Lonrho growth hampered by bureaucracy

published 7 November 2011

Lonrho, the Africa focused investment firm, saw a strong rise in revenues and profits but left the market wanting more.

During the half year, the firm generated revenues of £81.4m, compared to £60.5m for the same period the previous year. On a like-for-like basis, revenues were up 35%.

Profit before tax rose to £5.8m, compared to £2m in 2010.

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"However, the outrun is flattered to some degree by a larger than anticipated gain from biological assets offsetting higher losses in Transport and lower profits in Infrastructure," noted broker Panmure Gordon.

The firm's Agribusiness unit, which accounts for 55% of group revenue, reported an operating profit of £27.8m, more than twice the £13.3m Panmure Gordon had been expecting, but the number was boosted by a non-cash gain of £17m in relation to an adjustment for biological assets relating to the company's stone fruit trees.

The Transportation division made an operating loss of £10.6m, partly as a result of the "very frustrating bureaucratic environment" in Angola, where the company has suffered delays getting aeroplanes into operation.

The Infrastructure division's operating profit of £1.0m was well below Panmure Gordon's forecast of £5.9m, partly as a result of slower activity at the Luba Frepport operation.

David Lenigas, Lonrho's executive chairman, was upbeat, however, about current trading. "Lonrho continues to see strong growth across all of its divisions since the end of the period, spear-headed by Lonrho's agribusiness division and expects this to continue through to the end of the 15 month reporting period to 31 December 2011 and into 2012," he said.

Operating costs remained stable, rising slightly by £0.2m to £27.7m.

Cash at the end of the period rose from £3.9m to £10.4m.

Despite the positive tone of the update, the share price fell 3.7% to 13p by 12:35.

Panmure Gordon remains a buyer of the stock, but even it cut its full-year forecasts after this update.

"Whilst we believe that excellent progress has been made throughout full-year 2011, delays to the roll out of the Angolan airline business and lower activity at Luba mean that in conjunction with the move to a December year end, our profit before tax forecasts on an annualised basis decline from £32.3m to £22.8m in 2012," the broker said.