Julius Baumann

Aviation and Tourism Editor

CITY Lodge Hotels is to spend nearly R1bn developing 10 hotels in the next two years, its biggest capital expenditure programme to date.

This comes at a time when most companies are trimming back their capital plans as the financial turmoil dampens demand across the economy.

City Lodge yesterday reported revenue growth of 16% to R342m, buoyed by strong occupancy across the group’s four brands.

At 81%, occupancies remained high by local and international industry standards, although they were down by 2,5 percentage points on the record 83,5% achieved a year earlier, due mainly to the effects of the slowdown in the economy and slightly softer demand.

This translated into normalised headline earnings — excluding the effects of its black economic empowerment transaction completed in July last year — increasing 15% to R123,4m, and normalised diluted headline earnings a share growing 15% to 286,7c.

The group raised it dividend 15% to 203c a share.

CEO Clifford Ross said yesterday that while the adverse economic climate had affected demand, several sporting events which would give the group a lift in the year ahead.

“We have the A1 Grand Prix, tours by the Australian cricket team and the British and Irish Lions rugby team, along with the Confederations Cup soccer tournament, which will provide additional demand during the remainder of the financial year, helping lift earnings for the full year,” said Ross.

Easing of interest rates and inflation as well as the tax adjustments announced by Finance Minister Trevor Manuel in his budget on Wednesday would also help improve demand.

Financial director Andrew Widegger said that the second half of the financial year would benefit from the opening of the Road Lodge Potchefstroom in December last year.

The group was making good progress on the construction of the 125 room Road Lodge Umhlanga Ridge, due to open in the third quarter of next year.

The group said in its profit announcement that construction had started on the 303-room City Lodge OR Tambo Airport as well as the 211-room City Lodge Fourways, both of which are expected to open in the second quarter of 2010.

Work on the 204-room Town Lodge Port Elizabeth had been delayed pending the outcome of a legal dispute, it explained.

Regulatory approvals were being awaited before construction could begin on the 90-room Road Lodge Port Elizabeth Airport, the 66-room Road Lodge Bloemfontein Airport and the 118-room Road Lodge Southgate. Agreements in respect of the 182-room City Lodge Hatfield and the 211-room City Lodge Lynnwood were expected to be concluded soon.

It was hoped that construction of all five of these hotels would begin before the end of the financial year, for completion towards the end of the 2010 financial year.

Widegger said the group had net debt of R14m but the expansion programme would see that rising into the “hundred millions”.

Despite thousands of new hotel room under construction across the country by various hotel groups, Widegger did not expect that there would be an oversupply of rooms.

“If anything, there might be a slight overcapacity in the short term but we expect good growth after 2010,” Widegger said.

Source: Business Day