The Guardian from London, Greater London, England • 15

THE GUARDIAN Friday January 27 1989 15 LobAo has never been in better shape Rowland, Chief Executive Record profits were achieved by the David Whitehead Group in Lancashire. John Barnes continued to develop a strong European customer base for industrial knitting with nearly 60 of production being exported. David Whitehead in Malawi produced over 28 million metres of cloth for the local market and for export. In Zimbabwe David Whitehead increased production and sales although profitability was restricted. National Blankets produced over 3-1 million products.

The Mumbwa cotton ginnery in Zambia has processed over 16 million kilos of seed cotton in the year, achieving its maximum designed capacity. In Botswana two new textile factories were opened in October 1988 producing cloth for export. fabric preparation line Your Company has never been in better shape. There was a time when I used to write the entire Review of Operations myself, but this year, when nearly all shareholders will have seen analysts' reports on Lonrho, and when the Annual Report contains pages and pages of financial information, you won't want me to tell you that Sector has increased its profits by Z. It suffices to say, at the risk of boring you, that we haven't got a loss-maker in the Group.

No wonder Lonrho is attractive to opportunity seekers who calculate that by sending the healthy Group to the breaker's yard, they could expect to get far more than the share price, and far more than the cost of an Offer for the whole Company. From the shareholders' point of view and I am a large shareholder myself no outside analysis of Lonrho has approached the intrinsic value of the shares. Five or six pounds per share may seem inviting today, when the The Merville Beach Hotel in Mauritius has had a very profitable year and expansion is planned soon. MOTOR DISTRIBUTION Lonrho remains the largest motor distributor in the United Kingdom selling 35,000 vehicles in August alone. Strong demand for Volkswagen and Audi vehicles has resulted in V-A-G (UK) selling 128,000 vehicles in the year, which is the highest level ever achieved.

New products introduced during the year include the new stylish Volkswagen Passat. The Corrado, Audi V8 and Audi Coupe were also launched at the recent Birmingham Motor Show. Lonrho is the largest distributor of motor vehicles in Africa with agencies for Mercedes Benz, Toyota, Peugeot, Audi Volkswagen, Mitsubishi, Fiat, Massey Ferguson, Rover Group, General Motors and several other manufacturers. PRINTING AND PUBLISHING The Observer's new premises in Battersea were officially opened by H.R.H. Princess Alexandra in March, marking a new era in the company's history.

The Observer continued to operate profitably in a highly competitive market, setting a record for display advertising and introducing OIL AND GAS Considerable progress was made during 1988 by the Group's equal venture with Mr. RobertO. Anderson, which owns nearly 81 of the American Stock Exchange listed Pauley Petroleum Inc. Pauley is one of the few independent integrated oil companies in the United States, combining substantial oil and gas reserves with significant refinery capacity in the highly attractive West Coast market. Although Pauley's profitability was adversely affected by the erosion of oil prices, solid progress was made in both exploration and refining which will be of significant benefit in the future.

Major improvements are under way at the Fletcher Refinery. Pauley participated in the drilling of 38 wells during the year and an exceptionally high 90 success rate was achieved. irV-i -i Turnover Profit before tax 225m 200m Profit attributable to shareholders 133m 104m Earnings per share 30.0p 25 8p Dividends per share 13 1 1 lp Cash balances 340m 3 13m Turnover includes die Group's share of turnover of associates amounting to 949m (1987 603m). Earnings and dividends per share for 19S7 have been adjusted for the capitalisation issue in 1988. The eightieth Annual General Meeting of Lonrho Pic will be held at the Great Room, Grosvenor House, Park Lane, London, W.l.

on Thursday, 30thMarch, 1989at 11.45a.m. AGRICULTURE Lonrho farms and ranches two million acres of land in Africa and the United States. It is the largest commercial food producer in Africa and owns 120,000 head of cattle, sales of which amounted to 25,000 head in the year. Production by the Group's seven sugar factories has once again increased and sales of approximately half a million tonnes were made. The improvement in the world market prices for sugar enabled the Group to achieve record profits.

In Malawi tea sales were good, largely as a result of the recent modernisation of the factories. During the year additional hectarages of tea and coffee were planted. Production of tea was reduced to 4-7 million kilos due to bad weather. In Kenya wattle extract sales have been more buoyant and large scale pig farming has started. In Zambia Kalangwa Estates maintained its impressive growth, with exceptionally good results being achieved on irrigated crops and livestock.

The yields of the dairy herd have also recorded further improvement. The newly established Power Hire Mumbwa provided a land preparation service to local smallholders in the Mumbwa area which has secured 15,000 tonnes of seed cotton for processing at the Group's ginnery. Massey fvrguson combine harvester in East African Tanning Extract wheat fields Kenya. 1M In Zimbabwe activities were affected by two years of drought. However, timber demand increased dramatically.

Lomaco in Mozambique is now firmly established as a cotton, citrus and tomato producer, achieving good yields in these activities. The total volume of produce increased by 120 this year, although depressed cotton prices restricted growth in profitability. The farming and ranching operations in the United States were hindered by the difficult trading conditions in the agricultural sector. Friesian dairy cattle part of Lonrho 's 120000 head of cattle world-wide. HOTELS The Princess Group was enlarged during the year by the opening of the S25 room Scottsdale Princess in Arizona and the acquisition of the 264 room Palm Springs Marquis in California.

The American tourist market was depressed in 1988 which affected the results in Bermuda and Mexico, although the Bahamas showed continued strong growth based on the casino business. The Scottsdale Princess opened during the busy winter season and the future looks bright for this investment. The Marquis Hotel is in the process of being upgraded and, after the initial low summer season, the hotel is looking forward to the future. In the United Kingdom the Metropole Hotel Group has once again reported record profits. The programme of upgrading facilities has continued.

Planning permission has been received for a new extension to the Birmingham Metropole and work has now commenced. The extension will consist of a major new conference room and 125 bedrooms. When completed it will be by far the largest conference hotel in the country, with three major conference rooms and over 800 bedrooms. Work has also commenced on the major new extension to the London Metropole. The Birmingham Metropole was voted conference hotel of the year in two of the main hotel industry awards in the United Kingdom.

In Kenya the Group's hotel interests have been substantially expanded with additional accommodation being added to all hotels. On the Group's 108,000 acre ranch and game reserve, a health farm and a luxury tented camp have been opened. lonrho textiles, Cmmlington. INTERNATIONAL TRADE AND GENERAL The Group's international trading activities were expanded during the second half of 1988 when Lonrho acquired, from Fried. Krupp GmbH, a 50 share in Krupp.

Handel, one of the big trading and services houses in West Germany, which operates worldwide and whose main activities are the export of steel, trading in fuel and raw materials, construction of industrial plant and the operation of a bulk shipping fleet of over three million deadweight tonnes. The jointly owned company, now known as Krupp Lonrho, has 119 offices in 38 countries. This partnership means that Lonrho is even better prepared for the future single market of the European Community. Krupp Lonrho has traditionally good relations with the countries of Eastern Europe. Lonrho has also extended its trading opportunities in the Pacific Basin with the formation of Lonrho Pacific, which has offices in Tokyo and Seoul and a management team, led by Associate Director John Kato, with extensive experience of the region.

Baumann Hinde, the Group's cotton merchanting company had a profitable but more restrained year. The effects of the drought in the United States and Hurricane Gilbert temporarily distorted an overall decline in cotton prices. Coiled strip sold by Krupp Lonrho. The Group's property investment companies had a very successful year, substantially improving their rental income through refurbishment of existing office property. The development of the new, twenty storey, Lonrho House in Nairobi has now started.

PJH Group has consolidated its position as the largest national distributor of kitchens, bathrooms and appliances in Europe. Lonrho owns thirty aircraft based in a number of countries in Africa. FREIGHT Kiihne Nagel, which has 400offices in 60 countries and is owned in equal partnership with Mr. Klaus-Michael Kiihne, increased its profitability in tne year. The traditional forwarding activities of Kiihne Nagel, in addition to their warehousing and distribution operations, contributed to the growth in income during 1988.

The Far East and Canada performed particularly well. A substantial improvement of results was also reported by the Unimar Group's shipping agency business. Kiihne Nagel's geographic expansion programme continued with joint ventures being formed and companies acquired in eight countries. The further development of the European logistic concept, with the aim of operating local distribution networks in major European countries, has progressed. The Kiihne Nagel air express service is being introduced in the main European countries with expected outlets in North America and the Far East.

The Kuhne Nagel domestic air freight operation in the United States was further extended and now operates out of sixteen major cities. Warehousing and distribution activities were enlarged by the expansion of storage facilities in Austria, Canada, Germany and the Netherlands. Nagel's Toronto ocean freight operation. The text is taken from the Chief Executive 's Statement and Review of Operations contained in the Report and Accounts for the year ended 30 September. I988which will be published in late February.

Copies will be a vailabte from the Secretary, Lonrho Pic, Cheapside House, 138Cheapside. London, EC2V6BL. WkA 'BobbeJean 'deep-sea asphalt barge Pauley Petroleum. Pauley benefited from the increase in gas prices during the year. ENGINEERING The Firsteel Group significantly increased its profits for the year.

All companies within the steel division experienced a high level of demand for their products. Firsteel Metal Products, which produced over 85 million linear feet of metal this year, is currently investing in a new plant for the manufacture of decorative metal tiles for suspended ceilings. The engineering division has continued to widen its product base and the group has acquired TBL Fibre Optics, manufacturing optical fibres for many specialised fields. Newell Dunford entered into a licensing agreement with Nittetu of Japan for the manufacture of industrial toxic waste processing plants. SEE were awarded a major contract in Oman for the construction of a domestic waste water treatment plant.

In Zambia the Group has acquired a majority holding in Rover Zambia, which assembles Land Rover, Toyota, Mitsubishi pick-ups and Volkswagen light commercial vehicles. W. Dahmer Co in Zimbabwe were again very active and earned record profits. Ruhrglas encountered problems which would have restricted profitability for many years and it was therefore decided to sell the glass making operations, whilst retaining a vaiuaoie iraae investment, wmcn iscarnea in the balance sheet at a low value. 130 tonnes steel ladle transfer car designed and manufactured by Newell Dunford Mistertonand uianam.

TEXTILES During 1988 the Group's textile companies manufactured 52,300 miles of cloth. It has been a highly profitable year for Lonrho Textiles. In the manufacturing division the major re-equipment programme is well under way. Accord exceeded profit targets and sales of own-brand products to major retailers are growing. The acquisition in August 1988 of Wooltons, the custom made curtain manufacturer and retailer, increased the number of retail outlets in the United Kingdom to over 300 and gives excellent joint business development prospects in suitable locations.

Scottsdale Princess Arizona. 1988 1987 ris The atrium of the Observer's new building showing the news desk. sections for readers in the London area and Scotland. George Outram's production on its new colour printing presses began during the year and several inroads into new colour and inserting markets have been made, together with the successful introduction of direct input as the basis for production of the newspapers. Scottish and Universal Newspapers continues to retain its position as the largest local newspaper publisher in Scotland.

Harrison Sons embarked on a new currency printing project during the year, investing in new recess printing presses. Several major currency printing contracts have been obtained, which will set the pace for future years' production. The traditional markets of stamp printing, paper printing and general security printing have shown remarkable growth. Greenaway Harrison has been affected by the lower volume of business in the City following the stock market crash. Roughnecks drilling ahead on exploratory oil well Hondo Oil Gas.

Andrews County. Texas. Chsapside, London, EC2V 6BL 'Ruhr Ore' discharging 292.000 tonnes of Brazilian iron ore at Rotterdam Krupp Lonrho. highest market price per share was 428 pence in 1988. It does not reflect the earnings potential of the Company or its asset resources, as a quick flick through the Annual Report will show.

The results are yet again good enough for a bonus issue and a higher dividend, which is being paid out on the share capital increased following the A.G.M. last year. In this financial year, which ends in September 1989, 1 am far more optimistic than usual and I can tell you with confidence, after twenty-eight years with Lonrho during which I have not sold a single share, that the outlook is astonishingly good. It is tne experienced management and the bubbling spirit of the Group that have made it possible to build up such a magnificent set of major assets across the world. Hundreds of companies make up Lonrho.

In recent years, there has been no need for rights issues, and the Board do not expect to call for capital or to issue new shares for acquisitions. Cash and existing facilities in excess of a billion pounds are open to Lonrho, should they be wanted, without recourse to shareholders. Let's stay together and see our shares continue their strong advance with the Company. I wish I had a few more. 7' The following text is taken from the Review of Operationsor the year ended 30 September 1988: MINING AND REFINING Another very successful year has been achieved by the Group's mining division.

Precious metal production increased to a record 785,000 ounces, which is anticipated to increase to one million ounces in the current year. New shaft and concentrating plant under onstruclton western Platinum. Platinum group metals produced at the highly efficient and low cost Western Platinum mine totalled 274,000 ounces. The new one million tonne per annum plant has now been commissioned three months ahead of schedule. Shaft sinking and extensions to smelting and refining facilities are also well advanced.

Long term arrangements have been concluded tor the sale, at market prices, ot tne major portion of the increase in output. Andrew Saffy, the General Manager of Western Platinum since 1972, died suddenly in July. His contribution to achievements at the mine has been outstanding and will have a lasting effect on its operations. A new mine, Eastern Platinum, is being established on extensive ore reserves and construction began recently of a one million tonne per annum concentrating plant. Group gold production improved to 511,000 ounces, as a result of the million programme to increase the output of Ashantiby 50.overafiveyearperiod as well as the expansion of our mines in Zimbabwe.

Structural difficulties encountered at Erfdeel have resulted in a slower build up of production than planned, but the ultimate output of 400,000 ounces per annum remains unchanged. Our interest in this project is 36. Exploration on the other joint venture with the Anglo American Group has indicated encouraging gold values. Our joint venture with the Government of Zambia for the mining and exclusive marketing of amethysts is progressing. Trucks at MAN-VW Truck Bus headquarters swinaon.

MAN-VW's performance has improved significantly. Dutton-Kirshaw Motor uroup in tne United Kingdom achieved record profits in the year. The group's five Jaguar sites contributed a substantial profit to the Group's overall results. Watveare, in its first year of holding the Mercedes Benz tractor franchise, was awarded the silver trophy for being the best importer ot the year. SEAT Concessionaires (UK) was reorganised daring the year with a new management team and its head office being relocated in Crawley.

Matermaco in Belgium celebrated the 25th anniversary of its holding the Massey Ferguson franchise. In Kenya, Motor Mart successfully leads the market with Toyota, Mitsubishi Fuso and.Massey Ferguson in prominent positions. Motor Mart has also now been awarded the Fiat Auto, Iveco and Agri franchises. Power Equipment in Zambia recently introduced a locally assembled tractor designed for the small scale farmer. LTT-rrt Lonrho Pic, Cheapside House, 138 111 JJ LLL LONRHO.