David Lenigas, the bold, brash Chief Executive Officer and Executive Chairman of Lonrho plc, has big plans to rebuild the company around brand name Lonrho.
Lonrho (London-Rhodesia) was one of greatest success stories of the London Stock Exchange until the 1990's. As the name suggests, Lonrho was first incorporated in 1909 to invest in Rhodesia (now part of Zimbabwe). The company came to the fore after the, now infamous, 'Tiny' Rowland joined the company in 1961, and expanded it beyond its core operations in mining into hundreds of operating subsidiaries, investing in everything from automobile distribution to property, agriculture, finance and leisure and tourism.
At its peak, Lonrho had revenues of US$7 billion, 900 operating subsidiaries and employed nearly a quarter of a million people. During this period of aggressive expansion, Lonrho moved out of Africa to acquire businesses in Europe and North America. Lonrho's Tiny Rowland was a controversial figure and, in the end, despite his impressive expansion of the business, the company was still heavily reliant on its mining operations for cash flow, and the low metal prices of the 1990?s hit the conglomerate hard. By 1994, Lonrho’s outspoken leader was ousted.
In the wake of his departure, the group embarked on a massive disposal programme, and by 1999 had spun out its mining assets - which became Lonmin, one of the largest producers of platinum in the world and now a FTSE 100, company thanks to the soaring demand for platinum.
So by the turn of the century, Lonrho was a mere shadow of its former self, and continued to dispose of assets and return the proceeds to shareholders. Enter David Lenigas in 2005, having recently relocated from a successful career in the mining sector in Australia. With the appointment of David as joint CEO the company embarked on a revised plan of investing in Africa, once again, supported by Emma Priestly as Executive Director, and Geoffrey White as Chief Operating Officer. The new Lonrho was going to invest its remaining cash pile, and raise additional funds to seek new areas of growth in Africa. And thus, the history of Lonrho and Tiny Rowlands still has a part to play in the future of the business.
The Lonrho name and image may have lost its lustre in the UK, but in Africa it is still a well-known. And the new executive team at Lonrho realises that there is considerable potential to tap into this strong brand awareness on the African continent. The new management has also set some criteria for its investments. First and foremost, it is interested in taking a controlling stake in a business, but at the same time it’s keen to keep the management of the acquisition in place. Lonrho is not interested in taking control of the day-to-day operations of a business, so to speak, but it's more interested in using its financial backing in London, and strong brand appeal, to maximise growth potential. Lonrho also prefers to place a financial director into its investments, allowing it to ensure that the business is developed with the proper checks in place.
The company also has four key areas of investment: infrastructure, transport, leisure & travel, and of course, natural resources.
To date, Lonrho has made four investments in the natural resources sector
but, unlike all of its other investments; it does not have operational control. The lead investment is a 20.26% stake in Nare Diamonds, which, is expected to list on AIM later this year. Lonrho also has a 4.23% stake in Brinkley Mining (AIM: BRM) a 6.71% stake in Consolidated African Mining and a 2.41% stake in Ethiopia’s South West Energy Ltd.
Beyond natural resources, the investments of Lonrho are wide and varied including:
1. 65% interest in Bytes & Pieces, an IT solutions provider based in Mozambique
2. A joint venture with Countermine plc to explore mine clearance opportunities in Sub-Sahara Africa.
3. 100% interest in Swissta, a water bottling business in Mozambique and the DRC. To mark this acquisition Lonrho created the ‘Lonrho Springs’ brand of bottled water
4. 59% interest in the Hotel Cardoso in Mozambique
5. 43% controlling interest in South African freight carrier, Norse Air
6. 49% controlling interest in Fly540, a Kenyan based low-cost passenger airline
7. 45% controlling interest in SA Independent Liner Services (SAILS) which has containerised ships servicing trade between Africa and Europe.
8. 63% controlling stake in Luba Freeport in Equatorial Guinea, which is the only tax exempt natural deepwater seaport in western Africa
Perhaps most controversially, Lonrho recently announced the creation of LonZim, a new company that will seek investments in Zimbabwe. To date, the new vehicle has raised £32 million and Lonrho will retain at 30% stake. The new company will focus on the same investment principles as the parent company and, thus, has its eye on industrial, infrastructure and other assets that can be bought at a fraction of their value, due to the crumbling state of the country. A similar strategy of spinning out separately quoted companies focused on particular areas, or investment areas, in particular the group is considering a separate vehicle for its natural resource investments.
Lonrho has been able to complete its acquisition strategy thus far, because of a supportive institutional audience in London, and raising sizeable chunks of cash at both 28, and 32 pence. An example of this support is a recent RNS disclosing that Mackenzie Cundill Investment Management (MCM) crossed the 11% threshold- now owning 11.11% of Lonrho’s equity. Peter Cundill is a long respected fund manager who manages a number MCM's value, recovery and emerging market funds so his support of the new Lonrho is worth noting.
Despite many of Lonrho's investments being in apparently 'boring’ sectors like, infrastructure and transport, Africa is attracting unprecedented investment and Lonrho is looking to gain leverage on that growth, offering the rare combination of investments that tend to offer net asset backing plus high growth potential - a heady combination that partly explains the strong share price performance.