Lonrho hitting targets as strong divisional performances drive growth in Q1
Pan-African investors Lonrho (AIM: LONR) said it hit performance targets and delivered on its growth expectations in the first quarter. In the three months ended 31 December 2009 overall turnover reached 22.7m, reflecting a 21.7% increase in constant currencies (CC) and 3.1% on a reported basis. Lonrho said it has focused on increasing its operating margins during the quarter, with the Agribusiness and Infrastructure divisions achieving significant improvements.
Lonrho is on track and is meeting its ambitious targets for the year, Lonrho chairman David Lenigas commented, adding that the Lonrho management teams continue to grow their businesses whilst having to operate in a particularly challenging economic environment.
At the 31 December Lonrho held cash balances of 32m. Net assets stood at 104m, an increase of 20m since 30 September 2009. The company also noted the substantial 46.1% increase in its share price on the AIM market during the quarter, shares rose from 8.04p on 1 October to 11.75p at the close of business on 31 December 2009. Market capitalisation increased from 64.2m to 123.4m.
The group's entire turnover is denominated in foreign currency, predominantly US Dollar (USD) and the South African Rand (ZAR), whilst the financial reporting is in pounds sterling (GBP). Lonrho said that large swings in foreign exchange rates have over the past twelve months have had an effect on reported performance. During the period, the Rand strengthened against Sterling by approximately 20%.
The company's on-going capital expenditure program and foreign exchange trends have influenced Lonrho's financial performance, despite its growth on a divisional level. Lonrho reported a net loss of 1.2m during the period, reflecting a narrowed loss from the previous years reported loss of 1.9m. Ultimately, the pretax loss was 3.3m, compared to the 2.7m 2008s Q1 reported pretax losses. The losses in the quarter reflect the additional interest and depreciation on Lonrho's capital expenditure programme required to expand its investee businesses.
All five reporting divisions continued to expand with several operational highlights during the quarter, as the group's core markets showed growth across the continent despite the global economic crisis, Lonrho said. The divisions are Infrastructure, Agribusiness, Regional Transportation, Support Services and Hotels.
Lonrho's 51% held primary Agribusiness, Rollex SA, increased Q1 sales by 14% at constant currencies whilst improving margins by 3 percentage points to 18%. The company said the improvement was directly linked to increased volumes of fresh produce and fish exports to Europe. On the African continent Rollex also benefited from increased volume, increasing supplies to two large South African supermarkets in South Africa by 182%. Rollex is now the preferred supplier to the two chains, Pick&Pay and Spar.
The infrastructure businesses also grew revenues during the quarter with the Luba Freeport and Kwikbuild Corp driving the divisional performance. The 63% owned Luba Freeport achieved 8% revenue growth, stimulated by a number of clients in the oil and gas industry, who initiated off-shore drilling programs. Kwikbuild Corp owns a 51% stake in South African pre-fabrication builder e-Kwikbuild Ltd, which increased its turnover by 39% and had an order book of ZAR30m at the end of the quarter. Lonrho increased its stake in its investee to 70%, gaining further exposure to the underlying business.
Lonrho has undertaken a refurbishment programme among a number of its hotel investments. At its 59% owned Hotel Cardoso in Mozambique, the refurbishment was completed during the period and average room rates are now above US$100 per night compared with US$78 per night in December 2008. During Q1 turnover at the Cardoso increased by 78% on a comparable currency basis. Refurbishment at the 50% owned Hotel Grand Karavia in Lubumbashi, Democratic Republic of Congo (DRC), is still underway and the hotel is scheduled to open at the end of March. Lonrho expects strong demand for quality hotel rooms due to the recovery of activity in the Lubumbashi copper belt of the DRC.
Lonrho Aviation increased turnover by 41% on a comparable currency basis as its Fly 540 unit launched a new service from Kenya's Nairobi airport to Tanzania and Barundi. The unit also began scheduled services connecting Zanzibar to Kilimanjaro and the Serengeti. The Fly540 service continues to connect East Africa, Lonrho said. Fly 540 is continually increasing the size of its fleet and the variety of aircraft.
The company also grew revenues and added new contracts across its support services businesses, with the Bytes & Pieces, Lonrho IT, CES Zambia and Swissta Mozambique businesses all meeting or exceeding revenue expectations on a constant currency basis.
Lonrho also has a 24.61% stake in its Zimbabwe focused associate company, LonZim (AIM:LZM), who revealed that they returned to profit in an announcement in January. LonZim said it is delivering strong growth as the general Zimbabwe market begins to recover.
Overall the business strategy continues to be resilient and clear opportunities continue to exist in focusing on and serving the oil, agricultural and mineral industries across the continent, these are the core economic drivers for emerging Africa. Lonrho's operations remain aligned with the countries growing with the boom in these sectors, David Lenigas concluded.
