ANNUAL FINANCIAL STATEMENTS 2023
For the year ended 30 September 2023
For the year ended 30 September 2023
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Certain employees (including senior executives) of the group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions) or instruments classified as cash-settled transactions. Equity-settled and cash-settled share optionsEquity-settled transactions Under the scheme, executives and selected managers of Tiger Brands Limited and its subsidiaries are offered, on an annual basis, a weighted combination of share appreciation rights, performance shares, and restricted shares. All these components are accounted for as equity-settled, share-based payments in addition to the Black Managers Participation Right scheme. Shares awarded to employees in terms of the rules of the Tiger Brands long-term incentive plan (LTIP) are measured by reference to the fair value at the date on which they are granted. The fair value is determined by an external valuer using a modified version of the Black-Schöles model or Monte Carlo simulation. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting date). The cumulative expense recognised reflects the extent to which the vesting period has expired and the group's best estimate of the number of equity instruments that will ultimately vest. The income statement charge for a period represents the movement in the cumulative expense at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. Where an equity-settled award is cancelled (other than forfeiture), it is treated as if it had vested on the date of cancellation, and any unrecognised expenses are recognised immediately. If a new award is substituted and designated as a replacement for the cancelled award, the cancelled and new awards are treated as if they were a modification of the original award, as described above. The dilutive effect of outstanding equity-settled options is reflected as additional share dilution in the computation of earnings and headline earnings per share. Cash-settled transactions The cost of cash-settled transactions such as the general employee share option plan portion is measured initially at fair value at the grant date using a modified version of the Black-Schöles model, taking into account the terms and conditions upon which the instruments were granted (see note 5). This fair value is expensed over the period until vesting with recognition of a corresponding liability. The liability is remeasured at each reporting date up to and including the settlement date with changes in fair value recognised in profit or loss. Accounting for BEE transactions Where equity instruments are issued to a black economic empowerment (BEE) party at less than fair value, the instruments are accounted for as share-based payments in terms of the stated accounting policy. A restriction on the BEE party 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. |
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Fair value of share allocations In calculating the amount to be expensed as a share-based payment, the group was required to calculate the fair value of the equity instruments granted to participants. This fair value was calculated by applying a valuation model that is in itself judgemental and takes into account certain inherently uncertain assumptions (detailed in note 29). |
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The share-based payment reserve can be reconciled as follows: |
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The total expense recognised for employee services received during the year ended 30 September 2023 is R13,4 million (2022: R55,8 million), reconciled as follows:
Detailed disclosure of each scheme and the respective assumptions and valuation inputs have been included below. The information noted below summarises all key assumptions, valuation inputs, and key disclosures relating to the Tiger Brands share-based payment plans. |
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29.1 |
General employee share option plan Executives and managers of the company and its subsidiaries are offered a weighted combination of:
The scheme is regarded as an equity-settled share option scheme. Share appreciation rights (1) Allocations of share appreciation rights (Sars) were made to qualifying executive management and other senior managers. Sars vests 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 HEPS performance, measured against CPI and the growth in GDP (real HEPS growth). For allocations made in December 2018 and thereafter, vesting is subject to real HEPS growth (weighted at 50%) and the performance of the company’s ROIC against its WACC (weighted at 50%). Vested Sars must be exercised on or before the sixth anniversary of the date of allocation. The last allocation of Sars 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.
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:
Volatilities are based on the historical volatility of the Tiger Brands share price matching the remaining life of each option. Performance shares (2) 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 HEPS, 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.
Options were valued using the Binomial Lattice model that allows for the options to be exercised at different points between vesting date and 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:
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.
Options were valued using the Binomial Lattice model that allows for the options to be exercised at different points between vesting date and 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:
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29.2 |
Black Managers Participation Right scheme (equity-settled) |
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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 Trusts. The allocation of vested rights entitles beneficiaries to receive Tiger Brands shares (after making capital contributions to the Black Managers Trusts) 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 allocation, the next third, four years, and the last third, five years after allocation. These vested rights are non-transferable. After the lock-in date, the beneficiaries may exercise their vested rights, in which event the beneficiary may:
The expense recognised for employee services received during the year to 30 September 2023 is R5,8 million(2022: R6,3 million). The following table illustrates the number of, and movements in, share participation rights during the year.
Participation rights were valued using the Monte Carlo simulation approach to estimate the average, optimal pay-off of the participation rights using 10 000 permutations. The pay-off 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:
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. |
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