17. Cash-settled share-based payment arrangements
 
   Group  Company 
   2022 
R'000 
2021 
R'000 
2022 
R'000 
2021 
R'000 
Cash-settled share-based payment liability        
Balance at the beginning of the year 9,748  2,111  9,748  2,111 
Share-based payment expense* 12,848  8,869  12,848  8,869 
Share grants vested and paid (2,284) (1,232) (2,284) (1,232)
Balance at the end of the year 20,312  9,748  20,312  9,748 
Non-current liability 12,518  8,490  12,518  8,490 
Current liability 7,794  1,258  7,794  1,258 
  20,312  9,748  20,312  9,748 

* the expense is charged to profit and loss R13m (2021: R9m).

Cash-settled grants

The share incentive scheme was approved by shareholders on 13 April 2010. Over time various share grants and share options were issued to directors and employees of the Company.

The purpose of the share incentive scheme is to serve as an incentive and reward to employees (including executive directors) of the Company and its subsidiaries for services rendered and to be rendered, aimed at promoting the continued growth of the Company by giving employees an opportunity to acquire shares in the Company and to serve as a retention mechanism for employees whose services are regarded by the Company to be crucial to the future growth and sustainability of the Company's business. Share options and share grants are granted by the Board on the recommendation of the Remuneration Committee.

1.4m share grants were forfeited due to performance conditions not being met. In the prior year, 0.74m share grants were forfeited due to performance conditions and 3.7m were due to an employee leaving the Group before the grants vested.

The Monte Carlo option pricing model was used to determine the fair value of the share grants.

The vesting of the grants is based solely on performance which is measured based on two conditions as follows: 50% based on Merafe's total shareholder return (TSR) and 50% based on HEPS growth.

If Merafe's TSR over the three-year period places it in one of the top four positions, then 50% of the number of performance shares granted (TSR Portion) will vest in equal proportions on the 3rd, 4th and 5th anniversaries of their grant. If Merafe's TSR over the three-year period places it in 6th position, then one third of the TSR Portion will vest in equal proportions on the 3rd, 4th and 5th anniversaries on their grant. If Merafe's performance over the three-year period lies between any of the above points, then a prorated number of the TSR Portion will vest in equal proportions on the 3rd, 4th and 5th anniversaries of their grant. No share grants will vest for positions 7 and less.

Vesting of the other 50% of grant shares will be in accordance with the following policy as determined by the Board:

  • The performance shares allocated will be subject to performance against the growth in HEPS measure;
  • If performance meets or exceeds target, i.e. CPI + 2% per annum over the performance period, 100% of shares will vest;
  • If performance is at threshold, i.e. CPI + 1% per annum over the performance period, 50% of shares subject to this measure will vest;
  • For performance below threshold, 0% of shares subject to this measure, will vest; and
  • Linear vesting will take place between different performance milestones.

To avoid dilution of equity, all grants are currently cash settled.

The following assumptions were used in the valuation model:

   2022
2018 – 2022
share grants
2021
2015 – 2021
share grants
Risk free rate 7.63% 5.38%
Expected volatility* 55.65% 62.63%
Expected dividend yield 7.66% 12.87%
Expected life (years) 0.25 — 4.25 0.25 — 4.25
Vesting periods (years) 3 to 5 3 to 5
Weighted average share price (Rands) R1.27 R0.77
Weighted average exercise price (Rands) R1.81 R0.77
Weighted average grant price (Rands) R0.3 to R1.85 R0.3 to R1.67
Weighted average option value (Rands) R0.71 R0.82
Performance conditions Yes Yes
Intrinsic value of shares R45.9m R39.8m

* The expected volatility of 55.65% (2021: 62.63%) is based on historic volatility of the Merafe share price over the past five years.

The following share grants relating to employees and executive directors were outstanding at 31 December 2022:

Vesting date Number of
shares 
Share grant date
01 April 2023 665,776 01 April 2018
01 April 2023 1,275,312 01 April 2019
01 April 2023 6,387,841 01 April 2020
06 August 2023 213,154 06 August 2018
01 April 2024 1,275,315 01 April 2019
01 April 2024 6,387,842 01 April 2020
01 April 2024 2,647,590 01 April 2021
01 April 2025 6,387,846 01 April 2020
01 April 2025 2,647,592 01 April 2021
01 April 2025 1,405,178 01 April 2022
01 April 2026 2,647,595 01 April 2021
01 April 2026 1,405,179 01 April 2022
01 April 2027 1,405,181 01 April 2022
  34,751,401  

The following share grants relating to executive directors were outstanding at 31 December 2022:

Vesting date Ms Z Matlala
Number of shares
Mr D Chocho Number of shares
01 April 2023 576,692
01 April 2023 781,971 337,500
01 April 2023 3,904,903 1,685,363
06 August 2023 208,333
01 April 2024 781,971 337,500
01 April 2024 3,904,903 1,685,363
01 April 2024 1,618,480 698,538
01 April 2025 3,904,903 1,685,363
01 April 2025 1,618,480 698,538
01 April 2025 709,641 324,299
01 April 2026 1,618,480 698,538
01 April 2025 709,641 324,299
01 April 2027 709,641 324,299
  20,839,706 9,007,933

The movement in the number of share grants can be summarised as follows:

  2022 
Number of 
shares 
2021 
Number of 
shares 
Opening balance 33,168,448  30,366,553 
Granted during the year 4,215,538  8,824,429 
Vested during the year (1,258,916) (1,598,933)
Forfeited during the year (1,373,669) (4,423,601)
Closing balance 34,751,401  33,168,448