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LAF - Lonrho Plc - Prospectus published for admission to the official list and
to trading on the main market (Premium Listing)
Lonrho Plc
(Incorporated and registered in England and Wales)
(Registration number 2805337)
(Share code: LAF; ISIN number: GB0002568813)
("Lonrho" or the "Company" or the "Group")
PROSPECTUS PUBLISHED FOR ADMISSION TO THE OFFICIAL LIST AND TO TRADING ON THE
MAIN MARKET (PREMIUM LISTING)
Following the Company`s announcement on 24th March 2011 Lonrho is delighted to
announce that it has published its prospectus and has made an application for
the admission of its entire issued ordinary share capital to the Official List
of the UK Listing Authority ("Official List") as a Premium Listing and to
trading on the London Stock Exchange`s Main Market for listed securities
("Admission").
Admission is expected on or around 26th April 2011 and dealings in the
Company`s ordinary shares on the Main Market of the London Stock Exchange will
commence at 8.00 a.m. on that day.
Further to the Company`s previous announcement on 24th March 2011, the Company
hereby gives notice that trading in the Company`s ordinary shares on AIM will
be cancelled simultaneously with Admission.
Lonrho`s turnover has grown significantly since its admission to AIM in
February 2001 and the Directors believe that a listing of the Company`s
ordinary shares on the Official List as a Premium Listing is the most
appropriate platform for the continued growth of the Company. Specifically,
the Company`s Board anticipates that trading of the Company`s ordinary shares
on the London Stock Exchange`s Main Market will raise the Company`s profile
and provide the ability for a broader range of institutional and other
investors from around the world to have the ability to participate in the
Company.
The Directors further believe that a listing on the Official List is more
suitable for the existing large institutional investors in the Company`s
shares. The Directors believe that due to the higher number of institutional
investors who regularly trade in companies admitted to the Official List, as
opposed to AIM, the Company will have improved access to the capital markets.
The Company is not raising funds or issuing new shares in connection with
Admission and, accordingly, the interests of existing shareholders of the
Company will not be diluted as a result of the move to the Official List. The
Company`s RIC code and ISIN will continue to be, respectively, LONR and
GB0002568813. On Admission, there will be 1,180,614,449 ordinary shares in
issue.
The Prospectus is available on the Company`s website at www.lonrho.com and is
available for inspection at the offices of the Company`s legal advisers,
Thomas Eggar LLP, Belmont House, Station Way, Crawley, West Sussex, RH10 1JA.
Copies of the Prospectus will be submitted to the National Storage Mechanism
and will shortly be available for viewing online at the following web-site
address: http://www.hemscott.com/nsm.do and www.lonrho.com.
Extracts from the Prospectus (Summary Information and Part 6, Information on
the Company) are set out below. The information should be read as an
introduction to the more detailed information in the Prospectus. Any decision
to invest in the Company should be based on consideration of the Prospectus as
a whole, including Part 2, Risk Factors.
David Lenigas, Lonrho`s Executive Chairman commented:
"This is an important step for Lonrho. The move to the Premium List of the
Main London market will bring access to Lonrho for a wider range of global
institutional and private investors. Africa is increasingly becoming
recognised as a strong emerging market, specifically with significant
opportunities in the oil and agricultural sectors.
Lonrho`s operations provide the essential infrastructure and support services
necessary for these growth industries across seventeen countries in sub
Saharan Africa. As a company solely focused on African economic growth, Lonrho
provides an interesting opportunity for investors who are keen to partake in
this emerging market".
SUMMARY INFORMATION
The following summary information should be read as an introduction to the
more detailed information contained in the Prospectus. Any decision to invest
in the Company should be based on consideration of the Prospectus as a whole.
Where a claim relating to the information contained in this document is
brought by a Shareholder before a court in a member state of the European
Economic Area, the claimant may, under the national legislation of that member
state where the claim is brought, be required to bear the costs of translating
this document before legal proceedings are initiated. Civil liability attaches
to those persons who are responsible for this summary including any
translation of this summary, but only if this summary is misleading,
inaccurate or inconsistent when read together with the other parts of the
Prospectus.
1. Introduction
Lonrho Plc is the holding company of a group exclusively focused on the growth
of Africa.
The Group operates in seventeen countries in Africa in five strategic business
divisions, concentrating on providing the infrastructure and services required
for the growing oil, mineral and agricultural sectors in Africa.
The Group is divided into five divisions:
Agribusiness
Infrastructure
Transportation
Hotels
Support Services
Since 26 February 2001, the Company`s shares have been traded on AIM as well
as being subject to a secondary listing on the Venture Capital Market of the
Johannesburg Securities Exchange.
2. Strategy and key strengths
The Group`s strategy is to grow the turnover and profitability of its business
by concentrating on growing each of its five strategic business divisions,
maintaining its focus on providing the infrastructure and services required
for Africa`s growing oil, mineral and agricultural sectors.
The Board considers that the Group has a number of strengths to support the
realisation of this strategy:
- Brand awareness
- Focus on key sectors
- Risk mitigation in emerging markets
- Africa focus
The Directors consider that the combination of these strengths will enable the
Group to build on its current market position and to maximise its
opportunities in the future.
3. Background to and reasons for the move to the Official List
The Company announced its intention to move from AIM to the Official List on
24 March 2011.
The Group`s turnover has grown significantly since its admission to AIM in
February 2001 and as such the Directors believe that a listing of the Ordinary
Shares on the premium segment of the Official List is the most appropriate
platform for the continued growth of the Group. Specifically, the Board
anticipates that trading of the Ordinary Shares on the Official List will
further raise the Company`s profile. In addition the Directors believe that a
listing on the Official List is consistent with the significant percentage
shareholding held by institutional investors in the Company`s shares. The
Directors also believe that, due to the higher number of institutional
investors who regularly trade in companies admitted to the Official List, as
opposed to AIM, and the higher profile of such companies, the Company will
have improved access to the capital markets for future funding.
4. Summary financial information
The following summary financial information for continuing operations has been
extracted without material adjustment from the Group`s audited accounts for
the three years ended 30 September 2008, 30 September 2009 and 30 September
2010.
Lonrho Group
2008 2009 2010
INCOME STATEMENT GBPm GBPm GBPm
Revenue 24.5 89.7 107.8
Operating loss (8.2) (11.5) (4.3)
(Loss)/profit before taxation (6.4) (5.9) 0.5
Loss for the year (6.6) (6.7) (0.2)
-------- -------- --------
BALANCE SHEET
Non-current assets 72.2 97.2 149.8
Current assets 26.6 42.7 46.6
-------- -------- --------
Total assets 98.8 139.9 196.4
Non-current liabilities (3.1) (19.7) (31.9)
Current liabilities (26.0) (39.1) (36.8)
-------- -------- --------
Total liabilities (29.1) (58.8) (68.7)
-------- -------- --------
Net assets 69.7 81.1 127.7
CASH FLOW STATEMENT
Net cash from operations (35.7) (14.5) (16.0)
Net cash from investing activities (20.3) (15.9) (10.1)
Net cash from financing activities 50.7 26.9 23.9
-------- -------- --------
Decrease in cash and cash equivalents in (5.3) (3.5) (2.2)
the period
The following summary financial information for Rollex (Pty) Limited has been
extracted without material adjustment from the reconstituted accounts set out
in Part 10 which have been prepared under IFRS, as adopted by the EU and its
interpretation adopted by the International Accountancy Standards Board (IASB)
(except for the basis of combination described in the basis of preparation in
note 1 of those accounts) and have been audited by KPMG Audit Plc.
Rollex Group 2008
GBPm
INCOME STATEMENT
Revenue 33.5
Operating profit 0.0
Loss before taxation (0.3)
Loss for the year (0.4)
--------
BALANCE SHEET
Non-current assets 6.5
Current assets 5.1
--------
Total assets 11.6
Non-current liabilities (4.1)
Current liabilities (7.0)
--------
Total liabilities (11.1)
--------
Net assets 0.5
----
2008
GBPm
CASH FLOW STATEMENT
Net cash from operations 0.4
Net cash from investing activities (1.7)
Net cash from financing activities 1.1
--------
Decrease in cash and cash equivalents in the period (0.2)
----
5. Current trading and future prospects
On 3 February 2011, Lonrho announced its first quarter unaudited results for
the three months ended 31 December 2010. The following financial information
has been extracted from the first quarter announcement without material
adjustment and the financial information for the first quarter has not been
audited.
3 months to
31 December 31 December
2010 2009
GBP000s GBP000s Variance Var %
Agribusiness
Turnover 15,150 11,511 3,639 31.60%
Gross Margin 16.80% 17.50% -0.70% -
Gross Profit 2,540 2,016 524 26.00%
Transportation
Turnover 4,573 5,177 -604 -11.70%
Gross Margin 3.00% 10.40% -7.40% -
Gross Profit 137 539 -402 -74.60%
-------- -------- -------- --------
Support Services
Turnover 2,502 2,241 261 11.60%
Gross Margin 28.60% 24.90% 3.70% -
Gross Profit 715 557 158 28.40%
Infrastructure
Turnover 3,206 2,598 608 23.40%
Gross Margin 58.00% 44.00% 14.00% -
Gross Profit 1,859 1,143 716 62.60%
Hotels
Turnover 2,019 1,089 930 85.40%
Gross Margin 67.20% 67.10% 0.10% -
Gross Profit 1,356 731 625 85.50%
Head Office
Turnover 153 135 18 13.30%
Gross Profit 153 135 18 13.30%
Gross Turnover 27,603 22,751 4,852 21.30%
-------- -------- -------- --------
Group Gross Profit 6,760 5,121 1,639 32.00%
-------- -------- -------- --------
Group EBITDA 1,437 -1,216 2,653 N/a
-------- -------- -------- --------
The information below is a summary of the first quarter announcement and, as a
result, any figures mentioned do not form audited accounts nor have they been
extracted from audited accounts.
Group turnover from continuing operations in the quarter, at GBP27.6 million,
was 21.3 per cent. ahead of the same quarter last year.
In the first quarter of 2011, the Group achieved EBITDA of GBP1.4 million, a
GBP2.7 million improvement on the first quarter of 2010, GBP3.3 million when
foreign exchange gains of GBP0.4 million in the first quarter of 2010 and
foreign exchange losses of GBP0.2 million in 2011 are taken into account.
During the quarter the Company announced both the launch and completion of a
USD60 million Guaranteed Convertible Bond offering, with a USD10 million
overallotment. The bond issue was significantly oversubscribed and the USD70
million bond was approved at a shareholder meeting on 29 October 2010.
Specific milestones since the last quarterly report include the launch of
commercial flights by Fly540 Angola, the start of increasing deliveries by
Oceanfresh to the US market and the acquisition of Afex in Kenya, whose
principal business relates to the ownership and management of secure
accommodation in Kenya and Juba, Southern Sudan.
During the coming quarters, the Group will continue developing all of its
businesses in order to meet demand. In addition to this, the Group will
continue to look at strategic acquisitions which will strengthen the business
divisions.
The Directors are confident about the Group`s prospects and believe that it is
well placed to develop its business in line with its stated strategy.
6. The Board
As at the date of this Prospectus the directors were:
David Lenigas (Executive Chairman)
Geoffrey White (Director and Chief Executive Officer)
David Armstrong (Finance Director)
Emma Priestley (Executive Director)
Ambassador Frances Cook (Senior Independent Director)
Jean Ellis (Non-Executive Director)
Kiran Morzaria (Non-Executive Director)
In addition the Rt. Hon. Sir Richard Needham has agreed to become a non-
executive director of the Company with effect from Admission. He is considered
to be independent in the eyes of the Corporate Governance Code.
7. Dividends and dividend policy
The Company has not declared a dividend in any of the financial years ending
30 September 2008, 30 September 2009 or 30 September 2010.
The Company intends to adopt a progressive dividend policy once it has
sufficient distributable reserves and has achieved a level of sustained
profitability provided it is, in the opinion of the Board, commercially
prudent, bearing in mind the Group`s financial position, underlying earnings
and cashflows, the resources required for the Group`s development and the
prevailing market outlook.
8. Risk factors
The Group`s business, operating results and financial condition could be
materially adversely affected by a number of risks relating to the Group and
its business. The Directors consider that the risks include those set out
below but investors should read the whole of this document including Part 2:
Risk Factors of this document and not rely solely on the summary information
set out below:
Part A: Risks relating to the Group and its business
Divisional Specific Risks
Agribusiness
- The availability and price of the agricultural commodities and
agricultural commodity products the Group produces and merchandises can
be affected by weather, disease, government programmes and other factors.
- The agribusiness division`s operating costs and the selling prices of
certain finished products are sensitive to changes in energy prices.
- The Group is subject to food and feed industry risks that could adversely
affect its operating results.
- The Group is reliant on demand based contracts.
- The Group is reliant on a limited number of distributorship agreements.
- The availability and price of the fish and shellfish products the Group
purchases and merchandises can be affected by weather, disease,
government programmes and other factors.
- A reduction or withdrawal of fishing quotas.
- The loss of Group fishing vessels or vessels from which the Group
procures fish and shellfish.
- Changes in Government policies and regulations relating to, for example,
taxes, tariffs, duties, subsidies and import/export restrictions on
agricultural products and commodities.
Infrastructure
- The Group`s ability to maintain and renew its concession agreement at
Luba - Freeport, its existing facility.
- The Group is dependent on a small number of customers for a significant
portion of its port business.
- The prefabricated building market is highly competitive.
Transportation
- The Group only has a limited number of suppliers for its aircraft and
engines. Any problem with these aircraft, whether real or perceived,
could significantly harm its business.
- The Group is exposed to an event damaging its reputation.
High aircraft utilisation makes the operations vulnerable to delays. If
an aircraft becomes unavailable, the operations may suffer greater damage
to their service, reputation and profitability than airlines with larger
fleets.
- The Group relies on third parties to provide it with facilities and
services such as aircraft maintenance that are integral to its business.
- Substantial increases in fuel costs or the unavailability of sufficient
quantities of fuel.
Hotels
- The Group is reliant on the reputation of its hotels.
- The ability to identify, secure and retain management agreements on
suitable terms.
- Events that adversely impact domestic or international travel such as
terrorism, acts of war, accidents, industrial action and natural
disasters.
- The hotel industry supply and demand cycle such as overcapacity and the
lag between planning assumptions and actual operating conditions.
Support Services - Information Technology
- In addition to its own reputation, the Group is reliant upon the
reputation, demand and success of third party hardware and software.
- The Group is engaged in a competitive industry where it is essential to
maintain up to date knowledge and information.
Support Services - Water
- The Group is subject to water industry risks that could adversely affect
its operating results.
- The bottled water industry is highly competitive.
Risks relating to the operations of the Group
- The Group is subject to economic downturns, political instability and
other risks of doing business globally and principally in emerging
markets.
- The Group is reliant on third parties for supplies of materials and
services.
- The Group is exposed to the risk of third parties infringing its
intellectual property rights and brand.
- The Group is required to comply with environmental, health and safety
regulations.
- The Group reports in pounds sterling but carries on its business through
Group companies and makes investments and incurs costs in other
currencies. Accordingly, the Groups results may be affected by currency
movements.
- The Group`s future success depends on its ability to achieve and manage
growth, whether through internal growth or strategic acquisitions.
Risks relating to investing in Africa
- The Group`s businesses are reliant on continued improvement in the
economies of those countries in which it currently invests and those
countries into which it may expand in the future.
- Foreign companies wishing to invest in certain African countries
including those in which the Group operates and/or may operate in the
future may be obliged to obtain prior clearance and approvals to do so
from the relevant regulatory authorities in those countries, and failure
to obtain or in the case of existing investments to retain such
clearances will significantly impair the Group`s ability to achieve its
objectives.
- Africa`s current economic climate, severe socio-economic hardship and
political instability may prevent the Group from achieving its
objectives.
- Foreign currency controls and shortages in Africa may negatively affect
the Group`s financial condition and prospects.
- The implementation of economic empowerment legislation requiring minimum
local shareholder participation may negatively affect the Group`s
financial condition, results of operations, and share price.
- Statutory restrictions on repatriating funds by foreign investors may
negatively affect the Group`s ability to exit investments or pay
dividends and may adversely affect the Group`s ability to have such funds
returned in the currency converted.
- The Group`s business may be affected by the imposition of sanctions
imposed by the European Union, United States of America or other members
of the United Nations.
- The Group`s business may be affected by shortages in raw materials and
skilled employees.
- Infrastructure in Africa is in a poor state and there are numerous
interruptions to power and communication systems.
- HIV/AIDS poses risks to the Group in terms of productivity and costs.
- Legal systems in Africa are less developed than other more developed
regions of the world and, accordingly, it may be difficult to obtain
swift and equitable enforcement of rights.
- Crime and governmental or business corruption could significantly disrupt
the Group`s ability to conduct its business.
- One or more of the Company`s subsidiaries may be directly or indirectly
affected by reason of force majeure events, a terrorist attack, an armed
conflict or a civil war.
- Competition for acquisition opportunities in Africa may increase
generally over time.
- The performance of the Group depends on the ability and services of the
Group`s Directors, Senior Managers and advisers.
- The Group`s operations are subject to potential losses that may not be
covered by insurance.
Risks relating to investing in emerging markets
- Investments in emerging markets are subject to greater risks than
investments in developed countries.
Part B: Risks relating to the Ordinary Shares
- The market price of the Ordinary Shares may fluctuate.
- There can be no certainty that the Group will declare dividends.
- Non-UK holders of Ordinary Shares may not be able to exercise pre-emption
rights.
- Future issues of Ordinary Shares (including pursuant to the exercise of
options and conversion of the Bonds) may dilute the holdings of current
Shareholders and could adversely affect the market price of the Ordinary
Shares.
- Overseas Shareholders may be subject to exchange rate risks.
- There may not be an active trading market for the Ordinary Shares
following Admission.
PART 6
INFORMATION ON THE COMPANY
1. Introduction
Lonrho Plc is the holding company of a group exclusively focused on the
growth of Africa.
The Group operates in seventeen countries in Africa in five strategic
business divisions, concentrating on providing the infrastructure and
services required for the growing oil, mineral and agricultural sectors
in Africa.
The Group is divided into five divisions:
Agribusiness - Infrastructure - Transportation - Hotels - Support
Services
Since 26 February 2001, the Company`s shares have been traded on AIM as
well as being subject to a secondary listing on the Venture Capital
Market of the Johannesburg Securities Exchange.
2. History of the Group
The "Lonrho" brand began operating in Africa in 1909 as The London and
Rhodesia Mining and Land Company Limited and subsequently became the
trading name for a worldwide conglomerate (the "Old Lonrho Group") which,
at its peak in the early 1990s, had a turnover of GBP5,476 million,
profits before tax of GBP273 million and employed over 151,000 people
worldwide (of which 113,000 were in Africa).
By 1995, the Old Lonrho Group`s African non-mining businesses had
expanded into 15 sub-Saharan African countries, with approximately 90
operating companies involved in a wide range of business activities. The
businesses were mainly operated on a geographical basis, with each
country being managed by a locally-based chief executive reporting
directly to the Old Lonrho Group`s head office in London. In 1995, the
Old Lonrho Group decided to restructure these African non-mining
businesses. An experienced central management team was established and
given the responsibility for their operation. This management team
completed a strategic review, resulting in five core activities being
identified (motors, agribusiness, distribution, hotels and property and
construction) and the restructuring of these businesses on an activity,
rather than geographical, basis took effect from 1997.
In 1998, these African non-mining businesses, together with two related
UK businesses, were demerged from the Old Lonrho Group. This was
implemented by first of all transferring these businesses under a new
holding company and then by the Old Lonrho Group making a bonus issue of
the entire issued share capital of the new holding company to the then
shareholders of the Old Lonrho Group. Simultaneously with the demerger
the shares in the new holding company were introduced to the Official
List. The new holding company was the Company, which at that stage was
called Lonrho Africa Plc.
On 18 March 1999 the Old Lonrho Group changed its name to Lonmin Public
Limited Company.
From demerger the Company continued the restructuring of the business
into four activities (motors, agribusiness, distribution and hotels) with
the long term aim of concentrating on agribusiness and distribution,
disposing of assets in Africa in order to pay off its debt with the aim
of returning value to shareholders.
On 26 February 2001, the Company transferred its entire issued share
capital from the Official List to AIM and at the same time the listing on
the Johannesburg Securities Exchange was moved to the Venture Capital
Market sector of that exchange.
By mid-2005, the majority of the Group`s assets had been sold and the
disposal programme substantially completed. At this stage the Group`s
remaining assets comprised a 59 per cent shareholding in Hotel Cardoso in
Mozambique, an industrial property in South Africa and cash resources of
approximately GBP20 million.
Following the appointment of David Lenigas as Chief Executive Officer on
21 December 2005, the Board, supported by a number of the Company`s major
shareholders, concluded that it would be in the best interests of
shareholders to vary the Company`s mandate from one of disposal to one of
investment and to use the Company`s cash to re-establish a significant
presence in Africa.
Since early 2006 the Group has expanded significantly through new
acquisitions and organic growth within its core divisions resulting in a
business operating in seventeen countries with a turnover in excess of
GBP107 million for the year ended 30 September 2010.
The Company changed its name from Lonrho Africa Plc to Lonrho Plc on 10
May 2007.
3. Strategy and key strengths
The Group`s strategy is to continue to grow the business by concentrating
on each of its five strategic business divisions and maintaining its
focus on providing the infrastructure and services required for Africa`s
growing oil, mineral and agricultural sectors.
The Board considers that the Group has a number of strengths to support
the realisation of this strategy:
Brand awareness: The Lonrho brand benefits from a legacy of over one
hundred years of operating across Africa, building real businesses that
have created jobs and contributed to economic development. As a result,
the awareness of the Lonrho name is significant. This provides tangible
competitive advantages for the Group and an increased ability to conclude
and negotiate attractive terms with Governments and organisations across
the Continent.
Focus on key sectors: The Group focuses on servicing the requirements of
the oil, agriculture and mineral sectors in Africa. These are the
industrial sectors that are the main economic drivers of Africa. As a
result of Lonrho focusing on aligning with and servicing these sectors,
the Group typically operates in an economic environment that is
delivering significant growth in GDP. The Directors believe that the
Group has the ability to grow through supplying additional capacity to
meet growing demand, rather than having to acquire market share from
competitors as might be required in a developed market.
Risk mitigation in emerging markets: Emerging and developing markets are
inherently risky environments for commerce.
To mitigate this risk Lonrho has actively structured its operations with
both sector and geographical diversity. For example, Lonrho has
deliberately spread its operations across seventeen countries in sub-
Saharan Africa. This significantly reduces the political risk profile for
the Group since if there is a problem in a specific country that has an
impact on commercial and economic activity in that country, the
repercussions to the Lonrho business portfolio should be mitigated due to
its operations in a further sixteen countries. This is in marked contrast
to other companies that have all operations in one country in the
emerging African market.
Lonrho has also looked to mitigate risk by the approach it has taken on
developing its corporate structure through five industry specific
divisions: agribusiness, infrastructure, transportation, hotels and
support services. Each division is controlled by the Company, and the
divisional structure has been built so that there is no cross
collateralisation between divisions and no recourse to the Company from
divisional operations. A problem within one division would be contained
within that division and would have minimal impact on the other four
divisions.
Africa focus: Lonrho`s mandate is to invest in, and build businesses,
across Africa. This has established the Company as one of a very few
conglomerates with a specific `African only` mandate. Africa is being
identified by an increasing portfolio of investors, analysts and world
commentators as a significant opportunity for growth. Africa is achieving
growing global recognition and status as an emerging market due to
improving democracy, increased financial stability, the opportunity to
reach a population of one billion people and the continued development
and identification of significant oil, agriculture and mineral resources.
4. Business Overview
The Group operates across five broad industry sectors - agribusiness,
infrastructure, transportation, hotels and support services.
The Lonrho Board has a current policy of owning a minimum of 50 per cent
of every subsidiary. The Company holds board control of each division and
each subsidiary business in the Group.
The Lonrho Board sets strategy, policy and objectives for each division,
and relies on the sector expertise of the divisional management teams to
implement and deliver the Board`s objectives.
Divisional management have clear reporting lines via a weekly, monthly
and quarterly management reporting structure and regular formal meetings
with the Directors to review business. Strict financial controls are
observed by the Group in relation to budgets, capital expenditure and
financial reporting on a weekly basis through the Company`s various
financial controls.
Over the three year period covered by the accounting periods set out in
Part 9 of this document the Group has made a number of acquisitions as
set out in paragraph 15.4 of Part 11 of this document and other than the
business development as set out in this paragraph 4 no significant new
products and/or services have been introduced by the Group during this
period and no new products or services are currently in development.
The Group has not been subject to or influenced by any exceptional
factors within the accounting periods set out in Part 9 of this document,
save as for SAILS, the figures for which are shown as a discontinued
operation within the historic financial information.
Details of all material regulatory licences and approvals are set out in
paragraph 13 of Part 11 of this document.
4.1 Agribusiness
Agro-economic forecasts are raising growing concerns regarding the
worldwide capabilities for the global agricultural industry to meet
future demand. The United Nations Food and Agricultural Organisation
(FAO) predict that global agriculture will need to increase by 70 per
cent. to meet food demand forecasts. The Group believes Southern Africa
has an opportunity to meet the potential demand. It has an abundance of
under-used land, a willing labour force and suitable climatic conditions
to become a significant global source of food. In addition the Southern
Africa agricultural belt has good rainfall and surface catchment to
provide water for crops.
Lonrho`s agribusiness sector, which is the largest sector by Group
revenues, comprises five distinct businesses: Rollex, Fresh Direct,
Oceanfresh, LonAgro and Trak Auto. The Group`s agribusiness division
vertically integrates the production, sourcing, logistics, processing and
distribution of fruit, vegetables, flowers, fish and meat from Southern
Africa to the consumer supplying produce to retailers in Southern Africa
and internationally to Europe, the USA, Middle East and Scandinavia.
Rollex (100 per cent. current ownership)
Rollex procures, packs and delivers a wide range of fresh fruit and
vegetables, as well as fish, meat and flowers for both domestic and
export markets. It operates a vertically integrated cold chain which
allows it to provide cost-effective solutions for the region`s
agricultural sector.
The initial 51 per cent shareholding in Rollex was acquired with effect
from 1 October 2008 with the remaining 49 per cent added in May 2010. The
results for Rollex for the year to 30 September 2008 are set out in Part
10: Financial Information on Rollex (Pty) Limited.
Within South Africa, Rollex supplies product to leading national retail
outlets. Internationally, Rollex`s customers include retail and wholesale
customers in the UK, Europe, Middle East, Far East and Scandinavia.
Rollex intends to grow its business through the expansion of the
vertically integrated logistics chain from new cold stores accessing
increased levels of product through to expanding existing relationships
and opening new relationships with retail customers globally. Rollex is
also seeking to increase the amount of "value added" to products before
they are shipped to retailers` distribution centres, for example,
designing new product ranges, adding date codes and shelf-life labelling.
The majority of Rollex`s product is sourced from a production belt across
the Continent including from Zambia, Mozambique and Zimbabwe (with the
consent of LonZim). It is looking to expand its growing operations in
Zambia, Zimbabwe (with the consent of LonZim) and Mozambique because
these countries offer favourable year-round growing conditions for a
range of crops and provide a good level of geographic and climatic
diversification. Crops from these countries should allow Rollex to
harvest the produce earlier than competing South African farms, allowing
Rollex to take advantage of higher pricing in the early season.
Additionally, by obtaining land in the correct climatic zones in each of
these countries, Rollex should be able to grow crops which would
ordinarily be out of season in South Africa.
Rollex has a well established logistics model that it uses to distribute
produce to the domestic and international markets. It operates its own
trucking fleet of approximately 40 refrigerated vehicles and has
processing centres in Johannesburg and Harare. Its principal facility is
a 3 hectare site situated at the OR Tambo International Airport in
Johannesburg with a 3,000m2 refrigerated warehouse and an additional
1,500m2 of general cargo storage. It also operates a 2,400m2 refrigerated
warehouse with chilling technology from inside Harare`s International
Airport. Additionally, Rollex utilises fish processing facilities in Cape
Town, South Africa, and Windhoek, Namibia.
Rollex vertically integrates the logistics chain for agricultural produce
from Southern Africa, not only producing and sourcing, but also packaging
and processing, cold store logistics and retail relationships. By
providing a farm to retail shelf service, the Board believes Rollex has a
stronger understanding of its market and customers` requirements and
hence a competitive advantage.
The strategy for Rollex moving forward is to build and expand on the
volume capabilities of its core business. The growth opportunities in
Rollex`s market can be split into two sectors. Firstly the supply within
Africa and secondly the supply for export clients outside of Africa.
Within Africa, the population of Africa is rapidly approaching one
billion, which is driving a strong expansion of supermarket retailers
cross the Continent. Rollex sees the supply of produce to these emerging
supermarket retailers as a natural growth opportunity for the business.
The export of fish, meat, flowers, fresh fruit and vegetables from
Southern Africa to the global market is the second clear opportunity for
Rollex. Utilising its existing platform Rollex has the ability to exploit
growing global consumption by delivering produce to market. Growth will
be driven by the expansion of demand from existing retailers combined
with a growing interest from global retailers to source product lines
from Southern Africa.
Fresh Direct (100 per cent. current ownership)
The initial 51 per cent shareholding of Fresh Direct was acquired with
effect from 1 October 2008, with the remaining 49 per cent. added in
August 2010. The Fresh Direct farming operations, historically in
Zimbabwe (with the consent of LonZim) and now being expanded into
Mozambique and other contiguous countries, focus on volume production
agreements with commercial farms and a planting programme that has
installed irrigation capabilities and planted 119,000 fruit trees and
established commercial fruit projects with a net present value in excess
of GBP9.0 million as at 30 September 2010. The planting programmes will
commence commercial yields in 2011.
Oceanfresh Seafoods (51 per cent. current ownership, balance owned by
local management)
The Group acquired 51 per cent of Oceanfresh in June 2010 with the right
to acquire the remainder with the price to be determined. Oceanfresh
supplies wild caught, sustainably sourced deep sea crustacea (lobsters
and prawns) and premium finfish from Mozambique, Namibia and South Africa
to markets globally. Oceanfresh sources the majority of its product from
third party deep-sea factory vessels. The catch is processed mainly at a
processing plant in Maputo, Mozambique, and other Group and third party
processing plants. Oceanfresh produces both its own branded range of
products (Oceanfresh Seafoods) as well as providing in-house brands for
major retail chains. The range of products includes both fresh and frozen
product. Oceanfresh is a significant supplier into the South African
market and its export markets include the USA, Canada, the United Kingdom
and Europe. The major export customer is Costco in the USA.
The global fish market has suffered from claims of over-fishing of
traditional fishing grounds and it has also been affected by a lack of
consumer confidence in farmed fish. Oceanfresh supplies wild caught,
sustainably sourced fish, and this has had a strong resonance with
retailers in the USA. Following successful trials with Costco, a leading
USA retailer, future growth is expected to be driven from retailers both
in the USA and other markets which are identifying Southern Africa as a
source of future fish supply.
LonAgro (51 per cent. current ownership, balance owned by a local
investor) and Trak Auto (100 per cent. current ownership)
Through LonAgro and Trak Auto the Group has exposure to the anticipated
growth of agriculture in Angola and Mozambique. LonAgro has sole
distribution rights to the John Deere franchise in Angola and Trak Auto
has sole distribution rights to the John Deere and Komatsu franchises in
Mozambique. Mozambique has a main showroom which provides customers with
sales, administration, training and servicing facilities and a similar
showroom is being constructed in Angola. In Mozambique, Trak Auto has
satellite branches that provide service and support to John Deere
products in the field. The Company believes the supply of quality,
supported, agricultural equipment is key to the development of the
agricultural sector in both Mozambique and Angola. Lonrho`s policy is to
provide a sales and parts department, combined with a training and
maintenance facility that builds John Deere market share by offering a
full package of support for clients. The Group is currently considering
further opportunities across sub-Saharan Africa in respect of
agricultural equipment distribution.
4.2 Infrastructure
Lonrho`s infrastructure division encompasses two businesses - Luba
Freeport, Equatorial Guinea, and Kwikbuild.
Luba Freeport (63 per cent. current ownership, balance owned by a
government partner)
Luba Freeport is a natural deepwater port on the island of Bioko in
Equatorial Guinea, West Africa, offering depths of up to 30 metres. The
port provides 290 metres of usable quay, of which 155 metres was recently
added, and 50 hectares of client and port support operations. The
surrounding area is underdeveloped but could be augmented to accommodate
growth. Unlike many other deepwater ports, Luba Freeport does not require
significant dredging to remain operational.
Luba Freeport provides a "one stop shop" facility for the growing oil
industry based off the West coast of Africa. It principally services
offshore facilities in concessions granted by Equatorial Guinea. In
addition to storage and production facilities the port also provides
accommodation, catering and a mess block and a staffed medical facility.
The port has a strong client list including ExxonMobil, Schlumberger,
Amerada Hess, M-I Swaco, Noble Energy, Marathon and Baker Hughes, which
typically sign long-term contracts for between 7 and 10 years.
The right to operate Luba Freeport is granted by a concession agreement
issued by the Government of Equatorial Guinea. Luba Freeport also has tax
free status from custom duties on materials imported into the port.
The port is managed by Luba Freeport Limited, which is a joint venture
between the national oil company, GEPetrol (37 per cent.), a company of
the Government of Equatorial Guinea, and the Group (63 per cent.). The
port is subject to a 25 year Concession Agreement granted in 2003,
further details of which are set out in paragraph 13.3 of Part 11. The
Group acquired its controlling stake in the port in May 2006.
Strategically, the port provides the only support base for the offshore
oil industry in Equatorial Guinea, and benefits from a physical proximity
to the oil platforms. The vast majority of Equatorial Guinea`s oil
industry is now based at Luba Freeport and, as new oil blocks in
Equatorial Guinea are released and the industry expands, so it is
anticipated the market for the port will increase.
West Africa is seeing an increasing amount of exploration projects for
the oil industry. Nigeria, West Africa`s traditional oil producer, is now
one of several West African countries, including Equatorial Guinea and
more recently Ghana, Gabon, Uganda and the Democratic Republic of the
Congo, with an oil industry. Angola was the recent chair of OPEC and has
increased its production to over 2 million barrels a day, arguably to
become Africa`s largest producer. Some estimates indicate that up to 11
per cent of global oil resources may be in Africa. The USA and China
currently source 18 per cent and 30 per cent respectively of their oil
imports from Africa. Both are forecast to increase these levels as Africa
develops its oil sector further. The oil industry is stimulating
significant foreign direct investment.
With this expansion of the oil industry across West Africa the Board
believes there is a need for specific oil terminals to act as logistical
centres for servicing offshore oil rigs. Lonrho sees Luba Freeport as a
template for developing further oil related ports as the industry grows.
Kwikbuild (70.42 per cent. current ownership, balance owned by local
investors)
Kwikbuild, through its subsidiary e-Kwikbuild (of which it owns 51 per
cent. the balance owned by black economic empowerment groups and local
management), manufactures and supplies prefabricated buildings across
Africa but has had a historically high proportion of sales in South
Africa. A sales team was recently established to focus on the
opportunities outside South Africa. The prefabricated buildings are
designed to meet a 30 year product life and offer improved speed of
construction, at lower cost, than traditional construction methods. The
buildings can be used as classrooms, medical clinics, offices and
accommodation. Kwikbuild`s clients range from government housing and
health agencies to mineral extraction companies seeking to establish
worker camps. The Group completed a consolidation and expansion of
Kwikbuild`s South African manufacturing plant in late 2010/early 2011
with a view to maintaining Kwikbuild`s price competitiveness and
providing an opportunity to improve margins with an increased throughput.
Kwikbuild is targeting sub-Saharan Africa as a market requiring building
solutions for numerous applications. Given the anticipated requirement
for buildings by this emerging market, the Board believes that
traditionally built buildings will not be the solution for the demand but
that prefabricated buildings will be.
Lonrho recently acquired the Afex Group that provides camp accommodation
in Kenya and Southern Sudan and brings an opportunity for Kwikbuild
products to enlarge Afex`s offering.
4.3 Transportation
Fly540
The transportation division comprises Lonrho`s aviation business Fly540,
which has a strategy to become a pan-Continental airline business that
operates only in Africa. Lonrho`s strategy is to develop operations
around three African hubs based out of Kenya in East Africa, Angola in
South-West Africa and Ghana in West Africa. Prior to commencing
operations in Angola, it operated in Kenya, Tanzania and Uganda, with
GBP18.8 million turnover (being 88 per cent. of the Transportation
division`s turnover) being generated by Fly540 Kenya for the year ended
30 September 2010. Fly540 aims to capitalise on increasing demand for
flights for business and leisure travel in sub-Saharan Africa. It also
intends to provide international standard regional distribution for
intercontinental carriers flying into Africa.
The Group owns two aircraft and leases 9 aircraft. Lonrho Air 3 Limited
owns an ATR 42-320 aircraft (registration 5Y-BUT, serial number 240)
which is leased within the Group on an industry standard operating lease.
Lonrho Air 4 Limited owns a new ATR 72-500 aircraft (registration D2-FLY,
serial number 826) through a finance leasing structure, the details of
which are set out in paragraph 15.3 of Part 11 below. There is one
current order for a new ATR 72-500 to be operated by Fly540 Ghana by a
similar finance leasing structure. The Group leases 8 turboprop aircraft
and 1 jet aircraft under industry standard operating leases.
Fly540 Kenya (49 per cent. ownership, balance owned by local management
but by agreement board control rests with the Group) operates the East
African hub in Nairobi, Kenya, and was the first hub to be developed with
operations starting in October 2006. It now operates ten aircraft flying
to 24 destinations in Kenya, Tanzania and Uganda, and carries
approximately 300,000 passengers per annum. Local passenger numbers are
supplemented by foreign travellers wishing to visit tourist destinations
in the region. There are a number of other operators which results in
keen price competition. Fly540 Kenya competes effectively within the
market because it differentiates itself with its quality of management;
high quality service, international standards and good punctuality track
record. Fly540 Kenya focuses operationally on attaining high reliability,
with flights departing and arriving on time and providing schedule
integrity.
Fly540 Angola (60 per cent. current ownership, balance owned by a local
conglomerate and a local investor) has recently established a South-West
African hub in Angola that commenced commercial flight operations on 30
January 2011. The operations are based out of Cabinda, the centre of the
Angolan oil industry, and Luanda. By July 2011 Fly540 Angola expects it
will have three aircraft operational across six routes to major cities
within Angola. Fly540 Angola anticipates demand to be driven by oil and
mineral extraction companies.
The Fly540 Ghana (60 per cent. current ownership, balance owned by local
management) West African hub will be based out of Accra, Ghana. The
licensing process is already underway and Fly540 Ghana hopes to see an
Air Operators Certificate (AOC) granted in 2011 with operations expected
to commence by the end of the current financial year subject to arranging
commercial debt. Fly540 Ghana is currently working with the Ghana Civil
Aviation Authority on the process to issue the AOC to permit flight
operations to commence.
The opening of the Ghana hub will complete the roll-out of the three
strategic pan-Continental hubs for Fly540, giving it a network that will
connect West, East and South-West Africa.
4.4 Hotels
The hotel division currently comprises two Group owned and operated
hotels, the Hotel Cardoso in Mozambique and the Grand Karavia in the
Democratic Republic of the Congo, together with a managed hotel, the
Leopard Rock in Zimbabwe (with the consent of LonZim). The Group intends
to develop a small portfolio of owned and/or managed business focused
hotels in recognition of the fact that a key building block for economic
growth and development is good accommodation in which businessmen can
stay and conduct their work. Target locations are areas where there is
either a shortage of hotel rooms or the potential for demand to increase.
The Hotel Cardoso (59.04 per cent. current ownership, balance owned by a
parastatal agency and local investors); Lonrho Hotels operates the hotel
through a management contract. It was the only remaining operational
asset owned by the Group in 2006 when its investment strategy changed. It
is a 130 room hotel, with conference facilities, situated in Maputo,
Mozambique. It caters for both business travellers and leisure
travellers. The hotel underwent an approximately USD1.5 million
refurbishment, which was completed in early 2010, and for the month prior
to the date of this document operated at approximately 85 per cent.
occupancy.
The Grand Karavia (50 per cent. current ownership, balance owned by a
local conglomerate); Lonrho Hotels operates the hotel through a
management contract. It is a 197 room hotel situated in Lubumbashi in the
Democratic Republic of the Congo. It provides the only international
standard hotel accommodation for business travellers visiting the cobalt
and copper mining region of the Katanga Province. The hotel was a
derelict shell in 2007 and has undergone an approximately USD20 million
refurbishment, which was completed in May 2010. The hotel was officially
opened in June 2010 by President Kabila and is expected to benefit from
increased mining activity in the Katanga Province driven by a strong
copper price.
Lonrho Hotels (100 per cent. current ownership) manages the Leopard Rock
Golf Resort and Casino, a 58 room hotel, in Eastern Highlands, Zimbabwe,
famous for the quality of its golf course. Leopard Rock is owned by
LonZim Plc, a company in which Lonrho holds a 24.61 per cent. interest.
Lonrho Hotels has signed an agreement to take a renewable 20 year lease
on a new hotel in Libreville, the capital of Gabon. The hotel is
currently subject to a refurbishment project to upgrade the building.
4.5 Support Services
The Support Services division of Lonrho encompasses two businesses:
Lonrho IT, which provides IT services to a range of corporate clients,
and Lonrho Water, which provides potable water across Africa.
Lonrho IT
Lonrho`s IT division comprises the following businesses: Bytes & Pieces
(65 per cent. current ownership, balance owned by local management), CES
(50 per cent. current ownership, balance owned by local management) and
IndIT (45 per cent. current ownership, balance owned by local
management).
Bytes & Pieces operates exclusively in Mozambique and it is one of
Mozambique`s largest commercial IT providers. Bytes & Pieces is a Dell
Certified Partner in Mozambique, a Microsoft Gold Certified Partner, an
HP Preferred Partner and an authorised reseller for CISCO Networking
Systems, Legrand and Cyberroam. Bytes & Pieces is a full systems
integrator and manager. It designs, builds, develops and integrates IT
solutions for large corporate clients, banks and Governments. It then
undertakes management contracts to run and manage installations.
CES and IndIT represent the roll-out of the Bytes & Pieces business model
outside Mozambique. CES currently has offices in South Africa and Zambia
and IndIT operates in Southern Africa. In South Africa, CES and IndIT
also provide IT services to small and medium sized enterprises.
The Group expects that economic development in sub-Saharan Africa is
likely to result in a wider adoption of international standard IT
equipment and services and it intends to capitalise on these
opportunities.
The Group expects over the short to medium term to increase the number of
countries in which Lonrho IT operates with openings planned in a further
three countries scheduled to include Zimbabwe, Angola and Malawi in the
medium term.
Lonrho Water (100 per cent. current ownership)
Lonrho Water has adopted two approaches to meeting the demand for clean,
potable water to be available to Africa`s growing population. First of
all it operates a water bottling plant in Mozambiqueand has an interest
in one in the Democratic Republic of the Congo. The bottled water
industry is highly competitive. Secondly, it focuses on providing water
treatment systems and sewerage treatment systems to a range of customers
including the private sector and municipalities. Its core water treatment
system is a stand-alone, solar powered, containerised water purification
plant. These units take local water sources, such as rivers, boreholes
and lakes, and treat the water to ensure it is potable and safe.
5 Group Revenue Breakdown
The Group`s continuing revenue, broken down by its five strategic
business divisions, is as follows:
These figures have been extracted without material adjustment from
sections C, E and G of Part 9 of this document.
Revenue by division
2010 2009 2008
GBPm GBPm GBPm
Agribusiness 55.3 46.5 -
Infrastructure 14.0 9.3 7.3
Hotels 5.9 3.4 1.8
Transportation 21.5 21.4 9.3
Support Services 11.1 9.1 6.1
Discontinued operations 1.2 18.6
Revenue from the management contract with LonZim (as detailed in Part 11,
paragraph 7.1.2(d) of this document) was approximately GBP500,000 in the last
financial year.
Rollex revenue in 2008, being 12 months prior to acquisition, totalled GBP33.5
million The Group`s revenue, broken down by location of assets, is as follows:
Revenue by location of assets
2010 2009 2008
GBPm GBPm GBPm
Southern Africa 73.9 59.8 7.9
East Africa 21.5 21.4 9.3
West Africa 11.9 8.0 7.3
Europe 0.5 0.5 -
Rollex revenue for 2008 totalled GBP33.5 million and was within Southern
Africa
6 Investments
In addition to its five strategic business divisions the Group holds
interests in LonZim Plc and Lonrho Mining Limited.
LonZim Plc (market capitalisation as at 28 March 2011 of GBP11.51
million)
LonZim was created in 2007 and listed separately on the AIM market of the
London Stock Exchange. LonZim`s strategy is to focus on acquiring assets
and companies that will recover to strong market positions as Zimbabwe`s
economy recovers. Its investments are situated in Zimbabwe and the Beira
corridor of Mozambique.
LonZim is managed by the Company under an exclusive management agreement,
whereby Lonrho receives a fee of 2 per cent. of funds invested by
LonZim, further details of which are set out in paragraph 7.1.2(d)
of Part 11 of this document. The Board of LonZim includes four executive
directors from Lonrho, and four Non-Executive Directors, of whom three
are independent Non-Executive Directors. Lonrho currently owns 24.61 per
cent. of LonZim.
The opportunities for growth in the Zimbabwe market are significant, and
the beginning of an economic recovery is evident across Zimbabwe. LonZim
has invested approximately GBP29 million in creating a platform in
Zimbabwe that is well placed for growth. Businesses acquired by LonZim
include: the iconic Leopard Rock hotel; a leading commercial security
printing company; a chemical distribution company; a microfinance
company; and an electronic funds transfer platform for payroll and
interbank transfers. LonZim also holds the rights for Africa to FMNA, an
instant messaging software package for cell phones that permits users to
send and receive data and emails on a standard mobile. FMNA has seen
significant interest from cell phone companies across Africa.
Lonrho Mining Limited (market capitalisation as at 28 March 2011 of
AUSD52.22 million)
Lonrho currently holds a 17.04 per cent. interest in ASX listed Lonrho
Mining. Lonrho Mining holds an interest in the Lulo diamond concession in
Angola that covers a total area of about 3,000km2 and is located in the
Cuango River Basin within the Lunda Norte Province of North-Eastern
Angola. The project area is situated approximately 630km from Angola`s
capital city of Luanda and can be accessed via sealed road.
The project is operated as a joint venture with the Government-owned
diamond company, Endiama E.P., the exclusive concessionary for Angolan
diamond mining rights. Under the joint venture arrangement, Lonrho Mining
holds a 39 per cent. interest in the concession, with Endiama E.P.
holding a 51 per cent. interest and the remaining 10 per cent. owned by a
private Angolan interest. Lonrho Mining is the manager and operator on
the concession and funds all exploration activities.
The Lulo project, which covers both an extensive alluvial diamond field
and more than 200 kimberlite targets, has commenced sampling on the
concession, operating a dense media separation plant. Early results have
been very positive with the recovery of large, quality diamonds from the
initial sampling, including a 22.25ct gem quality rough diamond.
7 Convertible bonds issued by LAH Jersey
On 15 October 2010 LAH Jersey Limited, a wholly owned subsidiary of the
Company incorporated in Jersey, issued at par USD70,000,000 unsecured
convertible bonds guaranteed by the Company ("Bonds"). The net proceeds
of the Bonds were to be used to allow the Group to repay certain existing
indebtedness, to fund general working capital and to accelerate growth in
its operations. Unless previously purchased and cancelled, redeemed or
converted, the Bonds will be redeemed on 15 October 2015 at 106.0031 per
cent. of their principal amount. The Bonds bear interest at the rate of 7
per cent. per annum. The Bonds have been issued in USD10,000
denominations.
Bondholders may convert their Bonds into Ordinary Shares. Unless the
conversion rate of the Bonds adjusts by reason of certain customary
events involving changes to the share capital of the Company then each
USD10,000 Bond will convert into 40,428 Ordinary Shares.
If all of the Bonds were to be converted and immediately exchanged into
new Ordinary Shares at the fixed conversion price of GBP0.1559,
282,999,798 new Ordinary Shares would be issued. Based on the present
issued share capital of Lonrho full conversion of the Bonds would
represent 19.34 per cent. of the enlarged share capital of the Company.
The Bonds are listed on the Luxembourg Stock Exchange and have been
admitted to trading on the Euro MTF Market of the Luxembourg Stock
Exchange.
8 Background and reasons for the move to the Official List The Company
announced its intention to move from AIM to the Official List on 24 March
2011.
The Group`s turnover has grown significantly since its admission to AIM
in February 2001 and as such the Directors believe that a listing of the
Ordinary Shares on the premium segment of the Official List is the most
appropriate platform for the continued growth of the Group. Specifically,
the Board anticipates that trading of the Ordinary Shares on the Official
List will further raise the Company`s profile. In addition the Directors
believe that a listing on the Official List is consistent with the
significant percentage shareholding held by institutional investors in
the Company`s shares. The Directors also believe that, due to the higher
number of institutional investors who regularly trade in companies
admitted to the Official List, as opposed to AIM, and the higher profile
of such companies, the Company will have improved access to the capital
markets for future funding.
9 Current trading and future prospects
On 3 February 2011, Lonrho announced its first quarter unaudited results
for the three months ended 31 December 2010. The following financial
information has been extracted from the first quarter announcement
without material adjustment and the financial information for the first
quarter has not been audited.
Agribusiness 3 months to
31 December 31 December Variance Var %
2010 2009
GBP000s GBP000s
Turnover 15,150 11,511 3,639 31.6%
Gross Margin 16.8% 17.5% (0.7%) -
Gross Profit 2,540 2,016 524 26.0%
Transport
Turnover 4,573 5,177 (604) (11.7%)
Gross Margin 3.0% 10.4% (7.4%) -
Gross Profit 137 539 (402) (74.6%)
Support Services
Turnover 2,502 2,241 261 11.6%
Gross Margin 28.6% 24.9% 3.7% -
Gross Profit 715 557 158 28.4%
Infrastructure
Turnover 3,206 2,598 608 23.4%
Gross Margin 58.0% 44.0% 14.0% -
Gross Profit 1,859 1,143 716 62.6%
Hotels
Turnover 2,019 1,089 930 85.4%
Gross Margin 67.2% 67.1% 0.1% -
Gross Profit 1,356 731 625 85.5%
Head Office
Turnover 153 135 18 13.3%
Gross Profit 153 135 18 13.3%
Gross Turnover 27,603 22,751 4,852 21.3%
Group Gross Profit 6,760 5,121 1,639 32.0%
Group EBITDA 1,437 (1,216) 2,653 N/a
Summary of first quarter announcement
The information below is a summary of the first quarter announcement and, as a
result, any figures mentioned do not form audited accounts nor have they been
extracted from audited accounts.
Group turnover from continuing operations in the quarter, at GBP27.6 million,
has increased 21.3 per cent. ahead of the same quarter last year.
In the first quarter of 2011 the Group has achieved EBITDA of GBP1.4 million,
a GBP2.7 million improvement on the first quarter of 2010. This growth is
improved to GBP3.3 million when foreign exchange gains of GBP0.4 million in
the first quarter of 2010 and foreign exchange losses of GBP0.2 million in
2011 are taken into account.
The Group has continued to show strong growth, continuing the trend shown
throughout 2010. There have, though, been some developments, which will
further the Group`s performance in the coming quarters.
The agribusiness division has again seen strong revenue growth in the quarter,
31.6 per cent. ahead of the same period in the prior year, driven in the main
by the developments at Oceanfresh and strong sales growth in Trak-Auto, the
John Deere dealership in Mozambique. Rollex has achieved volume increases in
trade, but the strong Rand, as well as unseasonal rain in December in South
Africa and the closure of Heathrow Airport the week before Christmas due to
snow, had a limiting effect on growth.
Since the quarter end, Fly540 launched its second strategic hub in Angola. The
establishment and approval process has taken much longer than originally
anticipated. However, the Directors believe that, due to the delay, the market
potential for domestic and regional flights in and from Angola has continued
to grow.
In the East African hub, strong growth in passenger numbers has delivered
positive operational signs for the division, although competitive price
pressures on ticket sales in Kenya and the expiry of a wet lease charter
contract have resulted in turnover 11.7 per cent. below that of the first
quarter of the prior year.
Luba Freeport achieved steady growth during the quarter. The 30 per cent.
increase in turnover at Luba represents an excellent achievement and the
port`s ability to continue to add clients and revenues. Kwikbuild, having
completed restructuring its operations and bringing in additional sales staff
to the management team, has begun to see the result with some significant
orders.
The Hotels division had a strong quarter across all businesses. Much of the
improved performance has been driven by the continuing success of the Hotel
Cardoso, with both the Grand Karavia and Lonrho Hotels building their
operations.
The support services division, helped by the continued strong performance of
Bytes & Pieces, has increased turnover on the prior year by 11.6 per cent.
With a number of new contract wins across all of the businesses, the division
is well set to meet its targets for the year ending 30 September 2011.
Outlook from the end of the first quarter
Although the second accounting quarter is traditionally the Group`s weakest,
the Group has since the end of the first quarter continued to make progress in
each division.
In the agribusiness division Oceanfresh has continued its product roll-out in
the USA to additional Costco stores and is preparing to launch product with
new customers in the UK and the USA. Export volumes at Rollex have been quiet
during the period. The Board attributes this to the strength of the Rand.
However, recent weeks have started to see export volumes increase as the Rand
weakens and customers take advantage of the introduction of a new sea freight
business. Rollex continues to add a wider range of domestic South African
customers to its business following the loss of business attributable to the
sale of Peninsular Horticulture in the first quarter of the current financial
year. The Board is encouraged to see that although Trak-Auto`s turnover
suffers in this quarter because of the annual January shutdown of some of its
customers it has recorded good levels of new business. In line with the
Group`s accounting policy, the fair value of biological assets less estimated
point of sale costs continues to be reviewed on a monthly basis and
adjustments made to the income statement.
At Luba Freeport trading has, to date in the second quarter, met the Board`s
expectations despite the commencement of two client projects being delayed to
the third quarter of the year. Kwikbuild continues to record important new
sales gains.
The infrastructure division has also developed during the second quarter with
the announcement of the completion of the acquisition of Afex. Afex is a
historically profitable business which provides secure accommodation to non-
governmental organizations and aid agencies in Kenya and Juba, Southern Sudan.
During the second quarter passenger numbers at Fly540 Kenya have remained in
line with the Board`s expectations but margins have remained under pressure
because of the competitive environment that it is operating in. In its first
two months of operations Fly540 Angola has concentrated on bedding down
systems and processes and on bringing further aircraft into the country to
establish its route map. In this regard Fly540 Angola has encountered slow
progress in the clearance of new aircraft through Angolan customs however
operations have now commenced. To date Fly540 Tanzania is enjoying a strong
quarter with the launch of new routes and the opening of new sales offices.
In the Hotels Division trading at the Hotel Cardoso in Maputo is strong after
the traditional quiet holiday period with year-on-year improvements in
occupancy and room rate. Business at the Hotel Karavia has not picked up as
the Board anticipated after the quiet Christmas period but with the copper
market in the Democratic Republic of the Congo continuing to strengthen the
Directors believe that the Group`s significant marketing efforts in the first
quarter will show results in the second half of the financial year.
Trading in the Support Services division has been in line with the Board`s
expectations.
During the coming quarters the Group will continue developing all of its
businesses in order to meet demand. In addition to this, the Group will
continue to look at strategic acquisitions which will strengthen the business
divisions.
The Directors are confident about the Group`s prospects and believe that it is
well placed to develop its business in line with its stated strategy.
10 The Board
The Board of Directors (as set out more fully in Part 7 of this document) is
responsible for approving the Company`s strategy and monitoring its
implementation, for managing the operations of the Company and for providing
leadership and support to the executive management team in achieving
sustainable added value for shareholders. The Board is also responsible for
enabling the efficient operation of the various businesses by providing
adequate financial and human resources and an appropriate system of financial
control to ensure these resources are fully monitored and utilised.
As at the date of this document the directors were:
David Lenigas (Executive Chairman)
Geoffrey White (Director & Chief Executive Officer)
David Armstrong (Finance Director)
Emma Priestley (Executive Director)
Ambassador Frances Cook (Senior Independent Director)
Jean Ellis (Non-Executive Director) Kiran Morzaria (Non-Executive Director)
In addition, the Rt. Hon. Sir Richard Needham has agreed to become a non-
executive director of the Company with effect from Admission.
The Company has not declared a dividend in any of the financial years ending
30 September 2008, 30 September 2009 or 30 September 2010.
The Company intends to adopt a progressive dividend policy once it has
sufficient distributable reserves and has achieved a level of sustained
profitability provided it is, in the opinion of the Board, commercially
prudent, bearing in mind the Group`s financial position, underlying earnings
and cashflows, the resources required for the Group`s development and the
prevailing market outlook.
11 UK taxation
The attention of Shareholders who are resident in the UK is drawn to the
information contained in paragraph 14 of Part 11 of this document.
Shareholders who are in doubt as to their tax position or who are subject to
tax in jurisdictions other than the UK are strongly advised to consult their
own appropriately qualified independent professional adviser immediately.
12 CREST
CREST is a paperless settlement procedure enabling ownership of securities to
be evidenced otherwise than by a certificate and transferred otherwise than by
a written instrument. The Articles of Association of the Company permit the
holding of Ordinary Shares in the CREST system. The Ordinary Shares are
admitted to CREST.
Accordingly, settlement of transactions in the Ordinary Shares following
Admission may take place within CREST if any shareholder so wishes. However,
CREST is a voluntary system and holders of Ordinary Shares who wish to receive
and retain share certificates will be able to do so.
13 Admission to the Official List and FTSE All Share Index inclusion
Application will be made for the Ordinary Shares to be admitted to the
Official List and trading on the London Stock Exchange`s Main Market for
listed securities. It is expected that Admission will be effective on or
around 26 April 2011.
Following Admission, the Company expects to be considered for inclusion in the
UK FTSE All Share Index.
14 Further information and risk factors
Your attention is drawn to the further information set out in this document.
You should read the whole of this document and not rely solely on the
information set out in this Part 6. In particular, you should consider the
risk factors set out in Part 2 of this document.
DEFINITIONS
The following definitions apply throughout this document, unless the context
requires otherwise:
"1985 Act" the Companies Act 1985
"2006 Act" the Companies Act 2006
"Admission" Admission to Listing and Admission
to Trading and a reference to
Admission becoming "effective" is to
be construed in accordance with the
Listing Rules or the Admission and
Disclosure Standards of the London
Stock Exchange (as applicable)
"Admission to Listing" the admission to listing on the
Official List of the Shares
"Admission to Trading" the admission to trading on the
London Stock Exchange`s main market
for listed securities of the Shares
"Afex" Global Horizons Limited
"AIM" AIM, a market operated by the London
Stock Exchange
"AIM Rules for Companies" the AIM Rules for Companies as
published by the London Stock
Exchange from time to time
"Articles of Association" or "Articles" the articles of association of the
Company as at the date of this
document
"Audit Committee" the Company`s audit committee
"Beaumont Cornish" or "Sponsor" Beaumont Cornish Limited
"Board" or "Board of Directors" the board of directors of the
Company
"Business Day" any day on which banks are generally
open for the transaction for
business in the City of London,
other than a Saturday or Sunday or a
public holiday
"Bytes & Pieces" Sociedade Comercial Bytes & Pieces
Limitada
"certified" or "in certificated form" not in uncertificated form
"CES" Complete Enterprise Solutions
Limited
"City Code" the City Code on Takeovers and
Mergers
"Company" or "Lonrho" Lonrho Plc
"Company Share Scheme" the unapproved share option scheme
operated by the Group
"Corporate Governance Code" the UK Corporate Governance Code
published by the Financial Reporting
Council in June 2010
"CREST" the computerized settlement system
operated by Euroclear UK & Ireland
Limited to facilitate the transfer
of title to shares in uncertificated
form
"Directors" the Executive Directors and Non-
Executive Directors
"Disclosure and Transparency Rules" the disclosure rules and
transparency rules as published by
the FSA under section 73A of FSMA
"EBITDA" Earnings Before Interest, Taxation,
Depreciation and Amortisation
"ECJ" the European Court of Justice
"e-Kwikbuild" e-Kwikbuild Housing Corporation
(Pty) Limited
"EU" the European Union
"Executive Directors" the executive directors of the
Company, being David Lenigas,
Geoffrey White, David Armstrong and
Emma Priestley
"Fly 540" The Group`s aviation business
"Fly 540 Kenya" Five Forty Aviation Limited
"Fly 540 Angola" Fly 540 Sociedade De Aviacao Civil
SA
"Fly540 Ghana" 540 Ghana Limited
"Fresh Direct" Fresh Direct Limited
"FSA" the Financial Services Authority
"FSMA" the Financial Services and Markets
Act 2000
"GAAP" generally accepted accounting
principles
"Grand Karavia" Grand Karavia SPRL
"Group" or "Lonrho Group" the Company and its subsidiaries and
subsidiary undertakings from time to
time
"Hotel Cardoso" Hotel Cardoso SARL
"HMRC" Her Majesty`s Revenue and Customs
"IAS" International Accounting Standards
"IASB" International Accounting Standards
Board
"ICAEW" the Institute of Chartered
Accountants in England and Wales
"IFAC" the International Federation of
Accountants
"IFRIC" International Financial Reporting
Interpretations Committee
"IFRS" International Financial Reporting
Standards as adopted by the European
Commission for use in the European
Union
"IndIT" IndIT Technology Distribution (Pty)
Limited
"ITEPA" Income Tax Earnings & Pensions Act
2003
"Kwikbuild" Kwikbuild Corporation Limited
"LIBOR" the London Interbank Offered Rate
"Listing Rules" the listing rules and regulations
made by the UKLA under section 73A
of FSMA
"Lonrho Agribusiness" Lonrho Agribusiness BVI Limited
"LonAgro" LonAgro Equipamentos Agricolas
Limitada
"London Stock Exchange" or "LSE" London Stock Exchange plc
"Lonrho Aviation" Lonrho Aviation (BVI) Limited
"Lonrho Hotels" Lonrho Hotel Management Services
(BVI) Limited
"Lonrho IT" the Group`s IT business
"Lonrho Mining" Lonrho Mining Limited
"Lonrho Water" Lonrho Water BVI Limited
"LonZim" LonZim Plc
"Main Market" the London Stock Exchange`s main
market for listed securities
"Memorandum of Association" or the memorandum of association of the
"Memorandum" Company
"Nomination Committee" the Company`s nomination committee
"Non-Executive Directors" the Non-Executive Directors of the
Company, being Ambassador Frances
Cook, Jean Ellis and Kiran Morzaria
"Oceanfresh" Oceanfresh Seafoods (Pty) Limited
"Official List" the Official list of the UKLA
"Ordinary Shares" ordinary shares of one pence each in
the capital of the Company
"Panel" the Panel on Takeovers and Mergers
"Prohibited Territories" The United States, Canada,
Australia, Japan, the Republic of
South Africa and their respective
territories and possessions and any
other jurisdiction where local laws
or regulations may result in a
significant risk of civil,
regulatory or criminal exposure for
the Company if information or
documents concerning the Admission
were to be sent or made available to
shareholders in that jurisdiction
"Prospectus" this document
"Prospectus Directive" Directive 2003/7/EC
"Prospectus Rules" the rules made for the purpose of
Park VI of SFMA in relation to the
offers of transferable securities to
the public and admission of
transferable securities to trading
on a regulated market and brought
into effect on 1 July 2005 pursuant
to Commission Regulation (EC) no.
809/2004 (PD Regulation)
"Regulations" the Uncertified Securities
Regulations 2001 (SI 2001 No 3755)
as amended from time to time and any
provisions of or under the Act which
supplement or replace such
regulations
"Regulatory Information Service" one of the regulatory information
services authorized by the UKLA to
receive, process and disseminate
regulatory information in respect of
listed companies
"Remuneration Committee" the Company`s remuneration committee
"Reporting Accountants" KPMG Audit plc
"Rollex" Rollex (Pty) Limited
"Rollex Group" Rollex, Rollex Pty Freight Limited,
Rollex Cargo Pty Limited and
Penninsular Horticulture Pty Limited
"SAILS" SA Independent Liner Services (Pty)
Limited
"Senior Management" or "Senior Michael Bennett, Lauren Roberts,
Managers" Dennis Bowers, Francois leRoux,
Howard McDowall, Jon Buxton, Neil
Steffen, Ewan Cameron, Vijay Thadani
and Mike Samson (whose brief
biographical details are set out in
Part 7 of this document)
"Shareholder" a holder of Ordinary Shares
"Sterling" the currency of the UK
"Supplementary Prospectus" a supplementary prospectus published
pursuant to section 87G of FSMA and
paragraph 3.4 of the Prospectus
Rules
"Trak Auto" Trak Auto Limitada
"UK" or "United Kingdom" the United Kingdom of Great Britain
and Northern Ireland
"UK GAAP" generally accepted accounting
principles in the United Kingdom
"UKLA" or "UK Listing Authority" the Financial Services Authority,
acting in its capacity as the
competent authority for the purposes
of Part VI of FSMA
"US" or "United States" the United States of America, its
territories and possessions, any
State of the United States, the
District of Columbia and all other
areas subject to its jurisdiction
"VAT" value added tax
All references to legislation in this document are to the legislation of
England and Wales unless the contrary is indicated. Any reference to any
provision of any legislation shall include any amendment, modification, re-
enactment or extension thereof.
For the purpose of this document, "subsidiary" shall have the meaning given by
the 1985 Act and "subsidiary undertaking" shall have the meaning given by the
2006 Act.
Words importing the singular shall include the plural and vice versa, and
words importing the masculine gender shall include the feminine or neutral
gender.
Lonrho Plc -
David Lenigas, Executive Chairman +44 (0)20 7016 5105
Geoffrey White, Chief Executive Officer +44 (0)20 7016 5105
David Armstrong, Finance Director +44 (0)20 7016 5105
Pelham Bell Pottinger
Charles Vivian +44 (0) 20 7861 3126
+44 (0) 7977 297903
James MacFarlane +44 (0) 20 7861 3864
+44 (0) 7841 672831
Beaumont Cornish Limited (Sponsor and Nomad)
Roland Cornish +44 (0) 20 7628 3396
Rosalind Hill Abrahams
Panmure Gordon (UK) Limited
Tim Linacre +44 (0) 20 7614 8388
Dominic Morley
Date: 31/03/2011 13:07:31 Supplied by www.sharenet.co.za
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