Bangkok--25 Sep--TRIS Rating TRIS Rating Co., Ltd. has affirmed the company rating of Loxley PLC (LOXLEY) and the rating of its senior debentures (LOXL08NA) at “BBB+”. The outlook has been revised to “stable” from “negative”. The ratings are based on LOXLEY’s diverse portfolio of businesses, good reputation in the business community, and an experienced and capable management team, which support the company’s strong positions in the technology and trading sectors. However, these strengths are partially offset by LOXLEY’s relatively low profit margins, especially in the trading business, and the volatility of the revenue stream from project-based businesses. LOXLEY’s “stable” outlook is based on its improved financial performance as demonstrated during 2007 and the first six months of 2008. TRIS Rating expects that LOXLEY can sustain the earnings from a diverse range of businesses. A substantial amount of cash on hand and strong relationships with world-class technology firms will enable the company to bid for a substantial number of large projects to secure the income stream. TRIS Rating reported that LOXLEY is an operating holding company. In February 2008, the company restructured its principal businesses into eight groups: trading, information and communication technology (ICT), joint ventures, services, technologies, infrastructure projects, special projects, and international business. The major trading activities involve consumer products and chemicals and construction materials. The ICT business can be classified into two major segments: information technology (IT) and telecommunications. LOXLEY’s joint ventures represent partnerships between associated companies and leading global companies, e.g. BP PLC, BlueScope Steel Ltd. (Australia), Furukawa Group, and GTECH Corporation, while the major service involve security services providing. The technology business is underpinned by major contributions from printing and advanced technology. In addition, government turnkey infrastructure projects represent the major portion of the infrastructure project business. The restructuring will benefit the company by strengthening synergy and sharing resources among the groups. LOXLEY, which has been in business for almost 70 years, has established long-lasting relationships with clients and suppliers. LOXLEY’s main strength stems from the expertise and experience of its management and personnel. Each business group is led by a senior executive director. Competent technical and engineering teams, which are well-trained and certified, provide quality products and services across the diverse industries where LOXLEY competes. The competence of the managers and personnel is a major factor that not only strengthens relationships with business partners and suppliers, but also enhances the company’s ability to win projects up for bid. TRIS Rating said, LOXLEY’s customers are primarily government agencies and large private-sector companies. Most government projects come through competitive bidding. Cash flow from operations thus partly depends on the company’s ability to successfully bid for and manage these projects. Non-project recurring revenue is derived from the consumer products, chemical products, and services. These lines of business posted annual revenue of Bt5,600-Bt6,300 million during 2003-2006. Revenue rose to around Bt7,000 million in 2007 once the aviation security business opened in September 2006. Recurring revenue was Bt3,315 million for the first six months of 2008, nearly unchanged compared with the same period in 2007. Recurring revenue accounted for 57%-66% of total annual revenue during 2003-2007, and stood at 65% for the first six months of 2008. LOXLEY’s operating margin before dividend income gradually improved from 0.5% in 2006 to 3.1% in 2007, then rose sharply to 7.4% for the first six months of 2008. The improvement was mainly due to the restructuring of two major business groups, consumer electronics and IT Group, and the substantial equity profit realized from associated companies. In addition, the operating margin of LOXLEY’s IT businesses improved from -4.8% in 2006 to 5.3% in 2007. Apart from its own businesses, LOXLEY receives cash in the form of fees, other revenues, and dividends from long-term investments in companies such as Aspac Oil (Thailand) Co., Ltd., BlueScope Lysaght (Thailand) Co., Ltd., and BlueScope Steel (Thailand) Co., Ltd., and Thai Fiber Optics Co., Ltd. Aspac Oil (Thailand), the manufacturer and distributor of “Castrol” and “BP” lubricants in Thailand, was the main source of dividends received during the last three years. Dividends from Aspac Oil (Thailand) Ltd. for the first six months of 2008 totalled Bt93 million, higher than the dividend payments of Bt62 million in 2006 and Bt77 million in 2007. The rise in dividend payments was due to the relaxing of price controls on lubricant products and the successful expansion of its own trade channel. However, BlueScope Steel (Thailand), another major dividend contributor, has not paid a dividend since 2006. It has utilized funds to invest in capacity expansion and to pay dividends to preferred shareholders. Despite the absence of dividend payments, BlueScope Group continued to generate recurring equity profit to LOXLEY during the last five years. Leverage has steadily improved. The total debt to capitalization ratio decreased from 45.73% in 2005 to 39.52% in 2006 (pre-adjusted for the contingent liable guarantee according to its 35% shareholding in Loxley GTECH Technology Co., Ltd., or LGT). This drop in leverage was the result of a gain of Bt750 million from selling shares of LGT, and the fact that LGT was no longer consolidated in the financial statements. LOXLEY currently owns 35% of LGT and has a joint guarantee for LGT’s bank loan, amounting Bt1,205 million at the end of June 2008, together with other shareholders. This joint commitment will be terminated after LGT’s main project has been running for six months. Leverage held at around 38% from the end of 2007 through June 2008 as the equity base gradually improved through solid operating performance, said TRIS Rating. Loxley PLC (LOXLEY) Company Rating: Affirmed at BBB+ Issue Rating: LOXL08NA: Bt1,000 million senior debentures due 2008 Affirmed at BBB+ Rating Outlook: Stable from Negative For more informaiton please contact: TRIS Rating Co., Ltd. (TRIS Rating) Tel: 66 (0) 2231-3011 Ext. 500, Fax: 66 (0) 2231-3012 E-mail: [email protected]