Notes to the annual financial statements

for the year ended 30 September

 
 
        Group     Company  
        2010  
Rm  
  2009  
Rm  
  2010  
Rm  
  2009  
Rm  
19.   SHARE CAPITAL AND PREMIUM                    
  AUTHORISED SHARE CAPITAL                    
  235 000 000 ordinary shares of 10 cents each   23,5     23,5     23,5     23,5  
  350 000 5,5% cumulative preference shares of R2 each   0,7     0,7     0,7     0,7  
  31 057 729 redeemable preference shares of 1 cent each   0,3     0,3     0,3     0,3  
        24,5     24,5     24,5     24,5  
    Number of  
shares  
2010  
Number of  
shares  
2009  
             
  ISSUED SHARE CAPITAL                    
  Ordinary shares of 10 cents each                    
  At the beginning of the year   197 185 285   196 922 185                
  Shares issued during the year in terms of:
the Reunert 1985 Share Option Scheme  
547 300   263 100                
  the Reunert 2006 Option Scheme   92 000   —                
  At the end of the year   197 824 585   197 185 285                
  Ordinary shares of 10 cents each       19,8     19,7     19,8     19,7  
  350 000 5,5% cumulative preference shares of R2 each   0,7     0,7     0,7     0,7  
        20,5     20,4     20,5     20,4  
  SHARE PREMIUM                    
  At the beginning of the year       95,6     86,5     95,6     86,5  
  Arising on the issue of ordinary shares   24,8     9,1     24,8     9,1  
  At the end of the year       120,4     95,6     120,4     95,6  
  Total issued share capital and premium   140,9     116,0     140,9     116,0  
  SHARE-BASED PAYMENT RESERVES                    
  As a result of IFRS 2                    
  At the beginning of the year       679,6     664,3     637,4     633,4  
  Share option reserve arising on the expensing of executive share options (refer to note 2 16,5     15,0     2,0     4,0  
  Deferred tax on share-based payment expense   2,3     0,3     —     —  
  Reserve arising on a BEE transaction   34,0     —     —     —  
  At the end of the year       732,4     679,6     639,4     637,4  
  BEE SHARES1                    
  Reunert shares bought back and held by Bargenel 18 500 000 (2009: 18 500 000)  (276,1)    (276,1)         
  TREASURY SHARES2                    
  Reunert shares bought back and held by a subsidiary 2 123 372 (2009: nil)  (125,7)    —          
 
1 These are shares held by Bargenel, a company sold by Reunert to an accredited BEE partner in 2007. In terms of IFRS, until the amount owing by the BEE partner is repaid to Reunert, Bargenel is to be consolidated by the group as the significant risks and rewards   of ownership of the equity have not passed to the BEE partner. 
2 Commencing in August 2010, a group subsidiary purchased Reunert shares on the open market. Up to the beginning of the closed period, on 30 September 2010, 2 123 372 shares had been bought at an average price of R59,18 per share. 
                  
             Company  
             Number of  
shares  
2010  
  Number of  
shares  
2009  
  UNISSUED ORDINARY SHARES                
  Total shares reserved to meet the requirements of the Reunert 1985 Share Option Scheme and the Reunert 1988 Share Purchase Scheme     2 041 900     2 620 000  
  Total shares reserved to meet the requirements of the Reunert 2006 Option Scheme     500 000     —  
             2 541 900     2 620 000  
  Shares issued during the year           (639 300)    (263 100) 
  Number of shares available for the schemes at year-end         1 902 600     2 356 900  
  The directors have general authority over these shares until the next annual general meeting.  
20
  Executive share option schemes      
  Options to take up Reunert ordinary shares are granted to executives in terms of the Reunert 1985 Share Option Scheme and the Reunert 2006 Option Scheme.  
   
  The terms of both schemes allow the recipient of the options to exercise one-third after three years and a further one-third each in years four and five. Any options unexercised lapse after 10 years from the date of initial issue or the moment an option holder resigns from the group. Should the option price exceed the market price, option holders may decline to exercise their right to have Reunert shares issued to them.  
        Number  
of options  
unexercised  
at the  
beginning  
of the year  
(Thousands) 
Options  
granted  
during  
the year  
(Thousands) 
Options  
exercised  
during  
the year  
(Thousands) 
Options  
relinquished3/  
forfeited  
during  
the year  
(Thousands) 
Number  
of options  
unexercised  
at the  
end  
of the year  
(Thousands) 
Amount  
received  
for options  
exercised  
Rm  
  2010                  
  Exercise price                  
  R14,101       52   —   —   —   52   —  
  R15,801       54   —   —   —   54   —  
  R17,701       20   —   (10)  —   10   0,2  
  R15,991       190   —   (52)  —   138   0,8  
  R41,901       1 726   —   (485)  (20)  1 221   20,3  
  R71,302       53   —   —   —   53   —  
  R53,502       230   —   —   (20)  210   —  
  R39,302       3 808   —   (92)  (110)  3 606   3,6  
  R57,502       —   200   —   —   200   —  
  R59,062       —   200   —   —   200   —  
        6 133   400   (639)  (150)  5 744   24,9  
  2009                  
  Exercise price                  
  R14,101       52   —   —   —   52   —  
  R15,801       54   —   —   —   54   —  
  R17,701       20   —   —   —   20   —  
  R15,991       264   —   (74)  —   190   1,2  
  R41,901       2 075   —   (189)  (160)  1 726   7,9  
  R71,302       1 098   —   —   (1 045)  53   —  
  R53,502       1 177   —   —   (947)  230   —  
  R39,302       —   3 872   —   (64)  3 808   —  
        4 740   3 872   (263)  (2 216)  6 133   9,1  
  The weighted average share price, at the dates of exercise, for share options exercised during the year was R57,52 (2009: R46,90).  
  1 Issued in terms of the Reunert 1985 Share Option Scheme.  
2 Issued in terms of the Reunert 2006 Option Scheme.  
3 During the prior year certain rights to exercise 966 500 R71,30 share options and 837 500 R53,50 share options were rendered non-exercisable by mutual consent between the company and option holder.  
   
  Estimated fair value of options granted after 7 November 2002:  
  Share option         Fair value  
per option  
R  
Total option  
value  
Rm  
Share  
options  
expensed in  
previous  
periods  
Rm  
Share  
option  
expense  
for  
the year  
Rm  
Share  
options  
to be  
expensed  
in future  
periods  
Rm  
  R15,99         4,7   8,9   8,9   —   —  
  R17,30         5,0   1,0   1,0   —   —  
  R41,90         11,1   28,2   26,5   1,7   —  
  R71,30         17,4   19,3   9,0   5,0   5,3  
  R53,50         14,6   17,6   7,5   4,5   5,6  
  R39,30         8,9   18,8   1,4   4,9   12,5  
  R57,50         14,79   3,0   —   0,3   2,7  
  R59,06         15,69   3,1   —   0,1   3,0  
            99,9   54,3   16,5   29,1  
  These fair values were calculated using a Binomial option pricing model.  
   
  The inputs into the model were as follows:  
    R15,99  
Share  
option  
R17,30  
Share  
option  
R41,90  
Share  
option  
R71,30  
Share  
option  
R53,50  
Share  
option  
R39,30  
Share  
option  
R57,50  
Share  
option  
R59,06  
Share  
option  
  Share price at issue (R)  15,99   17,30   41,90   71,30   53,50   39,30   57,50   59,06  
  Exercise price (R)  15,99   17,30   41,90   71,30   53,50   39,30   57,50   59,06  
  Expected volatility (%)  25,14   25,29   25,25   22,69   25,34   32,09   32,81   32,80  
  Expected option life (years)  8   8   10   10   10   10   10   10  
  Expected dividend yield (%)  5,93   5,93   5,67   4,37   4,51   7,45   4,51   4,25  
  Risk-free interest rate (%)  11,75   10,32   7,74   9,70   9,20   BEASSA  
zero coupon  
swap curve  
BEASSA  
zero coupon  
swap curve  
BEASSA  
zero coupon  
swap curve  
             
  R15,99, R17,30 and R41,90 options            
  Expected volatility was determined by calculating the historical volatility of Reunert’s share price from 30 September 2002 to the issue date of each option. The share price movements prior to 30 September 2002 are considered to be “abnormal” in terms of being a reasonable reflection of the volatility going forward.  
  The model allowed for early exercises based on rational investor behaviour. A zero forfeiture rate has been used due to the strong performance of the Reunert share and an historic forfeiture rate of 0,9% per annum. This will only affect the timing of the share option expense as opposed to the total expense being recognised in the income statement.  
           
  R71,30 and R53,50 options          
  Expected volatility was determined by calculating the historical volatility of Reunert’s share price from 23 August 2006 to the issue date of each option. The share price movement from this date was considered to reflect a more normal pattern than the movements prior to that date.  
  The model allowed for early exercises based on rational investor behaviour. A 6% forfeiture rate has been used due to the performance of the Reunert share of late and an historic forfeiture rate of a similar amount.  
   
  R39,30 options  
  Expected volatility assumed is a five-year equally weighted volatility of the Reunert share price on the JSE and was estimated using data sourced from iNet.  
  The model allowed for early exercises based on rational investor behaviour. A 6% forfeiture rate has been used due to the performance of the Reunert share of late and an historic forfeiture rate of a similar amount.  
  The risk-free interest rate used the BEASSA zero coupon swap curve which ranges from 6,87% (NACC) for one year to 8,62% for 10 years.  
  A total of 3 872 000 options were issued at a strike price of R39,30 per share. Altogether 1 757 600 of these options were issued to employees who were also offered the R71,30 and R53,50 options issued in the previous financial year. The new options were granted to those who also received the options previously after the mutual consent between the company and option holder to render the R71,30s and R53,50s non-exercisable. This constitutes a modification to the original options in terms of IFRS 2 Share-based Payments.  
  Under these circumstances, the fair value of the original options will continue to be expensed over the vesting period in terms of the original grant. The granting of the 2 115 000 options to employees who did not receive the R71,30 or R53,50 options amounts to a new issue and the value of this issue is expensed over the vesting period of this new issue.  
                   
  R57,50 options  
  Expected volatility assumed is a five-year equally weighted volatility of the Reunert share price on the JSE and was estimated using data sourced from iNet.  
  The model allowed for early exercises based on rational investor behaviour. An 8% forfeiture rate has been used due to the performance of the Reunert share of late and an historic forfeiture rate of a similar amount.  
  The risk-free interest rate used the BEASSA zero coupon swap curve which ranges from 6,7% (NACC) for one year to 8,77% for 10 years.  
                   
  R59,06 options  
  Expected volatility assumed is a five-year equally weighted volatility of the Reunert share price on the JSE and was estimated using data sourced from iNet.  
  The model allowed for early exercises based on rational investor behaviour. An 8% forfeiture rate has been used due to the performance of the Reunert share of late and an historic forfeiture rate of a similar amount.  
  The risk-free interest rate used the BEASSA zero coupon swap curve which ranges from 6,44% (NACC) for one year to 8,09% for 10 years.