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Annual Report & Accounts 2013 - NOTES TO THE COMPANY FINANCIAL STATEMENTS
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9. SHARE OPTION SCHEME continued Note d: These options were granted under the new scheme, it is expected that the initial awards will vest over a three year period as follows; one third of the ordinary shares subject to each award will vest 12 months after the date of grant of the awards and the balance of the ordinary shares will vest in eight equal quarterly instalments over the following 24 months. Once vested, awards will normally be exercisable up to ten years from the date of grant at the end of which period they will lapse. The awards are subject to a performance condition which will require the Company's average share price over a period of 30 dealing days to reach 200p per ordinary share before the initial awards are capable of being exercised. Note e: These options were granted under the new scheme, it is expected that the initial awards will vest over a three year period as follows; one third of the ordinary shares subject to each award will vest 12 months after the date of grant of the awards and the balance of the ordinary shares will vest in eight equal quarterly instalments over the following 24 months. Once vested, awards will normally be exercisable up to ten years from the date of grant at the end of which period they will lapse. Note f: These options were granted to third parties as part of the Sportingbet acquisition following underwriting commitments made at the time. The awards vested on the grant date and the options have the exercise price reduced by the value of any dividends declared up to the point of exercise. The charge to the consolidated income statement in respect of these options (excluding bought out options) in 2013 was €736,000 (2012: €568,000), a credit to the income statement of €nil (2012: €489,000) in respect of the lapsed options and a credit to the income statement of €6,000 (2012: €nil) in respect of the bought out options. 9.1 Weighted Average Exercise Price of Options The number and weighted average exercise prices of share options is as follows: Weighted Weighted average average exercise Number exercise Number price of options price of options 2013 2013 2012 2012 Outstanding at the beginning of the year 171p 3,698,180 161p 3,271,257 Granted during the year 233.5p 500,000 155p 1,600,000 Exercised during the year 84p (295,846) 129p (123,077) Bought out in the year 1p (100,000) - - Lapsed during the year 120p (1,050,000) Outstanding at the end of the year 191p 3,802,334 171p 3,698,180 Exercisable at the end of the year 3,135,000 1,785,679 The options outstanding at 31 December 2013 have a weighted average contractual life of 4.7 years (2012: 5.7 years). 9.2 Valuation of Options The fair value of services received in return for share options granted in 2013, 2012, 2010, and 2007 were measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured on a Binomial valuation model. The contractual life of the option (10 years) is used as an input into this model. Expectations of early exercise are incorporated into the Binomial model. The option exercise price for all individuals was the average market price on grant date, with the exception of the options granted to third parties as part of the Sportingbet acquisition. These were priced at the amount the Group offered as consideration for the purchase. Fair value of share options and assumptions: Share price at Exercise Expected Fair value at date of grant* price Expected Expected dividend Risk free measurement Date of grant (in £) (in £) volatility multiple yield rate** a date 15 May 07 1.22 1.29 50% 2 8% 5.33% 0.40 21 May 10 1.85 2.13 60% 2 17% 2.75% 0.39 21 May 10 1.85 0.01 60% 2 17% 2.75% 0.05 21 May 10 1.85 1.50 60% 2 17% 2.75% 0.59 28 Jan 12 1.67 1.5479 58% 2 20% 2.19% 0.33 16 Jan 13 2.335 2.335 60% 2 12.15% 0.572% 0.58 01 Feb 13 2.635 2.335 60% 2 12.15% 0.572% 0.76 28 Feb 13 2.375 2.335 60% 2 12.15% 0.572% 0.61 * This is the bid price, not the mid-market price, at market close, as sourced from Bloomberg. ** The measurement of the risk-free rate was based on rate of UK sovereign debt prevalent at each grant date over the expected term of the option. ANNUAL REPORT 2013 74 NOTES TO THE COMPANY FINANCIAL STATEMENTS continued for the year ended 31 December 2013