Annual Report 2014

NOTES

Forming part of the financial statements

1. Prior year adjustment
2. segmental reporting
3. OPERATING COSTS
4. EMPLOYEE NUMBERS & REMUNERATION COSTS
5. SHARE-BASED PAYMENTS

1. Prior year adjustment

The Group has applied the revised accounting standard IAS 19 Employee Benefits in the current financial year. This affects the accounting for defined benefit pension schemes. Under the revised standard; the interest on scheme assets is accounted for using the same discount rate as is used in measuring scheme obligations as part of the income statement charge, net interest on net defined liability. The prior year comparative figures have been restated as though this revision had also been applied in the prior year.

The implementation of IAS19 revised Employee Benefits had no impact on total comprehensive income attributable to equity shareholders for the year ended 28 February 2013, but it did increase the Profit for the year attributable to equity shareholders by €0.7m in the income statement, and increase actuarial losses on defined benefit pension obligations by €0.7m within other comprehensive income and expense in the Group Statement of Comprehensive Income as outlined in the table below. There is no impact on the balance sheet.

The table below details the impact of the implementation of the revised accounting standard IAS 19 Employee Benefits on both the current and prior year results.

 

Financial year ended 28 February 2013

 

Operating costs

Operating profit

Actuarial loss on retirement benefit obligations

Other comprehensive income & expense

Total comprehensive income

 

€m

€m

€m

€m

€m

Previously reported – under IAS 19

(367.6)

109.3

(12.3)

(20.3)

68.4

Impact of change

0.7

0.7

(0.7)

(0.7)

-

Currently reported – under IAS 19 (R)

(366.9)

110.0

(13.0)

(21.0)

68.4

Financial year ended 28 February 2014

Operating costs

Operating profit

Actuarial loss on retirement benefit obligations

Other comprehensive income & expense

Total comprehensive income

€m

€m

€m

€m

€m

Under IAS 19

(515.3)

104.9

(5.3)

11.2

93.4

Impact of change

1.1

1.1

(1.1)

(1.1)

-

As reported - under IAS 19 (R)

(514.2)

106.0

(6.4)

10.1

93.4

2. segmental reporting

The Group’s business activity is the manufacturing, marketing and distribution of beverage products, primarily branded beer and cider. Following the current year acquisition of the Gleeson group, the Group’s activity has broadened to include the distribution of wine and the manufacture, marketing and distribution of Finches soft drinks and Tipperary Water. Five reporting segments have been identified; Republic of Ireland (‘ROI’), Cider United Kingdom (‘Cider UK’), Tennent’s United Kingdom (‘Tennent’s UK’), International, and Third Party Brands United Kingdom (‘Third Party Brands UK’).

The basis of segmentation corresponds with the Group’s organisation structure, the current year nature of reporting lines to the Chief Operating Decision-Maker (‘CODM’ as defined in IFRS 8 Operating Segments), and the Group’s internal reporting for the purpose of managing the business, assessing performance and allocating resources. The acquired M. & J. Gleeson (Investments) Limited and its subsidiaries (‘Gleeson’) is included within the ROI reporting segment on the basis that the nature of the products sold, the production and distribution processes and the customers are all similar. The business has been integrated with the Group’s existing ROI business with both businesses managed on a consolidated basis by a newly appointed Managing Director. In addition, all accounting, HR and IT support services as well as sales and marketing functions are shared by the integrated ROI business.

The CODM, identified as the executive Directors comprising Stephen Glancey, Kenny Neison and, from 23 October 2012, Joris Brams, assesses and monitors the operating results of segments separately via internal management reports in order to effectively manage the business and allocate resources. Segment performance is predominantly evaluated based on Revenue, Net revenue and Operating profit before exceptional items and therefore these are the most relevant indicators in evaluating the results of the Group’s operating segments. Given that net finance costs and income tax are managed on a centralised basis, these items are not allocated between reporting segments for the purposes of the information presented to the CODM and are accordingly omitted from the detailed segmental analysis below.

The identified reporting segments are as follows:-

(i) ROI

This segment includes the financial results from sale of own branded products in the Republic of Ireland (‘ROI’), principally Bulmers, Tennent’s, Caledonia Smooth, Finches and Tipperary Water. It also includes the financial results from beer and wines & spirits distribution and wholesaling following the acquisition of Gleeson and the results from sale of third party brands as permitted under the terms of a distribution agreement with AB InBev.

(ii) Cider UK

This segment includes the results from sale of the Group’s own branded cider products in the UK, with Magners, Gaymers and Blackthorn the principal brands.

(iii) Tennent’s UK

This segment includes the results from sale of the Group’s own branded beer brands in the UK, with Tennent’s and Caledonia Best the principal brands.

(iv) International

This segment includes the results from sale of the Group’s cider and beer products, principally Woodchuck, Magners, Gaymers, Blackthorn, Hornsby’s and Tennent’s in all territories outside of the ROI and the UK.

(v) Third Party Brands UK

This segment relates to the distribution of third party brands and the production and distribution of private label products in the UK. It also includes sales of the Group’s wine brands in the UK.

Information regarding the results of each reportable segment is disclosed below. The analysis by segment includes both items directly attributable to a segment and those, including central overheads, which are allocated on a reasonable basis in presenting information to the CODM.

Inter-segmental revenue is not material and thus not subject to separate disclosure.

Segment capital expenditure is the total amount incurred during the year to acquire segment assets, excluding those assets acquired in business combinations that are expected to be used for more than one accounting period.

(a) Reporting segment disclosures

 

2014

2013

 

Revenue

Net

revenue

Operating

profit

Revenue

Net

revenue

Operating

 

profit (restated)

 

€m

€m

€m

€m

€m

€m

 

ROI

330.6

237.3

48.2

133.8

92.2

38.7

Cider UK

164.1

112.8

20.7

195.8

137.8

31.3

Tennent’s UK

216.2

103.6

34.6

229.3

108.9

30.3

International

79.9

77.1

16.0

48.5

47.8

9.2

Third party brands UK

122.1

89.4

7.2

116.7

90.2

5.1

 

Total before exceptional items

912.9

620.2

126.7

724.1

476.9

114.6

Exceptional items (note 6)

-

-

(20.7)*

-

-

(4.6)**

 

Total

912.9

620.2

106.0

724.1

476.9

110.0

* Of the exceptional loss in the current year, €8.9m loss relates to ROI, €7.8m loss to Cider UK, €1.5m loss to Tennent’s UK, €2.0m loss to International and a €0.5m loss remains unallocated.

** Of the exceptional loss in the prior year, €1.3m gain relates to ROI, €0.8m loss to Cider UK, €0.5m loss to Tennent’s UK, €2.6m loss to International and a €2.0m loss remains unallocated.

(b) Other operating segment information

 

2014

2013

 

Capital

Depreciation

Capital

Depreciation

 

Expenditure

/ Amortisation

expenditure

/Amortisation

 

€m

€m

€m

€m

 

ROI

3.0

5.2

2.2

3.3

Cider UK

7.6

8.4

10.3

8.6

Tennent’s UK

9.2

8.5

8.7

8.3

International

20.0

1.7

3.1

1.2

Third party brands UK

-

0.2

-

0.3

 

Total

39.8

24.0

24.3

21.7

 

(c) Geographical analysis of revenue and net revenue

 

Revenue

Net revenue

 

2014

2013

2014

2013

 

€m

€m

€m

€m

 

Republic of Ireland

330.6

133.8

237.3

92.2

United Kingdom

502.4

541.8

305.8

336.9

Rest of Europe

12.8

14.2

12.8

14.2

North America

57.8

29.9

55.2

29.2

Rest of World

9.3

4.4

9.1

4.4

 

Total

912.9

724.1

620.2

476.9

The geographical analysis of revenue and net revenue is based on the location of the third party customers.

(d) Geographical analysis of non-current assets

 

Rest of

North

Rest of

 

ROI

UK

Europe

America

World

Total

 

€m

€m

€m

€m

€m

€m

28 February 2014

Property, plant & equipment

64.6

126.6

5.4

22.2

0.1

218.9

Goodwill & intangible assets

136.6

329.2

8.3

242.2

5.6

721.9

Equity-accounted investees

-

15.0

-

-

-

15.0

Retirement benefit obligations

-

1.4

-

-

-

1.4

Deferred tax assets

3.7

-

-

1.0

-

4.7

Derivative financial instruments

-

1.4

0.5

-

-

1.9

Trade & other receivables

0.4

40.5

-

-

-

40.9

 

Total

205.3

514.1

14.2

265.4

5.7

1,004.7

 

Rest of

North

Rest of

 

ROI

UK

Europe

America

World

Total

 

€m

€m

€m

€m

€m

€m

28 February 2013

Property, plant & equipment

54.1

123.9

-

5.6

-

183.6

Goodwill & intangible assets

120.3

322.8

7.1

251.4

5.6

707.2

Equity-accounted investees

-

2.4

-

-

-

2.4

Retirement benefit obligations

-

0.5

-

-

-

0.5

Deferred tax assets

5.2

-

-

1.0

-

6.2

Derivative financial instruments

-

1.4

-

-

-

1.4

Trade & other receivables

0.5

30.8

-

-

-

31.3

 

Total

180.1

481.8

7.1

258.0

5.6

932.6

The geographical analysis of non-current assets, with the exception of Goodwill & intangible assets, is based on the geographical location of the assets. The geographical analysis of Goodwill & intangible assets is allocated based on the country of destination of sales at date of application of IFRS 8 Operating Segments or date of acquisition, if later.

3. OPERATING COSTS

 

2014

2013

 

(restated)

 

Before

Exceptional

Before

Exceptional

 

exceptional

items

exceptional

items

 

items

(note 6)

Total

items

(note 6)

Total

 

€m

€m

€m

€m

€m

€m

 

Raw material cost of goods sold / bought in finished goods

279.3

-

279.3

177.5

-

177.5

Inventory write-down/(recovered) (note 15)

1.2

-

1.2

0.8

(1.0)

(0.2)

Employee remuneration (note 4)

81.7

6.1

87.8

61.4

1.2

62.6

Direct brand marketing

32.5

-

32.5

37.8

-

37.8

Other operating, selling and administration costs

68.4

10.8

79.2

55.9

4.4

60.3

Depreciation

23.8

-

23.8

21.6

-

21.6

Amortisation

0.2

-

0.2

0.1

-

0.1

Net loss on disposal of property, plant & equipment

(2.6)

3.8

1.2

-

-

-

Research and development costs

0.3

-

0.3

0.3

-

0.3

Auditors remuneration (note a)

0.7

-

0.7

0.8

-

0.8

Operating lease rentals:

- land & buildings

4.1

-

4.1

4.4

-

4.4

- plant & machinery

2.3

-

2.3

0.8

-

0.8

- other

1.6

-

1.6

0.9

-

0.9

 

Total operating expenses

493.5

20.7

514.2

362.3

4.6

366.9

(a) Auditor remuneration: The remuneration of the Group’s statutory auditor, being the Irish firm of the principal auditor of the Group, KPMG, Chartered Accountants is as follows:

 

2014

2013

 

€m

€m

 

Audit of the Group financial statements

0.4

0.4

Other assurance services

0.2

-

Tax advisory services

0.1

0.4

 

Total

0.7

0.8

The audit fee for the audit of the financial statements of the Company was less than €0.1m in the current and prior financial year.

4. EMPLOYEE NUMBERS & REMUNERATION COSTS

The average number of persons employed by the Group (including executive Directors) during the year, analysed by category, was as follows:-

 

2014

2013

 

Number

Number

 

Sales & marketing

415

300

Production & distribution

980

529

Administration

184

121

 

Total

1,579

950

The actual number of persons employed by the Group as at 28 February 2014 was 1,524 (28 February 2013: 1,001).

The aggregate remuneration costs of these employees can be analysed as follows:-

 

2014

2013

 

€m

(restated)

€m

 

Wages, salaries and other short term employee benefits

67.4

47.5

Restructuring costs (note 6)

6.7

1.2

Social welfare costs

7.0

5.3

Retirement benefit obligations – defined benefit schemes (note 22)

0.5

0.6

Retirement benefit obligations – defined contribution schemes, including pension related expenses

4.7

4.5

Equity settled share-based payments (note 5)

0.8

3.0

Cash settled share-based payments (note 5)

0.5

0.2

Partnership & matching share schemes (note 5)

0.2

0.3

 

Charged to the income statement

87.8

62.6

 

Actuarial loss on retirement benefit obligations recognised in other comprehensive income (note 22)

6.4

13.0

 

Total employee benefits

94.2

75.6

5. SHARE-BASED PAYMENTS

Equity settled awards

In April 2004, the Group established an equity settled Executive Share Option Scheme (ESOS) under which options to purchase shares in C&C Group plc are granted to certain executive Directors and members of management. Under the terms of the scheme, the options are exercisable at the market price prevailing at the date of the grant of the option. The maximum grant that can normally be made to any individual in any one year is an award of 150% of base salary in that year. Options have been granted under this scheme in each year since 2004.

Under this scheme, options will not normally be exercisable until three years after the date of grant. In addition to continued employment, the options are subject to meeting a specific performance target relating to growth in earnings per share (EPS). EPS is calculated using earnings per share before exceptional items, as disclosed in the financial statements of the Group, subject to any further adjustments approved by the Remuneration Committee. This performance target requires that the Group’s aggregate EPS in the three financial years to be not less than the aggregate that would have been achieved had base-year earnings per share grown by 5% per annum in excess of the change in the Irish Consumer Price Index (Irish CPI) during the period, in order for options to vest. If after the relevant three-year period (i.e. 3 years from date of grant) the performance target is not met, the options lapse. In the current financial year, options awarded in May 2011 were deemed not to have achieved the performance target and consequently lapsed.

In April 2004, the Group established a Long Term Incentive Plan (Part I) (LTIP (Part I)) under the terms of which options to purchase shares in C&C Group plc are granted at nominal cost to certain executive Directors and members of management. Under this plan, awards of up to 100% of base salary may normally be granted and up to 200% of base salary in exceptional circumstances. The options will not normally be exercisable until three years after the date of grant.

Options under this scheme were granted in January 2006, in June of each year from 2006 through to 2008 and in each year since 2011. All awards granted prior to 2011 were forfeited, lapsed or did not vest. Options awarded in June 2011 and February 2012 were deemed to have only partially achieved their performance target in relation to earnings per share growth and consequently 85% of the outstanding awards lapsed in the current financial year.

In addition to the time and continued employment vesting conditions, the Remuneration Committee has adopted performance conditions for the options awarded during each year since 2011 as follows:

  • With regard to 50% of the award, a performance condition relating to total shareholder return (TSR) applies and achievement of a financial underpin as mentioned below. 30% of this part of the award vests if the Group’s TSR over a three-year period equals the median TSR of a comparator group; 100% of this part of the award vests if the Group’s TSR over a three-year period equals or exceeds the TSR of the upper quartile of the comparator group; for performance between the median and the upper quartile there is straight-line pro-rating between 30% and 100%. None of this part of the award vests if the Group’s TSR over a three-year period is less than the median TSR of a comparator group. In respect of the TSR condition, a financial underpin applies; the growth in the Group’s earnings per share (EPS) over the three-year period must be 5% or more per annum in real terms (compared with Irish CPI) over the same period; alternatively the Remuneration Committee must be satisfied that the Group’s underlying financial performance warrants that level of vesting; otherwise the award lapses. EPS is calculated using earnings per share before exceptional items, as disclosed in the financial statements of the Group, subject to any further adjustments approved by the Remuneration Committee.
  • With regard to the remaining 50% of the award, a performance condition relating to growth in EPS applies. 30% of this part of the award vests if the Group’s aggregate EPS in a three year period achieves 4% per annum compound growth in real terms (compared with Irish CPI). 100% of this part of the award vests if the Group’s aggregate EPS in a three year period achieves 10% per annum compound growth in real terms. There is straight-line pro-rating between 30% and 100% vesting for performance between 4% and 10% per annum compound real growth. None of this part of the award vests, if the real growth in the Group’s aggregate EPS in a three-year period is less than 4% per annum.

In December 2008, the Group established a Joint Share Ownership Plan (JSOP) whereby certain executive Directors and members of management were eligible to participate in the Plan at the discretion of the Remuneration Committee. Under this plan, Interests in the form of a restricted interest in ordinary shares in the Company were awarded to executive Directors and key members of senior management on payment upfront to the Company of an amount equal to 10% of the initial issue price of the shares on the acquisition of the Interest. The participants are also required to pay a further amount if the tax value of their Interest exceeds the price paid. When the further amount is paid, the Company compensates the participant for the obligation to pay this further amount by paying him an equivalent amount, which is, however, subject to income tax in the hands of the participant.

The vesting of Interests granted was subject to the following conditions. All of the Interests were subject to a time and service vesting condition with one-third of the Interest in the shares vesting on each of the first, second and third anniversary of acquisition, subject to continued employment only. In addition, half of the Interests in the shares were subject to a pre-vesting share price target. In order to benefit from those Interests the Company’s share price must have been greater than €2.50 for 13,800,000 of the Interests initially awarded, and €4.00 for 2,200,000 of the Interests initially awarded, for at least 20 days out of 40 consecutive dealing days during the five-year period commencing on the date of acquisition of the Interest. All the Interests currently outstanding have now vested.

When an Interest vests, the trustees may, at the request of the participant and on payment of the further amount, if relevant, transfer shares to the participant of equal value to the participant’s Interest or the shares may be sold by the trustees, who will account to the participant for the difference between the sale proceeds (less expenses) and the Hurdle Value (balancing 90% of the acquisition price on the acquisition of the Interest).

In February 2010, the Group established a Restricted Share Award Scheme under the terms of which options to purchase shares in C&C Group plc at nominal cost were granted to certain members of management, excluding executive Directors. The vesting conditions for these awards were similar to those for the JSOP award. All shares awarded under this scheme have now vested or lapsed.

In June 2010, the Group established a Recruitment and Retention Plan under the terms of which options to purchase shares in C&C Group plc at nominal cost are granted to certain members of management, excluding executive Directors.

The performance conditions and/or other terms and conditions for awards granted under this plan are specifically approved by the Board of Directors at the time of each individual award, following a recommendation by the Remuneration Committee. The Board approved the award of 81,000 options under this plan in June 2010 and an award of 33,166 options in August 2011, in each case subject to time and service vesting conditions only so as to normally vest in three equal tranches, on the first, second and third anniversaries of grant and a further award of 31,791 options granted in August 2011 are also subject to time and service vesting conditions only, so as to normally vest on the third anniversary of grant.

In May 2012 and May 2013, awards of 1,036,255 and 252,672 respectively, were granted under the Recruitment and Retention Plan subject to continuous employment and the performance condition that the Company’s total shareholder return (“TSR”) must grow by not less than 25% between 17 May 2012 and 16 May 2014 for the May 2012 awards and between 16 May 2013 and 15 May 2015 for the May 2013 awards. Awards vest in full if the growth in TSR is at least 50% over that period and the Remuneration Committee is satisfied that the extent to which the award vests is appropriate given the general financial performance of the Group over the performance period. Where TSR growth is between 25% and 50% the percentage of the award that vests is calculated on a straight line basis between 25% and 100%. Subject to continued employment and the achievement of the performance conditions, awards will vest in two equal tranches in May 2014 and May 2015 for the May 2012 awards and May 2015 and May 2016 for the May 2013 awards.

Obligations arising under the Restricted Share Award Scheme and the Recruitment and Retention Plan will be satisfied by the purchase of existing shares on the open market. On settlement, any difference between the amount included in the Share-based payment reserve account and the cash paid to purchase the shares is recognised in retained income via the statement of changes in equity.

In May 2011, the Group established a deferred equity settled share bonus scheme, Long Term Incentive Plan (Part II) (LTIP (Part II)), under which shares are awarded to certain employees (excluding executive Directors and senior management) at nominal cost, at the end of the financial year in which the award is granted, if the performance conditions set by the Remuneration Committee are achieved and subject to a two year time vesting period post the end of the relevant financial year. During the financial year ended 29 February 2012, the Remuneration Committee agreed two levels of award linked to operating profit targets. Based on the actual results to 29 February 2012, a right to receive shares at nominal cost equating to 23% of salary was granted to certain employees and a right to receive shares at nominal cost equating to 5% of salary was granted to other employees. The maximum number of shares over which awards were granted under the LTIP (Part II) in the financial year ended 29 February 2012 was set by reference to a share price of €3.55, being the closing share price on 18 May 2011, the date the results for the financial year ended 28 February 2011 were announced. Awards will vest in May 2014 subject to continued employment only. Obligations will be satisfied by the purchase of existing shares on the open market.

In November 2011, the Group set up Partnership and Matching Share Schemes for all ROI and UK based employees of the Group under the approved profit sharing schemes referred to below. Under these schemes, employees can invest in shares in C&C Group plc (“partnership” shares) that will be matched on a 1:1 basis by the Company (“matching shares”) subject to Revenue approved limits. Both the partnership and matching shares are held on behalf of the employee by the Scheme trustee, Capita Corporate Trustees Limited. The shares are purchased on the open market on a monthly basis at the market price prevailing at the date of purchase with any remaining cash amounts carried forward and used in the next share purchase. The shares are held in trust for the participating employee, who has full voting rights and dividend entitlements on both partnership and matching shares. Matching shares may be forfeited and/or tax penalties may apply if the employee leaves the Group or removes their partnership shares within the Revenue-stipulated vesting period. The Revenue stipulated vesting period for matching shares awarded under the ROI scheme is three years and under the UK scheme is five years.

The Group held 168,083 matching shares (336,166 partnership and matching) in trust at 28 February 2014 (2013: 125,563 matching shares and 251,126 partnership and matching shares held).

In December 2011, the Group set up a discretionary Share Matching Plan under which invitations to participate were made to certain international (non ROI and UK) employees. Awards of shares (being a right to acquire shares at nominal cost) were made in February 2012, conditional on the participant agreeing to buy in advance and hold an equivalent number of ordinary shares in the Company (investment shares) in accordance with the plan. The maximum award was 325 shares per participant. Each award vested on the second anniversary of the grant date provided that the participant remained employed in the Group and had retained his/her investment shares acquired in relation to the matching award. Matching share awards were not entitled to dividends during the vesting period. Qualifying leavers remain entitled to their matching awards, which vested either on the date of cessation or on the normal vesting date, as the Group decided. Awards made to other leavers were forfeited. The February 2012 awards vested on 28 February 2014 and there were no subsequent awards.

The Group held 1,950 partnership and matching shares in Trust, with respect to awards that had vested but had not yet been transferred to the participant, at 28 February 2014 (2013: 3,250 partnership and matching shares held).

Cash-settled awards

In January 2012, the Group granted 98,600 cash-settled awards on terms equivalent to the rules of the Recruitment and Retention Plan and subject to time and service vesting conditions only so as to normally vest, subject to continuous employment, on the third anniversary of date of grant. The award, on vesting will be settled by way of cash payment, calculated based on the closing price of the Group’s shares on the dealing day before the settlement date.

In May 2012, the Group granted 114,522 cash-settled awards on terms equivalent to the LTIP (Part I). The awards, on vesting will be settled by way of a cash payment calculated based on the Group’s closing share price on the dealing day before the settlement date.

In December 2012, the Group granted 150,786 cash-settled awards on terms equivalent to the rules of the Recruitment and Retention Plan. The awards are subject to the following vesting conditions, namely: (a) continued employment; and (b) performance conditions as follows: 25% of the award will vest if the business unit related to the participant achieves a pre-approved operating profit target for the financial year ending 28 February 2014; a further 25% will vest on the achievement of a pre-approved operating profit target for the financial year ending 28 February 2015; with the remaining 50% vesting on the achievement of a pre-approved operating profit target for the financial year ending 29 February 2016. Each award, on vesting will be settled by way of a cash payment calculated based on the Group’s closing share price on the dealing day before the settlement date. In the current financial year the operating profit target for the year ended 28 February 2014 was deemed not to have been achieved and consequently 25% of the outstanding options at point of testing lapsed.

In July 2013, the Group granted 28,279 cash-settled awards on terms equivalent to the rules of the Recruitment and Retention Plan but subject to time and service vesting conditions only to vest on the third anniversary of grant, subject to continuous employment. The awards, on vesting, will be settled by way of a cash payment calculated based on the Group’s closing share price on the dealing day before the settlement date.

Award valuation

The fair values assigned to the ESOS options granted were computed in accordance with a Black Scholes valuation methodology; the fair value of options awarded under the LTIP (Part I) and Recruitment and Retention Plan were computed in accordance with the stochastic model for the TSR element and the Black Scholes model for the EPS element; the fair value of options awarded under the LTIP (Part II) were computed in accordance with a Black Scholes model; and the fair value of the Interests awarded under the Joint Share Ownership Plan and the Restricted Share Award Plan were computed using a Monte Carlo simulation model.

As per IFRS 2 Share-based Payment, market based vesting conditions, such as the LTIP (Part I) and Recruitment and Retention Plan TSR condition and the share price target conditions in the Joint Share Ownership Plan and the Restricted Share Award Plan, have been taken into account in establishing the fair value of equity instruments granted. Non-market or performance related conditions were not taken into account in establishing the fair value of equity instruments granted, instead these non-market vesting conditions are taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately the amount recognised for time and services received as consideration for the equity instruments granted is based on the number of equity instruments that eventually vest, unless the failure to vest is due to failure to meet a market condition.

The main assumptions used in the valuations for equity settled share based payment awards were as follows:-

 

Recruitment

LTIP (Part I)

ESOS

Recruitment

LTIP (Part I)

ESOS

 

& Retention

options

options

& Retention

options

options

 

Plan

granted

granted

Plan

granted

granted

 

May 2013

May 2013

May 2013

May 2012

May 2012

May 2012

 

Fair value at date of grant

€0.96

€2.07-€4.76

€1.647

€0.58-€0.59

€1.97-€3.24

€1.30

Exercise price

-

-

€4.75

-

-

€3.525

Main assumptions used in determining the fair value at date of grant:

Risk free interest rate

0.00%- 0.06%

0.06%

0.36%

0.06%-0.14%

0.14%

0.46%

Expected volatility

23.8%

23.4%

47.0%

24.0%

30.2%

53.5%

Expected term until exercise

2-3 years

3 years

5 years

2-3 years

3 years

5 years

Dividend yield

1.84%

-

1.84%

2.35%

-

2.35%

Expected volatility is calculated by reference to historic share price movements prior to the date of grant over a period of time commensurate with the expected term until exercise. The dividends which would be paid on a share reduces the fair value of an award since, in not owning the underlying shares, a recipient does not receive the dividend income on these shares. For LTIP (Part I) awards, the participants are entitled to receive dividends, and therefore the dividend yield has been set to zero to reflect this.

The main assumptions used in the valuations of cash-settled share based payment awards were as follows:-

 

Granted

Granted

Granted

Granted

 

July

2013

December

2012

May

2012

January

2012

 

Fair value at date of grant

€3.60

€4.24

€1.97- €3.24

€3.47

Exercise price

-

-

-

-

 

Main assumptions used in determining the fair value at date of grant:

Expected term until exercise

3 years

3 years

3 years

3 years

Dividend yield

2.27%

1.88%

2.35%

1.90%

 

Details of the share entitlements and share options granted under these schemes together with the share option expense are as follows:

 

Number of

 

options/

Market

 

equity

Outstanding

value at

Fair value

Expense / (income) in

 

Vesting

Interests

at 28

Grant

date of

at date

income statement

Grant date

period

granted

February 2014

price

grant

of grant

2014

2013

 

€m

€m

Executive Share Option Scheme (ESOS)

13 May 2009

3 years

4,336,300

230,550

1.94

1.94

0.72

-

0.1

26 May 2010

3 years

803,900

374,600

3.21

3.21

1.21

-

0.2

2 June 2010

3 years

127,200

127,200

3.21

3.21

1.14

-

-

21 July 2010

3 years

2,944,400

880,400

3.32

3.32

1.16

0.3

0.8

24 May 2011

3 years

658,930

-

3.61

3.61

1.56

(0.3)

0.2

17 May 2012

3 years

534,239

534,239

3.525

3.525

1.30

0.2

0.2

16 May 2013

3 years

115,629

115,629

4.75

4.76

1.647

0.1

-

 

Long Term Incentive Plan (Part I)

29 June 2011

3 years

192,662

21,162

-

3.53

2.18-3.34

(0.2)

0.2

29 February 2012

3 years

328,448

49,431

-

3.61

1.84-3.46

(0.2)

0.3

17 May 2012

3 years

614,360

563,310

-

3.525

1.97-3.24

0.5

0.4

16 May 2013

3 years

154,172

154,172

-

4.76

2.07-4.76

0.1

-

 

Long Term Incentive Plan (Part II)

18 May 2011

3 years

154,993

60,265

-

3.55

3.36

-

0.1

 

Joint Share Ownership Plan (JSOP)

18 December 2008

1-3 years

12,800,000

5,973,334

1.15

1.315

0.16-0.21

-

-

03 June 2009

1-3 years

1,000,000

1,000,000

1.15

2.32

1.01-1.09

-

-

17 December 2009

1-3 years

2,200,000

250,000

2.47

2.76

0.11-0.16

-

-

 

Restricted Share Award Scheme

26 February 2010

1-3 years

429,148

-

-

2.70

2.26

-

0.1

 

Recruitment & Retention Plan

29 June 2010

1-3 years

81,000

-

-

3.20

2.94

-

0.1

31 August 2011

1-3 years

64,957

31,791

-

3.05

2.89-2.99

-

0.1

17 May 2012

2-3 years

1,036,255

753,495

-

3.525

0.58-0.59

0.2

0.2

16 May 2013

2-3 years

252,672

242,706

-

4.76

0.96

0.1

-

 

28,829,265

11,362,284

0.8

3.0

 

 

Cash-settled awards

30 January 2012

3 years

98,600

98,600

-

3.67

3.47

0.2

0.1

17 May 2012

3 years

114,522

87,943

-

3.525

1.97-3.24

0.2

0.1

21 December 2012

1-3 years

150,786

50,262

-

4.52

4.24

0.1

-

3 July 2013

3 years

28,279

28,279

-

3.85

3.60

-

-

 

392,187

265,084

0.5

0.2

Partnership and Matching Share Schemes

338,116*

0.2

0.3

 

* includes both partnership and matching shares

The amount charged to the income statement in respect of the above award grants assumes that all outstanding options granted during the financial years ended 28 February 2013 and 2014 will vest and all qualifying conditions will be achieved. Outstanding options granted under the ESOS and 85% of the outstanding options granted under LTIP (Part I) during the financial year ended 29 February 2012 did not achieve the related EPS performance condition and consequently lapsed. The amount charged to the income statement includes a credit of €0.7m, being the reversal of the previously expensed charge on these options.

The amount charged to the income statement includes an accelerated charge of €0.1m (2013: €0.1m), in relation to employees leaving the Group as part of a restructuring programme, for awards granted where the underlying conditions were deemed to have been met at the date of departure. These employees were deemed ‘qualifying leavers’ under the terms of the scheme, with all awards granted deemed to have vested and in the case of awards under the ESOS the exercise period reduced from 4 years to 6 months.

A summary of activity under the Group’s equity settled share option schemes and Joint Share Ownership Plan together with the weighted average exercise price of the share options is as follows:

 

2014

2013

 

Weighted

Weighted

 

Number of

average

Number of

average

 

options/

exercise

options/

exercise

 

equity

price

equity

price

 

Interests

Interests

 

Outstanding at beginning of year

14,557,998

1.54

18,244,324

1.73

Granted

522,473

1.05

2,184,854

0.85

Exercised

(2,492,674)

2.44

(5,159,221)

1.38

Forfeited/lapsed

(1,225,513)

1.45

(711,959)

2.63

 

Outstanding at end of year

11,362,284

1.34

14,557,998

1.54

The aggregate number of share options/equity Interests exercisable at 28 February 2014 was 8,836,084 (2013: 8,939,835).

The unvested share options/equity Interests outstanding at 28 February 2014 have a weighted average vesting period outstanding of 1.4 years (2013: 1.2 years). The weighted average contractual life of vested and unvested share options/equity Interests is 2.6 years (3.6 years).

The weighted average market share price at date of exercise of all share options/equity Interests exercised during the year was €4.55 (2013: €3.64); the average share price for the year was €4.43 (2013: €3.86); and the market share price as at 28 February 2014 was €4.922 (28 February 2013: €4.895).