| Wed 19 Mar 2003, 12:29 | | Lonrho Africa Plc - Preliminary Results for the ye |
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Lonrho Africa Plc
(Registration Number 2805337 UK)
JSE Code: LAF
ISIN Code: GB0002568813
Preliminary Results for the year ended 30 September 2002
Chairman"s statement
The Group"s strategy through the last two years has been to withdraw from
product lines and markets where its local subsidiaries struggled to remain
profitable and prospects looked unpromising. In 2002 the Group has continued
to dispose of businesses, using the proceeds to reduce the heavy debt which
it has had since it was formed in 1998. During the year net borrowings were
reduced to GBP2.1m from GBP5.7m; at the beginning of 2001 the debt was
GBP32.4m.
The operating review which follows gives details of the progress of our
remaining businesses and the programme of asset sales. The Board seeks to
dispose of the remaining assets in Africa during the coming year. As the
Group"s subsidiaries have reduced in number and scale of operations, steps
have been taken to streamline overheads.
The Group is now actively seeking new business opportunities which have
prospects of good investment returns and more secure operating conditions
than prevail in much of Africa today. It is the Board"s view that current
market conditions provide the opportunity to identify suitable investments in
the United Kingdom.
During the year the Group participated in legal proceedings to resolve
differences concerning the Pension Scheme of one of its subsidiary companies.
As referred to in the Group"s Interim Report for the six months ended 31
March 2002, The Law Debenture Trust Corporation plc, the Trustee of the
Pension Scheme, was advised by legal counsel to seek the direction of the
Court over the correct interpretation of the Trustee"s powers under the Trust
Deed.
In the judgement the Court found that the Trustee"s powers had to be
exercised by the Trustee in a fiduciary manner for all parties. Therefore the
interests of the sponsoring company and the members must be considered by the
Trustee in arriving at its decision as to how to reduce the existing
statutory surplus in the scheme. In these circumstances the Group will
discuss with the Trustee the manner in which this matter can be resolved.
John Garnett retired as Chief Financial Officer on 31 December 2002 after 29
years service with the Group. The Board would like to thank John for his
important contribution over many years and wish him a pleasant retirement. We
thank all our staff for their loyalty and service during the year.
Bernard Asher
Chairman
18 March 2003
Operating review
Motors
The economic disintegration of Zimbabwe continued throughout the year with
the official inflation rate increasing from 80% to 140% and the parallel
market exchange rate depreciating by some 160%. Against this background
W.Dahmer & Co, our bus building business, reported a creditable profit of
GBP0.4 million (2001:GBP0.2 million). The decision last year to stockpile
inventory whilst foreign exchange was available allowed us to increase gross
margins from 26% to 48%. The loss of critical skills was of major concern
with head office staff drafted in to oversee operations prior to the
disposal. The sale of the Lonrho Africa shareholding was completed in
December 2002. Proceeds of GBP0.7 million have been banked in the UK.
The announcement by Anglo American that they would cut off financing to
Zambia Copper Investments led to a crisis of confidence within the business
community. We scaled back our motor operations in anticipation of a sale,
and the operating loss was reduced to GBP0.5 million (of which GBP0.3 million
represented exchange losses) from GBP0.9 million in the previous year. In
May 2002 we sold Turnpan, the mining supplies company based on the Zambian
Copperbelt, for repayment of debt of GBP0.6 million, payable over a period of
twelve months. In July 2002 we accepted an offer of GBP0.2 million for our
remaining Zambian motor operations based in Lusaka.
In May 2002 the purchasers of Farming and Engineering Services in Malawi, the
Massey Ferguson distributor, redeemed the GBP0.3 million preference shares
held by Lonrho Africa and which formed part of the disposal consideration.
Following the sale the Malawi country office was closed, with the Chairman
remaining on a consultancy basis to complete outstanding issues.
The Swaziland business broke even in the first quarter prior to the disposal
in January 2003 to a management consortium. Lonrho Africa"s share of the
proceeds amounted to GBP0.4 million.
In the lead up to the sale of the Angolan operation, which was finalised in
June 2002, we continued to run-down inventories, reporting an operating loss
of GBP0.1 million. The disposal consideration was GBP2.6 million.
The court hearing in respect of a claim by certain Commercial Paper holders
in Lonrho Motors East Africa (in Receivership) which was scheduled for
November 2002 has been postponed. Negotiations between legal representatives
of the holders and Lonrho Africa continue.
Timber
The disposal of the remaining wattle extract stocks from Kenya continued,
with the volume reducing from 1,994 tonnes at 30 September 2001 to 260
tonnes.
Food processing
The GBP0.5 million held in escrow as part of the sale agreement of Farmer"s
Choice in 2001 has now been released and taken to profit as an exceptional
item during the year.
Ranching
On the Ol Pejeta ranch efforts were concentrated on rebuilding the profile of
the cattle herd which is still recovering from the drought of 1999.
Facilities have been put in place to slaughter on site thus increasing gross
margins. The ranch reported a marginal loss for the year, a slight
improvement on the GBP0.1 million loss in 2001. Livestock numbers now total
6,200 cattle and 4,100 sheep, an overall increase of 8%.
Distribution
Agreement has been reached for the early settlement of the deferred
consideration of GBP0.3 million arising from the disposal of Lonrho Africa"s
interest in John Holt Plc, our distribution business in Nigeria, in 2001.
Originally scheduled for repayment in July 2003, the funds were received in
March 2003.
Hotels
The tragic events of 11 September 2001 had a severe impact on our hotel
operations, particularly in the first half-year when a pre-tax loss of GBP0.2
million was incurred and occupancies dropped 18% from 52% to 43%. Results
recovered in the second half resulting in a pre-tax profit for the year of
GBP0.3 million (2001 : GBP1.6 million) and occupancies 11% down to 46% .
Occupancies in the Kenyan hotels declined from 47% to 43%, a drop of 10% of
rooms sold. In 2001 the American market represented 42% of our total market
but showed a 37% decrease in the current year. Successful efforts have been
made to replace this business with regional (up 13%) and African (up 54%)
visitors but at the cost of declining yields. The appointment of a sales
manager for Europe was instrumental in limiting the drop in arrivals from
Europe to 1%, with the British market increasing by 15%. As reported at the
half-year, managers were instructed to reduce costs against budget by GBP0.8
million; in fact they achieved a saving of GBP1.0 million. Staff numbers
were reduced by 10%. Capital expenditure was kept to an absolute minimum of
GBP0.1 million. The hotels and camps continued to win awards. East Africa
Travel News and Lifestyle voted the Norfolk best city hotel, Sweetwaters best
tented camp, Mount Kenya Safari Club best up country hotel and best weekend
getaway. Mount Kenya Safari Club was voted best hotel in Africa and the
Middle East by Travel and Leisure magazine. The start of the 2002/3 year has
been disappointing, negative factors being the concerns raised in the run-up
to the December Kenya election, the Mombasa bomb and the perception of a
probable war in Iraq.
The Labadi Beach Hotel in Ghana suffered a 12% drop in occupancies from 82%
(a record) to 72% in spite of a reduction in room rates. Despite a renewal
of the British Airways air crew contract for a further two years, a change in
aircraft led to a reduction in room nights. The full opening of a
competitive hotel on the adjacent beachfront property also impacted on
occupancies and, in particular, banqueting revenue.
Cost reductions were less successful than in Kenya with utility and payroll
costs a particular problem. For the second year running the hotel was
awarded Best Hotel in Ghana.
Occupancies at the Hotel Cardoso in Mozambique dropped 9% from 47% to 42%. At
the same time yields also dropped with the opening of yet another hotel in
Maputo. There has been a disappointing trend from the corporate to the
leisure market with a resultant drop in rates and food and beverage business.
Action was taken on both costs and headcount, both reducing by 10%.
Negotiations for the sale of the Hotels and the Ol Pejeta Ranch with a number
of interested parties were delayed as a result of the bomb attack on a
Mombasa hotel. These have now been resumed and we are hopeful of reaching a
conclusion this year.
Property
The sale of the 24,000 acres of agricultural land at Nandi Estates in Kenya
continues. We expect to collect a further sum totalling in excess of GBP2.0
million.
The sale of Lusaka Hotel was finalised with the receipt of GBP0.5 million,
together with settlement of all related group indebtedness. A deferred
payment of GBP0.1 million is due to be received over a period of 24 months.
The sale of an industrial property in South Africa for GBP0.2 million was
concluded. Efforts continue to sell the remaining portfolio which has a
carrying value of GBP1.2 million, but are being held up by our joint venture
partner.
An industrial property in Malawi was sold in sold in September 2002 for
GBP0.2 million. Proceeds were staggered with the final tranche being received
in January 2003. Three small properties remain to be sold in Malawi.
Joint venture
An agreement for the sale of the Lonrho Africa shareholding in Kariba
Minerals, Zambia for GBP0.2 million was signed in February 2002. This still
awaits Government approval.
For further information please contact:
Nadja Vetter, CardewChancery Tel: 020 7930 0777
Financial review
Basis of preparation of financial statements
Going concern
The directors continue to adopt the going concern basis in preparing the
financial statements as the disposal process continues to reduce net debt in
accordance with the Board"s strategy. Net debt at 30 September 2002 was
GBP2.1 million compared to GBP5.7 million at 30 September 2001 and GBP32.4
million at 30 September 2000. The Directors remain confident that further
disposals will be made in the next financial year to eliminate borrowings.
Bank facilities are now uncommitted but the principal lenders have an agreed
repayment schedule based on a share of disposal proceeds. Regular meetings
are held to discuss the progress of the disposal programme and whilst this is
taking longer than anticipated (in particular the Hotels), sufficient
progress has been made for the Directors to believe that the support of the
principal lenders will remain in place.
Asset values
In preparing the financial statements the Directors have reviewed the
carrying values of both fixed and current assets in light of the current
economic uncertainties, and have made such adjustments as they consider
reasonable and prudent. Particular consideration has been given to the
carrying value of the Hotels in light of the events detailed in the Operating
Review.
Group performance
Continuing operations at 30 September 2002 consist of Hotels and Ol Pejeta
Ranching. Total turnover in continuing operations decreased by 21% for the
year because of depressed trading in Hotels and weaker local currencies.
Last year we reported that substantial financial cost savings would be
enjoyed following the reorganisation of the group head office function. This
year we are pleased to report that an operating profit of GBP0.4 million has
been reported compared with a loss last year GBP1.6 million as a result of
this reorganisation. This is despite the decrease in operating profits of
the Hotels division from GBP1.6 million last year to GBP0.3 million this
year.
Loss on sale or termination of discontinued operations amounted to GBP1.3
million compared to a GBP11.9 million loss in 2001.
As a result of the continuing reduction in debt following the disposal
process net interest payable has been reduced from GBP3.3 million in 2001 to
GBP0.3 million this year.
Dividend
The Board has decided that it is not appropriate to declare a dividend.
Annual General Meeting
The Annual General Meeting will be held on Wednesday 16th April, 2003 at 2.30
pm at Liverpool Moat House, Paradise Street, Liverpool L1 8JD.
At this meeting a resolution will be proposed which, if passed, will give the
Directors a general authority to make market purchases of up to 15.757
million ordinary shares of 20p each (representing approximately 10% of the
current issued share capital). The Directors would only use this authority
if it was considered to be in the best interests of the Company, and they
could foresee a consequent improvement in earnings per share.
Consolidated profit and loss account
for the year ended 30 September
Continuing Discontinu
ed
Continui Discontinu operations operations Total
ng ed
operatio operations Total 2001 2001 2001
ns
2002 2002 2002 As restated As As
restated restated
Not GBPm GBPm GBPm GBPm GBPm GBPm
e
Turnover
Group 12.1 9.0 21.1 15.1 90.6 105.7
Joint 0.2 - 0.2 0.4 8.5 8.9
ventures
12.3 9.0 21.3 15.5 99.1 114.6
Group net (12.6) (8.2) (20.8) (17.0) (91.2) (108.2)
operating
costs
Operating
profit/(l
oss)
Group
- - (0.2) (0.2) (1.8) 1.1 (0.7)
before
-
excepti
onal
items
1a (0.5) 1.0 0.5 (0.1) (1.7) (1.8)
(0.5) 0.8 0.3 (1.9) (0.6) (2.5)
Joint
ventures
- before 0.1 - 0.1 0.1 0.8 0.9
exceptiona
l items
Total
operating
profit/(loss)
- before 0.1 (0.2) (0.1) (1.7) 1.9 0.2
exceptiona
l items
- 1 (0.5) 1.0 0.5 (0.1) (1.7) (1.8)
exceptiona a
l items
(0.4) 0.8 0.4 (1.8) 0.2 (1.6)
Loss on sale 1 (1.3) (11.9)
or b
termination
of
discontinued
operations
Net interest (0.3) (3.3)
payable
Loss before (1.2) (16.8)
taxation
Taxation (0.3) (1.8)
Loss after (1.5) (18.6)
taxation
Minority (0.1) (1.2)
interests
Loss for the (1.6) (19.8)
year
Dividends to - -
shareholders
Retained (1.6) (19.8)
loss for the
year
Loss per
share
(basic and (1.0) p (12.6) p
diluted)
Loss per share
before
exceptional
items (basic (0.5) p (3.9) p
and diluted)
Note
The figures for 2001 have been restated to reflect
operations that ceased during 2002 as discontinued and
for the implementation of FRS19 Deferred Tax.
Balance sheet
for the year ended 30 September
Group
2002 2001
As
restate
d
GBPm GBPm
Fixed assets
Tangible 31.2 38.5
Investments :
Joint ventures 0.3 0.3
Other investments - 0.6
31.5 39.4
Current assets
Stocks 1.9 5.8
Debtors :
Amounts falling due within 4.7 12.1
one year
Amounts falling due after 8.1 8.4
more than one year
12.8 20.5
Cash at bank 4.9 5.7
19.6 32.0
Creditors: amounts falling (12.4) (25.9)
due within one year
Net current 7.2 6.1
assets/(liabilities)
Total assets less current 38.7 45.5
liabilities
Provisions for liabilities (6.5) (7.2)
and charges
Net assets 32.2 38.3
Capital and reserves
Called up share capital 31.5 31.5
Revaluation reserve 15.9 20.2
Other reserves 58.2 48.5
Profit and loss account (78.4) (67.8)
Shareholders" funds (equity) 27.2 32.4
Minority interests (equity) 5.0 5.9
32.2 38.3
Note The 2001 figures have been restated for the
implementation of FRS19 Deferred Tax.
Consolidated cash flow statement
for the year ended 30 September
2002 2001
GBPm GBPm GBPm
GBPm
Net cash flow from
operating activities
- continuing operations 0.1 (0.9)
- discontinued 0.2 7.3
operations
0.3 6.4
Returns on investments and
servicing of finance
Interest
- received 0.1 0.3
- paid (0.4) (3.5)
Dividends to minorities - (0.2)
Net cash outflow from (0.3) (3.4)
returns on investments and
servicing of finance
Tax paid
Overseas (0.3) (1.9)
Total tax paid (0.3) (1.9)
Net cash (out)/inflow before (0.3) 1.1
investing activities and
equity dividends
Net capital receipts 3.4 5.6
Net proceeds from 0.4 17.0
disposal of subsidiaries
Net cash inflow before 3.5 23.7
financing
Financing
New short-term loans - 1.7
Repayment of long-term - (4.0)
loans
Repayment of short-term (1.0) (0.2)
loans
Net cash outflow from (1.0) (2.5)
financing
Increase in cash 2.5 21.2
in the year
Notes to the Financial Statements
1. Exceptional items
a) Operating items
Operating Continu Disconti Tota Continu Disconti Tota
profit/(loss) ing nued l ing nued l
includes the operati operatio 2002 operati operatio 2001
following ons ns ons ns
exceptional items 2002 2002 GBPm 2001 2001 GBPm
GBPm GBPm GBPm GBPm
Release/(provisions)
against fixed assets,
stocks and debtors in
:
Zimbabwe motor - 0.2 0.2 - - -
business
Malawi motor - 0.8 0.8 - (0.7) (0.7)
business
Swaziland motor - - - - (0.6) (0.6)
business
Reorganisation and (0.5) - (0.5) (0.1) (0.4) (0.5)
rationalisation
costs
(0.5) 1.0 0.5 (0.1) (1.7) (1.8)
Operating exceptional items analysed by
division are as follows:
Motors - 1.0 1.0 - (1.3) (1.3)
Central (0.5) - (0.5) (0.1) (0.4) (0.5)
(0.5) 1.0 0.5 (0.1) (1.7) (1.8)
b) Non-operating items -
Loss on sale or termination of discontinued operations
GBPm GBPm
Profit/(loss) on disposal of subsidiaries :
Motors (0.4) (2.5)
Agribusiness 0.5 1.0
Distribution - (2.6)
Property - (1.2)
Other disposal and closure costs (1.4) (1.5)
Goodwill previously set off against reserves - (5.1)
(1.3) (11.9)
Motors (0.5) (2.7)
Agribusiness 0.3 1.0
Distribution - (5.8)
Property (0.8) (1.2)
Central (0.3) (3.2)
(1.3) (11.9)
Profits 1.9 2.6
Losses (3.2) (14.5)
(1.3) (11.9)
2. Pension Costs
The Group operates one defined benefit pension scheme in the United
Kingdom which is a funded scheme; the assets are held separately from
those of the Group. There are a variety of small overseas schemes
which are at different stages of being wound up. The Group does not
have any material post retirement benefits other than these pension
schemes.
The charge for the overseas schemes was GBP0.2 million (2001: GBP0.8
million) resulting in a total pension charge for the Group of GBP0.2
million (2001: GBP0.8 million). In respect of the overseas schemes,
pension costs have been determined in accordance with the latest
actuarial advice where practicable and otherwise in accordance with
local regulations.
Included in debtors is a pension scheme asset of GBP8.1 million
(2001: GBP8.1 million) which relates to a prepayment of contributions
to the UK pension scheme calculated under Statement of Standard
Accounting Practice No 24 ("SSAP24"). This prepayment would normally
be realised by suspending future contributions so that the prepayment
would reverse as pension liabilities increased. However, because the
number of active members has reduced in recent years this asset will
not be realised for some considerable time unless there is a return
of cash to the company by way of a modification order (see below) or
new employees are introduced into the scheme.
In the UK the contributions are determined by a qualified actuary on
the basis of triennial valuations using the projected unit method.
The most recent valuation was at 30 September 1999.
The main actuarial assumptions used by the actuary were:
Investment return 8.5%
Salary inflation 7.0%
Pension increase 5.0%
The most recent actuarial valuation showed that the market value of
the scheme"s assets was GBP53.8 million at
30 September 1999 and that the actuarial value of those assets
represented 192% of the benefits accruing to the members. The
contributions of the UK employer and the employees will remain at
nil.
Inland Revenue regulations stipulate that in order to continue to be
tax exempt, Pension Funds must maintain assets at no more than 105%
of liabilities, and Pension Funds should be valued at three year
intervals using prescribed actuarial assumptions in order to ensure
that this ratio is maintained. Because the valuation at 30 September
1999 disclosed that assets were in excess of 105% of liabilities the
Trustee of the scheme proposed a series of benefit improvements for
members together with an application to the Pensions Regulator
("OPRA") to grant a modification order to authorise a repayment to
the sponsoring employer of approximately GBP8.5 million after tax has
been deducted.
Following objections from six members the Trustee was advised by
legal counsel to seek the direction of the court over the correct
interpretation of the Trustee"s powers under the Trust Deed. In the
judgement the court found that the Trustee"s powers had to be
exercised by the Trustee in a fiduciary manner for all parties.
Therefore the interests of the company and the members must be
considered by the Trustee in arriving at its decision on how to use
the existing statutory surplus in the scheme.
Because of the change in circumstances since the original application
to grant a modification order, the Trustee has withdrawn this
proposal and is considering whether to submit a new application to
grant a modification order together with other proposals to use the
statutory surplus.
As stated above, the United Kingdom pension cost figures used in
these accounts comply with the current accounting standard, SSAP24.
Under the new accounting standard, Financial Reporting Standard 17
("FRS17") "Retirement Benefits" the following transitional
disclosures are required:
The full actuarial valuation carried out at 30 September 1999 has
been updated to 30 September 2001 and 2002 by a qualified independent
actuary. The major assumptions used by the actuary were:
30 September 2002 30 September 2001
Rate of increase in salaries 3.75% 3.90%
Rate of increase in deferred
Pensions 2.25% 2.40%
Rate of increase of pensions in
Payment 2.25% 2.40%
Discount rate 5.50% 6.10%
Inflation assumption 2.25% 2.40%
The assets in the scheme and the expected rates of return were:
30 September 2002 30 September 2001
GBPm GBPm
Equities 6.50% 0.1 6.90% 16.9
Bonds 4.50% 24.7 4.90% 22.4
Cash 4.00% 24.1 4.60% 12.6
Total market value of
Assets 48.9 51.9
Actuarial value of
Liabilities (13.7) (10.1)
Surplus in the scheme 35.2 41.8
Recoverable surplus in
the scheme 0.4 2.2
Related deferred tax
Liability (0.1) (0.7)
Net pension asset 0.3 1.5
The recoverable surplus is restricted to the present value of an
employer contribution holiday.
If FRS17 had been fully adopted in these financial statements the
pension costs for the defined benefit scheme would have been an
operating charge of GBP0.2 million, offset by a credit to finance
income of GBP0.2 million. The credit to finance income represents the
expected return on pension scheme assets of GBP 0.8 million less
the interest on pension scheme liabilities of GBP0.6 million.
Similarly the analysis of the amount recognised in the statement of total
recognised gains and losses would have been as follows:
2002
GBPm
Actual return less expected return on scheme (3.1)
assets
Gains and losses arising on scheme (2.4)
liabilities
Changes in assumptions underlying the present (1.1)
value of the scheme liabilities
Actuarial loss recognised in statement of (6.6)
total recognised gains and losses
Adjustment due to recoverable surplus 4.8
Net loss recognised (1.8)
Movement in recoverable surplus during the year
2002
GBPm
Surplus in scheme at 1 October 2001 2.2
Current service cost (0.2)
Net return on assets 0.2
Actuarial loss (1.8)
Surplus in scheme at 30 September 2002 0.4
3. Contingent liabilities
Group Company
2002 2001 2002 2001
GBPm GBPm GBPm GBPm
Taxation 2.3 6.3 - -
Pending litigation 3.3 3.3 3.3 3.3
Guarantees of loans of - - - 10.5
subsidiary undertakings
Total 5.6 9.6 3.3 13.8
Certain Group companies have, in the ordinary course of business,
entered into counter indemnities and performance bonds relating to
the Group"s own contracts.
The Group is in discussions with the Kenya Reserve Authority over
the treatment of a number of items for VAT purposes in its Hotel
business. The main areas of dispute are the treatment of
transportation costs and catering levies. The Directors, having
taken advice from KPMG, their tax advisers in Kenya, believe that
most of the matters raised by the taxation authorities are without
merit under the tax legislation extant at the times concerned and
so do not believe that any liability will arise although there can
be no certainty as to the ultimate outcome.
The pending litigation in respect of action brought by certain
commercial paper investors in Lonrho Motors East Africa Limited
("LMEA") against, inter alia, the Company and LMEA, is still being
processed through the Kenyan courts. The litigation will continue
to be contested vigorously by the Company whose Directors believe
that the claim will be successfully defended.
Statutory information
The financial information set out above does not constitute the Company"s
statutory accounts for the years ended 30 September 2001 or 2002 but is
derived from those accounts. Statutory accounts for 2001 have been delivered
to the registrar of companies, and those for 2002 will be delivered following
the Company"s Annual General Meeting. The auditors have reported on those
accounts; their report from 2001 was unqualified, although it draws attention
to the uncertainties relating to preparation of the accounts on a going
concern basis and asset valuations; it did not contain a statement under
section 237 (2) (inadequate accounting records or returns or accounts not
agreeing with records and returns) or 237 (3) (failure to obtain necessary
information and explanations) of the Companies Act 1985. The auditors"
report for 2002 was unqualified, although it draws attention to the
uncertainties relating to:
preparation of the accounts on a going concern basis and
asset valuations.
It did not contain a statement under sections 237 (2) or (3) of the Companies
Act 1985.
