LOLC posts gross income of Rs. 45 b, 22% growth in profits
Thursday, 5 June 2014 00:05
The LOLC Group has completed a year of consolidation and steady growth in profits recording a Profit before Tax (PBT) of Rs. 4.5 b, a 22% growth over last year.
The profits of the Group are mainly derived from its core business of financial services, complemented by the rest of the businesses. To achieve the 22% growth profits, the Group made a Rs. 45 b gross income and interest income of Rs. 28 b, 20% growth over last year.
The year 2013/14 was considered a year of consolidation for the Group with strategies taking shape in all sectors to gear for growth and long term profitability. The operating environment was full of challenges for the financial services business as well as for other sectors. The lowering interest rates in the latter part of the year was welcome as the Group believes that this positive move will trigger an increase in SME lending which will positively impact the Group’s lending business.
LOLC continued in its strategy of deleveraging itself which is now fully converted into a holding company. LOLC was the pioneering leasing company in the country and in 2011 the Company opted to move out of the leasing business gradually transferring its lending and borrowing book to its flagship finance company Lanka ORIX Finance PLC (LOFC). The Company embarked on diversification in 2009 and entered into potential growth sectors, leisure, manufacturing and trading, construction, renewable energy, agriculture and plantations.
LOLC’s financial services businesses experienced a 20% increase in interest income in line with the expansion of the portfolio. Finance costs too increased by 13% to reach Rs. 16.4 b from 14.5 b recorded in the previous year mainly due to the higher quantum of borrowing required for the lending business of LOFC, Commercial Leasing and Finance PLC (CLC) and LOLC Micro Credit Ltd (LOMC).
However the growth in interest costs slowed down due to the lowering of interest rates on short term borrowing and SWAP costs. The two listed finance companies and the leasing company recorded steady growth in profits despite provisions made on bad and doubtful debts required as a result of the pressure on collection ratios experienced by the financial services industry.
LOFC increased its profit signature by 45% which is remarkable despite higher provisions made during the year on possible defaults. The Company’s deposits grew by 33% clearly demonstrating the confidence placed by the public on LOFC’s financial stability.
CLC recorded Rs. 1.2 b as profits and continues to be strong in its business sector and is experiencing a positive impact from reducing interest rates even as the quantum of borrowing is increasing to support the growth in the portfolio.
LOMC remains strong in its profits signature contributing well to the Group. The Company’s micro business is performing well despite the clients facing two years of bad weather impacting the agriculture business affecting collections. The Company posts strong results despite these challenges and also seeing benefits from the reducing interest rates and SWAP costs. The Company continues to source 100% of its borrowing from the bilateral and multilateral funding partners who have lined up further funding for the Company’s next phase of growth. LOMC’s profit contribution to the Group was Rs. 1 b.
LOLC Insurance Company which completed its third year of operation shows great potential in profits contribution to the Group with both the life and general businesses performing well in growing the book. The Company contributed Rs. 82 m as profits to the Group.
LOLC’s strategy to expand its business in the region brings strong profits from its associate PRASAC Micro Finance Company in Cambodia and the Group’s total associate company profit share was Rs. 1.5 b for the year.
Despite the challenging market conditions in the consumer durable market and the agriculture equipment market, the trading sector with Brown& Company contributed a profit of Rs. 541 m. The leisure sector recorded a loss of Rs. 334 m though the operating hotel – Eden Resort and Spa – contributed profits to the Group. The loss mainly comes from the hotels which are being constructed. Two hotels of the group are expected to be commissioned in the first and the second quarter of 2014 and the resort construction in Beruwala is estimated to be completed in 2016. With the completion of these projects LOLC will have one of the largest numbers of keys in the country’s leisure business.
LOLC Group is currently positioned to strengthen its presence in each of the business sectors while positioning its long term strategies to derive profitability and leadership in each sector.
Group Managing Director/CEO Kapila Jayawardena stated: “The Group has performed up to the expectations and all segments are showing a healthy growth trend. A strong balance sheet and P&L will improve the long term potential of the Group.”