Personal insolvency business Fairpoint issues profit warning

INSOLVENCY BUSINESS Fairpoint has issued a profit warning after a decline in personal insolvency figures and fall in unemployment hit its bottom line.

Fairpoint provides debtors with Individual Voluntary Arrangements (IVAs) undertaken by insolvency practitioners and reduces the amount owed with a percentage repaid over a contracted period of time.

The company said this year's profits would be "substantially lower than market expectations", which is attributed to its expectation that IVAs would increase 5% in the first quarter of the year. However, recent government statistics show a decline of 8% compared to the last quarter and 15.5% on the same period a year ago.

The average value of IVAs has also decreased as creditors are now more accepting of lower-cost IVAs that make smaller repayments.

Fairpoint attributed unemployment remaining low as another factor for its profit warning as figures dropped for the second consecutive month, reversing the trend seen in 2010 and January 2011.

Work is currently underway to reduce Fairpoint's cost base and its expectations on IVAs for 2011.

It now expects IVAs to decline 11.5% year on year or 16.5% compared to its previous estimations.

Shares in the business tumbled nearly 23% to 68p.