CITY LODGE

HOTELS LIMITED A n n u a l R e p o r t 2 0 0 1p e o p l e

p r o d u c t s

p o t e n t i a l

Group profile

1 Group activities

11 Financial highlights

12 Directorate

13 Executive chairman’s and

managing director’s report

16 Seven-year financial review

20 Corporate governance statement

21 Administration

21 Financial statements

44 Value added statement

45 Ownership of ordinary shares and

convertible debentures

46 Notice of annual general meeting

47 Form of proxy

IBC Members’ diary

THROUGH THE VISION of founder, Swiss-born Hans Enderle, and the financial backing

of the Mine Pension Funds, City Lodge Bryanston became the catalyst for what today is

South Africa’s leading selected services hotel chain.

FROM THE START, emphasis was placed on quality accommodation, homely ambience

and friendly service – and these are still hallmarks of the group today.

AFTER PIONEERING the quality, selected services hotel concept in South Africa, the

group was incorporated in July 1986 and has since substantially grown and diversified

its product offering to meet different travellers’ needs.

IN 1990, the second-tier Town Lodge concept was started and has proved highly

popular. On 18 November 1992, the group successfully listed on the JSE Securities

Exchange South Africa.

IN 1995, the group acquired a 50% interest in the companies associated with the

upmarket Courtyard Suite Hotel chain and also opened its first Road Lodge, a concept

aimed mainly at budget conscious travellers.

WITH SIX Courtyards (424 suites), ten City Lodges (1 474 rooms), six Town Lodges

(713 rooms) and ten Road Lodges (855 rooms), the City Lodge group has 3 466 rooms

and suites and ranks amongst the 250 largest hotel chains in the world.

ON THE OCCASION of the group’s 10th anniversary on 1 August 1995, The City Lodge

10th Anniversary Employees Share Trust was launched which enabled all employees to

become shareholders.

COMMITMENT TO SERVICE excellence from a highly motivated and dedicated staff is

a common thread throughout the group’s hotels which have developed a loyal clientele

of both business and leisure travellers over the past years.

The City Lodge Hotels group has come a long way

from its relatively humble beginnings – a 123-room

City Lodge in Bryanston, opened on 1 August 1985

page 1

You haven’t felt like this before

The Courtyard Suite Hotels offer the discerning guest an exclusive and gracious alternative to an ordinary

hotel. Each Courtyard has its own distinct, secure atmosphere, although they all share an air of elegance and

charm not often found today. There are three accommodation options available: studio suites and one or

two bedroomed suites, each of which offers satellite television, a lounge area with a dining table and a

kitchenette with refrigerator and microwave oven. A personal shopping service is also provided for guests

who supply the hotel with a list in advance of their arrival, and arrangements are made accordingly for the

kitchenette to be stocked with the finest quality food and beverages.

Suites

● Studio, one or two bedroomed luxury suites ● International direct dial telephone in each suite

● En-suite luxury bathroom ● Remote controlled colour television with

● Private access to your own suite M-Net and DStv

● Concealed kitchenette ● All suites are air-conditioned

● Digital safe in each room

Services

● Personal shopping service

● Intimate lounge area

● Courtesy bar (17h00 – 19h00)

● 24 hour enhanced security

● Secure parking just metres from your door

● An elegant boardroom for guest use

● Complimentary use of guest office and

electronic facilities

● Sparkling pool in landscaped garden setting

● Full English and Continental breakfast daily

● In-suite dining by arrangement with local restaurants

● Same-day laundry and dry cleaning service,

weekdays only

page 2

Growing > Despite a sluggish domestic economy

and disappointing foreign tourist arrivals, the group

achieved double-digit increases in revenue, earnings

and dividends

Current locations

Cape Town, Johannesburg

(Bruma Lake, Rosebank, Sandton),

Pretoria (Arcadia)

Port Elizabeth

page 3

The smart alternative for people who appreciate a hotel which is just as comfortable on

their pocket

City Lodge has become a household name in the southern African market, providing guests with

comfortable and tastefully decorated rooms which are the ideal place to make one’s own at the end of the

day – whether guests have been working or playing. Each room has an en-suite bathroom where one may

choose to soak in a long hot bath whilst deciding where to dine that evening.

Rooms

● Fully carpeted, spacious air-conditioned room with double bed

● Colour television with all popular channels and radio

● Digital safe in each room

● En-suite bathroom

● Tea and coffee making facilities and ice jug in every room

● Rooms with a sleeper-sofa available on request

● Rooms with two separate beds for twin accommodationServices

● Convenient locations, close to major routes

● 24- hour reception and check-in

● Delicious City Lodge breakfasts every

morning

● Sundowner bar

● 24-hour vending machines stocked with

snacks and cold beverage items

● Fax and photocopy services available

● Same-day laundry and dry cleaning

● Fitness room

● Sparkling swimming pool

● Boardroom

● Free and convenient parkingpage 4

People > The hospitality industry is all about people and

we pride ourselves as a group made up of people

serving and caring for people. After all, our stated

dynamic is “People Caring for People”

Current locations

Bloemfontein, Cape Town

(Pinelands, V&A Waterfront,

GrandWest), Durban, Johannesburg

(Johannesburg International Airport,

Bryanston, Sandton Katherine Street,

Sandton Morningside), Port Elizabeth

page 5

The smart alternative for people who have more sense than money

Very much like City Lodges, Town Lodges are also strategically located adjacent to motorways and major

routes. The rooms are slightly smaller, but nevertheless offer similar stylish decor and the customary comfort

of a double bed. En-suite you will find a maxi-shower with a glass door, a tiled built-in seat, a wall-mounted

and a hand-held showerhead.

Rooms

● Fully carpeted, spacious air-conditioned room with a double bed

● Colour television and radio with all popular channels

● Interleading family rooms available

● En-suite bathroom with maxi shower

● Tea and coffee making facilities and ice jug in every room

Services

● Convenient location, close to major routes

● Free easy parking

● 24-hour reception and check-in

● Traditional Town Lodge breakfast every

morning

● 24-hour vending machine for snacks and

beverages

● Fax and photocopying services available

● Same-day laundry and dry cleaning

page 6

Products > Our products are dynamic and constantly

evolving to meet the changing needs of our guests on

an ongoing basis

Current locations

Bellville, Johannesburg

(Johannesburg International Airport,

Midrand, Sandton Grayston Drive),

Nelspruit, Pretoria (Menlo Park)

Opening soon

Pietersburg

page 7

Why pay more

The best value in the City Lodge family of hotels is undoubtedly to be found at the Road Lodge, which offers

unbelievable value-for-money and the same rate whether there are one, two or even three people sharing.

The comfortably furnished and tastefully decorated rooms all have an en-suite shower, toilet and hand basin.

Rooms

● Fully carpeted and air-conditioned

● Colour television and radio channels

● En-suite bathroom with shower, toilet and hand basin

● Double bed with single sleeper chair

● Working desk

● Direct-dial telephone for free local calls

Services

● A light breakfast is available

● 24-hour vending machines stocked with

snacks and beverages

● Ample free parking

● 24-hour reception service

● Coin and card call-boxes for trunk calls

Potential > We are constantly seeking ways to select

the most appropriate opportunities for the benefit of

all stakeholders

Current locations

Cape Town (N1 City), Durban,

Johannesburg (Brakpan –

Carnival City, Germiston Lake, Isando,

Johannesburg International Airport,

Randburg, Rivonia), Nelspruit,

Port Elizabeth

Opening soon

Kimberley

page 8

Why pay more

The best value in the City Lodge family of hotels is undoubtedly to be found at the Road Lodge, which offers

unbelievable value-for-money and the same rate whether there are one, two or even three people sharing.

The comfortably furnished and tastefully decorated rooms all have an en-suite shower, toilet and hand basin.

Rooms

● Fully carpeted and air-conditioned

● Colour television and radio channels

● En-suite bathroom with shower, toilet and hand basin

● Double bed with single sleeper chair

● Working desk

● Direct-dial telephone for free local calls

Services

● A light breakfast is available

● 24-hour vending machines stocked with

snacks and beverages

● Ample free parking

● 24-hour reception service

● Coin and card call-boxes for trunk calls

Potential > We are constantly seeking ways to select

the most appropriate opportunities for the benefit of

all stakeholders

Current locations

Cape Town (N1 City), Durban,

Johannesburg (Brakpan –

Carnival City, Germiston Lake, Isando,

Johannesburg International Airport,

Randburg, Rivonia), Nelspruit,

Port Elizabeth

Opening soon

Kimberley

page 8

page 9

CITY LODGE

HOTELS LIMITED

p e o p l e

p r o d u c t s

p o t e n t i a l

page 10

City Lodge

Road Lodge

Town Lodge

Courtyard Suite Hotels

Growing our footprint

CAPE TOWN

DURBAN

JOHANNESBURG

PRETORIA

CITY LODGE

HOTELS LIMITED

City Lodge Hotels Limited

Financial highlightsfor the year ended 30 June

2001 2000

%

Turnover (R’m) 193,3 16 166,2

Operating profit (R’m) 90,9 15 78,9

Headline earnings (R’m) 38,3 14 33,5

Headline earnings per share (cents) 135,5 14 118,4

Fully diluted headline earnings per share (cents) 103,7 12 92,7

Dividends per share (cents) 62,5 12 56,0

Operating cash flow per share (cents) 156,2 19 131,1

Convertible debentures (cents)

Price at year end

400

1 000

1 600

2 200

2 800

3 400

4 000

2001200019991998199719961995199419931992

Ordinary shares (cents)

Price at year end

400

1 000

1 600

2 200

2 800

3 400

4 000

2001200019991998199719961995199419931992

p e o p l e

p r o d u c t s

p o t e n t i a l

page 11

Stock exchange performance

page 12

City Lodge Hotels Limited

Board of directors

From left standing:

A J BALABANOFF● (41)

Operations Director

23 years experience in the hotel

industry

G D BISSET● (47)

Operations Director

28 years experience in the hotel

industry

A C WIDEGGER*● (35)

Financial Director

Chartered Accountant (SA)

From left seated

H R ENDERLE (59)

Group Executive Chairman

45 years experience in

the hotel industry

C ROSS● (44)

Managing Director

27 years experience in the hotel

industry*Member of audit committee †Member of remuneration committee

●Member of executive committee

D C COUTTS-TROTTER* (39) W M DICKSON (70) D A HAWTON† (64)

F W J KILBOURN (39) I N MATTHEWS*† (56)

A B MORRIS● (32)

Property and Development

P M SCHOEMAN● (36)

Sales and Marketing

P J TATE● (45)

Operations

Divisional directors

Non-executive directors Executive directors

Dear fellow shareholders,

The theme of this year’s report is Growing

through our three Ps – People, Products

and Potential. Unquestionably the

most important is people, for without

them we would not have a business on

which to report.

Ours is essentially a people business and

it is on people, whether they be staff,

guests, shareholders or suppliers, that our

group has depended since our humble

beginnings in 1985 and the same applies

all these years later. At 30 June 2001, the

group directly employed 872 staff and

had 928 registered share and debenture

holders. Not a vast conglomerate, but

certainly an important contributor to

the South African economy.

Far removed from a finite thing waiting

to be bought, we see our product as

something that is dynamic and constantly

evolving in order to meet the changing

needs of our guests on an ongoing basis.

There is simply no room for complacency

in a highly competitive environment.

As for potential, this is all about the

enthusiasm we have for the future

based on the quality of our people and

product and the great potential our

beautiful country has in terms of both

economic growth and tourism.

Opportunities abound and we are

constantly seeking ways to select the

most appropriate ones for the benefit

of all stakeholders.

Rest assured that the management and

staff of the City Lodge Hotels group are

committed to achieving growth through

these three Ps on an ongoing basis.

Growing . . . financially

Despite a sluggish domestic economy

and disappointing foreign tourist arrivals,

the group achieved double-digit increases

in revenue, earnings and dividends in

the year to 30 June 2001.

This was mainly due to an increase in

room nights sold, firmer room rates and

an increase in average occupancies to

71% from 69% in fiscal 2000.

Revenue rose 16% to R193,3 million and

operating margins of 47% for the full

year were almost 2% points higher than

at the interim stage as a result of both

firmer room rates and continued tight

cost control.

Fully diluted headline earnings a share

increased 12% to 103,7 cents, prompting

the directors to boost the annual dividend

payout by 12% to 62,5 cents a share.

This resulted in the automatic and com-

pulsory conversion of the 13,6 million

listed convertible debentures to

ordinary shares on a one-for-one basis.

Balance sheet strength has always been

a group priority and this was no

exception in 2000/2001. Net cash

inflow of R44,2 million from operating

activities, an increase of 19%, was

utilised to fund the major portion of the

capital expenditure of R78,3 million for

the period. Of this total, R52,3 million

was in respect of new hotels and the

balance to upgrade existing hotels.

Full year contributions from three new

hotels opened in December 2000 –

Road Lodge Port Elizabeth, Courtyard

Port Elizabeth and City Lodge

GrandWest – will help to boost

turnover in the year ahead.

Gearing levels remain low and the

group is poised to benefit from any

improvements in the flow of domestic

and foreign business and leisure travellers.

Hotels across the four brands –

Courtyard, City Lodge, Town Lodge

and Road Lodge – are operating well

and delivering a value-for-money

service to guests from the one-star to

four-star categories.

People caring for people

As has been mentioned in this report,

people are fundamental to the City

Lodge success story. Nurturing our

own people is a priority.

To this end, the group is taking great

strides towards reaching targeted

employment equity goals. This means

thoroughly embracing the spirit of the

legislation, not merely adhering to the

letter of the law. Substantial and

ongoing progress is being made

towards full implementation of our

employment equity plan by 31 May 2003.

page 13

City Lodge Hotels Limited

Executive chairman’s and managing director’s report

page 14

City Lodge Hotels Limited

Executive chairman’s and managing director’s report(continued)

Closely linked to employment equity is

our workplace skills plan which has

been accepted in its entirety by the

Tourism and Hospitality Education

Training Authority (THETA). As part of

the group’s commitment to training,

substantial capital and time has been

invested in the City Lodge Academy

which in December will produce its

first graduates from a comprehensive

three-year training programme.

While only two managers-to-be will

emerge from the first intake, another

eight trainees are in their second year

and six are in their first year of practical

and theoretical study, boosting our

management pool from the academy

in 2003 and 2004 respectively. It is also

gratifying to note that more than half

of the group’s entire workforce have

attained the lower level national

qualifications administered by the THETA.

A number of our staff have gone a

step further and have signed up to

study for the certificate and diploma

qualifications in hospitality supervision

and management.

These developments bode well for the

future as a more educated staff will

certainly play an important part in our

ongoing commitment to providing

quality service in everything that we do.

It was with great pleasure that we recently

announced the promotion of

Andrew Morris, Peter Schoeman and

Patrick Tate to divisional directors

responsible for Property and Development,

Sales and Marketing and Operations

respectively. We are confident that they

will make a valuable contribution to the

continued success of the group and to

the newly formed Executive Committee.

The committee, which comprises the

executive directors of the company and

the aforementioned divisional directors,

will meet at least monthly. The committee

will play a key role in implementing the

strategies and policies determined by

the board as well as in managing and

monitoring the operational aspects of the

business in accordance with approved

budgets and in compliance with best

management and operating practices.

Product

By focusing on our core philosophies

and values – essentially ”sticking to our

knitting“ – we believe we can continue

to grow our market niche and ensure

ourselves of a bright future. Ongoing

investment of capital and human

resources into making sure that the

group offers value for money in its

market segments will continue to

reap rewards.

We continue to forge ahead with

technological advancements, including

improving the functionality of our

web-site (www.citylodge.co.za) and

ensuring that our group is the most

bookable in the local hotel industry.

Importantly, the web-site is also being

used to link up with other travel

industry service providers such as car

hire firms and airlines.

Internet booths are being piloted at

some hotels and will most likely lead to

more widespread implementation as

we constantly seek to provide guests

with state-of-the-art services.

The Bid2Stay Internet auction site

continues to grow its ”hit rate“ and is

proving to be a useful tool in attracting

guests at off-peak times.

As part of the ongoing ”New Millennium“

conversion programme, a total of

R21,7 million was spent on upgrading

City Lodge Pinelands and City Lodge

Bloemfontein. Next in line for this

makeover of bedrooms, bathrooms and

technological functionality is City Lodge

V&A Waterfront.

In addition to the day-to-day routine

maintenance, the group has a

structured refurbishment programme,

which includes projects such as the

”New Millennium“ conversions and

regular softs replacements. This ensures

that the group keeps up to date with

the latest worldwide trends and remains

ahead of the local market by responding

to our guests’ ever-changing needs.

Over the past seven years, the group

has reinvested an average of 10% of

turnover into existing hotels on the

above programmes. This is very much

in line with international norms.

Towards achieving our target of 5 000

rooms and suites under management

by 2003, three new hotels were

opened during 2000/2001 – Road

Lodge Port Elizabeth, Courtyard Port

Elizabeth and City Lodge GrandWest.

There are now six Courtyard Suite

Hotels, ten City Lodges, six Town

Lodges and ten Road Lodges in the

group offering 3 466 rooms and suites

across South Africa.

This total will soon be boosted to 3 658

when Road Lodge Kimberley (90 rooms)

and Town Lodge Pietersburg

(102 rooms) are added to the repertoire

in early 2002. Both hotels are adjacent

to Sun International casino

developments and will establish the

group’s much requested presence for

the first time in the Northern Cape and

the Northern Province.

Potential

Negotiations are at an advanced stage

on other development sites that meet

our exacting location requirements and

further expansion announcements are

expected in the year ahead.

Despite saturation in some areas, South

Africa and some parts of Southern Africa

still hold considerable potential for

carefully targeted hotel development.

New sites are always being assesssed as

are new innovations that we believe

will help us to continue satisfying

regular clientele and turning first-time

guests into valued repeat visitors.

If we are to realise our potential, we

must keep on listening to our

customers. It is through close

monitoring of guests’ comments that

we have increased the number of

twin-bed rooms in our hotels and

piloted Internet booths. Other changes

and innovations are being examined to

broaden our range of services and

ensure that we are always on the

lookout for ways of complementing

and improving our product offering.

Looking to the future, there are some

bright lights on the horizon for our

group and the broader hospitality

industry. The World Summit on

Sustainable Development to be held in

Johannesburg in September 2002 is

scheduled to be the biggest

international event ever to be staged in

South Africa. Not only will it boost hotel

occupancies and benefit a range of

other service providers for the duration

of and for the weeks leading up to the

summit, it will also hugely boost

awareness of South Africa as a business

and tourism destination. The spin-offs

are sure to be substantial for our country.

The Cricket World Cup to be hosted by

South Africa in 2003 is another

international event that we can look

forward to with eager anticipation. It is

pleasing to note the ongoing enthusiasm

of our Minister of Tourism and

Environmental Affairs and the

appointment of former South African

ambassador to the UK, Cheryl Carolus,

to head up SA Tourism, is certainly a

positive step.

There is no doubt that our country has

enormous untapped potential that

needs to be realized in the interest of all

South Africans – and our group will

continue to enthusiastically do our bit.

Given recent trading trends, the ongoing

negative publicity surrounding the

Zimbabwe situation and the tragic events

of 11 September in the United States

of America, it is difficult and unwise to

predict occupancy levels going forward.

The negative occupancy trend

experienced between April and June

has continued into the current financial

year and it therefore does not appear

likely that the group will increase room

occupancies in the year ahead.

Notwithstanding, it is anticipated that

real earnings per share growth will

be achieved for the full year to

30 June 2002.

We can’t spell success without “u”

It is the commitment and dedication of

staff, shareholders, guests and suppliers

that has brought our group its success

thus far and they will be the essential

ingredients into the future. For your past

loyalties, we are sincerely grateful. We

now invite you to join us as we venture

into the future with a firm foundation

for growth through our people, our

products and the potential we see for

both our company and our country.page 15

City Lodge Hotels Limited

Executive chairman’s and managing director’s report(continued)

Clifford Ross

Group Managing Director

Hans Enderle

Group Executive Chairman