(Adds CEO's quotes from interview, further detail, analyst comments, share
price)
LONDON (Thomson Financial) - Debt Free Direct Group PLC, the debt adviser,
said first half pretax profit fell to 5.16 mln stg from 5.4 mln stg this time a
year ago, although adjusted pretax profit remained unchanged at 5.4 mln stg.
The group, which is the UK's leading arranger of Individual Voluntary
Agreements (IVAs) -- debt relief packages that are less onerous than bankruptcy
-- said revenues for the first half of the year to end-October rose to 20.1 mln
stg from 12.9 mln stg this time last year.
DFD also said that it will be renamed Fairpoint to reflect a new strategic
direction, which will see the group develop into a broader-based debt services
provider as well as continue industry consolidation plans as market leader,
following the integration of Clear Start, which it bought in 2006.
The group added that Paul Latham, the group's finance director, is also to
step down. Andrew Heath will take the role as finance director designate.
Justin Bates, an analyst at Daniel Stewart, said that Latham's departure was
a "real surprise".
In addition, DFD cancelled its share buyback program citing "increased
opportunities for consolidation in the industry" and the "potential to deploy
cash profitably in the current trading environment."
Looking ahead, the company said the macro-economic outlook is "favourable"
because of the growing consumer debt problems and the credit-crunch.
"The credit crunch has been good news for us," said DFD's chief executive
Andrew Redmond in an interview with Thomson Financial News.
"The fact that the availability of loans and mortgages is decreasing doesn't
decrease the consumers' debt," he said. "They will have to face their debts, and
Fairpoint has the solutions for them to deal with them."
It added that the business prospects for the group are "positive," and said
that it expects to reduce central overheads to 6 mln stg in the full year of
2008. "The business is poised for further volume and profitability growth," the
group said.
"In our view, the group is now well placed operationally, financially and
managerially to become a clear industry leader for the provision of solutions to
financially stressed individuals," wrote Roger Tejwani, an analyst at Numis
Securities, which also acts as Debt Free Direct's broker.
"It has been a challenging first half where the well-documented issues
affecting the IVA industry impacted on the group's profitability, particularly
as we continued to invest heavily in marketing in order to grow our market share
and build up our back book," said chairman Mike Blackburn. "We have seen a
material improvement in the key factors influencing trading in the last two
months."
Debt Free Direct has been hit by a slowdown in the number of IVAs it
arranges because a lack of cooperation from lending banks, who blame IVAs for a
rise in their bad debts.
But after an agreement with banks this year, fees will be based on
realisations - or how much a lender can get back from a debtor. The IVAs will
take the first four or five initial payments and then 15 pct from the remaining
payments. The group said that the negotiation of the fee structure "should open
a fee gap against the competition."
"The market will need time to adjust to this new method of accounting and
will be deeply sceptical of it," wrote Bates.
Redmond was also exceptionally positive on the group's prospects for the
2008 year.
"2007 has been a defining year," he told Thomson Financial News in an
interview. "It is now quite clear to us that there are three main players in the
market and are we are going to be one of them. I am confident that 2008 is going
to be the best year yet for the group."
At 10.16 am Debt Free Direct shares were down 7 pence at 213.
alexander.ferguson@thomson.com
af/vlb
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