Financial model

To support the delivery of the Group’s purpose, the Group has a financial model founded on investing in customer-centric businesses offering attractive returns, which aligns an appropriate capital structure with the Group’s dividend policy and future growth plans.

The Group’s medium-term targets, as communicated at the Capital Markets Day in November, are to deliver:

  • receivables growth of between 5 and 10% per annum over the next 5 years (2019: £2.2bn);
  • an ROE of between 20 and 25%, with an expectation of reaching the lower end of this range by 2021 (2019: 18%); and
  • a cost income ratio of 38% by 2022 (2019: 43%).

This is considered to be a sustainable level of return for the Group, balancing the estimated impact of known regulatory changes whilst delivering good customer outcomes.

The Group has a Total Capital Requirement (TCR) of 25.5%. This represents the Group’s minimum regulatory capital requirement set by the PRA together with the capital conservation buffer (2.5%) and current counter-cyclical buffer (1.0%). The Board currently aims to maintain a headroom in excess of £50m above the TCR. This is considered to be an appropriate level of headroom based on the ongoing recovery of the Group, the economic and regulatory backdrop and maintaining an appropriate level of capital to support the ongoing access to funding from the bank and debt capital markets. The Board’s dividend policy is to maintain a dividend cover of at least 1.4 times as the home credit business recovers and moves into profitability. The dividend policy reflects the Group’s current risk appetite of maintaining a regulatory capital headroom in excess of £50m and progressively absorbing the remaining transitional impact of IFRS 9 on regulatory capital by 1 January 2023.