Integrated Report 2020

INTEGRATED REPORT 2020 CIM FINANCIAL SERVICES LTD Explanatory Notes 30 SEPTEMBER 2020 23. RIGHT-OF-USE ASSETS (CONT’D) Sep-20 Interest expense (included in finance cost) 11.1 Undiscounted commitments for short-term leases 35.6 30 September 2020 Number of Lease Contracts Fixed payments % Property leases with payments linked to inflation 3 16% Property leases with periodic uplifts to market rentals 16 84% 19 100% Variable lease payments The percentages in the table below reflect the current proportions of lease payments that are either fixed or variable. Extension and termination options Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor. Lease term In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options are only included in the lease term if the lease is reasonably certain to be extended. For leases of warehouses, retail stores and equipment, the following factors are normally the most relevant: If there are significant penalties to terminate, the Group is typically reasonably certain not to terminate. If any leasehold improvements are expected to have a significant remaining value, the Group is typically reasonably certain to extend. Otherwise, the Group considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset. Most extension options have not been included in the lease liability, because the Group could replace the assets without significant cost or business disruption. As at 30 September 2020, potential future cash outflows of MUR 44.9m (undiscounted) have not been included in the lease liability because it is not reasonably certain that the leases will be extended. The lease term is reassessed if an option is actually exercised or the Group becomes obliged to exercise it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the lessee. During the current financial year, there is no financial effect of revising lease terms to reflect the effect of exercising extension. At the end of each reporting period, the expected residual values are reviewed to reflect actual residual values achieved on comparable assets and expectations about future prices. As at 30 September 2020, there is no change in residual value. The total cash outflow for leases in 2020 was MUR 24.2m: made of capital MUR13.1m and interest MUR11.1m. 131