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Records Rs. 57 b profit before tax
- Finance companies witness strong deposit inflows
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LOLC Myanmar post tax profits $ 3 m
LOLC Group Deputy Chairman Ishara Nanayakkara and Group Managing Director/CEO Kapila Jayawardena [/caption]
Globally diversified financial conglomerate, LOLC Group, posted a record-breaking performance for the financial year ending 31 March 2021, achieving Rs. 57 billion in profit before tax (PBT), and a profit after tax (PAT) of Rs. 53 billion – a first for any corporate in the country, the company noted yesterday (31).
By achieving profits on this massive scale in the history of Sri Lanka’s corporate world, the group once again consolidated its position as the top-most profitable diversified corporate in the country, three years in a row – establishing LOLC as one of the largest micro, small, and medium enterprise (MSME) platforms in the world.
This performance by LOLC resulted in Rs. 28 billion being recorded as profits attributable to the equity holders of the parent company. The group results denote an impressive earnings per share of Rs. 59.01 compared with Rs. 22.93 recorded in the previous year. Whereas, the total comprehensive income was Rs. 81 billion, out of which Rs. 37 billion is attributable to the equity holders of the parent company. Furthermore, the total attributable comprehensive income per share was Rs. 77.84. The resultant net assets value per share as at the year-end was Rs. 286.23 compared to Rs. 194.72 reported last year, demonstrating the exceptional value creation by the group during the concluded financial year.
The story of LOLC’s rise into an elite blue-chip within a span of 40 years is nothing short of awe-inspiring, surpassing competitors who have been in existence for over a century. A pioneering leasing company established in the year 1980, in collaboration with ORIX Corporation of Japan and International Finance Corporation (IFC), LOLC revolutionised the future of MSMEs in Sri Lanka and rose in stature as Sri Lanka’s largest non-banking financial institution (NBFI). Having established a high-performance microfinance business model, LOLC rapidly exported its expertise to global markets such as Cambodia, Myanmar, Indonesia, the Philippines, and Pakistan in Asia as well as Zambia and Nigeria in East and West Africa, bringing prosperity to people at the bottom of the pyramid. In addition, the group has established its footprint in the Maldives and Sierra Leone in the arena of non-financial services.
In Sri Lanka, the LOLC Group diversified into agriculture and plantations, leisure, renewable energy, construction, manufacturing and trading, information services, as well as research and innovation over and above its flagship financial services. All of these businesses recorded an upward trend in profitability in 2020/21, despite the adverse effects of Covid-19 being felt by Sri Lanka’s economy through 2020, coupled with weak GDP growth in the preceding year. Despite the global economic downturn experienced during the period, a strong pipeline of multilateral and bilateral funding has been available to LOLC and its operating companies both locally and globally – a testimonial to the confidence these institutions have placed in the LOLC Group due to its strong and unblemished track record and the potential for growth even during turbulent times.
Performance of financial services companies
LOLC’s financial services have brought about life-changing financial inclusion in MSMEs in Sri Lanka, empowering frequently marginalised communities to build a better future for their families – driving women’s empowerment and financial independence by encouraging their entrepreneurial ambitions. Overall, the LOLC Group’s financial services achieved a Rs. 17.3 billion as bottom line despite allowing for a strong level of risk mitigating provisions amounting to Rs. 30 billion for bad and doubtful debts on a very conservative basis against Rs. 17 billion last year. Livelihoods of people in all sectors have been badly affected by the Covid-19 pandemic and at the request of the regulators of each country, the group’s financial services companies have extended moratoriums to affected customers – extending a safety net to those in need.
LOLC’s finance companies in Sri Lanka experienced a strong level of deposit inflows despite the all-time low interest rates. The flagship finance company – LOLC Finance PLC (LOFC) – with a total assets base of Rs. 170 billion, recorded PAT of Rs. 4.4 billion. Commercial Leasing & Finance PLC (CLC) with a total assets base of Rs. 77 billion also recorded strong performance, posting a PAT of Rs. 2.2 billion in 2020/21. Meanwhile, with a total assets base of Rs. 19 billion, LOLC Development Finance (LODF) PLC recorded a PAT of Rs. 155 million.
Seylan Bank succeeded in delivering a steady PAT of Rs. 3 billion for FY2020. Deposits increased by 9.9% and advances increased by 4%, whereas the CASA ratio stood at 33%.
LOLC’s global success took seed in 2007, when it invested in PRASAC – a Cambodian microfinance organisation – and grew it into a billion-dollar organisation in less than 12 years. A 70% stake was recently acquired by the Republic of Korea’s largest commercial bank, Kookmin Bank, for $ 603 million – thereby contributing to overall group profitability and strengthening its balance sheet with a put option to divest the remaining stake in December 2021.
LOLC’s overseas financial services entities made strong contributions to the profitability of the group in 2020/21 – with LOLC Cambodia leading the way with a $ 45 million in PAT with the total assets base exceeding over $ 1 billion. In Cambodia, LOLC continues to hold a 97% stake in LOLC Cambodia – the fourth-largest microfinance company in terms of market position and the second most profitable microfinance institution (MFI) in Cambodia after PRASAC.
Venturing into Myanmar in 2013 as a greenfield operation, LOLC Myanmar Microfinance Company Ltd. has now become the fourth-largest among the 176 MFIs, with an asset base of $ 175 million, a portfolio of $ 126 million and a growing deposit book of $ 20 million. LOLC Myanmar has seen exceptional performance in FY2020/21 by posting a profit of $ 3 million as PAT, and envisages strong growth prospects amidst the atmosphere of a large unbanked population.
In 2017, LOLC ventured into Pakistan by investing in Pak Oman Microfinance Bank (POMB), a joint venture with the Islamic Republic of Pakistan and the Sultanate of Oman, which is now poised for rapid growth in a country with a population of over 200 million – offering attractive industry fundamentals. POMB operates through 66 branches, extending its services to over 50,000 clients. The group ventured into Indonesia in 2018, acquiring the controlling interest in PT Sarana Sumut Ventura (SSV), further expanding its global footprint. SSV is now well positioned to capture the industry potential in a country with a population of 270 million with over a 100 million at the bottom of the pyramid population. SSV operates through 28 branches, extending its services to over 60,000 clients.
Tapping into other neighbouring emerging markets, LOLC invested in the Philippines – a country with a population of 110 million – through LOLC ASKI Finance and LOLC Bank Philippines (a thrift bank in 2019). LOLC ASKI operates through 15 branches, extending its services to over 3,000 clients, while LOLC Bank operates through 10 branches, extending its services to over 8,000 clients.
In the year under review, the group made its first finance sector investment in the African region by acquiring a controlling stake of FinaTrust Microfinance Bank in Nigeria – a West African nation with the largest population in the continent of 206 million. FinaTrust will provide support to MSME entrepreneurs for significant financial inclusion in the country, operating through eight branches and extending its services to over 3,000 clients. The group commenced operations in Zambia by incorporating LOLC Finance Zambia as a greenfield operation – which currently operates through six branches.
The global expansion strategy for the financial services sector remains a key focus, with plans being made for expanding into more markets in both Africa and Asia.
LOLC’s two insurance companies: LOLC General Insurance Ltd. and LOLC Life Assurance Ltd. demonstrated strong resilience against the unprecedented impacts of the pandemic and other socio-economic adversities. LOLC Life Assurance registered a gross written premium (GWP) of Rs 3.2 billion – the first life company in the industry to achieve this milestone in less than 10 years – and posted a growth of 21% in GWP, backed by a robust growth of 59% in first year premiums; the highest new business growth in the insurance industry. Meanwhile, LOLC General Insurance achieved Rs. 6 billion in GWP in 2020 in less than 10 years – a first for Sri Lanka.
After success in the overseas MSME sector, the company is leveraging on its vast international customer base and technical synergies to enter the micro insurance arena, already securing licences in Cambodia and a representative office in Myanmar – thereby offering end-to-end financial security for the MSME sectors in these markets. One of the key factors for LOLC’s success in overseas sectors will be that it is penetrating markets with large populations, in order to serve the MSME segments in those countries and help them scale up the value chain.
LOLC Securities (Pvt.) Ltd. (LOSEC), a leading stock broker with strong retail and local and foreign institutional client base, expanded its market share from 7% to 9.5% in FY 2020/21. The company is ranked second among peers in terms of total market turnover during the year under review. Improved brokerage earnings, ongoing expense management policies, and positive stock market sentiment helped the company to record impressive performance.
LOLC’s expertise in financial services has been further underscored by the launch of iPay, a unique payment aggregator which has garnered close to 90,000 subscribers and enables a wide range of financial transactions through the app. It has been successfully launched in Sri Lanka and Cambodia, along with implementation plans already in place for Myanmar, Pakistan, and Indonesia. iPay became the market leader in Sri Lanka in terms of customer acquisition and transaction volumes on its launch. As a tech-savvy global player, LOLC is continuously investing in technology and technology-enabled services, bringing in technology to its business to automate processes – thereby becoming a predominantly ”phygital” financial service provider. LOLC has standardised its local and global operations on an Oracle-based common core banking platform built by LOLC Technologies named Fusion X for greater operational efficiencies.
Performance of non-financial sector companies
Brown & Company PLC with a history of 146 years, together with its investments arm, Browns Investments PLC (BI), under which LOLC’s non-financial services businesses are structured, recorded resilient performance during the year under review. Despite the challenges encountered in the macroeconomic environment and in the intensity of the competitive landscape, Browns’ trading business recorded one of its highest revenues with an increase of 45% with a gross profits increase of 47% for FY 2020/21, while posting a PAT of Rs. 1.8 billion.
Browns and BI have energised many vital sectors of the Sri Lankan economy, including trading and manufacturing, precision engineering, mechanisation of agriculture, automotive, power storage, renewable energy, leisure and hospitality, plantations, construction, marine, and veterinary pharmaceuticals.
Browns is the most trusted, reliable, and preferred partner for many leading global brands, introduced the world-renowned Massey Ferguson tractors back in 1952, becoming the first distributor in the whole of South and South East Asia. Further, the company harnessed its superior enterprise capabilities to make TAFE the highest selling tractor brand in Sri Lanka. Today, TAFE and Massey Ferguson enjoy a 50% market share. Yanmar Combine Harvester, the most preferred brand in the Japanese segment, holds over 60% market share while SUMO, its Chinese counterpart, holds over 50% market share in that particular segment.
The auto power market, with its distinctive competitiveness in technology and innovation, is well ahead of its competition with a 75% market share combined with the superior Exide, Lucas, and Dagenite range. Further, RADCO, the number one brand of radiators in Sri Lanka is the market leader holding over 50% market share.
Browns also partners with leading global veterinary brands such as Zagro, MSD, and Eukanuba.
In collaboration with the world’s leading brands, the company provides an unmatched range of heavy machinery – Hitachi and Sakai – and tools – Makita and Tailin – reputed for trusted technology, advanced functionality, and energy efficiency. In the electric energy solutions, Browns has a partnership with FG Wilson. The success of FG Wilson in Sri Lanka demonstrates the technical marketing proficiency of the company. It also markets Yanmar, Hyundai, and PARSUN, the world’s most reliable and durable marine engines.
The group’s local plantations sector operates through Maturata Plantations and Gal Oya plantations, two businesses that recorded strong performance in the year under review.
Maturata’s business focus lies in the management of the company’s tea plantations profitably while the future strategies are aligned to create long-term value from cinnamon, with the company having the largest cinnamon plantation in the country. The BI Group acquired a 67% stake in Tropical Island Commodities (Pvt.) Ltd., a cinnamon exporter in the country with a focus of developing value-added cinnamon products to attract global markets with strong demand for Sri Lankan cinnamon. During the year, Maturata recorded a historic performance with an excellent profit contribution to the group, a PAT of Rs. 382 million.
Gal Oya Plantations continued to enhance its sugar cane growing and production capacity with Hingurana Sugar Factory being expanded to meet local demand, which will also help the Government to reduce expenditure on sugar imports. Gal Oya also produces the highest grade ethanol in Sri Lanka.
BI Group, invested in Sunbird Bioenergy (SBSL) Ltd. in 2019, an agro-based company incorporated in Sierra Leone, the largest land extent allocated for sugar cane plantation in the region with 23,791 ha with the ability to increase up to 50,000 ha, produces extra neutral alcohol (ENA) as per the global industrial standards. The company achieved its plantation target of increasing the sugar cane extent up to 6,500 ha from 900 ha in 2019, a remarkable achievement for the group, and produced an ENA of 14.3 million litres. SBSL also generates and exports power to the national grid with a power generation capacity of 32 MWh.
In the renewable energy sector, Sagasolar Power (Pvt.) Ltd., the first utility scale solar plant in the country, has been in operation for over four years since its commissioning in 2016 and generates steady profit contributions to the BI Group.
Browns Engineering, the construction and engineering arm of BI, aims to improve its market share in the telecommunication industry in Sri Lanka to be the turnkey solutions provider for telco operators. The company has performed extremely well with Rs. 1.6 billion revenue along with Rs. 361 million in PAT. Further, Browns Engineering plans to expand its operations in infrastructure development projects in roads and bridges, water and sewerage, and electrical and piling work in Sri Lanka and the Maldives.
Complementing the construction business of BI, Ajax Engineers (Pvt.) Ltd. (Ajax), with its strong track record in the aluminium fabrication business, became the No. 1 player in the aluminium façade industry in Sri Lanka with large development projects being awarded to the company for end-to-end aluminium solutions. Gurind Accor (Pvt.) Ltd., the renowned glass processing company with the brand Gurind Tough, is the No. 1 local glass processor; the pioneer toughened glass supplier in the country holding a dominant market share together with General Accessories & Coating (Pvt.) Ltd., recording strong financial performance despite Covid-19 challenges and directly impacting the country’s construction industry. Creation Wooden Fabricators (Pvt.) Ltd., which engages in custom-build furniture solutions, too reported commendable financial performance during the year.
Excel World is being upgraded to become the premier food and beverage and meetings, incentives, conferences, and exhibitions (MICE) destination in the city of Colombo. Meanwhile, Excel Restaurants (Pvt.) Ltd. was granted franchise rights of seven leading restaurant brands in Colombo.
Browns Hotels & Resorts, a subsidiary of BI, continued to enjoy a strong presence in the leisure sector with Eden Resort & Spa in Beruwala with 158 keys, The Paradise in Dambulla with 67 keys, Dickwella Resort & Spa with 76 keys, and The Calm Resort & Spa in Pasikuda with 70 keys. With the assistance of the Sri Lanka Tourism Development Authority (SLTDA), the Government has formulated short-term and long-term plans to rebuild the tourism industry impacted by the pandemic. The group’s timely conversion of these properties into repatriation hotels helped the operating hotels to enjoy a steady stream of revenues generating operating profits. Sheraton Kosgoda Turtle Beach Hotel with 172 keys, a five-star property managed by Sheraton, was commissioned during the year. The group recommenced the construction activities of Riverina Resorts Beruwala, another 365-key five-star property.
Anticipating strong growth in the leisure business in the medium to long term, BI leisure subsidiary Eden Hotels Lanka PLC acquired the controlling stake of Serendib Hotels PLC. This acquisition adds the Dolphin Hotel in Waikkal with 154 keys, Avani Bentota with 75 keys, Hotel Sigiriya with 79 keys, and Reveal The Collection of villa properties under Frontier Capital (Pvt.) Ltd. with 28 keys into the group’s leisure footprint. Dolphin Hotel, Avani Bentota, and Hotel Sigiriya are currently operating as quarantine properties.
The group’s leisure footprint expanded to the global arena with a significant investment in the Maldives in the last few years. Nasandhura Maldives, a luxury city hotel with 136 rooms, 118 apartments, and a sophisticated retail mall, is nearing completion. This is a flagship property and will be an iconic development in the Male city. Another project in progress on the island of Bodufinolhu with 100 keys, in Ari Atoll, Maldives is to be completed in December.
The group signed a shareholder agreement with the Barceló Hotel Group to develop a three-hotel complex in North Male Atoll, Maldives – Bodufaru Beach Resorts Ltd., which consists of 470 keys. The total value of the development is estimated at $ 150 million with Barcelo investing $ 30 million for a stake of 33.33%. Apart from this shareholder agreement, Barcelo Hotel Group entered into a management agreement to manage five leisure properties in Sri Lanka and the Maldives.
Having grown its leisure footprint significantly and with the expansion planned for the medium term, the group will hold 2,000-plus keys in Sri Lanka and overseas leisure properties to be positioned as a significant leisure operator.
Browns Investments PLC entered into a landmark agreement to partner with China Harbour Engineering Company Ltd. (CHEC) to commence the Colombo International Finance Centre (CIFC) Mixed Development Project, which has strategic development project status, in Colombo Port City (CPC). This project comprises a land area under development of 6.8 ha with an investment value totalling $ 1 billion. The total investment in Phase One amounts to $ 450 million with a buildable land area spanning 3.06 ha, which is leased from CHEC Port City Colombo (Pvt.) Ltd. to the new special purpose vehicle (SPV) that will be jointly managed by Browns and CHEC. This will be a significant undertaking involving the construction of two residential apartment towers, one serviced apartment tower, one office tower, and a retail podium on the ground floor.
The LOLC Group is also exploring technology and innovation aligned with the President of Sri Lanka’s vision and to infuse local value addition. LOLC Advanced Technologies has built capacity to convert graphite to graphene and in partnership with SLINTEC, which it has invested in, is also conducting value additions such as fortifying rice with nutraceuticals and researching organic fertilisers to cater to the current demand. LOLC’s thirst for new knowledge and scientific innovation remains insatiable. More importantly, the group provides opportunities for local scientists to work on exciting projects and encourages a spirit of discovery and innovation not abundantly available in Sri Lanka.
Recording the highest profitability by a corporate in Sri Lanka in just a span of 40 years, LOLC Group proves that a local company with a big heart and bigger ambitions with strong leadership, drive, and agility can create a global footprint and achieve market leadership in the new territories, creating brand equity for the island nation. The profitability levels achieved by LOLC in 2020/21 could be the historical pivot point for a new dawn in corporate sector performance for Sri Lanka. Amidst a global trend of economic uncertainty, the group’s strategic investments and robust financial performance have infused formidable stability and resilience to Sri Lanka’s economy.