TRIS Rating Co., Ltd. has affirmed the company rating of Loxley PLC (LOXLEY) and the ratings of its senior debentures (LOXL06NA, LOXL08NA) at "BBB+". At the same time, TRIS Rating has changed LOXLEY's outlook to "negative" from "stable". The ratings are based on the diversification of its business, its reputation as local conglomerate, and its experienced and capable management, which has enabled the company to take strong positions in various businesses in the technology and trading sectors. However, these strengths are partially offset by LOXLEY's relatively low profit margins, especially in the trading business, the expected increase in leverage from financing its on-line lottery project with debt, and the volatility of the revenue stream from the company's project-based business.
While the "negative" outlook reflects LOXLEY's weak financial profile comparing with its rating worthiness. The ratings could be lowered if the company does not show improvement of its operating performance during the next 9-12 months.
TRIS Rating reported that LOXLEY is an operating holding company with two principal business groups: technology and trading. LOXLEY's technology business are classified into five major segments: information technology, infrastructure, telecommunications, consumer electronics and printing. Its major trading activities involve chemicals, consumer products and construction materials. More than 60 years old, LOXLEY has established long-lasting relationships with clients and suppliers. The main strength of LOXLEY stems from the expertise and experience of its management and personnel. Competent technical and engineering teams, which are well-trained and certified, provide quality products and services in the diverse collection of industries where LOXLEY competes. This is a major factor in maintaining strong relationships with targeted business partners and suppliers, which enhances the company's ability to win projects that are up for bid.
TRIS Rating said that LOXLEY's customers are primarily government agencies and large private-sector companies. The main portion of its government projects comes through competitive bidding; therefore, cash flow from operations partly depends on its ability to successfully bid for and manage these projects. The company's recurring revenue, which is derived from its trading and consumer electronics businesses and from service revenue from after-sale maintenance of turnkey projects, has improved since 2001. Recurring revenue increased from Bt4,476 million in 2000 to Bt5,993 million in 2003, Bt6,453 million in 2004 and Bt3,116 million during the first six months of 2005. Recurring revenue accounted for 64%-65% of total revenue in 2004 and the first six months of 2005. However, the operating margin from these sources was relatively low because of intense competition. During 2004 and the first nine months of 2005, LOXLEY's operating margin before dividend income deteriorated from -0.05% to -5.16% due to the underperformance of its in-house mobile phone in 2004-2005, the early retirement program that was implemented at a cost of Bt65 million and the provisioning of Bt179 million for its investments during the first nine months of 2005.
TRIS Rating also said that, apart from LOXLEY's own businesses, its main cash flow comes largely from fees, other revenues, and dividends from its investments. LOXLEY receives a continuing stream of dividends from its long-term investments in companies such as Aspac Oil (Thailand) Co., Ltd., BlueScope Lysaght (Thailand) Co., Ltd., Thai Fiber Optic Co., Ltd., Loxley Trading Co., Ltd., and Lao Soft Drink Co., Ltd. The major cash dividend contributor, Aspac Oil (Thailand), which is a manufacturer and distributor of "Castrol" and "BP" lubricant in Thailand, paid Bt180.3 million and Bt94.1 million in dividends to LOXLEY in 2004 and the first nine months of 2005, respectively. LOXLEY's leverage has improved steadily; its total debt to capitalization ratio declined from more than 100% in 2000 to the satisfactory level of 38%-43% in 2003-2004 and the first nine months of 2005. However, LOXLEY's financial leverage is expected to deteriorate during the next 2-3 years since the company's subsidiary, Loxley GTECH Technology Co., Ltd., plans to finance the Bt2,000 million investment in the on-line lottery project mostly by bank loans which is structured on a project finance basis and will repay the debt by cash flow from the project. - End
Loxley PLC (LOXLEY) Company Rating: Affirmed at "BBB+" Issue Ratings: LOXL06NA: Bt1,000 million senior debentures due 2006 Affirmed at "BBB+" LOXL08NA: Bt1,000 million senior debentures due 2008 Affirmed at "BBB+" Rating Outlook: "Negative" from "Stable"