IFRS 2 paras 44-47, disclosures for equity settled share based payments

Greencore Group plc – Annual report – 28 September 2018

Industry: food and drink

  1. SHARE-BASED PAYMENTS

The Group operates a number of employee share schemes which are equity settled share-based payments as defined in IFRS 2 Share-based payments. A recognised valuation methodology is employed to determine the fair value of awards and options granted as set out in the standard. The charge incurred relating to these schemes is recognised within operating costs. Detail of each of the employee share schemes operated by the Group are set out below: 

ANNUAL BONUS PLAN

Senior Executives participate in the Annual Bonus Plan as outlined in the Report on Directors’ Remuneration. In accordance with this plan, a deferred share award equal to a proportion of the cash bonus is awarded to the participating executives, the number of shares is calculated at market value on the date of allocation, to be held by a trustee for the benefit of individual participants without any additional performance conditions other than three years of service. The shares vest after three years but are forfeit should an executive voluntarily leave the Group within the three year time period, subject to normal ‘good leaver’ provisions. The charge recognised in the Group Income Statement was £0.8m (2017: £1.6m). The fair value of the award is equal to the share price on the grant date. The share price on the grant date, for awards granted in December 2017 was £2.05 (2017: £2.43).

On 1 December 2017 and 1 December 2016, 652,571 and 599,359, respectively, awards were granted to Senior Executives of the Group under the Annual Bonus Plan.

The following table illustrates the number of, and movements in, share awards during the year under the plan:

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  • The number of options outstanding and their exercise prices were adjusted to take account for the effect of the Rights Issue so that holders of options remain in the same position as they would have been before the Rights Issue.

Awards will be granted to Senior Executives of the Group under the Annual Bonus Plan in respect of the year ended 28 September 2018. A charge amounting to £0.1m (2017: £0.1m) relating to awards to Executive Directors and £0.2m (2017: £0.4m) relating to awards to other senior executives has been included in the Group Income Statement in respect of the estimated 2018 charge. The total fair value of the awards will be taken as a charge to the Group Income Statement over the vesting period of the awards.

PERFORMANCE SHARE PLAN

Certain employees participate in a long-term incentive scheme, the Performance Share Plan. In accordance with this scheme, participants are awarded an allotment of shares which will vest over three years subject to vesting conditions based on growth in Adjusted Earnings per Share and Return on Invested Capital. In December 2017 the Group introduced an additional vesting condition for relative Total Shareholder Return for all awards granted from this date. These measures will be equally weighted when assessing vesting conditions. An additional two year future service period will apply to Executive Directors vested shares before they are released.

The number of shares granted is calculated based on the market value on the date of allocation. Shares awards are forfeit should an executive voluntarily leave the Group prior to the vesting date, subject to normal ‘good leaver’ provisions. The fair value of the award has attributed a value to each vesting condition, equally weighted. Two thirds of the awards have a value that is equal to the share price on the grant date and the remaining one third relating to the TSR has been fair valued using a Monte Carlo simulation model which incorporates the relative volatility of the identified peer group against whom the Group are compared to assess the TSR vesting condition. Further description of the scheme can be found in the Report on Directors’ Remuneration. A charge amounting to £0.1m (2017: £1.2m) was included in the Group Income Statement in the 2018 financial year related to these awards for all Performance Share Plan awards granted from December 2016 onwards.

The grant price of shares awarded in December 2017 was a weighted average price of £2.16 (granted in December 2016: £2.43).

The following table illustrates the number of, and movements in, share awards during the year under the plan:

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  • The number of options outstanding and their exercise prices were adjusted to take account for the effect of the Rights Issue so that holders of options remain in the same position as they would have been before the Rights Issue.

SHARESAVE SCHEMES

The Group operates savings-related share option schemes in both the UK and Ireland. Options are granted at a discount of between 20% and 25% of the market price at the date of invitation over three, five and seven year savings contracts and options are exercisable during the six month period following completion of the savings contract. The charge recognised in the Group Income Statement in respect of these options was £0.7m (2017: £0.7m). Grant date fair value was arrived at through applying a trinomial model, which is a lattice option-pricing model.

During the year ended 28 September 2018, ShareSave Scheme options were granted over 3,408,536 shares (UK) and 107,568 shares (Ireland), which will ordinarily be exercisable at an exercise price of £1.48 and €1.57 per share respectively, during the period 1 September 2021 to 28 February 2022. The weighted average fair value of share options granted during the year ended 28 September 2018 was £0.52 (UK) and £0.52 (Ireland).

During the prior year ended 29 September 2017, ShareSave Scheme options were granted over 2,410,569 shares (UK) and 30,429 shares (Ireland), which will ordinarily be exercisable at an exercise price of £1.98 and €2.11 per share respectively, during the period 1 September 2020 to 28 February 2021. The weighted average fair value of share options granted during the year ended 29 September 2017 was £0.62 (UK) and £0.66 (Ireland).

Number and Weighted Average Exercise Price for the UK ShareSave Scheme (expressed in sterling)

The following table sets out the number and weighted average exercise prices (expressed in sterling) of, and movements in, share options during the year under the UK ShareSave Scheme:

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  • The number of options outstanding and their exercise prices were adjusted to take account for the effect of the Rights Issue so that holders of options remain in the same position as they would have been before the Rights Issue.

Range of Exercise Prices for the UK ShareSave Scheme (expressed in sterling)

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Number and Weighted Average Exercise Prices for the Irish ShareSave Scheme (expressed in euro)

The following table sets out the number and weighted average exercise prices (expressed in euro) of, and movements in, share options during the year under the Irish ShareSave Scheme:

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  • The number of options outstanding and their exercise prices were adjusted to take account for the effect of the Rights Issue so that holders of options remain in the same position as they would have been before the Rights Issue.

Range of Exercise Prices for the Irish ShareSave Scheme (expressed in euro)

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EXECUTIVE SHARE OPTION SCHEME

The charge relating to the Executive Share Option Scheme recognised in the Group Income Statement for the year was £nil (2017: £nil). Grant date fair value was arrived at through applying a trinomial model, which is a lattice option-pricing model. To the extent that options have vested, they will ordinarily remain exercisable for a period up to ten years from the grant date and are settled in equity through the issue of shares once exercised. The general terms and conditions applicable to the share options granted by the Group are addressed in the Report on Directors’ Remuneration. All conditions are non-market based.

The Executive Share Option Scheme expired in 2011 and no further options have been granted under this scheme. During the year, all outstanding options were exercised.

The following table illustrates the number and weighted average exercise prices (expressed in euro) of, and movements in, share options during the year under the plan:

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  • The number of options outstanding and their exercise prices were adjusted to take account for the effect of the Rights Issue so that holders of options remain in the same position as they would have been before the Rights Issue.

RANGE OF EXERCISE PRICES FOR THE EXECUTIVE SHARE OPTION SCHEME

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WEIGHTED AVERAGE ASSUMPTIONS USED TO VALUE THE SHARE SCHEMES

ANNUAL BONUS PLAN

The fair value of awards granted under the Annual Bonus Plan is equal to the share price on the grant date.

PERFORMANCE SHARE PLAN

All awards granted under the PSP plans up to and including December 2016 are valued at a fair value equal to the share price on the grant date.

Awards granted in December 2017, have an additional vesting condition for relative Total Shareholder Return (‘TSR’). All vesting conditions relating to the awards will be equally weighted when assessing the fair value at grant date. As such two thirds of the award has a fair value equal to the share price on the grant date and the remaining one third relating to the TSR has been fair valued using a different methodology. The TSR component has been valued using a Monte Carlo simulation model which also incorporates the relative volatility of the identified peer group with whom the Group are compared to assess the TSR vesting condition. The following table shows the weighted average assumptions used to fair value the equity settled awards granted.

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ShareSave Schemes

The ShareSave Schemes equity settled options are also valued at the fair value on grant date in July 2018 and are calculated by applying a trinomial model. The following table shows the weighted average assumptions used to fair value the equity settled options granted.

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The average share price during the 2018 financial year was £1.83 (2017: £2.38).

The expected volatility is estimated based on the historic volatility of the Company’s share price over a period equivalent to the life of the relevant option. The risk-free rate of return is the yield on a government bond of a term consistent with the life of the option.

The range of the Company’s share price during the year was £1.27–£2.30 (2017: £1.87–£2.77) .

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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