Notes to the financial statements
26 Share based payment plans
Group
The Group has four share option schemes in operation.
The Dairy Crest Long Term Incentive Share Plan (‘LTISP’)
This is a long-term incentive scheme under which awards are made to directors and senior managers consisting of the right to acquire shares for a nominal price subject to the achievement of financial targets based on (i) total shareholder returns (‘TSR’) over a three year period versus comparator companies and (ii) growth in adjusted basic earnings per share. From 2009, the TSR element was increased from 50% to 60% of the awards granted. The vesting period for grants made under this scheme is 3 years with an exercise period of 7 years. In July 2013, a total of nil options was granted under the LTISP scheme (July 2012: 1,094,734). There are no cash settlement alternatives.
Dairy Crest Sharesave Scheme
All employees are eligible to join the Dairy Crest Sharesave Scheme, which allows employees to use regular monthly savings to purchase shares. Options are granted at a discount of up to 20% of the market value of the shares. No financial performance criteria are attached to these options and they vest three years from the date of grant with an exercise period of six months. In December 2013, nil options were granted under the Dairy Crest Sharesave Scheme (December 2012: 2,390,456 options at a grant price of 281 pence). There are no cash settlement alternatives.
Deferred Bonus Scheme (‘DBS’)
From 2005/06, bonuses earned that are in excess of 50% of basic salary are deferred in shares (and from 2011 in share options) with a vesting period of three years. The only vesting condition is continuing employment. The cost of these shares is charged over four years (being the year the bonus was earned and the three-year vesting period) and is based on the number of shares issued (or from 2011 over which nil cost options are granted) and the share price at the date of issue. No deferred shares were awarded or issued in relation to the year ended 31 March 2014 (2013:£nil).
The Dairy Crest Long Term Alignment Plan (‘LTAP’)
The LTAP replaced the LTISP in the year ended 31 March 2014. This is a long-term incentive scheme under which awards are made to directors and senior managers consisting of the right to acquire shares for a nominal price. The vesting period for grants made under this scheme is 50% of the award after 4 years and 50% after 5 years. Pre-grant performance criteria determine the amount of any initial grant after which there are no significant performance conditions prior to vesting. As such, these options are fair valued at 100% of the price at the date of the grant.
The number of share options and weighted average exercise price for each of the principal schemes is set out as follows:
|
LTAP |
LTISP* |
Sharesave Scheme |
||||||
|---|---|---|---|---|---|---|---|---|
|
number |
number |
number |
weighted average exercise price (pence) |
|||||
|
Options outstanding at 1 April 2013 |
– |
2,000,800 |
3,526,048 |
275.4 |
||||
|
Options granted during the year |
333,953 |
– |
– |
– |
||||
|
Reinvested dividends |
3,642 |
94,469 |
– |
– |
||||
|
Options exercised during the year |
– |
(57,573) |
(68,369) |
264.4 |
||||
|
Options forfeited during the year |
– |
(1,052,498) |
(462,902) |
273.1 |
||||
|
Options outstanding at 31 March 2014 |
337,595 |
985,198 |
2,994,777 |
276.0 |
||||
|
Exercisable at 31 March 2014 |
– |
177,231 |
– |
– |
||||
|
Options outstanding at 1 April 2012 |
– |
1,860,408 |
4,768,410 |
238.4 |
||||
|
Options granted during the year |
– |
1,094,734 |
2,390,456 |
281.0 |
||||
|
Reinvested dividends |
– |
154,244 |
– |
– |
||||
|
Options exercised during the year |
– |
– |
(3,244,954) |
227.2 |
||||
|
Options forfeited during the year |
– |
(1,108,586) |
(387,864) |
259.3 |
||||
|
Options outstanding at 31 March 2013 |
– |
2,000,800 |
3,526,048 |
275.4 |
||||
|
Exercisable at 31 March 2013 |
– |
24,978 |
34,459 |
227.0 |
||||
* The weighted average exercise price for LTISP options is nil.
Sharesave scheme options are exercisable up to September 2016 at prices ranging from 265p to 281p (March 2013: exercisable up to September 2016 at prices ranging from 227p to 281p). LTISP options are exercisable at varying dates up to July 2022 (March 2013: July 2022). LTAP options are exercisable at varying dates up to August 2023.
The remaining weighted average contractual life of options outstanding at March 2014 is 8.1 years for the LTISP, 9.4 years for the LTAP and 2.1 years for the Sharesave Scheme (2013: 8.7 years for the LTISP and 3.1 years for the Sharesave Scheme). The weighted average share price on exercise of Sharesave options was £2.76 (2013: £3.53).
The fair value factor of the Sharesave Scheme options issued in December 2012 was 20.7% giving a fair value of £0.81 per option granted. This has been computed using a Black-Scholes option pricing model. The key assumptions used in the valuation model for the December 2012 grant were: Expected share price volatility 22% risk free rate of interest 0.5% and dividend yield 5.22%. The volatility assumption is based on the historical volatility of the Dairy Crest Group plc share price over a period commensurate with the expected option life, ending on the grant date of option.
The LTISP has market and non-market based performance conditions. The fair value of the market performance element of the LTISP awards is calculated using a Monte Carlo option pricing model. The fair value factor for the award in July 2012 was 65% for the TSR element and 100% for the EPS element giving a fair value of £2.75 per option granted. The share price on granting 2012 awards was £3.34. The non-market performance element of the LTISP is based on EPS and the charge for this is the value of shares expected to vest calculated by reference to the share price at the date of grant. Volatility assumptions are made for Dairy Crest Group plc and comparator companies based on historical volatility of share prices over a period commensurate with the option life.
The input assumptions for the LTISP grant in the year ended 31 March 2013 were as follows:
|
Term |
3 years |
|
Volatility |
23% |
|
Risk free rate |
0.4% |
|
Average volatility of comparator TSR |
36% |
|
TSR correlation (Dairy Crest vs comparators) |
22% |
The Group expense arising from share option plans for the year ended 31 March 2014 is £1.5 million (2013: £1.9 million) (see Note 9).
Company
The number of share options and weighted average exercise price for each of the schemes for employees of the Company is set out as follows:
|
LTAP |
LTISP |
Sharesave Scheme |
||||||
|---|---|---|---|---|---|---|---|---|
|
number |
number |
number |
weighted average exercise price (pence) |
|||||
|
Options outstanding at 1 April 2013 |
– |
777,916 |
12,808 |
281.0 |
||||
|
Options granted during the year |
177,919 |
– |
– |
– |
||||
|
Reinvested dividends |
1,938 |
34,221 |
– |
– |
||||
|
Adjustment for change of director during the year |
– |
(165,222) |
(3,202) |
– |
||||
|
Options exercised during the year |
– |
– |
– |
– |
||||
|
Options forfeited during the year |
– |
(240,158) |
– |
– |
||||
|
Options outstanding at 31 March 2014 |
179,857 |
406,757 |
9,606 |
281.0 |
||||
|
Exercisable at 31 March 2014 |
– |
73,609 |
– |
– |
||||
|
Options outstanding at 1 April 2012 |
– |
683,272 |
15,988 |
227.0 |
||||
|
Options granted during the year |
– |
393,540 |
12,808 |
281.0 |
||||
|
Reinvested dividends |
– |
59,351 |
– |
– |
||||
|
Options exercised during the year |
– |
– |
(15,988) |
227.0 |
||||
|
Options forfeited during the year |
– |
(358,247) |
– |
– |
||||
|
Options outstanding at 31 March 2013 |
– |
777,916 |
12,808 |
281.0 |
||||
|
Exercisable at 31 March 2013 |
– |
– |
– |
– |
||||
The Company expense arising from share option plans for the year ended 31 March 2014 was £0.3 million (2013: £0.5 million).