18. Right-of-use of assets and lease liability

Policy applicable as from 1 January 2019

At inception of a contract, TMF Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, TMF Group uses the definition of a lease in IFRS 16.

We apply this policy to contracts entered into, on or after 1 January 2019.

As a lessee

At commencement or on modification of a contract that contains a lease component, TMF Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices.

TMF Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is included in the financial statement line item: Right-of-use asset as a non-current asset. The lease liability is included in the financial statements line item; Lease Liability short term and long term. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to TMF Group by the end of the lease term or the cost of the right-of-use asset reflects that TMF Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-measurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, TMF Group's incremental borrowing rate. The TMF Group uses its incremental borrowing rate as the discount rate.

TMF Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease.

Lease payments included in the measurement of the lease liability comprise the following:

• fixed payments, including in-substance fixed payments;

• variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

• amounts expected to be payable under a residual value guarantee;

• the exercise price under a purchase option that TMF Group is reasonably certain to exercise, lease payments in an optional renewal period if TMF Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless TMF Group is reasonably certain not to terminate early.

The lease liability is measured at the present value of the future lease payments. The key inputs to this calculation are the lease term, the lease payments to be included and the discount rate. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in TMF Group's estimate of the amount expected to be payable under a residual value guarantee, if TMF Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in the income statement if the carrying amount of the right-of-use asset has been reduced to zero.

As a practical expedient, TMF Group elects, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non- lease components as a single lease component.

A non-lease component that is fixed or varies depending on an index or rate can be included in the lease liability calculation, such as common area maintenance or fixed building management fees. A non-lease component that is variable payment depending on usage can’t be included in the lease liability calculation, such as water usage.

TMF Group will account for the short-term leases for all classes of underlying assets with a lease term less than 12 months. The lease term is determined including considering the renewal or termination options if applicable. TMF Group will account for low value leases on a lease-by-lease basis.

As a lessor

At inception or on modification of a contract that contains a lease component, TMF Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. When TMF Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.

To classify each lease, TMF Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, TMF Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

When TMF Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which TMF Group applies the exemption described above, then it classifies the sub-lease as an operating lease.

If an arrangement contains lease and non-lease components, then TMF Group applies IFRS 15 to allocate the consideration in the contract.

TMF Group applies the derecognition and impairment requirements in IFRS 9 to the net investment in the lease. TMF Group further regularly reviews estimated unguaranteed residual values used in calculating the gross investment in the lease.

TMF Group recognises lease payments received under operating leases as income on a straight-line basis over the lease term as part of ‘other revenue’.

Generally, the accounting policies applicable to TMF Group as a lessor in the comparative period were not different from IFRS 16.

Nature of TMF Group's leasing activities

TMF Group leases buildings, vehicles and other leases, which are necessary for the Company to operate. With regards to the assets leased by TMF Group, there are no restrictions or covenants imposed in any of the lease contracts.

Lease liability

Breakdown of movements in the lease liability is as follows:

The lease liability is recorded in the loans and borrowings.

Right-of-use assets

Breakdown of the movements of the right-of-use assets is as follows.