20
22

Tiger Brands Limited

Annual Financial Statements

Annexures

Annexure D

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SHARE-BASED PAYMENT PLANS
FOR THE YEAR ENDED 30 SEPTEMBER 2022

The information noted below summarises all key assumptions, valuation inputs and key disclosures relating to the Tiger Brands share-based payment plans.

1 General employee share-option plan
 

Executives and managers of the company and its subsidiaries are offered a weighted combination of:

  • Allocations of share appreciation rights; (last allocation to employees – 5 June 2019)
  • Conditional awards of full value performance shares
  • Grants of full value restricted shares.

The scheme is regarded as an equity-settled share-option scheme.

Share appreciation rights

Allocations of share appreciation rights were made to qualifying executive management and other senior managers. Share appreciation rights vest in three equal tranches on the third, fourth and fifth anniversaries of the date of allocation. The vesting of each tranche is subject to the achievement of performance conditions. The vesting of allocations prior to December 2018 is subject to the company's headline earnings per share performance, measured against consumer price index (CPI) and the growth in gross domestic product (GDP) (real headline earnings per share growth). For allocations made in December 2018 and thereafter, vesting is subject to real headline earnings per share growth (weighted at 50%) and the performance of the company's return on invested capital (ROIC) against its WACC (weighted at 50%). Vested share appreciation rights must be exercised on or before the sixth anniversary of the date of allocation. The last allocation of share appreciation rights was made in June 2019.

The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share appreciation rights during the year.

  2022 2021
  Number WAEP
Rand
Number WAEP
Rand
Outstanding at the beginning of the year 1 160 794 292,1 1 748 957 305,5
Forfeited during the year (605 081) 306,3 (588 163) 332,0
Outstanding at the end of the year 555 713 278,7 1 160 794 292,1
Exercisable at the end of the year
Weighted average remaining contractual life (years)   1,9 years   2,8 years
Range of exercise prices outstanding at the end of the year (per option)   R218,9 – R385,3   R218,9 – R385,3

Options were valued using a modified Black-Schöles model taking into account the dividend cover, expected exercise pattern and volatility of the Tiger Brands share price.

The following inputs were used:

Date of grant Revised strike 
price of option 
due to the 
unbundling 
of Oceana 
(Rand)
Original 
strike price 
of option 
(Rand)
Expiry
date
Market price 
of the 
underlying 
stock at grant 
date (Rand)
Expected 
volatility of 
the stock 
over the 
remaining 
life of the 
option (%)
Expected 
dividend 
yield (%)
09/02/2016 271,2 291,7 09/02/2021 302,9 25,5 3,0
31/03/2016 299,7 322,4 31/03/2021 325,2 25,7 3,0
24/05/2016 317,6 341,7 24/05/2021 337,0 25,7 2,9
07/12/2016 368,1 396,0 07/12/2021 386,8 25,8 2,9
05/09/2017 375,2 403,6 05/09/2022 380,0 24,9 2,8
11/12/2017 385,3 414,5 11/12/2023 425,0 24,7 2,8
06/12/2018 254,8 274,1 06/12/2023 271,0 27,1 3,0
02/01/2019 249,7 268,6 02/01/2024 264,1 27,0 3,0
05/06/2019 218,9 218,9 05/06/2024 217,6 27,3 3,3

Volatilities are based on the historical volatility of the Tiger Brands share price matching the remaining life of each option.

Performance shares

Annual awards of performance vesting shares (PVS) are made to executive management, senior management and middle management. PVS vest on the third anniversary of the date of award. Vesting is subject to the performance of the company's headline earnings per share, measured against CPI and the growth in GDP (50% weighting) and the performance of the company's ROIC against its WACC (50% weighting).

The following table illustrates the number of, and movements in, performance shares during the year.

  2022
Number
2021
Number
Outstanding at the beginning of the year 886 046 530 216
Granted during the year 438 918 503 792
Forfeited during the year (191 735) (147 962)
Outstanding at the end of the year 1 133 229 886 046
Weighted average remaining contractual life (years) 1,5 years 1,9 years

Options were valued using the Binomial Lattice model that allows for the options to be exercised at different points between vesting date and the expiry date of the options. Binomial Lattice models are commonly used to value options and employee share options in particular.

The following inputs were used:

Date of grant Expiry
date
Market price 
of the 
underlying 
stock at grant 
date (Rand)
Expected 
volatility of 
the stock 
over the 
remaining 
life of the 
option (%)
Expected 
dividend 
yield (%)
30/03/2020 30/03/2023 178,8 30,3 4,0
07/09/2020 07/09/2023 169,7 32,3 4,0
04/12/2020 04/12/2023 204,2 33,3 3,8
01/02/2021 01/02/2024 197,9 33,1 3,6
01/03/2021 01/03/2024 205,4 33,1 3,6
03/12/2021 03/12/2024 187,3 29,5 3,4
15/12/2021 15/12/2024 176,5 29,7 3,4
01/07/2022 01/07/2025 141,3 29,8 3,8

Volatilities are based on the historical volatility of the Tiger Brands share price matching the remaining life of each option.

Restricted shares

On an annual basis, subject to remuneration committee approval, executives, senior management and key talent may receive a grant of restricted shares. On vesting, options may be settled in cash or shares on the third anniversary of the grant date.

The following table illustrates the number of, and movements in, restricted shares during the year.

  2022
Number
2021
Number
Outstanding at the beginning of the year 591 410 432 903
Granted during the year 451 695 318 985
Forfeited during the year (170 349) (90 807)
Exercised during the year (3 967) (69 671)
Outstanding at the end of the year 868 789 591 410
Exercisable at the end of the year 1 400
Weighted average remaining contractual life (years) 1,6 years 1,8 years
Weighted average fair value of options granted (per option) 160,2 182,9

Options were valued using the Binomial Lattice model that allows for the options to be exercised at different points between vesting date and the expiry date of the options. Binomial Lattice models are commonly used to value options and employee share options in particular.

The following inputs were used:

Date of grant Expiry
date
Market price 
of the 
underlying 
stock at grant 
date (Rand)
Expected 
volatility of 
the stock 
over the 
remaining 
life of the 
option (%)
Expected 
dividend 
yield (%)
06/12/2018 06/12/2021 271,0 26,5 3,0
07/09/2020 07/09/2023 169,7 32,3 4,0
04/12/2020 04/12/2023 204,2 33,3 3,8
01/02/2021 01/02/2024 197,9 33,1 3,6
01/03/2021 01/03/2024 205,4 33,1 3,6
01/06/2021 01/06/2024 223,8 32,2 3,4
01/07/2021 01/07/2024 205,2 32,2 3,4
03/12/2021 03/12/2024 187,3 29,5 3,4
15/12/2021 15/12/2024 176,5 29,7 3,4
01/07/2022 01/07/2025 141,3 29,8 3,8
   
2 Black managers participation right scheme (equity settled)
 

In terms of the BEE transaction implemented on 17 October 2005, 4 381 831 Tiger Brands shares were acquired by the Tiger Brands Black Managers Trust.

The allocation of vested rights entitles beneficiaries to receive Tiger Brands shares (after making capital contributions to the Black Managers Trust) at any time after the lock-in period. In respect of options allocated on or before 31 July 2010, the lock-in period ends on 31 December 2014. In respect of allocations made after 31 July 2010, the lock-in date will be the latter of 31 December 2014 or, in respect of one-third of the allocations, three years after the allocation, the next third, four years and the last third, five years after the allocation. These vested rights are non-transferable.

A fter the lock-in date, the beneficiaries may exercise their vested rights, in which event the beneficiary may:

  • Instruct trustees to sell all of their shares and distribute the proceeds to them, net of the funds required to pay the capital contributions, taxation (including employees' tax), costs and expenses
  • Instruct the trustees to sell sufficient shares to fund the capital contributions, pay the taxation (including employees' tax), costs and expenses
  • Distribute to them the remaining shares to which they are entitled
  • Fund the capital contributions, taxation (including employees' tax) costs and expenses themselves and receive the shares to which they are entitled.

The expense recognised for employee services received during the year to 30 September 2022 is R6,3 million (2021: R6,3 million).

The following table illustrates the number of, and movements in, share participation rights during the year.

  2022
Number
2021
Number
Outstanding at the beginning of the year 734 835 770 662
Granted during the year 68 000 62 000
Forfeited during the year (33 170) (51 800)
Shares sold (66 470) (46 027)
Outstanding at the end of the year 703 195 734 835
Exercisable at the end of the year 503 690 518 393
Weighted average remaining contractual life (years) 2,0 4,9
Weighted average fair value of options granted during the year (per option) R128,0 R150,2
Notional average exercise price (per option) R250,8 R205,0

Participation rights were valued using the Monte-Carlo simulation approach to estimate the average, optimal payoff of the participation rights using 10 000 permutations. The payoff of each random path was based on: the projected Tiger Brands share price, outstanding debt projections and optimal early exercise conditions.

Volatility is measured as the annualised standard deviation of the daily price changes in the underlying share under the assumption that the share price is log normally distributed. Historical daily share price data was used to estimate the expected volatility.

The following inputs were used:

Date of grant Initial strike 
price of 
participation 
rights (Rand)
Expiry
date
Market price 
of the 
underlying 
stock at grant 
date (Rand)
Expected 
volatility 
of the stock 
over the 
remaining 
life of the 
participation 
right (%)
Expected 
dividend yield 
of the stock 
over the 
remaining 
life of the 
participation 
right (%)
31/01/2014 85,8 30/09/2027 266,0 25,3 3,8
31/07/2014 85,9 30/09/2027 308,8 25,3 3,8
31/01/2015 81,9 30/09/2027 394,2 25,3 3,8
31/07/2015 82,5 30/09/2027 284,9 25,3 3,8
31/01/2016 79,0 30/09/2027 291,0 25,3 3,8
31/07/2017 74,5 31/07/2023 399,5 24,1 3,8
31/01/2018 70,6 31/01/2024 461,0 24,6 2,9
31/07/2018 69,6 31/07/2024 350,0 26,0 3,2
31/01/2019 66,0 30/09/2024 276,2 26,4 3,1
31/07/2019 58,1 30/09/2024 222,9 26,5 2,8
31/07/2020 56,5 30/09/2024 176,3 29,6 5,2
31/08/2020 56,5 30/09/2024 172,4 29,3 5,2
31/01/2021 52,5 30/09/2024 199,3 29,1 4,0
31/07/2021 50,7 30/09/2024 193,0 29,2 2,5
31/01/2022 47,7 30/09/2024 164,5 27,8 4,8
31/07/2022 45,3 30/09/2024 164,5 28,3 5,9

The risk-free interest rate was obtained from constructed ZAR swap curves on the valuation dates using key inputs being South African money-market rates and swap rates as published by Bloomberg.