TRIS Rating Co., Ltd. has affirmed the company rating of Loxley PLC (LOXLEY) and the ratings of LOXLEY’s senior debentures (LOXL06NA, LOXL08NA) at “BBB+” with “negative” outlook. The ratings are based on LOXLEY’s diverse portfolio of businesses, reputation, and experienced and capable management team, which support its 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.
While LOXLEY’s “negative” outlook reflects the company’s underperformed operating result
compared with the ratings assigned. TRIS Rating will monitor the company’s success to turn around two underperforming business units, IT and consumer electronics, and successfully execute company’s backlog.
The ratings could be lowered if the company does not show improved 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 can be classified into five major segments: information technology (IT), infrastructure, telecommunications, consumer electronics, and on-line lottery. Its major trading activities involve chemicals, construction materials, and consumer products. 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 business partners and suppliers, which enhance the company’s ability to win projects that are up for bid.
TRIS Rating said, LOXLEY’s customers are primarily government agencies and large private-sector companies. The main portion of government projects comes through competitive bidding; therefore, cash flow from operations partly depends on the company’s 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 service revenue from after-sale maintenance of turnkey projects, has gradually increased since 2001. Recurring revenue increased from Bt4,947 million in 2001 to Bt6,453 million in 2004, Bt6,635 million in 2005 and Bt3,504 million during the first six months of 2006. Recurring revenue accounted for 60%-65% of total revenue during 2001-2005 and increased to 74% for the first six months of 2006 due to a slowdown in project-based revenue. LOXLEY’s operating margin before dividend income deteriorated from -0.05% in 2004 to -6.45% in 2005 and -3.94% for the first six months of 2006. The drop was due to the underperformance of the in-house mobile phone and information technology businesses since 2004, an early retirement program implemented at a cost of Bt75 million, Bt154 million in provisions for investments in 2005, and a Bt126 million provision for a short-term loan to another company during the first six months of 2006.
Apart from LOXLEY’s own businesses, cash flow comes largely from fees, other revenues,
and dividends from its investments. LOXLEY receives a continuing stream of 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. (BlueScope Group), Loxley Wireless Co., Ltd., Lao Soft Drink Co., Ltd., Loxley Trading Co., Ltd., and Thai Fiber Optics Co., Ltd. However, the dividends from
the largest contributor, Aspac Oil (Thailand), the manufacturer and distributor of “Castrol” and “BP” lubricants in Thailand, fell from Bt180.3 million in 2004 to Bt117.6 million in 2005 and to Bt48 for the first six months of 2006. This drop was due to continued high oil prices, competition, and price controls for lubricant products.
LOXLEY’s leverage has improved steadily; its total debt to capitalization ratio slid from 74.4%
in 2001 to a satisfactory level of 38%-46% in 2002-2005 and was 36.1% at the end of June 2006 due to
a gain of Bt750 million from selling shares of Loxley GTECH Technology Co., Ltd. (LGT), and debt reduction after LGT was no longer consolidated in the financial statements. However, LOXLEY currently owns 35% of LGT and has to commit to a joint guarantee of LGT’s bank loan, together with other shareholders. The company’s guarantee is expected to be Bt350 million (35% of Bt1,000 million). This joint commitment will expire when the project starts, which is expected to be in late 2006.
TRIS Rating sees that the coup against Prime Minister Thaksin Shinawatra launched by the Council for Democratic Reform (CRD) on 19 September 2006 will have no immediate effect on the ratings of LOXLEY in the short term. During the 1-year period before the general election, TRIS Rating will closely monitor the situation and will review the ratings of LOXLEY if any effects occur in the medium term. -- 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
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Copyright 2006, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.
While LOXLEY’s “negative” outlook reflects the company’s underperformed operating result
compared with the ratings assigned. TRIS Rating will monitor the company’s success to turn around two underperforming business units, IT and consumer electronics, and successfully execute company’s backlog.
The ratings could be lowered if the company does not show improved 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 can be classified into five major segments: information technology (IT), infrastructure, telecommunications, consumer electronics, and on-line lottery. Its major trading activities involve chemicals, construction materials, and consumer products. 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 business partners and suppliers, which enhance the company’s ability to win projects that are up for bid.
TRIS Rating said, LOXLEY’s customers are primarily government agencies and large private-sector companies. The main portion of government projects comes through competitive bidding; therefore, cash flow from operations partly depends on the company’s 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 service revenue from after-sale maintenance of turnkey projects, has gradually increased since 2001. Recurring revenue increased from Bt4,947 million in 2001 to Bt6,453 million in 2004, Bt6,635 million in 2005 and Bt3,504 million during the first six months of 2006. Recurring revenue accounted for 60%-65% of total revenue during 2001-2005 and increased to 74% for the first six months of 2006 due to a slowdown in project-based revenue. LOXLEY’s operating margin before dividend income deteriorated from -0.05% in 2004 to -6.45% in 2005 and -3.94% for the first six months of 2006. The drop was due to the underperformance of the in-house mobile phone and information technology businesses since 2004, an early retirement program implemented at a cost of Bt75 million, Bt154 million in provisions for investments in 2005, and a Bt126 million provision for a short-term loan to another company during the first six months of 2006.
Apart from LOXLEY’s own businesses, cash flow comes largely from fees, other revenues,
and dividends from its investments. LOXLEY receives a continuing stream of 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. (BlueScope Group), Loxley Wireless Co., Ltd., Lao Soft Drink Co., Ltd., Loxley Trading Co., Ltd., and Thai Fiber Optics Co., Ltd. However, the dividends from
the largest contributor, Aspac Oil (Thailand), the manufacturer and distributor of “Castrol” and “BP” lubricants in Thailand, fell from Bt180.3 million in 2004 to Bt117.6 million in 2005 and to Bt48 for the first six months of 2006. This drop was due to continued high oil prices, competition, and price controls for lubricant products.
LOXLEY’s leverage has improved steadily; its total debt to capitalization ratio slid from 74.4%
in 2001 to a satisfactory level of 38%-46% in 2002-2005 and was 36.1% at the end of June 2006 due to
a gain of Bt750 million from selling shares of Loxley GTECH Technology Co., Ltd. (LGT), and debt reduction after LGT was no longer consolidated in the financial statements. However, LOXLEY currently owns 35% of LGT and has to commit to a joint guarantee of LGT’s bank loan, together with other shareholders. The company’s guarantee is expected to be Bt350 million (35% of Bt1,000 million). This joint commitment will expire when the project starts, which is expected to be in late 2006.
TRIS Rating sees that the coup against Prime Minister Thaksin Shinawatra launched by the Council for Democratic Reform (CRD) on 19 September 2006 will have no immediate effect on the ratings of LOXLEY in the short term. During the 1-year period before the general election, TRIS Rating will closely monitor the situation and will review the ratings of LOXLEY if any effects occur in the medium term. -- 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
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Copyright 2006, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.