Lonrho Regulatory News (LONR)

11 Nov 2008 11:36



11 November 2008

LONRHO PLC

("Lonrho" or the "Company")

Lonrho Raises £15.6 million to Continue the Development of its Core Businesses

Lonrho Plc (AIM: LONR), the conglomerate with a structured portfolio of African investments is pleased to announce that it has undertaken a placing to provide sufficient funds for Lonrho to continue the development of its core businesses across Africa through 2009. 

The placing, which is being made following consultation with major institutional investors, has raised £15.6 million (before expenses), equivalent to approximately US$ 24.4 million, by means of the issue of 308,846,000 new ordinary shares in the Company (the "Placing Shares") at 5 pence per Ordinary Share (the "Placing"). The issue of the Placing Shares is subject to shareholder approval at an EGM, which is expected to be held on Tuesday 9th December 2008 and the admission of the Placing Shares to trading on AIM.

The Placing has received strong support from existing shareholders and will provide substantial commercial risk reduction to shareholders given the current market conditions.

The Placing Shares, when issued, would represent approximately 40% of the Company's enlarged issued share capital and application will be made for the admission of the Placing Shares to trading on AIM. It is expected that dealings in the Placing Shares will commence at 8.00 a.m. on Wednesday 10th December 2008. The total number of shares in issue following completion of the Placing would be 763,819,076.

A circular convening the EGM of the Company to approve, inter alia, the issue of the Placing Shares will be sent to shareholders.

Introduction

Lonrho conducted a strategic review of each of its businesses in October this year. The five-year business plans for each division in the Group have been updated and now reflect changes in the world economy.

The Board concluded from the review that it was prudent for Lonrho to ensure that each of the business plans are funded through 2009 and that head office costs are brought in line with this strategy. In the current market conditions, our planning has assumed that the Company does not have to return to shareholders for further funding during 2009. 

Currently, Lonrho has no debt at Plc level. Net proceeds of the Placing will significantly reduce the Company's exposure to further insecurity in world financial markets. Africa remains an attractive investment opportunity; it is an emerging market with little commercial or consumer debt. Economic forecasts for Sub Saharan Africa continue to predict GDP growth upwards of between 5% and 6% for several strategic countries in which Lonrho's businesses operate, and for Angola with 20% in GDP.

The Company's business portfolio has matured sufficiently enough to enable the individual businesses to raise structured finance or debt as deemed necessary to fuel further growth. Lonrho's core businesses are demonstrating strong economic growth.

An update on Lonrho's key businesses are set out below. It is expected that some US$ 17.5 million of the proceeds of the Placing, will be allocated to completion and expansion of current projects under development.

Luba Freeport

A natural, deepwater, oil services terminal in the Gulf of Guinea, Luba is an operating Freeport. Since Lonrho's acquisition in 2006, the port has developed as the central logistics hub for the Gulf of Guinea oil industry. Long term contractual clients now operating from the port include Exxon Mobil; Baker Hughes; Amerada Hess; Schlumberger and SBM with Noble and others mobilising. Luba is owned 63% by Lonrho and 37% by the Government of Equatorial Guinea.

Lonrho completed its first phase of the port extensions on time and on budget in November 2007 and phase two, taking the port's accessible quay to three hundred and fifty metres, will be completed by January 2009. Currently the port averages 124 vessels per month and growth is constrained by quay capacity. The completion of the quay extension will allow double the number of vessels to be handled. 

Lonrho has invested US$ 65 million in this key asset, which is a fundamental infrastructure centre for the Gulf of Guinea oil and gas industry and the stated policy requirements for America to source one quarter of all American oil requirements from the Gulf of Guinea by 2012. 

Lonrho plans to invest a further US$ 1.2 million to complete the current development phase of the port by January 2009 and US$ 0.5 million on the purchase of an x-ray 'container scanner' for the port to meet international security standards for the clearance of containers at the Freeport. 

Lonrho Aviation : Fly540 

Fly 540 is progressing well as a pan African airline connecting Africa North to South and East to West. The airline has demonstrated its ability to provide international, reliable standards in an African environment. Over ninety-five percent of all flights leave within 10 minutes of schedule. 

Having established a strong and cash generative position in the domestic market in Kenya in 2007, Fly540 commenced regional flights to Uganda; Tanzania; DRC and Southern Sudan at the start of 2008. The regional Kenyan hub will continue to develop routes to service Rwanda, Mozambique and Burundi in 2009. 

The second strategic hub for Fly540 is based in Angola and is nearing completion of development. This will initially serve six domestic locations in Angola, which is expected to grow to fifteen. 

Operationally the airline has been established, crews trained, maintenance facilities established, ticket offices developed and staff recruited. The inaugural flight in Angola is scheduled for later in 2008. 

Negotiations regarding the extension of Fly540 Angola to service the regional market will commence once the domestic market has been established and demonstrated its success. Angola as a country with a 20% plus growth in GDP and a massive boom in FDI as a result of the oil industry clearly requires an international standard domestic scheduled airline. The Fly540 Angola budget forecasts further funding of US$ 2.9 million to take it through to operational breakeven for the regional Angolan hub. 

The third strategic hub, for West Africa, is Ghana and this will commence flights first quarter 2009. Lonrho's participation forecasts a budget for Fly540 Ghana of US$ 3.6 million to take it through to operational breakeven. The combination of the three regional hubs, East, West and South will, when interconnected, deliver an international standard, quality airline that connects sub Saharan Africa.

The Fly540 business plan is to provide an international standard passenger service providing a level of service that is such that Fly540 becomes the regional distribution and hub and spoke carrier of choice for the intercontinental airlines flying into and out of Africa whilst being the reliable and quality airline for those in Africa to transit Africa. 

Lonrho Agriculture

Lonrho Agriculture is centred on the ability to agri-process, pack and deliver fresh produce from Africa to the global consumer. Lonrho's subsidiary, Rollex operates a 3,500m2 state of the art agri-processing facility airside at Johannesburg airport. 

The company collects fresh produce from across southern Africa with its own fleet of new refrigerated trucks and consolidates the produce (vegetables and fruit) for processing and packing to customer's specification.

Rollex then delivers the finished produce to supermarkets and retailers both in South Africa and Europe. The company currently sends on average 40 tonnes of fresh produce per day to Europe from Africa. The produce is processed and packed to the highest international standards for customers including Marks & Spencer, Tesco, Sainsbury and Carrefour in Europe and Woolworths and Spar in South Africa.

A new fruit salad processing line at the Johannesburg facility, which commenced operations in early 2009, is expected to add US$ 20 million to annual turnover. A newly commissioned fish processing facility in Walvis Bay will add further to the Lonrho processing and export capabilities.

Lonrho Agriculture is focused on increasing its cold store and agri-processing and logistics capabilities to service the growing market for African produced foodstuffs. New cold store and agri-processing facilities are being developed by Lonrho in Lilongwe, Malawi to open up new delivery opportunities to the Middle Eastern market.

Lonrho is intent on establishing a world-class chain of facilities to service the cold store agri-processing market.

To support the flow of fresh produce into this logistics chain, Lonrho Agriculture is currently negotiating agricultural projects in several countries to service both the domestic market in South Africa and export markets.

The roll out of the agri-processing and cold stores, plus Lonrho farming initiatives has been budgeted to require approximately US$ 6 million further equity finance.

Lonrho Construction : Kwikbuild

Kwikbuild is an established and cash generative business that manufacturers prefabricated buildings. The core business for the company has been the supply of prefabricated school rooms to the South African Government. Currently, Kwikbuild supplies 50 class rooms per month as part of the Government's requirement to build sixty-four thousand class rooms for South Africa. It is planned to increase this to 200 units a month when new production facilities are completed.

Following the controlling acquisition of Kwikbuild by Lonrho, the company has developed a new manufacturing plant for Kwikbuild panels and components in Port Elizabeth, South Africa.

This has increased the production capabilities of the company, and has positioned the company to move beyond its historic markets. 

In conjunction with Lonrho's expertise, the company is attracting export orders from Angola, Mozambique and the DRC for oil companies, miners, clinics, workers camps, municipal offices, and a wide range of uses.

The strength of Kwikbuild product is that it requires minimal skill to install and no local construction components. Thus in rural environments, four standard Kwikbuild buildings can be delivered in a 40ft container and installed and operational in four days.

Kwikbuild is operating profitably and has no immediate funding requirements.

Lonrho Hotels

Cardoso Hotel

The Hotel Cardoso in Maputo, the capital of Mozambique, is one of the leading properties in the city. Lonrho has invested US$ 1.5 million in a major refurbishment project which has brought the hotel back up to a four star standard. Funds have also been invested in the adjacent park to expand its stunning hill top position with panoramic views over the bay of Maputo. The park now incorporates a coffee shop and restaurant run by the hotel. This has enhanced the location of the Cardoso, making it one of the top meeting venues in the city.

Since the new Lonrho management commenced in 2006, occupancy rates have risen from 38% to 70%, and the hotel now averages approximately US$ 120 revenue per room compared to US$ 40 in 2005. With the completion of a new panoramic roof top restaurant early in 2009, the hotel will become one of the most prestigious destinations in Maputo. 

The hotel is cash generative and does not require further funding.

Karavia Hotel

The Karavia Hotel is in Lubumbashi in the Democratic Republic of Congo. Lonrho has been awarded a 50 year hotel refurbishment and management contract under a World Bank formatted tender by COPIREP, the DRC Government body for reconstruction.

The project, to provide an international standard 200 plus room hotel in Katanga Province, the centre of the DRC copper belt, is on schedule to be open mid 2009. The completed hotel will be the only large accommodation facility in Lubumbashi, a market where many visitors are currently paying up to US$ 300 a night to stay in small guest houses. 

The refurbished hotel will have 212 rooms and 12 suites, including a Presidential Suite. 

Due to the increase in foreign direct investment into the Katanga province (estimated to be in the region of US$ 12.5 billion over the coming five years), there is a huge requirement in the market for quality accommodation in Lubumbashi and conservative estimates for occupation of the Karavia are set at 80%.

The US$ 20 million rebuild of the Karavia has been funded by equity supported by debt finance by the DBSA for US$ 10m and a working capital facility from Standard Bank. 

Lonrho has an outstanding commitment of a further US$ 1.7m to complete its equity investment.

Lonrho IT

Computer Enterprise Solutions ( CES ) is an expanding IT solutions provider. A master franchise for Dell, HP, Microsoft and Tata IT, the company is the market leader in this market in Mozambique. 

Having dominated the Mozambique market, CES has opened an office in Johannesburg to address the South African market, and is expanding into Uganda and Angola.

The expansion of CES is self-funding from internally generated cash flows. 

Lonrho Springs

With bottling plants in production in Maputo and Kinshasa, Lonrho Springs is developing new water bottling operations in Luanda, Angola and Lubumbashi in the DRC. The new plants will produce 5.0 million litres and 1.2 million litres respectively per year. 

The bottled water market remains strong across Africa with recent studies demonstrating an average market growth of 30% per year. 

Expanding markets such as Lubumbashi and Luanda have chronic supply shortages, with not only the inability to supply locally, but also long delays experienced in expensive imported waters reaching market.

The Lubumbashi and Angolan plants are scheduled to start production in the second half of 2009. Equity requirements for funding of the projects by Lonrho are budgeted at approximately US$ 1.5m. 

David Lenigas, Lonrho's Executive Chairman commented today:

"In these turbulent markets, it is incumbent on the Board of Lonrho to ensure sufficient capital is available for the business to meet its corporate objectives. The Board has considered in detail the requirements of the company for the coming twelve months and has reduced growth plans in some sectors and cut corporate overheads by thirty percent.

Having discussed the position with our major shareholders, the Board has concluded that it is prudent for the Company to raise £ 15.6 million to maintain the development of our core businesses. These funds will be applied judiciously. 

Lonrho remains bullish on African growth and economic development. Sub Saharan Africa will, in our opinion, continue to show significant economic growth over the coming years and Lonrho's mandate remains to be an integral and successful component of that growth." 

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NOTES TO EDITORS

About LONRHO:

Lonrho Plc is an expanding conglomerate that is rapidly growing a successful business throughout Africa. The Company's shares are traded on the London AIM stock exchange (LONR). Lonrho is strategically focused on the development of business opportunities in infrastructure, transportation, support services, hotels and natural resources. The Company has over 19,000 shareholders and substantial institutional backing to support its mandate to build a profitable business that plays a fundamental role in the development of the African economy. 

Since 2006, the Company has invested in or acquired control of: 

Hotel Cardoso - www.hotelcardoso.co.mz  

Lonrho Mining - www.lonrhomining.com 

Luba Freeport - www.lubafreeport.com 

Fly540 - www.fly540.com 

Swissta Holdings - www.swissta.com 

Bytes and Pieces www.bytespieces.com 

Kwikbuild - www.e-kwikbuild.co.za 

Rollex - www.rollex.co.za

LonZim - www.lonzim.co.uk