Vodacom Group Limited Integrated report Year ended 31 March 2012 > Consolidated annual

Transcription

1 Vodacom Group Limited Integrated report Year ended 31 March 2012 > Consolidated annual Foreign currencies (continued) Foreign operations For the purpose of presenting consolidated annual financial statements, the assets and liabilities of entities with a functional currency other than rand are expressed in rand using exchange rates prevailing on the reporting date. Income and expense items and cash flows are translated at the foreign exchange rates on the transaction dates or the average exchange rates for the period and exchange differences arising are recognised directly in other comprehensive income. On disposal of a foreign operation, the cumulative amount previously recognised in other comprehensive income relating to that particular foreign operation is recognised in profit or loss. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated accordingly. Exchange differences arising on monetary items that form part of the Group s net investment in foreign operations, being monetary items receivable from or payable to foreign entities for which settlement is neither planned nor likely to occur in the foreseeable future, are recognised in other comprehensive income. Taxation on the foreign currency translation reserve relates only to monetary items that form part of the Group s net investment in foreign operations. Expenses Expenses are recognised as they are incurred. Prepaid expenses are deferred and recognised in periods to which they relate. Restraint of trade payments are made to limit an executive s post-employment activities and are expensed as incurred. Employee benefits Post-employment benefits The Group contributes to defined contribution funds for the benefit of employees and these contributions are expensed as they fall due. The Group is not liable for contributions to the medical aid of retired employees. Short-term and long-term benefits The cost of all short-term employee benefits, such as salaries, employee entitlements to leave pay, bonuses, medical aid and other contributions, are expensed in the period in which the employee renders the related service. Long-term employee benefits payable to eligible employees are expensed in the period in which the employee renders the related service. Deferred compensation benefits Employees of wholly-owned subsidiaries, including executive directors were, up to 31 March 2009, eligible for compensation benefits under a deferred bonus incentive scheme. The benefit is recorded at the present value of the expected future cash outflows. Share-based payments The Group has share-based payment compensation plans for certain eligible employees. Equity-settled share-based payments Equity-settled shared-based payments are measured at the grant date fair value of the equity instruments granted, and are expensed on a straight-line basis over the vesting period, with a corresponding increase in equity. The annual expense is based on the Group s estimate of the that will eventually vest, adjusted for the effect of non-market vesting conditions. Cash-settled share-based payments Cash-settled share-based payment liabilities are initially measured at fair value and subsequently remeasured to fair value at each reporting date as well as at the date of settlement, with any changes in fair value recognised in profit or loss. The expense is recognised on a straight-line basis over the vesting period, with a corresponding increase in the liability. Broad-based black economic empowerment ( BBBEE ) transaction Where equity instruments are issued to a BBBEE partner at less than fair value, these are accounted for as share-based payments. The difference between the fair value of the equity instruments issued and the consideration received is accounted for as an expense in profit or loss on the transaction date, with a corresponding increase in equity. No service or other conditions exist for BBBEE partners. A restriction on the BBBEE partner to transfer the equity instrument subsequent to its vesting is not treated as a vesting condition, but is factored into the fair value determination of the instrument. 23

2 Vodacom Group Limited Integrated report Year ended 31 March 2012 > Consolidated annual 16. Other reserves 16.1 Contingency reserve In terms of the Short-term Insurance Act ( the Act ) of 1998 the Group s cell captive partner, Centriq Insurance Company Limited, is required to recognise a contingency reserve equal to 10.0% of premiums written less approved reinsurance, as defined in the Act. This reserve can be utilised only with the prior permission of the Registrar of Short-term Insurance Share-based payment arrangements The following equity-settled share-based payment expense is recognised in profit or loss in terms of IFRS 2: Share-based Payment: Rm Forfeitable share plan (Note ) (192) (125) (30) Employee share ownership plan (Note ) (43) (65) (105) Forfeitable share plan reserve This share-based payment arrangement is accounted for as an equity-settled share-based payment transaction. (235) (190) (135) Under the FSP, awards of are granted to executive directors and selected employees of the Group. The vesting of these is subject to continued employment, and is conditional upon achievement of targets, measured over a three-year period, for directors, senior management and other selected employees. Number of Weighted average fair value at grant date Number of Weighted average fair value at grant date Number of Weighted average fair value at grant date Number of Share awards Movements in non-vested : 1 April R R Granted R R R Forfeited R64.50 ( ) R62.46 ( ) R58.69 (5 324) Vested R60.52 ( ) R59.11 (8 652) 31 March R R R Ordinary available for utilisation: Opening balance Granted ( ) ( ) ( ) Forfeited Vested March The fair value of the share awards on grant date were measured using the quoted market price of a Vodacom Group Limited share without adjusting for expected dividends and conditions, as these are non-market conditions. 51

3 Vodacom Group Limited Integrated report Year ended 31 March 2012 > Consolidated annual 16. Other reserves (continued) 16.2 Share-based payment arrangements (continued) Broad-based black economic empowerment reserve This share-based payment arrangement is accounted for as an equity-settled share-based payment transaction. In October 2008 the Group s shareholders approved a BBBEE transaction which entailed the issue and allotment of ordinary and A ordinary representing, in aggregate, 6.25% of Vodacom (Pty) Limited s ( Vodacom SA ) issued share capital to eligible employees who are permanent employees of Vodacom Group Limited and any of its wholly-owned South African subsidiaries from time to time, as well as Vodacom SA and its wholly-owned South African subsidiaries, including employees of the said entities who are on secondment outside of South Africa ( Employees ), broad-based black South African public ( Black Public ), black business partners ( Business Partners ) and broad-based strategic partners ( Strategic Partners ). The transaction was introduced to assist the Group in meeting its empowerment objectives for its South African operations. Components of the transaction Notes Percentage allocated % Transaction value Rm Cumulative share-based payment expense Rm Cash received Rm Weighted average remaining life Years Employees: YeboYethu Employee Participation Trust ( the Trust ) (280) 3.5 Black Public and Business Partners: YeboYethu Limited (527) Strategic Partner: Royal Bafokeng Holdings (Pty) Limited (552) Strategic Partner: Thebe Investment Corporation (Pty) Limited (236) (1 595) Employees The Trust, an employee share ownership plan, was established for the benefit of all eligible employees. The Trust holds A ordinary in Vodacom SA through its interest in YeboYethu Limited¹. The A ordinary are a separate class of in Vodacom SA, ranking pari passu with the ordinary except that they do not entitle the holder to dividends in cash until a notional loan is repaid. Employees participated in the transaction by being allocated units in the Trust based on a varying percentage of their guaranteed total cost of employment per annum taking into account their employment level and racial and gender classification. Altogether 75.0% of the Trust units were allocated to the employees on or about 1 October 2008 and 25.0% was reserved for future allocations to future employees. Of the 75.0% of allocated units, 74.8% was taken up by employees in In the current financial year, 5.5% (2011: 5.1%; 2010: 8.9%) was allocated to new employees that joined the Group between 1 September 2010 and 30 August The units vest annually on 1 September in five equal tranches and can be converted into YeboYethu Limited effective 1 March Black Public and Business Partners The Black Public and Business Partners hold ordinary and A ordinary in Vodacom SA through YeboYethu Limited. For the first five years the Black Public and Business Partners will not be entitled to sell their ordinary and A ordinary in Vodacom SA. After the fifth anniversary until the expiry of the 10 year lock-in period they will be entitled to sell or transfer these to approved BBBEE parties. After the expiry of the 10 year lock-in period the Black Public and Business Partners will be entitled to freely trade the ordinary and A ordinary. 52

4 Vodacom Group Limited Integrated report Year ended 31 March 2012 > Consolidated annual 16. Other reserves (continued) 16.2 Share-based payment arrangements (continued) Broad-based black economic empowerment reserve (continued) Strategic Partners: Royal Bafokeng Holdings (Pty) Limited and Thebe Investment Corporation (Pty) Limited The two Strategic Partners respectively hold ordinary and A ordinary in Vodacom SA through two wholly-owned ring-fenced private companies named Lisinfo 209 Investments (Pty) Limited¹ and Main Street 661 (Pty) Limited 1. The Strategic Partners will not be able to trade their during the first seven years of the 10 year lock-in period. After the seventh anniversary and until the expiry of the lock-in period, the Strategic Partners will be entitled to trade their subject to Vodacom SA having a first pre-emptive right to repurchase, and other Strategic Partners, if introduced with Vodacom SA s approval, having a second ranking pre-emptive right to purchase the. If none of the parties exercise their right, the Strategic Partners will be entitled to sell their to any other party with similar or higher BBBEE rating than themselves, subject to Vodacom SA approval. After the expiry of the 10 year lock-in period the Strategic Partners will be entitled to freely trade their. Note: 1. Consolidated by the Group as a special purpose entity in terms of SIC 12: Consolidation Special Purpose Entities, as issued by the IASB Funding Funding for the Trust units and for discounts given on the A ordinary was provided by Vodacom SA on a notional funding basis. In terms of the original notional vendor finance structure, the notional funding earned notional interest at a 10.0% notional nominal annual rate compounded semi-annually ( NACS ). To simplify the matter, the notional interest is now calculated using an equivalent converted notional nominal annual rate compounded daily of 9.8% which in the absence of any cash flow would yield the same result. The change from NACS was approved by the shareholders of Vodacom SA on 2 March The BBBEE participants receive a notional dividend on the A ordinary, which is used as a notional payment against the notional loan. A market condition has been included in the grant of the share rights through the repurchase feature, since the growth in the market value of Vodacom SA s impact the variable number of to be repurchased. This market condition has been taken into account when estimating the fair value of the share rights granted. If the notional loan has not been fully repaid after seven years, Vodacom SA has the legal right and option to repurchase a variable number of from the BBBEE participants at par value. The variable number of will be calculated based on a specified formula which takes into account the outstanding balance of the notional loan and the underlying value of the held in Vodacom SA. This repurchase feature is a mechanism to redeem any outstanding notional loan balances and since there is no obligation on Vodacom SA to repurchase any, it does not render the share-based payment to be cash-settled, nor does it impact the vesting rights. The notional funding closing balance for employees amounted to R1 747 million (2011: R1 722 million; 2010: R1 697 million), for Black Public and Business Partners R1 650 million (2011: R1 649 million; 2010: R1 645 million) and for Strategic Partners R2 475 million (2011: R2 474 million; 2010: R2 467 million). 53

5 Vodacom Group Limited Integrated report Year ended 31 March 2012 > Consolidated annual Other reserves (continued) 16.2 Share-based payment arrangements (continued) Broad-based black economic empowerment reserve (continued) Share rights Movements in non-vested share rights: 1 April Granted Forfeited ( ) ( ) ( ) 31 March Vesting period of share rights granted: Vested Within one year Between one and five years Unallocated share rights amount to (2011: ; 2010: ). No share rights are currently exercisable through the notional funding mechanism. Since the funded portion of the fair value is repaid through notional dividends on the A ordinary issued, the exercise price at the date the share rights become exercisable can vary depending to what extent the notional amounts outstanding have been recouped BBBEE valuation BBBEE credentials are not separable and cannot be valued other than by reference to the fair value of the equity instruments granted. The share-based payment expense was calculated using the Monte Carlo option pricing model, which is reflective of the underlying characteristics of the BBBEE transaction, using the following assumptions at grant dates: Employees: 2012 issue Employees: 2011 issue Employees: 2010 issue Black Public and Business Partners Strategic Partners Exercise price R25 R25 Risk-free rate (%) Expected volatility (%) 2 29,0 32,0 32,0 30,0 30,0 Vesting period (years) Contractual life (years) Notes: 1. Determined from the bootstrapped zero-coupon perfect-fit swap curve, sourced from the Bond Exchange of South Africa. 2. Determined using the historical share prices of Vodafone Group Plc, data sourced from Bloomberg, Telkom SA Limited (pre 18 May 2009), MTN Group Limited and Vodacom Group Limited, data sourced from McGregor BFA. 54

6 Notes to the consolidated financial statements continued for the year ended 31 March Directors remuneration 1 Remuneration philosophy Eskom links management remuneration to the of the organisation and an individual s contribution. Market factors are also crucial as rewards and remuneration must be kept at levels that will assist Eskom in retaining key leadership skills. Basic salary is augmented by short- and long-term incentives. International and local benchmarks are considered to ensure executive packages are aligned with those offered by companies of similar stature to Eskom. Eskom aims to remunerate in line with the median of the market to recruit and retain the best management team to lead the business. The executive remuneration strategy is constantly reviewed to stay aligned with the Department of Public Enterprises remuneration guidelines and abreast with best practices. People and governance committee The people and governance committee helps the board to apply policy relating to the remuneration of directors and executives as set by Eskom s shareholder. The policy also covers the nomination of executives for senior positions and conditions of service. The committee enhances business by: approving, guiding and influencing key human resources policies and strategies monitoring compliance with the Employment Equity Act guiding strategies to achieve equity in Eskom, and approving the principles governing reward and incentive schemes Non-executive directors Remuneration of non-executive directors is benchmarked against the norms for companies of similar size and is in line with guidelines issued by the shareholder. Remuneration proposals from the people and governance committee regarding nonexecutive directors remuneration are forwarded to the board. The board then makes recommendations to the shareholder. Non-executive directors receive a fixed monthly fee and are reimbursed for out-of-pocket expenses incurred in fulfilling their duties. Executive management committee (Exco) members The committee makes recommendations to the board concerning the remuneration of the chief executive, and approves the remuneration of the other Exco members (group executives). The remuneration is considered in accordance with a framework approved by the shareholder. The board recommendation on the remuneration of the chief executive has to be approved by the shareholder. Factors influencing the remuneration of the Exco members include level of skill, experience, contribution to organisational and success of the group. Remuneration includes a basic package and short- and long-term incentives. Every year, the people and governance committee reviews the structure of these packages to ensure an appropriate balance between fixed and variable remuneration and short- and long-term incentives and rewards. The chief executive, finance director and group executives have permanent employment contracts based on Eskom s standard conditions of service. Six months notice is required. Remuneration structure The remuneration of the Exco members includes the following components: Guaranteed amount They receive a guaranteed pay package with remuneration based on cost to company. This comprises a fixed cash portion and compulsory benefits (medical aid, life cover and pension). The guaranteed amount is reviewed annually to keep remuneration in line with the market. Short-term incentives These reward the achievement of individual predetermined objectives and targets as set by the chief executive in contracts with each Exco member. The people and governance committee approves the targets set for the chief executive. The short-term incentive scheme is calculated as a percentage of pensionable earnings. Long-term incentives These are designed to attract, retain and reward the Exco members for meeting the organisational objectives set by the shareholder. A market benchmarked long-term incentive scheme has been approved by the shareholder effective from 1 April Includes remuneration of the chief executive, finance director and Exco members (group executives who are senior executives but not directors of Eskom). Eskom Holdings SOC Limited Annual Financial Statements 2012

7 Notes to the consolidated financial statements continued for the year ended 31 March Directors remuneration 1 (continued) Long-term incentive scheme A number of (award ) were awarded to the Exco members on 1 April 2008, 2009, 2010 and The value of the is deemed to be R1 at grant date, and is escalated at a money-market rate to determine the value at reporting date. The board has set conditions in line with the Eskom corporate plan and shareholder compact over a three-year period. Performance covers financial and non-financial targets in areas such as ensuring business sustainability of Eskom, ensuring reliability of supply to all South Africans, ensuring that future power needs for South Africa are adequately provided for and supporting the developmental objectives of South Africa, with an agreed weighting in each category. Awards only vest if, and to the extent that, these targets are met. Potential vesting percentages range from 0% to 100%. A threshold and a stretch target are set for each measure, with an expected (on target) vesting of 50%. Performance parameters aligned with the shareholder compact and corporate plan are complemented by a set of gatekeeper conditions. If gatekeeper requirements are not met, the board at its discretion may adjust the vesting percentages even though targets have been met. The following gatekeeper conditions trigger a review of vesting percentages: if the lost-time incident rate is greater than 0.45 if the sustainability committee gives an unfavourable safety report if Eskom s audited annual financial statements show a financial loss if the auditors qualify Eskom s annual financial statements if a significant PFMA contravention occurs if enhancement of Eskom s reputation is not achieved The vesting period for award is three years from the date of grant. At the end of that period, the people and governance committee decides the amounts to be paid in line with: the percentage of award that vest, based on the conditions achieved the value of the award based on the grant value, escalated at a money market rate In addition to the conditions, vesting of award is dependent on the scheme participant remaining in Eskom s employment throughout the vesting period. The award lapses if employment ceases during the vesting period (other than for permitted reasons). Share awards vested Award awarded on 1 April 2009 vested on 31 March 2012 with an expected vesting rate, due to the achievement of non-financial conditions over the three-year period of 58.50%. The cash value of the vested is payable in June 2012 at R1.22 per share based on the money market rate. Shares awarded on 1 April 2008 were redeemed during the year. Shares vested on 31 March 2012 (with comparative status at 31 March 2011) are: Award vested on 31 March 2012 Award vested on 31 March 2012 at a rate of 58.50% Award payable at R1.22 per share Award vested on 31 March 2011 Award vested on 31 March 2011 at a rate of 47.32% Award redeemed in June at R1.29 per share Name Number Number R Number Number R BA Dames PS O Flaherty BE Bulunga T Govender EL Johnson SJ Lennon DL Marokane A Noah MM Ntsokolo Eskom Holdings SOC Limited Annual Financial Statements

8 Notes to the consolidated financial statements continued for the year ended 31 March Directors remuneration (continued) Share awards vesting The current estimated vesting values of the award are R1.19 per share for the 1 April 2010 awards (vesting 31 March 2013) and R1.19 for the April 2011 awards (vesting 31 March 2014). The value of the allocated does not take into account the impact of conditions over the applicable three-year periods. The vesting percentage of 50% and 50% for the 2010 and 2011, respectively, are estimates. The people and governance committee awarded the 1 April 2011 awards retrospectively on 25 May The awarded on 1 April 2009 and 1 April 2010 that were deferred pending the outcome of an investigation into the remuneration policy of State Owned Enterprises by the Department of Public Enterprises, were awarded by the board retrospectively on 31 May Shares awarded on 1 April 2011 Shares awarded on 1 April 2010 Outstanding award vesting on 31 March 2014 Award vesting on 31 March 2014 at a rate of 50% Award payable in June 2014 at R1.19 per share Outstanding award vesting on 31 March 2013 Award vesting on 31 March 2013 at a rate of 50% Award payable in June 2013 at R1.19 per share Name Number Number R Number Number R BA Dames PS O'Flaherty BE Bulunga T Govender EL Johnson SJ Lennon DL Marokane TBL Molefe A Noah MM Ntsokolo The details of the schemes are: Long-term incentive plan Long-term incentive plan Date of grant 1 April April 2010 Number of awarded Contractual life 3 years 3 years Vesting conditions Variable vesting depending on the achievement of conditions Variable vesting depending on the achievement of conditions Method of settlement Cash Cash Expected attrition of employee (%) Expected outcome of conditions (%) 50% 50% Long-term incentive plan 2012 Number Long-term incentive plan 2011 Number Reconciliation of share movements Outstanding at beginning of the year Granted during the year Forfeited during the year ( ) Settled during the year ( ) ( ) Outstanding at end of the year Carrying amount of liability (R 000) Intrinsic value of liabilities relating to vested rights (R 000) Eskom Holdings SOC Limited Annual Financial Statements 2012

9 Notes to the consolidated financial statements continued for the year ended 31 March Directors remuneration (continued) Details of emoluments paid The following schedule sets out the emoluments due to the directors of Eskom for the current year: Name Directors fees Salaries 1 Short-term bonus payment 2 Long-term bonus payment 3 Other payments 4 Total 2012 Restated 2011 R 000 R 000 R 000 R 000 R 000 R 000 R 000 Non-executive directors ZA Tsotsi PM Makwana LC Cele D Dube BL Fanaroff RMQ Gungubele LG Josefsson HB Lee N Lesela WB Lucas-Bull B Luthuli C Mabude Y Masithela MC Matjila B Mehlomakulu J Mirenge ME Mkwanazi JR Modise SPQ Sedibe U Zikalala DEL Zondo Executive directors BA Dames PS O Flaherty Exco members (group executives) BE Bulunga T Govender EL Johnson SJ Lennon TBL Molefe DL Marokane A Noah MM Ntsokolo Total directors and group executives Includes medical aid and pension fund contributions. 2. Short-term incentive bonus awarded for the 2012 financial year. 3. Long-term incentive bonus scheme Grant 4, which vested on 31 March 2011 was paid in June Fees related to security services and operating vehicle expenditure. 5. Appointed as chairman in June Appointed as chairman in June Exit in July Contract expired in June Appointed to the board in April Appointed to the board in August Appointed to the board in June The remuneration disclosed has been adjusted/restated to allocate the salary increase (backdated to the date of appointment of the director as CE) between the current and prior financial years. The increase was approved by the minister during October The remuneration for the 2011 year end has been restated with a total of R1.817 million consisting of a R1.201 million salary increase and a R short-term incentive scheme payment. The remuneration for the 2012 year end has been adjusted with an amount of R relating to the increase in the director s 2012 salary. Refer to page 40 in the Integrated Report. 12. This director was paid a two year retention bonus of R1.3 million. The repayment condition expired on 31 December New Exco members in 2012 as a result of new organisational structure. 14. The salaries for 2011 relating to these Exco members were included for comparative purposes. This resulted in a net increase in the total 2011 salaries of R13.4 million. Eskom Holdings SOC Limited Annual Financial Statements

10 Notes to the consolidated financial statements continued for the year ended 31 March R 000 R Directors remuneration (continued) Housing loans to Exco members at 31 March BA Dames T Govender DL Marokane The interest rate loan from Eskom Finance Company SOC Limited at 31 March 2012 was 7.25% (2011: 7.25%). The loans are repayable over a maximum period of 30 years. 1 The following board and Exco members were directors of Eskom directly held subsidiary companies. Fees paid for attendance of meetings were all paid to Eskom Holdings. Eskom Enterprises SOC Limited 2 DL Marokane PS O Flaherty Escap SOC Limited 3 PS O Flaherty Eskom Finance Company SOC Limited 3 BE Bulunga 10 PS O Flaherty Pro forma revaluation of property, plant and equipment (unaudited) The group currently accounts for its property, plant and equipment using the cost model under IAS 16 Property, plant and equipment. The cost model requires that property, plant and equipment should be measured at cost (including borrowing cost in respect of qualifying assets), less accumulated depreciation and impairment. However, the cost model does not reflect the true economic value of the group s property, plant and equipment and the basis on which our tariff is calculated by the National Energy Regulator of South Africa (NERSA). Therefore, a summary has been provided below reflecting what the impact on the financial statements would be if the group s property, plant and equipment was measured using the depreciated replacement cost (DRC) model. Borrowing costs were not included in the carrying amount of property, plant and equipment when determining the increase or decrease in the revaluation surplus and have therefore been expensed. The fair values determined using the DRC model were reviewed for possible impairment loss in order to determine whether or not the net future cash inflows related to the use of property, plant and equipment are less than the calculated fair value of property, plant and equipment. The fair values disclosed below are net of the adjustment made for the tariff shortfall in the first few years. This shortfall is expected to disappear once the electricity tariff determined in terms of the regulatory methodology, which is based on the depreciated replacement values, is fully phased in by NERSA. Summarised group statements of financial position at 31 March 2012 Historical cost Adjustments After revaluation Historical cost Adjustments After revaluation 31 March 31 March 31 March 31 March 31 March 31 March Rm Rm Rm Rm Rm Rm Assets Property, plant and equipment Deferred tax Other assets Equity and liabilities Total equity Deferred tax Other liabilities On resignation the terms and conditions of the loan are renegotiated. 2. Paid by Eskom. 3. Fees paid to Eskom. 110 Eskom Holdings SOC Limited Annual Financial Statements 2012

11 Notes to the annual financial statements continued For the year ended 29 February 2012 of the units. The impairment loss is allocated to reduce the carrying amount of the assets of the unit in the following order: first, to reduce the carrying amount of any goodwill allocated to the cash-generating unit; and then, to the other assets of the unit, pro rata on the basis of the carrying amount of each asset in the unit. An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in profit or loss. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase Share capital and equity An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. If the company re-acquires its own equity instruments, the consideration paid, including any directly attributable incremental costs (net of income taxes) on those instruments, is deducted from equity until the are cancelled or re-issued. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the company s own equity instruments. Consideration paid or received shall be recognised directly in equity. Shares in the company held by the Steers Share Incentive Trust are classified as treasury. The cost of these is deducted from equity. The number of held is deducted from the number of issued and the weighted average number of in the determination of earnings per share. Dividends received on treasury are eliminated on consolidation Share-based payments Goods or services received or acquired in a share-based payment transaction are recognised when the goods or services are received. A corresponding increase in equity is recognised if the goods or services were received in an equity-settled share-based payment transaction or a liability if the goods or services were acquired in a cash-settled share-based payment transaction. When the goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, they are recognised as expenses. For equity-settled share-based payment transactions the goods or services received and the corresponding increase in equity are measured, directly, at the fair value of the goods or services received provided that the fair value cannot be estimated reliably. If the fair value of the goods or services received cannot be estimated reliably, their value and the corresponding increase in equity, indirectly, are measured by reference to the fair value of the equity instruments granted. For cash-settled share-based payment transactions, the goods or services acquired and the liability incurred are measured at the fair value of the liability. Until the liability is settled, the fair value of the liability is remeasured at each reporting date and at the date of settlement, with any changes in fair value recognised in profit or loss for the period. If the share-based payments granted do not vest until the counterparty completes a specified period of service, the Group accounts for those services as they are rendered by the counterparty during the vesting period (or on a straight-line basis over the vesting period). If the share-based payments vest immediately the services received are recognised in full. For share-based payment transactions in which the terms of the arrangement provide either the entity or the counterparty with the choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments, the components of that transaction are recorded, as a cash-settled share-based payment transaction if, and to the extent that, a liability to settle in cash or other assets has been incurred, or as an equity-settled share-based payment transaction if, and to the extent that, no such liability has been incurred Employee benefits Short-term employee benefits The cost of short-term employee benefits (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care) are recognised in the period in which the service is rendered and are not discounted. The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, in the case of non-accumulating absences, when the absence occurs. 46 Integrated Annual Report 2012

12 26. DIRECTORS REMUNERATION continued Name of director For services as directors R000 Remuneration R000 Bonuses R000 Allowances and benefits R000 Total R February 2011 Executive Mr T Halamandaris Mr KA Hedderwick Mr SJ Aldridge Non-executive Mr HR Levin Mr P Halamandaris Mr P Halamandaris (Jnr) Mr JL Halamandres Mr BL Sibiya Less: Paid by subsidiaries (7 132) (3 834) (1 237) (12 203) Performance bonuses reflect the amounts accrued in respect of the year to which the relates. There were no contributions to provident funds by the Group on behalf of the directors. IFRS 2 Share-based Payments amounts of R (2011: R ), R (2011: R ) and R (2011: R ) were recognised in respect of options granted to Mr KA Hedderwick, Mr T Halamandaris and Mr SJ Aldridge respectively. The directors share-based payment amounts are not included in the remuneration above. 27. SHARE-BASED PAYMENTS 27.1 Equity-settled share-based payments Famous Brands Limited operates The Steers Share Incentive Trust (Share Incentive Scheme). This enables directors, executive management and specified directors of subsidiaries to benefit from the Famous Brands Limited share price. This scheme confers the right to participants to acquire ordinary at the value of the Famous Brands Limited share at the date that the option is granted. On acceptance of the option, the participant has the right to exercise the option at any time, after vesting, during the option life, in as many tranches as the participant may elect. To receive, participants must be employed by the company when the rights to the vest. The directors of the company may amend the vesting period of the options by board resolution. The scheme has a single type of vesting category as illustrated below: Vesting category Vests at end of year % vesting Expiry after grant (years) Type A Integrated Annual Report 2012

13 Notes to the annual financial statements continued For the year ended 29 February SHARE-BASED PAYMENTS continued 27.1 Equity-settled share-based payments continued A reconciliation of the movement of all share options is detailed below: Option exercise price range (Rand) Number of options Share Incentive Scheme Opening balance Options granted and accepted management Options granted and accepted directors Lapses ( ) (57 000) Allotted and issued ( ) ( ) Options granted, not issued up to end of period The last options were granted on 30 May The following options have been granted and accepted, but delivery of will only take place in the future: Number of ordinary Option exercise price (Rand) Last vesting date Year to February Year to February Year to February Year to February Year to February Share options held by executive directors are detailed below: Number of options Mr T Halamandaris Mr KA Hedderwick Mr SJ Aldridge The share options granted have been valued, at grant date, using either the Black-Scholes-Merton model or a trinomial tree which takes account of the vesting period (European style option) and the period post-vesting (American style option). Expected volatility of the share price was determined by giving consideration to the historical volatility of the Famous Brands Limited share price. The weighted fair value of the options granted and the related assumptions utilised are detailed below: Number of options granted and accepted Weighted average fair value at grant date (Rand) The principal inputs are as follows: Weighted average share price (Rand) Exercise price (Rand) Expected life (years) Expected volatility (%) Risk-free interest rate (%) Average expected dividend yield (%) During 2012 the equity-based share-based payment charge to profit or loss amounted to R (2011: R ). 70 Integrated Annual Report 2012

14 27. SHARE-BASED PAYMENTS continued 27.2 Cash-settled share-based payments For cash-settled share-based payments, the liability of the fair value of unexercised share appreciation rights which are expected to vest, is determined initially at grant date and then revalued at each reporting date and amortised over the applicable period. During 2011, the Group introduced a share appreciation bonus scheme which allows certain senior managers to earn a bonus based upon the increase in the Famous Brands Limited share price between the grant date and the vesting date. Executive directors have not been granted rights under this scheme. Participants are allocated a notional number of (rights) and will be paid a cash bonus equal to the share price appreciation at the expiry of the three-year period. The scheme has a single type of vesting category, namely that rights vest and expire three years after the grant date. Payment of the bonuses must occur within 10 business days of the vesting date. Rights granted on 30 May 2011 amounted to at a notional grant price of R After rights lapsed, there were rights outstanding at 29 February The share options granted have been valued, at grant date, using the Black-Scholes-Merton model. The principal inputs for the valuations of the cash-settled share-based payments granted in May 2011 were the same as for the valuations of the equity-settled share-based payments granted on the same date. During 2012, the cash-settled share-based payment charge to profit or loss amounted to R (2011: Rnil). Based upon the closing share price of cents at 29 February 2012 the potential liability has been provided for. 28. RELATED PARTY TRANSACTIONS The Group, in the ordinary course of business, entered into various transactions with related parties. These transactions occurred under terms and conditions no more favourable than those entered into with third parties Franchise agreements Directors have interests in 14 franchised outlets. Franchise fees and product sales have been charged under terms and conditions no more favourable than those entered into with third parties Lease agreements The Group has entered into lease agreements with an entity controlled by certain directors. The transactions were concluded at market-related rates prevailing at the time of entering into the transactions Supply agreements The Group has entered into a supply agreement with an entity controlled by certain directors. All products purchased were concluded at market-related prices Professional fees Professional fees have been paid to a firm of which two non-executive directors are partners. The transactions were conducted at market-related rates prevailing at the time of entering into the transactions Management fees Management fees have been paid to an executive director of a subsidiary company for providing operational management services to the franchising business. The transactions were conducted at market-related rates prevailing at the time of entering into the transactions. The aggregate of the above transactions is as follows: 2012 R000 Sale of product and franchise fee revenue Lease payments Purchases of product Professional fees paid Management fees paid Amounts owing to related parties Amounts receivable from related parties Transactions between the holding company and subsidiaries Rent received Dividends received Management fees received by the company from the operating subsidiary for statutory costs incurred R Integrated Annual Report 2012

15 Notes to the financial statements continued R 000 GROUP Employee benefits continued 23.2 Pension scheme continued 23.2(vi) Statement of financial position disclosure Projected benefit obligation (PBO) Market value of assets: 31 March Status of fund: over funding ( ) ( ) Assets ( ) ( ) Paragraph 58 limit ( ) ( ) Unrecognised due to paragraph 58 limit Asset recognised ( ) ( ) Recognised asset: 1 April ( ) ( ) Net periodic pension cost (7 273) Company contributions (8 517) (7 639) Change in paragraph 58 unrecognised liability Recognised asset: 31 March ( ) ( ) 23.3 Provision for employment obligations The group s accrual for post-employment medical obligations of R33,9 million (2011: R26,7 million), is based on assumptions used by the independent actuaries which includes appropriate mortality tables, long term estimates of increases in medical costs and appropriate discount rates. Key actuarial assumptions used were: Discount rate % Mortality table PA (90) PA (90) Future salary increases % A sensitivity analysis has been performed to determine the effect of a change at which employees become entitled to postemployment medical benefits. A 10% increase/(decrease) in the rate of incidence would have the effect of (decreasing)/ increasing net profit before taxation by R161k (2011: R161k) respectively Employee share option schemes The group issues equity-settled incentives to certain employees. Equity-settled payments are measured at fair value at date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period The Black Management Scheme (3.2% of enlarged share capital) The purpose of the scheme is to give effect to one of the group s broad-based black economic empowerment objectives, by encouraging black employees within the group, that are employed at management level (being Peromnes Grade 8 and higher or the equivalent from time to time), to remain in the employment of the group and to promote the continued growth of the group by giving such employees, including future employees, an opportunity to acquire. Group Five provided the Black Management Trust with a loan to enable the Black Management Trust to subscribe for Group Five at a price of R16,03 per share. Annual interest on the loan equates to the lesser of dividends received from Group Five and the South African prime overdraft rate. Allocations, at the discretion of the board remuneration committee, are made from time to time to earmarked black managers that do not participate in the New Management Incentive Scheme. The Black Management Trust will utilise all the dividends received on the to settle any expenses (i.e. audit fees and bank charges) and to service any outstanding funding obligations owed to Group Five. To the extent that surplus cash exists in the Black Management Trust, the trustees will be entitled to distribute the surplus cash to the beneficiaries. The vesting of takes place on the following basis: on the 2nd anniversary of the date on which were allocated to the beneficiary, 33.3% of the will vest; on the 3rd anniversary of such date, so many additional as represent 33.3% of the, allocated to the beneficiary will vest; and on the 4th anniversary of such date, the balance of the will vest. 51 GROUP FIVE 2012 ONLINE SECTION OF INTEGRATED REPORT

16 Notes to the financial statements continued 23. Employee benefits continued 23.4 Employee share option schemes continued The Black Management Scheme (3.2% of enlarged share capital) continued A person will cease to be a beneficiary upon: ceasing to be an employee of the company within the group, either at all or at least at a management level, other than as a result of retrenchment, unlawful dismissal, constructive dismissal by the employer, disablement, death or retirement in accordance with normal retirement policies of the group; or share ownership vesting occurring in respect of such beneficiary s allocated ; or share ownership vesting no longer being available in terms of the scheme in respect of any of such beneficiary s allocated. The initial beneficiaries have appointed two employee management trustees. In addition, an independent trustee has been appointed. The trustees will from time to time vote the allocated of a beneficiary in accordance with the directions of that beneficiary. Unallocated will be allocated by the trustees as they consider to be in the best interests of future beneficiaries The Broad-based Scheme (0.5% of enlarged capital) The beneficiaries of the Broad-based Scheme were all of the permanent employees employed by the group in its wholly-owned subsidiaries, of all races according to a predetermined level (below Peromnes Grade 8) with a minimum of one year s service at 1 October More than 90% of the participants of the Broad-based Scheme were black. Staff joining Group Five after the allocation date do not participate in the Broad-based Scheme. Group Five issued Group Five equally to employees at no consideration on 1 October Beneficiaries of the Broad-based Scheme are to be paid the total dividends in respect of the held by them and will be entitled to exercise the voting rights in respect of the Group Five held by them. Participants could, however, not dispose of or encumber the Group Five held by them prior to the 5th anniversary of the date of issue of such Group Five awarded to them, and such were accordingly pledged to Group Five as security for such non-disposal and nonencumbrance obligations, until such 5th anniversary had lapsed. There are no other conditions attached to participation in the Broad-based Scheme. A minimum of two senior black managers have been selected by the beneficiaries of the Broad-based Scheme to administer the voting of the beneficiaries in accordance with instructions received from each beneficiary in respect of their New management Incentive Scheme During the year ended 30 June 2006, developments in the regulatory environment and best practice in local and global share schemes required a review of the Group Five Share Incentive Scheme. The board remuneration committee with the assistance of independent advisors, determined that the scheme in place at that date was no longer effective. In line with global best practice and emerging South Africa practice, the board remuneration committee and the board of directors recommended the adoption of a scheme, with effect from 1 October 2005, based on equity-settled share appreciation rights (SAR). The New Management Incentive Scheme has the advantages of simpler mechanics, it optimises the tax position of the company and the employee and is easier to administer. The previous Group Five Share Incentive Scheme, which operates as an option scheme will remain in place for options granted under this scheme, until such time as these options are exercised or lapse. Under this New Management Incentive Scheme, employees of the group are awarded rights to receive in the company based on the value of these awards. Employees, as selected by the board remuneration committee, receive grants of SARs. These rights to receive equal to the value of the difference between the exercise price and the SAR grant price. The SAR grant price is calculated at the 30-day VWAP prior to the grant with no discount. After vesting, the SAR will become exercisable. Upon exercise by a beneficiary, the company will settle the value of the difference between the exercise price and the SAR grant price, by the delivery of Group Five. Group Five may withhold any amounts or make such arrangements as are necessary to meet any liability to taxation or any other liabilities in respect of the SAR grants. The arrangements may include the sale of on behalf of the beneficiaries and the use of the proceeds of the sale to meet such liability, or the reduction of the number of to which the beneficiaries would otherwise be entitled. The intention of the New Management Incentive Scheme is to purchase Group Five in the market to settle the scheme s benefits, so the New Management Incentive Scheme will not be as dilutive as normal share option schemes. The company will retain the right to issue new at its election, to mitigate the risk of sudden fluctuations in the share price, which could be disruptive to the orderly trade of Group Five in the market. The company will be limited to issuing no more than 15% of the company s in settlement of benefits of all company share schemes over any ten-year period. The New Management Incentive Scheme was introduced to replace the current Group Five Share Incentive Scheme over time. 52