The MTN Group Share Options, Share Appreciation Rights and Share Rights Schemes and Performance Share Plan

The group operates a number of equity-settled share-based payment schemes for the benefit of eligible employees, including executive directors, in accordance with the schemes’ rules. The schemes are designed to retain and recognise the contributions of executive directors and eligible employees and to provide additional incentives to contribute to the group’s continued growth.

The performance share plan is the active scheme which superseded the Share Option Scheme, the Share Appreciation Rights and the Share Rights Scheme. The superseded schemes will be wound up once all unvested and/or unexercised awards previously made have run their remaining course.

The vesting periods under the Share Rights Scheme, Share Option Scheme and Share Appreciation Rights Scheme are as follows: 20%, 20%, 30% and 30% on the anniversary of the second, third, fourth and fifth years, respectively, after the grant date. The strike price for these schemes is determined as the closing market price for the MTN Group Limited shares on the day prior to the date of allocation. Unexercised options and rights lapse 10 years from the date of grant and are forfeited if the employee leaves the group before they vest.

The vesting period for the Performance Share Plan is three years and the awards vest in full based on set performance targets. Employees are not entitled to receive dividends on the shares during the vesting period.

The total number of shares which may be allocated for the purposes of the schemes shall not exceed 5% of the total issued ordinary share capital of the company, being 94 213 488 shares as approved by shareholders in 2001.

MTN Group Share Appreciation Rights Scheme and Share Rights Scheme (the rights schemes)

The Share Appreciation Rights Scheme was implemented on 31 May 2006.

On 26 August 2008, the board approved the Share Rights Scheme, which superseded the Share Appreciation Rights Scheme. Both the rights schemes operate under the same provisions with the exception that the Share Rights Scheme was extended to allow participation by junior managers.

Share rights under the rights schemes are granted to eligible employees by the relevant employer subsidiary company.

Exercised rights are equity settled whereby the relevant subsidiary purchases the required MTN shares in the open market.

Details of the outstanding Share Appreciation Rights are as follows:

Details of the outstanding share rights are as follows:

The share rights and share appreciation rights outstanding at the end of the year have a weighted average remaining contractual life of two years (2016: two years).

There were no new grants during the current and prior years.

MTN performance share plan (PSP)

During prior financial years the group granted eligible employees share rights under the PSP, established in 2010. The rights were granted to employees on levels 3, 4, 5 and 6. The PSP was established in order to attract, retain and reward selected employees who are able to contribute to the business of the employer companies and to stimulate their personal involvement thereby encouraging their continued service and encouraging them to advance the interests of the relevant employer company and the group in general.

The share rights generally vest after three years from date of grant. For the grants made between 2014 and 2016, the following performance conditions must be fulfilled to qualify for the percentage of the shares granted as stated in the table below:

For the total shareholder return vesting condition, vesting is based on a sliding scale that ranges from 25% vesting at the median to 100% vesting at the 75th percentile of the performance of a comparable group of companies listed on the JSE. For the adjusted free cash flow vesting condition, vesting is based on a sliding scale between 6% and 10% compound annual growth in the adjusted free cash flow for the three years before the grant date compared to the three years after the grant date, for all grants made in 2014 and thereafter. The individual return retention condition is guaranteed subject to the employee remaining employed by the group for the duration of the vesting period.

The performance conditions were revised during the year and apply to new grants on and after 29 September 2017. The following performance conditions must be fulfilled to qualify for the percentage of the shares granted as stated in the table below:

For the total shareholder return vesting condition, vesting is based on a sliding scale that ranges from 25% vesting at the median to 100% vesting at the 75th percentile of the performance of the MSCI Emerging Markets Telecoms Index comparator group. For the cumulative operating free cash flow vesting condition, vesting is based on a sliding scale that ranges from 25% vesting at 90% of the target to 100% vesting at 110% of the target cumulative operating free cash flow over the measurement period. The individual return retention condition is guaranteed subject to the employee remaining employed by the group for the duration of the vesting period. The return on average capital employed is based on a sliding scale that ranges from 25% vesting at 90% of the budget to 100% vesting at 100% of the budgeted return on average capital employed. The vesting conditions with regards to compliance to the dti and ICASA are based on reasonable efforts made to ensure compliance with the relevant targets and codes. For the black economic empowerment vesting condition, vesting is based on the achievement of previously agreed upon deliverables as applicable in South Africa.

Details of the outstanding equity-settled performance share plan rights are as follows:

A valuation has been prepared using a stochastic model to determine the fair value of the performance share plan and the expense to be recognised for share rights granted during the current and prior year.

The range of inputs into the stochastic model used for rights granted during the year was as follows:

The risk-free rate was estimated using the nominal bond curve as compiled by the JSE of South Africa and obtained from I-Net Bridge (2016: the risk-free rate was estimated using the implied yield on SA zero-coupon government bonds).

Volatility was estimated using annualised standard deviation of the continuously compounded rates of return of the share and the daily dividend yield was provided by I-Net Bridge (2016: volatility was estimated using the weekly closing share price and the dividend yield was estimated by using a one-year moving average of the dividend yield at valuation date).

Employee share ownership programme

On 1 December 2017 approximately 2 million shares were granted to qualifying employees for no consideration and subject to a service condition. The shares will vest in three tranches, i.e. a third will vest on the third, fourth and fifth anniversary of the grant date respectively. The plan is facilitated through a structured entity (the 2016 MTN ESOP trust). MTN will provide shares and funding to the 2016 MTN ESOP trust to enable the trust to satisfy its objectives.

Cash-settled share-based payment transactions

During the year, the group granted newly appointed executives cash-settled onboarding incentives to compensate the executives in respect of the actualised pre-tax amount of stocks or equity relinquished by the executives with their previous employers. The value of each incentive will be determined based on the market value of the specified number of ordinary listed shares in MTN Group Limited at the end of the incentive period for each respective executive. The remaining incentive period at 31 December 2017 is approximately two years. The total number of MTN Group shares on which the incentives are based is 837 664. The fair value of these incentives was determined as at 31 December 2017 using a Black-Scholes valuation methodology and a cash-settled share-based payment expense of R30 million was accounted for. None of the incentives granted have been forfeited since the respective grant dates. In addition, throughout the group there are various notional share schemes. The total income recorded for these schemes in the current year is R74 million (2016: R41 million), arising from the reversal of previously recorded expenses.