Insolvency levels plummet ~ Debt Managements and Consolidation

Recent falls in unemployment and personal insolvencies has forced an IVA provider to issue a profits warning.

Fairpoint has said that it expects pre-tax profits to be "substantially lower than market expectations", but added that it was taking steps to cut its cost base.Fairpoint’s broker, Shore Capital, has cut its forecast for profits in half excluding amortisation and exceptional charges to £4 million.Chris Moat, Fairpoint chief executive, told the FT: “The supporting factors we expected in the marketplace have stalled, the pressures on IVA volumes were expected to recede towards the end of the year as unemployment figures started to rise along with interest rates. He had expected a stimulus from one or the other, but “we are seeing stability in both of them, and our expectations are now deferred.”IVA revenues accounted for most of total revenues last year, however the company has been diversifying through the acquisition of small debt management businesses and Moneyextra, which helps to fund cheaper suppliers for services such as utilities and insurance.Last year Fairpoint resumed its interim dividend, leading to a final payout of 4p, double that of 2009. In a statement to the stock exchange, Fairpoint said: We continue to drive growth through our debt management business segment supported by the consolidation opportunities presented by market conditions." "The board believes that the group's operating cash flow and existing bank facilities enable it to continue with its dividend policy and strategic diversification plans." "As a consequence we expect a strong recovery next year despite the prevailing market conditions. This is further supported by a significantly reduced dependence on IVAs as the benefits of our diversification strategy lead to an expected doubling of our non-IVA income streams in 2012."The company added that it was also working to cut other costs, which it expects to be more than £1 million lower than previous expectations.It expects the IVA market to decline by 11.5 per cent year-on-year, or 16.5 per cent against its previous expectations. It also expects the average fee income from IVAs to drop by 16 per cent.First-quarter statistics for UK insolvencies showed that the number of IVAs was down eight per cent, compared with Fairpoint’s expectation of a five per cent increase over the year.Following the announcement, the firm's shares lost a fifth of their value as they dropped by 20p to close the day at 68p.
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