financial services

Woolworths financial services business continues to be an integral component of the overall business strategy, cementing our relationship with our customers and delivering good returns to the business.

The financial services business is anchored in four core product lines: store card, credit card, personal loans and non-interest revenue, for example, card insurance. All products performed well during the year although bad debt across the books increased.

This increase in bad debt can be attributed in part to the tightening credit environment and partly to a strategic move towards a more aggressive customer acquisition and credit granting strategy, specifically for the store card. Further, an upgrade of our IT systems impacted on our level of bad debt. Despite a more aggressive acquisition strategy, Woolworths rejection rate continues to be higher than most of the industry with just under 50% of customer credit applications rejected.

The launch of the Woolworths loyalty programme during the year reinforced the “one card for all” strategy. This focuses on acquiring new customers to the Woolworths financial services brand and offering customers a broader range of services through a single card: the financial services product, loyalty and a related reward component, and a community contribution through the MySchool programme. The Woolworths Difference loyalty card was introduced during the year, giving us the means to communicate directly with our customers even if they don’t necessarily want a Woolworths financial services credit product.

Woolworths card

Woolworths card book continues to grow with more than 120 000 new customers (14.5% year:year growth) and a 15.4% growth in the book. This card continues to account for about a third of all Woolworths retail sales. A new interest calculation was introduced during the year, effectively reducing the credit period and delivering a better yield, bringing Woolworths into line with other major financial institutions. Although net bad debt including recoveries increased to 2.8%, it is still well within acceptable norms.

personal loans

The personal loan book grew solidly at 21.7% with 15% more customers than last year and net bad debt including recoveries up slightly to 2% from 1.6% in 2005.

Woolworths Visa card

More customers adopted the Woolworths Visa card as their preferred form of credit with a 63% increase in active accounts and book growth of 95%. Net bad debt including recoveries increased to 5.1% from 4.6% in 2005.

2007 focus

Continued growth across all product groups is expected alongside an ongoing growth of non interest revenue products. We expect a rising interest rate environment and, as a result, customers may find debt management more difficult and the focus for the year ahead will be rigorous management of our books and related collections.