OTHER FINANCIAL INFORMATION continued
As at 31 December 2015, the Group had net debt of £769 million (2014: £624 million). All of the Group’s committed credit facilities have financial covenants requiring EBITDA of subsidiaries to be at least 3.5 times net interest payable and for net debt to be no greater than 3 times EBITDA of subsidiaries. The covenants are tested every six months using the previous 12 months’ results. For the 12 months to 31 December 2015, EBITDA was 13.4 times greater than net interest payable, while net debt was 0.9 times EBITDA. During 2014 the Group entered into a series of cross currency interest rate swaps to better align its foreign currency income receipts in US dollars and euros with its debt and had the effect of converting its Sterling bonds into US dollars ($951 million) and euros (€284 million). The cross currency interest rate swaps have been designated as a net investment hedge of the Group’s US dollar and euro net assets. The fair value of the cross currency interest rate swaps at 31 December 2015 was a liability of £69 million (2014: £26 million). The stress testing involved modelling the impact of our principal risks in a number of severe but plausible downside scenarios, taking account of additional mitigating actions available to the Group. The most severe risks that were modelled were a major global quality issue, global market deterioration and increased margin pressure. The assessment considered the potential impact of these risks on the 2016 budget and sensitised 2017 and 2018 forecasts including solvency and liquidity over this period. The Directors consider a three-year period to be a reasonable time horizon for the viability statement because after that it becomes much more difficult to predict the Group’s performance with a reasonable degree of certainty. While the Directors believe that three years is an appropriate period for the viability statement, they fully expect that GKN will continue in business for the foreseeable future given its proven longevity and strong balance sheet.
Basis of preparation
Going concern and viability statement
The Directors have taken into account both divisional and Group forecasts for the 18 months from the balance sheet date to assess the future funding requirements of the Group, and compared them with the level of committed available borrowing facilities, described above. The Directors have concluded that the Group will have a sufficient level of headroom in the foreseeable future and that the likelihood of breaching covenants in this period is remote. It is therefore appropriate for the financial statements to be prepared on a going concern basis. The Directors also confirm that they have a reasonable expectation that the Group will be viable for at least three years from 1 January 2016, continuing to operate and meet its liabilities as they fall due. The Directors’ assessment has been made by stress testing the Group’s 2016 budget and a sensitised forecast for 2017 and 2018.
In this report, financial information, unless otherwise stated, is presented on a management basis, the definition of which is below. The Group uses management measures, which are non-GAAP measures, to assess operating performance on a consistent basis, as we believe this gives a fairer assessment of the underlying performance of the business. The use of management measures allows the Group to chart progress, make decisions and allocate resources based on the actions for which management is responsible or can influence, without volatility arising from significant one-time trading and portfolio change transactions or the mark to market valuation of currency hedges.
Financial information aggregates the sales and trading profit of subsidiaries (excluding certain subsidiary businesses sold and closed) with the Group’s share of the sales and trading profits of joint ventures. The following definitions apply: