Lonrho is a London-listed conglomerate with a rich history and long involvement in Africa. Established in 1909 as the London and Rhodesian Mining Company, the company became well known under Tiny Rowland, who led it for three decades from 1961 and was a flamboyant and controversial supporter of, and investor in, newly-independent African states. Following Rowland's ouster in the mid-1990s, most of the assets were sold.
The new investors who took control in late 2005, led by David Lenigas from Australia, decided to maintain the Africa focus. "Lonrho is an exciting company, resurrected from the ashes of Tiny Rowland's old company, which operates in some of the most promising growth areas on the continent," Chip Krakoff, publisher of Emerging Markets Outlook wrote last week. Geoffrey White, who this month completes his second year as Lonrho CEO, was interviewed during the U.S. Africa Business Summit last month. Excerpts:
How would you rate Lonrho's performance in your core business sectors like infrastructure, agriculture, transportation, hotels, and support services?
When Lonrho was reborn in 2006, we defined the five sectors we wanted to go into, and we bought the foundation businesses in those sectors. Each one of those sectors is now cash-positive and producing results. Each one of those businesses is now mature. That puts us in a position to say, 'Great, we like our five core sectors; they're fundamental to the growth of Africa. How do we now take these from being a project in one country, and move them into other African countries?'
How were you able to achieve your growth benchmarks in spite of the economic decline? Tourism, for example, has been hard-hit this year.
Tourism is actually a misnomer for what that business is in Africa. Everyone thinks about people on holiday. The reality is that the majority of market growth and opportunities from hotels is not about tourism; it's about providing a good environment for people while they conduct business. The hotel portfolio that we have is very focused on those types of properties. So we haven't seen a drop-off at all in our accommodation rates.
If you look at our flagship hotel in Maputo, the Cardoso, that's now running at 85 percent occupancy. We did a public-private partnership with the local council to refurbish a local park, which has worked fantastically well. We're now doing coffee shops in the park, which are also doing incredibly well. So the specific niche markets we work in the hotel sector aren't affected at all.
The Lonrho airline Fly540 has announced the addition of service to and within Zimbabwe and was awarded an air services license in Angola a few months back. What is the airline's growth and reach?
We're now carrying an average of 25,000 passengers per month, and the airline is very profitable. We've grown from being a domestic airline [in Kenya] to where we are going into southern Sudan, Uganda and Tanzania. We're servicing seven countries in East Africa.
Hopefully, Angola operations will start next month. We expect to go operational in Ghana in the next three-to-four months. These three hubs will deliver on the concept that we travel everywhere east to west, north to south. Next year, we plan to link those hubs with jet service.
The downturn in the global aviation business with the economic crisis has had a silver lining for us. We've been able to grow at our pace because we've been able to attract better pilots, better managers than I would have expected.
Since Africa hasn't escaped the global economic crisis and all your investments are on the continent, has Lonrho been negatively affected as well?
Thankfully, the impact on Africa hasn't been as strong as the impact on the rest of the world. Foreign Direct Investment (FDI) and natural resources have slowed down substantially. Prices are down, but they're recovering. For our operations, 2009 has been a year for consolidation rather than chasing new projects. Hopefully going into the end of this year and early next year, we will be looking for new projects and expanding them.
Africa is the emerging market. The opportunities are huge. Africa still suffers from negative perceptions but in actual fact the majority of Africa is prosperous emerging markets. I heard a statistic that there are more cell phones in Africa than in North America. You now have a billion consumers in Africa. At Lonrho, we only do business in Africa, and that focus is absolutely right for this time.
How is your business affected by the political climate?
It's like every other environment. If you set your own standards and make them very clear, everyone comes up to what you want. At Lonhro, we're very clear that we're bringing first-world and international standards to African countries. The port in Equatorial Guinea, for example, is doing phenomenally well. We've attracted all the major oil companies. Likewise, the aviation sector. We're punctual and safe. We're an international airline that flies across Africa. So it's really up to each company to set the bar on how they want to operate.
Through the investment in LonZim, you've been positioning Lonrho in Zimbabwe for some time now. Do you believe prospects for business are improving there?
Yes, I think that Zimbabwe has great potential and that significant progress is being made. Clearly, it's coming from a horrid past five years. The government of national unity, I believe passionately, needs support.
The way for the country to progress is through FDI and businesses rebuilding a Zimbabwean economy. I'm a big believer in private sector development. A big reason why countries grow is foreign direct investment. It's a direct relationship: You build businesses, you create jobs, and you create prosperity.
We've spent about U.S. $45 million acquiring businesses in Zimbabwe. The last couple of years have been about keeping the businesses alive, stopping the brain drain, keeping good management. I was in Harare [recently] working with each of our seven businesses there, getting a forecast for the next 12 months. The change in attitude from the managers on the ground is very encouraging indeed.
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What was behind the dispute you recently had with minority investors in LonZim?
They are - dare I say it - the worst kind of corporate vultures. They bought a 20 percent stake at a very reduced price from an institutional investor that was desperate to liquidate their position. They said 'we want you to sell everything you bought in Zim, return funds to shareholders and walk away.' At the time, we had significant cash reserves in LonZim, and I found their whole philosophy very appalling. At the AGM [annual general meeting], the only people who voted for their proposal was themselves. Investors backed the fact that this is a company investing in recovery opportunities in Zimbabwe. It's a long-term thing, not a quick buck.
What about your stock price, which is probably lower than you would like?
The stock price goes up and down, and that's really out of our control. I think our year-end results will demonstrate that we've had a year of strong delivery. I think the market will understand that. The foundation block of each of our businesses is very strong and that gives us a very strong base upon which to build.
From an operational basis the company is strong, and we have very little debt. We're trying to increase leverage, but in Africa that's a bit of a challenge. We're in a very good position to continue, and I think the share price will catch up in due course. People will begin to understand what we've created.
