Wrap Text
Interim Management Statement
Lonrho Plc
(Incorporated and registered in England and Wales)
(Registration number 2805337)
(Share code: LAF; ISIN number: GB0002568813)
(“Lonrho”, the “Company” or the “Group”)
Lonrho Plc
Interim Management Statement
Lonrho reports steady third quarter results and confidence in the growth opportunities now being delivered
by its core businesses
Lonrho announces its results for the third quarter to 30 September 2012 incorporating an update on material
transactions to 12 November 2012.
The Company has continued to successfully build on its core operational businesses that are directly aligned
with the increasing global importance of the emerging agriculture and oil and gas sectors in Africa and the
rapidly expanding consumer markets across the Continent.
- Revenue in the third quarter increased 14.4% to £43.6 million (2011: £38.0 million). Like-for-like revenue
increased by 20.2%. For the nine months to 30 September 2012, reported revenue from core businesses rose
54.1%, from £94.9 million to £146.3 million, a like-for-like increase of 24.2%.
- Gross margins across the Group are up 0.4% on an adjusted like-for-like basis in the quarter. Reported gross
margin on core businesses for the 9 months stands at 27.3%, having increased 1.7% on a like-for-like basis.
- Net debt was £88.4 million at 30 September 2012 compared with £78.7 million at 30 June 2012. The increase
is largely attributable to drawing down the pre-arranged working capital facilities to meet the requirements for
the roll-out of Oceanfresh products into the US market, specifically the volumes into Costco’s “Kirkland
Signature” lines. These facilities will peak in early 2013 and thereafter reduce as each line becomes fully
established.
Continuing
rd
Operations 3 Quarter 9 months
Quarter to Reported Adjusted like- 9 months to Reported Adjusted like-
September growth for-like* September growth for-like*
2012 growth 2012 growth
£ million £ million
Revenue
- Agribusiness 28.5 11.5% 21.2% 101.2 76.6% 27.8%
- Infrastructure 6.0 32.0% 36.5% 16.9 15.8% 20.2%
- Hotels 3.2 30.7% 10.2% 8.3 20.3% 6.7%
- Support Services 5.9 6.4% 5.5% 19.9 22.7% 18.5%
Core Divisions 43.6 14.4% 20.2% 146.3 54.1% 24.2%
- Transportation - - - 20.2 - -
Lonrho Plc 43.6 - - 166.5 - -
Group Gross Margin 27.8% (1.1%) 0.4% 27.3% (1.4%) 1.7%
*includes acquisitions (pre-acquisition comparables based on un-audited management accounts), excludes start-up businesses trading
for less than 12 months and is adjusted to constant currency
Overall Q3 is typically focused on laying the groundwork for the final quarter, which is traditionally the Group’s
strongest. Although export demand from Europe was weaker during the period, reflecting the economic turmoil in
Europe, this was compensated for by stronger and increasing volumes to the US, ASEAN and Chinese markets.
2012 has seen large currency fluctuations in the value of sterling against the currencies in which Lonrho’s core
operational businesses operate. Over the first nine months of the year the effect of movements in the US Dollar and
South African Rand versus forecast has been to reduce reported Group turnover by approximately £7.6 million with a
consequential impact on gross profit of approximately £1.5 million.
Trading Highlights in the Third Quarter
- The Agribusiness Division continues to grow, strongly increasing its significance within the Group. In the 3rd
quarter, Agribusiness contributed 65% of the Group’s revenue. This growth has come from various
businesses, with the strongest like-for-like growth coming in Oceanfresh where sales have increased 179%
on the same quarter in the prior year. The growth at Oceanfresh is a result of the hard work during the first
part of 2012 establishing formal and significant retail relationships for Oceanfresh both within Africa (including
Shoprite / Chequers; Spar; Massmart / Makro etc) and internationally (including Costco; Walmart; Tesco etc)
and the commencement of the delivery on these relationships. Oceanfresh is only just beginning to report the
beneficial results of the roll-out of a series of important product wins, such as Costco’s “Kirkland Signature”
Hake Loins being supplied initially into the US and thereafter to all Costco stores worldwide. A second Costco
“Kirkland Signature” line has just started deliveries and a third will commence roll-out before year end. New
product wins have also been achieved with Sam’s Club; Shoprite; Makro, Sainsbury’s; and others, further
underpinning growth. Gross margins have been lower than expectations in the quarter during the roll-out
phases but are expected to recover through the Christmas period and into 2013 as product launches become
established.
- Oceanfresh also announced in the quarter that it had been granted the exclusive fishing rights for Tuna in the
12 mile territorial waters and the 200 mile Exclusive Economic Zone off Mozambique by the Mozambique
Government. This exclusive five year agreement will begin operations in 2013 with the full quota being fished
by 2014 and product being sold to Asia and the US. The Tuna to be sold from this agreement will add
meaningful further growth at Oceanfresh over the coming years. Lonrho is committed to creating jobs and
economic development where it operates and Oceanfresh is currently refurbishing and upgrading to EU
standards the largest commercial seafood cold storage and processing facility in Maputo in Mozambique to
further develop the industry and export opportunities. Oceanfresh is also increasing its export of lobsters and
langoustines through the facility - gourmet product lines with strong margins.
- Fish On Line has launched its first roll-out of own branded goods to Food Lovers Market (a new, fast growing,
quality retail chain) in South Africa. This relationship will see Fish on Line provide a quality fish range
throughout the 100 stores which are currently trading across the country.
- Lonrho’s farming and cold chain logistics operations have recently been inspected by leading European
retailers including Waitrose, Asda and Tesco, and, similar to the growth pattern of Oceanfresh, strategic
relationships are now developing to meet specific retailers’ long term demands, both within Africa and
internationally.
- The Group’s niche market farming operations have seen the existing Strawberry programme for the leading
South African retailer Pick’n’Pay extended to be a continuous, rolling 12 month supply contract. The last 12
months saw 900 tonnes of strawberries delivered, and following the success of the 2011/12 season, this
year’s planting programme has now been completed and designed to deliver a significant increase in output
during 2013 to meet increasing demand.
- The Group’s 181,000 tree stone fruit plantation continues to mature. During the end of the quarter and
running into the final quarter of the year, the first commercial peach harvest from the plantation is underway
with early season peaches being supplied to Europe, the Middle East and South Africa. As highlighted in the
interim results, exceptionally low temperatures earlier in the year caused frost damage to a proportion of the
fruit on the very young tree stock affecting this year’s harvest. It is currently too early to quantify the one-off
profit impact in the current year (although it is expected to be no more than £1.0 million). Looking forward, as
the trees mature, they become stronger and more resilient and measures have been put in place to ensure
that, in the future, there will be no loss of fruit (and no impact on the biological asset valuation) if the
temperatures were again to reach these unprecedented lows. The first peaches from the plantation have now
been exported to market and have proven the anticipated seasonal timing advantages (and hence improved
margins) and are being very well received by customers, in relation to quality and flavour. The produce from
this plantation, now one of the largest stone fruit orchards in the southern hemisphere, is already seeing
strong demand for the 2013 crop.
- During the quarter Lonrho made a decision to pull out of a 3rd party, specific, distribution contract which was
loss making to the Group. This has resulted in a fall in revenue in the fruit and vegetable sector of
Agribusiness of £6.4 million when compared with the second quarter. This was non-core, low margin business
that was not aligned with the long term objectives and retailer relationships or the margin targets of the Group.
- Lonrho’s relationship with John Deere continues to flourish with the new dealerships in Tanzania and South
Sudan beginning to deliver strong sales since the operations began earlier in the year. The South Sudan
business was further awarded the rights to distribute John Deere construction equipment during the period.
South Sudan is a market that we believe has strong opportunity as it takes control of it’s oil revenues and
begins to develop. Trak-Auto has experienced difficulties in receiving stock during the quarter which has
been tied up both in South Africa, due to the transport workers strike and at the port in Maputo. These delays
have seen a number of sales (revenue of approximately £2.0 million) slip from Q3 to Q4.
- Within the Infrastructure Division, Luba Freeport has a seen a large increase in vessel movements in the
quarter when compared to the prior year. Average weekly vessel calls in the 3 month period were 19.8
compared to just 13.9 in 2011, a 42% increase. Significantly increased exploration activity is expected to
continue through Q4 and throughout 2013.
- The new management team at e-Kwikbuild has been working hard to deliver the 398 classrooms for the
Eastern Cape Schools project that was won earlier in the year. Due to unusually bad weather in the region
the project has suffered from delays and, at the end of the quarter, 44% of the schools had been completed,
whereas the project had been expected to be 90% complete by this point. The remaining schools will be
delivered in the final quarter of the year and in the first quarter of 2103 with the full revenue from the project
recognised when schools are completed. There is a strong pipeline of new projects building for the coming
year both domestically in South Africa and increasingly across the southern Africa region with an increasing
percentage of new business now coming from the private sector
- Within the Hotels Division, Lonrho’s ‘Lansmore’ Masa Square, Gaborone, opened on schedule in July with
good initial occupancy rates that are steadily increasing. The hotel has quickly established itself as the
leading hotel in Botswana. The Cardoso in Maputo continues to perform well with occupancy for the quarter
at 85%. The Karavia in Lubumbashi is also continuing to build in popularity with occupancy up 12% on the
same period in the prior year and F&B revenues building month on month. The Grand Hotel in Kinshasa is
now undergoing a refurbishment funded by the Government and is well on its way in 2013 to re-establishing
itself as one of the leading hotels in Southern Africa.
- Within Support Services the AFEX group has expanded the services provided to Tullow Oil in Kenya
through the opening of a new 250 man camp in northern Kenya. In 2013 it is expected that increased drilling
by Tullow will mean that revenues received from AFEX’s support contract should nearly double. Contract
wins from Fluor, USAID and others reflect the growing interest in South Sudan and east Africa for
development projects.
- The IT division has had a quiet third quarter though Q4 has started well with the new CES Namibia operation
established from July and trading strongly. This takes the Lonrho IT footprint to four countries with further
new country openings under consideration. Bytes and Pieces, currently the largest component of the IT
division and the leading IT company in Mozambique, is at present working to achieve ISO certification, which
will be the first in the market and help it to cement it’s position as the IT company of choice for Mozambique.
- fastjet Plc, the African low cost carrier in which Lonrho holds a 65.8%, arm’s length, strategic stake, following
the reversal of the airline out of Lonrho earlier in the year, continues to move toward launch of the first
branded fastjet fleet at the end of November. The business has announced that Tanzania will be the initial
hub through which the first branded fastjet flights will launch operating three Airbus A319 aircraft. In the
quarter fastjet announced that current passenger numbers have gone from 130,531 in the prior year to
170,988 in the same 3 months for 2012, a 31% increase.
Corporate Update
- During the quarter David Lenigas stepped down from his position as Executive Chairman on the Lonrho
Board and departed from his role in Lonrho, to concentrate on his role as Executive Chairman of fastjet,
Africa’s first true low cost carrier, and other personal interests.
- Following David Lenigas’ departure, Ambassador Frances Cook was appointed to the position of non-
executive Chairman of the Company, separating the executive role from the Chairman’s role. Ambassador
Cook has been a Non-Executive Director of Lonrho since 2007 and the Senior Independent Director since
April 2011. She is a former U.S. Ambassador to Burundi, to Cameroon and to the Sultanate of Oman, and the
former U.S. Consul General in Alexandria, Egypt. She also holds a number of other directorships and brings
an extensive and unique knowledge of Africa to the position of Chairman of the Company.
- Since the quarter end, the Agribusiness division has strengthened its senior management team by hiring a
new divisional CEO, Ben Ward. Ben has in-depth experience at the highest levels in the produce market from
production through logistics to interfacing with global retailers. His experience is directly matched with
Lonrho's business model of providing the route to market for African produce to the growing consumer base
in Africa and to the increasing number of the world’s supermarkets that are turning to Africa as an essential
source of produce to fill their shelves.
The outlook for the full year will be driven by fourth quarter performance, traditionally the Group’s strongest period of
the year. Notwithstanding the one off impact to overall profit for the full year of the frost damage to a proportion of this
year’s peach harvest and the impact of the currency fluctuations referred to earlier, we are encouraged that trading in
the fourth quarter has begun in line with our expectations.
Geoffrey White, Lonrho's Chief Executive Officer, commented:
“The third quarter of the year has been one of continued delivery by our core businesses. We are just starting to see
the tangible results of the significant business that has been won over the past eighteen months and this will continue
to build month on month as we move forward. The Group has secured a number of world class opportunities and
these will increasingly reflect in the corporate results over time.”
Lonrho will be hosting a conference call for analysts to discuss the Group’s 3rd quarter IMS with Geoffrey White and
David Armstrong on Tuesday 13th November 2012 at 9:30am. For details on the call please contact FTI Consulting.
ENDS
Enquiries:
Lonrho Plc +44 (0) 20 7016 5105 FTI Consulting +44 (0) 20 7831 3113
Geoffrey White Edward Westropp
David Armstrong Georgina Bonham
13 November 2012
South African sponsor
Java Capital
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