City Lodge invests in solar energy at 25 of its hotels

The JSE-listed City Lodge Hotels group has invested about R20 million in solar energy at 25 of its hotels and is planning to expand the initiative to a further 12.

 CEO Andrew Widegger said on Thursday each of the hotels will generate 30% of their total energy needs from solar and will lower the group’s overall energy consumption from non-renewable sources by about 10%.

Widegger said the payback from the investments made in solar is less than four years.

“So bottom line wise, we are probably talking in the region of R2 million to R3 million in savings in the next six months,” he said.

Widegger said the group has refined the model and will apply all those insights when it looks at the next batch of about 12 hotels to get solar energy.

CFO Alastair Dooley said the solar energy facilities at all 25 hotels were completed between October and December last year and are all operational and generating electricity.

Less money for Eskom

He said the energy produced is better than envisaged than in the feasibility study and the group will start seeing the benefits from that in the second half of its financial year to June through a reduction in the amount it pays Eskom for electricity.

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City Lodge reported on Thursday that the group’s average occupancy in South Africa fell to 57% in the six months to December from 61% in the previous corresponding period, with average occupancy across all of the group’s operations falling to 54% from 58%.

It attributed this decline to a challenging operating environment that was impacted by persistent low levels of business and consumer confidence.

Widegger said the occupancy rates of its South African portfolio got to 56% in 2011 and at current levels are “about as low as we have got”.

However, Widegger said 14 of the group hotels operated at 100% occupancy and the group’s long term average occupancy is about 72%.

Total revenue increased by 0.2% to R809.3 million with a decrease in South Africa partially offset by increased revenue in other African countries.

The effects of the implementation of the IFRS 16 Leases accounting standard contributed to normalised profit before tax declining by 50% to R112.8 million.

Excluding the effects of this accounting standard, normalised headline earnings of R110.7 million was 32% lower than the prior period.

Excluding the effects of IFRS 16, fully diluted headline earnings per share decreased by 32% to 254.4 cents.

A gross interim dividend of 153 cents has been declared, 33% lower than in the previous year.

Devin Shutte, the head of investments at a private wealth management company The Robert Group, said overall City Lodge had produced a weak set of results.

No surprises in the results

“I think it was a combination of IFRS 16 that came through coupled with a weak trading environment. I don’t think there were any surprises there.

“Occupancy, the main driver of profitability, is four percentage points lower and in the mid-50s,” he said.

Shutte said a few things were disappointing in the results, including that the group was not able to pass on inflationary cost room-rate increases, which will have put pressure on margins.

“I think the costs got away from them a bit in this period, which was particularly disappointing. Despite the margin and earnings pressure and the dividend being cut, you still have a group that has fairly healthy margins, has particularly good cash generation and [has] invested through the cycle.

“My sense is this is as bad as it gets for them but they do need some tailwinds to help them out,” said Shutte.

Graeme Körner, MD and portfolio manager at Körner Perspective, said it was a very disappointing operational result but “the environment is lousy”.

“However, you get the feeling they haven’t been executing well. But you must see it in context. Even the mighty Bidvest is showing a slide in profits. It’s pretty rough out there.

“The disappointing thing is that revenues were ever so slightly up and yet profits got absolutely smashed because there is some modern accounting rubbish that makes it look worse than it actually is,” said Körner.

Widegger said the first seven weeks of the second half of the financial year have seen some better trends, with occupancy rates running at similar levels to the prior year.

“The group’s portfolio of hotels is in excellent shape to benefit from economic growth and improved business and consumer confidence levels, as and when they occur,” he said.

Widegger said the group is in a period of consolidation following its R1 billion investment in hotels in the rest of Africa and no further investment outside South Africa is planned in the short to medium term.

He admitted that the group is looking at one or two investment opportunities in South Africa but is not ready to make any announcements at this stage.

Shares in City Lodge dropped 2.07% on Thursday to close at R53.37.