AUSTRALIA’S publicly listed debt collection companies have improved their financial performance over the past year but the sector as a whole is characterised by weak earnings.
The best performers in the 2003 financial year were the relatively small companies, namely Credit Corp Group, Perth-based Repcol and NCML Holdings.
In contrast, Collection House was the only big player in the industry to achieve a profit last year.
A theme running through the results announcements was the desire of most companies to increase their purchases of distressed debt ledgers to supplement their traditional commission income from debt collection activities.
The companies also said the pricing of distressed debt ledgers was returning to more ‘sensible’ levels after the destructive competition that adversely affected the industry in 2001 and 2002.
Credit Corp increased revenue by a very strong 94 per cent to $16 million and lifted net profit by 58 per cent to $3.3 million.
Chairman Christopher Deane said major contributors to the growth were “a return to quality investment in the debt ledger purchasing sector and consolidation of the group’s commission based recovery and legal support businesses”.
Debt ledger purchasing accounted for 60 per cent of the company’s revenue but a higher 70 per cent of earnings.
Perth-based Repcol reported its first full-year results after listing on the Australian Stock Exchange last May.
It achieved a net profit of $2.7 million on revenue of $20 million, in line with the projections it released in June.
The company also reaffirmed its ‘guidance’ for the current financial year, when it expects a net profit of $5 million to $6 million on revenue of about $30 million.
Repcol said its purchases of debt ledgers made it less dependent on “those two or three major clients” who previously dominated its revenue.
NCML, which trades as National Credit Management, moved into the black with a net profit of $0.9 million based on a 15 per cent rise in revenue to $9.0 million.
Operations director Don Coulthard said the growth of its Perth office, which opened two years ago, had slowed but it was still expanding and was profitable.
Looking forward the company said its focus “will remain on contingency debt collection although opportunities to acquire distressed debt will be assessed on a case-by-case basis”.
Among the industry’s big players, Collection House suffered a halving of profit to $8.2 million as a result of redundancy costs and litigation costs.
Total revenue rose slightly to $120 million as a result of higher income from credit reporting and debt ledger purchasing partly offset by lower income from commission-based debt collection.
“The purchased debt market has become a pivotal focus for Collection House along with our more traditional business segment, contingent collection services,” managing director John Pearce said.
The company said it acquired debt ledgers last year with a face value of $248.5 million for a price of $28.5 million.
The company also said it had looked closely at the merit of establishing a full consumer credit bureau to compete with industry heavyweight Baycorp Advantage.
However, the level of firm commitment from prospective customers was not sufficient to justify the investment.
Collection House said it intended to move into the consumer credit reporting market gradually by developing services to assist lenders in the prevention of fraud.
Baycorp Advantage said its credit bureau consolidated its position as the company’s powerhouse, with revenue increasing 10 per cent to $94 million at an EBITA margin of 44 per cent.
Revenue from debt collection services rose 14 per cent to $39 million while purchased debt ledgers doubled their revenue contribution to $24 million.
The higher revenue helped Baycorp report an improvement in underlying earnings.
However, after accounting for significant items and amortisation, the company incurred a loss of $19 million compared with a loss of $300 million in the previous year.
RMG, which led a bout of industry consolidation three years ago, suffered a sharp one-third fall in revenue to $35 million.
Its net loss for the year was $6.3 million, compared with a $72 million loss in the previous year.
Chairman Michael Stiassny said the company was continuing to diversify its revenue base into debt ledger purchasing.
During the year the company purchased 10 distressed debt portfolios and Mr Stiassy said he was confident the prices paid would enable a return to profitability.
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