LOLC records highest ever profits - 16 Jun 2012

LOLC Group posted yet another year of healthy growth in profitability recording Rs.10.3Bn Profit Before Tax (PBT), a 24% year on year growth. The Profit After Tax for the year was Rs.8.9Bn, a 27% increase over last year which was Rs.7Bn. LOLC Group's superior performance comes amidst a challenging environment where its core business of financial services faced interest rate volatility, increased taxes on motor vehicles, lower liquidity in the market and a general credit squeeze. Despite these challenges, financial services remained dominant in profit contribution, with 72% of the profits amounting to Rs 7.4Bn, coming from this sector further reducing the dependency on other sectors in the Group.

The total net receivables of the financial services sector increased to Rs. 80 Bn, a solid growth in the book of advances (portfolio growth) a 38% growth compared with the previous year's book of Rs 58 Bn.

This is a result of the Group's lending strategy to reach the SME and the Micro sectors via a strong presence in all regions of the country. Lanka ORIX Finance PLC (LOFC) closed the year with a deposit base of Rs 25 Bn consisting of both savings and fixed deposits. The net inflow for the year was Rs. 8Bn, a 44% growth over last year's deposit base. LOFC is one of the largest registered finance companies in the country, and the inflow recorded during the year is a clear demonstration of the continued public confidence in the Company.

The Group's remarkable performance is achieved despite the marked to market losses of Rs 1.5Bn on the trading equity portfolio due to the downturn of the Stock market.

The Group's total assets as at the year-end was a strong Rs.146Bn compared with previous year's Rs.112Bn, 30% growth, while total borrowings of the group including deposits and savings stood at Rs 92Bn. Equity of the group was Rs 43Bn at the end of the financial year, an increase of 24% from Rs 35Bn last year.

During the year under review, the parent company LOLC obtained the consent of the Central Bank of Sri Lanka (CBSL) to relinquish its leasing license from April 2011. Consequently, the existing book of LOLC was transferred to its flagship finance company- LOFC and LOLC consolidated its position as a Holding Company.

LOLC further extended its strong channel network of its financial services entities throughout the island. These companies benefit from the 185 financial services outlets with more than 39 in the North and the East.

The parent Company posted strong PBT for the year of Rs. 4.4 Bn compared with Rs. 1.9Bn last year through its operations and other income. Overall operating expenses of LOLC witnessed a dip due to the business being channeled through the subsidiaries.

Of the subsidiaries, all financial services companies are duly registered with and regulated either by Central Bank of Sri Lanka, Insurance Board of Sri Lanka or the Securities and Exchange Commission. Of these, the CBSL regulated finance companies, LOFC and Commercial Leasing and Finance PLC (CLC) posted remarkable results during the year, with LOFC a PBT of Rs 1.8 Bn and CLC with a PBT of Rs 3.2 Bn. LOLC Micro Credit Ltd (LOMC), the only regulated micro finance institution in the private sector recorded an impressive PBT of Rs 858Mn.

LOLC Securities Pvt Ltd. (LOSEC) reported a PBT of Rs 21 Mn in less than a year of its operations. The insurance arm, LOLC Insurance Company Ltd (LOIC) in its maiden year, recorded Rs 65 Mn as losses due to start-up costs however, made excellent progress capturing the captive market of the Group's motor business, one of the largest motor books in the insurance industry.

Despite the momentous growth, the quality of the lending portfolio was not compromised. The NPL ratios of the companies at LOFC 1.4%, LOMC negative 3.1% and CLC negative 0.4%. Both LOMC's and CLC's provision cover is more than 100% of their respective NPLs, which result in negative NPL ratios. These ratios are clearly among the best in the industry. Nevertheless, these companies maintain a very conservative provisioning policy and made additional specific provisions on account of the bad and doubtful debts amounting to Rs 487 Mn, which is well above the regulatory requirements stipulated by the CBSL.

LOLC's associate, PRASAC Micro Finance Company is the largest micro finance institution in Cambodia, and contributed Rs 174 Mn as profits to LOLC. This investment has given LOLC not only financial returns but also offered synergies to LOMC in effective management of rural micro financing.

A key competitive advantage of LOLC is its strong pipeline of foreign funds. The group has one of, if not the largest, range of external funding partners in the country, who work closely with the Group in many endeavors. They consider LOLC not only as their preferred conduit but also as a catalyst to achieve their development and commercial goals, may it be in SME development, micro enrichment, North and East resurgence or renewable energy. Their valued contribution beyond funding has enabled LOLC to attain operational excellence, fine-tuned processes, environmental standards, early compliance good governance and state-of-the-art IT systems. The quantum of new borrowings LOLC has sourced from foreign funding agencies for on lending to the SME and Micro sectors during the year amounts to US$ 40Mn.

LOLC Group's policy of zero exposure to foreign exchange risks paid well where the Group was not exposed to the devaluation effects of the rupee and this policy was also mandated by the CBSL on all foreign borrowing of LOLC Group.

ORIX Corporation – Japan, the single largest shareholder of LOLC, has always been a pillar of strength with their continued support, especially in compliance and governance as a result LOLC is the only financial services company in Sri Lanka to report on Sarbanes Oxley. The steadfast performance of LOLC was recognized by their award for Excellent Performance 2012 out of all of ORIX's overseas subsidiaries, for the 2nd consecutive year.

During the year LOLC consolidated its presence in the leisure sector with the acquisition of the unique Dickwella Resort & Spa, a stunning property at the tip of the southern coast, and also closed three of its hotels situated in the south coast for refurbishment. Plans are finalized for a new complex, the largest in the southern coastal belt with 500 keys within the three properties of Riverina, Palm Garden and Tropical Villas.

The remaining two hotels, Eden Resort & Spa PLC and Dickwella Resort & Spa performed well with Eden posting best ever results of Rs 196 Mn PBT and Dickwella following suit with Rs 51 Mn PBT. Dickwella was under LOLC management for only three months of the year but has a promising year ahead.

LOLC's exposure in plantation, renewable energy, construction, manufacturing and trading sectors have offered the group a conglomerate position in Sri Lanka's corporate landscape. Contribution of these companies to the group profit is Rs 2.9 Bn. The Green portfolio of the company showed tremendous progress in plantation and power generation.

Mr. Kapila Jayawardena, Group Managing Director/ CEO of LOLC said, "LOLC will continue to align its focus on the growth sectors of the economy. I commend the efforts taken by our strong and dynamic management team to establish LOLC's capacity to surpass expected goals and outperform set targets. LOLC is on track to sustain its steady growth in the years ahead. With the recent financial results reflecting a landmark achievement in the Company's history, LOLC is fully geared to strengthen its performance and explore more opportunities, in particular, in the financial services sector."

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