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Sporting a blue jersey and a warm smile, City Lodge Hotels Group CEO Clifford Ross seems far from defeated by the tough economic climate in South Africa, which weighed on earnings in the last financial year, as he discusses the hotel chain’s prospects that include new geographies.
Ross, a tough taskmaster whose affair with the company spans three decades and who marks his 25th year at the helm, is part of the group’s DNA.
Growing up in an Orkney family of six, he dreamt of becoming a doctor but as fate would have it, hospitality – a default choice that’s in turn occupied him for four decades – prevailed.
His day starts at 6AM and his morning ritual includes catching up on emails and newspapers, tracking bookings and occupancies, reading client reviews, and chatting to general managers.
Surrounded by a highly skilled team that includes long-serving financial director Andrew Widdeger and marketing boss Peter Schoeman, Ross, who describes his leadership style as collaborative, deserves credit for steering City Lodge to the league of the 200 largest hotel chains in the world.
However, the latest results point to troubled times – not the ideal way to mark 25 years of being JSE-listed. “It’s been a very tough year,” Ross admits, citing a three-percentage-point slide to 63% in occupancies. Diluted headline earnings per share declined by 6% to 808c, while the dividend declined by 3% to 500c a share in the year to end June, the latest available results.
Tough times in SA
He attributes financial underperformance to political events in SA, which still accounts for the bulk of operations.
“We were doing well (in the third quarter), but the biggest decline happened in the last quarter of the financial year [June quarter].
We all remember the Night of the Long Knives: March 30. Pravin Gordhan was recalled in a Cabinet reshuffle. [The consequent mood] absolutely destroyed a lot of what we had done.
The previous year it was [Nhlanhla] Nene. That too took a lot to recover from,” Ross tells finweek.
The group derives a moderate 6% to 7% of its clientele from government.
But the business travellers segment, City Lodge’s core, is a victim of sentiment, “holding back in an economy that’s not growing”. While clients are buying down, the lower end – including the now-squeezed small- and medium-sized business sector – is cutting hotel spend almost altogether, Ross observes.
“There’s a cascading effect.”
African expansion
City Lodge has also experienced challenges in expanding on the rest of the continent, where its foray began in 2012 with the acquisition of a 50% stake in a hotel in Nairobi (now fully owned), and the development of a Town Lodge in Gaborone.
The group will belatedly open its first greenfield hotel in Kenya in October. It has postponed launches in Dar es Salaam and Maputo to 2018. A Ugandan branch was put on ice indefinitely due to differences with landlords.
Why so many delays? “It’s disappointing but all a new territory for us. It’s been a big learning curve.
We’re learning from our mistakes. We had contractual problems in Nairobi. We suffered bureaucratic red tape in Maputo – there were also language issues,” says Ross. “Also, it can take double the normal time to finish building in some places.”
Though upbeat that things would settle in SA after the ANC’s elective conference in December, Ross, citing no growth, warns the worst is not over. But the troubles in SA don’t mean that City Lodge is about to accelerate its expansion efforts on the rest of the continent.
Though he deems some of those markets “hot”, Ross says his team has taken its “feet off the pedal”. Ethiopia and Rwanda are among the next seven territories identified for growth in the medium to long term (see map). But not all of them inspire confidence.
For one, research by accounting firm PwC shows that occupancies remain mediocre despite relatively low supply in Nigeria, a market on City Lodge’s radar.
Having come off their short-term best of 55% three years ago, occupancy rates have fallen to 44% now (SA’s average is 61%). Another dip is projected when new rooms are added.
Further, lower oil prices have weighed on the economy, and then there’s Sun International’s expensive failed foray into Nigeria, which it exited last year, blaming a struggling economy and a feud with local partners.
“We’ve done a lot of homework; I don’t believe we’re missing anything [in Nigeria] and I’m not saying that in a boastful manner,” says Ross. Mindful of “turmoil” in the oil price, the CEO says even in resource-rich nations in boom times City Lodge looks beyond minerals.
He also cites as a difference that the firm is an owner-operator-manager, where management and staff own shares in the business.
“We’re using our own money because we’re shareholders. We’re not just putting our name on the outside of the building while the building, the cost thereof, the development and so forth belong to somebody else.
“Unlike our competition, we can’t just pull our name off the wall, leaving destitute landlords. It is our money,” he says, letting on the target to earn “25% to 30% of earnings from Africa” in the next five years. Still, Ross says the roll-out will be steady because “we’re cautious by nature and quite conservative by nature”.
That approach has served City Lodge well, with the business growing from a single hotel when it was founded by now-retired Hans Enderle, a Swiss import, in 1985 to 57 hotels in six countries in Southern and East Africa to date.
Asked about fierce competition in Maputo and Nairobi, where the French and fellow South Africans are also piling in, Ross notes that City Lodge targets a separate segment of no-frills, and mostly business, traveller. He speaks of massive demand and is sold on prospects. The past offers inspiration.
“As the pioneers of the ‘select service’ hotel concept in those days, we were told that South African travellers would never accept the concept and there was no chance of success,” he recalls. “The rest is history, as they say.”
This is a shortened version of an article that originally appeared in the 2 November edition of finweek. Buy and download the magazine here.
