Annual report and financial statements 2009
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Notes to the Group financial statements
26 Share-based payments
The Group operates a number of share-based payments schemes; (i) the Executive share option scheme, (ii) the Sharesave scheme and (iii) an equity-settled Long Term Incentive Plan (LTIP). In line with IFRS 2 Share-based payment, the Group has fair valued all grants of equity instruments issued after 7 November 2002 which were unvested as of 1 January 2005.
The total charge for the period relating to employee share-based payment plans was £14m (2008: £9m), all of which related to equity-settled share-based payment transactions. After corporation and deferred tax, the total charge in the income statement was £11m (2008: £7m).
a) Share option schemes
i) Executive share option scheme
In May 1995, the Group adopted the 1995 Senior Executive Share Option Scheme which was made available to Directors and other senior employees. The scheme was terminated on 25 May 2005. The scheme offered options at the market price two weeks prior to the date of the grant which are normally exercisable between three and 10 years from the date of grant. The maximum exercise value of the ordinary shares subject to options held by an individual must not exceed the greater of four times earnings and £100,000. The exercise of options under the scheme is subject to performance criteria broadly requiring an increase in Group operating profits of at least 20% between the year prior to the date of the grant and its third or any succeeding anniversary. The scheme is equity-settled.
Those options which have been granted after 7 November 2002 have been fair valued using the Binomial stochastic option pricing model. The fair value per option granted and the assumptions were as follows:
| Grant date | 12 Nov 2004 | 2 Apr 2003 |
|---|---|---|
| Share price at grant date | £2.33 | £1.81 |
| Fair value of options granted | £1.4m | £1.9m |
| Exercise price | £2.22 | £1.75 |
| Dividend yield | 1.43% | 1.49% |
| Annual risk free interest rate | 4.61% | 4.12% |
| Expected volatility* | 29.4% | 29.4% |
*The volatility measured at the standard deviation of expected share price returns is based on statistical analysis on weekly share prices over the last six years.
The fair value calculations do not incorporate the effects of non-market vesting conditions, but the charge is adjusted to reflect an estimate of the number of options which vest.
| 2009 | 2008 | ||||
| Weighted average exercise price in £ per share | Options thousands | Weighted average exercise price in £ per share | Options thousands | ||
| Movement in outstanding options | |||||
| Outstanding at start of period | 1.90 | 3,223 | 1.91 | 5,901 | |
| Exercised | 1.98 | (1,409) | 1.92 | (2,678) | |
| Outstanding at end of period | 1.84 | 1,814 | 1.90 | 3,223 | |
| Exercisable at end of period | 1.84 | 1,814 | 1.90 | 3,223 | |
| 2009 | 2008 | ||||
| Weighted average share price at date of exercise | Number of shares | Weighted average share price at date of exercise | Number of shares | ||
| Share options exercised in the financial period | £2.84 | 1,409,000 | £3.10 | 2,678,000 | |
| 2009 | 2008 | ||
|---|---|---|---|
| Share options outstanding at the end of the period | |||
| Range of exercise prices | £1.75-£2.22 | £1.75-£2.22 | |
| Weighted average remaining contractual life | 3.8 years | 5.0 years |
ii) Sharesave scheme
The Sharesave scheme has been in operation since 18 May 2000 and all employees (including Executive Directors) are eligible once the necessary service requirements have been met. The scheme allows participants to save up to a maximum of £250 each month for a fixed period of three years. Options are offered at a discount of 20% to the mid-market closing price on the day prior to the offer and are exercisable for a period of six months commencing after the end of the fixed period of the contract. The exercise of options under this scheme is only subject to service conditions and is equity-settled.
Options granted before 7 November 2002
The Group has not fair valued the Sharesave plan since the grants of the options were all made before 7 November 2002 and remained unvested as at 1 January 2005.
| 2009 | 2008 | ||||
| Weighted average exercise price in £ per share | Options thousands | Weighted average exercise price in £ per share | Options thousands | ||
| Movement in outstanding options | |||||
| Outstanding at start of period | 1.79 | 179 | 1.80 | 7,681 | |
| Exercised | 1.76 | (40) | 1.74 | (6,570) | |
| Expired | 1.79 | (139) | 2.20 | (932) | |
| Outstanding at end of period | – | – | 1.79 | 179 | |
| Exercisable at end of period | – | – | 1.73 | 21 | |
| 2009 | 2008 | ||||
| Weighted average share price at date of exercise | Number of shares | Weighted average share price at date of exercise | Number of shares | ||
| Share options exercised in the financial period | £2.89 | 40,000 | £2.97 | 6,570,000 | |
| 2009 | 2008 | ||
|---|---|---|---|
| Share options outstanding at the end of the period | |||
| Range of exercise prices | – | £1.73-£1.79 | |
| Weighted average remaining contractual life | – | 1.0 years |
Options granted after 7 November 2002
Those options which have been granted after 7 November 2002 to those eligible employees, including Directors, who chose to participate in the scheme have been fair valued using the Binomial stochastic option pricing model. The fair value per option granted and the assumptions were as follows:
| Grant date | 18 May 2007 | 24 Apr 2006 |
|---|---|---|
| Share price at grant date | £3.26 | £1.94 |
| Fair value of options granted | £12.3m | £16.2m |
| Exercise price | £2.47 | £1.58 |
| Dividend yield | 1.23% | 1.91% |
| Annual risk free interest rate | 5.58% | 4.57% |
| Expected volatility* | 23.5% | 25.6% |
*The volatility measured at the standard deviation of expected share price returns is based on statistical analysis on weekly share prices over the past 3.25 years prior to the date of grant.
The fair value calculations do not incorporate the effects of non-market vesting conditions.
| 2009 | 2008 | ||||
| Weighted average exercise price in £ per share | Options thousands | Weighted average exercise price in £ per share | Options thousands | ||
| Movement in outstanding options | |||||
| Outstanding at start of period | 1.84 | 32,335 | 1.58 | 25,754 | |
| Granted | – | – | 2.47 | 10,617 | |
| Exercised | 1.61 | (82) | 1.59 | (46) | |
| Expired | 2.01 | (3,180) | 1.81 | (3,990) | |
| Outstanding at end of period | 1.83 | 29,073 | 1.84 | 32,335 | |
| Exercisable at end of period | – | – | – | – | |
| 2009 | 2008 | ||||
| Weighted average share price at date of exercise | Number of shares | Weighted average share price at date of exercise | Number of shares | ||
| Share options exercised in the financial period | £2.69 | 82,000 | £3.02 | 46,000 | |
| 2009 | 2008 | ||
|---|---|---|---|
| Share options outstanding at the end of the period | |||
| Range of exercise prices | £1.58-£2.47 | £1.58-£2.47 | |
| Weighted average remaining contractual life | 1.2 years | 2.3 years |
b) Long Term Incentive Plans
i) Equity-based Long Term Incentive Plan (LTIP)
In May 2007, a discretionary Long Term Incentive Plan for the benefit of certain employees as approved by the Remuneration Committee was introduced. The awards are free share-based awards, with non-market vesting conditions attached, that accrue the value of dividends over the vesting period.
The maximum total market value of shares over which awards may be granted to any employee during any financial year of the Company is 300% of salary. Awards normally vest three years after the original grant date providing the relevant performance criteria have been met. Employees have six months from the vesting date to exercise their options after which they lapse.
The fair value at the date of grant, which is being charged to the income statement over the three year vesting period, has been calculated based on the following assumptions:
| Grant date | 14 Oct 2008 | 14 Apr 2008 | 24 Oct 2007 | 6 Jun 2007 | 24 May 2007 |
|---|---|---|---|---|---|
| Share price at grant date | £2.42 | £2.77 | £2.88 | £3.13 | £3.23 |
| Assumed leavers | 5% | 5% | 4% | 3% | 3% |
| Performance criteria achieved | 90% | 90% | 90% | 90% | 90% |
| Exercise price | £nil | £nil | £nil | £nil | £nil |
| Fair value of options granted | £0.6m | £12.5m | £0.4m | £0.1m | £10.5m |
| 2009 | 2008 | ||||
| Weighted average exercise price in £ per share | Options thousands | Weighted average exercise price in £ per share | Options thousands | ||
| Movement in outstanding share awards | |||||
| Outstanding at start of period | – | 4,470 | – | – | |
| Granted | – | 6,128 | – | 4,470 | |
| Expired | – | – | – | – | |
| Outstanding at end of period | – | 10,598 | – | 4,470 | |
| Exercisable at end of period | – | – | – | – | |
| 2009 | 2008 | ||
|---|---|---|---|
| Share awards outstanding at the end of the period | |||
| Range of exercise prices | – | – | |
| Weighted average remaining contractual life | 1.8 years | 2.4 years |