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Notes to the annual financial statements | Note 19

FOR THE YEAR ENDED 30 SEPTEMBER 2013

 
Group
Company
  Rm 2013 2012 2013 2012

19.

SHARE CAPITAL

Authorised share capital
235 000 000 ordinary shares of no par value*
23,5
23,5
350 000 5.5% cumulative preference shares of R2 each**
0,7
0,7
 
24,2
24,2
 
 
 
Issued share capital
Number of
shares
2013
Number of
shares
2012
  Ordinary shares of no par value*
  At the beginning of the year
200 310 185
199 301 385
  Shares issued during the year in terms of:
  The Reunert 1985 Share Option Scheme
142 500
354 300
  The Reunert 2006 Option Scheme
955 500
654 500
  At the end of the year
201 408 185
200 310 185
 
 
Group
Company
  Rm Notes 2013 2012 2013 2012
 
Ordinary shares*
  At the beginning of the year
242,1
199,8
242,1
199,8
  Arising on the issue of ordinary shares
46,0
42,3
46,0
42,3
  At the end of the year  
288,1
242,1
288,1
242,1
 
Preference shares**
  350 000 5,5% cumulative preference shares
0,7
0,7
  Total issued share capital  
288,1
242,8
288,1
242,8
 
Share-based payment reserves
 
  As a result of IFRS 2 – Share based payment
  At the beginning of the year
766,9
751,0
639,1
639,7
  Share option reserve arising on the expensing of executive share options 2
20,2
15,9
(0,6)
  Deferred tax on share-based payment expense 16
9,4
  Transferred to retained earnings
(796,5)
(639,1)
  At the end of the year  
766,9
639,1
 
Empowerment shares
  Reunert shares bought back and held by Bargenel 18 500 000 (2012: 18 500 000)
(276,1)
(276,1)
 
Treasury shares
  Reunert shares bought back and held by a subsidiary 19 176 489 (2012: 19 176 489)  
(1 253,6)
(1 253,6)    
 
 
    Number of
shares
2013
Number of
shares
2012
 
Unissued ordinary shares
  Total shares reserved to meet the requirements of the Reunert 1985 Share Option
  Scheme and the Reunert 1988 Share Purchase Scheme
650 000
650 000
  Total shares reserved to meet the requirements of the Reunert 2006 Option Scheme
1 650 000
1 650 000
2 300 000
2 300 000
  Shares issued during the year
(1 098 000)
(1 008 800)
  Number of shares available for the schemes at year-end
1 202 000
1 291 200
  The directors have general authority over these shares until the next annual general meeting.
 
* At the AGM on 12 February 2013 a special resolution by the shareholders was passed to convert the authorised shares of the company, whether issued or not, to shares with no par value. As a result of this there is no longer share premium as this, together with the issued shares, is disclosed as the share capital. In the prior year ordinary share capital amounted to R20,0 million and share premium amounted to R222,1 million.
** On 1 July 2013 the 350 000 5,5% cumulative preference shares were redeemed at R2,10 per share and they were delisted on 2 July 2013.
   
 

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 ten 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
relinquished/
forfeited during
the year
(thousands)
Number
of options
unexercised
at the
end
of the year
(thousands)
Amount
received
for options
exercised
Rm
 
2013
  Exercise price
  R15,991
98
(98)
1,5
  R41,901
217
(45)
172
1,9
  R71,302
27
(4)
23
0,3
  R53,502
99
(26)
73
1,4
  R39,302
2 280
(704)
(11)
1 565
27,6
  R57,502
50
(17)
33
1,0
  R59,552
1 344
(104)
(11)
1 229
6,2
  R56,002
70
(70)
  R60,502
70
(70)
  R60,802
500
(100)
400
6,1
 
4 755
(1 098)
(162)
3 495
46,0
  2012
  Exercise price
  R17,701 10 (10) 0,2
  R15,991 100 (2) 98
  R41,901 539 (322) 217 14,0
  R71,302 44 (17) 27 1,2
  R53,502 160 (61) 99 3,2
  R39,302 2 934 (529) (125) 2 280 20,8
  R57,502 100 (50) 50
  R59,062 200 (200)
  R59,552 1 649 (48) (257) 1 344 2,9
  R56,002 190 (120) 70
  R59,702 70 (70)
  R60,502 70 70
  R60,802 500 500
  6 066 500 (989) (822) 4 755 42,3
 
 
  Number
of options
unvested
at the
beginning
of the year
(thousands)
Options
granted
during
the year
(thousands)
Options
vested
during
the year
(thousands)
Options
relinquished/
forfeited during
the year
(thousands)
Number
of options
unvested
at the
end
of the year
(thousands)
Amount
received
for options
exercised
Rm
 
Issue date
  2012
  Key 68 68
  Executive 816 816
  884 884
 
  Estimated fair value of options granted after 7 November 2002. Options fully exercised before the beginning of 2012 have been excluded from the table.
  Fair value
per option
R
Total option
value
Rm
Share options
expensed in
previous
periods
Rm
Expense
related to
forfeits
(cumulative)
Rm
Share option
expense for
the year
Rm
Share options
to be
expensed
in future
periods
Rm
 
Share options
  R15,99 4,70 8,9 8,9
  R41,90 11,10 28,2 28,2
  R71,30 17,40 19,3 19,0 0,1 0,2
  R53,50 14,60 17,6 17,3 0,3
  R39,30 8,90 18,8 15,4 0,8 1,9 0,7
  R57,50 14,79 3,0 2,5 0,3 0,2
  R59,55 13,18 22,7 10,8 0,3 5,7 5,9
  R56,00 12,39 2,3 0,6 1,7
  R60,50 13,43 0,9 0,3 0,6
  R60,80 15,83 7,9 2,9 2,8 2,2
 
Conditional share plan
  R75,57 – Key 61,37 4,2 1,1 3,1
  R75,57 – Executive 26,00*** 40,7*** 7,4 ***
 
*** Assumes 40% of the 3-year and 37% of the 4-year options respectively will vest from the NHEPS performance. As this is a non-market condition these percentages will be reassessed each year up to the date of vesting and the total option value adjusted and expensed accordingly.
 
R0,5 million of share-based payments were expensed in the current year in respect of options issued to employees in the group’s telecommunications joint venture by the venture partner. Details of these options are not provided.
The fair values of the options other than those issued in terms of the CSP were calculated using a Binomial option pricing model.
The fair value of the CSP for Key employees was calculated by assuming the share price movement follows a log normal distribution over the vesting period. The value at vesting date was discounted back to the valuation date.
The fair value of the CSP for Executive employees was calculated using a Monte Carlo simulation technique.
   
  The inputs into the model were as follows:
 
 
 
  Share
price
at issue
R
Exercise
price
R
Expected
volatility
%
Expected
option life
Years
Expected
dividend
yield
%
Risk free
interest rate
%
 
Share options
  R15,99 15,99 15,99 25,14 8 5,93 11,75
  R41,90 41,90 41,90 25,25 10 5,67 7,74
  R71,30 71,30 71,30 22,69 10 4,37 9,70
  R53,50 53,50 53,50 25,34 10 4,51 9,20
  R39,30 39,30 39,30 32,09 10 7,45 BEASSA Zero Coupon Swap Curve between
6,87% to 8,62% for 1 and 10 years respectively
  R57,50 57,50 57,50 32,81 10 4,51 BEASSA Zero Coupon Swap Curve between
6,70% to 8,77% for 1 and 10 years respectively
  R59,55 59,55 59,55 32,60 10 4,80 BEASSA Zero Coupon Swap Curve between
5,95% to 8,76% for 1 and 10 years respectively
  R56,00 56,00 56,00 32,60 10 5,10 BEASSA Zero Coupon Swap Curve between
6,06% to 8,97% for 1 and 10 years respectively
  R60,50 60,50 60,50 32,50 10 4,80 BEASSA Zero Coupon Swap Curve between
5,91% to 8,55% for 1 and 10 years respectively
  R60,80 60,80 60,80 31,90 10 7,24 The risk free rate of 7,9039% is based on the grant yield curve (15 November 2011) which is commensurate with the maturity date
(15 November 2021)
 
Conditional share plan
  R75,57 – Key 75,57 nil 23,31 4 4,74 The risk free rate for the Key and Executive options varies from 4,92% (year 1) to 5,54% (year 5) and is based on the risk-free swap curve produced by Standard Bank on 19 November 2012
  R75,57 75,57 nil 23,31 4 4,74
  – Executive          
 
 

R15,99 (GRANT DATE 13 MAY 2003) AND R41,90 (GRANT DATE 29 AUGUST 2005) 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 a 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 (GRANT DATE 13 DECEMBER 2007) AND R53,50 (GRANT DATE 18 FEBRUARY 2008) 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 a historic forfeiture rate of a similar amount.
   
 

R39,30 (GRANT DATE 18 JUNE 2009) 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 a 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.

3 872 000 options were issued at a strike price of R39,30 per share. 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 R71,30’s and R53,50’s non-exercisable. This constitutes a modification to the original options in terms of IFRS 2.

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 (GRANT DATE 14 MAY 2010) 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 a 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 8,77% for 10 years as detailed above.
   
 

R59,55 (GRANT DATE 17 FEBRUARY 2011), R56,00 (GRANT DATE 4 MARCH 2011) AND R60,50 (GRANT DATE 9 MAY 2011) 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 10% forfeiture rate has been used due to the performance of the Reunert share of late and a historic forfeiture rate of a similar amount.

The risk-free interest rate used the BEASSA zero coupon swap curve which ranges from 5,91% (NACC) for one year to 8,97% for 10 years as detailed above.
   
 

R60,80 (GRANT DATE 15 NOVEMBER 2011) OPTIONS

  Expected volatility assumed is a five-year equally weighted volatility of the Reunert share price on the JSE at the issue date and was estimated using data sourced from McGregor BFA.

The model allowed for early exercises based on rational investor behaviour. No forfeitures were used in the model.

The risk-free rate, based on the grant date yield curve (15 November 2011) which is commensurate with the maturity date (15 November 2021), is 7,9039%.
   
 

R75,57 (GRANT DATE 19 NOVEMBER 2012) CONDITIONAL SHARE PLAN

  The volatility of the return on company share was estimated as the annualised standard deviation of daily log returns of the share price over the four years prior to the valuation date.

No forfeitures were used in the model.

The zero coupon risk-free curve used to determine the risk-free rates was the ZAR zero coupon swap curve, produced by Standard Bank, as at 19 November 2012. These rates were 4,92% (year 1), 5,01% (year 2), 5,27% (year 3) and 5,54% (year 4).