LOLC Group (LOLC), the premier blue chip conglomerate concluded another financial year on a high note as per the results for the year ended 31st March 2020. LOLC posted an impressive Rs.19.8 billion Profit after Tax (PAT) for the year in comparison to Rs.19.6 billion PAT in the last year, becoming the most profitable listed entity in Sri Lanka for two consecutive years. In a short span of time, LOLC has truly emerged as a “Sri Lankan global player” having operations in over 10 countries.
While the Group performance was affected by local externalities, such as the Easter Sunday attack, the subdued economic growth and the political instability in FY19/20 that resulted the company to record dips in the net interest income and hikes in impairment charges, LOLC has been able to enjoy its stellar performance largely based on the earnings stemming from its overseas financial operations and the gain on a bargain purchase of Rs. 5.4 billion from the acquisition of the largest sugar production plantation company in Africa. Moving forward, LOLC is well set to realise the financial synergies generated from the PRASAC divestment through realigning the capital position of the Group.
Established 40 years ago, LOLC has spearheaded the Small & Medium Enterprise (SME) lending and microfinance revolution in Sri Lanka and the region. Excelling on a national level, LOLC has now established itself as a leading microfinance institution in the countries which it operates. With its financial strength and the perfected micro finance business model in the region, the Group is now well-positioned to expand its operations beyond Asia to the African continent where a substantial opportunity lies in serving a large Bottom of the Pyramid population. Overseas expansion has not only offered LOLC, diversified revenue streams with increased financial stability, but also has added resilience with a well-spread risk profile.
LOLC already made its debut to Africa by acquiring a microfinance bank in Nigeria in October 2019 and by starting LOLC Finance Zambia as a green field project. In FY 2020/21, LOLC will focus on consolidating its existing businesses while pursuing promising investments in Africa and Asia for long-term value creation.
The Group announced the board’s decision to sell its 70% stake in PRASAC to the South Korean KB Kookmin Bank for a consideration of $603 million in January 2020. LOLC received the relevant regulatory approval in March 2020 and concluded the transaction on 13th April 2020. PRASAC claims $3.3 billion in assets, $2.7 billion in portfolio, $1.8 billion deposits and $133 million Profit before Tax (PBT) for the 12 months ending March 2020.
Despite the sale of PRASAC, LOLC still has a foothold in the fastest growing Southeast Asian country via LOLC Cambodia, the fourth largest Microfinance Institution (MFI) in terms of portfolio size. The company has recorded an impressive performance with a 57% YoY growth of its earnings to conclude the year. The group owns 97% of LOLC Cambodia that has an asset base surpassing $1 billion, a gross loan portfolio of $857 million, a deposit base of $501 million and a recorded profit of $34.6 million. With its superior process efficiencies and the right product mix, the company now leads the industry in terms of profitability.
Venturing into Myanmar in 2013 as a greenfield operation, LOLC Myanmar Microfinance Company Limited has now become the third largest among the 176 MFIs in the country with an asset base of $109 million, a portfolio of $77.8 million, and a growing deposit book of $13.8 million. LOLC Myanmar has seen an exceptional performance in FY2019/20 with over 94% YoY growth in loan book, total assets and deposits. LOLC envisages strong growth prospects from its Myanmar operations in the backdrop of a large unbanked population and the more liberalised economy in the country.
In 2017, the Government of Pakistan and the Sultanate of Oman invited LOLC to take up the major shareholding of their joint venture – Pak Oman Microfinance Bank, in recognition of LOLC’s outstanding contribution to the microfinance community. With the backing of the Group’s expertise in the microfinance field, Pak Oman is now poised for a rapid growth in a country with a population over 200 million, offering attractive industry fundamentals. The Group ventured into Indonesia in 2018, acquiring the controlling interest in PT Sarana Sumut Ventura (SSV), expanding its global footprint. SSV is now well-placed to capture the industry potential in a country that has a massive Micro, Small & Medium Enterprises (MSME) market and over 100 million Bottom of the Pyramid population. Tapping into other neighbouring emerging markets, LOLC invested in the Philippines through LOLC ASKI Finance and LOLC Bank Philippines (a thrift bank) in 2019. These entities collectively account for $11.8 million loan portfolio. 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, the country with the largest population in Africa. FinaTrust will provide support to micro entrepreneurs, making strides for significant financial inclusion in the country with a highest entrepreneur concentration.
Today, with the financial sector representation in 8 countries along with promising investments in Asia and Africa in the coming years, LOLC has successfully established itself as a strong global financial conglomerate. With this standing, the Group is poised to be a global financial catalyst with a multi-currency, multi-geographic microfinance and SME platform in the future.
of the challenging and unexpected external shocks, LOLC Finance PLC (LOFC)
continued to hold its market leadership position amongst the Non-Banking
Financial Institutions (NBFIs) in the country with an asset base of Rs.192
billion, a portfolio of Rs.134 billion and deposits of Rs.99 billion. The company
posted Rs.3.9 billion PAT in the year under review. LOFC as the leading impact lender, holds the
largest pool of Development Finance Institutions (DFIs), guiding their
respective development goals for Sri Lanka. The capital and the wide
array of technical assistance provided by these DFIs through LOFC have
transformed the grass root levels of the economy. Continuing the Group’s legacy
of expanding strategic international alliances, LOFC signed a loan agreement
with Swedfund, the Swedish Government’s Development Finance Institution to
promote financial inclusion and gender equality. Attesting the Group’s good
business practices, LOLC Micro Credit Limited (now merged with LOFC) became the
1st Sri Lankan MFI to be awarded the Client Protection Principles
Certification from the SMART Campaign (a global initiative which exists to
ensure strong client protection practices in the microfinance industry).
Since LOLC’s acquisition of Commercial Leasing and Finance PLC (CLC) in 2008, CLC has been instrumental in driving the Group’s vision of financial inclusion in the country as a leading credit supplier. The company has also established strong relationships with a wide range of FDIs to promote their development missions in the country. In the year under review, CLC managed to protect its portfolio and the profit signature by recording a PAT growth of 29% YoY to Rs.1.5 billion despite challenging macro-economic situations. The company holds a Rs.69.4 billion asset base and Rs.24.9 billion deposits as at FY2019/20.
LOLC Development Finance PLC, formerly known as BRAC Lanka PLC, made strong recovery in the year under review by recording Rs. 176 million PBT from a loss of Rs. 140 million in the last year following the alignment of its business strategies on restructuring the inherited SME portfolio. The company has been able to reduce its credit loss provisioning by 35% through the implementation of prudent strategies to improve collection and recoveries. The company holds a Rs.18.4 billion asset base and Rs.2.6 billion deposits as at FY2019/20.
Seylan Bank, an associate of the LOLC Group, also contributed Rs.1.3 billion to the Group’s profits. The Group’s Insurance business, LOLC Life Assurance and LOLC General Insurance demonstrated an impressive performance during the year by recording Rs. 1.5 billion PBT in comparison to a loss of Rs. 175 million recorded in the last year. The highly underpenetrated Sri Lanka’s life insurance industry offers definite growth prospects and the well-equipped LOLC insurance businesses has positioned themselves amongst the top 10 insurers to aggressively reap market opportunity in both sectors.
With the objective of tapping other key growth sectors of the country, the LOLC Group has successfully established a vertical of various non-financial sector businesses through Brown and Company PLC, a 143-year-old conglomerate with exposure in leisure, agriculture and plantation, power generation, marine, construction, manufacturing and trading, home and office solutions and pharmaceuticals. Through its subsidiary Browns Investments PLC (BIL), the Group envisions further expansions in the non-financial sector while having promising local and foreign investments in the pipeline. BIL already has exposure to a wide array of investments, including leisure properties in Sri Lanka and the Maldives, assets in Sierra Leone and plantation and construction sectors.
LOLC is confident on its growth prospects in the medium term with the gradual recovery of the global travel and leisure industries amid the lacklustre outlook of the tourism sector due to the Covid-19 pandemic. The Group’s leisure portfolio in Sri Lanka is now made up by 5 operational resort hotels with the commissioning of 172 room Samudra Beach Resort in Kosgoda during 4Q of FY19/20. The Riverina Hotel development project in Beruwala is currently underway, which once completed will be one of the largest five star resorts in the country.
The Maldives being the closest destination with proven track records in the tourism industry, the Group made a bold move to tap the market through securing some of the most sought-after properties in Male as well as other atolls in Maldives, assuring a diversified leisure portfolio to the Group. The Nasandhura Mixed Development project in Male is planned to be opened by March 2021 and once completed, it will be the largest mixed development project in the Maldives. The resort hotel with 100 keys in Bodufinolhu atoll is planned to be opened by early 2021.
The Group holds its footprint in the local plantation sector through Maturata and Gal Oya plantations, where the business focus lies in the value addition of cinnamon products and sugarcane cultivation. LOLC could also reap the benefits of having market leaders like Agstar Fertilisers and Browns with agricultural supplies and equipment to complement the value chain.
The Group made its maiden non-financial sector investment in the African region by acquiring Sunbird Bio-energy Sierra Leone Limited, an integrated farm that generates power, sugar and bio ethanol for a consideration of Rs. 5.3 billion. The company owns 23,500 hectares of agricultural estate, the plantation supplying sugarcane, as well as a 380,000 Litres/Day Bio-Ethanol Plant and a 32 MW Biomass Power Plant. During the year, strategies were implemented to extend the harvestable land extent for increased input for Bio – Ethanol generation, establishing a strong supply chain and increasing the generation of the output in the coming years.
The Group exited from its healthcare assets due to the challenging regulatory environment of the sector by disposing Browns Hospital in Ragama for a consideration of Rs. 1.6 billion. In a statement about the annual performance of the Group, Group Managing Director/CEO Kapila Jayawardena said, “2019/20 has been a difficult year due to externalities affecting most industries, but we are pleased with our strong performance this year, with a Group PAT of Rs. 19.8 billion which is largely contributed by our strategic foreign ventures. With this standing, we are proud to be the most profitable listed entity for the second consecutive year. With a timely global expansion strategy, well diversified revenue streams and a dynamic workforce in place, we will ambitiously look forward to stride ahead with consistent performance during these turbulent times.”