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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » LOLC says it has aligned with country’s growth trajectory

LOLC says it has aligned with country’s growth trajectory

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Director - Equity Analytics
Director - Equity Analytics
No dividend despite Rs. 8.9 billion profit

LOLC PLC, now sitting at the apex of a fast growing conglomerate as its holding company, has posted a group after-tax profit of Rs.8.93 billion in the year ended March 31, 2012, up from Rs.7.02 billion a year earlier but not declared any dividend to shareholders.

The LOLC group which is into a variety of businesses outside its core financial services had total assets of Rs.145.3 billion in its balance sheet as at March 31, 2012 against total liabilities of Rs.102.2 billion.

The company’s Chairperson, Mrs. Rohini Nanayakkara, has told shareholders in the annual report that the group had identified itself as the largest non-bank financial institution in the country by growing and diversifying, often in unconventional ways, in response to changing market conditions.

"We were the pioneers in leasing to small and medium enterprises; SMEs are now the largest contributor by sector to the Sri Lankan economy. We remain the market leader in factoring, another LOLC innovation of particular significance to the SME community. We are also moving strongly into microfinance, a largely-untapped market in most regions, with a diverse product mix ranging from asset financing to group loans and now micro insurance – another first from the LOLC group," she said.

"The secret of our success remains our sensitivity and responsiveness to market needs."

She said that LOLC was eager to exploit opportunities arising from the aggressive development goals of the economy, especially in segments such as leisure, agriculture, construction and renewable energy. Given their flexible business model, extensive footprint and diverse product mix covering the entire financial value chain, she said that the group was well poised to take advantage of emerging opportunities.

The group’s Deputy Chairman, Mr. Ishara Nanayakkara, said that the agility of their business model was an essential factor for the group’s continued success. Starting out as a leasing company, they had first transformed themselves into a broad-spectrum financial provider adding businesses as opportunity dictated.

"Now we have gone further, investing in hotels and tourism, construction, agriculture and plantations, renewable energy, trading and manufacturing and several other growth sectors. Some of these were through mergers and acquisitions. For others we set up new entities ourselves or in collaboration with strategic partners," he said.

Nanayakkara disclosed that even today 55% of the group’s income is derived from financial services. Starting out as a leasing company in the early days of the liberalized economy, they had helped revolutionize the small and medium sector by financing assets for productive use. Last year they had transformed themselves into a holding company with controlling interest in six firms offering diversifying financial services.

Their newest subsidiary was LOLC Securities Limited launched during the year under review. Though they were new to stock broking, this company had in less than 12 months of operations become a leading stockbroker included among the top 10 based on annualized turnover.

"The decision to move beyond financial services was not taken lightly. Our main motive was a desire to align ourselves with the economic goals of the nation, since by doing so we are more likely to secure long-term operational viability and profitability. The prospect of developing a sustainable value chain by exploiting synergies between our various investments was another strong inducement," he said.

The Browns group was today their subsidiary and, together with that 137-year old company, LOLC maintained a healthy portfolio of investments ranging from banking to hotels, construction to forestry; plantation to agri inputs.

In partnership with Browns, LOLC now owns the Confifi group and its portfolio of hotel properties – Eden, Riverina and Club Palm Garden in addition to Tropical Vilas, another hotel closely situated.

"We are actively looking for a strategic partner to what might be the largest resort complex in the country on completion of the proposed development," Nanayakkara said.

He also reported that they have acquired one of the most uniquely-positioned resorts in the Southern coast – Dickwella Resort and Spa, in the year under review. Their investment in the leisure sector, he said, is long-term with a view to being one of the leading players in the nation’s most promising sector.

"As for our non-finance businesses, they already contributed 45% of group income, we will place them at the centre of our strategic focus, keeping a keen eye out for synergies between them. We have already made our investment choices. Long-term opportunity and a sense of timing will continue to determine our investment strategy. Continuous restructuring, internal and external, will keep us agile and sensitive to economic and social currents," he said.

The group’s MD/CEO, Mr. Kapila Jayawardena described the year under review as an exceptional one for the group which had earned an unprecedented pre-tax profit of Rs.10 billion even as they transformed themselves into a diversified business conglomerate through strategic expansion and investments.

"By aligning its vision with that of the government, the group is on the fast track to pursue its ambition to build one of the strongest conglomerates in the country," he declared.

Jayawardena reported that Lanka Orix Finance PLC (LOFC) has taken over its parent company’s leasing and financial services business, including fixed deposits, enabling LOLC itself to function more effectively as a holding company. LOFC has successfully sustained its non-performing loans ratio as among the lowest in the industry.

He said that they see a bright prospect ahead for the leisure industry of which the recent uptick in tourist arrivals is merely the first glimmer. Large scale infrastructure development and the commission of the southern expressway are generating opportunities with government’s concentrated focus on tourism beginning to pay dividends.

"LOLC has created strong links between sectors vital for the country’s economic growth and its core businesses. By aligning its business interests with these sectors, LOLC has placed itself on a strong upward trajectory that will grow steeper as post-war growth and development begin to show returns," Jayawardena concluded.

The LOLC’s group’s quoted share portfolio costing Rs.8.3 billion had a market value of nearly Rs.10.3 billion as at balance sheet date. The portfolio included large shareholdings in Acme Printing & Packaging, Browns Beach Hotels, Chemanex, Dialog, HNB, HDFC, Lion Brewery and Seylan Bank among others.

The company’s portfolio costing Rs.3.18 billion had a market value of Rs.3.12 billion.

Orix Corporation of Japan with 30% of LOLC is the company’s biggest shareholder followed by Mr. R.M. Nanayakkara (29.76%), Mr. I.C. Nanayakkara (12.6%) and Mrs. K.U. Amarasinghe (11.03%). The EPF (3.11%) and the Sri Lanka Insurance Corporation Life Fund (2.26%) are also among the top 20 shareholders.

The directors of the company are: Mrs. Rohini Nanayakkara (Chairperson), Messrs. I.C. Nanayakkara (Deputy Chairman), Mr. W.D. Jayawardena (Group MD/CEO), Mrs. K.U. Amarasinghe, R.N. Asirwatham, H. Ichida, M.D.D. Pieris, R.A. Fernando, R.M. Nanayakkara, M. Kawano and Miss C.S. Emmanuel (Secretary).

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