Collection House says debt vendors unrealistic
The receivables management company, Collection House, produced a better than expected result for the 2008/09 financial year, reporting a seven per cent increase in revenue and a seven per cent increase in underlying earnings despite having predicted lower earnings for the year.Net profit was down 36 per cent to $7.5 million but the result was affected by discontinued operations.Collection House chief executive, Tony Aveling, said the company had moved to deal with adverse effects of the global financial crisis by lengthening the term of its funding and tightening its criteria for buying debt.Aveling said Collection House had been rolling over its borrowing with Westpac on an annual basis but negotiated a two year deal with only a small increase in margin.The company has two business lines: it collects debts on a commission basis and it buys debt portfolios. The bulk of revenue ($71 million) comes from the asset management division - the collection of debts from ledgers it acquires. The balance of revenue ($36.5 million) comes from the collection services division - earning commission on the collection of debts for clients.Aveling said the asking price for debt portfolios was too high and Collection House had made only small purchases through the year.It turned its attention to commission-based business which has been a less profitable business for the company. "We had been focusing too much on revenue and not enough on profit. We called on some of our clients and, as a result of our discussions, some paid higher commissions and some went elsewhere."Now we are looking to broaden our client base. Our base has been with financial institutions and telcos but we have won some work with receivers and we are looking at the wider corporate market."He said the price of debt was still high. "In the US the price of debt has come down 30 to 50 per cent. Here we are seeing deals done where the price is the same as a year earlier."Our view is that it is harder to collect the debts so the price should come down."