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The recoverable amounts of all cash-generating units are based on value in use calculations.
Key assumptions used in value in use calculations
The key assumptions, applicable to all cash-generating units, on which management has based all its cash flow projections for
the period covered by the most recent five-year forecasts are:
| Key assumptions |
Basis for determining values assigned to key assumptions |
| Forecast capital expenditure |
The cash flow forecasts for capital expenditure are based on past experience,
benchmarks in similar markets and include the ongoing normal capital expenditure
required to roll out networks to provide voice and data products and services and to
meet the population coverage requirements in terms of licences, where required.
Capital expenditure includes cash outflows for the purchase of property, plant and
equipment and computer software. |
| Forecast EBITDA |
Forecast EBITDA has been based on past experience adjusted for the following:
- voice and messaging revenue which is expected to benefit from increased usage
from new and existing 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 which is expected to continue to grow strongly as the
penetration of third generation (‘3G’) and long term evolution (‘LTE’) enabled devices
rises and new products and services are introduced;
- fixed-line revenue growth expectations as a result of entering the ‘Fibre to the
Business and Home’ market as well as continued expansion of fixed services to
enterprise businesses; and
- margins which 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.
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| 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 long-term nominal GDP rate for the country of operation; and
- the five-year compound annual growth rate in EBITDA estimated by management.
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| Risk adjusted discount rate used in adjusted present value calculations |
The discount rate applied to the cash flows of each of the Group’s operations is based
on the capital asset pricing model. Inputs include the risk-free rate for 10-year bonds
issued by the government in the respective market, if available, adjusted for a risk
premium to reflect the risk associated with investing in equities, as well as an
adjustment for the systematic risk of the specific Group operating company. In
making this adjustment, inputs required are the equity market risk premium (that is
the increased return required over and above a risk-free rate by an investor who is
investing in the market as a whole), the beta, applied to reflect the risk of the specific
Group operating company relative to the market as a whole and where necessary, a
company specific risk premium. 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 a beta based on 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
observed long term market average equity market risk premium, and the market risk
premiums typically used by investment banks in evaluating acquisition proposals. |
| % |
Vodacom (Pty) Limited |
|
| 31 March 2016 |
|
|
| Long-term growth rate |
2.9 |
|
| Risk adjusted discount rate |
12.4 |
|
| 31 March 2015 |
|
|
| Long-term growth rate |
3.6 |
|
| Risk adjusted discount rate |
10.9 |
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Sensitivity to changes in key assumptions
Vodacom (Pty) Limited is the only cash-generating unit for which the carrying amount of goodwill allocated to that unit is significant in comparison with the Group’s total carrying amount of goodwill.
Management believes that no reasonable possible change in any of the aforementioned key assumptions would cause the carrying amount of any cash-generating unit to which a significant amount of goodwill has been allocated, to exceed its recoverable amount.
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