122 Vodafone Group Plc Annual Report 2025
Strategic report
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Independent auditor’s report to the members of Vodafone Group Plc continued
We also assessed the adequacy of the related disclosures provided in Note 4 of the consolidated financial statements, in particular the sensitivity disclosures in relation to reasonably possible changes in assumptions on the impairment recorded. Key observations communicated to the Audit and Risk Committee We agree with management’s conclusion that an impairment charge of €4,350m was required to be recognised in the year in respect of the Germany CGU. The disclosures in Note 4 of the consolidated financial statements in respect of the Germany CGU are consistent with the requirements of IAS 36 including the sensitivity disclosures. How we scoped our audit to respond to the risk and involvement with component teams The recoverability of the Group’s Germany CGU carrying value was audited centrally by the Group audit team with support from the component audit team on certain procedures at the local market level. Risk Recognition and recoverability of deferred tax assets on tax losses – Luxembourg and the UK As more fully described in Note 6 to the consolidated financial statements, the Group recognises deferred tax assets in accordance with IAS 12 Income Taxes, based on whether management judges that it is probable that there will be sufficient taxable profits in the relevant legal entity or tax group to allow the recognised asset to be recovered. Deferred tax assets are recognised of €15,563 million (FY24: €16,714 million) in Luxembourg in respect of losses and €2,566 million (FY24: €2,485 million) in the UK primarily in respect of excess capital allowances. Management concluded it is probable that the related entities will continue to generate taxable profits in the future against which the deferred tax assets will be recovered over a period of 47 to 52 years (FY24: 52 to 57 years) in Luxembourg and 46 years (FY24: 27 years) in the UK. The nature of the respective forecasts impact the timeframe over which the deferred tax assets in Luxembourg and the UK are expected to be recovered. – The Luxembourg companies’ income is derived from internal financing, procurement and roaming activities. The forecast future finance income can vary based on forecast interest rates and intercompany debt levels, in particular with Vodafone Germany. – The UK companies’ income is derived from Vodafone UK trading and internal service activities, offset by debt servicing costs. The forecast future UK trading and service activities can vary based on the performance of each material entity in the UK tax group. Auditing the Group’s recognition and recoverability of deferred tax assets in Luxembourg and the UK is significant to the audit because it involves material amounts, and the judgements and estimates in relation to future taxable profits and the period of time over which it is expected to utilise these assets, results in increased estimation uncertainty. Our response to the risk Overall procedures in respect of both jurisdictions We obtained an understanding and evaluated the design effectiveness of management’s controls around the recognition and recoverability of deferred tax assets in Luxembourg and the UK, including the
Risk Carrying value of cash generating units, including goodwill – Germany As more fully described in Note 4 to the consolidated financial statements, in accordance with IAS 36 Impairment of Assets, the Group calculates the value in use (‘VIU’) for cash generating units (‘CGUs’) to determine whether an adjustment to the carrying value of the CGU, and therefore, goodwill, is required. As at 31 March 2025, the Group has recorded €20,514 million (FY24: €24,956 million) of goodwill, including €15,985 (FY24: €20,335 million) in respect of Germany. The carrying value is stated after recording an impairment charge of €4,350 million in the year in respect of the German CGU. The Group’s assessment of the VIU of its CGUs involves estimation about the future performance of the local market businesses. In particular, the determination of the VIU for Germany was sensitive to the significant assumptions of projected adjusted EBITDAaL growth, projected capital expenditure, the long-term growth rate, and the discount rate. Auditing the Group’s annual impairment test for the Germany CGU was complex and involved significant auditor judgement, given the estimation uncertainty related to the significant assumptions described above and the sensitivity to fluctuations in those assumptions, as well as market specific factors. Our response to the risk We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Group’s goodwill impairment review process, including, for example, management’s controls over the significant assumptions described above. We evaluated, with the help of EY valuation specialists, the methodology applied in the Germany VIU model, as compared to the requirements of IAS 36, including the mathematical accuracy of management’s model. We performed procedures to assess the significant assumptions used in the Germany VIU model, including: – evaluating projected adjusted EBITDAaL growth, for example by comparing underlying assumptions including Average Revenue Per User (‘ARPU’) to external data, such as economic and industry forecasts and competitor data for the German telecoms market, supporting evidence provided by management (e.g. supporting contracts and benchmarking), and for consistency with evidence obtained from other areas of our audit, including, for example, the results of our procedures described in ‘Recognition and recoverability of deferred tax assets on tax losses in Luxembourg and the UK’ below; – comparing the cash flow projections used in the Germany VIU model to the Long-Range Plan approved by the Group’s Board of Directors as part of their annual budgeting exercise and evaluating the historical accuracy of management’s German business plans, which underpin the VIU model, by comparing the prior years’ forecast to actual results for each of the last five years; – comparing forecast eligible capital expenditure to actual historical spend, assessing market specific events such as fibre and 5G roll-out and industry analysis and competitor data, where available;with the support of EY valuation specialists, comparing the long-term growth rate and discount rate assumptions to EY independently determined ranges; – performing sensitivity analyses on the VIU model, to evaluate the impact that changes in assumptions would cause to the impairment of the Germany CGU; and – in considering the existence of contrary evidence, for management’s assessment of implied recoverable value, we compared the Germany CGU EBITDAaL multiple to market listed peers and considered independent analyst valuations for the Germany CGU, where available.
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