INTEGRATED REPORT 2013

I N T E G R AT E D R E P O R T 2013 REJUVE REJUVENATION REJUVENATING OUR BRANDS Our brand is more than just a logo or a television commercial. ...
7 downloads 0 Views 5MB Size
I N T E G R AT E D R E P O R T 2013

REJUVE

REJUVENATION

REJUVENATING OUR BRANDS

Our brand is more than just a logo or a television commercial. It is the unwavering service excellence that we offer our guests… from booking, check-in and sleep experience to breakfast, facilities and check-out. It sets us apart from our competitors. It gives travellers a reason to choose us… and makes them come back, again and again.

Our brand is dynamic. First created by Mr Hans Enderle back in 1985, and made real today by the actions of all our employees who provide a personalised experience driven by the needs of our guests. Our world is changing at an ever-increasing pace and we believe simply keeping up is not good

enough. It is about finding new ways and setting new benchmarks for the future. It is about valuing what counts; the true essence of our brand.

REPORTING PRINCIPLES The City Lodge Hotel Group is guided by the principles contained in the following, with regard to our Integrated Report (IR): Integrated reporting • International Integrated Reporting Council (IIRC) • SA Companies Act • King Report on Corporate Governance 2009 (King III) • Where applicable we apply the Global Reporting Initiative’s (GRI) guidelines

3 3 4 5 6 7 8 9 10

Our vision What we do and where we come from Where we operate and where we aim to expand to How we performed Our accolades Value-added statement Our group structure The people who keep us in business Our business model

10 11 15 16 28 30 32 38 42 54

Where our industry is headed Our material issues Our strategic priorities Our brand overview Who governs us Who leads us Chairman and chief executive’s review Seven-year financial review How we are governed Social and ethics report

68 77 133 134 136 137 147 IBC

Remuneration report Annual financial statements Segment analysis Shareholders’ analysis Members’ diary Notice of annual general meeting Form of proxy Administration

City Lodge Hotel Group

Integrated Report 2013

CONTENTS

1

Financial reporting • International Financial Reporting Standards • SA Companies Act

WHERE WE OPERATE AND WHERE WE ARE EXPANDING TO

INTEGRATED REPORTING This Integrated Report (IR) represents a further step in our journey towards integrated reporting, in line with the requirements of King III. This year we have enhanced our process on how our material issues are derived, and how they inform and are integrated into our business strategy. Each year we attempt to improve on the previous year’s report, using feedback obtained from our stakeholders, the input of reporting experts and an internal review process that highlights opportunities for improvement in the reporting process. We hope that this IR gives you a better understanding of our business and we remain committed to improving on this report and would appreciate your feedback in this regard – any comments can be emailed to Alastair Dooley at [email protected].

SCOPE AND BOUNDARY

Integrated Report 2013

2

City Lodge Hotels Limited’s IR is released at least 15 business days prior to its AGM. This report covers the financial year from 1 July 2012 to 30 June 2013. The previous IR was published in 2012 and covered the periods 1 July 2011 to 30 June 2012. This IR provides a general narrative on the performance of the group’s business across the four hotel brands within southern Africa, as well as some information on the Fairview and Country Lodge hotels in Kenya. All City, Town and Road Lodge brands, as well as one Courtyard Hotel, are wholly owned by the group, while the remaining Courtyard Hotels, Fairview and Country Lodge hotels are classified and included as jointly controlled entities. This report is consistent with the prior year, except for the inclusion of the results of City Lodge Hotels (Botswana) (Pty) Limited and Fairview Hotels Limited, and is compiled annually. There are no restatements from the prior year. This report has been prepared primarily for the providers of financial capital in order to support their financial capital allocation assessments, although information relevant to other stakeholders has also been included. The 2012 report was posted to shareholders on 9 October 2012. Included in the report are the group’s consolidated annual financial statements.

City Lodge Hotel Group

;ĐŽŶƟŶƵĞĚͿ

STATEMENT OF THE BOARD OF DIRECTORS ON THE 2013 INTEGRATED REPORT On the basis of the recommendations from the auditors, KPMG Inc., the audit committee provides assurance on the annual financial statements. The board acknowledges its responsibility to ensure the integrity of the IR. The board has applied its mind to the IR and believes that it addresses all material issues and presents fairly the integrated performance of the organisation and its impacts. The IR has been prepared in line with best practice and the recommendations of King III. The IR was approved by the board on 30 September 2013 and is signed on its behalf by:

B T Ngcuka

C Ross

Chairman

Chief executive

OUR VISION

ͻഩtĞǁŝůůďĞƌĞĐŽŐŶŝƐĞĚĂƐƚŚĞƉƌĞĨĞƌƌĞĚƐƵďͲ^ĂŚĂƌĂŶĨƌŝĐĂŶŚŽƚĞůŐƌŽƵƉ. ·ഩdŚƌŽƵŐŚĚĞĚŝĐĂƚĞĚůĞĂĚĞƌƐŚŝƉ, ƚĞĂŵǁŽƌŬ and ŬŝŶĚŶĞƐƐ ǁĞǁŝůůĚĞŵŽŶƐƚƌĂƚĞŽƵƌĐŽŶƐŝƐƚĞŶƚcommitment to ĚĞůŝǀĞƌŝŶŐĐĂƌŝŶŐƐĞƌǀŝĐĞǁŝƚŚƐƚLJůĞ and grace. ·ഩtĞǁŝůůĐŽŶƐƚĂŶƚůLJĞŶŚĂŶĐĞŽƵƌŐƵĞƐƚƐ͛ĞdžƉĞƌŝĞŶĐĞ through our ƉĂƐƐŝŽŶĂƚĞƉĞŽƉůĞ, ongoing ŝŶŶŽǀĂƟŽŶ and leading edge technology. ·ഩKƵƌintegrity, ǀĂůƵĞƐ and ŽŶŐŽŝŶŐŝŶǀĞƐƚŵĞŶƚ in our people and ŚŽƚĞůƐǁŝůůƉƌŽǀŝĚĞĞdžĐĞƉƟŽŶĂůƌĞƚƵƌŶƐ to ƐƚĂŬĞŚŽůĚĞƌƐ and ĞŶƐƵƌĞĐŽŶƟŶƵĞĚ, ƐƵƐƚĂŝŶĂďůĞŐƌŽǁƚŚ. ·ഩdŚƌŽƵŐŚĂĐƚƐŽĨŬŝŶĚŶĞƐƐǁĞǁŝůůŵĂŬĞĂƉŽƐŝƟǀĞĚŝīĞƌĞŶĐĞ to our ŐƵĞƐƚƐ, our ĐŽůůĞĂŐƵĞƐ, our ĐŽŵŵƵŶŝƟĞƐ and our environment.

WHAT WE DO AND WHERE WE COME FROM The City Lodge Hotel GroupŝƐĂŵƵůƟͲďƌĂŶĚĐŚĂŝŶŽīĞƌŝŶŐĂǀĂƌŝĞƚLJŽĨůŽĐĂƟŽŶƐ͕ĨĞĂƚƵƌĞƐĂŶĚďƵĚŐĞƚĐŚŽŝĐĞƐƚŽďƵƐŝŶĞƐƐ ĂŶĚůĞŝƐƵƌĞƚƌĂǀĞůůĞƌƐ͘ tĞƉůĂĐĞĞŵƉŚĂƐŝƐŽŶƉƌŽǀŝĚŝŶŐƋƵĂůŝƚLJ͕ǀĂůƵĞͲĨŽƌͲŵŽŶĞLJĂĐĐŽŵŵŽĚĂƟŽŶ͕ĨƌŝĞŶĚůLJƐĞƌǀŝĐĞand a homely ambience – core ƌĞĂƐŽŶƐǁŚLJŐƵĞƐƚƐĐŚŽŽƐĞŽƵƌŚŽƚĞůƐ͘ ŽŵŵŝƚŵĞŶƚƚŽƐĞƌǀŝĐĞĞdžĐĞůůĞŶĐĞĨƌŽŵŚŝŐŚůLJŵŽƟǀĂƚĞĚandĚĞĚŝĐĂƚĞĚƐƚĂīŝƐĂĐŽŵŵŽŶƚŚƌĞĂĚƚŚƌŽƵŐŚŽƵƚƚŚĞŐƌŽƵƉ͛Ɛ ŚŽƚĞůƐ͕ǁŚŝĐŚŚĂǀĞĚĞǀĞůŽƉĞĚĂůŽLJĂůďĂƐĞŽĨƌĞŐƵůĂƌŐƵĞƐƚƐŽǀĞƌƚŚĞLJĞĂƌƐĂŶĚĂŶĞǀĞƌͲŐƌŽǁŝŶŐŶƵŵďĞƌŽĨŶĞǁŐƵĞƐƚƐ͘ dŚĞŐƌŽƵƉŚĂƐĨŽƵƌĚŝƐƟŶĐƚďƌĂŶĚƐ͕ĐƵƌƌĞŶƚůLJŽīĞƌŝŶŐϲϳϱϱƌŽŽŵƐ͕ĂƚϱϱůŽĐĂƟŽŶƐƚŚƌŽƵŐŚŽƵƚƐŽƵƚŚĞƌŶ and ĞĂƐƚĞƌŶĨƌŝĐĂ͘

City Lodge 10th Anniversary Employees Share Trust was launched which enabled all employees to become stakeholders.

Successful introduction of BEE shareholders through a structured deal.

The 49th and 50th hotels are completed and doors opened to the public.

1985

City Lodge Randburg (now Bryanston), the first of its kind opens its doors to the public.

1990

1992

City Lodge Hotels Limited successfully listed on the JSE.

1995

2008

Road Lodge, a one-star brand and Courtyard, a four-star brand offering are added to the portfolio.

2010

Acquisition of 50% interest in Fairview Hotel, Kenya.

2012

2013

Town Lodge Gaborone opens, being our first hotel to be developed outside South Africa, and our corporate identity is refreshed.

City Lodge Hotel Group

Integrated Report 2013

3

Town Lodge, a new brand and differentiated two-star offering is added to the portfolio.

WHERE WE OPERATE AND WHERE WE AIM TO EXPAND TO

tŚĞƌĞǁĞŽƉĞƌĂƚĞ

tŚĞƌĞǁĞĂƌĞĞdžƉĂŶĚŝŶŐƚŽ

^ŽƵƚŚĨƌŝĐĂ

^ŽƵƚŚĨƌŝĐĂ

Gauteng – ϮϱŚŽƚĞůƐ

Gauteng – 1 hotel

Johannesburg

Courtyard; City Lodge; Town Lodge; Road Lodge

Midrand

Pretoria

Courtyard; City Lodge; Town Lodge; Road Lodge

Pietermaritzburg

City Lodge

hͳ^ddDEd

Group

25% 30% 21% 24%

Revenue(1) Paid to suppliers for materials and services(1) Value added by operations Interest income Income from joint venture Pre-opening expenses Total wealth created Distributed as follows: Salaries, wages and all related benefits(2) – direct – indirect

1 113 363 (364 005) ϳϰϵϯϱϴ 6 688 16 006 ;ϮϵϬϵͿ ϳϲϵϭϰϯ

25% 31% 23% 21%

Government Taxes(3) Secondary tax on companies Rates

EŵƉůŽLJĞĞƐ 'ŽǀĞƌŶŵĞŶƚ WƌŽǀŝĚĞƌƐŽĨĐĂƉŝƚĂů ZĞŝŶǀĞƐƚĞĚƚŽŵĂŝŶƚĂŝŶͬ ĚĞǀĞůŽƉŽƉĞƌĂƟŽŶƐ

Total wealth distributed Headcount – direct Headcount – indirect Total headcount (1) (2) (3)

681 919

100

148 985 23 460 25

172 445

25

180 366 10 263 19 204 30

113 235 51 007 164 242

Reinvested to develop/maintain operations Depreciation Accumulated profit

100

205 230 – 23 555 228 785

Providers of capital Dividends to ordinary shareholders Interest on borrowings

%

998 437 (324 995) 673 442 8 602 (125) —

163 827 28 086 ϭϵϭϵϭϯ

2012

2012 R000

й

209 833

31

87 354 71 491 21

ϳϵϬϬϭ ϭϬϱϭϵϮ

158 845

23

78 375 62 421

184 203

24

140 796

21

ϳϲϵϭϰϯ 1 084 446 1 530

100

681 919 1 081 414 1 495

100

7

2013 R000

Including value added taxation (VAT). Excluding employee taxes. Includes income taxation, deferred taxation, employee taxes and net value added taxation (VAT).

City Lodge Hotel Group

Integrated Report 2013

2013

OUR GROUP STRUCTURE

70%

'>>/KhZdzZ ΈZ/Ή ;^ŚĂƌĞůŽĐŬͿ WƌŽƉƌŝĞƚĂƌLJ>ŝŵŝƚĞĚ RSA

50%

h'd,Kd>^ WƌŽƉƌŝĞƚĂƌLJ>ŝŵŝƚĞĚ RSA

&/Zs/t,Kd>^>/D/d KENYA

100%

E,KZWZŝŵŝƚĞĚ RSA

50%

at 30 June 2013

100%

'>>/KhZdzZ ΈZK^EŝŵŝƚĞĚ RSA

/dz>K',K>/E'^ ;^ŚĂƌĞůŽĐŬͿ WƌŽƉƌŝĞƚĂƌLJ>ŝŵŝƚĞĚ RSA

#City Lodge has guaranteed the funding of these BEE entities, resulting in their incorporation into the company and group results. City Lodge does not hold a direct interest in these entities.

City Lodge Hotel Group

'>>/KhZdzZ Έ^EKtEΉ ;^ŚĂƌĞůŽĐŬͿ>ŝŵŝƚĞĚ RSA

'>>/KhZdzZ Έs>>/KhZdzZ ΈZhD>K'/E' /Es^dDEd^ WƌŽƉƌŝĞƚĂƌLJ>ŝŵŝƚĞĚ RSA

EĞǁƐŚĞůĨϵϯϱ WƌŽƉƌŝĞƚĂƌLJ>ŝŵŝƚĞĚ#

50%

Integrated Report 2013

8

KhZdzZ DE'DEdKDWEz WƌŽƉƌŝĞƚĂƌLJ>ŝŵŝƚĞĚ RSA

100%

/dz>K',Kd>^;ŽƚƐǁĂŶĂͿ WƌŽƉƌŝĞƚĂƌLJ>ŝŵŝƚĞĚ BOTSWANA

100%

sƵǁĂ,ŽƚĞůƐ WƌŽƉƌŝĞƚĂƌLJ>ŝŵŝƚĞĚ#

THE PEOPLE WHO KEEP US IN BUSINESS

Engaging with our stakeholders and understanding their concerns is critical to helping our company identify its most material issues. Information gathered as part of our various stakeholder engagement processes feeds directly into decision-making and drives our business strategy. We engage with the following stakeholders in the following ways: EMPLOYEES

SHAREHOLDERS

– džĞĐƵƟǀĞŵĂŶĂŐĞŵĞŶƚ conference – Skills development – Union engagement – EĞǁƐůĞƩĞƌƐ – “I’m Kind” employee engagement programme – ^ƚĂīŵĞĞƟŶŐƐ

– AGM – KƉĞŶĚŽŽƌƉŽůŝĐLJŽŶŝŶǀĞƐƚŽƌƌĞůĂƟŽŶƐ – ZĞŐƵůĂƌĂŶĂůLJƐƚĂŶĚƐŚĂƌĞŚŽůĚĞƌŵĞĞƟŶŐƐǁŝƚŚĐŚŝĞĨĞdžĞĐƵƟǀĞĂŶĚ ĮŶĂŶĐŝĂůĚŝƌĞĐƚŽƌ – ƩĞŶĚĂŶĐĞĂŶĚƉƌĞƐĞŶƚĂƟŽŶĂƚĨƌŝĐĂ/ŶǀĞƐƚŵĞŶƚŽŶĨĞƌĞŶĐĞ͕>ŽŶĚŽŶ – Website – Integrated Report

GUESTS

SUPPLIERS

'ƵĞƐƚƋƵĞƐƟŽŶŶĂŝƌĞƐ Social media DĂƌŬĞƟŶŐĐĂŵƉĂŝŐŶƐ Formal market research Sales encounters &ĂĐĞͲƚŽͲĨĂĐĞŐƵĞƐƚŝŶƚĞƌĂĐƟŽŶ Websites

– sŝƐŝƚƐĂŶĚŵĞĞƟŶŐƐ – Assistance through our economic development programme – ĚƵĐĂƟŽŶĂůǁŽƌŬƐŚŽƉƐ – Membership of supplier industry bodies, eg ASATA, SATSA

GOVERNMENT REGULATORY AUTHORITIES

COMMUNITIES – Social investment – Partnership with ƚĞƌƟĂƌLJŝŶƐƟƚƵƟŽŶƐ – Do it days

– DĞĞƟŶŐƐĂŶĚĐŽŵŵĞŶƚƐ͕ĞŐ Department of Tourism, SA Tourism, TGCSA, TECSA

THE MEDIA – WƌĞƐƐĂŶĚĮŶĂŶĐŝĂůĂŶĚƚƌĂĚĞƉƵďůŝĐĂƟŽŶ interviews and commentary – WƵďůŝĐƌĞůĂƟŽŶƐ

tŚĂƚ͛ƐŝŵƉŽƌƚĂŶƚ to them? tŚĞƌĞƚŽƌĞĂĚ ĂďŽƵƚƚŚŝƐ

ϵ

BUSINESS ASSOCIATES – DĞŵďĞƌƐŚŝƉĂŶĚĂĐƟǀĞƉĂƌƟĐŝƉĂƟŽŶ͕ĞŐdŽƵƌŝƐŵƵƐŝŶĞƐƐ Council of South Africa (TBCSA), TOMSA, Fedhasa – NGOs, SETAs – Partnerships and sponsorships, eg CANSA, Food and Trees ĨŽƌĨƌŝĐĂ͕^'ŽůĨĞǀĞůŽƉŵĞŶƚŽĂƌĚ͕,ŽƐƉŝĐĞWĂůůŝĂƟǀĞ ĂƌĞƐƐŽĐŝĂƟŽŶ

Occupancy llevels l and industry trends

Expansion pansion plans beyond South Africa’s borders

ITT governance and infrastructure

Employee development and career progression

Environmental nvironmental sustainability

page 32, 34

page 34

page 36, 50

page 37, 63

page 36, 56

Transformation ansformation Perception ti off b brand and service offering page 37, 66

page 33, 35, 36, 62

City Lodge Hotel Group

Integrated Report 2013

– – – – – – –

OUR BUSINESS MODEL

We own or lease and manage all of our 55 hotels under our own brands and primarily operating in the selected service hotel sector, which we pioneered in South Africa. In this way we are able to manage our products and standards in such a way as to enforce consistency throughout the group. This consistency flows from hotel design to product offering and service. The company will lease properties both in South Africa and offshore only where it is not possible to own the land and/or buildings. Such properties would be in the minority, allowing the group to leverage off its historic cost basis to remain competitive in the current trading environment.

Through the implementation of a rigorous refurbishment strategy, we maintain our high standards of product quality and are able to introduce advancements/improvements to our product regularly, as a result. One such example of the benefits obtained from this strategy is the implementation of our energy-efficiency initiatives, which has reduced our energy consumption by at least 15% since its initiation in 2010. Of our revenue, 91% is generated from providing tip-top and clean accommodation to business and leisure travellers in a loving environment. Providing services to complement this offering such as breakfast, light meals

and meeting facilities allows guests to select which services they wish to receive at an additional affordable price. All our hotels receive the support of our central office, which manages and implements the group’s strategies consistently across all our brands. As a result of this unique value proposition, we have managed to achieve an average return on equity of 30% over the past seven years, with a current client satisfaction rating of 83% for the past year. This was achieved against a backdrop of providing jobs to 1 530 people, either directly or indirectly, thereby contributing to government͝s growth objectives.

Integrated Report 2013

10

WHERE OUR INDUSTRY IS HEADED FINANCIAL The improvement in demand has continued over the past year; however, the oversupply of hotel rooms within specific areas continues to place pressure on both average room rates and occupancy levels, as competitors attempt to gain or retain market share. The lack of supply of low-cost air carriers and the continued strain on disposable income as a result of fuel, energy and food inflation adds further pressure to demand due to strained disposable income, and have similarly impacted the group’s cost base. The effects of the weakening Rand are still to be established for the industry; however, foreign tourist arrivals have seen an improvement since 2010. SOCIAL The expectations of unions for above-inflation increases, declining disposable income, political uncertainty and concerns of safety and security continue to impact the performance of the industry. Although City Lodge Hotel Group

a shift in travel patterns to same-day travel is still currently prevalent, business travel has improved in line with increased activity. The use of social media to communicate and transact has certainly developed and has seen a shift in the way the industry engages with its stakeholders. Travellers make use of mobile technology and online booking capabilities to shop for a better deal and are placing increased pressure on hospitality establishments to provide WiFi at no additional cost to them. ENVIRONMENTAL Environmental issues remain top of mind as the effects of global warming have been highlighted by the droughts affecting food security and the unusual weather patterns being experienced. The continued emphasis of the media on environmental issues ensures that environmental issues remain top of mind for consumers. Current and potential guests increasingly request information about environmental sustainability

practices of the establishments where they choose to stay. ECONOMIC The continuing poor economic growth globally and locally, as well as political uncertainty, continues to limit people’s ability and willingness to travel. According to reports released by the TBCSA, the industry has shown a decline in performance in the past quarter, when compared to the previous three, and is expected to decline in the third quarter of 2013. Notwithstanding this, the current trend of slight improvements in occupancies across the industry is expected to continue in the short term, given that no meaningful additional supply of new rooms is expected. GOVERNANCE Changes in regulatory, legislative and compliance requirements have resulted in companies having to invest substantially more management time to ensure compliance.

OUR MATERIAL ISSUES

In determining our material issues – those that have the greatest potential to impact our success – City Lodge is informed by a range of internal and external factors, as well as the concerns raised by our stakeholders. The company follows a process to assess the input gathered from the internal and external environment and identify those issues that are of the greatest strategic importance to us. In particular, we gather information through internal and external engagement processes using these key sources: THE EXTERNAL ENVIRONMENT We are informed by trends in the external environment, which are discussed as a regular item at the company’s executive and board meetings. These include economic

and industry trends, shifts in the competitive landscape and stakeholder concerns. RISK MANAGEMENT PROCESSES From our extensive risk management processes, we are able to incorporate those aspects of our business which present the greatest risks and opportunities to our success, in the short, medium and long term. STAKEHOLDER ENGAGEMENT Engaging with our stakeholders and understanding their concerns is critical to helping our company identify its most material issues. Information gathered as part of our various stakeholder engagement processes feeds directly into decision-making and drives our business strategy.

IDENTIFYING OUR MATERIAL ISSUES Following an internal workshop, inputs gathered from these key sources were assessed and summarised prior to being presented to the board for their approval of the most material issues for inclusion in this IR. The issues identified were mapped according to their materiality as shown in the diagram below. As the final step in the process, this information fed directly into the articulation of our current business strategy.

DĂƚĞƌŝĂůŝƐƐƵĞƐŚĞĂƚŵĂƉ 1

12

2 13

6 15

11

17

8 5

10 16 9 18

19 20

4 7

11

14

Magnitude of impact Issues included in this area of the grid have only a minor impact on the company and are thus not reported on.

Issue numbers (refer pages 12 to 14).

Issues included in this area have a relatively moderate impact on our company. All issues shown in this area are discussed partially in this report.

Issues included in this area are of high significance and impact for both stakeholders and the company. All issues shown in this area are discussed fully in this report.

City Lodge Hotel Group

Integrated Report 2013

Likelihood of impact

3

OUR MATERIAL ISSUES

;ĐŽŶƟŶƵĞĚͿ

MATERIAL ISSUES

Issues

ĞƐĐƌŝƉƟŽŶ

DŝƟŐĂƟŶŐƐƚƌĂƚĞŐLJ

ϭ͘/ŶĚƵƐƚƌLJƚƌĞŶĚƐʹŽǀĞƌͲƐƵƉƉůLJ

As a result of the increased capacity in the sector, created in the run-up to the 2010 FIFA World Cup and the slow utilisation thereof, the outlook for the hospitality industry remains subdued in the short term with certain sectors showing slight improvement.



Active management which informs decisions on pricing and capacity.



Tracking and analysing industry trends and data.

Due to the limited choice of low-cost airlines, along with increased availability of flights during peak times and shifting travel patterns, overnight travel is on the decrease and reservation lead times are shortening.



Active management which informs decisions on pricing and capacity.



Tracking and analysing industry trends and data.

Our ability to manage our own inventory and pricing strategy could impact our market share as travellers shop around for the best deal.



Active management which informs decisions on pricing and capacity.



Tracking and analysing industry trends and data.

Ϯ͘/ŶĚƵƐƚƌLJƚƌĞŶĚƐʹƚƌĂǀĞůƉĂƚƚĞƌŶƐ

4. Limitation on availability of ĨƵŶĚŝŶŐĨŽƌĨƵƚƵƌĞƉƌŽũĞĐƚƐĂŶĚ ƚŚĞĐŽƐƚƚŚĞƌĞŽĨ

In order for City Lodge to continue to expand its footprint both locally and internationally, access to funding may be limited due to current macroeconomic circumstances. Similarly the cost and terms at which such funding is granted may impact the group’s ability to expand and grow.



Continuous engagement with banks regarding facilities available.



Consideration of alternative sources of funding.

5. BEE deal funding and compliance

The terms of the BEE deal contain specific covenants to be complied with, along with minimum redemption levels, which are solely dependent on dividend flows from the group.



Continuous engagement with banks regarding performance and terms of funding.

ϲ͘džƉŽƐƵƌĞƚŽ^ŽƵƚŚĨƌŝĐĂŶ macro-economic environment

As a result of the bulk of our operations being concentrated within the borders of South Africa, we are directly affected by the spending habits of the South African consumer influenced for example by inflation, levels of interest rates, the political landscape and economic growth.



Geographic spread of portfolio and active brand management.



Exploring non-South African opportunities.

The in-house development of a PMS will result in a number of benefits; however, there is an increased risk due to the level of integration with external systems required.



Dedicated internal specialists manage the project.



Engaging external specialist software developers to design and execute new PMS.

ϳ͘ĞǀĞůŽƉŵĞŶƚŽĨĂĐƵƐƚŽŵŝƐĞĚ WƌŽƉĞƌƚLJDĂŶĂŐĞŵĞŶƚ^LJƐƚĞŵ ;WD^Ϳ

Integrated Report 2013

12

ϯ͘/ŶĚƵƐƚƌLJƚƌĞŶĚƐʹLJŝĞůĚ management

City Lodge Hotel Group

Issues

ĞƐĐƌŝƉƟŽŶ

DŝƟŐĂƟŶŐƐƚƌĂƚĞŐLJ

ϴ͘ZĞůŝĂŶĐĞŽŶ/dŝŶĨƌĂƐƚƌƵĐƚƵƌĞ

As a result of the wide distribution of our hotels throughout sub-Saharan Africa, we have, over time, established an IT infrastructure in order to support our operations. Our hotels are reliant on this infrastructure daily in order to perform optimally.

•ഩContinuous upgrading and maintenance of IT infrastructure.

•ഩImplementation of a detailed disaster recovery plan.

•ഩMaking use of third party hosting facilities. ϵ͘džƉŽƐƵƌĞƚŽĞŵĞƌŐŝŶŐŵĂƌŬĞƚƐʹ ŵĂĐƌŽĨĂĐƚŽƌƐ

ϭϬ͘džƉŽƐƵƌĞƚŽĞŵĞƌŐŝŶŐŵĂƌŬĞƚƐ ʹŽƉĞƌĂƚŝŽŶĂůĐŚĂůůĞŶŐĞƐ

ϭϭ͘&ĂŝƌƌĞŵƵŶĞƌĂƚŝŽŶƉŚŝůŽƐŽƉŚLJ

ϭϮ͘^ĂĨĞŐƵĂƌĚŝŶŐŽƵƌĂƐƐĞƚƐ



Clear guidelines and expectations direct in-depth investigation and feasibility studies on countries and specific locations by dedicated resources.



On-site visits.

There are a host of operational challenges involved in expanding beyond South African borders, eg availability of electricity, potable water and sewerage treatment.



Extensive evaluation conducted by external specialists.



On-site visits.

There is a global trend towards evaluating income disparity within an organisation and benchmarking these to similar industry participants. Further, the introduction of a pay-for-performance culture aligns employee interests with those of shareholders.



Extensive evaluation conducted by external specialists.



Monitoring and implementation of remuneration philosophy is a function of a board committee.

High levels of crime and unethical behaviour within the organisation and occurring in and around our hotels.

•ഩAwareness in this regard is addressed

City Lodge’s strategy to expand beyond the borders of South Africa could be affected by various risks prevalent in these countries including political and regulatory uncertainty, transparency in land ownership, corruption and the time frame to obtain operating licences.

through participation in industry security and local policing forums.

•ഩ24-hour on premises security at all sites. •ഩ24-hour abuse line. ϭϯ͘ŚĂŶŐŝŶŐŶĞĞĚƐŽĨĂďƵƐŝŶĞƐƐ traveller

Technological advancements result in changing guest expectations, which place additional reliance on the IT infrastructure and requires the group to be innovative in its offering and refurbishments.

•ഩDedicated resources engage internally to

ϭϰ͘,/sͬ/^

Prevalence of HIV within the workplace and the organisation’s response thereto with a resultant effect on absenteeism levels.

•ഩAwareness training and support is provided through specialist providers.

City Lodge Hotel Group

Integrated Report 2013

13

assess and implement new projects.

OUR MATERIAL ISSUES

;ĐŽŶƟŶƵĞĚͿ

Issues

ĞƐĐƌŝƉƟŽŶ

DŝƟŐĂƟŶŐƐƚƌĂƚĞŐLJ

15. B-BBEE

Compliance to changing legislative requirements and the achievement of targeted BEE levels.

•ഩRegular monitoring and forecasting of

16. Failure to provide required ƐĞƌǀŝĐĞůĞǀĞůƐ

Inability to meet the diverse needs of travellers.

•ഩExtensive in-house training for

17. Changing labour environment

The current environment around collective bargaining by unions and the legislative banning of labour broking and the potential effect on the outsourced cleaning services.

BEE targets.

all employees.

•ഩRegular engagement with labour unions and service providers.

•ഩCompliance function to monitor changing legislative requirements.

ϭϴ͘ŶǀŝƌŽŶŵĞŶƚĂůƐƵƐƚĂŝŶĂďŝůŝƚLJ

ϭϵ͘WĞƌĐĞƉƚŝŽŶŽĨďƌĂŶĚĂŶĚ ƐĞƌǀŝĐĞŽĨĨĞƌŝŶŐƐ

Development and implementation of sustainable environmentally friendly business practices.

•ഩRegular monitoring and decision-making by

City Lodge has been offering a consistently good product since its inception. As a result of the new capacity created in the industry, consumers are spoilt for choice and may perceive the brand unfavourably given its relative age and due to a lack of understanding thereof. Further, the direction of the marketing campaign may influence consumer perceptions.

•ഩ Regular market research is conducted to

the environmental sustainability steering committee.

understand the views and needs of travellers, which informs future decision-making.

•ഩ Engaging external specialist branding consultants and keeping up with current consumer trends.

Integrated Report 2013

14

ϮϬ͘>ĞŐŝƐůĂƚŝǀĞĐŚĂŶŐĞƐĂŶĚ ĐŽŵƉůŝĂŶĐĞǁŝƚŚůĂǁƐ ĂŶĚƌĞŐƵůĂƚŝŽŶƐ

City Lodge Hotel Group

Compliance with new and changing legislation.

•ഩContinuous monitoring of legislative changes affecting the industry and providing commentary when requested to do so.

OUR STRATEGIC PRIORITIES

Strategic priorities

KǀĞƌǀŝĞǁ

Outcome

KPI

dŽĐŽŶƐŽůŝĚĂƚĞŽƵƌƉŽƐŝƚŝŽŶ ǁŝƚŚŝŶ^ŽƵƚŚĨƌŝĐĂ͘

Through continued focus on quality of service and product, we aim to maintain our position as a leading provider of quality selected services hotel accommodation to our guests.

•ഩ Consistently high standard of

Average Daily Rate (ADR) Occupancy % EBITDA margin Brand perception Guest feedback %

To develop our people and ĂĐŬŶŽǁůĞĚŐĞƚŚĞŵŽŶĂ ũŽďǁĞůůĚŽŶĞĂŶĚƚŽ ĞŶƐƵƌĞƚŚĂƚƚŚĞLJĂƌĞĨĂŝƌůLJ ƌĞǁĂƌĚĞĚŝŶƌĞƚƵƌŶ͘

Through the existence of the “I’m Kind” service excellence programme, we will continue to recognise the efforts of all our people and foster an attitude of “Paying it forward”.

•ഩ Relevant training and development

dŽĞdžƉĂŶĚŽƵƌĨŽŽƚƉƌŝŶƚ ďĞLJŽŶĚ^ŽƵƚŚĨƌŝĐĂ͛Ɛ ďŽƌĚĞƌƐ͘

By obtaining a detailed understanding of our continent, we will be able to introduce the same quality product our guests have grown to love to other African countries.

•ഩ Detailed feasibility studies into foreign markets. •ഩ Establish a footprint in new markets.

Number of hotels beyond South African borders

dŽƉŽƐŝƚŝǀĞůLJŝŵƉĂĐƚƚŚĞ broader community in ǁŚŝĐŚǁĞŽƉĞƌĂƚĞ͘

Through caring and serving, we are able to contribute towards successful communities.

•ഩ Improved B-BBEE scorecard. •ഩ Supporting local businesses and

BEE rating CSI and ED spend

dŽĐŽŶĚƵĐƚŽƵƌŽƉĞƌĂƚŝŽŶƐ in an environmentally ƐƵƐƚĂŝŶĂďůĞǁĂLJ͘

By clearly understanding the impact our business has on the environment, we are able to change the way we do things and in so doing have a positive impact on our planet.

•ഩ Increased awareness of

To introduce and maintain ŝŶŶŽǀĂƚŝǀĞ/dƉƌŽĚƵĐƚƐĂŶĚ ƐĞƌǀŝĐĞƐ͘

By remaining aware of current trends, introducing innovative IT services to enhance our guests’ experiences.

•ഩ Increased innovation. •ഩ Enhanced guest satisfaction.

product and service. •ഩ Maintained/increased average room rates. •ഩ Increased focus on cost base. •ഩ Firmly establish the new hotels within their market.

interventions. •ഩ Equal opportunities for disabled employees. •ഩ Develop employees for leadership positions.

Attrition rate Training hours Absence rate

charities through a number of initiatives.

15

CO2 footprint Sustainability accreditation of brands

Guest feedback %

Integrated Report 2013

environmental issues. •ഩ Understanding of the group’s impact on the environment. •ഩ Reduce energy consumption. •ഩ Recycling of waste.

City Lodge Hotel Group

OUR BRAND OVERVIEW

DISTINCT ATMOSPHERE OF >'EE,ZD͘͘͘

Integrated Report 2013

16

6 HOTELS ³ 451 ROOMS

KƵƌƌŽŽŵƐ • 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. • Chrysalis cotton-rich percale linen. KƵƌƐĞƌǀŝĐĞƐ • Woolworths personalised shopping service. • Intimate lounge area. • Courtesy bar (17:00 to 19:00). • 24-hour enhanced security. • Free, secure parking just metres from your door. • An elegant boardroom for guest use. • Personal use of guest office 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 launderette. • Wireless internet access (15 minutes free per day). KƵƌĐƵƌƌĞŶƚůŽĐĂƟŽŶƐ • Cape Town • Johannesburg (Eastgate, Rosebank, Sandton) • Port Elizabeth • Pretoria (Arcadia)

City Lodge Hotel Group

COMFORTABLE AND d^d&h>>zKZd͘͘͘

15 HOTELS ³ 2 705 ROOMS

KƵƌƌŽŽŵƐ • 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. • Plush duvets with cotton-rich percale linen. KƵƌƐĞƌǀŝĐĞƐ • 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 service. • Sparkling swimming pool. • Free and convenient parking. • Wireless internet access (15 minutes free per day). • Coffee shop serving light meals. KƵƌĐƵƌƌĞŶƚůŽĐĂƟŽŶƐ • Bloemfontein • Cape Town (GrandWest, Pinelands, V&A Waterfront) • Durban (Central, Umhlanga Ridge) • Johannesburg (Airport – Barbara Road, Bryanston, Fourways, OR Tambo Airport, Sandton – Katherine Street, Sandton – Morningside) • Port Elizabeth • WƌĞƚŽƌŝĂ;,ĂƞŝĞůĚ͕>LJŶŶǁŽŽĚͿ KƵƌĨƵƚƵƌĞůŽĐĂƟŽŶƐ • Johannesburg (Waterfall City)

KƵƌƌŽŽŵƐ • &ƵůůLJĐĂƌƉĞƚĞĚ͕ƐƉĂĐŝŽƵƐĂŝƌͲĐŽŶĚŝƟŽŶĞĚƌŽŽŵǁŝƚŚĚŽƵďůĞ 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. KƵƌƐĞƌǀŝĐĞƐ •  ŽŶǀĞŶŝĞŶƚůŽĐĂƟŽŶƐ͕ĐůŽƐĞƚŽŵĂũŽƌƌŽƵƚĞƐ͘ • 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 service. • Wireless internet access (15 minutes free per day). KƵƌĐƵƌƌĞŶƚůŽĐĂƟŽŶƐ • Bellville • George • Johannesburg (Johannesburg Airport, Midrand, Roodepoort, Sandton – Grayston Drive) • Nelspruit • Polokwane • Port Elizabeth • Pretoria (Menlo Park) • Gaborone, Botswana • Nairobi, Kenya

21 HOTELS ³ϭϵϲϵZKKD^

KƵƌƌŽŽŵƐ • Fully carpeted and air-conditioned. • 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. KƵƌƐĞƌǀŝĐĞƐ • A light breakfast is available daily. • 24-hour vending machines stocked with snacks and beverages. • Free, ample and secure parking. • 24-hour reception service and check-in. • Coin and card call-boxes for trunk calls. • Wireless internet access (15 minutes free per day). KƵƌĐƵƌƌĞŶƚůŽĐĂƟŽŶƐ • Bloemfontein Airport • Cape Town (Cape Town International Airport, N1 City) • Centurion • Durban (Central, Umhlanga Ridge) • East London • Johannesburg (Brakpan – Carnival City, Germiston Lake, Isando, Johannesburg Airport, Randburg, Rivonia) • Kimberley • Nelspruit • Port Elizabeth (Airport, Beach Front) • Potchefstroom • Richards Bay • Rustenburg • Southgate KƵƌĨƵƚƵƌĞůŽĐĂƟŽŶƐ • Pietermaritzburg

17

12 HOTELS ³ 1 503 ROOMS

UNBELIEVABLE COZINESS AND s>hͳ&KZͳDKEz͘͘͘

City Lodge Hotel Group

Integrated Report 2013

HOMELY ATMOSPHERE WITH ^dz>/^,KZ͘͘͘

KhZZEKsZs/t͵KhZdzZ,Kd> ;ĐŽŶƟŶƵĞĚͿ

sufficiency with guests having access to their own kitchenette, lounge and dining areas.

Superior service, impeccable style Each of our six Courtyard hotels has its own distinct character and personality, but each also has the same goal – to provide guests with an excellent accommodation experience in an elegant environment.

Integrated Report 2013

18

From access to a personal shopping service, to the benefit of an early evening courtesy bar, guests are given

City Lodge Hotel Group

Guests can choose from an itemised shopping list if they want to cater for themselves within their own rooms.

the sort of special treatment to be expected from a brand that goes out of its way to meet needs and surpass expectations. With its spacious accommodation options ranging from studio through to two-bedroom suites, the Courtyard brand offers a large degree of self-

Courtyards are also well known for their fantastic breakfasts, their ample safe parking, their friendly service, their graceful and stylish ambience, as well as their superb locations.

City Lodge Hotel Group Integrated Report 2013

ϭϵ

City Lodge Hotel Group

Integrated Report 2013

20

KhZZEKsZs/t͵/dz>K',Kd> ;ĐŽŶƟŶƵĞĚͿ

Ideal for business and leisure travellers

Integrated Report 2013

From their scrumptious breakfasts, coffee shops and sundowner bar services through to their spacious ensuite bedrooms and inviting swimming pools, they have all that guests need to enjoy a home-away-from-home experience in brilliant locations with ample safe parking.

21

City Lodges have established an enviable reputation as providers of ideal services and features for both business and leisure travellers.

City Lodge Hotel Group

KhZZEKsZs/t͵dKtE>K' ;ĐŽŶƟŶƵĞĚͿ

Convenience with a smile

Integrated Report 2013

22

Town Lodges offer affordable accommodation in convenient locations. While their bedrooms are slightly smaller than those at City Lodges, they offer many of the same services such as friendly staff, great breakfasts, sundowner bar services and swimming pools, along with lots of safe parking.

City Lodge Hotel Group

City Lodge Hotel Group Integrated Report 2013

23

City Lodge Hotel Group

Integrated Report 2013

24

KhZZEKsZs/t͵ZK>K' ;ĐŽŶƟŶƵĞĚͿ

Value, value, value!

Integrated Report 2013

25

Superbly located for budget-conscious business and leisure travellers, Road Lodges provide incredible value for money without scrimping on quality. One, two or three guests can share a comfortably furnished and decorated room for the single room rate. Continental breakfasts and ample safe parking are also provided.

City Lodge Hotel Group

KhZZEKsZs/t͵&/Zs/t

Integrated Report 2013

26

;ĐŽŶƟŶƵĞĚͿ

Travellers’ oasis

ample. Country Lodge guests have access to these restaurants, as well as the delicious breakfast offering within the Country Lodge.

O Owned and managed by three ggenerations of one family since 1946, FFairview Hotel Limited, comprising the Fairview Hotel and Country Lodge (opened in 2006), stand out as a charming and successful blend of the past and the present. Five acres of beautiful landscaped gardens unmatched by any other Nairobi city hotel, combine with comfortable rooms, from the economy rooms through to the executive suites, that offer every modern facility.

Through the acquisition of 50% of the Fairview Hotel Limited by the group, and through our joint venture going forward, we will be able to leverage local knowledge of the east African market to achieve our ongoing expansion objectives.

Conferencing is a key component of the Fairview, offering four high-tech rooms with all the modern necessities

City Lodge Hotel Group

to conduct a high-impact training session or meeting. Longer staying guests can enjoy the comforts of a home with the services of a hotel in the adjoining furnished and serviced apartments. The Fairview’s award-winning chefs and five dining venues ensure that the food offering is tasty, comforting and

While the Fairview Hotel will retain its name, Country Lodge will be rebranded to Town Lodge, in line with City Lodge’s intention to increase the penetration of its brand names in other parts of Africa.

City Lodge Hotel Group Integrated Report 2013

27

WHO GOVERNS US

1

4

5

5

Ϯ͘ EŝŐĞůDĂƩŚĞǁƐ (68)

ϯ͘ &ƌĂŶŬ>͕D;tĞďƐƚĞƌhŶŝǀĞƌƐŝƚLJ͕ 'ĞŶĞǀĂ͕^ǁŝƚnjĞƌůĂŶĚͿ

D;KdžĨŽƌĚhŶŝǀĞƌƐŝƚLJͿ͕D

Žŵ͕>>͕,ŽŶŽƵƌƐ ;WŚŝůŽƐŽƉŚLJ͕ĐƵŵůĂƵĚĞͿ͕,ŝƉ;dĂdžͿ͕>>D

^ĞƌǀĞƐŽŶƚŚĞďŽĂƌĚƐŽĨƚŚĞĨŽůůŽǁŝŶŐ listed companies: Buildmax Limited, Rolfes Technology Holdings Limited (chairman) and M&S Holdings Limited (chairman)

28

3

ϭ͘ Bulelani Ngcuka;ϱϵͿ

Legal and general business expertise

Integrated Report 2013

2

Areas of expertise include operations (security, hospitality and leisure industries), finance, strategy and management ^ĞƌǀĞƐŽŶƚŚĞďŽĂƌĚƐŽĨƚŚĞ ĨŽůůŽǁŝŶŐůŝƐƚĞĚĐŽŵƉĂŶŝĞƐ͗ Metrofile Holdings Limited and Sun International Limited

KƚŚĞƌ͗Vuwa Investments (Pty) Limited, Menzies Aviation (South Africa) (Pty) Limited, Coega Autospray (Pty) Limited, Amadlelo Agri (Pty) Limited, BetterGroup Limited, Leapfrog Property Group (Pty) Limited

KƚŚĞƌ͗Indian Ocean Real Estate Company (Mauritius), Lion Sands Private Game Reserve (Pty) Limited, Tsebo Outsourcing Group (Pty) Limited

ƉƉŽŝŶƚĞĚƚŽƚŚĞďŽĂƌĚŝŶϮϬϬϴ

ƉƉŽŝŶƚĞĚƚŽƚŚĞďŽĂƌĚŝŶϭϵϴϵ

Areas of expertise include legal, finance, corporate finance, private equity, venture capital, empowerment, investment, mining and tourism Serves on the boards of South African Tourism (chairman) and Manganese Metal Company (Pty) Limited ƉƉŽŝŶƚĞĚƚŽƚŚĞďŽĂƌĚŝŶϭϵϵϲ

ϰ͘ ůŝīŽƌĚZŽƐƐ (56) {# ºU…V ŝƉ;,ŽƚĞůDĂŶĂŐĞŵĞŶƚͿ͕ĚǀĂŶĐĞĚ Management Programme (Cornell)

Areas of expertise include strategy, management and operations within the hotel industry

ƉƉŽŝŶƚĞĚƚŽƚŚĞďŽĂƌĚŝŶϭϵϵϭ

City Lodge Hotel Group

Areas of expertise include governance, risk, compliance, audit and financial management KƚŚĞƌ͗SA Forestry Company, Eastern Cape Development Corporation

ƉƉŽŝŶƚĞĚƚŽƚŚĞďŽĂƌĚŝŶϮϬϬϲ

7

8

ϵ

ϲ͘ Stuart Morris (67) # 0

ϳ͘ tĞŶĚLJdůŽƵ (41) # 0

ϴ͘ /E The City Lodge Hotel Group is committed to observing the highest standards of good governance, integrity and ethics in all of its business dealings.

(King III), in addition to complying with the continuing obligations of the JSE Listings Requirements (Listings Requirements) and the Companies Act, 71 of 2008 (the Act), in the conduct of its business.

The board, as the epicentre of the company’s corporate governance system, is ultimately accountable and responsible for the performance and affairs of the company and recognises the importance of carrying on business in accordance with sound governance principles.

Refer to the company’s website, www.citylodge.co.za, for detail on the company’s application of the King III principles.

City Lodge is therefore committed to upholding the principles advocated in the King Report on Corporate Governance 2009

The board is satisfied that, for the year under review, the company has made every effort to apply the recommendations in King III and comply with the continuing obligations of the Listings Requirements and the Act. Where the company is non-compliant, this is stated and explained.

/dz>K''KsZEE^dZhdhZ UNITARY BOARD

^ŝdžŝŶĚĞƉĞŶĚĞŶƚŶŽŶͲĞdžĞĐƵƟǀĞĚŝƌĞĐƚŽƌƐ ;ŝŶĐůƵĚŝŶŐůĞĂĚŝŶĚĞƉĞŶĚĞŶƚĚŝƌĞĐƚŽƌͿ

EŽŶͲĞdžĞĐƵƟǀĞĐŚĂŝƌŵĂŶ

Integrated Report 2013

42

BOARD COMMITTEES

dǁŽĞdžĞĐƵƟǀĞĚŝƌĞĐƚŽƌƐ

MANAGEMENT COMMITTEES

Audit ;ƐƚĂƚƵƚŽƌLJĂŶĚďŽĂƌĚͿĐŚĂŝƌĞĚďLJ^ƚƵĂƌƚ DŽƌƌŝƐ͕ŝŶĚĞƉĞŶĚĞŶƚŶŽŶͲĞdžĞĐƵƟǀĞ

Risk ĐŚĂŝƌĞĚďLJ&ƌĂŶŬh/d&hEd/KE KPMG Services (Pty) Limited performs the company’s internal audit function, providing an independent, objective, assurance and consulting activity designed to add value and improve the company’s operations. Internal audit has unrestricted access to both the chief executive and chairman of the audit committee, but is administratively accountable to the financial director. Internal audit presents reports, prepared in accordance with a defined set of audit criteria highlighting audit area ratings per hotel and summarising internal audit activities, at each audit committee meeting. Where significant weaknesses in internal controls have been identified corrective action is taken and a follow-up audit may be conducted. Seventeen internal audit reviews were completed during the financial year ending 30 June 2013 with an overall average level of compliance of 85% (2012 – 83%) being achieved.

Integrated Report 2013

52

As required by King III, the internal audit function and the audit committee concluded that the overall internal control effectiveness is good. The audit committee is responsible for reviewing the effectiveness of the function so as to ensure adequate, objective internal audit assurance standards and procedures exist and annually approves the internal audit plan and fee for the ensuing year. Internal audit also undertakes special assignments, including risk-based reviews, where mandated by the audit committee.

City Lodge Hotel Group

Three risk-based reviews covering the combined assurance plan, risk management effectiveness and Fairview Hotel – Kenya internal controls gap analysis have been commissioned for the 2013/2014 financial year. The audit committee annually assesses the independence of the internal audit function and concluded that, notwithstanding KPMG acting as internal and external auditors to the company, it is satisfied that the independence of the function has not been impaired. KDWEz^ZdZz The appointment and removal of the company secretary is a matter for the board as a whole. In addition to her statutory responsibilities and serving as the central source of information and advice to the board and within the company on matters relating to good governance, the company secretary assumes responsibility for the effective administration of all board, committee, company-related and, where applicable, shareholders’ affairs and proceedings. During the year the board, as required by the JSE Listings Requirements, informally through its ongoing interactions with the company secretary and formally through the completion of an online questionnaire, considered and satisfied itself as to the competence, qualifications and experience of the company secretary, Melanie van Heerden, and concluded that there is an arm’s length relationship between itself and the company secretary, who is not a director serving on the board. >/E'/E^hZ/d/^E/E^/ZdZ/E' In terms of the Listings Requirements and the board-approved policy on dealing in company securities, directors and the company secretary must obtain the prior written clearance from the chairman of the board before dealing in City Lodge shares during an open period. The chairman requires prior written clearance from any other designated director.

All dealings in securities are effected through the office of the company secretary who assumes responsibility for the enforcement of the policy, maintains a record of requests for dealing and clearances which, with regard to directors’ dealings, is tabled at each meeting of the board, and arranges for the publication of the relevant announcement via the company’s sponsor on the JSE Securities Exchange News Service. Directors, the company secretary and senior employees are prohibited from dealing in the company’s securities during closed periods as defined by the JSE Listings Requirements and more specifically when those persons possess share price sensitive inside information. KE&>/d^K&/EdZ^d^EKd,Z/ZdKZ^,/W^ Directors declare their interests in contracts entered into or to be entered into and other directorships in accordance with the provisions of the Act. This is done annually, by written declaration, and is tabled at each quarterly board meeting.

The chairman has concluded that, for the period under review, the non-executive directors have devoted sufficient time to discharge their responsibilities to the company and that none of the directors have a material interest in any contract entered into by the company. The exco has also adopted the practice of disclosing its interests in other companies, board memberships and interests in contracts at the beginning of each exco meeting in addition to making an annual written declaration in this regard. >/d/'d/KE The company is, in the ordinary course of business, subject to legal proceedings, which for a number of reasons cannot be reliably predicted. There is at present no legal action pending, threatened or ongoing, that will have a material effect on the operations or financial position of the company.

Executive directors may, with the chairman’s permission, having due regard to whether the appointment may conflict with the business of the company and/or have a negative impact on the director’s ability to effectively meet his/her responsibilities, accept external board appointments.

53

Directors are required to recuse themselves from deliberations on those matters where they are, or may potentially be, conflicted, except where they are required to provide any material information relating to the matter or, at the request of the other directors, are able to make any observations or pertinent insights relating to the matter.

Integrated Report 2013

Non-executive directors are required to consult the chairman with regard to their external appointments in order to ensure that, notwithstanding additional external board appointments, the director will continue to be able to devote sufficient time to the company.

City Lodge Hotel Group

^K/>Ed,/^ZWKZd

Compliance with company ethics is monitored by the board, the social and ethics committee and exco. The appointment of the social and ethics committee (SEC) by the board on 14 February 2012 was ratified by shareholders at the annual general meeting held on 15 November 2012. The SEC comprises three directors, one of whom is an independent non-executive director who serves as chairman of the committee. While the committee meets the requirements of the Act with regard to its constitution, it fails to apply the recommendations of King III in that the remaining two members are executive directors. Having reviewed the composition of the committee during the year under review, the committee remains comfortable that, given the fact that executive management is closely involved with the matters falling within the SEC’s mandate, membership continues to lean towards the operational side for the time being.

Integrated Report 2013

54

The SEC operates within board-approved terms of reference and is responsible for overseeing and monitoring ethical behaviour within the company, and in particular, the areas of: ^K/>Z^WKE^//>/dz ,ƵŵĂŶƌŝŐŚƚƐ The group ensures that it protects and upholds human rights wherever it is able to control such. As an example the group supports and adheres to “the Code”, a compact between members of the international tourism industry that deals with the awareness of its staff with regard to issues and circumstances prevalent in the practices of human trafficking and sex tourism. While the group is not complicit in human rights abuses, it does not vet its suppliers in this regard. The company does not believe this is necessary in the context of its operations and profile of suppliers. &ƌĞĞĚŽŵŽĨĂƐƐŽĐŝĂƚŝŽŶ The group upholds the freedom of association and the effective recognition of the right to collective bargaining. City Lodge Hotel Group

The group continues to recognise and bargain with SACCAWU. All staff in the deemed “bargaining unit” may belong to the union (up to supervisory level) from a bargaining perspective. Any other level of staff member may belong to the union; however, they are not covered by any bargaining gains made by the union. &ŽƌĐĞĚŽƌĐŽŵƉƵůƐŽƌLJůĂďŽƵƌ The group supports the elimination of all forms of forced or compulsory labour. The group has no exposure to these practices and suppliers are not vetted in this regard as the group does not believe this is necessary in the context of the group’s operations and the profile of its suppliers. ďŽůŝƚŝŽŶŽĨĐŚŝůĚůĂďŽƵƌ The group supports the effective abolition of child labour by ensuring that no minors are employed by the group. As a condition of employment all employees are required to provide proof of age on employment. KZWKZd^K/>/Es^dDEdΈ^/Ή City Lodge believes that being a responsible and contributing corporate citizen is a key component of the company’s business strategy. Through its community investment strategy, the company is committed to the empowerment, development and growth of disadvantaged communities. The City Lodge Social Responsibility Programme is called “Ubuntu Ba Bantu” and the programme is not only part of the “People Caring for People” philosophy of the group but also fits into the “I’m Kind” initiative of the group. The objectives of the City Lodge CSI programme are 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; 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

ƵƉƉĂͲĨŽƌͲĂŶƐĂ The group’s involvement in this 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. This year, for the second year running, the hotel contributing the greatest amount to the effort was Road Lodge Cape Town International Airport. The total amount collected in respect of this initiative was R138 000.

'ZKhWͳt/EdZWZ/^s>KWDEdΈΉͬ^/ /E/d/d/s^ The group continues to support a number of organisations in a number of ways.

dŚĞŝƚLJ>ŽĚŐĞdžĞĐƵƚŝǀĞWŚŝůĂŶƚŚƌŽƉŝĐ&ƵŶĚ Annually a sum of money is set aside for projects that are adjudicated to have both significant impact for the recipient/s and that correspond with the group’s CSI objectives. This year amounts were paid to The Community Chests in the Western Cape, KwaZulu-Natal and Eastern Cape totalling R75 000 and R50 000 to the QuadPara Association of South Africa.

ŶƚĞƌƉƌŝƐĞĚĞǀĞůŽƉŵĞŶƚ;Ϳ The group’s preferential procurement framework continues to act as a catalyst in identifying ED beneficiaries, and assistance offered to beneficiaries includes loans, human resource capacity, as well as other contributions. During the year, the group contributed in excess of R3 million in financial support to ED beneficiaries.

ŶĂĐƚƵƐ;ĨŽƌŵĞƌůLJ^/&Ϳ The group supports Enactus through providing executive time at Enactus functions and by providing support for one of the university teams. This year support to the value of R50 000 was given to the team from the University of Venda for a recycling project that is being run by local residents with the assistance of the UNIVEN Enactus team.

55

Involvement with, and investment in, social responsibility initiatives is divided between group-wide initiatives and local initiatives; the rationale being that the hotels are best able to ascertain the needs of the communities in which they operate. In addition, all employees in the group have the opportunity to participate by pledging an amount to be deducted from their salaries and paid over on their behalf to various charities.

ĞͲ^/ The group has continued with its very successful scheme of involving its guests in its decision-making with regard to the allocation of part of its CSI spend. This is achieved by encouraging all those who book accommodation online to choose to which organisation they would like us to make a donation of R5,00 per reservation. Beneficiaries of this programme are The Hospice Palliative Care Association and Food and Trees for Africa. During the year we contributed R150 095 and R80 430 to these associations respectively.

City Lodge Hotel Group

Integrated Report 2013

quality, socially responsible staff to the company as well as retain and enhance the loyalty and pride in the company of existing staff; and 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. Some examples of assistance provided this year include: • the hosting of numerous hospitality study students for their experiential training; • lectures at hotel schools and schools; • participation in career days; • various acts of volunteerism; and • assistance in the form of beds and linen items provided to SANPARKS staff who suffered personal loss in the Kruger Park flooding.

^K/>Ed,/^ZWKZd  ;ĐŽŶƟŶƵĞĚͿ

>K>^//E/d/d/s^ During the year a number of our hotels and departments have supported their local NGOs and organisations. Donations of used linen and towelling, the organising of fund-raising endeavours, staff volunteerism, cash donations and prizes for fund-raising were made. During the year, in addition to the donations mentioned in the group-wide initiatives, we have made donations of R2,5 million. 'KKKZWKZd/d/E^,/W Compliance with legislation applicable to the business of the company is a standing item on the agenda of the social and ethics and risk committees, respectively. No judgements, penalties or fines were recorded and/or levied against the company or its directors during the year under review for failure to comply with any legislative or regulatory requirement. No requests for information under the Promotion of Access to Information Act were received during the year under review.

Integrated Report 2013

56

The company operates a 24-hour Business Abuse Hotline which is independently managed by Employer’s Mutual Protection Services (Pty) Limited. The hotline affords employees the opportunity to anonymously report perceived cases of unethical or corrupt behaviour. All reports to the hotline are investigated and, where appropriate, action is taken. Five calls were logged during the year under review, all of which were investigated and the majority were found to be internal grievances and dealt with in accordance with the company’s internal grievance procedure. Es/ZKEDEd>^h^d/E/>/dz /ŶƚƌŽĚƵĐƚŝŽŶ The group acknowledges that it operates in a world which increasingly views environmentally responsible practices as a crucial foundation for business. Environmental sustainability

City Lodge Hotel Group

has been maintained as a strategic imperative for the year ahead. Corporate environmental responsibility remains a key performance area for all of our hotel management, and their compliance with group policies in this regard is taken into account when assessing their overall performance. The group has continued to work with the Green Leaf Environmental Standard, completing baseline assessments at all hotels in order to compile specific and unique action plans for each property as part of our overarching Environmental Sustainability accreditation and certification. Together with the guidance received from Green Leaf, the group is further guided by the 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. ĂƌďŽŶĨŽŽƚƉƌŝŶƚ The group once again completed a carbon footprint assessment for the 12 months ended 30 June 2013. The assessment focuses on the greenhouse gas (GHG) emissions arising from the operations of our 52 hotels and central office in South Africa. Total GHG emissions emitted as a result of operational activities amount to 39 589 (2012 – 39 643) tonnes of CO2 equivalent (CO2e), a slight reduction on last year, and a 14% reduction on our 2010 baseline. Due to the lack of availability of information relating to our operations in Kenya and Botswana, these hotels have not been included in this assessment. We will endeavour to include them in next year’s assessment. The reporting methodology followed the reporting principles and guidelines provided by the World Business Council for Sustainable Development/World Resources Institute (WBCSD/WRI) Greenhouse Gas Protocol.

The boundary of the GHG emissions assessment included electricity consumption, LPG consumption, back-up diesel generator consumption, waste disposal, water consumption, refrigerant gas loss, fire extinguishers, company-owned vehicles and business travel. Third-party deliveries and commuting were excluded from the assessment boundary due to lack of availability of data.

The process followed to calculate our footprint was to obtain this data directly from the individual hotels and central office. Where actual data was not available due to factors beyond our control, estimates were used resulting in a fair assessment of our carbon footprint prepared by independent third party Camco Clean Energy.

ĂƌďŽŶĨŽŽƚƉƌŝŶƚĂƐƐĞƐƐŵĞŶƚ 2013

Premises – LPG consumption Premises – Back-up diesel generators Premises – Refrigerant gas loss Premises – Fire extinguishers Company-owned vehicles ^ƵďƚŽƚĂů Premises – Electricity consumption

Scope 1

Scope 2

^ƵďƚŽƚĂů Premises – Water consumption Scope 3 Premises – Waste disposal Business travel – Flights Business travel – Employee-owned cars Subtotal dŽƚĂů

dŽƚĂů K2Ğ;ƚͬLJƌͿ

WƌŽƉŽƌƚŝŽŶ ŽĨƚŽƚĂů K2Ğ;йͿ

Total CO2e (t/yr)

Proportion of total CO2e (%)

14,8 38,3 25,8 0,2 3,9

0,04 0,1 0,07 0,0004 0,0

16 53 34 0,5 3,5

0,04 0,1 0,09 0,001 0,009

83,0 ϯϰϵϬϴ͕ϴ

0,2 88,2

107 36 765

0,3 93

ϯϰϵϬϴ͕ϴ 185,2 ϮϰϰϬ͕ϱ ϭϵϯϱ͕ϰΎ 36,3

88,2 0,5 6,2 4,9 0,09

36 765 185 2 465 79 42

93 0,5 6,2 0,2 0,1

ϰϱϵϳ͕ϰ

11,6

2 771

7,0

ϯϵϱϴϵ͕Ϯ

100

39 643

100

Integrated Report 2013

*It must be noted that the emission factor used for flight travel has been revised and increased by the Department of Environment, Rural Affairs and Food. Had the emission factor not changed, our business travel would have been 164,7 tCO2e compared to the 1 935,4 tCO2e. This would then have equated to an approximate 4,5% reduction in emissions across all scopes when compared to last year.

57

^ŽƵƌĐĞĞŵŝƐƐŝŽŶƐ

WBCSD scope

2012

City Lodge Hotel Group

^K/>Ed,/^ZWKZd  ;ĐŽŶƟŶƵĞĚͿ

Through ongoing commitment and enhanced internal resource efficiencies we have again been able to reduce our GHG emissions and carbon footprint. Increased consumer awareness of global environmental issues has further strengthened our commitment to apply more effective energy, water and waste management procedures and policies. We continue to hold discussions and investigate ways in order to reduce our emissions.

Integrated Report 2013

58

ŶǀŝƌŽŶŵĞŶƚĂůŝŵƉĂĐƚƐ While the nature and location of the group’s operations are considered to be low impact, the group acknowledges that even at this level it, like any other facility or household, does have an impact on the 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, kitchen); air quality and pollution (laundry, kitchen emissions and non-smoking areas); and recyclable waste (paper, glass, aluminium cans, steel cans). ŶĞƌŐLJĐŽŶƐƵŵƉƚŝŽŶ In its operations the group uses only electrical energy as supplied by Eskom or the relevant municipalities. Energyefficient generators are installed in all our hotels. The generators will provide only essential services to minimise load, and thereby diesel usage and emissions. The majority of this consumption is divided between hot water boilers, air-conditioning, lighting and on-site laundry equipment. Total energy consumption for the period was 35,2 million kWh. As 88% of our GHG emissions are created through our electricity consumption, the majority of our environmental focus remained focused towards reducing the impact we have on the environment by reducing our energy consumption. Progress in this regard was led through the ongoing implementation of a Sustainable Energy Management Strategy, incorporating two mutually inclusive aspects of energy

City Lodge Hotel Group

management. The first being the operational efficiencies, including operational procedures, policies and general behaviour of staff and guests. The second aspect focuses on the technical efficiency of the facilities. The group replaced in excess of 44 000 existing light globes with newer, more efficient technologies. Additionally, several heat pumps were installed to improve the efficiencies of the water heating systems. The completion of the lighting upgrade is planned for the new financial period as well as heat pump installations at all but three hotels. The heat pump installations at these three hotels are currently not financially feasible. After winning the FEDHASA Imvelo Award in the category “Best Single Resource Management Programme – Energy” for 2011 for Town Lodge Sandton, Grayston Drive, the group in 2012 again entered the category, but this time used the combined results of all 52 hotels. We received a “Highly Commended” award for our entry and efforts. We are committed to playing our part in mitigating climate change by continuously improving the energy efficiency of our hotels. Energy reduction measures currently in use at the hotels include: • the establishment of energy management committees within each hotel to actively drive and monitor their agreed energy-saving targets and ideas. This also includes the “Switch Off Something (SOS)” campaign; • a specific energy reduction and action plan developed per hotel; • hot water boilers and heat pumps which are metered and monitored online. These are set to heat water at night and during off-peak periods. This hot water is then stored for use when required; • air-conditioners being set to switch off automatically at preset times daily. This curbs wasted energy consumption when air-conditioners are inadvertently left on in unoccupied rooms;

Courtyard City Lodge Town Lodge Road Lodge

41,4 26,5 25,1 17,6

kWh per ŽƐƚƉĞƌ occupied ŽĐĐƵƉŝĞĚ room ƌŽŽŵ (2011/2012) ;ϮϬϭϮͬϮϬϭϯͿ 46,3 30,9 27,4 18,4

Zϰϯ͕ϯϴ ZϮϱ͕ϳϴ ZϮϳ͕Ϯϲ ZϮϭ͕ϰϬ

tĂƚĞƌĐŽŶƐƵŵƉƚŝŽŶ 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 continued our “Don’t Throw in the Towel” and “Water Kind thing to Do” awareness programmes. The majority of the group’s water is consumed by guest use and on-site laundries. Total water consumption for the period was 595 532 kilolitres. This represents a slight increase of 15 482 kilolitres (2,67%) when compared to the prior period. This is below the increase in the number of rooms sold for the period.

Cost per ŬtŚƉĞƌ occupied ĂǀĂŝůĂďůĞ room ƌŽŽŵ (2011/2012) ;ϮϬϭϮͬϮϬϭϯͿ R44,22 R26,31 R25,72 R18,60

21,1 16,8 13,7 12,2

ŽƐƚƉĞƌ kWh per ĂǀĂŝůĂďůĞ available ƌŽŽŵ room (2011/2012) ;ϮϬϭϮͬϮϬϭϯͿ 20,9 18,0 14,0 12,6

ZϮϮ͕Ϭϵ Zϭϲ͕Ϯϴ Zϭϰ͕ϴϰ Zϭϰ͕ϴϱ

Cost per available room (2011/2012) R19,92 R15,28 R13,19 R12,72

As with energy consumption, continuous consideration is given to our effort to reduce water consumption. Mitigating strategies 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 the 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.

59

Brand

ŬtŚƉĞƌ ŽĐĐƵƉŝĞĚ ƌŽŽŵ ;ϮϬϭϮͬϮϬϭϯͿ

We are pleased to report consistent decreases in kWh consumption per occupied room. These reductions resulted in electricity costs per room occupied increasing by only 4,6% when compared to the prior period.

City Lodge Hotel Group

Integrated Report 2013

• on-site laundry equipment being metered and monitored online. Machines are preset to operate on specific cycles ensuring the most efficient use of energy; and • the usage of energy-efficient globes throughout, which continues to contribute to a reduction in energy consumption.

^K/>Ed,/^ZWKZd  ;ĐŽŶƟŶƵĞĚͿ

• 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. • All hotels and staff continue to participate in a programme called “CAT – Close a Tap” which involves being aware of

Integrated Report 2013

60

Brand

ŬůƉĞƌ ŽĐĐƵƉŝĞĚ ƌŽŽŵ ;ϮϬϭϮͬϮϬϭϯͿ

ŽƐƚƉĞƌ kl per ŽĐĐƵƉŝĞĚ occupied ƌŽŽŵ room (2011/2012) ;ϮϬϭϮͬϮϬϭϯͿ

water consumption and taking active steps to reduce it, such as not running taps while cleaning and attending to maintenance issues. We are pleased to report we have seen a decline in water consumption “per occupied room” throughout three of the four brands within the group.

ŬůƉĞƌ Cost per ĂǀĂŝůĂďůĞ occupied ƌŽŽŵ room (2011/2012) ;ϮϬϭϮͬϮϬϭϯͿ

ŽƐƚƉĞƌ kl per ĂǀĂŝůĂďůĞ available ƌŽŽŵ room (2011/2012) ;ϮϬϭϮͬϮϬϭϯͿ

Cost per available room (2011/2012)

Courtyard

0,82

0,96

ZϭϮ͕ϰϱ

R12,53

0,42

0,43

Zϲ͕ϯϰ

R5,65

City Lodge

0,41

0,43

Zϲ͕Ϭϯ

R5,48

0,26

0,25

Zϯ͕ϴϬ

R3,18

Town Lodge

0,38

0,39

Zϱ͕ϲϯ

R5,92

0,20

0,24

Zϯ͕Ϭϳ

R3,04

Road Lodge

0,35

0,34

Zϯ͕ϵϮ

R3,94

0,25

0,23

ZϮ͕ϳϮ

R2,69

tĂƐƚĞǁĂƚĞƌ In addition to conserving water, the company acknowledges its responsibility to manage the quality of water discharged through, inter alia, reducing the consumption and/or controlling the discharge of materials and products that may contaminate water. Sources of water contamination include the use of chemicals in housekeeping, kitchen grease to waste water, as well as the discharge of swimming pool water. Following the complete rollout and implementation of the energy-efficiency technologies, the reusing of grey water will be investigated. 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 biodegradable and eco-friendly chemicals in all cleaning and laundry operations; • cleaning chemical waste is reduced through the use of preset dosing devices;

City Lodge Hotel Group

• all guest supplies in the form of soaps, shampoos and foam bath liquids are biodegradable; • all hotels are fitted with grease traps to ensure that kitchen and food grease 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. ŝƌƋƵĂůŝƚLJĂŶĚƉŽůůƵƚŝŽŶ The group’s operations have a minimal 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. The group considers and acts upon issues surrounding air quality within its hotels, anti-smoking legislation and ozone harmful substances, and has put the following mitigating strategies in place: • The effective filtration of kitchen and laundry extraction with regular monitoring and maintenance of the extraction and filtration systems.

The group continues in its partnership with a number of organisations/companies that are engaged in this respect, including Interwaste, EnviroServ, Orical and Don’t Waste Services, in order to ensure the efficient and beneficial recycling of materials. ŽŵƉůŝĂŶĐĞ There were no fines or non-monetary sanctions for noncompliance with environmental laws and regulations issued during the period. ,ĞĂůƚŚĂŶĚƐĂĨĞƚLJ 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. All properties adhere to strict guidelines in terms of monitoring and implementing health and safety requirements. Each property within the group has established a health and safety committee as well as appointed responsible persons in terms of the Occupational Health and Safety Act. Health and safety training, in respect of fire prevention/ fighting as well as basic first aid, is mandatory for all

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 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. The following incidents were experienced in the period under consideration: Nature of incident

Number of incidents

In the kitchen – food preparation and cleaning

5

Incidents on stairs and built environment

9

Due to carrying and lifting

3

Repairs and maintenance related

4

dŽƚĂů

Outcome Medical attention received – employees back at work Medical attention received – all employees back at work. One employee receiving ongoing physiotherapy Medical attention received – employees back at work Medical attention received – employees back at work

61

tĂƐƚĞĂŶĚƌĞĐLJĐůŝŶŐ Once again, although it does not engage in activities which produce large amounts of waste material, the group does leverage opportunities which exist to recycle paper, glass, plastics, aluminium and steel cans, and photocopy and printer cartridges. A number of recycling options are currently in operation at several hotels throughout the group.

operational staff, and competency gained in this regard is recognised as prior learning in respect of generic health and safety modules within various qualifications available to staff.

21 City Lodge Hotel Group

Integrated Report 2013

• Ensuring that cleaning materials and air fresheners are not dispensed by aerosol. • Compliance with legislation by ensuring that all public areas in its hotels are smoke-free areas, with at least 50% of rooms in all hotels and certain accommodation floors being declared completely smoke free. • The use of ozone-friendly refrigerants in all cooling equipment.

^K/>Ed,/^ZWKZd  ;ĐŽŶƟŶƵĞĚͿ

,/sͬ/^ The group endeavours, through its policy on HIV/AIDS, to create an environment in the workplace which is nondiscriminatory towards, and supportive of, employees living with HIV/AIDS.

by monitoring posts on, inter alia, Hellopeter.com, TripAdvisor, Facebook and Twitter. All complaints are attended to.

The group has 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 highlighting the behaviour and practices which expose them and their communities to the danger of contracting HIV/AIDS.

WƵďůŝĐƌĞůĂƚŝŽŶƐ The company interacts with its guests through various media, including radio, television, press, as well as social media including Facebook, Foursquare, TripAdvisor, Hellopeter.com, Linkedin and Twitter, in what the company believes to be a refreshingly honest manner, about who we are and what we deliver.

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 at each property; availability and display of HIV/AIDS-related material published by the Department of Health and non-governmental organisations as well as distribution thereof; training and refresher courses on the subject; and the facilitation of easy and confidential access to counselling for all employees.

Integrated Report 2013

62

The group has, in conjunction with the employment equity committee and the representative trade union, ascertained the interventions required to ensure that awareness around HIV/AIDS and HIV/AIDS prevention is kept top of mind and that efforts are made to assist those who are infected, thereby allowing for their continued contribution to the workforce. Although the group does not provide a voluntary testing service, we have introduced an outsourced counselling service for staff and their families. We have extrapolated new data on sick and absence, as well as assumptions on group life cover experience, and we believe that infection rates among our employees do not exceed 15% of the total workforce. KE^hDZZ>d/KE^,/W^ ƵƐƚŽŵĞƌĐĂƌĞ The company invites guest comments and facilitates interaction, internally through its [email protected] email address and online Rate-Us guest questionnaire, and externally

City Lodge Hotel Group

14 274 Rate-Us questionnaires were completed during the year under review, yielding a customer satisfaction score of 83%.

ĚǀĞƌƚŝƐŝŶŐ No complaints were lodged with the Advertising Standards Authority during the year under review. The company signed off on its brand and logo refresh during the year and finalised three new television commercials, which will be flighted from October 2013. d,/^EKK&KEhd The board is responsible for ensuring that the company’s ethics are effectively managed and does so through exercising ethical leadership, integrity and judgement in directing the company. Employees are in turn expected to act in a manner that upholds the company’s values as contained in the City Lodge code of ethics which addresses its relationships with shareholders, guests, suppliers, employees and government. The code of conduct details the standards of behaviour expected of employees and is provided to employees at the commencement of their employment with the company. No incidents or acts indicating a material breach in the required standard of ethical behaviour were reported during the period under review.

> >KhZEDW>KzDEd͕/E>h/E' ddZE^&KZDd/KE ,ƵŵĂŶĐĂƉŝƚĂů , ,Ƶ ŵĂŶ Đ ŽŵƉĂŶLJĞƚŚŝĐƐ The group maintains its profile as an employer of choice by continuing to be recognised as a “Best Employer” by the CRF Institute and by achieving the bronze level “Investor in People” status. This recognition is a clear demonstration of the group’s ongoing commitment towards growing and empowering its people and providing clearly defined career pathing and succession planning. This is also evidenced by the following comparative turnover information, which indicates a current level of turnover that is below that of the industry at 8,4%: Voluntary turnover

Involuntary turnover

% of total headcount

2010/11 2011/12

47 60

38 32

7,88 8,53

ϮϬϭϮͬϭϯ

46

43

8,37

ϮϬϭϮͬϭϯǀŽůƵŶƚĂƌLJƚƵƌŶŽǀĞƌ 8 22 11 5 0 Ϭ

ϮϬϭϮͬϭϯŝŶǀŽůƵŶƚĂƌLJƚƵƌŶŽǀĞƌ Defined decision-making Discretionary decision-making Junior management Middle management Senior management Top management

15 1 6 1 4 ϱ ϯ ϱ Ϯ Ϯ Ϯ

Talent management in the group is the responsibility of the manager: orientation and management development and includes talent attraction, development and retention. All employees are afforded an annual development appraisal and ongoing appraisal and feedback by supervisors and management ensures that skills and knowledge gaps are identified within current positions. Suitable employees for development into and within supervisory and management levels are acknowledged and proposed for inclusion into succession pools or developed towards such. An emphasis is placed on the development of previously disadvantaged individuals in order to ensure that the group can work progressively towards achieving its employment equity targets.

63

Defined decision-making Discretionary decision-making Junior management Middle management Senior management Top management

Better offer End of contract Leaving industry Lack of development Personal reasons Relocating Retired Full-time study Start own business No reason provided Ill health

Integrated Report 2013

Year

ϮϬϭϮͬϭϯĐŝƚĞĚǀŽůƵŶƚĂƌLJƚƵƌŶŽǀĞƌƌĞĂƐŽŶƐ

5 28 7 2 1 Ϭ

City Lodge Hotel Group

^K/>Ed,/^ZWKZd  ;ĐŽŶƟŶƵĞĚͿ

A total of 58 people were promoted in the group during the 12-month period: Number

%

Coloured females Coloured males African females African males White females White males Indian females Indian males Asian females Asian males

5 2 18 12 9 9 1 1 0 1

9,00 3,00 31,00 21,00 15,00 15,00 2,00 2,00 0,00 2,00

dŽƚĂů

58

100,00

dƌĂŝŶŝŶŐĂŶĚĚĞǀĞůŽƉŵĞŶƚ The skills development committee meets at least biannually in order to determine the group’s skills development requirements.

Integrated Report 2013

64

The committee has been mandated to deal with skills development issues and committee members are therefore knowledgeable with regard to legislation surrounding skills development. In addition to ongoing on-the-job training, the group uses various methods to ensure that employees are trained and developed. All employees enjoy multiple training interventions annually and development opportunities are and/or will be provided where there is an identified need. The group has recently engaged “Lobster Ink”, an international provider of e-learning content and platforms to the hospitality industry,

to provide an e-learning platform for the group’s training needs. The electronic delivery of content and assessment will allow for training spend to be better utilised for content delivery as opposed to the logistics required for face-to-face training such as venue costs, refreshments, travel and accommodation. This will provide the group with an enhanced return on investment on training spend. The City Lodge Academy forms the basis of the group’s efforts to develop a pool of previously disadvantaged management level employees. This is a three-year intensive programme involving practical experience and participation in City & Guilds qualifications programmes. At present we have four Academy Students in their first year, five in their second year and three in their third year. In addition, we continue to utilise our ADDP in order to attract and retain suitable external and internal candidates who can be fast tracked to senior management positions as and when they become available. The group has a registered skills development facilitator who submits a Workplace Skills Plan annually and reports on training achieved against that plan. All Skills Levy grants available to the company have therefore been paid out by CATHSSETA for the 2012/13 period. Due to changes in legislation the reporting period for training was reduced to an eight-month period to allow for future “calendar year” reporting and organising of training activities. The following comparative information therefore relates to the “training years” 1 April 2011 to 31 March 2012 and 1 April 2012 to 31 December 2012:

% of total payroll spent on training % of total payroll spent on training previously disadvantaged employees Total number of interventions attended by all employees Total number of interventions attended by black employees Total number of interventions attended by black female employees Total spend on training and development City Lodge Hotel Group

1 April 2012 to 31 December 2012

1 April 2011 to 31 March 2012

5,9 4,9 5 740 4 767 2 991

3,7 2,5 7 848 7 232 4 462

R9,7 million

R6 million

The group also provides Learnership opportunities to employed and unemployed individuals and is currently involved as follows: • Disability Learnership – we have five disabled and previously unemployed learners currently on the programme. One individual has now been permanently employed at City Lodge Hatfield; the other four have been retained on fixed-term contracts for an additional six months with a view to finding them permanent employment within the group. The qualification attained by these learners is a National Certificate in Hospitality Reception. • A Supervisory Development Programme which has been completed by 12 employed City Lodge learners.

ŵƉůŽLJĞĞĂŶĚŝŶĚƵƐƚƌŝĂůƌĞůĂƚŝŽŶƐ;ZĂŶĚ/ZͿ All ER and IR issues are dealt with in an inclusive manner, with the group preferring to invite participation on all substantive issues that may have an effect on the employment relationship or on employees’ conditions of work. The group currently recognises, and has a recognition agreement with, one trade union, SACCAWU, which is representative of 19,4% of total employees and 28% of those occupying positions within the defined bargaining unit. No days have been lost due to industrial action during the period under consideration. 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. In addition, all levels of management are trained in the principles of “Managing with Intent” to ensure that best practice management techniques are applied within the group.

65

In terms of training considered eligible for the pivotal grant, the following highlights are noted: • Work Integrated Learning – the opportunity was provided to 114 Hotel School students from hotel schools across South Africa, to gain practical experience in the group’s hotels pursuant to the completion of their formal learning programmes. This programme not only serves to provide students with the opportunity to gain experience but it also allows the group to assess these students as potential employees for the future. • City & Guilds Qualifications – the group provides the opportunity to its permanent staff to attend these programmes and to attain these internationally recognised qualifications. This also assists the group in building a pool of skills for succession planning and assists in career pathing. – Certificate in Hospitality Operations and Services (Front Office): 39 learners completed – Diploma in Hospitality Operations and Services (Front Office): 23 learners completed – Diploma in Accommodation Operations and Services (Front Office): 2 learners completed

• The CATHSSETA Graduate Development Programme where we are hosting three learners who have completed their formal studies in hospitality and are giving them the opportunity to do training and receive workplace experience. • The Tourism Ambassador Programmes in Durban, Bloemfontein, George and Kimberley which is a one-year programme funded by the National Department of Tourism and implemented as an expanded Public Works Programme. The focus is on youth where participants receive on-the-job training for one year in Housekeeping and/or Kitchen.

>ĂďŽƵƌƵƚŝůŝƐĂƚŝŽŶ The recent acquisition of a Human Resources Information System has facilitated a process of gathering information with regard to incidence of sick leave and absenteeism. We do not have a full-year history on the system and will therefore report on this aspect in the next integrated report.

Integrated Report 2013

Training interventions covered training priorities ranging from Legislative Compliance to Management and Leadership skills, as well as Client Service and Employee Development.

City Lodge Hotel Group

^K/>Ed,/^ZWKZd ;ĐŽŶƟŶƵĞĚͿ

ddƌĂŶƐĨŽƌŵĂƚŝŽŶ Transformation T remains one of the group’s strategic imperatives, and the transformation targets set are aligned to the Tourism Charter. We recognise that our transformation journey will be filled with highlights and challenges. It will also remain a constant, as we continue to monitor our progress and benchmark ourselves against the best. The Mail & Guardian’s Top Empowered Companies in South Africa 2013 survey ranked City Lodge as the top skills developer overall. While transformation targets are driven centrally, it is also linked to our Performance Appraisal Linked (PAL) bonus scheme, creating accountability at an operational level as well.

Measurement and performance The group’s 2013 B-BBEE status, as measured against the Tourism Charter, was verified by National Empowerment Rating Agency and is summarised below. dŽƵƌŝƐŵŚĂƌƚĞƌ

Integrated Report 2013

66

^ĐŽƌĞĐĂƌĚĞůĞŵĞŶƚ Ownership Management control Employment equity Skills development Preferential procurement Enterprise development Socio-economic development dŽƚĂůͲƐĐŽƌĞ

tĞŝŐŚƚŝŶŐ

^ĐŽƌĞ ϮϬϭϭͬϭϮ

^ĐŽƌĞ ϮϬϭϮͬϭϯ

15,00 14,00 14,00 20,00

15,00 9,54 6,73 18,00

15,00 4,66 6,59 18,00

15,00 14,00

15,00 14,00

12,73 14,00

8,00

8,00

8,00

100,00

86,27

78,98

The 2014 rating process is set to commence in November 2013. The company was awarded a Level 3 B-BBEE status, based on the Tourism Charter, during the year under review,

City Lodge Hotel Group

which was one point lower than the prior rating. This change can be ascribed to poorer scores in management control and preferential procurement which are discussed below. We expect the Tourism Charter targets to change in future, and we remain committed to working towards achieving these targets in order to maintain our current level where possible.

Management control Management control remains the most significant transformation challenge. Due consideration is constantly being given to this area by the board and the executive committee (refer to MANDASCO on page 50). Preferential procurement The constant process of obtaining current scorecards from suppliers remains a challenge. As a result of changing levels of suppliers and their ownership profiles, we have seen a decline in our score in this area. ŵƉůŽLJŵĞŶƚĞƋƵŝƚLJ 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 achievement of the goals. The committee is representative of all individuals in the company, is currently chaired by the divisional director: human resources who is the senior manager responsible for compliance with the Employment Equity Act and enjoys the participation of the representative trade union. The lack of a readily available pool of skilled candidates from designated groups at senior and management levels continues to hamper transformation efforts. However, the group’s ability to develop its own pipeline through succession pools and attendant development programmes and the ADDP will mitigate this to a degree in the medium to long term.

The following comparative table displays the company’s employee profile as at 30 June 2013 and as at 30 June 2012 for our South African operations: Occupational level

Year

2013 2012 2013 Senior management 2012 2013 Middle management 2012 2013 Junior management 2012 2013 Discretionary decision-making 2012 2013 Defined decision-making 2012 2013 Total permanent 2012 2013 Non-permanent 2012 2013 'ƌĂŶĚƚŽƚĂů 2012

Male African Coloured Indian 1 1

Top management

2 3 4 6 33 35 130 104 72 95 241 243 2 10 243 253

1 1 1 1 14 12 18 18 7 9 41 41

41 41

1 1 2 4 6

8 8 1 1 9 9

White 9 9 33 32 19 27 28 21 11 14 4 2 104 105 5 2 109 107

Female African Coloured Indian

1 1 8 12 85 66 248 198 97 123 439 400

1 3 4 19 19 50 48 23 28 96 99

17 439 417

2 96 101

1 1

5 3 6 9

12 13 1 1 13 14

White

21 21 17 18 22 20 55 68 1

Foreign nationals Male Female

1

116 127

1 1 1 1 2 3

3 2 1 1 4 3

2 116 129

2 2 5

2 4 5

Total 10 10 60 59 53 70 208 176 526 468 206 259 ϭϬϲϯ 1 042 9 39 ϭϬϳϮ 1 081

Integrated Report 2013

67

The SEC is of the opinion that, having regard to all of the above, the processes and procedures that the company has put in place with regard to social and ethical matters is effective and mature.

City Lodge Hotel Group

ZDhEZd/KEZWKZd

/EdZKhd/KE The company’s remuneration policy, the details of which can be found from pages 70 to 76, aims to attract, motivate, engage and retain the talent required by the company to achieve its overall business objective. This report documents how the remuneration policy, as reviewed by remcom, having regard to the principles of King III, the Act and JSE Listings Requirements, has been implemented during the year under review and how the remcom discharged its responsibilities as detailed on pages 48 and 49.

Integrated Report 2013

68

/DW>DEdd/KE During the year under review and in addition to the activities referred to on pages 48 and 49, the remcom engaged the services of PricewaterhouseCoopers (PWC) to assist with: • advising on emerging trends in relation to the structuring of long-term incentive (LTI) plans and making recommendations regarding the use of the company’s LTI plans going forward; • benchmarking the executive committee’s long-term incentives against an approved peer group, based on market capitalisation; and • reviewing the company’s short-term incentive (STI) schemes relative to best practice and market trends. During the review of the LTI the following points were noted: • the board reaffirmed its commitment to the principles of pay for performance; • notwithstanding good growth in the share price, none of the share appreciation right awards have vested since the first awards in 2008, providing no incentive and, when viewed in terms of total remuneration, resulted in a lag when compared to the market; • employees (specifically below exco level) prefer an instrument that provides a more predictable return than leveraged instruments such as a options and share appreciation rights;

City Lodge Hotel Group

• evolving market trends suggest that bonus share awards may, for the following reasons, provide a more suitable alternative: – bonus shares, matching a predetermined portion of a participant’s annual pre-tax bonus vest after three years provided the participant is still employed within the group; – performance is taken into account when determining the grant value as opposed to future performance governing vesting; – although the awards are less leveraged, they provide more certainty; – loyal, high-performing employees receive the benefit of dividends and share price growth in the same way as shareholders; – the shares are generally purchased in the market to avoid dilution; – a more consistent build-up of restricted shares avoids having to make once-off retention awards in the future; – bonus share plans appear to help bridge the gap between STIs and LTIs by marrying past performance, being the basic requirement to qualify for a short-term incentive bonus, with a company’s future longevity. The company, having adopted the remcom’s recommendations following extensive review, intends to continue to primarily make performance-related awards with the following changes: • ZĞƐƚƌŝĐƚĞĚ^ŚĂƌĞWůĂŶ;Z^WͿ – The concept of bonus shares will be introduced whereby a predetermined portion of eligible employees’ pre-tax bonus will be delivered in restricted shares through the existing RSP. – While vesting is only subject to continued employment and a vesting period of three years, the earning of a cash bonus is subject to defined performance criteria in terms of the STI scheme and is the proxy for eligibility and

– The performance conditions for the 2013 grant are:

Threshold performance condition Average annual percentage growth in normalised fully diluted headline earnings per share (HEPS) (as reported in the published annual financial statements for the year ended 30 June 2013, being 578,3 cents) over a threeyear period exceeds the average annual growth in the consumer price index (CPI) per annum over the same three-year period. Target performance condition Average annual percentage growth in normalised fully diluted headline earnings per share (HEPS) (as reported in the published annual financial statements for the year ended 30 June 2013, being 578,3 cents) over a three-year period exceeds the average annual growth in CPI plus 2% per annum over the same three-year period. – 25% of the SARs will vest if the threshold performance condition is satisfied and 100% of the SARs will vest if the target performance condition is satisfied. Linear vesting will occur between the threshold and the target. • ĞĨĞƌƌĞĚŽŶƵƐWůĂŶ;WͿ The DBP was introduced to foster a culture of ownership among the executive directors. It allows participants to use up to 50% of their after-tax bonus to acquire shares in the company, which will be matched by the company after three

In making the above changes, the company will ensure that the combined value of the awards are market-related and the overall costs of the plan will remain reasonable. The last of the shares will be matched by the company in 2015. The board and the remcom are of the opinion that these amendments will further align the interests of management and shareholders as well as provide better line of sight between management performance and their associated remuneration. sĂƌŝĂďůĞƉĂLJʹ^d/ The STI aims to reward the achievement of business objectives at unit level. Exco and management are eligible to receive an STI, in terms of either the Performance Appraisal Linked Bonus Scheme (PAL) in the case of management and exco members, or the Executive Director Incentive Scheme (EDIS) in the case of the executive directors, subject to meeting predetermined criteria. /^ 2012/2013 saw the introduction of threshold and stretch targets and the 2013/2014 targets have also seen the introduction of ROE as an additional measure, in response to concerns raised by stakeholders. 69

• ^ŚĂƌĞƉƉƌĞĐŝĂƚŝŽŶZŝŐŚƚƐ^ĐŚĞŵĞ;^ZͿ – The scheme will be retained and annual allocations will be limited to certain eligible employees, subject to vesting and performance conditions being met.

years, provided the shares are still held by the participant. With the introduction of bonus shares through the RSP the plan will no longer actively be used.

'ƵĂƌĂŶƚĞĞĚƉĂLJ 21st Century Pay Solutions was, again, commissioned to benchmark the total cost to company of exco and increases were generally 7,1% but averaged 8,8% due to higher increases being awarded to certain exco members who had been identified as lagging the market.

City Lodge Hotel Group

Integrated Report 2013

determining the quantum of the bonus shares that will be purchased by the company. – The company is confident that its existing bonus structure is robust and encapsulates measures of performance which are critical to shareholder value creation.

ZDhEZd/KEZWKZd ;ĐŽŶƟŶƵĞĚͿ

A general salary increase for minimum wage earners of 7,5% and 7% for the balance was mandated by the board on recommendation of the remcom. Refer to pages 106 to 109 for more information. ZtZW,/>K^KW,zE^dZd'z ZĞǁĂƌĚƉŚŝůŽƐŽƉŚLJƐƚĂƚĞŵĞŶƚ City Lodge is committed to developing, implementing and upholding total reward strategies and practices which: • are consistent with, and aligned to the vision, mission, values and business objectives of the company; • pursue the best interests of the company, its shareholders, and its internal and external stakeholder base; • offers an appropriate mix of fixed remuneration and variable remuneration which includes short-term and long-term incentives; • are fair, equitable and justifiable; • are market-related; • are driven by, and show a commitment to, rewarding performance, integrity and quality innovation; • offer competitive benefits; and • articulate a distinctive value proposition for current and prospective employees.

Integrated Report 2013

70

dŽƚĂůƌĞǁĂƌĚƐƐƚƌĂƚĞŐLJ The value of a total rewards strategy finds itself in the level of meaningful integration of different reward elements, so that it contributes to improved company performance and employee engagement. City Lodge’s total reward strategy is threefold, namely: • to provide an integrated approach for reward management that effectively attracts, motivates, engages and retains the talent required to achieve the desired business results; • to align reward practices with business strategy through a process of analysis, and thereby to ensure that the company’s reward practices serve the business objectives; and • to adhere to legal, ethical and best practice standards, and to reflect good corporate governance and citizenship by complying with and exceeding industry and statutory minimum standards.

City Lodge Hotel Group

:ŽďŐƌĂĚŝŶŐ Exco members are formally graded using the 21st Century Pay Solutions Execu-measure system (Execu-measure). However, these positions along with the balance of the positions within the company are currently being graded in terms of the Patterson grading model in an effort to ensure internal equity in the growing organisation and to effectively benchmark externally to ensure the company meets its objective of retaining and attracting the appropriate levels of talent. DĂƌŬĞƚƐƵƌǀĞLJƐĂŶĚďĞŶĐŚŵĂƌŬŝŶŐ The company makes use of remuneration surveys conducted by reputable salary survey companies to benchmark remuneration. During the year City Lodge made use of the Execu-measure and 21st Century Pay Solutions Hospitality Industry Remuneration Survey Database for its guaranteed pay and short-term incentive market benchmarking and was guided by PricewaterhouseCoopers in respect of long-term incentives. WĞƌĨŽƌŵĂŶĐĞŵĂŶĂŐĞŵĞŶƚ Performance is reviewed as follows: • Annually through the development appraisal system. • For middle management up to and including the exco, save for the executive directors, in terms of the PAL. • Annually in the case of the executive directors in terms of the EDIS. ZĞŵƵŶĞƌĂƚŝŽŶƉƌŽĐĞƐƐ City Lodge’s policy is to pay a market rate comparable to similar roles within the market and aims to set its guaranteed pay at the upper quartile in respect of exco members, and between the mean and upper quartile of the relevant industry (hotels and hospitality) in respect of the remaining staff. Remuneration consists of fixed (total guaranteed salary package) and variable remuneration (short-term and longterm incentives), the latter of which promotes a pay-forperformance culture.

Guaranteed pay is reviewed annually taking the approved increase mandate, macro-economic factors and performance into account and mandated increases take effect on 1 August. The annual review of exco’s fixed remuneration, which takes place between May and July of each year, is benchmarked to the market through a third party. City Lodge offers the benefits as detailed below: ϭϯƚŚĐŚĞƋƵĞ The company offers a 13th cheque equal to one month’s salary, payable in December to all employees, other than exco. DĞĚŝĐĂůĂŝĚ All permanent employees are required to belong to a recognised medical aid scheme. The company contributes 50% of the actual contribution for all employees, other than exco, over and above the basic salary, while the entire contribution is included in the total guaranteed package of exco members. ZĞƚŝƌĞŵĞŶƚĨƵŶĚ All permanent employees are required to belong to either the industry provident fund or the company’s retirement fund.

sĂƌŝĂďůĞƉĂLJ WƵƌƉŽƐĞ City Lodge endeavours to communicate and translate strategic objectives into earning opportunities for each employee or group of employees (teams) through the implementation of reward schemes, operated through its short-term and long-term incentive plans. This results in linking reward to contracted outputs and produces results in line with the business strategy. ^ŚŽƌƚͲƚĞƌŵŝŶĐĞŶƚŝǀĞ W> The main purpose of PAL is to create a performance culture and to reward employees for achieving strong annual results compared with predetermined targets (the 12 fundamentals; mystery guest programme; cross-selling on wide area network; management of profitability; administration controls; occupancy; and transformation). The standard target payout level is generally expressed as a percentage of salary and then moderated by the performance score. dŝŵŝŶŐĂŶĚƉĂLJŽƵƚ Achievement of the PAL targets is assessed bi-annually during January to March for the period July to December of the previous year and during July to September for the period January to June, with payouts usually being made in February and August respectively or as soon as practically possible thereafter.

71

'ƵĂƌĂŶƚĞĞĚƉĂLJĂŶĚďĞŶĞĨŝƚƐ City Lodge follows a total cost-to-company approach to structure remuneration in the case of exco and a basic plus approach for management and staff.

ZŝƐŬĂƐƐƵƌĂŶĐĞ All eligible employees belong to the risk assurance scheme, which comprises death and disability benefits. The cost of cover is met from company contributions to the pension fund.

Integrated Report 2013

In aligning with a pay-for-performance culture, the company places a greater emphasis on variable pay for executive directors and the remcom monitors this on a continuous basis.

For all employees, other than exco, the company contribution is over and above basic salary, while for exco it is incorporated within the total guaranteed package.

City Lodge Hotel Group

ZDhEZd/KEZWKZd ;ĐŽŶƟŶƵĞĚͿ

ŽŶƵƐĂĐŚŝĞǀĂďůĞƉĞƌƐŝdžͲŵŽŶƚŚƉĞƌŝŽĚ

Scale 65 – 69%

GMs – bonus % – half-year annual salary 5%

70 – 74%

10%

75 – 79%

17,5%

80 – 84%

25%

85 – 89%

32,5%

90 – 95%+

Head office management – bonus % – half-year annual salary Group average up to a maximum of 40%.

Executive committee members (excluding CE and FD) – bonus % – half-year annual salary Group average achieved x 2 up to a maximum of 50%.

40%

/^ The behaviours which the EDIS is structured to reinforce are to drive the value drivers which will sustainably grow shareholder value. The set of measures which drives the incentive comprise financial (with performance being measured with reference to group EBITDA and fully diluted HEPS) and non-financial (achievement/progress made towards the achievement of strategic objectives and group performance against peers/competitors) measures, which are structured in a manner to reinforce the appropriate mix of short-term and long-term strategic management. Achievement of the targets is assessed annually, with payment usually being effected in August or as soon as possible thereafter.

Integrated Report 2013

72

ŽŶƵƐĂĐŚŝĞǀĂďůĞ The financial measures have been assigned a weighting of 65% of guaranteed package and the non-financial measures a weighting of 35% of guaranteed package with the maximum bonus capped at 100% of the executive directors’ guaranteed package.

City Lodge Hotel Group

>d/ All LTI plans in place are governed by a separate set of rules or trust deeds. The LTI plans currently in place can be summarised as follows: Scale

Share Appreciation Rights Scheme (SARs)

Restricted Share Plan (RSP)

Description

Participants receive a conditional right to receive shares in the company equal to the difference between the exercise price and the grant price multiplied by the number of SAR awards exercised.

Participants receive a full share and become shareholders on the award date, but subject to forfeiture in the event that they leave the employment of the company within a specified period. These shares entitle participants to share in dividends and to exercise voting rights.

To attract, retain and incentivise employees.

To attract, retain and incentivise employees.

Executive directors Divisional directors Senior management

Executive directors Divisional directors Senior management Hotel management Head office management

Company limit

The aggregate number of shares which may be allocated under the SARs and RSP at any time may not exceed 2 997 074 shares. This limit excludes shares purchased in the market and shares forfeited.

Individual limit

The maximum number of shares which may be allocated to any one individual in respect of unvested SARs and RSP awards may not exceed 428 154 shares.

Settlement method

The preference of the company is to settle all awards under the SARs and RSP from a market purchase of shares. However, the rules of the LTI plans cater for settlement to take place by way of: • market purchase of shares; and • issue/subscription of new shares. The rules of the RSP have been drafted wider to also include the use of treasury shares as a settlement method. As a fall-back provision only, the participant may be paid cash in lieu of shares (SARS and DBP).

Integrated Report 2013

73

Purpose Eligibility

City Lodge Hotel Group

ZDhEZd/KEZWKZd ;ĐŽŶƟŶƵĞĚͿ

Scale

Share Appreciation Rights Scheme (SARS)

Restricted Share Plan (RSP)

Termination of employment

Participants terminating employment prior to the vesting date (exercise date in the case of the SARS) of a particular award will be classified as a good or bad leaver. Bad leavers will forfeit all awards on the date of termination of employment. In the case of good leavers (other than resignation), a pro rata portion of all unvested awards may, at remcom’s discretion, vest on the date of termination of employment. The pro rata portion will reflect the number of months served since the date of grant and the extent to which the performance conditions (if any) have been met. The balance of the awards will lapse.

Change of control

In the case of the SARs, all vested awards should be exercised within six months from the date of termination of employment. In the case of a change of control, a pro rata portion of all unvested awards will vest on the date of termination of employment. The pro rata portion will reflect the number of months served since the date of grant and the extent to which the performance conditions have been met.

Variation in share capital

The portion that does not vest early will continue to be subject to the terms of the letter of grant unless these are no longer considered appropriate, in which case remcom shall make an adjustment to the number of awards. In the event of a variation in share capital, the participants will continue to participate in the various LTI plans. However, remcom may, where the company’s value has been materially affected, make an adjustment to the number of awards to give a participant an equivalent fair value of the equity capital as to which he/ she would have been entitled prior to the event. Annual, subject to the discretion of remcom. Annually

Allocation methodology Grant price

Lapse period

Seven years

n/a

Integrated Report 2013

74

n/a

Vesting period

The volume weighted average share price for the 10 business days prior to the date of grant. Three years

City Lodge Hotel Group

Three years

Scale

Share Appreciation Rights Scheme (SARS)

Restricted Share Plan (RSP)

Performance conditions

Growth in normalised, fully diluted, headline earnings per share (HEPS). Two HEPS targets will be set: • Threshold – consumer price index (CPI) over the three-year performance period. • Target – CPI + 2% per annum over the three-year performance period.

The earning of an STI, which is subject to defined performance criteria, is the proxy for participation. No other performance conditions save for continued employment are imposed.

25% will vest if threshold performance is achieved and 100% will vest if target performance is achieved.

The ESIS was replaced by SARs and DBP in 2007 and no new awards have been made under this plan since inception of the SARs and DBP. Existing vested and unexercised options, however, remain in effect until they have been exercised or lapse. The last of the options are expected to be exercised, or they will lapse in 2017.

dŚĞ/ŶũĂďƵůŽdƌƵƐƚ The Injabulo Trust was established with the implementation of the City Lodge Black Economic Empowerment transaction whereby the Vuwa special-purpose vehicle (SPV) and the University of Johannesburg School for Tourism and Hospitality (the Hotel School) together with the Staff Trust SPV acquired 15% of the company’s issued share capital. 5,95% accrues to the Staff Trust SPV, of which the Injabulo Trust is the sole shareholder. dŚĞϭϬƚŚŶŶŝǀĞƌƐĂƌLJdƌƵƐƚ The 10th Anniversary Trust holds approximately 1,4% of the company’s issued share capital, which was acquired through a loan from the company.

75

The share options are subject to being exercised within 10 years of the grant date and continued employment, failing which the options lapse.

/E:h>K^d&&^,Z^,DΈ/E:h>KdZh^dΉE /dz>K'ϭϬd,EE/sZ^ZzDW>Kz^^,Z dZh^dΈϭϬd,EE/sZ^ZzdZh^dΉ The following LTI plans are in place for all employee levels other than management and above:

City Lodge Hotel Group

Integrated Report 2013

yhd/s^,Z/EEd/s^,DΈ^/^Ή The company previously operated the ESIS in terms of which eligible employees were granted share options, without performance conditions. Allocations were subject to a two-year waiting period whereafter options could be exercised as follows: • Year 2: 20% • Year 3: 20% • Year 4: 20% • Year 5: 40%

ZDhEZd/KEZWKZd  ;ĐŽŶƟŶƵĞĚͿ

Beneficiaries of the Injabulo Trust and the 10th Anniversary Trust include employees of the company who do not qualify to participate in the company’s existing and current LTI plans and who, at the time of distributions, had been in the full-time employ of the company for at least 12 months. Subject to the provisions stated in the respective trust deeds, including, inter alia, funding arrangements, beneficiaries will be entitled to: • a proportion of all dividends received by the Injabulo Trust/10th Anniversary Trust; and • a proportion of the growth in the value of the shares held, distributed in the form of shares. 2012 saw 912 employees qualify for a share and cash distribution in an amount of R9 171. EKEͳyhd/s/ZdKZ^ΈE^Ή NEDs are not subject to a fixed term of appointment.

Integrated Report 2013

76

The board, having considered both the King III recommendation that NEDs fees comprise a base fee as well as an attendance fee and attendance by the NEDs over the past year, determined not to change the current policy with

Chairman Lead independent director Services as a director Chairman of audit committee – Other audit committee members Chairman of remuneration committee – Other remuneration committee members Chairman of risk committee – Other risk committee members Chairman of social and ethics committee Ad hoc/temporary committee

City Lodge Hotel Group

regard to NED fees. Accordingly NEDs are paid a fixed fee for their services on the board and committees. The executive directors engage a third party to survey fees payable to NEDs from a sample of organisations operating in various sectors across South Africa and, in determining the fees to be recommended to the board for approval, pay particular attention to the size and market capitalisation of the various companies compared with the company, macroeconomic factors, CPI, affordability and the financial position of the company. The fees paid to NEDs have no bearing on company performance and are subject to shareholder approval as required by the Act. The fees currently paid, as approved by shareholders at the annual general meeting held on 15 November 2012, together with the proposed fees, reflecting increases in fees payable ranging from 8% to 12,2%, are detailed hereunder. NEDs are reimbursed for all travel, hotel and other expenses reasonably and necessarily incurred in the proper performance of their duties, subject to the production of the appropriate supporting documentation. NEDs do not participate in the company’s short-term and long-term incentive plans.

ϮϬϭϯͬϮϬϭϰ Z

2012/2013 R

ϲϴϵϱϬϬ ϭϵϰϱϬϬ ϭϱϬϬϬϬ ϭϮϮϯϱϬ ϱϳϴϬϬ ϭϬϴϵϬϬ ϰϵϳϬϬ ϴϯϵϱϬ ϯϴϳϬϬ ϱϱϬϬϬ ϭϱϬϬƉͬŚ ĐĂƉƉĞĚĂƚ ϯϬϬϬϬ

626 500 173 350 133 750 111 200 53 500 99 000 46 000 76 300 35 850 50 000 50 000

ANNUAL FINANCIAL STATEMENTS AUDITED CONTENTS Directors’ responsibility statement

78

Certificate by the company secretary

78

Report of the audit committee

79

Directors’ report

80

Independent auditor’s report

82

Accounting policies

83

Statements of financial position

90

Statements of comprehensive income

91

Statements of cash flows

92

Statements of changes in equity

93

Notes to the financial statements

95 134

Integrated Report 2013

77

Shareholders’ analysis

These annual financial statements were published on 10 October 2013, were audited in compliance with the requirements of the Companies Act, 71 of 2008, and prepared under the supervision of Andrew Widegger CA(SA). City Lodge Hotel Group

DIRECTORS' RESPONSIBILITY STATEMENT

The directors are responsible for the preparation and fair presentation of the group annual financial statements and separate parent annual financial statements, comprising the statements of financial position at 30 June 2013 and the statements of comprehensive income, changes in equity and cash flows for the year then ended, significant accounting policies and the notes to the financial statements, and other explanatory notes, in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. In addition, the directors are responsible for preparing the directors’ report. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and for maintaining adequate accounting records and an effective system of risk management. The directors have made an assessment of the company and its subsidiaries’ ability to continue as going concerns and

Integrated Report 2013

78

CERTIFICATE BY THE COMPANY SECRETARY

I, the undersigned, in my capacity as company secretary, hereby confirm to the best of my knowledge and belief that in terms of the Companies Act, 71 of 2008 (the “Companies Act”), for the financial year ended 30 June 2013, the company has lodged with the Commissioner of the Companies and Intellectual Property Commission, all returns and notices prescribed by the Companies Act and that all such returns and notices appear to be true, correct and up to date.

M C van Heerden Company secretary 30 September 2013 City Lodge Hotel Group

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 financial statements and separate parent financial statements are fairly presented in accordance with the applicable financial reporting framework. APPROVAL OF GROUP ANNUAL FINANCIAL STATEMENTS AND SEPARATE PARENT ANNUAL FINANCIAL STATEMENTS The group annual financial statements and separate parent annual financial statements were approved by the board of directors on 30 September 2013 and signed on its behalf by:

C Ross Chief executive

A C Widegger Financial director

REPORT OF THE AUDIT COMMITTEE for the year ended 30 June 2013

MANDATE AND TERMS OF REFERENCE Further information with regards to the audit committee, including its terms of reference and procedures, is described more fully in the corporate report on pages 47 and 48 of this Integrated Report. STATUTORY DUTIES The audit committee is satisfied that it considered, executed and discharged its responsibilities during the year in accordance with its mandate as described above. The committee has considered the independence of the company’s external auditors, KPMG Inc., and is satisfied that, for the year under review, the external auditors are independent. The committee adopts a work plan annually, in advance, in order to manage the discharge of its responsibilities under the Companies Act, King III, its own charter and the JSE Listings Requirements. It approved the external auditors’ fees for 2013 and the non-audit-related services performed by the external auditors in the year in accordance with the policy established and approved by the board. The committee, excluding management invitees, met with both the external and internal auditors in order to discuss any issues relevant to the audit as well as to consider the resources and adequacy of the finance function, in particular, the expertise and experience of the financial director. It concluded that both were adequate.

After assessing the requirements set out in the Companies Act, the committee is satisfied with the independence and objectivity of the external auditors, and recommends the reappointment of the external auditors at the next annual general meeting. INTERNAL CONTROL The audit committee has considered and approved the group’s system of internal financial controls, based on the reports received from the external auditors and reports on hotel visits by the internal auditors, and confirms that no material breakdown of internal controls has taken place during the year. SOLVENCY AND LIQUIDITY The committee is satisfied that the board has performed a solvency and liquidity test on the company and has concluded that the company satisfies the test after payment of the final dividend. INTEGRATED REPORTING The Integrated Report comprises the: • corporate report; • social and ethics report; • remuneration report; • supplementary information to the integrated report; and • the annual financial statements. Following our review, and having regard to all material factors and risks that may impact the integrity of the Integrated Report, we accordingly recommend the Integrated Report and group annual financial statements of City Lodge Hotels Limited for the year ended 30 June 2013 to the board of directors for approval on 30 September 2013.

79

MEMBERSHIP The committee comprises S G Morris (chairman), F W J Kilbourn, I N Matthews and N Medupe, each of whom are independent non-executive directors and all of whom are financially literate and possess the necessary experience to contribute to the committee’s deliberations. The committee met three times during the year with the chief executive, financial director, divisional director: financial and representatives from external audit and internal audit attending each meeting by invitation.

The committee, excluding both the external and internal auditors, met with management invitees in order to discuss any issues relevant to the audit as well as to consider the quality and effectiveness of the external and internal audit process and concluded that both were adequate.

S G Morris Chairman of the audit committee 30 September 2013 City Lodge Hotel Group

Integrated Report 2013

This report is provided by the audit committee in compliance with the Companies Act, 71 of 2008, and as recommended by King III.

DIRECTORS' REPORT for the year ended 30 June 2013 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 R304,4 million (2012 – R234,3 million) while consolidated headline earnings totalled R218,3 million (586,6 cents per share, diluted) compared with headline earnings of R149,7 million (405,7 cents per share, diluted) for the previous year. On a normalised basis, the consolidated headline earnings totalled R252,1 million (578,3 cents per share, diluted) compared with normalised headline earnings of R191,7 million (442,8 cents per share, diluted) for the previous year. The company’s interest in its subsidiaries’ profit after taxation amounted to R19,1 million (2012 – R8,4 million). /EdZ^dͳZ/E'KZZKt/E'^ During 2009 the group was granted an approved facility of R400 million to be utilised in funding the group’s expansion. During the year under review, R70 million was utilised while R160 million was repaid before the reporting date. A further R35 million will be repaid within 12 months of the reporting date. Further details are included in note 10.

Integrated Report 2013

80

DIVIDENDS An interim dividend of 176,0 cents per share (2012 – 135,0 cents) was declared on 13 February 2013, payable to ordinary shareholders registered on 15 March 2013. A final dividend of 175,0 cents per share (2012 – 133,0 cents) was declared on 14 August 2013, payable to ordinary shareholders registered on 13 September 2013. 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 133 850 shares as reflected in note 8.

City Lodge Hotel Group

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 R16,80 and R80,59 per share. 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 December 1995 November 2005 November 2006 November 2007 November 2010 November 2012

Shares per eligible employee

Total shares distributed

30 55 138 214 48 80

15 420 38 445 88 734 137 388 36 336 72 960 389 283

In applying IAS 39 – Financial Instruments: recognition and measurement, the carrying value of the loan is R23,3 million (2012 – R20,0 million) based on amortised cost. SUBSIDIARIES AND JOINT VENTURES Details relating to investments in subsidiaries and jointly controlled entities are included in notes 2, 3 and 19. DIRECTORATE AND SECRETARY The directors in office during the year under review were: F W J Kilbourn, I N Matthews, N Medupe, S G Morris, B T Ngcuka (chairman), C Ross (chief executive), K I M Shongwe, W M Tlou and A C Widegger (financial director).

In terms of the memorandum of incorporation, Dr K I M Shongwe, Mr F W J Kilbourn and Ms W M Tlou retire at the forthcoming annual general meeting but are eligible and available for re-election. DIRECTORS’ INTEREST The directors’ individual interest in the ordinary share capital of the company at 30 June were as follows: Beneficial Direct

Indirect

2013

2012

2013

F W J Kilbourn I N Matthews N Medupe S G Morris B T Ngcuka C Ross K I M Shongwe W Tlou A C Widegger

17 000 416 – – – 149 925 – – 141 573

17 000 416 – – – 148 545 – – 127 353

17 620 – 102 247* – 400 099* 14 500 153 371* – –

– – 102 247* – 400 099* – 153 371* – –

Total

308 914

293 314

687 837

655 717

2012

No material changes in directors’ interests have taken place between the reporting date and the date of issue of this Integrated Report.

GOING CONCERN The directors consider that the company and its subsidiaries have adequate resources to continue operating for the foreseeable future and that it is therefore appropriate to adopt the going-concern basis in preparing the group and company financial statements. The directors have satisfied themselves that the company and its subsidiaries are in a sound financial position and that they have access to sufficient cash and borrowing facilities to meet their foreseeable cash requirements. EVENTS AFTER THE REPORTING DATE There are no material events after the reporting date.

City Lodge Hotel Group

Integrated Report 2013

Directors were interested in 247 040 (2012 – 288 040) options to acquire ordinary shares in the company at 30 June 2013 under the executive share incentive scheme. This scheme has been replaced by the share appreciation rights scheme, the deferred bonus plan and the restricted share plan. Details of options held by individual directors are included in note 17.

81

*Mrs Medupe, Mr Ngcuka and Dr Shongwe’s indirect shareholding reflects their proportionate share of the 2 556 185 shares owned by Vuwa Investments (Pty) Limited.

INDEPENDENT AUDITOR'S REPORT to the shareholders of City Lodge Hotels Limited REPORT ON THE FINANCIAL STATEMENTS We have audited the group financial statements and the financial statements of City Lodge Hotels Limited, which comprise the statements of financial position at 30 June 2013 and the statements of comprehensive income, changes in equity and cash flows for the year then ended, the notes to the financial statements, which include a summary of significant accounting policies, and other explanatory notes, as set out on pages 83 to 134. 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 the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Integrated Report 2013

82

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.

City Lodge Hotel Group

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 2013, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards, and the requirements of the Companies Act of South Africa. OTHER REPORTS REQUIRED BY THE COMPANIES ACT As part of our audit of the financial statements for the year ended 30 June 2013, we have read the directors’ report, the audit committee report and the certificate by the company secretary for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between these reports and the audited financial statements. However, we have not audited these reports and accordingly do not express an opinion on these reports. KPMG Inc. Registered auditor

Per J Wessels Chartered Accountant (SA) Registered auditor Director 30 September 2013 KPMG Crescent 85 Empire Road Parktown Johannesburg

ACCOUNTING POLICIES for the year ended 30 June 2013

BASIS OF PREPARATION Functional and presentation currency These financial statements are presented in Rand, which is the company’s functional and group’s presentation currency, rounded to the nearest thousand. Basis of measurement These financial statements are prepared on the historical-cost basis, except for derivative financial instruments and defined benefit plan carried at fair value. 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.

Statement of compliance The group and company financial statements have been prepared in accordance with IFRS and its interpretations adopted by the International Accounting Standards Board, the Listings Requirements of JSE Limited, the SAICA Financial Reporting Guides issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council and the Companies Act of South Africa. These group and company annual financial statements were authorised for issue by the board of directors on 30 September 2013. SIGNIFICANT ACCOUNTING POLICIES Basis of consolidation The group 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 accumulated impairment adjustments in the company separate 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.

83

The group owns and operates high-quality, affordable hotels targeted at the business community and leisure traveller. Where reference is made to “group”, it should be interpreted as company, where the context requires and unless otherwise stated.

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: • Useful lives of buildings (accounting policy note); • Measurement of share-based payments (note 24); and • Measurement of impairment of trade receivables (note 27).

Jointly controlled entities Jointly controlled entities are those entities over which the group exercises joint control in terms of a contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Investments in jointly

City Lodge Hotel Group

Integrated Report 2013

REPORTING ENTITIES City Lodge Hotels Limited (the company) is a company domiciled in South Africa. The group financial statements of the company as at and for the year ended 30 June 2013 comprise the company and its subsidiaries (together referred to as the group) and the group’s interest in jointly controlled entities.

ACCOUNTING POLICIES for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ controlled entities are accounted for using the equity method. The group’s share of post-acquisition earnings of jointly controlled entities is included in earnings attributable to ordinary shareholders from/to their effective dates of acquisition/disposal. Goodwill Goodwill represents the excess of the costs of acquisition over the group’s interest in the fair value of the identifiable assets (including intangibles), liabilities and contingent liabilities of the acquired entity at the date of acquisition. Goodwill is stated at cost less impairment losses and is reviewed for impairment on an annual basis. Any impairment identified is recognised immediately in profit or loss and is not reversed. The carrying amount of goodwill in respect of jointly controlled entities is included in the carrying value of the investment in the respective associate or jointly controlled entity.

Integrated Report 2013

84

Goodwill is allocated to cash-generating units (CGUs) for the purpose of impairment testing. Each of those CGUs is identified in accordance with the basis on which the businesses are managed and according to the differing risk and reward profiles. Foreign transactions and balances The financial statements for each group company have been prepared on the basis that transactions in foreign currencies are recorded in their functional currency at the rate of exchange ruling at the date of the transaction. Monetary items denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date with the resultant translation differences being credited or charged to profit or loss. Foreign subsidiaries and jointly controlled entities – translation One-off items in the income and cash flow statements of foreign subsidiaries and jointly controlled entities expressed in currencies other than the SA Rand are translated to SA Rand at the rates of exchange prevailing on the day of the transaction. All other items are translated at average rates of exchange for

City Lodge Hotel Group

the relevant reporting period. Assets and liabilities of these undertakings are translated at closing rates of exchange at each reporting date. All translation exchange differences arising on the retranslation of opening net assets together with differences between statement of comprehensive income translated at average and closing rates are recognised as a separate component of other comprehensive income. For these purposes net assets include loans between group companies that form part of the net investment, for which settlement is neither planned nor likely to occur in the foreseeable future and is either denominated in the functional currency of the parent or the foreign entity. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. 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 as such are deemed to control these SPVs 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 group 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.

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. Government grants are recognised when there is reasonable assurance that they will be received and the group will comply with the conditions associated with the grant. Such grants are deducted from the cost of the asset. Depreciation is charged to profit or loss 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. Depreciation commences the month following acquisition. The estimated useful lives are currently as follows: • Buildings 10 to 50 years • Furniture and equipment three to five years Leasehold improvements are written off over the initial period of the lease. The residual values, depreciation methods, and useful lives are reassessed annually. Gains and losses arising on the disposal of property, plant and equipment are included in profit or loss. Leases Operating leases as lessee Leases, where the lessor retains the risk and rewards of ownership of the underlying asset, are classified as operating leases.

Intangible assets Internally developed trademarks are not recognised. Expenditure to enhance and maintain such trademarks is charged in full against profit or loss. Impairment Non-derivative financial assets A financial asset is considered to be impaired if objective evidence indicates that one or more loss 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. 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 specific 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 other comprehensive income 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.

85

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 profit or loss as an expense as incurred.

Operating lease payments are expensed in profit or loss on a straight-line basis over the period of the leases. Other contingent operating lease payments are charged against profit or loss as they are incurred.

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.

City Lodge Hotel Group

Integrated Report 2013

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.

ACCOUNTING POLICIES for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ 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 pretax 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.

Integrated Report 2013

86

Pre-opening expenses Pre-opening expenses of new hotels are charged directly against profit or loss as incurred. Inventories 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 or other comprehensive income.

City Lodge Hotel Group

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 reporting date, and any adjustment of taxation payable for previous years. Deferred taxation is provided 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 reporting date. Deferred taxation is recognised in profit or loss except to the extent that it relates to a transaction that is recognised directly in equity or other comprehensive income, or a business combination that is an acquisition. The effect on deferred taxation of any changes in taxation rates is recognised in profit or loss, except to the extent that it relates to items previously recognised directly in equity or other comprehensive income. 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. Dividends withholding tax is a tax on shareholders receiving dividends and is applicable to all dividends declared on or after 1 April 2012.

Non-derivative financial assets The group initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated as at fair value through profit or loss) are recognised initially on the trade date, which is the date that the group becomes a party to the contractual provisions of the instrument.

Investments Investments that meet the criteria for classification as loans and receivables 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, loan and other receivables Trade, loan and other receivables are measured at amortised cost, using the effective interest method, less impairment losses. Cash and cash equivalents Cash and cash equivalents are measured at amortised cost, using the effective interest method. 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

Non-derivative financial liabilities The group initially recognises debt securities issued on the date that they are originated. All other financial liabilities (including liabilities designated as at fair value through profit or loss) are recognised initially on the trade date, which is the date that the group becomes a party to the contractual provisions of the instrument. Borrowings are stated at amortised cost using the effective interest method. Trade and other payables are measured at amortised cost, using the effective interest method. Any difference between proceeds (net of transaction costs) and the redemption value is recognised in profit or loss as interest expense over the period of the borrowings. Derivative financial assets and liabilities 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 the reporting date. Offset Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position 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.

87

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:

of the asset. Financial liabilities are derecognised if the group’s obligations expire or are discharged or cancelled.

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.

City Lodge Hotel Group

Integrated Report 2013

The company withholds dividends tax on behalf of its shareholders on dividends declared. Amounts withheld are not recognised as part of the company’s tax charge, but rather as part of the dividend paid, recognised directly in equity.

ACCOUNTING POLICIES for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ 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 pretax 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.

Integrated Report 2013

88

Revenue is measured at the fair value of the consideration received or receivable, net of returns, allowances and trade discounts. Revenue is recognised on the provision of accommodation and related services in the ordinary course of the group’s activities when recovery of the consideration is probable, the associated costs can be estimated reliably, there is no continuing management involvement and the amount of revenue can be measured reliably. 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

City Lodge Hotel Group

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. Dividend income Dividend income is recognised in profit or loss on the date that the group’s right to receive payment is established. 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. The liability 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 reporting date. The liability has 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 profit or loss in the periods during which services are rendered by employees. 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

All actuarial gains and losses are recognised directly in other comprehensive income. 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.

Diluted EPS is determined by dividing profit for the period 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. 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 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, plus all potential dilutive ordinary shares, which comprise share options granted to employees. Headline earnings per share is calculated using circular 3/2012. Operating segments An operating segment is a component of the group that engages in business activities from which it may earn revenues and incur expenses including revenues and expenses that relate to transactions with any of the group’s other components. All operating segments’ operating results are reviewed regularly by the chief operating decision-makers to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.

89

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 profit or loss on a straightline basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss.

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, excluding shares held by the BEE SPVs, during the period.

Segment results that are reported to the chief operating decision-makers include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

City Lodge Hotel Group

Integrated Report 2013

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 reporting date on the All Bond Index (ALBI) 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.

STATEMENTS OF FINANCIAL POSITION at 30 June 2013 Group Note ASSETS Non-current assets Property, plant and equipment Interest in subsidiaries Investments in jointly controlled entities Loan receivable Deferred taxation Current assets Inventories Trade receivables Other receivables Taxation Cash and cash equivalents

1 2 3 4 5 6 27.4 7

Total assets

Integrated Report 2013

90

EQUITY Capital and reserves Share capital and premium BEE investment and incentive scheme shares Other reserves Retained earnings LIABILITIES Non-current liabilities BEE interest-bearing borrowings BEE preference shares BEE shareholder’s loan BEE B preference share dividend accrual Fair value of BEE interest rate swap Other non-current liabilities Deferred taxation Current liabilities Interest-bearing borrowings Fair value of BEE interest rate swap Trade and other payables Taxation Bank overdraft Total liabilities Total equity and liabilities

City Lodge Hotel Group

8 9

11 12 13 12 27 14 5 10 27.1 15

Company

2013 R000

2012 R000

2013 R000

2012 R000

1 295 252 1 068 641

1 149 887 1 092 492

199 216 23 347 4 048 78 651 2 995 52 264 20 276 3 116 –

34 285 20 046 3 064 142 633 2 772 59 965 17 483 – 62 413

1 211 557 936 756 65 873 185 581 23 347 – 89 287 2 876 52 140 30 812 3 459 –

1 095 473 975 269 65 873 34 285 20 046 – 140 941 2 772 59 965 20 575 – 57 629

1 373 903

1 292 520

1 300 844

1 236 414

425 953 154 662 (503 145) 102 236 672 200

301 712 148 794 (503 145) 92 793 563 270

330 645 154 662 (503 145) 102 388 576 740

225 359 148 794 (503 145) 92 793 486 917

798 522 44 120 424 200 25 001 115 867 513 113 060 75 761 149 428 35 000 3 812 98 827 – 11 789

717 731 – 425 100 21 764 93 238 3 464 94 581 79 584 273 077 125 000 46 258 89 401 12 418 –

797 465 44 120 424 200 25 001 115 867 513 112 485 75 279 172 734 35 000 3 812 116 072 – 17 850

717 282 – 425 100 21 764 93 238 3 464 94 581 79 135 293 773 125 000 46 258 110 257 12 258 –

947 950

990 808

970 199

1 011 055

1 373 903

1 292 520

1 300 844

1 236 414

STATEMENTS OF COMPREHENSIVE INCOME for the year ended 30 June 2013 Group

Depreciation Results from operating activities Interest income Interest expense Share of profit/(loss) from jointly controlled entities – Courtyard Hotels – East Africa (after tax) Profit before taxation Taxation Profit for the period Other comprehensive income Defined benefit plan actuarial gains/(losses) Income tax on other comprehensive income Foreign currency translation reserve Total comprehensive income for the period Earnings per share (cents) – basic Diluted earnings per share (cents) – basic

16

16 18.1 18.2 19

20

24

2012 R000

2013 R000

2012 R000

975 893 (72 936) 5 658 (496 930) 411 685 (79 011) 332 674 6 688 (51 007) 16 006 2 371 13 635

875 822 (63 967) 8 660 (444 785) 375 730 (78 375) 297 355 8 602 (71 491) (125) (125) –

975 138 (66 492) 5 658 (518 369) 395 935 (78 791) 317 144 14 473 (51 007) 2 371 2 371

875 822 (58 708) 8 660 (469 030) 356 744 (78 313) 278 431 16 390 (71 491) (125) (125)

304 361 (85 934) 218 427

234 341 (84 566) 149 775

282 981 (83 661) 199 320

223 205 (81 803) 141 402

5 192 (1 454) (152)

(8 395) 2 351 –

5 192 (1 454)

(8 395) 2 351

222 013

143 731

21

599,6

411,1

21

586,9

405,9

203 058

135 358

91

Revenue Administration and marketing costs BEE transaction charges Operating costs excluding depreciation

2013 R000

Integrated Report 2013

Note

Company

City Lodge Hotel Group

STATEMENTS OF CASH FLOWS for the year ended 30 June 2013 Group Note

2013 R000

Company 2012 R000

2013 R000

2012 R000

465 153 3 387 (74 575) (107 746) (113 235) 172 984 (206 274) (40 345) (14 974) (151 296) 341 (40 912) 5 868 – 70 000 (160 000) 44 120 (900) –

387 355 5 768 (32 615) (83 322) (87 354) 189 832 (51 350) (49 421) (2 888) 494 465 (91 599) 1 193 (17 672) – (75 000) – (100) (20)

438 151 11 172 (74 575) (104 688) (113 235) 156 825 (191 392) (40 345) (92) (151 296) 341 (40 912) 5 868 – 70 000 (160 000) 44 120 (900) –

375 314 13 556 (32 615) (80 418) (87 354) 188 483 (51 170) (49 421) (2 888) 674 465 (91 599) 1 193 (17 672) – (75 000) – (100) (20)

Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of period

(74 202) 62 413

46 883 15 530

(75 479) 57 629

45 714 11 915

Cash and cash equivalents at end of period

(11 789)

62 413

(17 850)

57 629

Integrated Report 2013

92

Cash generated by operations Interest received Interest paid Taxation paid Dividends paid Cash inflows from operating activities Cash utilised in investing activities Investment to maintain operations Investment to expand operations Investments and loans Proceeds on disposal of property, plant and equipment Cash outflows from financing activities Proceeds on issue of shares Purchase of incentive scheme shares Increase in interest-bearing borrowings Repayment of interest-bearing borrowings Increase in BEE interest-bearing borrowings Redemption of BEE preference shares Distribution by BEE SPV

City Lodge Hotel Group

26.1

26.2 22

26.3 26.4 26.5 26.3

STATEMENTS OF CHANGES IN EQUITY for the year ended 30 June 2013

8 9 22

Balance at 30 June 2012 Total comprehensive income for the period Profit for the period Defined-benefit plan actuarial gains, net of tax Foreign currency translation reserve Transactions with owners, recorded directly in equity Issue of new ordinary shares Share compensation reserve Dividends paid Balance at 30 June 2013

8 9 22

147 601 – – – 1 193 1 193 – – – –

(486 051) – – – (17 094) – – (17 094) – –

83 566 – – – 9 227 – 9 805 (578) – –

148 794

(503 145)

92 793

– – – – 5 868 5 868 – –

– – – – – – – –

154 662

(503 145)

Other reserves

(152) – – (152) 9 595 – 9 595 – 102 236

Retained earnings 506 913 143 731 149 775 (6 044) (87 374) – – – (87 354) (20)

Total 252 029 143 731 149 775 (6 044) (94 048) 1 193 9 805 (17 672) (87 354) (20)

563 270

301 712

222 165 218 427 3 738 – (113 235) – – (113 235)

222 013 218 427 3 738 (152) (97 772) 5 868 9 595 (113 235)

672 200

425 953

93

Group Balance at 1 July 2011 Total comprehensive income for the period Profit for the period Defined-benefit plan actuarial losses, net of tax Transactions with owners, recorded directly in equity Issue of new ordinary shares Share compensation reserve Incentive scheme shares Dividends paid Distribution by BEE SPV

Note

Integrated Report 2013

R000

Share capital and premium

BEE investment and incentive scheme shares

City Lodge Hotel Group

STATEMENTS OF CHANGES IN EQUITY for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ

R000 Company Balance at 1 July 2011 Total comprehensive income for the period Profit for the period Defined-benefit plan actuarial losses, net of tax Transactions with owners, recorded directly in equity Issue of new ordinary shares Share compensation reserve Incentive scheme shares Dividends paid Distribution by BEE SPV

Note

8 9 22

Balance at 30 June 2012 Total comprehensive income for the period Profit for the period Defined-benefit plan actuarial gains, net of tax Transactions with owners, recorded directly in equity Issue of new ordinary shares Share compensation reserve Dividends paid

Integrated Report 2013

94

Balance at 30 June 2013

City Lodge Hotel Group

8 9 22

Share capital and premium

BEE investment and incentive scheme shares

147 601 – – – 1 193 1 193 – – – –

(486 051) – – – (17 094) – – (17 094) – –

83 566 – – – 9 227 – 9 805 (578) – –

438 933 135 358 141 402 (6 044) (87 374) – – – (87 354) (20)

184 049 135 358 141 402 (6 044) (94 048) 1 193 9 805 (17 672) (87 354) (20)

148 794

(503 145)

92 793

486 917

225 359

– – – 5 868 5 868 – –

– – – – – – –

– – – 9 595 – 9 595 –

203 058 199 320 3 738 (113 235) – – (113 235)

203 058 199 320 3 738 (97 772) 5 868 9 595 (113 235)

154 662

(503 145)

102 388

576 740

330 645

Other reserves

Retained earnings

Total

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 Group

Accumulated depreciation Buildings – freehold – leasehold Furniture and equipment Carrying value Land Buildings – freehold – leasehold Buildings under construction Furniture and equipment

2012 R000

2013 R000

2012 R000

81 487 1 077 013 776 414 300 599 2 820 320 185

81 477 1 063 743 768 607 295 136 1 828 281 905

1 178 1 020 411 727 719 292 692 2 820 312 310

1 178 1 015 048 719 912 295 136 1 828 281 000

1 481 505

1 428 953

1 336 719

1 299 054

216 411 124 245 92 166 196 453

183 196 109 416 73 780 153 265

204 527 112 411 92 116 195 436

171 425 97 645 73 780 152 360

412 864

336 461

399 963

323 785

81 487 860 602 652 169 208 433 2 820 123 732

81 477 880 547 659 191 221 356 1 828 128 640

1 178 815 884 615 308 200 576 2 820 116 874

1 178 843 623 622 267 221 356 1 828 128 640

1 068 641

1 092 492

936 756

975 269 95

PROPERTY, PLANT AND EQUIPMENT At cost Land Buildings – freehold – leasehold Buildings under construction Furniture and equipment

2013 R000

Integrated Report 2013

1.

Company

City Lodge Hotel Group

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ

R000

Integrated Report 2013

96

1.

Land

Buildings

Furniture and equipment

Total

PROPERTY, PLANT AND EQUIPMENT ΈcontinuedΉ Movements for the year Group – carrying value Opening balance – 1 July 2011 Additions* Disposals Depreciation

81 477 – – –

896 642 18 659 – (32 926)

140 783 33 650 (344) (45 449)

1 118 902 52 309 (344) (78 375)

Closing balance – 30 June 2012 Additions* Disposals Depreciation Gains/(loss) on foreign exchange

81 477 10 – – –

882 375 14 262 – (33 216) 1

128 640 41 052 (159) (45 795) (6)

1 092 492 55 324 (159) (79 011) (5)

Closing balance – 30 June 2013

81 487

863 422

123 732

1 068 641

Company – carrying value Opening balance – 1 July 2011 Additions* Disposals Depreciation

1 178 – – –

859 656 18 659 – (32 864)

140 783 33 650 (344) (45 449)

1 001 617 52 309 (344) (78 313)

Closing balance – 30 June 2012 Additions* Disposals Depreciation

1 178 – – –

845 451 6 355 – (33 102)

128 640 34 082 (159) (45 689)

975 269 40 437 (159) (78 791)

Closing balance – 30 June 2013

1 178

818 704

116 874

936 756

At 30 June 2013 properties with a carrying amount of R86,9 million (2012 – R88,4 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. *No interest was capitalised in additions to buildings during the current or prior year.

City Lodge Hotel Group

Company Issued share capital INTEREST IN SUBSIDIARIES Shares at cost less impairment loss Anchor Park Investments 105 (Pty) Limited Budget Hotels (Pty) Limited City Lodge (Botswana) (Pty) Limited Courtyard Management Company (Pty) Limited # Newshelf 892 (Pty) Limited # Newshelf 935 (Pty) Limited Property Lodging Investments (Pty) Limited # Vuwa Hotels (Pty) Limited

R100 R100 BWP1 R100 R100 R100 R100 R100

2013 R000

70 100 100 100

* 1 073 * *

100

2 000

2 000

2012 R000

1 073 *

3 073

3 073

Loan Property Lodging Investments (Pty) Limited

62 800

62 800

Interest in subsidiaries

65 873

65 873

12 905 (24 144)

5 496 (21 499)

The loan is unsecured, bears interest at 12,0% per annum (2012 – 12,0%) and is repayable on demand. There is, however, no intention to request repayment during the next 12 months. Amounts included in other receivables and payables Amounts due by subsidiaries Amounts due to subsidiaries These amounts are unsecured, interest-free and repayable on demand.

*Less than R1 000. # City Lodge has guaranteed the funding of these BEE entities, resulting in their incorporation.

97

The company also has an indirect, 100% shareholding in City Lodge Holdings (Share Block) (Pty) Limited.

Integrated Report 2013

2.

% held

City Lodge Hotel Group

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ

Group

Integrated Report 2013

98

3.

INVESTMENTS IN JOINTLY CONTROLLED ENTITIES Interest in jointly controlled entities (refer note 19) Courtyard group of hotels Cost of unlisted shares and equity loans Acquisition costs capitalised Increase in investment since acquisition – land and buildings – loans receivable – property, plant and equipment less depreciation The investment 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 R119,0 million* (2012 – R95,2 million). The loans advanced are unsecured, have no fixed terms of repayment and bear interest at 11,0% per annum (2012 – 11,0%). There is, however, no intention to request repayment during the next 12 months. Fairview Hotel Limited, Kenya Cost of acquisition Profit for the year The investment represents the acquisition of 50% of the shares of Fairview Hotel Limited, with effect from 24 July 2012. Fair value of 50% assets acquired and liabilities assumed (R000) Property, plant and equipment 144 137 Inventory 1 512 Trade and other receivables 2 177 Cash and cash equivalents 5 527 Deferred tax – including deferred tax on business combination (3 194) Retirement benefit obligation (1 248) Trade and other receivables (3 123) Current tax (937) Goodwill arising on acquisition 4 861

Company

2013 R000

2012 R000

2013 R000

2012 R000

35 869 8 734 108

34 285 8 734 108

35 869 8 734 108

34 285 8 734 108

5 998 16 600 4 429

5 998 16 600 2 845

5 998 16 600 4 429

5 998 16 600 2 845

163 347 149 712 13 635

– – –

149 712 149 712 –

– – –

199 216

34 285

185 581

34 285

The investment in the jointly controlled entity and the resultant goodwill was tested for impairment at 30 June 2013. The impairment review was based on a price-earnings (PE) model using the range of historic PE achieved by the group. No impairment was identified.

*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 Hotel Group

Group

LOAN RECEIVABLE City Lodge 10th anniversary employees’ share trust Balance at beginning of year Notional credit to interest received in the current year

2013 R000

2012 R000

2013 R000

2012 R000

23 347 20 046 3 301

20 046 17 212 2 834

23 347 20 046 3 301

20 046 17 212 2 834

The City Lodge 10th anniversary employees’ share trust loan is secured by the pledge of 611 195 (2012 – 684 155) shares having a market value of R73 343 400 (2012 – R58 118 967), 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.

99

The loan amount is measured at amortised cost. The future value and nominal recoverable amount of the loan is R34,0 million.

Integrated Report 2013

4.

Company

City Lodge Hotel Group

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ Group

5.

2013 R000

2012 R000

DEFERRED TAXATION Movement in deferred taxation assets Balance at beginning of year Current year temporary differences – profit or loss Loss on foreign exchange

3 064 1 001 (17)

3 030 34 –

Balance at end of year

4 048

3 064

Analysis of deferred taxation assets Capital allowances Tax loss Operating lease accrual Non-deductible accruals

2 643 1 197 126 82

3 064 – – –

2013 R000

2012 R000

4 048

3 064

Movement in deferred taxation liabilities Balance at beginning of year Current year temporary differences – profit or loss – other comprehensive income

79 584 (5 277) 1 454

86 469 (4 534) (2 351)

79 135 (5 310) 1 454

86 085 (4 599) (2 351)

Balance at end of year

75 761

79 584

75 279

79 135

113 426 (7 044) (2 305) 7 000 (24 498) 1 938 (5 264) (7 492)

105 419 (8 498) (2 624) 7 906 (18 873) 2 269 – (6 015)

112 944 (7 044) (2 305) 7 000 (24 498) 1 938 (5 264) (7 492)

104 970 (8 498) (2 624) 7 906 (18 873) 2 269 – (6 015)

75 761

79 584

75 279

79 135

2 995

2 772

2 876

2 772

Analysis of deferred taxation liabilities Capital allowances Defined-benefit pension scheme† Income received in advance BEE shareholder’s loan Operating lease accrual Prepayments Share options Non-deductible accruals

100 Integrated Report 2013

Company

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% (2012 – 28%). 6.

INVENTORIES Food, liquor and beverages †Items included in other comprehensive income.

City Lodge Hotel Group

Group

SHARE CAPITAL AND PREMIUM Share capital Authorised 50 000 000 ordinary shares of 10 cents each Issued 43 122 653 (2012 – 42 988 803) ordinary shares of 10 cents each Balance at beginning of year 42 988 803 (2012 – 42 928 803) ordinary shares of 10 cents each Options exercised during the period 133 850 (2012 – 60 000) of 10 cents each Share premium Balance at beginning of year Premium on issue of new ordinary shares

9.

OTHER RESERVES Share-based payment reserve Balance at beginning of year Expense for the year – share incentive scheme (refer to note 16) Settlement of Deferred Bonus Plan share incentive scheme (refer to note 24) The share-based payment reserve relates to the accumulated cost for the future settlement of obligations arising from the share incentive schemes. Equity component of BEE shareholder’s loan The shareholder’s loan relates to the equity contribution received from Vuwa Investments (Pty) Limited in respect of the BEE transaction concluded in July 2008. Foreign currency translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

2012 R000

2013 R000

2012 R000

8 615 11 661

11 772 5 711

12 905 8 606 9 301

5 496 11 772 3 307

20 276

17 483

30 812

20 575

5 000

5 000

5 000

5 000

4 312

4 299

4 312

4 299

4 299

4 293

4 299

4 293

13 150 350 144 495 5 855

6 144 495 143 308 1 187

13 150 350 144 495 5 855

6 144 495 143 308 1 187

154 662

148 794

154 662

148 794

75 447 65 852 9 595

65 852 56 625 9 805

75 447 65 852 9 595

65 852 56 625 9 805



(578)



(578) 101

8.

OTHER RECEIVABLES Loans due from related parties (refer to note 28) Prepayments Sundry receivables

2013 R000

26 941

(152)

102 236

26 941

26 941

26 941

102 388

92 793



92 793

City Lodge Hotel Group

Integrated Report 2013

7.

Company

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ Group

Company

2013 R000

2012 R000

2013 R000

2012 R000



125 000



125 000

35 000



35 000



35 000 35 000

125 000 125 000

35 000 35 000

125 000 125 000









10. /EdZ^dͳZ/E'KZZKt/E'^ Secured bank loan The loan consists of two types and is secured over land and buildings with a carrying amount of R86,9 million (2012 – R88,4 million). Loan A 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 which commenced on 30 December 2011. Loan B is a revolver facility of R200 million in total and bears interest at the one, three or six-month JIBAR rate plus 2,85 percentage points, depending on the election made upon draw down. Interest repayments are made according to the interest period selected on the draw down notice. Outstanding loan capital is repayable by 30 June 2014. The required bank covenants have been met.

Less: Amounts to be repaid within one year’s time Non-current liabilities

Integrated Report 2013

102

11. /EdZ^dͳZ/E'KZZKt/E'^ The loan is secured by a guarantee provided by City Lodge Hotels Limited.

44 120

44 120

44 120

44 120

͵

͵

44 120

44 120

The loan bears interest at the six-month JIBAR rate plus 2,5 percentage points. Interest repayments are made every six months in arrears. The loan capital is repayable by 31 December 2017.

Less: Amounts to be repaid within one year's time Non-current liabilities

City Lodge Hotel Group

Group 2013 R000 12. BEE PREFERENCE SHARES Proceeds from the issue of redeemable preference shares Redeemed during prior years Redeemed during current year

Company 2012 R000

2013 R000

2012 R000

440 700 (15 600) (900)

440 700 (15 500) (100)

440 700 (15 600) (900)

440 700 (15 500) (100)

424 200

425 100

424 200

425 100

On 8 July 2008, the City Lodge group effected a Black Economic Empowerment scheme with Vuwa Hotels (Pty) Limited, Newshelf 935 (Pty) Limited and Newshelf 892 (Pty) Limited. In terms of the scheme, 15% (6 390 362) of the then issued share capital of City Lodge was acquired by the three special-purpose vehicles (SPVs) in terms of a scheme of arrangement. A and B cumulative redeemable preference shares were issued by the SPVs to fund a portion of the purchase price of the investment in City Lodge Hotels Limited. These have been guaranteed by City Lodge resulting in the deemed control of the SPVs by the company and their incorporation for accounting purposes. Standard Bank of South Africa subscribed for R195,0 million amortising, seven-year A preference shares bearing interest at 70% of the prime interest rate and R245,7 million cumulative zero coupon five-year B preference shares bearing interest at 71% of the prime interest rate. During the year the redemption profile and final redemption date were extended to 31 December 2017. Ordinary dividends received by the SPVs must be used to service and repay the preference shares. There is a lock-in period applicable to the disposal of shares held by Vuwa Hotels (Pty) Limited until 31 December 2017, whereby shares may only be disposed of to black persons. A once-off, share-based, equity-settled option expense was recognised during the 2009 financial year amounting to R25,84 million. 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. During the year, the agreement relating to the B preference shares expired and the resultant liability settled. An amount of R120,4 million was accrued in respect of preference dividends payable as at 30 June 2013. Of this R4,6 million in respect of A preference shares is included under trade and other payables (refer to note 15) due in September 2013 and R115,9 million in respect of B preference shares payable beyond one year’s time. Group 2012 R000

2013 R000

2012 R000

– 424 200 –

– 425 100 –

– 424 200 –

– 425 100 –

103

2013 R000

City Lodge Hotel Group

Integrated Report 2013

Voluntary redemption of A and B preference shares may be made, with full redemption of the preference shares required by 31 December 2017. 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 – later than five years

Company

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ Group 2013 R000 13. BEE SHAREHOLDER’S LOAN Vuwa Investments (Pty) Limited Loan granted Equity component of BEE shareholder’s loan Notional interest expense – prior years Notional interest expense – current year The 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.

Company 2012 R000

2013 R000

2012 R000

50 000 (37 418) 9 182 3 237

50 000 (37 418) 6 365 2 817

50 000 (37 418) 9 182 3 237

50 000 (37 418) 6 365 2 817

25 001

21 764

25 001

21 764

88 069 24 991

67 404 27 177

87 494 24 991

67 404 27 177

113 060

94 581

112 485

94 581

3 882

1 667

70 273 20 096 4 576 –

51 727 20 375 6 352 9 280

3 882 24 144 63 922 19 548 4 576 –

1 667 21 499 51 534 19 925 6 352 9 280

98 827

89 401

116 072

110 257

The loan is measured at amortised cost of R25,001 million (2012 – R21,764 million). The notional debit to interest expense at a rate of 14,35% per annum was R3 237 000 (2012 – R2 817 000). 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.

15. TRADE AND OTHER PAYABLES Trade payables Loans due to related parties (refer to note 28) Sundry accruals Other trade payables Preference dividend payable Interest rate swap accrual on preference dividend payable

Integrated Report 2013

104

14. Kd,ZEKEͳhZZEd>//>/d/^ Operating lease accrual Defined-benefit obligation (refer to note 24)

City Lodge Hotel Group

16. RESULTS FROM OPERATING ACTIVITIES Is arrived at after charging/(crediting) Auditors’ remuneration Audit fees Fees for other services BEE transaction charges – profit on fair value of interest rate swap – sundry expenses Defined-benefit plan expense (note 24) Defined-contribution plan expense Depreciation – buildings – furniture and equipment Impairment of trade receivables Operating lease rentals – land – hotel buildings – office buildings Pre-opening expenses Profit on disposal of property, plant and equipment Salaries, wages and related benefits – employed – subcontracted Rent received Share-based payment expense (note 24) – City Lodge 10th anniversary employees’ share trust – City Lodge deferred bonus plan – City Lodge executive share option scheme – City Lodge restricted share plan – City Lodge share appreciation rights scheme

2 402 1 635 767 (5 658) (6 170) 512 9 122 9 803 79 011 33 216 45 795 1 097 64 688 24 097 37 884 2 707 2 909 (182) 221 080 192 994 28 086 (645) 9 595 1 609 399 11 5 693 1 883

2012 R000

2 257 1 487 770 (8 660) (8 964) 304 7 014 8 656 78 375 32 926 45 449 (149) 62 701 18 587 41 966 2 148 – (121) 195 805 172 345 23 460 (871) 9 805 1 867 156 82 2 963 4 737

2013 R000

2 157 1 390 767 (5 658) (6 170) 512 9 122 9 803 78 791 33 102 45 689 1 097 82 763 42 718 37 338 2 707 – (182) 217 507 189 600 27 907 (645) 9 595 1 609 399 11 5 693 1 883

2012 R000

2 167 1 397 770 (8 660) (8 964) 304 7 014 8 656 78 313 32 864 45 449 (149) 79 652 35 538 41 966 2 148 – (121) 192 934 169 474 23 460 (871) 9 805 1 867 156 82 2 963 4 737

105

2013 R000

Company

City Lodge Hotel Group

Integrated Report 2013

Group

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ 17. DIRECTORS’ EMOLUMENTS Fringe benefits and allowances

Pension fund contributions

Total annual remuneration

Gain on exercise of share options

Current year sharebased payment expense*

R000

Basic salary

Performance bonus

Executive directors 2013 C Ross A C Widegger

3 233 2 627

2 500 2 019

63 254ѐ

453 368

6 249 5 268

2 418 1 303

2 503 2 113

11 170 8 684

5 860

4 519

317

821

11 517

3 721

4 616

19 854

3 014 2 452

1 871 1 511

63 34

457 343

5 405 4 340

1 736 908

1 942 1 454

9 083 6 702

5 466

3 382

97

800

9 745

2 644

3 396

15 785

2012 C Ross A C Widegger

Total

Executive directors are full-time salaried employees, engaged on the company’s standard terms and conditions of employment. ѐ

Includes 20 year long service award.

*This expense represents the IFRS 2 costs for the year of any option or right given or reversed (refer note 24). Non-executive directors

Integrated Report 2013

106

Fees R000

F W J Kilbourn I N Matthews S G Morris N Medupe B T Ngcuka (Payment made to Vuwa Investments (Pty) Ltd) K I M Shongwe W Tlou No other payments were made to directors.

City Lodge Hotel Group

2013

2012

352 326 281 237 672 170 170

245 303 261 188 628 156 159

2 208

1 940

17. DIRECTORS’ EMOLUMENTS ΈcontinuedΉ Executive committee In line with the requirements of the Companies Act and King III, the group discloses the remuneration paid to prescribed officers who are defined as the group’s executive committee. Prescribed officers are full-time salaried employees, engaged on the company’s standard terms and conditions of employment.

2012 Prescribed officer 1 Prescribed officer 2 Prescribed officer 3 Prescribed officer 4 Prescribed officer 5 Prescribed officer 6 Prescribed officer 7 Prescribed officer 8

Pension fund contributions

Total annual remuneration

1 418 1 408 1 393 1 199 1 187 1 098 1 019 1 133 9 855

315 310 309 266 263 241 226 242 2 172

17 39 41 2 15 32 29 27 202

199 195 195 168 125 115 143 159 1 299

1 949 1 952 1 938 1 635 1 590 1 486 1 417 1 561 13 528

– 474‡ 115ज़ – 263ѕ – – 301** 1 153

202 202 202 227 227 384 158 174 1 776

2 151 2 628 2 255 1 862 2 080 1 870 1 575 2 036 16 457

1 323 1 301 1 299 1 118 1 106 994 943 910 8 994

281 276 276 237 235 210 200 194 1 909

17 41 44 1 14 28 29 26 200

185 182 182 157 116 105 132 127 1 186

1 806 1 800 1 801 1 513 1 471 1 337 1 304 1 257 12 289

– 238 – – – – – – 238

276 276 276 228 228 211 191 196 1 882

2 082 2 314 2 077 1 741 1 699 1 548 1 495 1 453 14 409

Gain on exercise of share options

Total

107

2013 Prescribed officer 1 Prescribed officer 2 Prescribed officer 3 Prescribed officer 4 Prescribed officer 5 Prescribed officer 6 Prescribed officer 7 Prescribed officer 8

Basic salary

Performance bonus

*This expenses represents the IFRS 2 costs for the year of any option or right given or reversed (refer note 24).

‡During the year prescribed officer 2 exercised 7 800 share options at a strike price of R86,05 per share, at an exercise price of R25,25. ज़During the year prescribed officer 3 exercised 1 800 share options at a strike price of R120,50 per share, at an exercise price of R56,91.

ѕDuring the year prescribed officer 5 exercised 4 000 share options at a strike price of R91,00 per share, at an exercise price of R25,25.

**During the year prescribed officer 8 exercised 2 400 share options at a strike price of R94,40 per share, at an exercise price of R38,62 and

2 400 share options at a strike price of R123,31 per share, at an exercise price of R53,72.

City Lodge Hotel Group

Integrated Report 2013

R000

Current year sharebased payment expense*

Fringe benefits and allowances

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ 17. DIRECTORS’ EMOLUMENTS ΈcontinuedΉ

Share appreciation rights C Ross

A C Widegger

Date of grant

Grant price (R)

Holding at 30 June 2013

Lapse date

Number vesting at 30 June 2013

1/09/2008 1/09/2009 1/09/2010 1/09/2011 1/09/2012 1/09/2008 1/09/2009 1/09/2010 1/09/2011 1/09/2012

76,71 72,43 74,62 63,61 85,66 76,71 72,43 74,26 63,61 85,66

89 035 54 709 57 499 79 163 92 313 53 225 37 313 39 155 53 905 62 110

1/09/2015 1/09/2016 1/09/2017 1/09/2018 1/09/2019 1/09/2015 1/09/2016 1/09/2017 1/09/2018 1/09/2019

– – – – – – – – – –

Share appreciation rights lapsed during the year

Deferred bonus plan C Ross

Integrated Report 2013

476 167



Number of bonus shares

Share acquisition price

Matching shares

Vesting date

1/09/2011 1/09/2012 1/09/2011 1/09/2012

4 650 6 380 3 000 5 220

64,00 85,96 64,00 85,96

4 650 6 380 3 000 5 220

1/09/2014 1/09/2015 1/09/2014 1/09/2015

Bonus shares vested during year Refer to note 24 for details of the deferred bonus plan.

City Lodge Hotel Group

– –

Date of offer

108

A C Widegger

618 427 (142 260)

19 250 –

19 250 –

19 250

19 250

17. DIRECTORS’ EMOLUMENTS ΈcontinuedΉ

A C Widegger

Restricted share plan C Ross A C Widegger Prescribed officer 1 Prescribed officer 2 Prescribed officer 3 Prescribed officer 4 Prescribed officer 5 Prescribed officer 6 Prescribed officer 7 Prescribed officer 8

1/08/2003 13/08/2004 15/08/2005 9/11/2006 8/05/2007

1/01/2003 1/08/2003 13/08/2004 15/08/2005 9/11/2006 8/05/2007

18,50 28,40 37,47 58,59 80,31

16,80 18,50 28,40 37,47 58,59 80,31

Exercised

Lapse date

26 000 38 000 36 000 52 650 28 000

26 000 – – – –

– 38 000 36 000 52 650 28 000

1/08/2013 13/08/2014 15/08/2015 9/11/2016 8/05/2017

͵ 38 000 36 000 52 650 28 000

180 650

26 000

154 650

10 000 5 000 23 000 21 000 31 590 16 800

10 000 5 000 – – – –

– – 23 000 21 000 31 590 16 800

107 390

15 000

92 390

154 650 1/01/2013 1/08/2013 13/08/2014 15/08/2015 9/11/2016 8/05/2017

͵ ͵ 23 000 21 000 31 590 16 800 92 390

Date of award

Number of restricted shares

Share acquisition price (R)

Vesting date

23/12/2011 23/12/2011 23/12/2011 23/12/2011 23/12/2011 23/12/2011 23/12/2011 23/12/2011 23/12/2011 23/12/2011

78 455 63 353 13 052 13 052 13 052 10 934 10 934 9 932 9 466 9 141

73,49 73,49 73,49 73,49 73,49 73,49 73,49 73,49 73,49 73,49

22/12/2014 22/12/2014 22/12/2014 22/12/2014 22/12/2014 22/12/2014 22/12/2014 22/12/2014 22/12/2014 22/12/2014

109

Directors’ share options C Ross

Exercise price (R)

Number vesting at 30 June 2013

231 371 No consideration was received by the company on the award of the restricted ordinary shares (refer to note 24).

City Lodge Hotel Group

Integrated Report 2013

Date of grant

Holding at 30 June 2013

Holding at 30 June 2012

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ Group

18. INTEREST 18.1 Interest income Bank interest Loans to Courtyard Joint Venture IAS 39 – Effective Interest (note 4) Interest from subsidiaries Other 18.2 Interest expense Long-term borrowings Short-term borrowings IAS 39 – Effective Interest (note 13) Preference dividend

Company

2013 R000

2012 R000

2013 R000

2012 R000

1 414 1 966 3 301

3 797 1 971 2 834

7



1 414 1 966 3 301 7 788 4

3 797 1 971 2 834 7 788 –

6 688

8 602

14 473

16 390

13 031 19 3 237 34 720

17 633 6 2 817 51 035

13 031 19 3 237 34 720

17 633 6 2 817 51 035

51 007

71 491

51 007

71 491

No interest was capitalised to property, plant and equipment during the current or prior period. 19. INTEREST IN JOINTLY CONTROLLED ENTITIES The group has the following interests in jointly controlled entities: • a 50% interest in the Courtyard Share Block Companies as detailed on the following page. 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. Equity earnings from these jointly controlled entities are distributed. • A 50% interest in Fairview Hotels Limited, Kenya.

The group’s proportionate share of the assets and liabilities and the results of the operations have been equity-accounted.

Integrated Report 2013

110

Management fees are paid by the respective rental pools to Courtyard Management Company (Pty) Limited, which is a wholly owned subsidiary and to the company by Fairview Hotels Limited.

City Lodge Hotel Group

19. INTEREST IN JOINTLY CONTROLLED ENTITIES ΈcontinuedΉ

Fairview Hotel Limited Group

Courtyard Share Block Companies Group and company

26 916 (22 086) 4 830 (493) (1 966) 2 371 (2 371) –

22 323 (19 983) 2 340 (494) (1 971) (125) 125 –

44 353 (22 203) 22 150 (2 573) – 19 577 – (5 942)

Accumulated profit The group’s proportionate share of assets and liabilities of the jointly controlled entities is as follows: Non-current assets Current assets Total assets Non-current liabilities Current liabilities





13 635

39 445 5 830 45 275 37 919 2 362

37 426 6 333 43 759 37 089 2 282

29 237 27 772 57 009 3 787 5 987

39 371

9 774

Total liabilities

40 281

The group’s proportionate share of the cash flows of the jointly controlled entities is as follows: Cash effects of operating activities Cash utilised in investing activities Cash effects of financing activities

1 272 (3 246) 829

887 (204) (538)

19 045 (2 035) –

Net cash (utilised)/generated

(1 145)

145

17 010

111

The group’s proportionate share of the results of the operations of the jointly controlled entities is as follows: Revenue Operating costs Operating profit Depreciation Interest paid Profit/(loss) for the period (Distributed)/allocated Taxation

2013 R000

2012 R000

City Lodge Hotel Group

Integrated Report 2013

2013 R000

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ 19. INTEREST IN JOINTLY CONTROLLED ENTITIES ΈcontinuedΉ The group’s shareholding in the jointly controlled entities is as follows:

Fairview Hotel Limited – Kenya Gallic Courtyard (Arcadia) Share Block (Pty) Limited Gallic Courtyard (Bruma Lake) Share Block (Pty) Limited Gallic Courtyard (Rosebank) Share Block Limited Gallic Courtyard (Sandown) Share Block Limited Gallic Courtyard (Valkenberg) Share Block (Pty) Limited Group

20. TAXATION South African normal taxation Current Deferred – current Secondary tax on companies

Effective rate of taxation

Integrated Report 2013

112

Reconciliation of taxation rate Statutory tax rate Adjusted for: – BEE transactions – tax effect of equity-accounted earnings – disallowable expenses – secondary tax on companies

City Lodge Hotel Group

Issued share capital

% held

KES2 600 000 R1 518 R2 584 R3 816 R3 067 R2 690

50 50 50 50 50 50

Company

2013 R000

2012 R000

2013 R000

2012 R000

92 212 (6 278)

78 871 (4 568) 10 263

88 971 (5 310)

76 139 (4 599) 10 263

85 934

84 566

83 661

81 803

28,0

28,0

28,0

28,0

2,7 (1,3) (1,2) –

3,1 – 0,6 4,4

2,9 – (1,4) –

3,4 – 0,7 4,6

28,2

36,1

29,5

36,7

Group

218 427 (182) 51 218 296 (5 658) (6 170) 512 3 237 847 34 720 (906) 1 609 252 145

149 775 (121) 34 149 688 (8 660) (8 964) 304 2 817 – 51 035 (5 078) 1 867 191 669

Number of shares for EPS calculations (000) Undiluted weighted average Restricted share plan Share appreciation rights Share options Diluted Number of shares for normalised EPS calculations (000) Undiluted weighted average BEE shares treated as treasury shares Normalised undiluted weighted average Restricted share plan Share appreciation rights Share options

36 428 146 396 244 37 214

36 437 50 186 225 36 898

36 428 6 390 42 818 146 396 244

36 437 6 390 42 827 50 186 225

Normalised diluted weighted average

43 604

43 288

599,3 586,6 588,9 578,3

410,8 405,7 447,5 442,8

Headline earnings per share (cents) Diluted headline earnings per share (cents) Normalised headline earnings per share (cents) Normalised diluted headline earnings per share (cents)

113

21. BASIC AND HEADLINE EARNINGS PER SHARE The calculation of basic and diluted earnings per share at 30 June 2013 was based on profit for the period of R218,427 million (2012 – R149,775 million), and a weighted average number of shares of 36 428 000 (2012 – 36 437 000) for basic earnings per share, and 37 214 000 (2012 – 36 898 000) for diluted earnings per share. Determination of headline earnings and normalised headline earnings Profit for the period Profit on sale of property, plant and equipment Taxation effect Headline earnings BEE transaction charges – profit on fair value of interest rate swap – sundry expenses Notional interest charge on BEE shareholder͝s loan Interest on BEE interest-bearing borrowings Preference dividends paid/payable by the BEE entities Deferred tax on BEE transactions IFRS 2 share-based payment charge for the 10th anniversary employees’ share trust Normalised headline earnings

2012 R000

City Lodge Hotel Group

Integrated Report 2013

2013 R000

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ Group

22. DIVIDENDS Number 47 of 133,0 cents per share (2012 – 104,0 cents) declared on 15 August 2012 and paid on 17 September 2012 Number 48 of 176,0 cents per share (2012 – 135,0 cents) declared on 13 February 2013 and paid on 18 March 2013 Dividends attributable to treasury shares

Company

2013 R000

2012 R000

2013 R000

2012 R000

57 196

44 646

57 196

44 646

75 785 (19 746)

57 981 (15 273)

75 785 (19 746)

57 981 (15 273)

113 235

87 354

113 235

87 354

15 000 195 000

20 000 109 000

15 000 195 000

20 000 109 000

210 000

129 000

210 000

129 000

63 479 291 980 525 065

43 752 260 262 544 986

60 098 272 863 448 007

43 752 260 262 544 986

880 524

849 000

780 968

849 000

– 424 200 19 916

– 425 100 22 326

– 424 200 19 916

– 425 100 22 326

On 14 August 2013, dividend number 49 of 175,0 cents per share in respect of the year ended 30 June 2013 was declared totalling R75 464 643 payable on 16 September 2013. These financial statements do not reflect this dividend payable.

Integrated Report 2013

114

23. COMMITMENTS Capital Authorised – contracted – not contracted Future capital expenditure will be financed out of funds generated from operations and external borrowings and it is anticipated that approximately R170 million will be spent by 30 June 2014. Operating leases The company is party to various operating leases of periods between 20 and 99 years in respect of land and hotel buildings and five years, in respect of office buildings. Schedule of minimum lease payments in respect of land, hotel building and office building leases: – not later than one year – between one and five years – later than five years Guarantees Total financial institution-backed guarantees provided to third parties on behalf of the company amounted to R444,1 million. The directors do not believe any exposure to loss is likely. The issued guarantees have the following expiry dates: – not later than one year – between one and five years – later than five years

City Lodge Hotel Group

24. EMPLOYEE BENEFITS Retirement benefit information The group and company provide retirement benefits for 7% (2012 – 7%) 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 34% (2012 – 33%) 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 2010, the effective date of the most recent statutory actuarial valuation, the retirement benefit fund was found to have a deficit of R7,8 million. The next statutory actuarial valuation being 1 August 2013. The current estimate in terms of IAS 19, as at 30 June 2013, as shown below, indicates that the fund has a deficit of R24 991 000 (2012 – R27 177 000 deficit). Group and company

Recognised in the statement of financial position: Opening net liability Expense Contributions paid Amount recognised in other comprehensive income Closing net liability Movement in the liability for defined-benefit obligations Liability for defined-benefit obligations at 1 July Service cost Interest cost Benefits paid Actuarial loss Liability for defined-benefit obligations at 30 June

(133 516) 108 525 (24 991)

(116 590) 89 413 (27 177)

(6 541) (10 205) 7 624 (9 122)

(5 431) (8 511) 6 928 (7 014)

(27 177) (9 122) 6 116 5 192 (24 991)

(17 945) (7 014) 6 177 (8 395) (27 177)

116 590 6 541 10 205 (3 365) 3 545 133 516

92 439 5 431 8 511 (1 084) 11 293 116 590

115

Current estimated employee benefit obligation: Present value of obligation Fair value of plan assets Liability at year-end (refer to note 14) Recognised in profit or loss: Current service cost Interest on obligation Expected return on plan assets

2012 R000

City Lodge Hotel Group

Integrated Report 2013

2013 R000

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ Group and company 2013 R000

2012 R000

89 413 7 624 6 116 (3 365) 8 737

74 494 6 928 6 177 (1 084) 2 898

24. EMPLOYEE BENEFITS ΈcontinuedΉ Retirement benefit information ΈcontinuedΉ Movement in plan assets Fair value of plan assets at 1 July Expected return on plan assets Contributions Benefits paid Actuarial gain Fair value of plan assets at 30 June Plan assets comprise: Equity securities Bonds Property Cash Offshore Other Principal actuarial assumptions at the reporting date: Discount rate Expected return on plan assets Future salary increases Future pension increases

108 525

89 413

%

%

44,9 10,4 5,6 11,8 24,9 2,4

47,6 13,0 6,7 8,1 24,6 –

8,6 8,6 7,6 4,9

8,4 8,4 7,2 4,7

Integrated Report 2013

116

The expected return on plan assets was set equal to the discount rate. The actual return earned on plan assets for the year was 21%.

City Lodge Hotel Group

24. EMPLOYEE BENEFITS ΈcontinuedΉ The sensitivity of the financial assumptions has been assessed by increasing and decreasing the real returns by 1% (by changing the discount rate). The effect of a one percentage point change would be as follows: Discount rate 1% increase Effect on the total future service and interest cost Effect on the total defined-benefit obligation Historical information R000 Present value of the defined-benefit obligation Fair value of plan assets Deficit in the plan

1% decrease

(3 847) (22 998)

2013

2012

2011

4 711 33 747

2010

2009

(133 516) 108 525

(116 590) 89 413

(92 439) 74 494

(69 460) 60 250

(57 241) 48 858

(24 991)

(27 177)

(17 945)

(9 210)

(8 383)

The group expects R6,4 million in contributions to be paid to its defined-benefit plan in the next 12 months.

Integrated Report 2013

117

Medical aid Certain of the group’s employees belong to the Discovery Health Medical Scheme. There are no obligations for post-retirement medical aid contributions.

City Lodge Hotel Group

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ 24. EMPLOYEE BENEFITS ΈcontinuedΉ Share-based payments Equity-settled share appreciation right scheme The 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. Expected volatilities are 90% based on short, medium and long-term historical volatilities, with cognisance taken of market conditions to explain the variance from historical data. No other features, other than disclosed, of the option grant was incorporated into the measurement of fair value. The share-based, equity-settled expense for the year ended 30 June 2013 in profit or loss is R1 882 973 (2012 – R4 736 427). During the current year, the expense relating to the 2008 rights granted was reversed as the vesting conditions were not met. It was decided to raise an expense for the full 2009 grants as a result of management reassessing the likelihood of vesting. The effect of this on the 2013 expense was an additional R1 855 507 in respect of the 2009 grant. 2013 Weighted Number average of SARs strike Outstanding at beginning of period Granted during period Forfeited during period Exercised during period Expired during period

1 692 234 471 423 (568 657) – –

72,04 85,66 76,49 – –

1 334 606 435 443 (77 815) – –

74,93 63,61 74,33 – –

Outstanding at end of period

1 595 000

74,48

1 692 234

72,04









2013

2012

4,81

4,59

23,00 6,16 2,86 7 85,66 85,66 23,46

23,00 6,77 3,21 7 63,61 63,61 16,63

118

Exercisable at end of period

Integrated Report 2013

2012 Weighted Number average of SARs strike

Average remaining life (years) American binomial model inputs as follows: Volatility (%) Risk-free rate (%) Dividend yield (%) Expected life (years) Strike price (Rand) Average share price (Rand) Option price (Rand)

City Lodge Hotel Group

24. EMPLOYEE BENEFITS ΈcontinuedΉ Share-based payments ΈcontinuedΉ Equity-settled deferred bonus plan Certain 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. Matching awards are forfeited if the employee leaves the group before they vest. Expected volatilities are 90% based on short, medium and long-term historical volatilities, with cognisance taken of market conditions to explain the variance from historical data. No other features, other than disclosed, of the option grant was incorporated into the measurement of fair value. Fair value is measured using a European binomial valuation model. The share-based, equity-settled expense for the year ended 30 June 2013 in profit or loss is R399 278 (2012 – R155 459).

7 650 – 11 600 –

Outstanding at end of period Exercisable at end of period

Average remaining life (years) European binomial model inputs as follows: Volatility (%) Risk-free rate (%) Dividend yield (%) Expected life (years) Strike price (Rand) Average share price (Rand) Option price (Rand)

0 – 0 –

9 000 – 7 650 (9 000)

0 – 0 0

19 250



7 650

0









2013

2012

1,77

2,17

24,65 5,12 2,86 3 0 85,96 78,90

24,25 5,69 3,57 3 0 64,00 57,50

119

Outstanding at beginning and end of period Forfeited during period Granted during period Exercised during period

2012 Weighted Number average of options strike

City Lodge Hotel Group

Integrated Report 2013

2013 Weighted Number average of options strike

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ 24. EMPLOYEE BENEFITS ΈcontinuedΉ Share-based payments ΈcontinuedΉ Equity-settled share option plan The 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 employee leaves the group before the options vest. The share-based, equity-settled option expense for the year ended 30 June 2013 in profit or loss is R11 038 (2012 – R82 478). No further grants will be made under this scheme. 2013 Weighted Number average of options strike Outstanding at beginning of period Forfeited during period Exercised during period

120

51,47 – 43,75

656 570 (12 680) (56 800)

49,75 71,60 18,40

Outstanding at end of period

448 840

54,75

587 090

52,31

Exercisable at end of period

448 840

54,75

570 290

51,57

2013

2012

2,81

3,63

Average remaining life (years)

Integrated Report 2013

587 090 – (138 250)

2012 Weighted Number average of options strike

Equity-settled 10th anniversary share plan The 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 a European binomial valuation model. The share-based, equity-settled expense for the year ended 30 June 2013 in profit or loss is R1 608 985 (2012 – R1 867 193). 2013 Number of shares

2012 Number of shares

Outstanding at beginning of period Distributed during period Acquired during period

684 155 (72 960) –

684 155 – –

Outstanding at end of period

611 195

684 155

City Lodge Hotel Group

24. EMPLOYEE BENEFITS ΈcontinuedΉ Share-based payments ΈcontinuedΉ Equity-settled 10th anniversary share plan ΈcontinuedΉ 2013

European binomial model inputs as follows: Volatility (%) Risk-free rate (%) Dividend yield (%) Expected life (years) Effective strike price (Rand) Share price (Rand) Effective option price (Rand)

2012

Per share

Total portfolio

Per share

Total portfolio

26 5,34 2,81 1 95,09 84,05 2,63

26 5,34 2,81 1 58 118 967 51 373 199 1 608 985

21 5,89 4,61 1 65,23 65,23 2,73

21 5,89 4,61 1 44 627 431 44 627 431 1 867 193

Equity-settled restricted share plan Certain employees will become owners of ordinary shares, which were acquired on the market, for award. From the grant date, they will immediately benefit from dividends and have shareholder voting rights, thus providing direct alignment between participants and shareholders. The employee will give no consideration for the grant or settlement of an award. In the case of resignation or dismissal, all unvested awards will be forfeited. The vesting period is generally three years. The share-based, equity-settled expense for the year ended 30 June 2013 in profit or loss is R5 692 862 (2012 – R2 963 408). 2013

25. BORROWING POWERS The borrowings of the company are not limited by its memorandum of incorporation.

231 371

73,88



– 121

Exercisable at end of period

Average share price

Integrated Report 2013

Outstanding at end of period

Number of shares granted

City Lodge Hotel Group

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ Group

26. NOTES TO THE STATEMENTS OF CASH FLOWS 26.1 Cash generated by operations Profit before taxation Adjusted for: – depreciation on property, plant and equipment – movement in operating lease accrual – interest income – interest expense – profit on disposal of property, plant and equipment – profit on fair value of interest rate swap – movement in defined-benefit liability – defined-benefit actuarial gain/(loss) – share-based payment expense – share of profit – Fairview Hotels Limited, Kenya – unrealised foreign currency loss Operating profit before working capital changes Increase in inventory Decrease/(increase) in trade and other receivables Increase in trade and other payables

Integrated Report 2013

122

26.2 Taxation paid Balance unpaid at beginning of year Taxation payable per statements of comprehensive income Balance (overpaid)/unpaid at end of year 26.3 Investment to maintain operations Additions to property, plant and equipment – land and buildings – furniture and equipment

Less: Proceeds on disposal Furniture and equipment

City Lodge Hotel Group

Company

2013 R000

2012 R000

2013 R000

2012 R000

304 361

234 341

282 981

223 205

79 011 20 665 (6 688) 51 007 (182) (6 170) (2 186) 5 192 9 595 (13 635) (135) 440 835 (223) 4 908 19 633

78 375 29 171 (8 602) 71 491 (121) (8 964) 9 232 (8 395) 9 805 – – 406 333 (385) (19 632) 1 039

78 791 20 090 (14 473) 51 007 (182) (6 170) (2 186) 5 192 9 595

78 313 29 171 (16 390) 71 491 (121) (8 964) 9 232 (8 395) 9 805

424 645 (104) (2 412) 16 022

387 347 (385) (13 856) 2 208

465 153

387 355

438 151

375 314

(12 418) (92 212) (3 116)

(6 606) (89 134) 12 418

(12 258) (88 971) (3 459)

(6 274) (86 402) 12 258

(107 746)

(83 322)

(104 688)

80 418

(6 263) (34 082) (40 345)

(16 149) (33 272) (49 421)

(6 263) (34 082) (40 345)

(16 149) (33 272) (49 421)

341

465

341

465

40 004

(48 956)

40 004

(48 956)

26.5 Investments and loans (Increase)/decrease in investments 27. FINANCIAL INSTRUMENTS 27.1 Classes of financial instruments Financial assets Loan – Property Lodging Investments (Pty) Limited Loans – jointly controlled entities Loans receivable Trade receivables Other receivables Cash and cash equivalents Non-derivative financial liabilities Bank overdraft BEE interest-bearing borrowings BEE preference shares BEE shareholder’s loan BEE B preference share dividend accrual Current portion of interest-bearing borrowings Trade and other payables Derivative financial liabilities BEE interest rate swap Current portion of BEE interest rate swap

2013 R000

2012 R000

2013 R000

(8 010) (6 964)

(2 510) (378)

(92) –

(2 510) (378)

(14 974)

(2 888)

(92)

(2 888)

(151 296)

494

(151 296)

674

(151 296)

494

(151 296)

674

2012 R000

21 841 23 347 52 264 11 661 –

21 841 20 046 59 965 5 711 62 413

62 800 21 841 23 347 52 140 22 206 –

62 800 21 841 20 046 59 965 8 803 57 629

(11 789) (44 120) (424 200) (25 001) (115 867) (35 000) (98 827)

– – (425 100) (21 764) (93 238) (125 000) (89 401)

(17 850) (44 120) (424 200) (25 001) (115 867) (35 000) (116 072)

– – (425 100) (21 764) (93 238) (125 000) (110 257)

(513) (3 812)

(3 464) (46 258)

(513) (3 812)

(3 464) (46 258)

123

26. NOTES TO THE STATEMENTS OF CASH FLOWS ΈcontinuedΉ 26.4 Investment to expand operations Additions to property, plant and equipment – land and buildings – furniture and equipment

Company

The fair value of the financial assets and liabilities is equal to their carrying amount.

City Lodge Hotel Group

Integrated Report 2013

Group

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ 27. FINANCIAL INSTRUMENTS ΈcontinuedΉ 27.1 Classes of financial instruments ΈcontinuedΉ Fair value hierarchy At 30 June 2013 and 30 June 2012, the group had the following financial instruments carried at fair value, by valuation method, requiring the following fair value hierarchy classification: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices). • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The table below analyses financial instruments carried at fair value, by valuation method. Group

Level 1 Level 2 BEE interest rate swap Level 3

Company

2013 R000

2012 R000

2013 R000

2012 R000









4 325 – 4 325

49 722 – 49 722

4 325 – 4 325

49 722 – 49 722

27.2 Market risk – is the risk that changes in market rates such as interest rates, foreign exchange rates and equity prices will affect the group’s income and value of its holding of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters while optimising the return. (a) Interest rate risk – fluctuations in interest rates impact the value of short-term investments and financing activities, giving rise to the 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.

Integrated Report 2013

124

With the issuance of the redeemable preference shares (refer to note 12) 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%. (b) Currency risk Currency risk related to investments in foreign entities The group has interest in entities which operate in various countries. A significant portion of the group's foreign revenue is earned in countries which have stable currencies. It is not the group's policy to hedge investments in foreign subsidiaries. Currency risk related to foreign transactions Each group entity operates predominantly within its own common monetary area and therefore the group has no significant currency risk with regards to operational activities. At year-end, all group entities had no foreign currency trade receivables or payables. It is not the group͝s policy to hedge transactions which are denominated in a currency other than the entities’ functional currency, which mainly occurs with purchases. (c) Equity price risk – is the exposure to equity price changes affecting the plan assets reducing the defined-benefit obligation (refer note 24). City Lodge Hotel Group

27. FINANCIAL INSTRUMENTS ΈcontinuedΉ 27.3 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. Ultimate responsibility for liquidity risk management rests with the board of directors. Typically the group ensures that it has sufficient cash on hand to meet operational expenses, including the servicing of financial obligations. The group also has access to overdraft facilities, which may be used to meet its financial obligations if necessary. The table below analyses the financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date.

At 30 June 2012 Non-derivative financial liabilities Borrowings BEE preference shares BEE shareholder’s loan BEE B preference share dividend accrual Trade payables Derivative financial liabilities BEE interest rate swap

Less than one year

Between one and five years

35 000 44 120 424 200 25 001 115 867 98 827 11 789

37 795 59 897 490 270 50 000 235 966 98 827 11 789

37 795 3 516 12 283 – – 98 827 11 789

– 56 381 477 987 50 000 235 966 – –

4 325

4 325

3 812

513

– –

759 129

988 869

168 022

820 847



125 000 425 100 21 764 93 238 89 401

132 450 472 308 50 000 117 654 89 401

132 450 12 497 – – 89 401

– 459 811 – 117 654 –

– – 50 000 – –

49 722

49 722

46 258

3 464



804 225

911 535

280 606

580 929

50 000

More than five years

– – – – – –

125

Group At 30 June 2013 Non-derivative financial liabilities Borrowings BEE interest-bearing borrowings BEE preference shares BEE shareholder’s loan BEE B preference share dividend accrual Trade payables Bank overdraft Derivative financial liabilities BEE interest rate swap

Contractual undiscounted cash flows

City Lodge Hotel Group

Integrated Report 2013

R000

Carrying amount

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ 27. FINANCIAL INSTRUMENTS ΈcontinuedΉ 27.3 Liquidity risk ΈcontinuedΉ

R000 Company At 30 June 2013 Non-derivative financial liabilities Borrowings BEE interest-bearing borrowings BEE preference shares BEE shareholder’s loan BEE B preference share dividend accrual Trade payables Bank overdraft Derivative financial liabilities BEE interest rate swap

Integrated Report 2013

126

At 30 June 2012 Non-derivative financial liabilities Borrowings BEE preference shares BEE shareholder’s loan BEE B preference share dividend accrual Trade payables Derivative financial liabilities BEE interest rate swap

City Lodge Hotel Group

Carrying amount

Contractual undiscounted cash flows

Less than one year

Between one and five years

More than five years

35 000 44 120 424 200 25 001 115 867 116 072 17 850

37 795 59 897 490 270 50 000 235 966 116 072 17 850

37 795 3 516 12 283 – – 116 072 17 850

– 56 381 477 987 50 000 235 966 – –

– – – – – – –

4 325 782 435

4 325 1 012 175

3 812 191 328

513 820 847



125 000 425 100 21 764 93 238 110 257

132 450 472 308 50 000 117 654 110 257

132 450 12 497 – – 110 257

– 459 811 – 117 654 –

– – 50 000 – –

49 722

49 722

46 258

3 464



825 081

932 391

301 462

580 929

50 000

27. FINANCIAL INSTRUMENTS ΈcontinuedΉ 27.3 Liquidity risk ΈcontinuedΉ The interest rate profile of the group is as follows:

Group 2013 R000

Variable rate instruments Assets Liabilities Fixed rate instruments Assets Liabilities

– (515 109) – (25 001)

Company 2012 R000 62 413 (550 100) – (21 764)

2013 R000 – (521 170)

2012 R000 57 629 (550 100)

62 800

62 800

(25 001)

(21 764)

Cash flow sensitivity analysis for variable rate instruments A change of 50 basis points in the interest rates at the reporting date would have increased/(decreased) profit or loss by the amount shown below. This analysis assumes that all other variables remain constant. Group

Effect on statement of comprehensive income (profit/(loss)) 50 bps increase 50 bps decrease

Company

2013 R000

2012 R000

2013 R000

2012 R000

(456) 456

(450) 449

(486) 486

(450) 449

Integrated Report 2013

127

27.4 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 Hotel Group

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ 27. FINANCIAL INSTRUMENTS ΈcontinuedΉ 27.4 Credit risk ΈcontinuedΉ Group

Loan – Property Lodging Investments (Pty) Limited Loans – jointly controlled entities Loan receivable Other receivables Trade receivables Cash and cash equivalents

Integrated Report 2013

128

The carrying amount of trade receivables represents the maximum credit exposure at reporting date which was: Trade receivables Not past due 0 – 30 days past due 31 – 120 days past due Gross Impairment allowance

Company

2013 R000

2012 R000

2013 R000

2012 R000

21 841 23 347 11 661 52 264 –

21 841 20 046 5 711 59 965 62 413

62 800 21 841 23 347 22 206 52 140 –

62 800 21 841 20 046 8 803 59 965 57 629

109 113

169 976

182 334

231 084

34 745 14 822 2 697 4 915 (2 218)

38 330 18 738 2 897 4 018 (1 121)

34 621 14 822 2 697 4 915 (2 218)

38 330 18 738 2 897 4 018 (1 121)

52 264

59 965

52 140

59 965

Trade receivables by type of customer Travel agents Large corporates and companies

43 233 9 031

48 652 11 313

43 109 9 031

48 652 11 313

52 264

59 965

52 140

59 965

Trade receivables by geographical region – South Africa Trade receivables by geographical region – Botswana

52 140 124

59 965 –

52 140

59 965

52 264

59 965

52 140

59 965

The movement in the impairment allowance in respect of trade receivables during the year was as follows: Balance at beginning of year Impairment allowance raised/(reversed)

1 121 1 097

1 270 (149)

1 121 1 097

1 270 (149)

Balance at end of year

2 218

1 121

2 218

1 121

27.5 Capital management – the group’s objective when managing capital, which consists of ordinary shares, preference shares, retained earnings and other reserves, is to safeguard the group’s ability to continue as a going concern and to provide acceptable returns for shareholders. The board of directors monitors the level of dividends to ordinary shareholders. City Lodge Hotel Group

28. RELATED PARTIES 28.1 Identity of related parties with whom material transactions have occurred The company is the holding company of Anchor Park Investments (Pty) Limited, Budget Hotels (Pty) Limited, City Lodge Hotels (Botswana) (Pty) Limited, Courtyard Management Company (Pty) Limited and Property Lodging Investments (Pty) Limited. The company is a partner in six jointly controlled entities, ie Gallic Courtyard (Arcadia) Share Block (Pty) Limited, Gallic Courtyard (Bruma Lake) Share Block (Pty) Limited, Gallic Courtyard (Rosebank) Share Block Limited, Gallic Courtyard (Sandown) Share Block Limited, Gallic Courtyard (Valkenberg) Share Block (Pty) Limited and Fairview Hotels Limited. Courtyard Management Company (Pty) Limited is the management company of the five jointly controlled entities. Budget Hotels (Pty) Limited and Property Lodging Investments (Pty) Limited lease land to City Lodge Hotels Limited. Interest-bearing loans exist between City Lodge Hotels Limited, Property Lodging Investments (Pty) Limited and the five joint ventures. All of the above entities are related parties to the company. Other than the directors’ remuneration (note 17) and information below, there are no other related parties with whom material transactions have taken place.

Integrated Report 2013

129

28.2 Types of related-party transactions Management 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.

City Lodge Hotel Group

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ 28. RELATED PARTIES ΈcontinuedΉ

28.3 Material related-party transactions Subsidiary companies Management fees paid to related parties Courtyard Management Company (Pty) Limited Management fees received from related parties City Lodge Hotels (Botswana) (Pty) Limited Operating lease rentals paid to related parties Budget Hotels (Pty) Limited Property Lodging Investments (Pty) Limited

2013 R000

2012 R000

806

880

38 1 590 18 646

1 512 16 951

20 236

18 463

Interest received from related parties Property Lodging Investments (Pty) Limited

7 860

7 860

Interest paid to related parties Property Lodging Investments (Pty) Limited

72

72

472 450 351 225 468

473 451 352 226 469

1 966

1 971

Jointly controlled entities Interest received from related parties Gallic Courtyard (Arcadia) Share Block (Pty) Limited Gallic Courtyard (Bruma Lake) Share Block (Pty) Limited Gallic Courtyard (Rosebank) Share Block Limited Gallic Courtyard (Sandown) Share Block Limited Gallic Courtyard (Valkenberg) Share Block (Pty) Limited Management fees received from related parties Fairview Hotel Limited

Integrated Report 2013

130

Company

City Lodge Hotel Group

610

28. RELATED PARTIES ΈcontinuedΉ

Group 2013 R000

Company 2013 R000

2012 R000

28.4 Loan to subsidiary Property Lodging Investments (Pty) Limited

62 800

62 800

28.5 Amounts due to Subsidiary companies Budget Hotels (Pty) Limited Property Lodging Investments (Pty) Limited City Lodge Holdings (Share Block) (Pty) Limited Courtyard Management Company (Pty) Limited

7 461 1 769 4 065 10 849

6 284 – 4 065 11 150

24 144

21 499

12 905 –

– 5 496

12 905

5 496

2012 R000

28.6 Amounts due by Subsidiary companies City Lodge Hotels (Botswana) (Pty) Limited Property Lodging Investments (Pty) Limited

The amounts due to and by subsidiary companies are unsecured, interest-free and repayable on demand. 5 243 5 000 3 900 2 500 5 198

5 243 5 000 3 900 2 500 5 198

5 243 5 000 3 900 2 500 5 198

5 243 5 000 3 900 2 500 5 198

21 841

21 841

21 841

21 841

13 528 2 929

12 289 2 120

11 576 2 253

10 489 1 606

16 457

14 409

13 829

12 095

Key management compensation is as follows (refer to note 17): – short-term employee benefits, including salaries and bonuses – equity compensation benefits

131

The amounts due by jointly controlled entities are unsecured, have no fixed terms of repayment and bore interest at 9,0% per annum (2012 – 10,0%). 28.7 Transactions with 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.

City Lodge Hotel Group

Integrated Report 2013

Jointly controlled entities Gallic Courtyard (Arcadia) Share Block (Pty) Limited Gallic Courtyard (Bruma Lake) Share Block (Pty) Limited Gallic Courtyard (Rosebank) Share Block Limited Gallic Courtyard (Sandown) Share Block Limited Gallic Courtyard (Valkenberg) Share Block (Pty) Limited

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2013 ;ĐŽŶƟŶƵĞĚͿ 29. GOING CONCERN The directors consider that the company and its subsidiaries have adequate resources to continue operating for the foreseeable future and that it is therefore appropriate to adopt the going-concern basis in preparing the group and company’s financial statements. The directors have satisfied themselves that the company and its subsidiaries are in a sound financial position and that they have access to sufficient cash and borrowing facilities to meet their foreseeable cash requirements.

Integrated Report 2013

132

30. RELEVANT STANDARDS AND INTERPRETATIONS EFFECTIVE FOR YEARS ENDING AFTER 30 JUNE 2013 At the date of authorisation of these financial statements for the year ended 30 June 2013, the following standards and interpretations were in issue but not yet effective for the company: Standard/interpretation

Effective date

IFRS 10

Consolidated Financial Statements

1 January 2013

IFRS 11

Joint Arrangements

1 January 2013

IFRS 12

Disclosure of Interests in Other Entities

1 January 2013

IFRS 13

Fair Value Measurement

1 January 2013

IFRS 10, IFRS 11 and IFRS 12 amendment

Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance

1 January 2013

IAS 19 amendment

Employee Benefits: Defined benefit plans

1 January 2013

IAS 27

Separate Financial Statements (2011)

1 January 2013

IAS 28

Investments in Associates and Joint Ventures (2011)

1 January 2013

IFRS 7 amendment

Disclosures – Offsetting Financial Assets and Financial Liabilities

1 January 2013

Various

Improvements to International Financial Reporting Standards 2012

1 January 2013

IAS 32

Offsetting Financial Assets and Financial Liabilities

1 January 2014

IAS 36

Recoverable amount disclosures for Non-financial Assets

1 January 2014

IFRS 9 (2009)

Financial Instruments

1 January 2015

IFRS 9 (2010)

Financial Instruments

1 January 2015

All the standards listed above are applicable to the company and will be adopted on their effective dates. Management is of the view that the effects on disclosure would be minimal, and would result in some enhanced disclosure. The effects on recognition and measurement would be limited, save for the adoption of IFRS 10. This new standard replaces the consolidation requirements in SIC 12 – Consolidation – Special Purpose Entities (SPE) and IAS 27 – Consolidated and Separate Financial Statements. This new standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company and provides additional guidance to assist in the determination of control where this is difficult to assess. In line with the new standard, the company will reassess the treatment of the 10th anniversary employees’ share scheme and the SPEs. In the event of the assessment indicating that consolidation is required, the impact would not be considered to be material.

City Lodge Hotel Group

SEGMENT ANALYSIS for the year ended 30 June 2013 The segment information has been prepared in accordance with IFRS 8 – Operating Segments (IFRS 8) which defines the requirements for the disclosure of financial information of an entity’s operating segments. The standard requires a “management approach” whereby segment information is presented on the same basis as that used for internal reporting purposes to the chief operating decision-maker/s who have been identified as the group’s executive directors. These individuals review the group’s internal reporting by hotel brand in order to assess performance and allocate resources. Depreciation for reportable segments is an asymmetrical expense as assets are not classified by segment. The depreciation charge for each reportable segment relates to furniture, fittings and equipment, while the majority of the charge for central office and other relates to hotel buildings. The measurement policies the group uses for segment reporting under IFRS 8 are the same as those used in its financial statements. City Lodge R000 Revenue EBITDAR Land and hotel building rental EBITDA Depreciation

2013 553 036 331 688

(26 314)

2012

Town Lodge 2013

2013

2012

161 851 227 131 78 106 127 308

214 720 124 527

2012

481 682 178 892 285 274 85 903

(25 570)

Road Lodge

(5 811)

(7 046) (10 768)

Central Office and other 2013

2013

2012

16 834 (71 804)

17 569 975 893 (51 624) 473 095

875 822 436 283

(61 410)

(60 553) (61 410) 411 685 (35 150) (79 011)

(60 553) 375 730 (78 375)

2012

(10 609) (36 118)

Results from operating activities Share of profit/ (loss) from jointly controlled entities

Total

16 006

332 674

297 355

16 006

(125)

(125)

Geographical information

Revenue Non-current assets – property, plant and equipment

Total

2013

2012

2013

2012

2013

2012

975 138

875 822

755



975 893

875 822

1 053 927

1 092 492

14 714



1 068 641

1 092 492

133

R000

Rest of Africa

EBITDAR represents earnings after BEE transaction charges but before interest, taxation, depreciation and rental. EBITDA represents earnings after BEE transaction charges but before interest, taxation and depreciation.

City Lodge Hotel Group

Integrated Report 2013

South Africa

SHAREHOLDERS' ANALYSIS as at 30 June 2013 SHAREHOLDER SPREAD Beneficial shareholders with holdings exceeding 1% Enderle SA (Pty) Limited* Aberdeen Emerging Market Smaller Co Vuwa Investments (Pty) Limited The Injabulo Staff Trust* Government Employees Pension Fund (PIC) University of Johannesburg School for Tourism and Hospitality (ZA) Somerset Emerging Markets Small Cap Fund (US) Aberdeen Institutional Commingled Funds (US) Fidelity EM Europe, Middle East and Africa (LU) Danske Inv Global Emerging Markets Small Cap (LU) Old Mutual Life Assurance Company Limited (ZA) Fidelity International Small Cap Fd (US) Trustees City Lodge 10th Anniversary (ZA)* Government of Norway (NO) Deutsche Securities (Pty) Limited (ZA) Eskom Pension and Provident Fund (ZA) Danske Inv Nye Markeder Small Cap (DK) Sanlam Institutional Special Opportunity Total

Number of % of total shares owned issued shares 4 316 479 4 061 999 2 556 185 2 556 120 2 455 708 1 278 060 1 067 450 949 073 810 401 730 280 724 004 649 598 611 035 520 310 515 203 481 418 457 469 449 916

10,01 9,42 5,93 5,93 5,69 2,96 2,48 2,20 1,88 1,69 1,68 1,51 1,42 1,21 1,19 1,12 1,06 1,04

25 190 708

58,42

Integrated Report 2013

134

*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 Hotel Group

SHAREHOLDER SPREAD Number of holders

% of total shareholders

Number of shares

% of issued capital

8 591 1 606 184 46 8

82,33 15,39 1,76 0,44 0,08

1 557 916 4 635 881 4 783 402 13 354 385 18 791 069

3,61 10,75 11,09 30,97 43,58

10 435

100,00

43 122 653

100,00

Number of holders

% of total shareholders

Number of shares

% of issued capital

Non-public shareholders – Directors – Other Public shareholders

17 4 13 10 418

0,16 0,04 0,12 99,84

11 748 476 341 034 11 407 442 31 374 177

27,24 0,79 26,45 72,76

Total

10 435

100,00

43 122 653

100,00

Total shareholding

% of issued capital

South Africa United States of America and Canada United Kingdom Rest of Europe Rest of world

31 012 046 4 069 253 348 267 7 608 016 85 071

71,92 9,43 0,81 17,64 0,20

Total

43 122 653

100,00

Shareholder spread 1 – 1 000 shares 1 001 – 10 000 shares 10 001 – 100 000 shares 100 001 – 1 000 000 shares 1 000 001 shares and above Total Wh>/EEKEͳWh>/^,Z,K>/E'^ Shareholder type

Integrated Report 2013

Region

135

GEOGRAPHIC SPLIT OF BENEFICIAL SHAREHOLDERS

City Lodge Hotel Group

MEMBERS͝ DIARY

&/EE/>zZͳE

30 June

ANNUAL GENERAL MEETING

November

REPORTS Announcement of results for the half-year Announcement of annual results Annual financial statements

February August September/October

DIVIDENDS Declaration

Integrated Report 2013

136

Payment

City Lodge Hotel Group

Interim Final Interim Final

February August March/April September/October

NOTICE OF ANNUAL GENERAL MEETING

City Lodge Hotels Limited Registration number: 1986/002864/06 Share code: CLH ISIN: ZAE000117792 Notice is hereby given to shareholders recorded in the company’s securities register on 4 October 2013 that the twenty-seventh annual general meeting of shareholders of City Lodge Hotels Limited will be held at The Lodge, Bryanston Gate Office Park, corner Homestead Avenue and Main Road, Bryanston on Thursday, 14 November 2013 at 14:00 for purposes of dealing with the following business and considering, and if deemed fit, passing with or without modification, the resolutions set out hereunder. Meeting participants (including shareholders and proxies) are, in accordance with the provisions of section 63(1) of the Companies Act, 71 of 2008 (the Act) required to provide reasonably satisfactory identification before being entitled to attend or participate in the shareholders’ meeting. Acceptable forms of identification include valid identity documents issued by the Department of Home Affairs, driver’s licences and passports. Important dates and times Last day to trade in order to be eligible to vote at the meeting/record date for determining which shareholders are entitled to receive notice of AGM Record date for attending and voting at the meeting (meeting record date) Last day for shareholders to lodge forms of proxy by 14:00 on AGM to be held at 14:00 Announce results of AGM on SENS

Friday, 1 November 2013 Friday, 8 November 2013 Tuesday, 12 November 2013 Thursday, 14 November 2013 Thursday, 14 November 2013

Integrated Report 2013

137

AS ORDINARY BUSINESS 1. To present the consolidated audited annual financial statements for the year ended 30 June 2013 (as set out on pages 83 to 134 of this Integrated Report), together with the directors’ and external auditors’ reports and the reports of the audit committee and social and ethics committee, as distributed.

City Lodge Hotel Group

NOTICE OF ANNUAL GENERAL MEETING

(continued)

2. Ordinary resolution number 1: Reelection of directors To elect, by way of a series of votes, the following directors who retire by rotation in accordance with the provisions of the Act, and the company’s memorandum of incorporation (MOI), and who, being eligible, offer themselves for re-election: Ordinary resolution number 1.1 “RESOLVED THAT Dr K I M Shongwe be and is hereby re-elected as a director of the company.” Ordinary resolution number 1.2 “RESOLVED THAT Mr F W J Kilbourn be and is hereby re-elected as a director of the company.” Ordinary resolution number 1.3 “RESOLVED THAT Miss W M Tlou be and is hereby re-elected as a director of the company.” Brief biographies in respect of each retiring director appear on pages 28 and 29 of this Integrated Report. 3. Ordinary resolution number 2: Reappointment of external auditor Upon the recommendation of the audit committee to reappoint KPMG Inc. as the independent auditors of the company for the ensuing year to hold office until the next annual general meeting, with Mr J Wessels as the designated partner and to authorise the audit committee to determine the auditors’ terms of engagement and remuneration. “RESOLVED THAT KPMG Inc. be and are hereby reappointed as the auditors of the company for the ensuing year, with Mr J Wessels as the designated partner and that the audit committee be and is hereby authorised to determine the auditors’ terms of engagement and remuneration.”

Integrated Report 2013

138

4. Ordinary resolution number 3: Appointment of group audit committee members To elect, by way of a series of votes, and subject, where necessary, to their re-election as directors of the company in terms of ordinary resolution 1 above, the following independent non-executive directors as members of the audit committee to hold office until the next annual general meeting: Ordinary resolution number 3.1 “RESOLVED THAT Mr S G Morris be and is hereby elected as a member and the chairman of the audit committee.” Ordinary resolution number 3.2 “RESOLVED THAT Mr F W J Kilbourn be and is hereby elected as a member of the audit committee.” Ordinary resolution number 3.3 “RESOLVED THAT Mr I N Matthews be and is hereby elected as a member of the audit committee.” Ordinary resolution number 3.4 “RESOLVED THAT Mrs N Medupe be and is hereby elected as a member of the audit committee.” As special business, to consider and, if deemed fit, to pass, with or without modification, the following resolutions: 5. Ordinary resolution number 4: Signature of documents “RESOLVED THAT any one director and/or the group company secretary 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 all the resolutions set out in this notice convening this annual general meeting at which this ordinary resolution will be considered.”

City Lodge Hotel Group

6. Endorsement of remuneration policy To endorse, through a non-binding advisory vote, to ascertain the shareholders’ view, the company’s remuneration policy (excluding the remuneration of the non-executive directors) and its implementation, as set out in the remuneration report contained on pages 68 to 76 of the Integrated Report. In terms of the King III Report, an advisory vote on the company’s remuneration policy should be obtained from shareholders. The vote allows shareholders to express their views on the remuneration policies adopted and the implementation thereof, but will not be binding on the company. 7. Special resolution number 1: Approval of non-executive directors’ remuneration “RESOLVED THAT the remuneration payable to non-executive directors be approved as follows: • 1 July 2013 to 30 June 2014 Annual fee payable with effect from 01/07/2013

R1 500,00 capped at R30 000,00

139

Ad hoc/temporary committee

R689 500,00 R194 500,00 R150 000,00 R122 350,00 R57 800,00 R108 900,00 R49 700,00 R83 950,00 R38 700,00 R55 000,00

• thereafter, but only until expiry of 24 months from the date of passing this special resolution has expired, or until amended by a special resolution passed prior to the expiry of such period, on the same basis as set out above, escalated as determined by the board by not more than 10% per annum per amount."

City Lodge Hotel Group

Integrated Report 2013

Chairman of the board Services as lead independent director Services as a director Chairman of audit committee – Other audit committee members Chairman of remuneration committee – Other remuneration committee members Chairman of risk committee – Other risk committee members Chairman of social and ethics committee

Hourly rate payable with effect from 01/07/2013

NOTICE OF ANNUAL GENERAL MEETING

(continued)

The reason for and effect of special resolution number 1 In terms of sections 65(11)(h), 66(8) and 66(9) of the Act, a company may only remunerate its directors for their services as directors in accordance with a special resolution approved by shareholders. The reason for and effect of the proposed resolution is to ensure that the level of fees paid to non-executive directors remains market-related and accords with the greater accountability and risk attached to the position. The board, on the recommendation of the remuneration and nomination committee, has accepted the fees proposed in special resolution number 1 and recommends same for approval by shareholders.

Integrated Report 2013

140

Refer to page 106 for full particulars on the remuneration paid to non-executive directors during the year under review and to the remuneration report on pages 68 to 76 for further detail on the company’s remuneration practices. 8. Special resolution number 2: Financial assistance “RESOLVED THAT: to the extent required by sections 44 and/or 45 of the Act, the board of the company may, subject to compliance with the requirements of the company’s MOI, the Act and the JSE Listings Requirements, each as presently constituted and as amended from time to time, authorise the company to provide direct or indirect financial assistance in such amounts as the board of the company may from time to time resolve, by way of loan, guarantee, the provision of security or otherwise, to: (i) any of its present or future subsidiaries and/or any other company or entity that is or becomes related or inter-related to the company, for any purpose or in connection with any matter, including, but not limited to, the subscription of any option, or any securities issued or to be issued by the company or a related or inter-related company, or for the purchase of any securities of the company or a related or inter-related company; and/or (ii) any person who is a participant in any of the company’s share or other employee incentive scheme, for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to be issued by the company or a related or inter-related company, or for the purchase of any securities of the company or a related or inter-related company, where such financial assistance is provided in terms of any such scheme that does not satisfy the requirements of section 97 of the Act, at any time during the period commencing on the date of the passing of this resolution and ending on the next annual general meeting.”

City Lodge Hotel Group

The reason for the effect of special resolution number 2 Notwithstanding the title of section 45 of the Act, being “Loans or other financial assistance to directors”, on a proper interpretation, the body of the section also applies to financial assistance provided by a company to any related or interrelated company or corporation, a member of a related or inter-related corporation and to a person related to any such company, corporation or member. Further, section 44 of the Act may also apply to the financial assistance so provided by a company to any related or interrelated company or corporation, a member of a related or inter-related corporation, or a person related to any such company, corporation or member, in the event that the financial assistance is provided for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to be issued by the company or a related or inter-related company, or for the purchase of any securities of the company or a related or inter-related company.

City Lodge Hotel Group

Integrated Report 2013

As part of the normal conduct of the business of the group, the company, where necessary, usually provides guarantees and other support undertakings to third parties which enter into financial agreements with its local and foreign subsidiaries and joint ventures or partnerships in which the company or members of the group have an interest. This is particularly so where funding is raised by the foreign subsidiaries of the company, whether by way of borrowings or the issue of bonds or otherwise, for the purposes of the conduct of their operations. In the circumstances and in order to, inter alia, ensure that the company and its subsidiaries and other related and inter-related companies and entities continue to have access to financing for purposes of refinancing existing facilities and funding their corporate and working capital requirements, it is necessary to obtain shareholder approval as set out in this special resolution number 2. The company would like the ability to continue to provide financial assistance, if necessary, also in other circumstances, in accordance with section 45 of the Act.

141

Both sections 44 and 45 of the Act provide, inter alia, that the particular financial assistance must be provided only pursuant to a special resolution of shareholders, adopted within the previous 2 (two) years, which approved such assistance either for the specific recipient, or generally for a category of potential recipients, and the specific recipient falls within that category and the board is satisfied that: (i) immediately after providing the financial assistance, the company would satisfy the solvency and liquidity test (as contemplated in the Act); and (ii) the terms under which the financial assistance is proposed to be given are fair and reasonable to the company.

NOTICE OF ANNUAL GENERAL MEETING

(continued)

Furthermore, it may be necessary for the company to provide financial assistance to any of its present or future subsidiaries, and/or to any related or inter-related company or corporation, and/or to a member of a related or inter-related company, to subscribe for options or securities of the company or another company related or inter-related to it. Under the Act, the company will require a special resolution referred to above to be adopted.

9. Special resolution number 3: General authority to repurchase shares “RESOLVED THAT the company is hereby authorised by way of a general authority to acquire ordinary shares in the share capital of the company subject to the provisions of the Act and the JSE Listings Requirements, provided: • the general authority shall be valid only until the next annual general meeting or for 15 months from the date of this special resolution, whichever period is shorter; • 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; • the company being authorised thereto by its MOI; • 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 their purchase 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; • the company only appointing one agent to effect any repurchases on its behalf.”

Integrated Report 2013

142

Accordingly, the approval of shareholders is sought to ensure that the company, its subsidiaries and other related and inter-related companies is able to effectively organise its internal financial administration.

City Lodge Hotel Group

The directors, having considered the effects of the repurchase of the maximum number of ordinary shares in terms of the foregoing 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 Integrated 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 – pages 28 to 31. • major beneficial shareholders – page 134. • directors’ interests in ordinary shares – page 81. • share capital of the company – page 101. Litigation statement The directors, whose names appear on pages 28 and 29 of the Integrated 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 a material effect on the group’s financial position in the 12 (twelve) months preceding the date of this notice of annual general meeting.

City Lodge Hotel Group

Integrated Report 2013

Material changes Other than the facts and developments reported on in the annual financial statements, there have been no material changes in the affairs, financial or trading position of the company and its subsidiaries since the date of signature of this Integrated Report and up to the date of posting.

143

Directors’ responsibility statement The directors, whose names appear on pages 28 and 29 of the Integrated 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.

NOTICE OF ANNUAL GENERAL MEETING

(continued)

Reason for and effect of special resolution number 3 The reason for and effect of the special resolution is to grant the company and its subsidiaries a general authority in terms of the Act and the JSE Listings Requirements to acquire shares in the company. The board has 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 the board deems to be in the best interests of the company and its shareholders, taking prevailing market conditions and other factors into consideration. 10. Special resolution number 4: Amendment of memorandum of incorporation “RESOLVED THAT the following amendments to the memorandum of incorporation (MOI) adopted by shareholders in general meeting on 15 November 2013, be and they are hereby approved: 1. the deletion of the existing clause 1.2.3 and the substitution therefor of the following new clause 1.2.3: “1.2.3 "Deliver" means deliver in the manner in which the company is entitled to give notice or deliver documents in accordance with clause 34 (Notices) and the Companies Act and Regulations and shall, where permitted by the Companies Act and the Listings Requirements of the JSE, include delivery of an abridged document together with instructions as to how the recipient may obtain an unabridged version of such document;” 2. the deletion of the existing clause 1.2.17 and the substitution therefor of the following new clause 1.2.17: “1.2.17 “Writing” or “Written” includes electronic communication and delivery of a data storage device containing electronic communication, but as regards any Holder entitled to vote, only to the extent that such holder has notified the company of an electronic address.”

Integrated Report 2013

144

The reason for and effect of special resolution number 4 The purpose of the above amendment is to allow for the giving of notice or delivery of documents by electronic means and to ensure that the information contained on data storage devices, such as compact discs and flash drives, will be considered to be "written" for the purposes of the MOI. The MOI, as amended, is available for inspection at the company’s registered office during normal business hours at any time prior to the commencement of the annual general meeting and should be read in its entirety for a full appreciation of the contents thereof.

City Lodge Hotel Group

Voting and proxies A shareholder 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 shareholder of the company. The form of proxy is only to be completed by those shareholders who are: holding shares in certificated form; or recorded on the sub-register in dematerialised form in ‘own name’, and is attached for convenience. 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 are requested to be forwarded to reach the company’s transfer secretaries by not later than 14:00 on Tuesday, 12 November 2013.

City Lodge Hotel Group

Integrated Report 2013

Electronic participation The company intends to offer shareholders or their proxy’s reasonable access to attend the annual general meeting through electronic conference call facilities, in accordance with the provisions of the Act. In the event that a shareholder or his/her proxy wishes to participate electronically in the annual general meeting, he/she is required to deliver written notice to the company at City Lodge Hotels Limited, Bryanston Gate Office Park, Building 7 (The Lodge), corner Homestead Avenue and Main Road, Bryanston, alternatively [email protected], marked for the attention of Mrs Melanie van Heerden, the company secretary, by no later than 14:00 on 7 November 2013 that he/she wishes to participate via electronic communication at the AGM (the electronic notice). In order for the electronic notice to be valid it must contain: (a) if the shareholder is an individual, a certified copy of his identity document and/or passport; (b) if the shareholder is not an individual, a certified copy of a resolution by the relevant entity and a certified copy of the identity documents and/or passports of the persons who passed the relevant resolution, which resolution must set out who from the relevant entity is authorised to represent the relevant entity at the annual general meeting via electronic communication; and (c) a valid email address and/or facsimile number (the contact address/number).

145

The completion of a proxy form will not preclude a shareholder from attending the annual general meeting.

NOTICE OF ANNUAL GENERAL MEETING

(continued)

Voting on shares will not be possible via electronic communication and accordingly shareholders participating electronically and wishing to vote their shares at the annual general meeting will need to be represented at the annual general meeting, either in person, by proxy or by letter of representation. The company shall use its reasonable endeavours on or before 14:00 on 11 November 2013 to notify a shareholder, who has delivered a valid electronic notice, at its contact address/number, of the relevant details through which the shareholder can participate via electronic communication. The company reserves the right not to provide for electronic participation at the annual general meeting in the event that it determines that it is not practical to do so, or an insufficient number of shareholders or proxies request to so participate. The cost of participating through the electronic conference call facilities will be for the account of the shareholder or his/her proxy.

By order of the board

M C van Heerden

Group company secretary

Integrated Report 2013

146

Bryanston 30 September 2013

City Lodge Hotel Group

FORM OF PROXY – CITY LODGE HOTELS LIMITED

For use at the twenty-seventh annual general meeting of members to be held on Thursday, 14 November 2013 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, 14 November 2013 at 14:00 and at any adjournment thereof. Abstain

In favour of Against

1.

Adoption of the annual financial statements

7.

2.

Ordinary resolution 1 – Re-election of retiring directors

7.1

Chairman

7.2

Lead independent director

2.1

Dr K I M Shongwe

7.3

Services as director

2.2

Mr F W J Kilbourn

7.4

Chairman of audit committee

7.5

Other audit committee members

7.6

Chairman of remuneration and nomination committee

7.7

Other remuneration and nomination committee members

3.

Miss W M Tlou Ordinary resolution 2 – To reappoint KPMG Inc. as the independent auditors of the company for the ensuing year with J Wessels as the engagement partner and to authorise the directors to determine the auditors’ remuneration

4.

Ordinary resolution 3 – Appointment of group audit committee members

4.1

Mr S G Morris

4.2

Mr F W J Kilbourn

4.3

Mr I N Matthews

4.4

Mrs N Medupe

5.

Ordinary resolution 4 – Signature of documents

6.

Endorsement of remuneration policy

Signature

Special resolution 1 – Approval of nonexecutive directors’ remuneration

7.8

Chairman of risk committee

7.9

Other risk committee members

7.10 Chairman of social and ethics committee 7.11 Ad hoc/temporary committee 8.

Special resolution 2 – Financial assistance

9.

Special resolution 3 – General authority to repurchase shares

10.

Special resolution 4 – Amendment of memorandum of incorporation

147

2.3

Abstain

Integrated Report 2013

In favour of Against

Date

Assisted by me (where applicable) City Lodge Hotel Group

FORM OF PROXY – CITY LODGE HOTELS LIMITED

1. This form of proxy is to be completed only by certificated shareholders or dematerialised shareholders whose shares are recorded in their “own name”. 2. Shareholders whose dematerialised shares are held in the name of a nominee and who 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 must be done in terms of the agreement between the shareowner and the CSDP or the broker. 3. Shareholders 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, Computershare Investor Services (Pty) Limited (Computershare) by no later than 14:00 on Tuesday, 12 November 2013.

Integrated Report 2013

148

4. Each shareholder is entitled to appoint a proxy (who need not be a shareholder of the company) to attend, speak and vote (either on a poll or by show of hands) in place of that shareholder at the annual general meeting. 5. A shareholder may insert the name of a proxy of the shareholder’s choice in the space provided, with or without deleting “the chairman of the meeting”. All deletions must be individually initialled by the shareholder, failing which they will not have been validly effected. Should a proxy not be specified, this will be exercised by the chairman of the annual general meeting. 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. 6. Voting instructions for each of the resolutions must be completed by filling in an “X”, alternatively the number of votes (one per ordinary share) under the “In favour of”, “Against” or “Abstain” headings on the form of proxy. If no instructions are filled in on the form of proxy, the chairman

City Lodge Hotel Group

(continued)

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. 7. A shareholder or his/her proxy is entitled but not obliged to vote in respect of all the ordinary shares held by the shareholder. The total number of votes for or against the resolutions and in respect of which any abstention is recorded may, however, not exceed the total number of shares held by the shareholder. 8. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy unless previously recorded by Computershare or waived by the chairman of the annual general meeting. 9. 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. 10. Any alterations or corrections to this form of proxy must be initialled by the signatory(ies). 11. The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the annual general meeting and speaking and voting in person instead of the duly appointed proxy. 12. Form of proxy must be received by Computershare, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107), by no later than 14:00 on Tuesday, 12 November 2013. 13. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered by Computershare. 14. A proxy may not delegate his/her authority to act on behalf of the shareholder to another person.

ADMINISTRATION

City Lodge Hotels Limited

Transfer secretaries

Incorporated in the Republic of South Africa

Computershare Investor Services (Pty) Limited

Registration number 1986/002864/06

70 Marshall Street

ISIN: ZAE 000117792

Johannesburg, 2001

Share code: CLH

PO Box 61051 Marshalltown, 2107

Company secretary

Auditors

M C van Heerden

KPMG Inc.

Registered office The Lodge

Bankers

Bryanston Gate Office Park

The Standard Bank of South Africa Limited

Corner Homestead Avenue and Main Road

Attorneys

Bryanston

Edward Nathan Sonnenbergs

PO Box 97 Cramerview, 2060

Sponsor

Telephone: +27 11 557 2600

J P Morgan Equities Limited

Facsimile

+27 11 557 2670

Email:

[email protected]

Websites: www.citylodge.co.za www.bid2stay.co.za

The cover of this annual report is printed on Trucard Recycled Matt 330gsm. It contains 50% post-consumer de-inked pulp, is FSC certified and carries the NAPM mark. The front section is printed on Magno Matt 135gsm, which only uses wood from sustainable forests, is manufactured from TCF (totally chlorine free) pulp and is acid free. The financials have been printed on Cartridge 105gsm. A minimum of 30% fibre used in making this paper comes from well-managed forests independently certified according to the rules of the FSC.

BASTION GRAPHICS

I N T E G R AT E D R E P O R T 2013