The loan arranger

A specialist loan business helps the retailer buck the trend in the struggling consumer sector

Despite a trickier consumer environment, catalogue retailer Homechoice Holdings has made profitable strides in the financial services arena with its specialist loan business that taps into its best-paying customer base.

In the half-year to end-june the company’s Finchoice financial services hub increased revenue 14% to R317m and pushed up operating profit 25% to R135m. The margin was fattened to almost 43% from 39% with net cash generated by the loans business coming in at R95m.

The financial services business is shaping a new operational dynamic at Homechoice, accounting for a meaningful 44.5% of Homechoice’s operating profit in the interim period.

Homechoice CEO Gregoire Lartigue said restricting loans to retail customers who had demonstrated good payment behaviour had ensured Finchoice delivered consistent credit performance throughout the credit cycle. He added that the strength of this risk filter — coupled with improved collections and write-off recoveries — meant debts written off (net of recoveries) increased by only 1.1% over the corresponding period last year.

The interim figures also showed that Finchoice’s debtor costs as a percentage of revenue declined from 29% in 2016 to 22.9%. Nonperforming loans improved from 4.6% at the end of June last year to 4.4%, while the provision for impaired loans was reduced from 15.5% at the end of December to 14.9%.

Lartigue noted a new debt collection business was successfully piloted in the group to levy collection fees on delinquent accounts. “This business will provide incremental income to the group and encourage better customer payment performance.”