LOLC’s records strong 1Q profits growth post outstanding 2015/16

LOLC’s dominant financial services sector companies have led the Group to record strong profits in the first three months of 2016/17, a PBT of Rs. 3.2 b when compared to Rs. 2.7 b recorded in the same period last year.

The current year’s performance, strengthened by the outstanding performance of the Group in 2015/16 of Rs. 11.9 b of PBT, is a 45% growth over the last year. 

The financial services companies, which account for 82% of the Group’s PBT, showed a remarkable growth in terms of an increase in the lending portfolio consequent to the aggressive growth in their lending books. As a result, the total asset base of the Group reached Rs. 380 b. The contribution to the high growth was achieved, resulting in portfolio growth of 52% to Rs. 213 b from Rs. 140 b.

LOLC is one of the largest conglomerates in Sri Lanka and with its core business being financial services, it comprises three finance companies and one leasing company falling under the purview of the Central Bank of Sri Lanka. 

The flagship finance company LOLC Finance PLC (LOLC Finance), Commercial Leasing and Finance PLC (CLC) and the newly-acquired BRAC Lanka Finance PLC (BRAC) together with LOLC Micro Credit Ltd. (LOMC) recorded a strong financial performance in the year 2015/16 and continued the momentum during the first three months of the current year accounting for 89% of the Group’s PBT. 

The strong performance was enhanced by the high-yielding overseas investments made in LOLC Cambodia, PRASAC Micro Finance Company in Cambodia and LOLC Myanmar.   

On the strength of each of the companies, the financial services sector continues to experience a healthy level of portfolio growth in line with the aggressive execution strategy adopted by the Group. 

The strong funding flow to the Group from foreign funding sources together with local borrowing enabled a consistent growth. Further, improved collections by all these companies led to lower provisions for bad and doubtful debts reducing NPLs and strengthening the portfolio quality. The Group companies’ NPLs are stronger than that of the industry.   

LOLC Finance operates in the SME to upper micro markets, having a portfolio of Rs. 84 b lending, backed by one of the largest deposit bases amongst the finance companies in Sri Lanka amounting to Rs. 60 b. LOLC Finance’s portfolio grew to Rs. 89 b by June this year, while deposits now stand at Rs. 67 b, a strong growth of Rs. 7 b, which demonstrates the confidence placed in the company by its depositors. 

LOLC Finance is backed by the strong footprint of LOLC’s branch network, reaching to all parts of Sri Lanka. LOLC Finance recorded a strong growth in its assets in the year 2015/16, almost double, at Rs. 110 b compared with the previous year. The asset base increased to Rs. 116 b in the first three months of this year. 

LOMC too recorded a strong escalation in its portfolio, supported by an aggressive business growth, focusing on the micro finance segment. This segment brings higher yields as LOMC operates in the group lending business and clean lending business which demands higher margins with no collateral, as opposed to the other Group companies. The company’s assets reached Rs. 49 b by June 2016, also recording a strong growth of 54% in the year 2015/16. 

CLC, which operates in the lower SME and micro sectors, completed three months showing strong profits due to the growth in the lending base which stood at Rs. 672 m at the end of the first three months, a 20% growth compared with the same period last year. CLC recorded 19% growth in PBT for the year 2015/16.  

BRAC, the latest entrant to the Group’s financial services sector, recorded a stellar performance with its portfolio growth, strengthening the total assets to Rs. 9.5 b, a threefold increase in the year 2015/16. Loans and advances grew to Rs. 7.8 b, the main contributor to the growth in assets. In the current year, the company continues with its strong financial performance, recording Rs. 193 m as PBT compared to a mere Rs. 71 m recorded in the comparative period. 

LOLC’s insurance business represented by LOLC General Insurance Ltd. and LOLC Life Assurance Ltd. continued its unabated performance. The general business records healthy profits despite increasing claims experienced in the recent past. 

The Group insurance business that is directed to the insurance company, together with the business portfolio developed through other external businesses, places LOLC General Insurance Ltd. in a strong position. The life businesses generated by the agency forces established through LOLC’s strong distribution channel, complements well to the growth in the micro and the endowment businesses. 

LOLC’s overseas financial services businesses, PRASAC Micro Finance Company and LOLC Cambodia, a 60% subsidiary of LOLC, have contributed Rs. 402 m and Rs. 505 m respectively as profits during the three months up to June this year. These two companies contribute remarkably well to the profit signature of LOLC, and together with LOLC Myanmar which has a strong sustainable profit potential, will add a sturdy second stream of sustainable business opportunities in markets with growth potential, in the years to come.  

The trading business of LOLC, the Browns Group, too shows strong growth in the top line and is expected to deliver stronger results in the current year, benefiting from the restructuring carried out during the past two years. The plantation sector companies are going through a major restructuring process to align its operations amidst market challenges. The diversification of crops strategy, adopted by the Group is expected to bring about a better financial performance compared to the strained performance in the past years. 

The leisure business of the Group led by Browns Hotels and Resorts (BHR), comprises The Eden Resort and Spa in Beruwala, The Paradise Resort & Spa in Dambulla, Dickwella Resort in the deep South and The Calm Resort & Spa in Passikudah, which are in operation. These hotels are generating moderate results despite the challenging environment in which they operate. However, in comparison to the previous year, higher profits are expected in 2016/17. 

The two hotel properties under construction, The Turtle Beach Resort in Kosgoda and Riverina Resort in Beruwala, are progressing as planned. BHR has recently made investments in the Maldives, to build three hotel properties and are expected to yield strong returns, given the opportunities seen in the Maldives, especially in the high end tourism sector.

LOLC Group Managing Director Kapila Jayawardena, commenting on the Group’s performance in 2015/16 and the first quarter of 2016/17, said: “LOLC’s outstanding performance in 2015/16 is mainly derived from the financial services sector, where all companies have recorded exceptional performances. The robust growth in the lending business, supported by the strong funding line, from both local and foreign sources at attractive terms and conditions, improved the income generating capacity of the sector. 

“The strong collections enabled the Group to achieve a better NPL level and enabled all the companies in this sector to perform exceptionally well. I am confident that these companies will do equally well in the current year which is already seen in the exceptional performance in the first three months. Our robust business model and proactive strategies in portfolio growth and collection management will further strengthen our lending portfolio quality, while improving the profit signature on a consistent basis. We will continue to formulate proactive strategies to align the investments made in the last few years, to generate sustainable profitability which will complement our core business, the financial services sector.”