The Group leases three asset categories, namely vehicles, property and network equipment. Vehicle leases mainly include a fleet of vehicles that are used by the technicians as part of the network operations. Property leases mainly relate to the lease of land and buildings/sites used for office purposes as well as property where masts and towers are erected. Network equipment mainly relates to the co-location on mast and towers and the lease of exchange assets.

The lease agreements do not impose any covenants on the Group. The existing leases do not have residual value guarantees.

At 31 March 2021, the Group has not committed to leases which have not yet commenced. There were no sale and leaseback transactions for the Group in the current or prior years.

Generally, the lease term is fixed but there is also a number of leases that run on a month-to-month basis. The Group applies judgement in assessing whether extension or termination options will be exercised and these options are only included in the lease term if the lease is reasonably certain to be extended or terminated.

In the current year, the lease calculation assumes that the Group will continue to use the strategic month-to-month contract for the next five years (current forecast period). Additionally, the Group concluded that it is reasonable that it will exercise available renewal options for all leases of strategic need, except in the case that there is evidence that it will not. For the rest of the assets, the lease calculation is based on the fixed term per the contract.

Some leases allow for earlier termination. In this case, the Group is required to serve a certain notice period and there is no financial penalty.

At 31 March 2021, a number of lease contracts relating to network equipment and properties include renewal options for various renewal periods. Due to the judgement exercised in relation to the determination of the lease period as outlined in the accounting policy, the Group is exposed to potential future cash outflows relating to an indefinite period which have not been included in the lease liability because it is not reasonably certain that the lease will be extended beyond the estimated lease period. The Group elected to not apply the COVID-19 related rent concession practical expedient.

The total cash outflow for leases in 2021 was R1 301 million (31 March 2020: R1 148 million) for the Group and R1 724 million (31 March 2020: R1 637 million) for the Company. Finance charges on lease liabilities of R445 million  (31 March 2020: R368 million) for Group and R560 million (31 March 2020: R555 million) for Company have been recognised in the statement of profit or loss and other comprehensive income for the year ended 31 March 2021.

Refer to note 14.4 for the maturity analysis on lease liabilities.

Impact of COVID-19 on lease liabilities
The incremental borrowing rate applied to calculate the present value of the lease liability decreased due to a decline in the reference rate, which was slightly offset by an increase in the credit spread. This is applicable to leases entered into from 1 April 2020 onwards, as well as leases that were remeasured during FY2021 due to the alignment of the lease term to the rolling forecast period (five years) or modified due to changes in the lease contracts. This is included in the lease remeasurement.

The Group did not receive any rent concessions in relation to COVID-19.

In the current financial year, the Telkom Group has earned R9 million (31 March 2020: Rnil) subleasing income. Telkom Company does not earn any subleasing income.