The viability period
In accordance with Provision 30 of the UK Corporate Governance Code, the Directors have assessed the prospects of the Group over a longer period than twelve months. The Directors consider five years to be appropriate, reflecting the Group’s five-year planning horizon, reasonable visibility over its opportunity portfolio and the lead times and capital intensity of certain investments. A longer period introduces greater uncertainty, while a shorter period would not reflect the timing of capacity and investment decisions.
Assessing viability
The Group is considered viable if it maintains interest cover and net borrowings to EBITDA ratios in line with its financial covenants (refer to the Group CFO's review under “Debt facility”) and has sufficient debt headroom to fund operations.
The Directors’ assessment considered the Group’s strategy, risk appetite, principal risks and the effectiveness of mitigations, including stress testing under severe but plausible scenarios. The five-year plan is reviewed at least twice annually by the Directors. The assessment considered both individual downside scenarios and combinations of scenarios.
The Directors consider that the Group has a range of mitigating actions available, including measures used successfully during the COVID-19 period (cost and capital expenditure management and working capital actions), together with appropriate insurance coverage.
Scenarios tested
Base case
The Group’s five-year plan is prepared annually and presented, challenged and approved by the Board.
Downside scenarios
1. Pandemic disruption: stress testing based on experience from 2020.
2. Prolonged cost inflation with limited ability to adjust prices, including margin stress.
3. Business performance risks: growth below plan.
4. Loss of a key customer: stress scenario reflecting loss of the Footwear business.
5. Sterling strengthening materially against the US dollar; euro impact considered less significant due to natural hedging.
Confirmation of longer-term viability
Based on the assessment explained above, the Directors confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities, as they fall due, over the next five years.