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FINANCIAL SERVICES
FOSCHINI GROUP ANNUAL REPORT 2010 - Page 80 OPERATIONAL REVIEW – FINANCIAL SERVICES
FOSCHINI GROUP ANNUAL REPORT 2010 - Page 81
FINANCIAL

SERVICES
Foschini group

100% holding 55% holding

FG Financial Services RCS Group

Store Cards

Insurance

Club

Cellular

CRM

The Foschini group’s interest in financial services is vested in two areas:

• a wholly-owned division named • a controlling interest in a company


FG Financial Services which which focuses primarily on providing
provides credit and related services personal loans and some other
to customers of the group; and financial services to customers of the
group and others, as well as credit
facilities to a number of retailers
external to the Foschini group. This
company is named the RCS Group.

Peter Meiring

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FOSCHINI GROUP ANNUAL REPORT 2010 - Page 82

FG Financial Services manages the


group’s in-store credit card programme,
which consists of 14 different card
formats. This includes managing the
acquisition of new accounts, customer
OPERATIONAL REVIEW – FG FINANCIAL SERVICES

services, debt collection and recoveries,


as well as all associated support services
such as forensics and risk analysis.
This division also oversees the group’s
interests in the Club, a facility which
offers customers of the group a range of
benefits including automatic insurance,
medical helplines, promotional discounts,
monthly draws and bursaries to the value
of R2 million annually. A further range of
insurance products offered to customers
of the group is also managed by the
division. These products include policies
related to card loss, cellphone loss,
personal protection and jewellery loss.
Certain group responsibilities relating to
the procurement and management of
cellphones, as well as the direct sales of
airtime, are also managed by this division.
The Customer Relationship Management
(CRM) department has developed
significantly. It too reports into this
division.
The division oversees the group’s
membership of the Direct Marketing
Association, to ensure it is fully compliant
with their code of conduct. A process
of ensuring full compliance with the
Consumer Protection Act is in progress, to
ensure compliance by the effective date.
Compliance with the requirements of the
National Credit Act is also ensured.
The division is pleased to report
that there were no incidents of non-
compliance with regulations and
voluntary codes concerning marketing
communications, including advertising,
promotion and sponsorship by type of
outcomes, during the year in review.

REVIEW OF THE YEAR


The global economic conditions that
faced the division during the previous
year continued to have an impact in
the 2010 year. Although interest rates
fell in the previous year and continued
to decline, many consumers found
themselves without jobs or working fewer
days at their places of employment.

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FOSCHINI GROUP ANNUAL REPORT 2010 - Page 83
FG FINANCIAL

SERVICES
Faced with these economic realities 2010 % 2009
customers battled to meet their
Rm change Rm
commitments. Hence defaults increased,
as did the incidence of customers Interest income 636,4 21,0 526,1
resorting to debt counsellors for relief.
Other income 215,9 31,1 164,7
The value of debt counselling matters
lodged with the division grew from 852,3 23,4 690,8
R30,2 million at the end of the previous Net bad debt (359,1) 37,3 (261,5)
year to R76,8 million at the end of the
2010 year. It was disappointing that Credit costs (236,7) 13,3 (209,0)
roughly a third of these account holders Profit before tax 256,5 16,4 220,3
were customers of the group whose
accounts were in a current status when
they went into debt review.
Payments from consumers under debt The net result of these initiatives has are evaluated against those prevailing
review have been held up at various been positive growth in the number of elsewhere in the industry and it is clear
points in the process. The National active customers on the book, growth that the group’s products are extremely
Credit Regulator has recently put fresh of 16,4% in the division’s profit, and a competitive. They have been well received
impetus behind initiatives to ensure that healthy debtors’ book. by the customer base. Net income from
payments flow consistently to creditors insurance activities grew by 34,0%.
and the level of payments coming INTEREST INCOME
through from this source since Interest income is derived from two
Club
January 2010 has been encouraging. credit sources. The first is a repayment Customers continue to prize the group’s
plan extending over six months which Club offerings and recent ABC statistics
The number of accounts deteriorating only attracts interest if customers default attribute 950 000 subscribers to the main
into write-off started to level out toward on payments and the second is an Club magazine, making it the third-largest
the end of 2009 and there have been extended plan of 12 or 18 months which retail magazine in the country. ClubX, a
encouraging signs in the first three attracts interest on a daily balance. At the magazine aimed at the teenage market,
months of 2010. It is, however, likely that year-end 52,2% of customers used 12- or was launched during the year. The take-
the recovery will be gradual and that no 18-month plans and 70,7% of accounts up was significant, placing the magazine
significant improvement in write-offs will were attracting interest. at the top of teen magazine circulation
be seen until later in the year. ratings. Total net revenues from all Club
The entire book is governed by the
The CRM department achieved successes National Credit Act (NCA). The maximum offerings rose by 24,4% over the year.
interest rate that can be applied to the This remains a growth area for the
in a number of areas in the past year.
book is that prescribed by the formula business and the expansion of The Club
Invitational mailing volumes rose to
under the NCA. During the year under into related areas will be pursued in the
the extent that, despite an increase in
review the repo rate dropped by 300 next year.
amounts written off and widespread
basis points. Because the interest rate
reluctance on the part of consumers to
charged by the group was below the One2One
open new accounts, growth of 4,4% was
achieved in the total number of active maximum NCA rate, reductions in the One2One is a discounted airtime offer
NCA rate did not oblige the group to sold through telemarketing. It provides
accounts.
reduce its rate until the two had reached the convenience of an airtime contract
A start was made on the process of parity. The weighted rate for the year was linked to a group card. At present this
consolidating the group’s interests 26,0%. product is exclusively an MTN offering.
in cellular technologies, the internet Net book growth for the year was 15,4%. Over recent months, as service levels
and direct marketing. They are being This growth, underpinned by expansion have improved, the product has been sold
combined into a single unit named the in the extended credit book, led interest with more conviction. The convenience
Retail Technology division. It is headed by income to increase by 21,0%. of this product has been accepted by
Brad Fly, a seasoned retailer in the group. customers and the billing base grew by
The step of centralising planning and OTHER INCOME 46,2% in the year.
procurement, as well as the inclusion of
Vodacom in the range of cellular service Insurance Pienaar Sithole and
providers, has already led to positive sales
Associates (PSA)
During the course of the year insurance
growth. Once the consolidation process products named “Legal” and “Women’s To counter a perceived trend by banks to
is complete this division will focus on Only” were launched. They bring the own third-party debt recovery agencies,
expanding the use of the internet to group’s total insurance offering to seven and hence a concern about the effort
encourage retail sales. products. Charges for the products that would be applied to the group’s work

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FOSCHINI GROUP ANNUAL REPORT 2010 - Page 84

lodged with these agencies, the division required a R53,6 million charge to the chains is one of the group’s outstanding
started a business based in Randburg income statement as against advantages over competitors.
focused on the recovery of written off R31,7 million in the previous year. The
debt. During the latter part of the year doubtful debt provision now stands at In order to improve the gift options
the business was strengthened by the R306,0 million, which represents 8,8% available across the different formats
inclusion of a senior executive from the of the closing book compared to 8,5% of within the group, 14 types of gift cards
OPERATIONAL REVIEW – FG FINANCIAL SERVICES CONTINUED

recovery industry. This business currently the closing book in the previous year. were launched in all stores of the group.
devotes itself exclusively to the group’s There was a positive response to these
debt recoveries. Net bad debt, having been adversely gift cards in terms of both the amount of
affected by lower collection and recovery media publicity generated and the extent
yields, grew by 37,3%. The ratio of net of sales, which exceeded expectations.
NET BAD DEBT bad debt to credit transactions increased The gift cards replaced paper vouchers
Collections were a challenging area of to 4,8% from 4,0% in the previous year previously sold in the group’s stores and
the business in the past year. Gains were while the ratio of total net bad debt in the five months that have elapsed
made in the previous year on improving written off to book debt increased to since the launch in November 2009 have
early-stage delinquency levels and 9,9% from 8,7% in the previous year, but generated more than double the value
returning more customers to the status it is already showing a downward trend. It in turnover generated by the previous
of buyers, and in the past year focus was had been 9,7% at September 2009. paper-based gift certificate programme.
renewed on the front end. By conducting
credit awareness campaigns and The division was the recipient of two
CUSTOMER RELATIONSHIP Gold Prism Awards at the annual
improving its predictive risk capability, MANAGEMENT (CRM)
the division reduced the overall value of PRISA gala function in recognition of
accounts rolling into collections by 4,3%. One of the group’s recent key strategies the gift card initiative and its internal
Nevertheless, those that did end up in has been to consolidate the CRM communication. These awards are
collections proved to be more intractable, function into a central one serving all presented to companies that successfully
with the result that the value of accounts the trading divisions in the group. This incorporate strategy, creativity and
removed from collections fell by 1,0%. focused, holistic approach has resulted professionalism into their public relations
in growth in new customer acquisitions, and communication initiatives.
Third-party recovery agencies, including as well as further leveraging of the large
the group’s own agency, PSA, also suffered customer base. CREDIT COSTS
as distressed accounts yielded lower
repayments. The debt review process After entering the second year of Credit costs increased by 13,3% (as
provided by the NCA as a relief mechanism the original three-year CRM strategy, against 26,5% in the previous year)
to over-indebted customers also had the the group has seen the results of its primarily as a result of the expanded
effect of delaying or pre-empting debt intensified focus on customer acquisition invitational mailing programme and
collection procedures. Payments recovered and retention. Invitational mailings staffing increases for telemarketing.
from payment distribution agencies for to boost new accounts resulted in
accounts under debt review have only an additional 166 000 new accounts PROFIT
recently started to improve. opened, despite the difficult economic
The year’s divisional profit increased by
climate. Benefits arising from these new
16,4%, with growth of 31,1% in other
Fraud customers will be seen in the next year.
income playing a major role in the overall
The fraud detection scorecards Recognition for the division’s invitational increase.
introduced last year have continued to mailing drive came in the form of its
benefit the group despite the impact of a first Assegai Award at the Annual Direct STRATEGY
higher incidence of fraud on the industry. Marketing ceremony. Assegai Awards The division will continue its efforts to grow
As a result the incidence of fraud during acknowledge excellence in direct the active account base. This is a key point
the year remained below the group’s marketing, taking into account both in the group’s operations since 62,6% of
internal threshold. the creative concept and the return on total merchandise sales are made on credit
investment achieved. and account holders have furthermore
Provisions A customer entrenchment programme proved to be highly receptive to the
The division continued its use of the was implemented to ensure that new financial products supplied by the group.
Markov model to identify the level of customers enjoy their shopping and Expansion is planned for The Club and in
inherent risk in its customer base. This continue buying at stores in the group’s insurance and cellular products. Market
tool has proved reliable in its responses 14 retail chains. It remains a key objective research suggests that substantial growth
to changes in payment behaviour and of the division to enhance customers’ in these areas can be expected, with the
in predicting future levels of write- awareness of the range of lifestyle and group’s credit account offerings as its
off. Performance in the division is fashion merchandise which is opened foundation.
continuously evaluated against the up to them by having an account with
provision predictions of the Markov the group. The ability to cross-shop The Retail Technology division has already
model. In the past year the model on a single account across 14 retail produced a substantial turnaround in

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FOSCHINI GROUP ANNUAL REPORT 2010 - Page 85
FG FINANCIAL

SERVICES
Salient statistics*
2010 2009
Number of accounts with debit balances (’000s) 2 062 1 975
Credit sales as a percentage of total retail sales 62,6 61,8
Net debtors’ book (Rm) 3 169,3 2 746,3
Arrear debtors as a percentage of debtors’ book 22,1 24,2
Net bad debt write-off* as a percentage of credit
transactions 4,8 4,0
Net bad debt write-off* as a percentage of debtors’ book 9,9 8,7
Doubtful debt provision as a percentage of debtors’ book 8,8 8,5
Percentage able to purchase 81,7 81,5
* Including VAT, excluding movement in provision

the cellular area of the business and has


placed the division in a position to grow
the group’s share of the cellular goods
market and related services. The internet,
direct selling and other avenues will be
explored by this division.
Investing in talent development is an
ongoing focus to ensure a supply of
talent and skills to meet our business
requirements. The division is in the process
of rolling out a performance management
process, as well as other initiatives to drive
towards meeting employment equity
targets. A nationwide skills shortage
at senior management levels is an
ongoing challenge. Details on the group’s
human resource activities – including
employment equity, skills development,
and occupational health and safety – are
provided in the Human Resources review.

PROSPECTS
The current economic situation remains
negative and while performance of the
book has improved, it is expected that
the recovery will be slow. Despite this,
there are prospects that the bad debt
position should continue to improve. In
addition the interest rate cycle, even if
not currently at the bottom of the curve,
should start moving upwards as the
widely expected revival of the economy
occurs. The NCA formula has a ratcheting
or levering effect which should work in
the group’s favour in terms of improved
interest margins when interest rates
increase. On current indications it should
be possible to achieve double-digit growth
in turnover from financial service products.

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RCS GROUP
FOSCHINI GROUP ANNUAL REPORT 2010 - Page 86 OPERATIONAL REVIEW – RCS Group
FOSCHINI GROUP ANNUAL REPORT 2010 - Page 87
RCS GROUP
RCS Group

Transactional Finance Fixed Term Finance Investments

General Purpose
Personal Loans Effective Intelligence (60%)
RCS Card

Private Labels
Insurance
Queenspark, Game, Dion Wired

Co-branded Cards
AD Spitz, Cape Union Mart

Shared Services (HR, ICT, Risk, Analytics, Collections, Finance, Compliance and Marketing)

The RCS Group is an operationally • by managing private label and co-


independent consumer finance business branded retail credit programmes for
that provides a broad range of financial retailers under their own brands on
services under its own brand and in an outsourced basis.
association with a number of retail
entities in South Africa, Namibia and Currently the private label portfolio
Botswana. The RCS Group is majority consists of the Queenspark card as well
owned by the Foschini group (55%) as in-store credit offerings in Game
with The Standard Bank of South Africa and Dion Wired stores. The co-branded
holding the balance of the shares (45%). card programme comprises the recently
acquired AD Spitz and Cape Union Mart
The RCS Group is structured into
portfolios.
two operating business units named
Transactional Finance and Fixed The Fixed Term Finance business unit
Term Finance. The operating units provides personal loans and insurance
are supported by a number of shared products under the RCS brand to existing
services. In addition, the RCS Group has RCS Group, Foschini group and external
an investment interest of 60% in an customers through direct marketing
independent data management company methods.
named Effective Intelligence.
The RCS Group is functionally separate
The Transactional Finance business unit from FG Financial Services and it has
is focused on facilitating credit sales for its own governance structure, branding,
retailers at point of sale. Retail credit field of operation, management team,
sales are supported in one of two ways: budgets and profit models. The decision
• through an own-branded general- to differentiate the businesses was taken
purpose private label card known as at the establishment of the RCS business
the RCS Card that is accepted at in 1999 in order to ensure that the
13 500 retail outlets countrywide; and Foschini group’s focus on its traditional

Schalk van der Merwe

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FOSCHINI GROUP ANNUAL REPORT 2010 - Page 88
OPERATIONAL REVIEW – RCS Group CONTINUED

trading activities was not lost, and that all 2010 % 2009
profits and costs associated with the RCS RCS Group profitability Rm change Rm
business would be clearly ring-fenced.
Interest income 798,4 4,4 765,0
REVIEW OF THE YEAR Credit income 343,8 13,5 302,9
The RCS Group delivered positive Total credit income 1 142,2 7,0 1 067,9
full-year results despite the continued
Net bad debts (352,4) 11,1 (317,1)
challenging market conditions, against a
backdrop of muted credit extension and Operating costs (378,6) 7,1 (353,5)
slower retail turnover. Ebit 411,2 3,5 397,3

PROFITABILITY Interest paid (185,3) (4,9) (194,8)


The overall performance of the RCS Profit before tax 225,9 11,5 202,5
Group resulted in an increase of 11,5%
in profit before tax which represents RCS Group profitability statistics 2010 2009
a positive improvement on published
Interest as percentage of total revenue 70 72
results at the half-year. The profit
improvement is especially pleasing given Cost-to-income ratio 33 33
the significant reduction in interest yield Profit before tax as percentage of average
caused by the decline in the repo rate debtors (net margin) 8,4 8,8
over the last 17 months. The profitability
breakdown is as follows: Interest income was spurred by growth allowed a greater measure of alignment
in the overall debtors’ book despite between risks and income at the level of
further reductions in the repo rate individual customers. Insurance income
during the year. The introduction of also contributed in greater proportion to
risk-based pricing across all portfolios revenue during the year.
enhanced the credit income line and

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FOSCHINI GROUP ANNUAL REPORT 2010 - Page 89
RCS GROUP
Net bad debt showed reasonable growth the 2,5% drop in repo rates during the A divisional breakdown of the profit
compared to prior years. The net bad debt year, as well as the annualised impact shows that the Transactional Finance
number includes setting aside appropriate of a further 2,5% drop in the repo rate business unit has seen strong growth in
increases in provisions to ensure that RCS in the last three months of the previous profits compared to the previous year.
maintains an acceptable cover rate for year. The fall in the repo rate effectively The key factors leading to this increase
non-performing loans. This resulted in an translates to an 11% drop in rates that in profitability were improvements in net
increase in non-performing loan provision RCS can charge based on the capping bad debt costs, the introduction of risk-
cover over prior years. Operating costs formula laid down in the National Credit based pricing models across the unit’s
are well under control and the cost-to- Act. The reduction of only 0,4% in the portfolios, positive book growth in the
income ratio remains very healthy. margin of net profit before tax over the private label and co-branded portfolios,
Overall there has been some margin year reflects the fact that RCS was able and tight control of costs.
erosion during the year. The 0,4% to make up some of the loss of interest The Fixed Term Finance business unit
reduction in the margin of profit before margin through other income streams showed muted profit growth compared
taxation should however be seen against and improved operating efficiencies. to prior years. The main factors which
limited growth in profits were slower
2010 2009 advances, increased write-off because
RCS Group profit contribution Rm % change Rm of lagged roll from strong book growth
Transactional Finance 73,8 52,3 48,4 in the previous year and reduced
acquisitions of new accounts in the third
Fixed Term Finance 153,4 3,1 148,7
quarter of the year. The scale-back in
Other investments (1,3) (123) 5,4 activity was required in order to manage
Profit before tax 225,9 11,5 202,5 cash resources during the peak trading
period of November to January. A positive
contributor to profit growth in the Fixed
Term Finance business unit has been
insurance business. Insurance as a product
category holds much promise for growth
in future profits in the RCS Group.
Overall, the management team is pleased
with the positive profit growth achieved
during the year, which reversed the
negative trend of the previous two years.

ASSET QUALITY
One of the key goals of the RCS Group
during the past year was to improve the
RCS Group 2010 2009 overall asset quality of the portfolios under
Asset quality statistics management. The table alongside reflects
Number of active accounts (’000) 643 678 some of the key statistics relating to asset
quality.
Net debtors’ book (Rm) 2 628 2 471
All key measures of the quality of the
Arrear debt as percentage of total debt 14,4 17,1
debtors’ book show positive trends year
Non-performing loans as percentage of total debt 10,1 12,0 on year. In percentage terms, these
Net bad debt write-off as percentage of turnover (cards) 9,3 12,8 include:
Net bad debt write-off as percentage of debtors’ book 12,3 14,1 • improved arrears;
Doubtful debt provision as percentage of debtors’ book 9,2 8,9 • reduced non-performing loans;
Provisions as percentage of non-performing loans 90,8 73,7 • lower write-off in the cards
portfolios; and
Debt:equity ratio 63,5 66,7
• lower write-off in the overall
Percentage of applicants granted credit on card portfolios 34,4 36,8 debtors’ book.

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FOSCHINI GROUP ANNUAL REPORT 2010 - Page 90

Despite an improving position in non- The RCS Group went to market with private label cards, showed significant
performing loans, the provision for its DMTN programme in March 2010 growth. This was mainly attributable
doubtful debts has been raised from and was able to raise R303 million of to the launch of a new private label
8,9% to 9,2% of book as a prudent funding in a mixture of long-term (four card product in the business of both
measure. Cover for non-performing years) and short-term (12 months) these merchants. Since this launch in
OPERATIONAL REVIEW – RCS Group CONTINUED

loans changed from 73,3% in the paper. Subsequent to the year-end, an September 2009 the take-up of cards has
previous year to 90,9%. There are two additional R250 million has been placed been very good and growth in both sales
key reasons for this change. The first is on a seven-year term. Following this and book volumes has been significant.
the acquisition of two new portfolios, successful launch the RCS Group expects Various initiatives to improve efficiencies
Cape Union Mart and AD Spitz, which to go to the capital markets periodically and reduce the cost-to-income ratio
required specific new prudent provisions. during the next year. of this portfolio were also started. The
Secondly, the Massdiscounters portfolio Queenspark portfolio also continued to
grew significantly, necessitating increased DIVISIONAL OVERVIEW perform well and there was good growth
provisions to ensure that sufficient cover in account numbers, turnover and book
will be in place once book growth starts
Transactional Finance size.
to taper down. Overall, the Transactional Finance During the year the AD Spitz and Cape
business unit (TF) had a good year, with Union Mart retail card books were
The RCS Group has set a target of at
growth being achieved in total account purchased from First National Bank. Upon
least 80% of cover for non-performing
numbers, turnover and book size. It taking over the portfolios the RCS Group
loans and will review this target annually
should be recalled that this unit manages launched a new card offering into these
in line with changes in the composition
three categories of portfolios, the RCS merchant groups. The offering entails a
of portfolios. This supports a strategy to
card portfolio, the private label portfolio co-branded card that carries the retailer’s
manage the asset quality in line with the
and a co-branded portfolio. brand on its face but allows purchases
expectations of investors in any of the
RCS fund-raising programmes, as well as The RCS card portfolio experienced a to be made not only at that retailer but
to maintain and strengthen the existing decline in card numbers, turnover and also at the broader merchant network
credit rating. book size when compared to previous served by the RCS Group. This offering
years. The decline in numbers was is particularly suited to smaller retail
FUNDING deliberately caused as part of a strategy groups where running a full-scale private
to apply more stringent criteria in the label offering is not financially viable.
Historically the primary source of
qualification of new accounts. The decline It is anticipated that the co-branded
funding used by the RCS Group was a
in book size was a consequence of a portfolio will expand with the addition
term funding facility provided by its
decline in retail turnover in merchant of a selected number of quality brands in
shareholders. During the year a project
outlets and is in line with reductions the next year.
was initiated to diversify the sources of
in general retail expenditure in the
funding beyond the shareholders. This
durable and semi-durable retail sector. Fixed Term Finance
included fund-raising activities in the
Despite difficult trading conditions it The Fixed Term Finance business unit
capital markets.
proved possible to continue expanding (FTF) focuses on the term lending and
In this context one of the significant the merchant network and the general- insurance portfolios. It provides personal
achievements of the year was the purpose RCS Card is now accepted loans and complementary insurance
completion of a rating process and the nationally in 13 500 merchants’ outlets products to existing RCS customers, to
launch of a R2 billion domestic medium- across a variety of industries. Several the Foschini group’s customer base and
term note (DMTN) programme. national retailers were added to the to the public at large. It operates primarily
merchant network during the year, on a direct marketing basis. Customers
The rating process was completed
notably the Edgars Group, AD Spitz and are attracted by the convenience and
by Moody’s in January 2010 with a
Cape Union Mart. simplicity of the RCS products, with
rating of Baa1.za (long term) and P2.za
(short term) with a negative outlook. Growing the private label portfolio a large part of the sales process being
The reasons for the negative outlook continues to be a strategic goal of the handled telephonically. The high level of
included uncertainty about the ability RCS Group. Currently the RCS Group cross-selling and repeat business attests
of the RCS Group to raise funding in the manages and owns the Queenspark, to the efficacy of this business model.
capital markets, its ability to grow profits Game and Dion Wired private label The personal loan portfolio declined in
positively and the general outlook for the portfolios. The Massdiscounters portfolio, account numbers and book size over
South African consumer finance market. consisting of the Game and Dion Wired the year. As is indicated in the profit

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FOSCHINI GROUP ANNUAL REPORT 2010 - Page 91
RCS GROUP
review section, new account activity credit, as well as for durable and management and employment equity
was curtailed during the third quarter semi-durable goods; committee are exploring strategies
in order to optimise the management • capital markets, while becoming to address the ongoing challenge of
of cash resources available in the more accessible, remain tight, with attracting suitable candidates into the
business during the peak retail trading pricing at a premium; business, notably at senior management
period of November to January. The levels.
reduction in account numbers was • the competitive landscape continues
also influenced by deliberate action in to intensify as the pool of available The RCS Group invests in a range of
setting more stringent qualifying criteria creditworthy customers gradually activities aimed at ensuring the well-
for new accounts. An adjustment to declines; and being of its employees and has a low
the term lending criteria made in the • pricing limitations continue to level of staff turnover at 2,25% during
second quarter also affected the book prevail in the current interest rate the financial year in review.
size. Its result was a reduction in the environment because of the interest-
The company’s on-site occupational
average outstanding term of the book capping formula under the National
health facility employs an occupational
and a consequent faster pay-down by Credit Act.
health nursing practitioner, a medical
customers.
Against this backdrop the RCS Group doctor and a social worker. The majority
The RCS Group also has a home loan anticipates that the business will achieve of visits (78%) to the clinic are for
business which is an origination model moderate growth in the next year. primary health purposes and 22% are
in partnership with SA Home Loans occupational health related. A notable
Gains made in improving the quality of
and is an extremely small component achievement this year was an increase
assets will be maintained and greater
of the overall business. During the year in the number of HIV-related visits to
all origination activities in this portfolio operational efficiencies will be achieved
the clinic, due to an increased awareness
were stopped as a result of very difficult as the transactional finance model is
leveraged to its full extent. campaign around voluntary counselling
trading conditions in the home loan and testing. Almost half of the company’s
origination market. The home loan It is expected that the private label employees know their HIV status and
origination model is currently being and co-branded portfolios will see the treatment for those testing positive is
reviewed and it is anticipated that if addition of a number of new programmes provided free of charge.
feasible new origination will be selectively during the next year. Furthermore,
resumed in the next year. investigations into the possibility of RCS Group is active in developing
extending the transactional finance strategies and promoting efforts
The insurance business consists primarily
model into southern Africa are under way, aimed at reducing the Foschini group’s
of credit life insurance products that are
with Namibia and Botswana currently environmental footprint, notably
sold in conjunction with various credit
being considered. around reduced electricity consumption.
products offered by the RCS Group. The
The company has engaged external
insurance portfolio showed good year-on- The Fixed Term Finance business has
year growth through the introduction of consultants to calculate its carbon
resumed a more aggressive strategy to footprint, focusing on both direct and
a number of new credit life offerings. The acquire personal loan customers, testing a
claims history on all insurance portfolios indirect emissions, with a view to
number of new channels in the process. It consolidating efforts to monitor and
remained well within industry limits. is anticipated that the insurance business
During the year non-credit life-based improve its environmental performance.
will extend its gains with expanded
insurance products were cross-sold to product offerings. The company continues to be proactively
a portion of the RCS Group’s customer involved in community development
base and initial take-up has been very
encouraging. Steady expansion of this
SUSTAINABILITY initiatives, investing over R800 000 in a
In terms of internal resource range of initiatives during the financial
portfolio during the next year is expected.
management, investing in talent year in review. Prominent projects
include supporting TSiBA, a free tertiary
PROSPECTS development is an ongoing focus.
education facility based in Cape Town,
Commitment to promoting employment
Despite the positive gains during the year providing bursaries for children supported
equity in the company is demonstrated
a number of broader market challenges through sport by the JAG Foundation
at the highest level with the CEO of
are still present: and the Karl Westvig Bursary Fund, and
the RCS Group chairing an employment
• mass middle market consumer equity committee and monitoring the supporting employees by providing
budgets remain under strain, company’s performance towards meeting bursaries for their children at primary
resulting in muted demand for employment equity targets. The company school.

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FOSCHINI GROUP ANNUAL REPORT 2010 - Page 92 OPERATIONAL REVIEW – SERVICE DIVISIONs