Moat: simplifying the business
AIM-listed Fairpoint Group is set to become almost entirely a legal services business after announcing that it will stop offering debt management plans (DMP) – which was once a key part of its business.
“From 2017 the group will implement and benefit from a reduced cost base and a simplified business model, focused on its higher-growth legal services segment,” it told the market in a half-year trading update.
Having only entered the market two years ago with the acquisition of Simpson Millar, legal services now represents 75% of Fairpoint’s revenues, and it said that “as expected, the debt solutions and claims business areas continue to show declining revenues and profits due to adverse market conditions”.
It said that overall trading was in line with expectations, although when the half-year results are published in September, profit before tax was expected to be flat compared to the £4.1m in the first half of 2015. “This reflects the continued transition of the group from a low-growth, higher-margin debt solutions company towards a higher-growth, lower-margin legal services business.”
It said “strong progress” has been made on the integration of its legal business, with 80% of revenues now administered on a common IT platform and “encouraging early results being generated from our new marketing approach”.
Conveyancing represented 6% of first-half revenues – “it has experienced quieter trading relative to original expectations, offset by performance in other product lines”.
Fairpoint said that the “rigorous regulatory agenda” being driven by the Financial Conduct Authority in the DMP sector “has already severely impacted the commerciality of the whole of the industry, including Fairpoint’s DMP business and has resulted in a reduction in DMP’s profitability in the first half”.
It continued: “The ultimate outcome of the revised regulatory regime is expected to transfer competitive advantage to the charitable DMP sector from the commercial DMP sector, thus rendering the commercial DMP business model as unsustainable.
“As a consequence, the group has decided to simplify its range of business activities and intends to complete an orderly wind down of its DMP operations during the second half of 2016.”
In relation to individual voluntary arrangements, the other main non-legal services part of Fairpoint’s business, the announcement said market conditions were “challenging”. It said: “The group therefore continues to focus on delivering good margins and cash generation and avoiding uneconomic business.
“Given the reduced prospect of upwards interest rate movement, traditionally a catalyst for customer demand for debt solutions, the group has put marketing activity in support of this segment on hold.
Chris Moat, Fairpoint’s chief executive said: “We are pleased with the progress the group is making as it transitions to a legal services-focused business. By simplifying the business by exiting the DMP segment, we will be better placed to focus our resources on making continued progress in legal services which offers more attractive growth opportunities.
“We therefore believe the long term gain of being a focused business will outweigh any short-term negative impact from our decision.”
Meanwhile, a trading update from NAHL, the AIM-listed legal marketing business that runs National Accident Helpline, said it continued to trade in line with market expectations, with strong cash flow and cash conversion across the group.
It said that, as expected, the volume of personal injury cases had fallen due to the “current regulatory uncertainty” as government announcements on the reform agenda are still awaited.
Chief executive Russell Atkinson said: “Our focus on building a broader, more diversified and resilient business has positioned the group well as we continue to deliver on our strategy of being the UK’s leading marketing and services provider in our chosen legal markets.
“We continue to undertake contingency planning in National Accident Helpline as we await publication of the government’s consultation relating to its proposed PI reforms but believe that, as the industry leader with a proven track record of adapting to regulatory change, NAH should be well positioned to adjust to any eventual changes.”
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