Collection House can see light at the end of the tunnel

"The first six months were very poor, the last six months was a decided improvement", said Collection House CEO and managing director Tony Aveling. "This is the first step in the turnaround".

Net profit after tax was down 37 per cent to $3.8 million for financial year 2007, but new forward flow contracts already in place to purchase debt in the next year will allow Collection House to get back on track.

Aveling summed it up by identifying the key driver for revenue growth as debt purchases, which as obvious as it seems, has been the problem.

In financial year 2005 Collection House purchased around $43 million in debt, this reduced to around $33 million in 2006, and further declined in 2007 to $29 million, with $13 million of this purchased in the last month of the financial year.

Without more debt, you can't collect more money as older debt becomes increasingly more difficult to collect.

The turnaround began with Aveling identifying three main problems, "first we needed to get back to our core business, secondly the next challenge was to improve collections performance and we have achieved this through better management information, and finally focus on increasing revenue which had been declining."

The forward flow contracts already in place for financial year 2008 total $54 million. The main challenge now is converting the higher debt levels into profitability. "The debt we were working with was older debt, and less profitable to us."

Aveling said Collections House has sufficient funding facilities to cover the $54 million forward flow contracts.

When asked if increased interest rates will provide more opportunity to purchase debt, Aveling commented, "I see it as fairly neutral.

"As interest rates increase we see signs of pressure which is likely to lead to more opportunities for ourselves, as more debt becomes available on the market, but the other side of the coin is the debt you already own can become harder to collect as people find themselves under even more financial stress."

Collection House will make a further announcement regarding the $32 million conditional sale of subsidiaries Australian Business Research Pty Ltd and National Tenancy Database Pty Ltd in due course.