LOLC 1Q earnings surge with goodwill from int’l acquisition

• Earnings up 190% Rs.7.5bn
• Books Rs.5.2bn negative goodwill 

Profits at LOLC Holdings PLC surged during the June quarter (1Q20) helped by a hefty negative goodwill stemming from an international acquisition by the group, the interim financial accounts released to the Colombo bourse showed. 

The group which has interests in financial services, life and general insurance, trading, leisure and plantations, reported earnings of Rs.15.80 per share or Rs.7.5 billion for 1Q20, against Rs.5.44 per share or Rs.2.6 billion reported for the same period last year.

The earnings were helped by a negative goodwill of Rs 5.2 billion from the acquisition of one of the largest sugar production plantation companies in Africa by the group.
Browns Investments PLC, a unit of LOLC group, this May said it had reached a deal to buy the control of a bio-fuel producing sugar farm in the African state of Sierra Leone, which also has a renewable energy power plant.

Meanwhile, for the quarter under review, the group with assets over Rs.1.14 trillion saw its gross income increasing 18 percent year-on-year (YoY) to Rs.45.4 billion.
The interest income also rose 18 percent YoY to Rs.34 billion while interest expenses rose 28 percent YoY to Rs.20.3 billion, resulting in a net interest income of Rs.13.6 billion, up 6 percent YoY. The group’s operating profit improved 22 percent YoY to Rs.6.5 billion.

The group’s financial services segment contributed Rs.40.6 billion to the gross income with a pre-tax profit of Rs.7.5 billion. 

An LOLC statement said the group’s local financial services companies— LOLC Finance PLC, Commercial Leasing and Finance PLC and LOLC Development Finance PLC—took a proactive approach in facing the prevailing macroeconomic challenges in Sri Lanka over the past 18 months. 

 
“A conscious decision was made to control lending and focus more on recoveries and improving portfolio quality. 

“As a result of this short-term strategy, there has been a swift positive impact on portfolio quality as NPLs have been maintained well ahead of industry averages, with Group level NPLs showing a marked improvement from the previous two quarters. 

“This improvement is significant given the magnitude of the combined portfolio under consideration of Rs.689 billion.” 

LOLC was the first financial institution in Sri Lanka to venture offshore in microfinance with its maiden investment in Cambodia’s largest microfinance institution (MFI), PRASAC.
“With an ROE of 28 percent, a portfolio of US $ 2.4 billion, deposit base of US $ 1.6 billion and a significant contribution to the group’s bottom line, PRASAC offers substantial return on investment in dollar terms through the group’s 70 percent holding in PRASAC,” the company statement said.

It also said, though a relatively new entrant to the Cambodian MFI performers, LOLC Cambodia (LOCAM) has now positioned itself as the most profitable MFI in Cambodia with an ROE of 32 percent, ROA of 4.2 percent, and the 4th largest portfolio and deposit base of US $ 621 million and US $ 354 million respectively. 

“Steered by LOLC group’s considerable expertise and guidance in microfinance, in less than 5 years, LOCAM has risen up the ladder to become the 2nd contributor in profits within the group’s MFI portfolio, with a 15 percent share in Group PBT for the quarter ended in June 2019,” the statement said. 

The group owns 97 percent of LOLC Cambodia.

Meanwhile, LOLC Myanmar, a greenfield operation and the first of its kind from Sri Lanka in Myanmar, has now become the 3rd largest MFI in the country with an asset base of US $ 64 million, a portfolio of US $ 50 million and a growing deposit book of US $ 8 million.

LOLC’s role in the microfinance arena has been endorsed by many independent organizations. 

LOLC’s success story is being used as a case study in the MBA Programme of the prominent INSEAD business school, while PRASAC is recognised as an S.T.A.R by MIX among its proud list of achievements. 

LOLC was also invited by the Government of Pakistan and the Sultanate of Oman and offered the majority stake of the Pak Oman Microfinance Bank.
According to LOLC, today, Pak Oman has an asset base of US $ 28 million and a portfolio of US $ 9 million with a footprint of 55 branches in less than two years 
of operation. 

With careful risk appetite and use of group synergies, LOLC last year invested in Indonesia by acquiring the controlling stake in PT SaranaSumut Ventura (SSV), a venture capital business with one branch. 

In just a few months post investment, LOLC has established a brand-new micro book of US $ 2.5 million with 29 branches in the pipeline in the regions of Java and Sumatra Islands. 
Invested in 2018, LOLC ASKI Finance and LOLC Development Bank are the access points to the Philippines markets. 

Covering both North and South Island of Luzon and a target market segment of micro and SME, the two companies are ambitious to develop a sound portfolio and a footprint of 50 branches by the end of 2020.

Complementing its performance in the financial sector, LOLC group also recorded steady progress in the non-financial sector through diversified investments in growth sectors both in Sri Lanka and overseas, in Sierra Leone and Maldives. 

Sunbird Bio-energy Sierra Leone Limited, is the highlight of the overseas expansion strategy, comprising 23,500 hectares of an integrated farm that generates power, sugar and bio ethanol, and is one of the largest agricultural projects in the African continent. 

Other sectors in the group delivered subdued results with the leisure sector having a significant impact on the operating hotels occupancy levels since April terrorist attacks and the rest of the properties both in Sri Lanka and in Maldives being at a stage of development. 

The trading sector consisting of the Browns Group and the plantation sector saw a dip in their performance in line with the negative economic pressure prevalent in the country.