Financial model

The group’s financial strategy is to grow high-return businesses in order to provide high shareholder returns.

To support the delivery of the group’s strategy, the group operates a strict financial model that aligns dividend policy, gearing and growth plans.

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The financial model has been developed, and applied consistently since demerger of the international business in 2007, to ensure that the group maintains a robust capital structure, providing a comfortable level of headroom against banking covenants, including the gearing covenant, and the regulatory capital requirements set by the Prudential Regulation Authority (PRA).

The strong capital generation of the businesses in which the group invests supports the distribution of up to 80% of its post-tax earnings by way of dividend. This allows the business to retain sufficient capital to support receivables growth consistent with management’s medium-term growth plans and a maximum gearing ratio of 3.5 times. The financial model is underpinned by the group’s consistent application of prudent and appropriate accounting policies.

How this works in practice:

  • 2016 adjusted pre-tax profit amounts to £334m (prior to the amortisation of acquisition intangibles and exceptional items which equates to an adjusted profit after tax of £257m (corporation tax at effective rate of 23.2%).
  • Dividend cover in recent years has been around 1.35 times which amounts to dividends of £190m (£257m/1.35).
  • Equity retained in the business to fund growth equals £67m (£257m less £190m).
  • Target gearing ratio of 3.5 times allows debt funding of £235m (£67m multiplied by 3.5).
  • Provides total funding and capital for receivables growth of £302m (£67m plus £235m).
  • Adjusted pre-tax profit in excess of £334m therefore allows dividends to be