Picture: THINKSTOCK
Picture: THINKSTOCK

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EVEN though business confidence in SA plunged to five-year lows last year, City Lodge Hotels reported an improvement in occupancies and a jump in profit for the six months to December.

The JSE’s fourth-largest hotel group, which largely targets the business traveller, said on Thursday average occupancies in its South African operations edged up to 69% over the period, from 68% a year earlier. Profit surged 23% to R164.7m on a 17% revenue increase, as City Lodge implemented inflation-related increases in room prices.

"We had a big jump in occupancies (of 4%) in the previous financial year. (But) we are still happy with our performance, given the prevailing business environment," City Lodge CEO Clifford Ross said on Thursday.

A Bureau for Economic Research index showed that business confidence in SA plummeted last year to its weakest levels since 2001, as weak demand took a toll on company sales and profits.

Changes to SA’s visa regulations were also seen to have hurt demand for tourism services and accommodation. In December last year 892,720 tourists arrived in SA, a decrease of 4.5% from December 2014, Statistics SA said.

It was hard to quantify the effect that the contentious visa regulations had on the group, said City Lodge chief financial officer Andrew Widegger.

But he admitted that, with the weak rand, punted as a boon for the industry, "Tourist arrivals ought to have been better than they were".

City Lodge said average occupancies in its operations in the rest of Africa also improved. In Botswana, traffic at its Town Lodge hotel in Gaborone remained steady, despite pressure on its economy induced by declining diamond sales, the country’s main export.

Occupancies at its Kenyan operations had risen for the first time in two years, the company said, as countries including the US, Germany and the UK lifted travel bans on East Africa’s largest economy imposed last year when attacks by militants were rife.

In line with its dividend policy, City Lodge declared an interim dividend of R2.69 per share, which was 60% of normalised earnings per share.

Mr Ross said he expected occupancies to continue ticking up in the second half of its financial year, albeit at a slower pace as business and government travel was likely to moderate leading up to the local government elections.

There were no major surprises in the results, said Avior Capital Markets analyst De Wet Schutte. "It’s a continuation of what we have seen in the previous reporting periods: improving occupancies, good cost containment, and solid profit growth," he said.

Unlike leisure travel, which was likely to be crimped by rising inflation, higher borrowing costs and slow wage growth, "business travel in SA is generally quite resilient", Mr Schutte said.

City Lodge has been actively expanding its African footprint, aiming to generate more than 30% of its revenue outside SA by next year. Its rest of Africa operations contribute 9.1% of revenue.

The group hit a speed bump in Dar es Salaam, where the construction of its 147-room hotel was delayed by outstanding regulatory approvals affected by Tanzania’s general election and the appointment of a new cabinet.

"Africa is a tricky environment," said Mr Schutte, citing the fact that the group had pushed out deadlines of its developments in Namibia, Kenya, Uganda and Mozambique to the second half of next year. However, "our sense is that these developments will be yield-enhancing", he said.