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Annual Report & Accounts 2014 - NOTES
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19. shaRe option schemes continued 19.1 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 of exercise number of price options price options 2014 2014 2013 2013 outstanding at the beginning of the year 191p 3,801,667 171p 3,698,180 granted during the year 1p 3,450,000 233.5p 500,000 exercised during the year 184p (369,720) 84p (296,513) Bought out in the year 213p (75,000) 10p (100,000) outstanding at the end of the year 94p 6,806,947 191p 3,801,667 exercisable at the end of the year 3,356,947 3,135,000 the options outstanding at 31 December 2014 have a weighted average contractual life of 5.9 years (2013: 4.7 years). 19.2 Valuation of options the fair value of services received in return for share options granted were measured by reference to the fair value of share options granted. With the exception of the options granted in 2014 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. the 2014 options were valued using a monte carlo model due to the performance conditions associated with the options. Fair value of share options and assumptions: share price exercise expected Fair value at at date of grant* price expected exercise dividend Risk free measurement Date of grant (in ) (in ) volatility multiple yield rate** date 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 02 Jun 14 4.49 0.01 24% n/a 10.00% 1.425% 0.41 * 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. the expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available information. there are no market conditions associated with the share option grants with the exception of those issued in 2014 as noted above. 20. financial instRuments and RisK manaGement the group's principal financial instruments as at 31 December 2014 comprise cash and cash equivalents. the main purpose of these financial instruments is to finance the group's operations. the group has other financial instruments which mainly comprise receivables and payables, which arise directly from its operations. cash and cash equivalents and trade and other receivables have been classified as loans and receivables and trade and other payables, and deferred consideration as financial liabilities measured at amortised cost. During the year, the group did not use derivative financial instruments to hedge its exposure to foreign exchange or interest rate risks arising from operational, financing and investment activities. the group does not hold or issue derivative financial instruments for trading purposes. ANNUAL REPORT 2014 54 notes to the consolidated financial statements continued for the year ended 31 december 2014