21. Share-based Payments
The Group has three share award plans, all of which are equity-settled schemes:
1. Halfords Company Share Option Scheme
The CSOS was introduced in June 2004 and the Company has made annual grants since. Options are granted with a fixed exercise price equal to the market price of the shares under option at the date of grant. The contractual life of an option is 10 years.
Options granted will become exercisable on the third anniversary of the date of grant, subject to the achievement of a three-year performance condition. For grants up to 150% of basic salary the options can only be exercised if the increase in earnings per share ("EPS") over the period is not less than the increase in the Retail Price Index ("RPI") plus 3.5% per year. In the case of grants in excess of 150% of basic salary, the excess can only be exercised in full if the increase is not less than RPI plus 10% per year. Exercise of an option is subject to continued employment.
The expected volatility is based on historical volatility of a peer group of companies since the IPO in June 2004. The expected life is the average expected period to exercise. The risk free rate of return is the yield on zero-coupon UK government bonds.
Options were valued using the Black–Scholes option-pricing models. No performance conditions were included in the fair value calculations.
2. Halfords Sharesave Scheme
The SAYE is open to all employees with eligible employment service. Options may be exercised under the scheme if the option holder completes his saving contract for a period of three years and then not more than six months thereafter. Special provisions allow early exercise in the case of death, injury, disability, redundancy, retirement or because the company or business which employs the option holder is transferred out of the Group, or in the event of a change in control, reconstruction or winding-up of the Company.
Options were valued using the Black–Scholes option-pricing models.
3. Performance Share Plan
The introduction of a Performance Share Plan ("PSP") was approved at the Annual General Meeting in August 2005 awarding the Executive Directors and certain senior management conditional rights to receive shares. Annual schemes have been approved for each year from 2005.
The extent to which such rights vest will depend upon the Company's performance over the three-year period following the award date. The vesting of 50% of the awards will be determined by the Company's relative total shareholder return ("TSR") performance and the vesting of the other 50% by the Company's absolute EPS performance against RPI. The Company's TSR performance will be measured against the FTSE 350 general retailers as a comparator group. No retesting will be permitted.
The TSR element of the options granted under the schemes has been valued using a model developed by Deloitte. The Deloitte model uses the Group's share price volatility, the correlation between comparator companies and the vesting schedule attaching to the PSP tranche rather than generating a large number of simulations of share price and TSR performance to determine the fair value of the award using a Monte Carlo model.
For 2009 awards onwards, the Committee has recommended the reinvestment of dividends earned on award shares, such shares to invest in proportion to the vesting of the original award shares. This is in line with best practice as contained in the ABI guidelines on executive remuneration. Following this recommendation the shares awarded in 2009 and 2010 under the Performance Share Plan earned final dividends of 14p per share and were reinvested in shares at a cost of £3.03 per share. Shares awarded in 2009, 2010 and 2011 under the PSP earned interim dividends of 8p per share and were reinvested in shares at a cost of £3.19 per share.
The Group Income Statement charge recognised in respect of share-based payments for the current and prior periods is detailed in the table below:
| Share award plan | 30 March 2012
£m | 1 April 2011
£m |
| Company Share Option Scheme ("CSOS") |
0.5 |
0.7 |
| Sharesave Scheme ("SAYE") |
0.3 |
0.3 |
| Performance Share Plan ("PSP") |
1.6 |
1.4 |
| Total charge |
2.4 |
2.4 |
The following tables reconcile the number of share options outstanding and the weighted average exercise price (WAEP):
For the period ended 30 March 2012
|
CSOS |
SAYE |
PSP |
| Number
('000) | WAEP
(£) | Number
('000) | WAEP
(£) | Number
('000) | WAEP
(£) |
| Outstanding at start of year |
3,556 |
3.84 |
1,395 |
2.45 |
1,752 |
0.00 |
| Granted |
950 |
2.96 |
638 |
2.92 |
692 |
0.00 |
| Shares representing dividends reinvested |
— |
— |
— |
— |
84 |
0.00 |
| Forfeited |
— |
— |
(5) |
3.42 |
(221) |
0.00 |
| Exercised |
(119) |
3.06 |
(878) |
1.93 |
(623) |
0.00 |
| Lapsed |
(529) |
3.63 |
(242) |
3.33 |
(69) |
0.00 |
| Outstanding at end of year |
3,858 |
3.68 |
908 |
3.05 |
1,615 |
0.00 |
| Exercisable at end of year |
1,449 |
3.22 |
16 |
1.93 |
— |
0.00 |
|
|
|
|
|
|
|
| Exercise price range (£) |
|
2.60 to 5.03 |
|
1.93 to 4.15 |
|
0.00 |
| Weighted average remaining contractual life (years) |
|
7.5 |
|
1.8 |
|
1.4 |
For the period ended 1 April 2011
| CSOS | SAYE | PSP |
Number
('000) | WAEP
(£) | Number
('000) | WAEP
(£) | Number
('000) | WAEP
(£) |
| Outstanding at start of year |
3,698 |
3.43 |
1,683 |
2.22 |
1,692 |
0.00 |
| Granted |
1,341 |
4.87 |
295 |
4.15 |
320 |
0.00 |
| Shares representing dividends reinvested |
— |
— |
— |
— |
45 |
0.00 |
| Forfeited |
— |
— |
(7) |
2.83 |
(129) |
0.00 |
| Exercised |
(925) |
3.87 |
(322) |
2.76 |
(125) |
0.00 |
| Lapsed |
(558) |
3.53 |
(254) |
2.50 |
(51) |
0.00 |
| Outstanding at end of year |
3,556 |
3.84 |
1,395 |
2.45 |
1,752 |
0.00 |
| Exercisable at end of year |
466 |
3.52 |
2 |
3.11 |
57 |
0.00 |
|
|
|
|
|
|
|
| Exercise price range (£) |
|
2.60 to 5.03 |
|
1.93 to 4.15 |
|
0.00 |
| Weighted average remaining contractual life (years) |
|
8.0 |
|
0.9 |
|
0.7 |
The following table gives the assumptions applied to the options granted in the respective periods shown:
| 52 weeks to 30 March 2012 | 52 weeks to 1 April 2011 |
| Grant date | CSOS | SAYE | PSP | CSOS | SAYE | PSP |
| Share price at grant date |
£3.04 |
£3.04 |
£2.93 |
£4.86–£5.03 |
£5.14 |
£4.86 |
| Exercise price |
£2.96 |
£2.92 |
£0.00 |
£4.86–£5.03 |
£4.15 |
£0.00 |
| Expected volatility |
33% |
35% |
34% |
35% |
39% |
41% |
| Option life (years) |
10 |
3 |
3 |
10 |
3 |
3 |
| Expected life (years) |
4.85 |
3.5 |
3 |
4.85 |
3.5 |
3 |
| Risk free rate |
1.50% |
1.09% |
— |
1.80%–2.15% |
1.49% |
— |
| Expected dividend yield |
7.42% |
7.42% |
7.34% |
4.00%–4.08% |
4.26% |
4.08% |
| Probability of forfeiture |
33% |
44% |
30% |
33% |
44% |
30% |
| Weighted average fair value of options granted |
£0.41 |
£0.44 |
£2.02 |
£1.08 |
£1.22 |
£3.65 |
As the PSP awards have a nil exercise price the risk free rate of return does not have any effect on the estimated fair value and therefore is excluded from the above table.