC on accrued preference share dividends 1 603IFRS 2 share-based payment charge for the 10th anniversary employee share trust 2 978 912
Normalised headline earnings 236 001 226 424
Number of shares for EPS calculations (000)Undiluted weighted average 36 257 42 519Share options 335 446
Diluted 36 592 42 965
Number of shares for normalised EPS calculations (000)Undiluted weighted average 36 257 42 519BEE shares treated as treasury shares 6 390 —
Undiluted normalised weighted average 42 647 42 519Share options 335 446
Diluted normalised weighted average 42 982 42 965
Headline earnings per share (cents) 363,5 530,4Diluted headline earnings per share (cents) 360,2 524,9Normalised headline earnings per share (cents) 553,4 532,5Diluted normalised headline earnings per share (cents) 549,1 527,0
100 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
Group Company
2009R000
2008R000
2009R000
2008R000
21. DIVIDENDSNumber 39 of 194,0 cents (2008 – 148,0 cents) declared on 13 August 2008 and paid on 22 September 2008 82 674 62 884 82 674 62 884Number 40 of 203,0 cents (2008 – 177,0 cents) declared on 12 February 2009 and paid on 23 March 2009 86 580 75 274 86 580 75 274Dividends attributable to treasury shares (25 370) (25 370)
143 884 138 158 143 884 138 158
On 13 August 2009, dividend number 41 of 158,0 cents per share in respect of the year ended 30 June 2009 was declared totalling R67 535 604 payable on 21 September 2009. The related STC payable at 10% amounts to R6 753 560. These financial statements do not reflect this dividend payable or the related STC.
22. COMMITMENTSAuthorised– contracted 150 000 45 000 150 000 45 000– not contracted 767 000 352 000 767 000 352 000
917 000 397 000 917 000 397 000
Future capital expenditure will be financed out of funds generated from operations and external borrowings and approximately R460 million is expected to be spent during the year ending 30 June 2010.The company is party to various operating leases of periods between 20 and 99 years in respect of land and hotel buildings and 5 years, in respect of office buildings.Schedule of minimum lease payments in respect of land, hotel building and office building leases– not later than 1 year 9 102 6 373 9 102 6 373– between 1 and 5 years 81 444 23 529 81 444 23 529– later than 5 years 518 103 345 016 518 103 345 016
Total financial institution-backed guarantees provided to third parties on behalf of the Company amounted to R465,6 million. The directors do not believe any exposure to loss is likely.The issued guarantees have the following expiry dates:
– not later than 1 year 23 780 16 780 23 780 16 780– between 1 and 5 years 321 210 — 321 210 —– later than 5 years 108 230 1 140 108 230 1 140
City Lodge Hotels Limited Annual Report 2009 101
Group and Company
2009R000
2008R000
23. EMPLOYEE BENEFITS Retirement benefit informationThe group provides retirement benefits for 10% (2008 – 11%) of the group’s permanent employees through a defined-benefit pension scheme that is subject to the Pension Funds Act, 1956, as amended. This fund was closed to new membership on 28 February 2004 and a new defined-contribution fund was established. Company contributions to this new fund are fixed at a rate of 10,5% of pensionable salaries and 28% (2008 – 19%) of the group’s permanent employees are members. Employees who are not members of the above funds are members of the appropriate industry fund.A statutory actuarial valuation of the defined-benefit fund is undertaken every three years. At 31 July 2004, the effective date of the most recent statutory actuarial valuation, the retirement benefit fund was found to have a deficit of R4,7 million. The next statutory actuarial valuation being 1 August 2007 has been delayed, with the required extensions obtained.The current estimate in terms of IAS 19, as at 30 June 2009, as shown below, indicates that the fund has a deficit of R8 383 000 (2008 – R25 000 deficit).
Current estimated employee benefit obligation:Present value of obligation (57 241) (52 186)Fair value of plan assets 48 858 52 161
Liability at year-end (refer to note 13) (8 383) (25)
Income statement effect:Current service cost (4 037) (3 170)Interest on obligation (5 812) (3 323)Expected return on plan assets 5 830 4 175
(4 019) (2 318)
Balance sheet effect:Opening net liability (25) —Expense (4 019) (2 318)Contributions paid 4 442 4 297Amount recognised in equity (8 781) (2 004)
Closing net liability (8 383) (25)
Movement in the liability for defined-benefit obligationsLiability for defined-benefit obligations at 1 July 52 186 37 714Service cost 4 037 3 170Interest cost 5 812 3 323Benefits paid (1 705) (2 635)Actuarial (gain)/loss (3 089) 10 614
Liability for defined-benefit obligations at 30 June 57 241 52 186
102 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
Group and Company
2009R000
2008R000
23. EMPLOYEE BENEFITS (continued) Retirement benefit information (continued)
Movement in plan assetsFair value of plan assets at 1 July 52 161 46 898Expected return on plan assets 5 830 4 175Contributions 4 442 4 297Benefits paid (1 705) (2 635)Actuarial gain (11 870) (574)
Fair value of plan assets at 30 June 48 858 52 161
Principal actuarial assumptions at the balance sheet date:Discount rate 9,3% 10,9%Expected return on plan assets 9,3% 10,9%Future salary increases 7,5% 9,6%Future pension increases 4,9% 6,5%
Historical information R000 2009 2008 2007 2006 2005
Present value of the defined-benefit obligation (57 241) (52 186) (37 714) (30 190) (24 630)
Fair value of plan assets 48 858 52 161 46 898 31 554 22 892
(Deficit)/surplus in the plan (8 383) (25) 9 184 1 364 (1 738)
Medical aidCertain of the group’s employees belong to the Discovery Health Medical Scheme.There are no obligations for post-retirement medical aid contributions.
City Lodge Hotels Limited Annual Report 2009 103
23. EMPLOYEE BENEFITS (continued) Share-based paymentsEquity-settled share appreciation right schemeThe group plan provides for a grant price equal to the 10-day volume weighted average market price of the group’s shares on grant date. The vesting period is generally three to five years. The vesting of the share appreciation right (SAR) is subject to the achievement of specified performance conditions. The performance conditions are that the normalised headline earnings per share (HEPS) should increase by 2% points per annum above inflation (CPIX) over a three-year performance period. If the SARs remain unexercised after a period of seven years from grant, they expire. Furthermore, unexercised SARs are forfeited if the employee leaves the group before they expire. Fair value is measured using an American binomial valuation model. The share-based equity settled expense for the year ended 30 June 2009 in the income statement is R3 376 867 (2008 – Rnil).
2009 2008
Numberof SARs
Weightedaverage
strikeNumberof SARs
Weightedaverage
strike
Outstanding at beginning of period — — — —Granted during period 627 225 76,71 — —Forfeited during period (16 250) 76,71 — —Exercised during period — — — —Expired during period — — — —
Outstanding at end of period 610 975 76,71 — —
Exercisable at end of period — — — —
2009 2008
Average remaining life (years) 6,18 —
American binomial model inputs as follows:Volatility 23% —Risk free rate 9% —Dividend yield 4,91% —Expected life (years) 7 —Strike price (Rand) 76,71 —Average share price (Rand) 76,71 —Option price (Rand) 20,04 —
104 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
23. EMPLOYEE BENEFITS (continued)Share-based payments (continued)Equity-settled deferred bonus planCertain employees will be permitted to use a portion of the after-tax component of their annual bonus to acquire bonus shares at market value. A matching award will be made to the participants on the condition that they remain in the employment of the company for the deferred bonus plan period. The deferred bonus plan provides for a grant price equal to zero. The vesting and expiry period is generally three years. Furthermore, matching awards are forfeited if the employee leaves the group before they vest. Fair value is measured using a European binomial valuation model. The share-based equity settled expense for the year ended 30 June 2009 in the income statement is R161 740 (2008 – Rnil).
2009 2008
Numberof options
Weightedaverage
strikeNumber
of options
Weightedaverage
strike
Outstanding at beginning of period — — — —Granted during period 9 000 0 — —Forfeited during period — — — —Exercised during period — — — —Expired during period — — — —
Outstanding at end of period 9 000 0 — —
Exercisable at end of period — — — —
2009 2008
Average remaining life (years) 6,18 —
European binomial model inputs as follows:Volatility 24% —Risk free rate 9,21% —Dividend yield 4,91% —Expected life (years) 3 —Strike price (Rand) 0,00 —Average share price (Rand) 75,50 —Option price (Rand) 65,16 —
City Lodge Hotels Limited Annual Report 2009 105
23. EMPLOYEE BENEFITS (continued)Share-based payments (continued)Equity-settled share option planThe group plan provides for a grant price equal to the average quoted market price of the group’s shares on grant date. The vesting period is generally two to five years. If the options remain unexercised after a period of 10 years from grant, the options expire. Furthermore, options are forfeited if the exployee leaves the group before the options vest. The share-based equity settled option expense for the year ended 30 June 2009 in the income statement is R2 302 748 (2008 – R2 714 264). No further grants will be made under this scheme.
2009 2008
Numberof options
Weightedaverage
strikeNumber
of options
Weightedaverage
strike
Outstanding at beginning of period 1 028 970 41,17 1 156 620 37,60Granted during period — — 65 000 76,95Forfeited during period (11 200) 53,34 (72 600) 51,00Exercised during period (142 050) 19,10 (120 050) 20,21Expired during period — — — —
Outstanding at end of period 875 720 44,59 1 028 970 41 17
Exercisable at end of period 410 984 30,29 357 290 19,46
2009 2008
Average remaining life (years) 5,95 6,55
American binomial model inputs as follows:Weighted average volatility — 17,93%Weighted average risk free rate — 8,23%Weighted average dividend yield — 3,59%Weighted average expected life (years) — 10Weighted average strike price (Rand) — 76,95Weighted average share price (Rand) — 76,95Weighted average option price (Rand) — 22,93
106 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
23. EMPLOYEE BENEFITS (continued)Share-based payments (continued)Equity-settled 10th anniversary share planThe Group plan provides for an annual share distribution equal to half of the financial year’s capital growth, if any, of the portfolio of City Lodge shares held by the trust. The distributions to eligible employees (employees in the service of the group for a least one year) are equity settled three months after year-end, provided that the portfolio’s market value at year-end, exceeds the market value at the previous year-end. Entitlements are forfeited if the employee leaves the group’s service before a distribution takes place. The vesting period is one year. Expected volatility was determined by calculating the historical volatility of the group’s share price over the previous two years. Fair value is measured using an European binomial valuation model. The share-based equity settled expense for the year ended 30 June 2009 in the income statement is R2 978 675 (2008 – R912 482).
2009Number
of shares
2008Number
of shares
Outstanding at beginning of period 720 013 857 401Distributed during period — (137 388)
Outstanding at end of period 720 013 720 013
2009 2008
Pershare
Totalportfolio
Pershare
Totalportfolio
European binomial model inputs as follows:Volatility 23% 23% 19% 19%Risk free rate 11,99% 11,99% 9,42% 9,42%Dividend yield 4,64% 4,64% 3,33% 3,33%Expected life (years) 1 1 1 1Effective strike price (Rand) 69,99 50 393 710 95 68 592 080Share price (Rand) 69,99 50 393 710 80 57 476 348Effective option price (Rand) 4,14 2 978 675 1,27 912 482
Equity-settled Vuwa black economic empowerment schemeOn 8 July 2008 the City Lodge group effected a black economic empowerment scheme with Vuwa Hotels (Pty) Ltd. In terms of the scheme, 6% (2 556 185) of the issued share capital of City Lodge was acquired by Vuwa Hotels in terms of a scheme of arrangement. Standard Bank of South Africa subscribed for R80 million amortising, seven-year A preference shares bearing interest at 70% of the prime interest rate and R66,1 million cumulative zero coupon five-year B preference shares bearing interest at 71% of the prime interest rate. Ordinary dividends received by Vuwa Hotels must be used to service and repay the preference shares and City Lodge guarantees the preference shares. There is a lock-in period to 31 December 2017. Vuwa Hotels may not dispose of City Lodge shares, between 1 July 2015 and 31 December 2017 unless it is to black persons. Fair value is measured using a cash flow and a binomial valuation model. The share-based equity settled option expense for the year ended 30 June 2009 in the income statement is R10 351 488 (2008 – Rnil).
City Lodge Hotels Limited Annual Report 2009 107
23. EMPLOYEE BENEFITS (continued)Share-based payments (continued)Equity-settled University of Johannesburg School of Tourism and Hospitality, black economic empowerment schemeOn 8 July 2008 the City Lodge group effected a black economic empowerment scheme with Newshelf 935 (Pty) Ltd. In terms of the scheme, 3% (1 278 060) of the issued share capital of City Lodge was acquired by Newshelf 935 in terms of a scheme of arrangement. Standard Bank of South Africa subscribed for R35 million amortising, seven-year A preference shares bearing interest at 70% of the prime interest rate and R63,3 million zero coupon five-year B preference shares bearing interest at 71% of the prime interest rate. Ordinary dividends received by Newshelf 935 must be used to service and repay the preference shares and City Lodge guarantees the preference shares. Newshelf 935 (Pty) Ltd may not sell any of the City Lodge shares until the funding is repaid. Fair value is measured using a cash flow and a binomial valuation model. The share-based equity settled option expense for the year ended 30 June 2009 in the income statement is R15 488 768 (2008 – Rnil).The following inputs were used in determining the share-based payment expense for the Vuwa and University of Johannesburg schemes:
2009Per
share
2008Per
share
Binomial model inputs as follows:Volatility 20% —Risk free rate 10,36% —Dividend yield 5,57% —Expected life (years) 9,48 —Effective strike price (Rand) 111,17 —Share price (Rand) 76,06 —Effective option price (Rand) 12,12 —Equity contribution (Rand) — —Net fair value of option (Rand) 12,12 —Cash flow model inputs as follows:Ordinary dividend number 37 (Rand) 1,48 —Ordinary dividend number 38 (Rand) 1,77 —Dividend growth rate 12% —Expected life (years) 9,48 —Effective 7-year fixed rate (70% of prime) 10,48%Effective 5-year fixed rate (71% of prime) 10,58% —Effective 5 x 9-year fixed rate (71% of prime) 10,40% —Effective 7 x 9-year fixed rate (70% of prime) 10,27% —
Equity-settled Injabulo staff trust, black economic empowerment schemeOn 8 July 2008 the City Lodge group effected a black economic empowerment scheme with Newshelf 892 (Pty) Limited. In terms of the scheme, 6% of the issued share capital of City Lodge was acquired by Newshelf 892 in terms of a scheme of arrangement. Standard Bank of South Africa subscribed for R80 million amortising, seven-year A preference shares bearing interest at 70% of the prime interest rate and R116,3 million cumulative zero coupon five-year B preference shares bearing interest at 71% of the prime interest rate. Ordinary dividends received by Newshelf 892 must be used to service and repay the preference shares and City Lodge guarantees the preference shares. No share-based equity settled option expense for the year ended 30 June 2009 exists as no grants to employees have been made.
108 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
Group Company
2009R000
2008R000
2009R000
2008R000
24. BORROWING POWERSThe borrowings of the company are not limited by its articles of association.
25. NOTES TO THE CASH FLOW STATEMENTS25.1 Cash generated by operationsProfit before taxation 249 885 333 946 239 787 324 711
Adjusted for:– depreciation on property, plant and equipment 34 858 26 934 34 594 26 630– movement in operating lease accrual 553 826 553 826– interest income (11 486) (13 052) (19 274) (20 840)– interest expense 45 465 1 338 45 465 1 338– profit on disposal of property, plant and equipment (215) (188) (215) (188)– IFRS 2 share-based payment charge 25 840 25 840– loss on fair value of interest rate swap 26 480 26 480– movement in defined-benefit liability 8 358 25 8 358 25– defined-benefit debit to equity (8 781) (2 004) (8 781) (2 004)– share-based payment expense 8 820 3 627 8 820 3 627
Operating profit before working capital changes 379 777 351 452 361 627 334 125Increase in inventory (148) (132) (148) (132)(Increase)/decrease in trade and other receivables (14 401) (2 223) (25 026) 529Increase/(decrease) in trade and other payables 3 003 15 017 2 233 26 414
368 231 364 114 338 686 360 936
25.2 Taxation paidBalance unpaid at beginning of year (1 987) (10 985) (1 868) (10 562)Taxation payable per income statements (111 112) (102 253) (108 262) (99 632)Balance unpaid at end of year 9 825 1 987 9 536 1 868
(103 274) (111 251) (100 594) (108 326)
25.3 Investment to maintain operationsAdditions to property, plant and equipment– land and buildings (41 367) (11 486) (41 367) (11 486)– furniture and equipment (39 500) (10 535) (39 500) (10 535)
(80 867) (22 021) (80 867) (22 021)Less: Proceeds on disposal Furniture and equipment 667 453 667 453
(80 200) (21 568) (80 200) (21 568)
City Lodge Hotels Limited Annual Report 2009 109
Group Company
2009R000
2008R000
2009R000
2008R000
25. NOTES TO THE CASH FLOW STATEMENTS (continued)25.4 Investment to expand operationsAdditions to property, plant and equipment– land and buildings (70 341) (112 423) (50 317) (111 301)– furniture and equipment (2 840) (22 197) (2 840) (22 197)
(73 181) (134 620) (53 157) (133 498)
25.5 Investments and loansDecrease in investment in joint venture 494 348 494 348Notional interest – 10th Anniversary Share Trust loan — (1 540) — (1 540)
494 (1 192) 494 (1 192)
26. FINANCIAL INSTRUMENTS26.1 Classes of financial instrumentsLoans receivable 12 689 10 894 12 689 10 894Trade receivables 32 654 25 472 32 654 25 472Other receivables 103 754 5 437 98 174 3 988Cash and cash equivalents 17 358 50 857 16 688 49 240Interest-bearing borrowings 100 000 40 000 100 000 40 000BEE preference shares 428 300 428 300BEE shareholder’s loan 14 360 14 360BEE B preference share dividend accrual 23 906 23 906BEE interest rate swap 26 480 26 480Current portion of interest-bearing borrowings 40 000 40 000Trade and other payables 53 339 45 763 70 603 63 797
The fair value of the financial assets and liabilities is equal to its carrying amount.26.2 Currency risk – The group is not exposed to currency risk.26.3 Interest rate risk – The group generally adopts a policy of ensuring that its exposure to changes in interest rates is limited by either fixing the rate or by linking the rate to the average medium term, risk-free rate over the period of the respective loan.With the issuance of the redeemable preference shares (refer note 11) the group decided to enter into an interest-rate swap agreement to fix the interest rate for the period of the preference shares at between 9,95% and 10,01%.26.4 Liquidity risk – is the risk that the group will not be able to meet its financial obligations as they fall due. The group’s approach to managing liquidity by managing its working capital, capital expenditure and cash flows, is to ensure as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the group’s reputation.
110 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
26. FINANCIAL INSTRUMENTS (continued)26.4 Liquidity risk (continued)The table below analyses the financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Less than1 year
Between1 and
5 yearsMore than
5 years
GroupAt 30 June 2009Borrowings 40 000 100 000 —BEE preference shares — 321 210 107 090BEE shareholder’s loan — — 14 360BEE B preference share dividend accrual — 23 906 —BEE interest rate swap — 26 480 —Trade payables 53 339 — —
93 339 471 596 121 450
At 30 June 2008Borrowings — 40 000 —Trade payables 45 763 — —
45 763 40 000 —
CompanyAt 30 June 2009Borrowings 40 000 100 000 —BEE preference shares — 321 210 107 090BEE shareholder’s loan — — 14 360BEE B preference share dividend accrual — 23 906 —BEE interest rate swap — 26 480 —Trade payables 70 603 — —
110 603 471 596 121 450
At 30 June 2008Borrowings — 40 000 —Trade payables 63 797 — —
63 797 40 000 —
26.5 Capital management – The group’s objective when managing capital is to safeguard the group’s ability to continue as a going concern and to provide acceptable returns for shareholders.26.6 Credit risk – Credit risk is the risk of financial loss to the group if a counterparty to a financial asset fails to meet its contractual obligations. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all travel agents or customers requiring credit. Reputable financial institutions are used for investing and cash-handling purposes. At the reporting date, there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset.
City Lodge Hotels Limited Annual Report 2009 111
Group Company
2009R000
2008R000
2009R000
2008R000
26. FINANCIAL INSTRUMENTS (continued)26.6 Credit risk (continued)Current loan – Property Lodging Investments (Pty) Ltd 62 800 62 800Loan receivable 12 689 10 894 12 689 10 894Other receivables 103 754 5 437 112 930 3 988The carrying amount of trade receivables represent the maximum credit exposure at reporting date which was:Trade receivablesNot past due 21 257 14 589 21 257 14 5890 – 30 days past due 10 104 9 163 10 104 9 16331 – 120 days past due 1 293 1 720 1 293 1 720
Gross 1 748 2 402 1 748 2 402Impairment (455) (682) (455) (682)
32 654 25 472 32 654 25 472
Trade receivables by type of customerTravel agents 28 616 20 278 28 616 20 278Large corporates and companies 4 038 5 194 4 038 5 194
32 654 25 472 32 654 25 472
Trade receivables by geographical regionSouth Africa 32 654 25 472 32 654 25 472
The movement in the impairment allowance in respect of trade receivables during the year was as follows:Balance at beginning of year 682 507 682 507Impairment (gain)/loss recognised (227) 175 (227) 175
Balance at end of year 455 682 455 682
27. RELATED PARTIES27.1 Identity of related parties with whom material transactions have occurredThe company is the holding company of Budget Hotels (Pty) Ltd, City Lodge (Airport Property) (Pty) Ltd, City Lodge (Randburg) (Pty) Ltd, Courtyard Management Company (Pty) Ltd and Property Lodging Investments (Pty) Ltd. The company is a partner in five joint ventures, ie Gallic Courtyard (Arcadia) Share Block (Pty) Ltd, Gallic Courtyard (Bruma Lake) Share Block (Pty) Ltd, Gallic Courtyard (Rosebank) Share Block Ltd, Gallic Courtyard (Sandown) Share Block Ltd and Gallic Courtyard (Valkenberg) Share Block (Pty) Ltd.Courtyard Management Company (Pty) Ltd is the management company of the five joint ventures.Budget Hotels (Pty) Ltd and Property Lodging Investments (Pty) Ltd lease land to City Lodge Hotels Ltd.Interest-bearing loans exist between City Lodge Hotels Ltd, Property Lodging Investments (Pty) Ltd and the five joint ventures.All of the above entities are related parties to the company. Other than the directors’ remuneration (note 16), there are no other related parties with whom material transactions have taken place.
112 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
Company
2009R000
2008R000
27. RELATED PARTIES (continued)27.2 Types of related-party transactionsManagement fees and operating lease rental payments have been made and interest has been received from certain related parties. These transactions with related parties occurred under terms that are no less favourable than those arranged with third parties.27.3 Material related-party transactionsSubsidiary companiesManagement fees paid to related partiesCourtyard Management Company (Pty) Ltd 1 129 973
Operating lease rentals paid to related partiesBudget Hotels (Pty) Ltd 1 247 1 164Property Lodging Investments (Pty) Ltd 5 021 4 563
6 268 5 727
Interest received from related partiesProperty Lodging Investments (Pty) Ltd 7 860 7 860
Interest paid to related partiesProperty Lodging Investments (Pty) Ltd 72 72
Joint venturesInterest received from related partiesGallic Courtyard (Arcadia) Share Block (Pty) Ltd 747 682Gallic Courtyard (Bruma Lake) Share Block (Pty) Ltd 713 650Gallic Courtyard (Rosebank) Share Block Ltd 556 507Gallic Courtyard (Sandown) Share Block Ltd 356 325Gallic Courtyard (Valkenberg) Share Block (Pty) Ltd 741 676
3 113 2 840
City Lodge Hotels Limited Annual Report 2009 113
Group Company
2009R000
2008R000
2009R000
2008R000
27. RELATED PARTIES (continued)
27.4 Amounts due to:
Subsidiary companies
Budget Hotels (Pty) Ltd 3 095 2 147
City Lodge (Airport Property) (Pty) Ltd 4 4
City Lodge (Randburg) (Pty) Ltd 1 192 1 192
City Lodge Holdings (Share Block) (Pty) Ltd 4 529 4 527
Courtyard Management Company (Pty) Ltd 8 744 9 920
Property Lodging Investment (Pty) Ltd — 509
17 564 18 299
25.5 Amounts due by:
Subsidiary companies
Property Lodging Investments (Pty) Ltd 14 756 —
14 756 —
The amounts due to and by subsidiary companies are unsecured, interest-free and repayable on demand.
Joint ventures
Gallic Courtyard (Arcadia) Share Block (Pty) Ltd 5 243 5 243 5 243 5 243
Gallic Courtyard (Bruma Lake) Share Block (Pty) Ltd 5 000 5 000 5 000 5 000
Gallic Courtyard (Rosebank) Share Block Ltd 3 900 3 900 3 900 3 900
Gallic Courtyard (Sandown) Share Block Ltd 2 500 2 500 2 500 2 500
Gallic Courtyard (Valkenberg) Share Block (Pty) Ltd 5 198 5 198 5 198 5 198
21 841 21 841 21 841 21 841
The amounts due by joint ventures are unsecured, have no fixed terms of repayment and bore interest at 14,25% per annum (2008 – 13,0%).
27.6 Key management
Key management, other than directors, is defined as first-line management of the company and its principal operations. First-line management largely constitutes operational executive management.
Key management compensation is as follows:
– Short-term employee benefits, including salaries and bonuses 8 330 7 496 6 935 6 129
– Equity compensation benefits 2 836 1 553 2 836 732
11 166 9 049 9 771 6 861
114 City Lodge Hotels Limited Annual Report 2009
notes to the financial statements for the year ended 30 June 2009 (continued)
28. RELEVANT STANDARDS AND INTERPRETATIONS EFFECTIVE FOR YEARS ENDING AFTER 30 JUNE 2009
At the date of authorisation of these financial statements for the year ended 30 June 2009, the following standards and interpretations were in issue but not yet effective for the company:
Standard/interpretation Effective date
IAS 1 Presentation of financial statements (revised) Annual periods commencing on or after 1 January 2009*
IAS 19 The Limit on a defined Benefit Asset, Minimum Funding Requirements and their interaction in the South African Pension Fund Environment
Annual periods commencing on or after 1 April 2009
IAS 23 Borrowing costs Annual periods commencing on or after 1 January 2009*
IAS 27 amendment
Consolidated and separate financial statements
Annual periods commencing on or after 1 July 2009*
IAS 32 and IAS 1 amendment
IAS 32 – Financial Instruments: Presentation and IAS 1 – Presentation of Financial Statements: Puttable Financial Instruments and Obligations Arising on Liquidation
Annual periods commencing on or after 1 January 2009*
IAS 39 amendment
Eligible Hedged Items Annual periods commencing on or after 1 July 2009*
IFRS 1 and IAS 27 amendment
Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate
Annual periods commencing on or after 1 January 2009*
IFRS 2 amendment
IFRS 2 – Share-based Payment: Vesting Conditions and Cancellations
Annual periods commencing on or after 1 January 2009*
IFRS 3 Business Combinations Annual periods commencing on or after 1 July 2009*
IFRS 5amendment
Improvement to IFRSs 2008 – IFRS 5 Non-currrent Assets Held for Sale and Discontinued Operations
Annual periods commencing on or after 1 July 2009
IFRS 7 amendment
Improving disclosures about financial instruments Annual periods commencing on or after 1 January 2009
Various Improvement to IFRSs 2009 Annual periods commencing on or after 1 January 2009
IFRS 8 Operating Segments Annual periods commencing on or after 1 January 2009*
IFRIC 15 Agreements for the Construction of Real Estate Annual periods commencing on or after 1 January 2009*
IFRIC 16 Hedges of a Net Investment in a Foreign Operation Annual periods commencing on or after 1 October 2008*
IFRIC 17 Distributions of Non-cash Assets to Owners Annual periods commencing on or after 1 July 2009
All standards will be adopted at their effective date (except for the effect on those standards that are not applicable to the company).
City Lodge Hotels Limited Annual Report 2009 115
28. RELEVANT STANDARDS AND INTERPRETATIONS EFFECTIVE FOR YEARS ENDING AFTER 30 JUNE 2009 (continued)
All of the above listed standards, except for IFRIC 15, IFRIC 16 and IFRIC 17 are applicable to the business of the company and will therefore have an impact on future financial statements.IAS 1 will be adopted for the first time for the financial reporting period ending 30 June 2010.IAS 19 will be adopted by the company for the financial reporting period ending 30 June 2010.IAS 23 will be adopted by the company, but is not expected to have any significant implications as the company already capitalises borrowing costs.IAS 27 will be adopted by the company for the financial reporting period ending 30 June 2010.IAS 32 and IAS 1 will be adopted by the company for the financial reporting period ending 30 June 2010.IAS 39 will be adopted by the company for the financial reporting period ending 30 June 2010.IFRS 1 and IAS 27 amendment, will be adopted by the company for the financial reporting period ending 30 June 2010.IFRS 2 amendment will be adopted by the company for the financial reporting period ending 30 June 2010.IFRS 3 will be adopted by the company for the financial reporting period ending 30 June 2010.IFRS 5 amendment will be adopted by the company for the financial reporting period ending 30 June 2010.IFRS 7 amendment will be adopted by the company for the company for the financial reporting period ending 30 June 2010.IFRS 8 will be adopted for the first time for the financial reporting period ending 30 June 2010. In terms of this IFRS, segment reporting will be based on the information that management uses internally for evaluating segment performance and when deciding how to allocate resources to operating segments.
116 City Lodge Hotels Limited Annual Report 2009
shareholders’ analysis as at 30 June 2009
SHAREHOLDER SPREAD
No of shareholders in SA
No of shareholders other than in SA Total shareholders
Shareholder typeNominalnumber
Per-centage
Nominalnumber
Per-centage
Nominalnumber
Per-centage
Public 11 850 61,50 239 11,13 12 089 72,63Directors 5 10,74 — — 5 10,74Other – Non-public 4 16,63 — — 4 16,63
Total 11 859 88,87 239 11,13 12 098 100,00
Beneficial shareholders with holdings exceeding 1%
Numberof shares
owned
% oftotal
issuedshares
Enderle SA (Pty) Limited* 4 496 479 10,52Vuwa Hotels (Pty) Limited* 2 556 185 5,98Newshelf 892 (Pty) Limited* 2 556 120 5,98GEPF Equity 1 407 816 3,29Newshelf 935 (Pty) Limited* 1 278 060 2,99Old Mutual Life Assurance Co SA Ltd 893 188 2,09Investment Solutions – F and M Local 767 740 1,80State Street Bank and Trust 732 377 1,71City Lodge 10th Anniversary Employees Share Trust* 720 491 1,69Middle East and Africa – Fidelity 701 293 1,64Oasis Property Equity Fund 693 077 1,62RMB Securities (Pty) Limited 682 112 1,60Community Growth Fund 599 972 1,40Mr H Roberts 578 000 1,35Nedgroup Rainmaker Fund 437 401 1,02
19 100 311 44,68
* Non-public, which in terms of the JSE Listings Requirements includes, inter alia, the directors of the company, the trustees of any employees’ share scheme and any person or entity that is interested in 10% or more of a particular class of securities.
City Lodge Hotels Limited Annual Report 2009 117
value-added statement for the year ended 30 June 2009
Group
2009R000 %
2008R000 %
Turnover 665 029 599 902Paid to suppliers for materials and services (226 645) (142 662)
Value added by operations 438 384 457 240Interest income 11 486 14 592Income from joint venture 8 952 8 527Pre-opening expenses (309) (975)
Total wealth created 458 513 100 479 384 100
Distributed as follows:Employees (permanent and contracted)Salaries, wages and all related benefits 119 465 26 108 609 23
GovernmentIncome taxation (current and deferred) 100 994 92 911Secondary tax on companies 16 925 15 388Rates 8 840 8 557
126 759 28 116 856 24
Providers of capitalDividends to ordinary shareholders 143 884 138 158Interest on borrowings 45 465 1 338
189 349 41 139 496 29
Reinvested to maintain/develop operationsDepreciation 34 858 26 934Accumulated (loss)/profit (11 918) 87 489
22 940 5 114 423 24
Total wealth distributed 458 513 100 479 384 100
Total headcount (permanent and contract) 1 239 1 142
Reinvested to maintain/develop operations
Providers of capital
Government
Employees
23%
24%29%
24%
2008
26%
28%
41%
5%
2009
118 City Lodge Hotels Limited Annual Report 2009
members’ diary
FINANCIAL YEAR-END 30 June
ANNUAL GENERAL MEETING November
REPORTS
Announcement of results for the half-year February
Announcement of annual results August
Annual financial statements September/October
DIVIDENDS
Declaration Interim February
Final August
Payment Interim March/April
Final September/October
City Lodge Hotels Limited Annual Report 2009 119
City Lodge Hotels Limited
Registration number: 1986/002864/06
Share Code: CLH ISIN: ZAE 000117792
Notice is hereby given that the twenty-third annual general
meeting of members of City Lodge Hotels Limited will be held
at The Lodge, Bryanston Gate Office Park, Corner Homestead
Avenue and Main Road, Bryanston on Thursday, 5 November
2009 at 14:00 for the following business:
1. To receive and consider the financial statements for the year
ended 30 June 2009.
2. To re-appoint KPMG Inc. as the independent auditors of the
company for the ensuing year with G Parker as the
engagement partner and to authorise the directors to
determine the auditors’ remuneration.
3. To elect directors who retire by rotation in accordance with
the provisions of the articles of association. The following
directors, being eligible, offer themselves for re-election and
their profiles appear on pages 22 and 23 of this report.
3.1 F W J Kilbourn
3.2 N Medupe
3.3 S G Morris
4. To approve the annual fees payable to the non-executive
directors with effect from the year beginning 1 July 2009
as follows:
4.1 to the chairman of the board, R501 500;
4.2 for their services as directors, R98 100 each;
4.3 to the chairman of the audit committee, R86 500;
4.4 for their services as members of the audit committee,
R41 450 each;
4.5 to the chairman of the remuneration committee,
R75 000;
4.6 for their services as members of the remuneration
committee, R36 000 each;
4.7 to the chairman of the risk committee, R59 100;
4.8 for their services as members of the risk committee,
R28 350 each.
As special business, to consider and, if deemed fit, to pass,
with our without modification, the following resolutions:
5. SPECIAL RESOLUTION: GENERAL AUTHORITY TO
REPURCHASE SHARES
“RESOLVED THAT the directors be and are hereby
authorised to approve and implement the acquisition by the
company (or a subsidiary of the company), of shares issued
by the company by way of a general authority, which shall
only be valid until the company’s next annual general
meeting, unless it is then renewed, provided that it shall not
extend beyond 15 (fifteen) months from the date of the
passing of the special resolution, whichever period is the
shorter, in terms of the Companies Act, and the Listings
Requirements of the JSE Limited (“the JSE”) which provide,
inter alia, that the company may only make a general
repurchase of its shares subject to:
the repurchase being implemented through the order
book operated by the JSE trading system, without prior
understanding or arrangement between the company and
the counterparty;
notice of annual general meeting
120 City Lodge Hotels Limited Annual Report 2009
notice of annual general meeting (continued)
the company being authorised thereto by its articles of
association;
repurchases not being made at a price greater than 10%
(ten percent) above the weighted average of the market
value of the shares for the 5 (five) business days
immediately preceding the date on which the transaction
was effected;
an announcement being published as soon as the
company has repurchased ordinary shares constituting,
on a cumulative basis, 3% (three percent) of the initial
number of ordinary shares, and for each 3% (three
percent) in aggregate of the initial number of ordinary
shares repurchased thereafter, containing full details of
such repurchases;
repurchases not exceeding 20% (twenty percent) in
aggregate of the company’s issued ordinary share capital
in any one financial year;
the company’s sponsor confirming the adequacy of the
company’s working capital for purposes of undertaking
the repurchase of shares in writing to the JSE upon
entering the market to proceed with the repurchase;
the company remaining in compliance with paragraphs
3.37 to 3.41 of the JSE Listings Requirements concerning
shareholder spread after such repurchase;
the company and/or its subsidiaries not repurchasing
securities during a prohibited period as defined in
paragraph 3.67 of the JSE Listings Requirements; and
the company only appointing one agent to effect any
repurchases on its behalf.”
The directors, having considered the effects of the
repurchase of the maximum number of ordinary shares in
terms of the aforegoing general authority, are of the opinion
that for a period of 12 (twelve) months after the date of the
notice of the annual general meeting:
the company and its subsidiaries will be able, in the
ordinary course of business, to pay its debts;
the consolidated assets of the company and its
subsidiaries, fairly valued in accordance with generally
accepted accounting practice, will exceed the
consolidated liabilities of the company; and
the company and its subsidiaries’ ordinary share capital,
reserves and working capital will be adequate for ordinary
business purposes.
The following additional information, some of which may
appear elsewhere in the annual report of which this notice
forms part, is provided in terms of section 11.26 of the JSE
Listings Requirements for purposes of this general authority:
directors and management – page 22 to 25.
major beneficial shareholders – page 116.
directors’ interests in ordinary shares – page 71.
share capital of the company – page 88.
Litigation statement
The directors, whose names appear on pages 22 and 23 of
the annual report of which this notice forms part, are not
aware of any legal or arbitration proceedings, including
proceedings that are pending or threatened, that may have
or have had in the recent past, being at least the previous
12 (twelve) months, a material effect on the group’s financial
position.
City Lodge Hotels Limited Annual Report 2009 121
Directors’ responsibility statement
The directors, whose names appear on pages 22 and 23 of
the annual report, collectively and individually accept full
responsibility for the accuracy of the information pertaining to
this special resolution and certify that, to the best of their
knowledge and belief, there are no facts that have been
omitted which would make any statement false or
misleading, and that all reasonable enquiries to ascertain
such facts have been made and that the special resolution
contains all information.
Material changes
Other than the facts and developments reported on in the
annual report, there have been no material changes in the
affairs or financial position of the company and its
subsidiaries since the date of signature of the audit report
and up to the date of this notice.
The directors have no specific intention, at present, for the
company to repurchase any of its shares but consider that
such a general authority should be put in place should an
opportunity present itself to do so during the year, which is in
the best interests of the company and its shareholders.
The reason for and effect of the special resolution is to grant
the directors of the company a general authority in terms of
the Companies Act and the JSE Listings Requirements for
the repurchase by the company (or by a subsidiary of the
company) of the company’s shares.
6. ORDINARY RESOLUTION NUMBER 1: CONTROL OVER
THE UNISSUED SHARES
“RESOLVED THAT the unissued ordinary shares in the
authorised share capital of the company be and are hereby
placed under the control of the directors of the company
who are authorised to allot and issue the ordinary shares at
their discretion until the next annual general meeting of the
company, subject to the provisions of the Companies Act
and the Listings Requirements and for the purpose of
placing the directors in a position to declare a scrip dividend
distribution with an alternative to receive cash, should they
so resolve. This shall further be subject to the aggregate
number of ordinary shares able to be allotted and issued in
terms of this resolution being limited to five percent (5%) of
the number of ordinary shares in issue at 30 June 2009.”
7. ORDINARY RESOLUTION NUMBER 2: SIGNATURE OF
DOCUMENTS
“RESOLVED THAT any one director or the company
secretary of the company be and is hereby authorised to do
all such things and sign all such documents and take all
such action as they consider necessary to implement the
resolutions set out in this notice convening this annual
general meeting at which this ordinary resolution will be
considered.”
122 City Lodge Hotels Limited Annual Report 2009
notice of annual general meeting (continued)
VOTING AND PROXIES
A member entitled to attend and vote at the annual general
meeting is entitled to appoint a proxy to attend, speak and vote
in his stead. A proxy need not be a member of the company.
The form of proxy is only to be completed by those members
who are:
holding shares in certificated form; or
recorded on sub-register in dematerialised form in ‘own
name’.
All other beneficial owners who have dematerialised their shares
through a CSDP or broker and wish to attend the annual
general meeting, must instruct their CSDP or broker to provide
them with a Letter of Representation, or they must provide the
CSDP or broker with their voting instructions in terms of the
relevant custody agreement entered into between them and the
CSDP or broker. Proxy forms should be forwarded to reach the
company’s transfer secretaries by not later than 14:00 on
Tuesday, 3 November 2009. The completion of a proxy form will
not preclude a member from attending the meeting.
By order of the board
M C van Heerden
Company secretary
Bryanston
30 September 2009
City Lodge Hotels Limited Annual Report 2009 123
proxy form city lodge hotels limited Registration number: 1986/002864/06 Share code: CLH SIN: ZAE 00011792
For use at the twenty-third annual general meeting of members to be held on Thursday, 5 November 2009 at The Lodge, Bryanston Gate Office Park, corner Homestead Avenue and Main Road, Bryanston, at 14:00.
I/we, the undersigned
of
being the registered holder/s of ordinary shares
hereby appoint
or failing him,
or failing them, the chairman of the meeting as my/our proxy to act for me/us and vote for me/us on my/our behalf as indicated below at the annual general meeting of the company to be held on Thursday, 5 November 2009 at 14:00 and at any adjournment thereof.
In favour of Against Abstain
1. Adoption of the annual financial statements
2. To re-appoint KPMG Inc. as the independent auditors of the company for the ensuing year with G Parker as the engagement partner and to authorise the directors to determine the auditors’ remuneration
3. Re-election of retiring directors
3.1 Mr F W J Kilbourn
3.2 Mrs N Medupe
3.3 Mr S G Morris
4. Approval of non-executive directors’ fees:
4.1 to the chairman of the board, R501 500;
4.2 for their services as directors, R98 100 each;
4.3 to the chairman of the audit committee, R86 500;
4.4 to the other members of the audit committee, R41 450 each;
4.5 to the chairman of the remuneration committee, R75 000;
4.6 to the other members of the remuneration committee, R36 000 each;
4.7 to the chairman of the risk committee, R59 100;
4.8 to the other members of the risk committee, R28 350.
5. Special Resolution – general authority to repurchase shares
6. Ordinary Resolution 1 – control over the unissued shares
7. Ordinary Resolution 2 – signature of documents
Signature Date
124 City Lodge Hotels Limited Annual Report 2009
1. Each member is entitled to appoint one or more proxies (who
need not be a member(s) of the company) to attend, speak
and vote (either on a poll or by show of hands) in place of
that member at the annual general meeting.
2. A member may insert the name of a proxy or the names of
two alternative proxies of the member’s choice in the space
provided, with or without deleting the words “the chairman of
the meeting”. All deletions must be individually initialled by
the member, failing which they will not have been validly
effected. The person whose name appears first on the form
of proxy and who is present at the annual general meeting
shall be entitled to act as proxy to the exclusion of the
persons whose names follow.
3. Voting instructions for each of the resolutions must be
completed by filling in the number of votes (one per ordinary
share) under the “In favour of”, “Against” or “Abstain”
headings on the Proxy Form. If no instructions are filled in on
the Proxy Form, the chairman of the annual general meeting,
if the chairman is the authorised proxy, or any other proxy
shall be authorised to vote in favour of, against or abstain
from voting as he/she deems fit.
4. A member or his/her proxy is entitled but not obliged to vote
in respect of all the ordinary shares held by the member. The
total number of votes for or against the resolutions and in
respect of which any abstention is recorded may not exceed
the total number of shares held by the member.
5. If this form has been signed by a person in a representative
capacity, the document authorising that person to sign must
be attached, unless previously recorded by the company’s
transfer secretaries or waived by the chairman of the annual
general meeting.
6. The chairman of the annual general meeting may reject or
accept any form of proxy that is completed and/or received
other than in accordance with these instructions and notes.
7. Any alterations or corrections to this form of proxy have to be
initialled by the signatory(ies).
8. The completion and lodging of this form of proxy will not
preclude the relevant member from attending the annual
general meeting and speaking and voting in person to the
exclusion of any proxy appointed by the member.
9. Forms of proxy have to be lodged with or posted to the
company, c/o Computershare Investor Services 2004
(Pty) Limited, 70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107), to be received by not
later than 14:00 on Tuesday, 3 November 2009.
10. This proxy form is to be completed only by those members
who either still hold shares in a certificated form, or whose
shares are recorded in their own name in electronic form in
the subregister.
11. Shareowners whose dematerialised shares are held in the
name of a nominee and wish to attend the annual general
meeting must contact their Central Securities Depository
Participant (CSDP) or broker who will furnish them with the
necessary letter of authority to attend the annual general
meeting. Alternatively they have to instruct their CSDP or
broker as to how they wish to vote. This has to be done in
terms of the agreement between the shareowner and the
CSDP or the broker.
12. Shareowners who wish to attend and vote at the meeting
must ensure that their letters of authority from their CSDP or
broker reach the transfer secretaries by not later than 14:00
on Tuesday, 3 November 2009.
notes to the proxy form
portfolio of progress
CITY LODGE HOTELS LIMITED
CITY LODGE HOTELS LIMITED
A N N U A L R E P O R T 2 0 0 9
CITY LODGE HOTELS LIMITED
contents
Our vision – “People caring for people”We are committed to remaining the preferred, southern African, value for money,
selected services hotel group.
Through dedicated leadership and teamwork we will demonstrate our consistent commitment to delivering caring service with style and grace.
We will constantly enhance our guest experience through our passionate people, ongoing innovation and leading-edge technology.
Our integrity, values and ongoing investment in our people and hotels will provide exceptional returns to stakeholders and ensure continued, sustainable growth.
Our vision
Profi le of progress
Financial achievements
Our brands
Our directorate
Our executive team
Chairman’s and chief executive’s review
Seven-year fi nancial review
Responsible corporate citizenship and sustainability report
Administration
Annual fi nancial statements
Shareholders’ analysis
Value-added statement
Members’ diary
Notice of annual general meeting
Proxy form
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