Notes to the consolidated annual financial statements

for the year ended 30 September

		2008	2007	2006
		Rm	Rm	Rm
34.	Share incentive schemes and share-based payments
34.1	Financial effect of share-based payment transactions
	Income statement effect
	Expense arising from share-based payment transactions	337	5
	Compensation expense arising from equity-settled share option incentive plan	2	16	20
	Compensation (gain)/expense arising from cash-settled share appreciation rights incentive plan	(4)	20
	Share-based payment expense included in operating profit	335	41	20
	Taxation benefit on cash-settled share appreciation rights and BEE transactions	(40)	(6)
	Net share-based payment expense after taxation	295	35	20
	Balance sheet effect
	Non-current liability raised for cash-settled share appreciation rights granted (to be incurred within 2 – 5 years)	(16)	(20)
	Deferred taxation asset raised on share appreciation rights liability	40	6
	Net reduction in shareholders’ interest as a result of share-based payment transactions	24	(14)


34.2	Cash settled 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.

	No shares are issued in terms of this scheme and all amounts payable will be settled in cash. 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 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 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.

	Fair value estimates
	In terms of IFRS2, liabilities relating to cash-settled share-based payments are adjusted to fair value at balance sheet date.

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

	15 Nov	12 July	29 Sept
Date of grant	2006*	2007*	2008
Number of share appreciation rights granted	624 929	3 730 345	2 987 635
Exercise price (R)	64.18	113.01	61.01
Share price at grant date (R)	140.00	123.88	61.01
Share price at balance sheet date (R)	64.50	64.50	64.50
Expected volatility (%)	35.0	35.0	35.0
Expected dividend yield (%)	6.9	7.5	8.0
Risk free rate (%)	9.8	9.0	8.9
Exercise multiple (share price at exercise date/option exercise price)	2.0	2.0	2.0
Estimated fair value per share appreciation right at grant date (R)	26.91	46.41	15.64
Estimated fair value per share appreciation right at year end (R)	16.50	7.02	16.39

	* The 15 November 2006 and 12 July 2007 grants were modified due to the Cement and Coatings unbundlings as set out in note 35.4 and 35.5 below.

34.3	Equity-settled share option scheme
	Equity-settled share options were granted to executive directors and senior employees in terms of the Barloworld Share Option Scheme 1985.

	The objectives of the scheme are similar to that of the share appreciation rights scheme.

	The options have a total contractual life of 10 years, with the exception of the May 2004 grant which has a six year contractual life.

	The options vest one-third after three years from grant date, a further one-third after four years and the final third after five years.

	Fair value estimates
	Options granted after 7 November 2002 are expensed over their vesting period in terms of IFRS2. The estimated fair value of these equity-settled options were calculated at grant date using a binomial model with the following inputs:

Date of grant	1 April 2003	26 May 2004
Number of options granted	2 168 400	2 205 200
Exercise price (R)	47.50	67.80
Share price at grant date (R)	47.50	67.80
Expected volatility (%)	35.0	35.0
Expected dividend yield (%)	5.8	4.3
Risk free rate (%)	10.4	10.9
Exercise multiple (share price at exercise date/option exercise price)	2.0	2.0
Estimated fair value per option at grant date (R)	16.59	25.37

34.4

Modification for Cement and Coatings unbundling

The equity-settled share options were modified in line with the shareholder approval granted as a result of the unbundling of Cement in July 2007 and Coatings in December 2007. Cash-settled share appreciation rights awarded on 15 November 2006 and 12 July 2007 were modified in terms of the rules of the scheme.

The modifications did not result in any incremental fair value being granted to option or right holders, as the objective was to maintain intrinsic value at the same level before and after unbundling.

The modification for the Cement unbundling entailed a downward re-pricing of exercise prices combined with additional entitlements to compensate for the impact of a lower Barloworld share price after unbundling. The Cement unbundling resulted in an estimated 41.7% reduction in the Barloworld share price, based on the pre- and post-unbundling share price of R214.50 and R125 respectively.

The modification for the Coatings unbundling entailed a downward re-pricing of exercise prices only. The Coatings unbundling resulted in an estimated 6.2% reduction in the Barloworld share price, based on the pre- and post-unbundling share price of R114.60 and R107.50 respectively.

Corresponding fair values were demonstrated before and after unbundling based on a binomial option pricing model, as were intrinsic values.

The modified option entitlement ratio for the Cement unbundling was as follows:

Entitlement before unbundling	Entitlement after unbundling
[1 Barloworld option]	[1 Barloworld option + 0.866 new Barloworld options] or [1 Barloworld option + 1.8555 PPC sub-divided options]

The modified exercise prices are indicated in the table of unexercised options below (note 34.5).

34.5

Total share options and appreciation rights unexercised

The following share options and share appreciation rights granted are unexercised:

			Contractual			Number of options/rights
	Date from		life	Original	Modified				Total
	which		remaining	exercise	exercise	Barloworld	Barloworld		un-
Date of grant	exercisable	Expiry date	(years)	price (R)	price (R)	directors	employees^#	Ceded*	exercised**
29 May 2000	29 May 2003	29 May 2010	1.7	36.70	8.80		102 511		102 511
25 Sept 2001	25 Sept 2004	25 Sept 2011	3.0	45.70	13.63		189 779	13 062	202 841
25 Sept 2002	25 Sept 2005	25 Sept 2012	4.0	58.20	20.33		21 000	8 000	29 000
1 April 2003	1 April 2006	1 April 2013	4.5	47.50	14.59	6 667	766 985	158 328	931 980
26 May 2004	26 May 2007	26 May 2010	1.7	67.80	25.48	108 869	1 625 965	260 751	1 995 585
Total equity-settled share options granted and unexercised						115 536	2 706 240	440 141	3 261 917
15 Nov 2006	15 Nov 2009	15 Nov 2012	4.1	140.00	64.18	335 783	289 146		624 929
12 July 2007	12 July 2010	12 July 2013	4.8	123.88	113.01	372 968	3 129 353		3 502 321
29 Sept 2008	29 Sept 2011	29 Sept 2014	6.0	61.01	n/a	539 822	2 447 813		2 987 635
Total cash-settled share appreciation rights granted and unexercised						1 248 573	5 866 312		7 114 885
Total unexercised						1 364 109	8 572 552	440 141	10 376 802
The weighted average share price of options exercised during the period was R96.51 (2007: R174.67; 2006: R112.61)

	^#	The unexercised share options granted to retired and ex-directors and -employees are included in this column.
	*	In terms of the rules of the Barloworld Share Option Scheme 1985 options may be ceded to an approved financial institution.
	**	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.

			Weighted
	Number of	Number	average
	appreciation	of share	exercise
	rights	options	price (R)
Share options and appreciation rights movement for the year 2008
Unexercised at the beginning of the year	4 355 274	4 661 117	76.83
Rights granted in terms of cash-settled share appreciation rights scheme	2 987 635		61.01
Options forfeited		(52 075)	60.30
Appreciation rights forfeited	(228 024)		113.01
Options exercised		(1 347 125)	51.66
Options and appreciation rights unexercised at year end	7 114 885	3 261 917	66.19
Held by:
Directors, employees and ex-employees of Barloworld	7 114 885	2 821 776	68.19
Financial institutions		440 141	21.12

2007
Unexercised at the beginning of the year		7 149 483	51.41
Additional option entitlements in terms of modification for Cement unbundling		875 670	31.33
Rights granted in terms of cash-settled share appreciation rights scheme	4 355 274		116.87
Options forfeited		(236 205)	30.19
Options exercised		(3 127 831)	25.22
Options unexercised at year end	4 355 274	4 661 117	76.83
Held by:
Directors and employees of Barloworld	4 355 274	3 701 024	74.03
Employees of PPC		360 345	30.32
Financial institutions		599 748	30.04

2006
Unexercised at the beginning of the year		9 449 266	48.71
Options forfeited		(52 334)	49.40
Options exercised		(2 247 449)	40.09
Options unexercised at year end		7 149 483	51.41
Held by:
Directors and employees of Barloworld		5 888 750	53.00
Financial institutions		1 260 733	43.99

			Weighted
		Number	average
		of shares	fair value
		issued	per share (R)
34.6	Other share-based payment transactions
	The group implemented a Broad Based Black Economic Empowerment transaction during the year as set out in the Finance Director’s Report.

	The impact of this transaction, calculated in terms of IFRS2 Share-based Payment, was a charge to profit or loss in the current year of R337 million which was determined on assumptions and inputs as set out below:

	Strategic black partners	12 331 337	10.02
	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.

	Community service groups	2 153 676	10.02
	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.

	Education trust	1 054 058
	No charge has been taken into account as no award to beneficiaries of the trust has been made to date. The shares awarded to the trust are treated as treasury shares.

	Black managers trust	3 060 166	4.67
	The fair value is based on a 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 trust is not entitled to receive dividends during the lock-in period.

	Black non-executive directors trust	108 030	83.31
	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 non-executive directors of Barloworld Limited. The beneficiaries’ shares are subject to a seven dyear 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.

	General staff trust	2 980 829	64.50
	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.

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