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By Saruchi Dissanayake

Lanka Orix Leasing Company Limited (LOLC) is the pioneering leasing company in Sri Lanka - it has been described as one of the best managed companies in the country. The company was set up in 1980 and began commercial operations on January 1, 1981. The nature of LOLC's business is to provide leasing finance to entrepreneurs and commercial institutions, in order that they may acquire productive plant, machinery and equipment.

In a survey done by the World Bank in 1980, as requested by the government, a proposal was made to initiate a leasing industry in Sri Lanka, LOLC said. At that time, the International Finance Corporation on a study of the Bank of Ceylon had asked them to take the lead in setting up a leasing company with C. P. de Silva as its first Chairman.

The IFC introduced the Orient Leasing Company of Japan, the world's largest independent leasing company. The first shareholders of LOLC were Orient Leasing (30%), International Finance Corporation (15%), Bank of Ceylon (10%), National Development Bank (6.7%), The Development Finance Corporation of Ceylon (5%) with the balance equity being raised from the private sector. At present, the Orix Corporation of Japan holds 30% of the Company's shares, while local investor Ishara Nanayakkara is the second largest shareholder. LOLC posted its best ever results during the last financial year ended March 31, 2002. The after-tax profit was up 18% to Rs. 212.7 million attributable to shareholders, compared to Rs. 181.2 million in the year before. Pre-tax profit was higher at Rs. 223 million from Rs. 190 million in 2000/1.

The impressive bottom line growth came despite "extremely unfavourable economic conditions and uncertainty in the country" as pointed out by Chairman C P De Silva. LOLC recorded a gross income of Rs. 1 billion with net revenue totalling Rs.3.2 billion. Operating profits stood at Rs. 143 million. Dividends paid for the year totalled 32.5% - a final dividend of 15% and two interim dividends of 7.5% and 10%. Interest costs in 2001/2 were Rs. 621.5 million compared to Rs. 619 million in the previous year. Operating profit after interest costs was 66% higher at Rs. 149.6 million. Other income amounted to Rs. 74.4 million. The total Assets of the Group stood at 6.2 billion as at March 31, 2002. Return on Assets was 14% and return on capital employed was Rs. 14.5%.

During the first quarter of 2002 ended June, 30 net revenue stood at Rs.732 million with a gross income of Rs.301 million. Operating profit before interest was Rs.192 million with interest costs amounting to Rs.146 million. Operating profit after interest was Rs.46 million with other income totalling Rs.6 million. Profit before tax was Rs.52 million with the After Tax profit amounting to Rs.48 million. Net profit (after minority interest) was Rs.46.7 million.

Managing Director of LOLC Raj de Silva was confident that the momentum could be sustained and said the company was targeting further growth this year as well. He said that LOLC achieved the highest profits posted by the company in its twenty two-year history, in the last two years. He attributed much of the success of the company to sound management - saying LOLC's management team was always on the ball, by identifying and reviewing the challenges and threats facing the company. Agreeing with him is Dushyanth Wijesinghe, Head of Research at Asia Securities who said LOLC is on of the best managed companies in the country. Asked why he thought investors should put their faith in the company, de Silva said LOLC was "a solid company, with high reserves, a good management team and consistently growing profits". He said that the company now had adequate provisioning - elaborating by saying that over the last two years, the company had caught up for about ten years of low provisioning. He said the re-invention of the company two years ago, had resulted in the turnaround, and halted a downward slide that saw profits dropping every year.

Asia Capital's Wijesinghe believes LOLC is fundamentally one of the best stocks in the market. He was positive about the growth prospects of the company, saying LOLC stands to gain from any recovery in the economy. LOLC will benefit from falling interest rates, say Wijesinghe, elaborating that with the cost of funds having come down quite dramatically over the past twelve months - this will begin to show in LOLC profitability in the next two quarters as the falling interest rates would definitely result in rising margins.

The only concern expressed by Wijesinghe about LOLC, was that the company's funding side has been at the shorter - he said the company needs to try and address that mismatch in the balance sheet.

Suren Liyanage of Lanka Securities was also optimistic about the company's performance, and predicted a growth of around 10%. He said the stock should perform well with the expected economic revival as an upturn would augur well for the leasing industry as a whole. Liyanage also pointed out that with the market driven by a few individuals at the moment, rather than on real fundamentals, LOLC was a stock that high net worth individuals were watching.

Speaking of expansion plans, de Silva said the company was aiming to open two more branches during this financial year, adding that the last two years had seen the branch network increasing by four branches (The new branches were in Anuradhapura, Kochchikade, Kurunegala and Kalutara - bringing the total number of branches to eight). He also said the company was working towards getting its subsidiary finance company off the ground as fast as possible. The company named the LOLC Finance Company Limited was floated last year. The principal activities of the new company are financing and pawn broking. The LOLC Finance Company Limited was the first finance company approved by the Central Bank after nearly two decades.

Among the other subsidiary companies of LOLC are Lanka Orix Factors Limited (LOFAC) and Lanka Orix Insurance Brokers Limited (LOIB). In 2001/2, LOFAC recorded after tax profit of Rs. 5.4 million - an increase of 110%. LOFAC had factored Rs. 3.8 billion worth of invoices during 2001/2, which was lower by 2.5% over 2000/1. However, the receivables portfolio registered a favourable growth of 32%. LOFAC recorded a 188% increase in pre-tax profit, which was Rs. 11.2 million. LOIB increased insurance premium turnover by 16% with a gross premium turnover of Rs. 96 million. Commission income during the year amounted to Rs. 12.5 million.

FACT FILE

Company : Lanka Orix Leasing Company Limited

Established : 1980

Quoted : 1982

Trading Sector : Banks, finance & insurance

Nature of Business : Leasing and factoring

Capital : Ordinary Shares of Rs. 10 each

Authorised : 1,000,000,000

Issued : 237,600,000

Share Price : Rs. 78 (as at Sept 26, 2002).

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Produced by Lake House
Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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