Financial Services

Financial Services works in conjunction with Argos and Homebase to provide their customers with the most appropriate credit offers to drive product sales, and to ensure the maximum possible profit from the transaction for Home Retail Group.

Financial Services - operational review

Credit offers help to drive market share gains in ‘big ticket’ categories. Store card sales have increased by £1m per week year-on-year in the first half, and funded 8% of group retail sales overall. Successful initiatives are in place to provide appropriate credit offers in areas such as kitchen sales and installation services, and in consumer electronics ranges. The offer is also fully multi-channel, with around 20% of sales on the Argos website being spent on the Argos card.

Internal provision of promotional credit at cost is a key competitive advantage. Approximately 75% of credit sales during the half have been driven by promotional credit offers. Financial Services’ financial objective is to achieve a return on the revolving (i.e. interest bearing) element of receivables in line with financial services industry norms and to recover costs on the provision of promotional credit products to Argos and Homebase customers. The retail businesses are therefore receiving a competitive advantage in the form of the provision of promotional credit products at cost.

Product portfolio development continues. During the half, a new Argos credit card was launched as part of the joint venture arrangement with Barclays Bank PLC. It offers a unique three-month interest-free credit period on all purchases and access to an exclusive loyalty scheme, and can be applied for via all customer channels. Also as part of the joint venture, Argos personal loans were relaunched with the latest edition of the catalogue.

Financial Services - financial review

Store card gross receivables grew by over £40m versus last year, driven by the continued success of the range of promotional credit products offered. In the half, store card gross receivables declined by £11m due to normal seasonality patterns. The continued planned run-off of the on-balance sheet personal loans operation saw a £22m reduction in gross receivables versus last year (an £8m reduction in the half).

Benchmark operating profit before financing costs was flat versus the same period last year; growth was held back by reduced income of about £3m relating to the lowering of customer late payment fees that began from December 2006. Provision levels are broadly in line with the same period last year. The higher financing costs reflect the growth in receivables as well as a higher internal rate charged to reflect the movement in funding costs. A corresponding benefit is recognised in the Group net interest income line.

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