Vodafone 2009 Annual Report Download - page 93

Financials
Vodafone Group Plc Annual Report 2009 91
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 partially 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 includes 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 f ive years of management plan data is 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 ten years of management plan data is 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 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.