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

Greencore Group plc – Annual report – 25 September 2020

Industry: food and drink

6. Share-based payments

The Group operates a number of employee share award schemes which are equity settled share-based payments as defined in IFRS 2 Sharebased payments. Recognised valuation methodologies are employed to determine the fair value of awards granted as set out in the standard. The charge incurred relating to these awards is recognised within operating costs. Details 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 £0.9m (2019: £0.8m). 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 2019 was £2.41 (December 2018: £1.81).

On 1 December 2019 and 1 December 2018, 359,315 and 535,760 awards were respectively 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:

Awards will be granted to Senior Executives of the Group under the Annual Bonus Plan in respect of the year ended 25 September 2020. A charge amounting to £0.1m (2019: £0.2m) relating to awards to Executive Directors and £0.1m (2019: £0.1m) relating to awards to other senior executives has been included in the Group Income Statement in respect of the estimated 2020 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 the scheme rules, 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, Return on Invested Capital and relative Total Shareholder Return (TSR). 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. Share awards are forfeited 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. 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 is fair valued using a Monte Carlo simulation as described further in this note. A description of the scheme can also be found in the Report on Directors’ remuneration. A charge amounting to £0.2m (2019: £2.2m) was included in the Group Income Statement in the year ended 25 September 2020 relating to these awards for all Performance Share Plan awards granted from December 2016 onwards.

The grant price of shares awarded in December 2019 was a weighted average price of £2.34 (granted in December 2018: £1.81).

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

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 year savings contracts and awards 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 awards was £0.9m (2019: £0.6m). Grant date fair value was arrived at by applying a trinomial model, which is a lattice option-pricing model.

During the year ended 25 September 2020, Sharesave Scheme awards were granted over 8,697,000 shares (UK) and 124,032 shares (Ireland), which will ordinarily be exercisable at an exercise price of £1.14 and €1.19 per share respectively, during the period 1 September 2023 to 28 February 2024. The weighted average fair value of share awards granted during the year ended 25 September 2020 was £0.26 (UK) and €0.32 (Ireland).

During the year ended 27 September 2019, Sharesave Scheme awards were granted over 2,126,954 shares (UK) and 44,224 shares (Ireland), which will ordinarily be exercisable at an exercise price of £1.67 and €1.75 per share respectively, during the period 1 September 2022 to 28 February 2023. The weighted average fair value of share awards granted during the year ended 27 September 2019 was £0.57 (UK) and €0.68 (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:

Range of exercise prices for the UK Sharesave Scheme (expressed in Sterling)

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:

Range of exercise prices for the Irish Sharesave Scheme (expressed in Euro)

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 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 Monte Carlo simulation model. This methodology 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.

Sharesave Schemes

The Sharesave Schemes equity settled options are valued at the fair value on grant date in July 2020 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.

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 £0.96 – £2.82 (2019: £1.61 – £2.32). The average share price during the 2020 financial year was £1.84 (2019: £2.04).