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Financials
Vodafone Group Plc Annual Report 2010 93
Key assumptions used in the value in use calculations
The key assumptions used in determining the value in use are:
Assumption How determined
Budgeted EBITDA Budgeted EBITDA has been based on past experience adjusted for the following:
voice and messaging revenue is expected to benefit from increased usage from new customers, the introduction of new
services and traffic moving from fixed networks to mobile networks, though these factors will be offset by increased
competitor activity, which may result in price declines, and the trend of falling termination rates;
non-messaging data revenue is expected to continue to grow strongly as the penetration of 3G enabled devices rises and new
products and services are introduced; and
margins are expected to be impacted by negative factors such as an increase in the cost of acquiring and retaining customers
in increasingly competitive markets and the expectation of further termination rate cuts by regulators, and by positive factors
such as the efficiencies expected from the implementation of Group initiatives.
Budgeted capital expenditure The cash flow forecasts for capital expenditure are based on past experience and include the ongoing capital expenditure
required to roll out networks in emerging markets, to provide enhanced voice and data products and services and to meet the
population coverage requirements of certain of the Group’s licences. Capital expenditure includes cash outflows for the purchase
of property, plant and equipment and computer software.
Long-term growth rate For businesses where the five year management plans are used for the Group’s value in use calculations, a long-term growth rate
into perpetuity has been determined as the lower of:
the nominal GDP rates for the country of operation; and
the long-term compound annual growth rate in EBITDA in years six to ten estimated by management.
For businesses where the plan data is extended for an additional five years for the Group’s value in use calculations, a long-term
growth rate into perpetuity has been determined as the lower of:
the nominal GDP rates for the country of operation; and
the compound annual growth rate in EBITDA in years eight to ten of the management plan.
Pre-tax risk adjusted discount rate The discount rate applied to the cash flows of each of the Group’s operations is based on the risk free rate for ten year bonds issued
by the government in the respective market, where possible adjusted for a risk premium to reflect both the increased risk of
investing in equities and the systematic risk of the specific Group operating company. In making this adjustment, inputs required
are the equity market risk premium (that is the required increased return required over and above a risk free rate by an investor
who is investing in the market as a whole) and the risk adjustment, beta, applied to reflect the risk of the specific Group operating
company relative to the market as a whole.
In determining the risk adjusted discount rate, management has applied an adjustment for the systematic risk to each of the
Group’s operations determined using an average of the betas of comparable listed mobile telecommunications companies and,
where available and appropriate, across a specific territory. Management has used a forward-looking equity market risk premium
that takes into consideration both studies by independent economists, the average equity market risk premium over the past
ten years and the market risk premiums typically used by investment banks in evaluating acquisition proposals.
Sensitivity to changes in assumptions
Other than as disclosed below, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of any cash
generating unit to exceed its recoverable amount.
31 March 2010
The estimated recoverable amount of the Group’s operations in India equalled its respective carr ying value and, consequently, any adverse change in key assumption would,
in isolation, cause a further impairment loss to be recognised. The estimated recoverable amount of the Group’s operations in Turkey, Germany, Ghana, Greece, Ireland, Italy,
Portugal, Romania, Spain and the UK exceeded their carrying value by approximately £130 million, £4,752 million, £18 million, £118 million, £259 million, £1,253 million,
£1,182 million, £372 million, £821 million, £1,207 million respectively.