Equity settled awards

The Group has an established equity settled Executive Share Option Scheme (“ESOS”) in place 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.

Options were granted in June 2017, November 2017 and May 2018 under this scheme. The vesting of these awards is based on compound annual growth in underlying EPS over the three year performance period, commencing in the financial year when an award is granted. If compound annual growth in underlying EPS over the performance period is 2% per annum, then 25% of the awards vest. If the compound annual growth in underlying EPS over the performance period is 6% per annum then 100% of the awards vest. There is straight-line vesting between both points and no reward for below threshold performance. Options granted in 2017 have achieved their performance conditions and therefore vested in full. Options granted in 2018 have not met their performance conditions and therefore are deemed to have lapsed at 28 February 2021.

The Group also has an established Long-Term Incentive Plan (“LTIP”) 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. All such awards granted from June 2017 to December 2019 are subject to the following three performance conditions:

• 33% of the award is subject to compound annual growth in underlying EPS over the three year performance period. If compound annual growth in underlying EPS over the performance period is 3% per annum then 25% of the awards vest. If the compound annual growth in underlying EPS over the performance period is 8% per annum then 100% of the awards vest.
• 33% of the award is subject to the performance condition that the Free Cash Flow Conversion ratio (‘FCF’) of the Group (excluding the impact of exceptional items) would be 65% conversion, on average, over the three year performance period, at which case 25% of this element of the award would vest. If the FCF is 75% on average, then 100% of this element of the award would vest.
• 33% of the award is subject to a Return on Capital Employed (‘ROCE’) target. If the ROCE is 9.3% then 25% of this element of the award would vest. If the ROCE is 10% then 100% of this element of the award would vest.

In all three components of the performance conditions of the LTIP there is straight-line vesting between both points and no reward for below threshold performance. Options granted in 2017 have achieved their performance conditions and therefore vested in full. The performance conditions for options granted in May 2018, February 2019, May 2019 and December 2019 are deemed to be no longer capable of achieving their performance conditions and therefore are deemed to have lapsed at 28 February 2021.

The vesting of LTIP awards granted in December 2020 will be subject to an assessment of the Group’s underlying financial performance across the three year period FY2021 – FY2023. Each award will also be subject to the following three separate performance conditions:

• 30% of the award was subject to FY2021 liquidity, which was defined as the Group’s cash on hand plus availability from the Group’s Revolving Credit Facility as at the 28 February 2021. If liquidity was €250.0m, 25% of this element of the award would have vested and if liquidity was €300.0m, 100% of this element of the award would have vested.
• 35% of the award is subject to FY2022 Net Debt to FY2022 EBITDA. The targets will be disclosed in the Group’s FY2022 Annual Report.
• 35% of the award is subject to FY2023 financial measures. The details of these measures will be determined by the Board by no later than the start of the FY2023 performance period.

Threshold vesting in respect of any year will be no more than 25%, but subject to the overriding three-year financial performance assessment. No award will vest until the end of the full three year performance period, and Executive Directors’ awards will then be subject to a further two-year holding period.

Following the appointment of David Forde as Group Chief Executive Officer, the Group made an award of 842,636 shares to David on 3 November 2020 (“Buy-Out Awards”). These shares were to compensate David for remuneration which he forfeited from his previous employment upon joining the Group. Reflecting the fact that the forfeited remuneration bought out was guaranteed cash-based remuneration, the closing share price on the day before the date of grant was used to calculate the number of shares to ensure the value was equal to the remuneration forfeited. The award will vest in respect of 50% of the shares in November 2022 (“Buy-Out 1”) and 50% of the shares in November 2023 (“Buy-Out 2”). After sales of shares to cover tax, David Forde will be required to retain 50% of the shares acquired in satisfaction of the Group’s Executive Director shareholding requirement.

In June 2010, the Group established a Recruitment and Retention Plan (“R&R”) 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. Performance conditions vary per award but include, some or all, of the following conditions; continuous employment, performance targets linked to the business unit to which the recipient is aligned or a requirement to have a personal shareholding in the Company at the end of the performance period.

Obligations arising under the Recruitment and Retention Plan will be satisfied by the purchase of existing shares on the open market. Upon 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.

The Group also has a Deferred Bonus Plan (“DBP”) under the terms of which options to purchase shares in C&C Group plc at nominal cost are granted to certain members of management. Awards under this plan are subject to a continuous employment performance condition only.

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, Link Group 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 up to five years.

The Group held 564,152 matching shares (1,128,304 partnership and matching) in trust at 28 February 2021 (FY2020: 298,016 matching shares (596,032 partnership and matching shares held)).

In the prior financial year the Group, recognising that some employees of Matthew Clark and Bibendum (“MCB”), which the Group acquired in FY2019, had previously lost money in a share scheme operated by the previous owners of MCB and prior to MCB being acquired by the Group, committed to allocating to those employees, C&C Group plc shares in May 2021, equivalent in value to the amount they had lost in the share scheme of the previous owners of MCB. The employees must also be investing in the Group’s partnership and matching share scheme to qualify for the award.

Award valuation

The fair values assigned to the equity settled awards granted were computed in accordance with a Black Scholes valuation methodology.

As per IFRS 2 Share-based Payment, 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 granted in the current and prior financial years were as follows:

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. Due to the Group not paying dividends in the current financial year dividend yield has been set to zero. For LTIP, DBP and the Buy-Out awards, the participants are entitled to receive dividends, and therefore the dividend yield has been set to zero to reflect this.

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

* Excludes awards that are deemed to be not capable of achieving their performance conditions at 28 February 2021.

** Includes both partnership and matching shares.

The amount charged to the Income Statement includes a credit of €1.5m (FY2020: €0.5m), being the reversal of previously expensed charges on equity settled option schemes where the non-market performance conditions were deemed no longer capable of being achieved or the employee has left the Group.

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

The aggregate number of share options/equity interests exercisable at 28 February 2021 was 469,977 (FY2020: 345,015).

The unvested share options/equity Interests (excluding those awards which are not deemed capable of vesting) outstanding at 28 February 2021 have a weighted average vesting period outstanding of 1.9 years (FY2020: 1.3 years). The weighted average contractual life outstanding of vested and unvested share options/equity interests (excluding those which are not deemed capable of vesting) is 6.6 years (FY2020: 7.1 years).

The weighted average market share price at date of exercise of all share options/equity Interests exercised during the year was £2.22 or €2.48 euro equivalent (FY2020: €4.39); the average share price for the year was £2.15 or €2.41 euro equivalent (FY2020: €4.03); and the market share price as at 28 February 2021 was £2.58 or €2.96 euro equivalent (29 February 2020: £3.28 or €3.84 euro equivalent).