August 16, 2017 / 11:04 AM / in a month

South Africa's City Lodge Hotels' profits hit by weak demand

A guest arrives at a City Lodge hotel in Sandton, South Africa March 7, 2017. REUTERS/Siphiwe Sibeko

JOHANNESBURG (Reuters) - South Africa’s City Lodge Hotels, the owner of the Town Lodge brand, on Wednesday reported a drop in full-year profits, citing weak economic growth and deteriorating consumer confidence.

City Lodge, which also owns the Road Lodge and Courtyard Hotel brands among others, said normalised diluted headline earnings per share for the year ended June fell 3.1 percent to 8.336 rand, down from 8.599 a year earlier.

Normalised earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as EBITDA fell 1.3 percent to 616 million rand ($46.53 million).

The company’s shares were down 1.42 percent by 1102 GMT.

Like its rivals, the company is struggling with weak demand in both the corporate and leisure markets in South Africa, where its average occupancy fell 3 percentage points to 63 percent.

“In South Africa, the drop in occupancy ... was a direct result of the continued deterioration in business and consumer confidence, ongoing political uncertainty and negligible economic growth,” City Lodge said.

“It is hoped that a catalyst will soon emerge to improve sentiment and provide fresh economic growth impetus that will stimulate both business and leisure travel.”

Africa’s second biggest economy slid into recession in March and business and consumer confidence have been dented by high unemployment and credit downgrades by two of the top three ratings agencies following economic and political turmoil.

City Lodge declared a final dividend of 2.28 rand per share, a decrease of 3.3 percent on the previous year.

The Johannesburg-listed firm is spending about 1 billion rand on further expansion in east and southern Africa, its chief executive told Reuters in March, as it seeks to cater for both the business and tourist markets there.

In Southern Africa, the 147-rome Town Lodge in Namibia is expected to open in September, while the City Lodge Hotel in Mozambique is expected to open in the second quarter of 2018.

In East Africa, it is building two City Lodge Hotels in Kenya and Tanzania.

($1 = 13.2381 rand)

Reporting by Nqobile Dludla; Editing by Greg Mahlich and Jane Merriman

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