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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » LOLC forges ahead with steady growth in profitability

LOLC forges ahead with steady growth in profitability

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Vice President - Equity Analytics
Vice President - Equity Analytics

LOLC said yesterday it was continuing its positive stride in profit growth recording strong bottom line results as at September 2011 with Rs. 7.5 b as PBT and Rs. 6.7 b as PAT.The profits before tax records a growth of 66% and the resultant profits after tax records a gain of 75% over the previous year.In 2009, the LOLC Group repositioned its business model in line with the potential growth areas of the economy on the back drop of the new found peace.
Alongside, LOLC continued expanding its core business of financial services comprising of leasing, hire purchases, loans, factoring and working capital, micro financing, Islamic financing, savings, deposits in local and foreign currency, insurance in both General and Life, stock broking and selected strategic investments in the banking sector including Seylan and HDFC.
The Group successfully established a fully-fledged motor vehicle restoration centre – LOLC Motors – as a value addition to its fleet management and insurance businesses. LOLC Motors recently acquired the dealership for Fiat in Sri Lanka.
In line with the Group’s diversification strategy, LOLC ventured into the Leisure sector with the acquisition of four hotels of which three are under refurbishment and when fully operational, will be the single largest hotel complex in the country. LOLC is in the process of finalising the management agreement with one of the largest hotel operators in the world to manage this complex.
With the investments made in the Construction sector through the Sierra Group, Trading and Manufacturing through the Browns Group and Asia Siyaka, Agriculture and Plantation through Maturata, Pussellawa, Gal-Oya and Agstar Fertilisers and the overall investment strategies in the Renewable Energy sector through United Dendro and Hydro Power Free Lanka, LOLC is well poised as a conglomerate that capitalises on the opportunities presented by the positive economic outlook.
The Financial Services sector remained the main contributor to the operating profits of the Group. Despite the reduction in other income compared with the previous year, the higher level of business growth at attractive interest rates led to an aggressive top line growth in the financial services sector.
LOLC’s financial services subsidiaries, Lanka ORIX Finance PLC (LOFC), LOLC Micro Credit Ltd (LOMC) and Commercial Leasing Co. Ltd. (CLC), drove the business to record a 39% growth in income over the previous year. Income earned on the lending and other related businesses was Rs. 8 b for the six months. Lower capital gains and reduction in marked to market gains led the company to realise relatively lower other income in the current six months.
The average borrowing costs of the Group continued to slide down with several lines of foreign borrowings being received in the six months at attractive long term rates. The borrowing costs saw a 21% growth mainly due to additional funding raised to meet the aggressive business volume growth.
The Trading sector recorded steady growth with a profit contribution of Rs. 481 m, a 29% growth over the previous year. The Plantations sector recorded losses for the six months as a result of the higher operating costs due to the wage hike having a negative impact on the profits derived from the diversified activities of the Group.
The Leisure sector recorded a negative goodwill of Rs. 3.5 b as a result of the bargain purchase made by the Browns Investments Co. in Excel Global Holding Ltd., the parent company which fully owns Millennium Development Ltd. This strategic investment was made in line with the Group’s expansion and portfolio strategy, where medium- to long-term investments are made in selected growth sectors. The management is currently in the process of drawing up development plans for the property. Profit contribution from the other leisure investments was a negative with three of the hotels being closed for refurbishment.
The increased levels of disbursements in the Financial Services sector and the increase in intangible assets led to strong growth in assets of the Group which increased by 25 b since March 2011. The net contribution from the increased loans and advances to the assets was Rs. 17 b.
The strong bottom line results of the Group was reflected in the increase level of basic earnings per share of 7.81 an increase of 40% over the previous year and an even stronger NAV per share of Rs. 35.21 compared with Rs. 22.61 in the previous year.
LOLC’s core business was well positioned to derive benefits from the positive economic sentiments seen in the first six months with the increase in demand for lending, realizing strong top line growth through the higher level of disbursements made through its country wide distribution network.
LOLC, the company, made Rs. 2.4 b as profits after tax for the six months compared with Rs 865Mn in the previous year. During the quarter, the company further consolidated its position as a holding company, transferring its existing leasing portfolio to LOFC in line with the Central Bank guidelines for the transition. The company’s operating expenses reduced by 16% compared with the previous year, consequent to the new businesses being booked under its financial services subsidiaries.
LOFC, LOMC and CLC recorded steady growth in profitability in line with the higher level of activity experienced in all three companies. LOFC’s deposit base increased to Rs. 23 b, a 40% growth in deposits for the six months confirming the company’s strong financial position and the resultant steady stream of deposit inflows. With this performance, LOFC holds the largest deposit base among the registered finance companies.
LOFC recorded Rs. 617 m PAT for the first six months compared with Rs. 495 m achieved in the previous year. LOMC and CLC contributed positively to the core business profitability competing well in their respective market segments of the lower SME and the micro lending businesses. The PAT of these companies was Rs. 368 m compared with Rs. 194 m for the previous year and Rs. 2.8 b compared with Rs. 461 m last year respectively.
The Group’s efficient collection efforts contributed positively to reduce the provisions made on bad and doubtful debts despite the increase in business volumes, a reduction of Rs. 48 m compared with the previous year.
CLC received Central Bank approval to convert itself to a registered finance company and this will enable the company to reach out to the public with deposit mobilisation and the company is confident of commencing its finance company operations in the near future through its islandwide branch network.
With the conversion of the leasing company to a registered finance company, the company will be listed as required by the Central Bank of Sri Lanka and will be called Commercial Leasing and Finance Limited.
In his review LOLC Group Managing Director/CEO Kapila Jayawardena stated: “LOLC is mindful of continuously expanding its core business while managing returns from its strategic investment portfolio. The portfolio strategy focuses on ensuring profitability and liquidity in the near term while ensuring sustainable growth in the medium to long term.”
“With the untapped landmass and population in north and east and the conscious efforts of the Government to develop the identified growth sectors, LOLC Group is fully geared as a ‘new conglomerate’ to facilitate the resurgence of the nation,” Jayawardena concluded.http://www.ft.lk/2011/11/17/lolc-forges-ahead-with-steady-growth-in-profitability/

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