Frp Advisory Group Regulatory News (FRP)

26 Jan 2007 17:10

Debt Free Direct Group PLC26 January 2007 26 January 2007 DEBT FREE DIRECT GROUP PLC TRADING UPDATE Debt Free Direct Group (DFD), the leading debt advice and solutions company,today provides a trading update. In light of today's announcement by Accuma and the negative market sentimentthat has followed, we have brought forward our trading update that had beenplanned in relation to the third quarter trading period. Over the last quarter, we have been challenged by two external factors; creditorposturing and increased advertising from our competitors. Both areas arediscussed in more detail below. The combined impact of these two factors will make it challenging to fullyachieve market expectations for the FY 2007. We do, however, believe that marketexpectations for FY2008 are entirely realistic. Increased competitor advertising Our advertising performance in the first half of the financial year was in linewith our forecasts and in line with the prior year performance. November andDecember showed signs of reduced response rates and January has been moreobviously weaker than expected. An analysis of our share of voice on key mediaindicates that a dramatic increase in competitor advertising is responsible forthis erosion. Our reaction to this erosion has been to increase our advertisingspend so as to maintain our desired volumes, albeit at a higher cost ofacquisition. Our FY2008 forecasts already assume a significantly higher cost ofacquisition than FY2007 and, whilst this may now have to be revised upwards, theimpact is expected to be more than offset by other income sources (previouslyannounced) secured since those forecasts were made. Given the lead time in placing effective increased advertising, it will not bepossible to place sufficient advertising to maintain the forecast call volumesin February. It is therefore likely that our IVA volumes in February and Marchmay be lower than are required to fully achieve market expectations. We are,however, continuing to work towards doing just that. Creditor posturing It is clear that creditor comment in recent months has impacted on confidence inthe valuation of IVA stocks. It is difficult to measure whether this has led toany loss in consumer confidence, as some commentators have predicted. Whilst weare not strong supporters of that view, it is apparent that changing creditorcriteria for acceptance of an IVA (whether justifiable or not) is having animpact on case conversion (i.e. they are now failed early in the DFD process,rather than letting them fail at Meeting of Creditors, because of particularcreditor preferences). An increased incidence of case failure and, more particularly, caseadjournments, have led to a slow down in the growth in run-rate of new IVAs.Notwithstanding this (based on calls taken in January), we anticipate reachingrecord levels in February/March and exiting the year at IVA levels previouslyindicated. We believe that "peace will break out" with creditors over coming months andthat the difference between the "good", the "bad" and the "ugly" debt adviserswill become more apparent and that the "good" will prosper. DFD Australia Progress in Australia continues to exceed our expectations. Lead generation andconversion of cases is running ahead of previous expectations. We continue towork hard on building creditor acceptance, however, overall our case pass rateis in line with expectations. We continue to anticipate, in line with previousupdates, that the business will become profitable in FY09. DFD Mortgages Progress has been very encouraging to date. Early indications are that caseconversions will be better than those achieved from the previous referral basedmodel. We anticipate that revenue from DFD Mortgages will represent 10% of DFD Grouprevenue in FY08 (compared to 6% in FY06 and 7% in FY07). Debt Management Plans It is very early days to comment, given the inception of our new income streamon 10 January 2007. We anticipate that revenue from Debt Management Plans willrepresent 2% of DFD Group revenue (with no incremental cost) in FY08 from astanding start. Overall DFD Group Debt Free Direct has made significant progress in FY2007. Market expectationsfor the financial year were originally at £8m and were significantly upgraded to£9.5m as we entered into the financial period. Expectations were again upgradedin September 2006, when the consensus moved to £11m; a figure that managementhave been very comfortable with until recent external events have impacted onperformance. It is clear that the final quarter of FY07 will be challenging. The increasedadvertising costs and loss of call flow, together with growing creditorposturing in recent months, may make achieving market expectations difficult. However, we expect that our run-rates in FY08 will be in line with thosepreviously anticipated. Advertising cost may, however, exceed previouslyanticipated levels. These two factors, together with the anticipated impact fromDFD Mortgages and the new debt management plan income stream, leads us tobelieve that profitability in FY08 will be comfortably in line with currentmarket expectations. Enquiries: Debt Free Direct Group plcAndrew Redmond, Chief Executive Officer 0845 296 0100Paul Latham, Finance Director 0845 296 0200 Numis SecuritiesIain McDonald 020 7776 1500Lee Aston Financial DynamicsEd Gascoigne-Pees 020 7269 7132Nick Henderson 020 7269 7114 Notes Debt Free Direct helps individuals find the best solution to their debtproblems, based upon an analysis of their particular financial circumstances.Financial information on an individual is processed through a computer model(the Best Advice Model) developed by Debt Free Direct in order to recommend asolution suitable for that individual's particular financial circumstances. Thesolutions offered range from basic advice, such as simply destroying creditcards and curbing unnecessary expenditure, to the following solutions: • consolidation loan • re-mortgage • informal arrangement • individual voluntary arrangement (IVA) • bankruptcy Unlike most of its competitors who sell specific products, Debt Free Directlooks to provide the best advice to the consumer and recommends them the mostappropriate service. Debt Free Direct is based in Chorley, Lancashire, and was admitted to AIM inDecember 2002. This information is provided by RNS The company news service from the London Stock Exchange