Notes to the annual financial statements

FOR THE YEAR ENDED 31 MARCH 2009

« Note 24 Note 26 »
   
25. share-based payments
  The share-based payments that are accounted for in the financial statements are in respect of the Remgro Share Scheme and the Remgro Equity Settled Share Appreciation Right Scheme, as well as the Rainbow Share Scheme.

Background to the Remgro Share Scheme and the Remgro Equity Settled Share Appreciation Right Scheme
The valuation of both share schemes were performed using an actuarial model. This model was developed by an independent third party from the standard binomial option pricing model in order to address the unique nature of the schemes, especially with regard to early exercise of offers.

The expected contract lifetimes are estimated by considering separately each of the tranches within that grant. The risk-free rate was estimated by using the implied yield on an SA zero-coupon government bond and the yield curve over the expected contract lifetimes of five, six and seven years from the offer date.

Share price volatility of ordinary shares in Remgro Limited was determined with reference to movements in the share price since
1 October 2000, that being the date from which Remgro commenced trading on the JSE.

Dividend yield was calculated using the two-year moving average dividend yield at each offer date.
     
  25.1   Remgro Share Scheme (the “Scheme”)
    Share-based payments in terms of the Scheme consist of ordinary shares in Remgro Limited that were offered to participants. The offers are valid for one year from the offer date. The Scheme is a deferred purchase scheme and payment takes place in three equal yearly instalments, the first of which is payable three years after the offer date. Participants have no rights to delivery, voting or ordinary dividends on shares before payment has been made. Participants may choose to pay on a later date, with the resultant deferment of rights. Payment relating to offers before 26 November 2004 must be settled within ten years, while offers thereafter must be settled before seven years have passed. The Scheme was superseded by the Remgro Equity Share Appreciation Right Scheme following the unbundling of BAT.
     
      2009   2008  
      R million   R million  
    Share-based payment cost included in the income statement (in accordance with IFRS 2) 16   12  
    Fair value of offers made during the year  –   7  
     
    Although the Group elected, in accordance with the transitional provisions of IFRS, to only apply IFRS 2 on transactions entered into after 7 November 2002 that had not vested at 1 January 2005, the following information relates to all offers to the participants of the Scheme.

Number and weighted average exercise prices of all share offers to participants of the Scheme:
             
        2009   2008
      Number      Number     
       of shares   Rand   of shares   Rand  
    Previous financial years 3 411 923   78.01   3 396 994   72.65  
    Offered in current financial year –   –   145 562   185.69  
    Resignations and other (547 698)  124.58   (4 250)  117.70  
    Shares paid for and delivered (2 448 700)  59.84   (126 383)  56.50  
    Total at 31 March   415 525   123.68   3 411 923   78.01  
    Exercisable at the end of the period  60 452   87.86   2 127 518   53.78  
     
    Exercise price range of all offers:
         2009         2008     
     
 
 Weighted   Weighted  
 
 Weighted   Weighted  
     
 
 average   average  
 
 average   average  
      Number of   remaining   exercise   Number   remaining   exercise  
      shares   contract   price   of shares   contract   price  
      outstanding at   lifetime   per share   outstanding   lifetime   per share  
      year-end   in years   (Rand)* at year-end   in years   (Rand)  
    R40 – R60   –   –   –   1 399 790   2.57   45.03  
    R60 – R80   –   –   –   625 238   5.12   64.46  
    R80 – R100   174 614   2.67   87.86   648 709   4.10   86.88  
    R100 – R120   –   –   –   24 248   4.64   114.05  
    R120 – R140   172 681   4.24   135.00   567 986   5.24   134.89  
    R140 – R160   –   –   –   390   5.66   155.45  
    R160 – R180   –   –   –   14 915   6.33   176.83  
    R180 – R200   68 230   5.22   186.70   130 647   6.22   186.70  
     
    The following assumptions were used in the binomial model to value offers:
                 
              2008  
    Weighted average Remgro share price for the year (R) 185.73  
    Exercise price (R)         155.45 – 187.50  
    Average expected exercise period (years) 5 – 7  
    Price volatility (%)         19.24 – 20.21  
    Risk-free rate (%)         7.7 – 8.4  
    Expected dividend yield (%) 2.5 – 2.6  
     
    No offers were made during the current financial year in terms of this share scheme.
     
    * Additionally, in terms of the scheme rules, participants also receive all special dividends and proceeds from group restructurings following   the offer date.
     
  25.2   Remgro Equity Settled Share Appreciation Right Scheme (the “SAR Scheme”)
    Participants of the SAR Scheme are remunerated with shares to the value of the appreciation of a specified number of Remgro ordinary shares that must be exercised within a period of seven years after the grant date.
     
    The earliest intervals at which the share appreciation rights (SARs) are exercisable are as follows:
  • One-third after the third anniversary of the grant date
  • Two-thirds after the fourth anniversary of the grant date
  • The remainder after the fifth anniversary of the grant date
   
  2009   2008   
  R million   R million  
Share-based payment cost included in the income statement (in accordance with IFRS 2) 13   –  
Fair value of offers made during the year  63   –  
       
Number and weighted average exercise prices of all SARs offered to participants of the SAR Scheme:
       
   2009  
  Numbers     
  of SARs   Rand  
Offered in current financial year   3 641 533   73.24  
Forfeited during the current financial year   (6 779)  73.21  
Total at 31 March 3 634 754   73.24  
Exercisable at the end of the period   295 159   72.00  
     
    Exercise prices of all options:
   
    2009  
     Weighted  
     average  
  Number of   remaining  
  SARs   contract  
  outstanding   lifetime  
  at year-end   in years  
R72   1 389 152   3.69  
R74   2 245 602   6.66  
     
The following assumptions were used in the binosmial model to value offers:       
     2009  
Weighted average Remgro share price for the year:      
– Full year (R)    137.62  
– Prior to the BAT unbundling (R)    191.99  
– Following the BAT unbundling (R)    70.37  
Exercise price (R)     72 – 74  
Average expected exercise period (years)    3 – 6  
Price volatility (%)    20.78 – 22.36  
Risk-free rate (%)    8.13 – 8.76  
Expected dividend yield (%)    2.37  
     
  25.3 Current status – offers to directors
    Remgro Share Scheme
    – ordinary shares
   
  Balance             
  of shares  Shares          Number 
  accepted as  accepted  Date of    Offer    of shares 
  at 31 March  during  acceptance    price    paid and 
Participant  2008  the year  of shares    (Rand)    delivered 
Executive               
W E Bührmann  97 872        87.86    32 624 
  7 303        135.00     
  38 645        186.70     
D M Falck  458 716        43.60    458 716 
  104 917        63.00    104 917 
  30 050        87.86    30 050 
  92 988        135.00    92 988 
  18 146        186.70    18 146 
J A Preller  24 466        43.60    24 466 
  34 572        87.86    11 524 
  30 167        135.00     
  2 319        186.70     
M H Visser  278 979        63.00    278 979 
  342 488        87.86    114 164 
  172 681        135.00     
  68 230        186.70     
T van Wyk  42 161        87.86    14 055 
  41 598        135.00     
  3 029        186.70     
Subtotal  1 889 327  –          1 180 629 
Non-executive             
P E Beyers  191 130        43.60    191 130 
J W Dreyer  191 130        43.60    191 130 
J P Rupert  414 938        48.20    414 938 
Subtotal  797 198  –          797 198 
Total  2 686 525  –          1 977 827 
               
    Share pirce           Balance 
  Date of   on date of           of shares  
  payment  payment      Shares    accepted 
  and  and delivery   Increase     forfeited    as at  
  delivery  of shares  in value  (1)  on    31 March 
Participant  of shares  (Rand) (R’000)   27/10/08  (2)  2009 
Executive               
W E Bührmann  13/10/08  167.00  2 582    65 248    – 
          7 303    – 
          38 645    – 
D M Falck  08/08/08  194.22  69 092        – 
  08/08/08  194.22  13 767        – 
  13/10/08  167.00  2 378        – 
  13/10/08  167.00  2 976        – 
  13/10/08  167.00  (357)       – 
J A Preller  13/10/08  167.00  3 019        – 
  13/10/08  167.00  912    23 048    – 
          30 167    – 
          2 319    – 
M H Visser  13/10/08  167.00  29 014        – 
  13/10/08  167.00  9 035    53 710    174 614 
              172 681 
              68 230 
T van Wyk  13/10/08  167.00  1 112    28 106    – 
          41 598    – 
          3 029    – 
Subtotal      133 530    293 173    415 525 
Non-executive               
P E Beyers  13/10/08  167.00  23 585        – 
J W Dreyer  13/10/08  167.00  23 585        – 
J P Rupert  23/09/08  183.00  55 934        – 
Subtotal      103 104    –    – 
Total      236 634    293 173    415 525 
     
   
1.    It refers to the increase in value of the Scheme shares of the indicated participants from the offer date to the date of payment and delivery.
2.   In lieu of shares forfeited, directors were paid a cash bonus. Refer to note 24.
     
   
– ordinary shares            
  Balance                
  of shares   Shares   Date        Number   
  accepted as   accepted   of   Offer     of shares   
  at 31 March   during    accepteance   price     paid and   
Participant   2007   the year    of shares   (Rand)    delivered  
Executive                 
W E Bührmann    97 872         87.86       
  7 303         135.00       
      38 645   27/06/07   186.70       
D M Falck    458 716         43.60       
  104 917         63.00       
  30 050         87.86       
  92 988         135.00       
      18 146   03/07/07   186.70       
J A Preller    24 466         43.60       
  34 572         87.86       
  30 167         135.00       
      2 319   03/07/07   186.70       
M H Visser    278 979         63.00       
  342 488         87.86       
  172 681         135.00       
      68 230   26/06/07   186.70       
T van Wyk    42 161         87.86       
  41 598         135.00       
     3 029   03/07/07   186.70       
Subtotal    1 758 958   130 369             
Non-executive                  
P E Beyers    191 130         43.60       
J W Dreyer    191 130         43.60       
J P Rupert    414 938         48.20       
Subtotal    797 198                
Total    2 556 156   130 369             
             
– ordinary shares            
       Share price        Balance of  
    Date   on date of         shares  
    of payment   Payment        accepted  
    and   and   Increase in      as at  
    delivery of   delivery   Value   (1) 31 March  
Participant     shares   (Rand)  (R’000)    2008  
Executive                
W E Bührmann                 97 872  
               7 303  
                38 645  
D M Falck                 458 716  
               104 917  
               30 050  
               92 988  
                18 146  
J A Preller                 24 466  
               34 572  
               30 167  
                2 319  
M H Visser                 278 979  
               342 488  
               172 681  
                68 230  
T van Wyk                 42 161  
               41 598  
               3 029  
Subtotal                 1 889 327  
Non-executive                
P E Beyers                 191 130  
J W Dreyer                 191 130  
J P Rupert                 414 938  
Subtotal                 797 198  
Total              2 686 525  
    * It refers to the increase in value of the Scheme shares of the indicated participants from the offer date to the date of payment and   delivery.
     
  25.3 Remgro Equity Settled Share Appreciation Right Scheme
   
– Share appreciation rights (SARs)
  Balance           
  of SARs   SARs        
  accepted as   accepted      Offer  
  at 31 March   during   Offer   price  
Participant   2008   the year    dates   (Rand) 
Executive            
W E Bührmann   –   283 148   04/11/08   72.00  
  –   124 771   27/11/08   74.00  
L Crouse   –   418 108   27/11/08   74.00  
J A Preller   –   141 411   04/11/08   72.00  
  –   48 788   27/11/08   74.00  
T van Wyk   –   185 207   04/11/08   72.00  
  –   87 829   27/11/08   74.00  
M H Visser   –   136 767   04/11/08   72.00  
  –   542 424   27/11/08   74.00  
J W Dreyer   –   270 270   27/11/08   74.00  
Total   –   2 238 723        
* It refers to the increase in value of the SAR Scheme shares of the indicated participants from the offer date to the date of payment and   delivery.
    .      

– Share appreciation rights (SARs)
              Balance  
        Share       of SARs  
  Number of   Date   price on    Increase   accepted as  
  SARs   excersing   excercise   in value *   at 31 March  
Participant   excerised   SARs   date   (R’000)   2009  
Executive               
W E Bührmann               283 148  
              124 771  
L Crouse               418 108  
J A Preller               141 411  
              48 788  
T van Wyk               185 207  
              87 829  
M H Visser               136 767  
              542 424  
J W Dreyer               270 270  
Total               2 238 723  
* It refers to the increase in value of the SAR Scheme shares of the indicated participants from the offer date to the date of payment and   delivery.
  25.4 Rainbow Share Scheme
    Rainbow has an equity settled share scheme for certain of its employees in terms of which share options offered are exercisable in three equal tranches from two, three and four years after the grant date. Subject to the discretion of the Rainbow Share Incentive Trust’s trustees, options are forfeited if not exercised before termination of employment. An expense of R20 million (2008: R11 million) relating to this scheme was recognised in the income statement.