CSL Ltd Annual Report 2020

CSL Limited Annual Report 2020 103 In considering further disclosures around variable lease consideration, the Group’s leases are subject only to future rent increases related to fair market rental adjustments and adjustments linked to price index changes. Approximately 90% of lease liabilities relate to plasma collection centres, offices, and warehouses subject primarily to future fair market rental adjustments. The remaining approximate 10% of lease liabilities relates to long-term land leases that are subject to periodic index adjustments. Accordingly, the rental arrangements themselves do not pose any incremental or unique risk specific to variable lease considerations that would warrant further evaluation beyond what we have disclosed in Note 11, which addresses financial risk in the context of the Group’s collective business activities. The Group’s lease liabilities are inclusive of extension options the Group is reasonably certain to exercise based upon our judgement as of 30 June 2020. For lease extension options that the Group is not reasonably certain to exercise as of 30 June 2020, these are appropriately excluded from the lease liabilities under AASB 16. However, the Group has analysed the lease contracts to determine potential future lease payments (undiscounted) to which there is a contractual right to exercise an extension. We have summarised these undiscounted potential future lease payments split between those due in five years or less or greater than five years in the following table: Undiscounted potential future lease payments 5 years or less Greater than 5 years Total US$m US$m US$m As at 30 June 2020 3.8 95.5 99.3 The Group applied the same methodology in applying AASB 16 in determining the potential future lease payments not included in the lease liability as we did for lease extension options included in the lease liability as of 30 June 2020. Should facts and circumstances change the Group’s current assessment of the reasonable certainty about not extending these contracts beyond those included in our lease liabilities, these undiscounted potential future lease payments represent and approximate additional lease payments that would become contractually due. Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption, which relates to leases such as office photocopiers, gas storage cylinders, and other miscellaneous low value assets that would not have quantitative or qualitative significance to recognise in our adoption of AASB 16 or ongoing accounting for leases under AASB 16. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term. Significant judgements Determination of the lease term of contracts with renewal options The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy). Calculation of the incremental borrowing rates Where the lessee cannot readily determine the interest rate implicit in the lease contracts, the present value of the lease liabilities are estimated using the incremental borrowing rate based on the interest that the lessee would have to pay to borrow over a similar term, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment, and observable inputs such as market interest rates are used as applicable. Set out below, are the carrying amounts of the right-of-use assets and lease liabilities and the movements during the period: Plasma Centres Office Leases Warehouse Leases Land Leases Vehicles Total Lease liabilities US$m US$m US$m US$m US$m US$m US$m As at 1 July 2019 452 259 113 95 6 926 (1,004) Additions 58 19 6 0 2 85 (85) Depreciation expense (23) (39) (9) (1) – (72) – Interest expense – – – – – – (26) Payments – – – – – – 81 As at 30 June 2020 488 239 110 94 8 939 (1,034) The Group has not adopted any accounting standards that are issued but not yet effective. Significant accounting policies that summarise the measurement basis used and are relevant to an understanding of the financial statements are provided in the annual financial report.