NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS l NOTE 32

32. SHARE INCENTIVE SCHEMES AND SHARE-BASED PAYMENTS
    2014
Rm		   2013
Rm		 2012
Rm		  
32.1 Financial effect of share-based payment transactions Income statement effect          
  Income statement effect          
  Expense arising from share-based payment transactions 1   (5) 4  
  Compensation expense arising from equity and cash-settled forfeitable share plan 26   30 29  
  Compensation expense arising from equity and cash-settled share appreciation rights incentive plan 75   159 47  
  Share-based payment expense included in operating profit 102   184 80  
  Taxation benefit on forfeitable share plan, share appreciation rights and BEE transactions (28)   (53) (21)  
  Net share-based payment expense after taxation 74   131 59  
  Financial position effect          
  Liability raised for cash-settled shares (to be incurred within one to five years) (60)   (188) (87)  
  Deferred taxation asset raised on share-based payment transactions 49   71 30  
  Net reduction in shareholders’ interest as a result of share-based payment transactions (11)   (117) (57)  
32.2 Forfeitable share plan

On 28 January 2010 the group introduced the Barloworld Forfeitable Share Plan (FSP).

The scheme allows executive directors and certain senior employees to earn a long-term incentive to assist with the retention and reward of selected employees.

Shares are granted to employees for no consideration. These shares participate in dividends and shareholder rights from grant date.

The vesting of the shares is subject to continued employment for a period of three years or the employee will forfeit the shares.

Shares issued to the executive directors are subject to performance conditions which will be measured over the three-year vesting period.

The performance conditions over the vesting period include a market condition based on total shareholder return and non-market conditions based on return on net assets or return on net operating assets and headline earnings per share.

On resignation, the employee will forfeit any unvested shares. On death or retirement only a portion of the shares will vest, calculated based on the number of days worked over the total vesting period, subject to any performance condition being met.

The scheme is settled in shares and therefore the scheme is equity-settled. In jurisdictions where the delivery of shares is impractical, cash will be paid to employees in lieu of shares. These shares are cash-settled share-based payments.

Fair value estimates

In terms of IFRS 2, the transaction is measured at fair value of the equity instruments at the grant date. The fair value takes into account that the employees are entitled to the dividends from grant date. The fair value of the equity-settled shares subject to non-market conditions is the closing share price at grant date. The estimated fair value of the equity-settled shares subject to market conditions was calculated at grant date using a monte carlo simulation model with the following inputs:

Date of grant
18 March 2014		   19 March
2013
30 March 2012		  
Non-market conditions          
Number of shares granted 204 398   314 516 247 615  
Share price at grant date (R) 107.32   90.50 99.98  
Estimated fair value per share at grant date (R) 107.32   90.50 99.98  
Market conditions          
Number of shares granted 18 972   21 084 21 075  
Share price at grant date (R) 107.32   90.50 99.98  
Expected volatility (%) 27.2   26.4 29.2  
Expected dividend yield (%) 2.8   3.5 2.5  
Risk-free rate (%) 7.4   5.5 6.5  
Estimated fair value per share at grant date (R) 78.79   49.58 95.27  
In terms of IFRS 2, liabilities relating to cash-settled share-based payments are adjusted to fair value at financial position date. The estimated fair value of the cash-settled shares was calculated by using the closing share price at the reporting date and discounting future expected dividends.          
Number of cash-settled shares granted 53 200   23 040 16 420  
Share price at grant date (R) 107.32   90.50 99.98  
Risk-free rate (%) 7.2   6.9 5.9  
Estimated fair value per cash-settled share at grant date (R) 105.27   89.02 98.66  
Estimated fair value per cash-settled share at year-end (R) 92.15   95.97 98.71  
32.3 Share appreciation rights scheme

During 2007 the group introduced the Barloworld Cash-Settled Share Appreciation Right Scheme.

The scheme allows executive directors and certain senior employees to earn a long-term incentive amount calculated based on the increase in the Barloworld Limited share price between the grant date and the vesting and exercise of such rights. During 2011 the scheme rules were amended to change all future awards to be equity-settled.

No shares are issued for share appreciation rights granted before 2011 and all amounts payable will be settled in cash. All share appreciation rights granted from 2011 will be settled in shares. The objective of the scheme is to recognise the contributions of senior staff to the group’s financial position and performance and to retain key employees.

The vesting of the rights are subject to specific performance conditions, based on group headline earnings per share. Rights are granted for a period of six years and vest one-third after three years from grant date, a further one-third after four years and the final third after five years.

The grant price of these appreciation rights equals the volume-weighted average market price of the underlying shares on the three trading days immediately preceding grant date.

On resignation, share appreciation rights which have not yet vested and those vested but not exercised, are forfeited. On death or retirement the Barloworld remuneration committee may permit a portion of unvested rights to be exercised within one year (or such extended period as the committee may decide) of the date of cessation of employment.

It is group policy that employees should not deal in Barloworld Limited shares (and this is extended to the forfeitable share plan, share appreciation rights and share options schemes) for the periods from 1 April for half-year-end and 1 October for year-end until 24 hours after publication of the results and at any other time during which they have access to price sensitive information.

Cash-settled share appreciation rights: Fair value estimates

In terms of IFRS 2, liabilities relating to cash-settled share-based payments are adjusted to fair value at financial position date.

The estimated fair value of the share appreciation rights was calculated using a binomial pricing model, with inputs as set out below:

Date of grant 23 November
2009		 29 September
2008*		  
Number of share appreciation rights granted 3 144 650 2 987 635  
Exercise price (R) 51.04 61.01  
Share price at grant date (R) 49.90 61.01  
Share price at financial position date (R) 92.50 92.50  
Expected volatility (%) 29.0    
Expected dividend yield (%) 2.7    
Risk-free rate (%) 6.5    
Exercise multiple (share price at exercise date/option exercise price) 2.3    
Estimated fair value per share appreciation right at grant date (R) 14.67 15.64  
Estimated fair value per share appreciation right at year-end (R) 42.47    
* Unexercised rights relating to the 29 September 2008 award expired on 29 September 2014.

Equity-settled share appreciation rights: Fair value estimates

In terms of IFRS 2, the transaction is measured at fair value of the equity instruments at the grant date.

The estimated fair value of the share appreciation rights was calculated using a binomial pricing model, with inputs as set out below:

Date of grant 18 March
2014		   19 March
2013		 30 March
2012		 28 February
2011		  
Number of share appreciation rights granted 2 264 560   2 562 990 1 954 860 2 069 990  
Exercise price (R) 106.82   90.73 96.48 70.83  
Share price at grant date (R) 107.32   90.50 99.98 72.25  
Expected volatility (%) 35.1   36.2 37.9 36.6  
Expected dividend yield (%) 2.7   3.3 2.8 3.9  
Risk-free rate (%) 8.1   6.3 6.4 8.0  
Exercise multiple (share price at exercise date/option exercise price) 1.9   1.9 1.9 1.9  
Estimated fair value per share appreciation right at grant date (R) 39.71   30.04 36.85 25.15  
32.4 Total forfeitable shares and appreciation rights unexercised

The following forfeitable shares and share appreciation rights granted are unexercised:

            Number of options/rights
Date of grant Date from
which
exercisable		 Expiry date Contractual life
remaining
(years)		 Original
exercise
price
(R)		   Barloworld
directors		 Barloworld
employees#		 Total
unexercised**
23 Nov 2009 30 Nov 2012 22 Nov 2015 1.1 51.04   452 164 898 568 1 350 732
Total cash-settled share appreciation rights granted and unexercised   452 164 898 568 1 350 732
28 Feb 2011 27 Feb 2014 27 Feb 2017 2.4 70.83   308 437 1 256 592 1 565 029
30 Mar 2012 29 Mar 2015 29 Mar 2018 3.5 96.48   267 590 1 568 150 1 835 740
19 Mar 2013 18 Mar 2016 18 Mar 2019 4.5 90.73   324 620 2 176 150 2 500 770
18 Mar 2014 17 Mar 2017 17 Mar 2020 5.5 106.82   248 670 2 004 100 2 252 770
Total equity-settled share appreciation rights granted and unexercised   1 149 317 7 004 992 8 154 309
30 Mar 2012 29 Mar 2015 29 Mar 2015 0.5 0.00   166 750 95 126 261 876
19 Mar 2013 18 Mar 2016 18 Mar 2016 1.5 0.00   191 660 138 585 330 245
18 Mar 2014 17 Mar 2017 17 Mar 2017 2.5 0.00   126 480 96 890 223 370
Total equity-settled forfeitable shares granted and unexercised   484 890 330 601 815 491
30 Mar 2012 29 Mar 2015 29 Mar 2015 0.5 0.00   13 500 2 920 16 420
19 Mar 2013 18 Mar 2016 18 Mar 2016 1.5 0.00   21 070 1 970 23 040
18 Mar 2014 17 Mar 2017 17 Mar 2017 2.5 0.00   49 680 3 520 53 200
Total cash-settled forfeitable shares granted and unexercised   84 250 8 410 92 660
Total unexercised           2 170 621 8 242 571 10 413 192

The weighted average share price at the date of exercising share appreciation rights during the period was R101.52 (2013: R84.17).

** Scheme rules dictate that the number of unexercised options may not exceed 10% of the total number of issued shares of the company at any time.
# The unexercised share options granted to retired directors and employees are included in this column.

Share options and appreciation rights movement for the year Number of
forfeitable
shares		 Number of
appreciation
rights		 Number
of share
options		 Weighted
average
exercise
price (R)*		  
2014          
Unexercised at beginning of year 1 327 598 11 189 704   65.52  
Rights granted in terms of equity-settled share appreciation rights scheme   2 264 560   106.82  
Forfeitable shares granted 276 570        
Forfeitable shares forfeited (10 838)        
Forfeitable shares vested (685 179)        
Appreciation rights forfeited   (176 848)   80.10  
Appreciation rights exercised   (3 772 375)   59.22  
Forfeitable shares, options and appreciation rights unexercised at year-end 908 151 9 505 041   86.74  
Appreciation rights exercisable at year-end   928 755   59.49  
Held by:          
Directors, employees and ex-employees of Barloworld 908 151 9 505 041   86.74  
2013          
Unexercised at beginning of year 1 811 888 9 451 603 283 172 55.50  
Rights granted in terms of equity-settled share appreciation rights scheme   2 562 990   90.73  
Forfeitable shares granted 361 560        
Forfeitable shares forfeited (21 210)        
Forfeitable shares vested (824 640)        
Appreciation rights forfeited   (175 459)   68.52  
Appreciation rights exercised   (649 430)   57.13  
Options forfeited     (3 334) 47.50  
Options exercised     (279 838) 47.50  
Forfeitable shares, options and appreciation rights unexercised at year-end 1 327 598 11 189 704   65.52  
Appreciation rights exercisable at year-end   599 230   51.04  
Held by:          
Directors, employees and ex-employees of Barloworld 1 327 598 11 189 704   65.52  
2012          
Unexercised at beginning of year 1 542 280 11 121 680 416 809 64.15  
Rights granted in terms of equity-settled share appreciation rights scheme   1 954 860   96.48  
Equity-settled forfeitable shares granted 288,340        
Forfeitable shares forfeited (18,732)        
Appreciation rights forfeited   (3 344 318)   108.30  
Appreciation rights exercised   (280 619)   64.18  
Options exercised     (133 637) 49.18  
Forfeitable shares, options and appreciation rights unexercised at year-end 1 811 888 9 451 603 283 172 55.50  
Appreciation rights and options exercisable at year-end   300 783 283 172 40.13  
Held by:          
Directors, employees and ex-employees of Barloworld 1 811 888 9 451 603 230 851 55.68  
Financial institutions     52 321 14.59  
* Weighted average exercise price for appreciation rights and share options.
32.5 Other share-based payment transactions

During 2008 the group implemented a Broad-Based Black Economic Empowerment transaction.

The impact of this transaction, calculated in terms of IFRS 2 Share-based Payment, was a charge to profit or loss in the current year of R1 million (2013: R5 million credit; 2012: R4 million charge) which was determined on assumptions and inputs as set out below:

  Number of
shares issue		 Weighted
average
fair value
per share (R)
Strategic black partners

The fair value is based on a monte carlo valuation model using an expected average dividend yield of 9.9% and a Barloworld share price volatility of 28.55% over the term of the lock-in period. The strategic black partners are permitted to receive all dividends paid in the lock-in period.

 12 331 337 10.02
Community service groups

The fair value is based on a monte carlo valuation model using an expected average dividend yield of 9.9% and a Barloworld share price volatility of 28.55% over the term of the lock-in period. The community service groups are permitted to receive all dividends paid in the lock-in period.

 2 153 676 10.02
Education trust

The shares awarded to the trust are treated as treasury shares.

 1 054 058  
Black managers trust

The fair value is based on a valuation model using an expected average dividend yield of 3.5% and a Barloworld share price volatility of 30% over the term of the lock-in period. The trust is not entitled to receive dividends during the lock-in period.

 3 060 166 1.19
Black non-executive directors trust

The fair value is based on the 30-day volume-weighted average share price of Barloworld Limited as at 9 July 2008, the date when the shares were donated to the trust. The three beneficiaries of the trust are DB Ntsebeza, S Baqwa and S Mkhabela, who are black nonexecutive directors of Barloworld Limited. The beneficiaries’ shares are subject to a seven-year lock-in period from 29 September 2008, during which period the beneficiaries will not be entitled to sell, cede, transfer or otherwise dispose of or encumber their Barloworld ordinary shares or their rights in the trust. All the rights for DB Ntsebeza and S Mkhabela vested on 30 September 2013. Following the resignation of S Baqwa, two-thirds of his rights were forfeited.

 108 030 108 030
General staff trust

The fair value is based on the Barloworld Limited closing share price on 30 September 2008, the date when the shares were allocated to staff members. 36 279 shares were not issued and are treated as treasury shares (note 13).

 2 980 829 64.50

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS l NOTE 32