Year ended 31 July 2006
29. Share-based payments
The Group operates six share option plans: the 1984 Executive Share Option Scheme, the 1989 Executive Share Option Scheme and the Wolseley Share Option Plan 2003 (collectively, the “Executive Option Schemes"); the Wolseley Employees Savings Related Share Option Scheme 1981 and Wolseley Irish Sharesave Scheme 2000 (collectively, the “Employees Savings Option Schemes"); and the Wolseley Employee Share Purchase Plan 2001 (the “ESPP"). The Wolseley Employees International Stock Appreciation Plan (the “SAP") expired during the year ended 31 July 2006.
Awards granted under the Executive Option Schemes are subject to a condition such that they may not be exercised unless the growth in earnings per share over a period of three consecutive financial years exceeds growth in the UK Retail Price Index over the same period by at least 9% and consequently vest over a period of three years. Awards granted under the Employee Savings Option Schemes vest over periods ranging from three to seven years. Awards granted under the Employee Share Purchase Plan vest over a one-year period. Awards granted under the SAP vested over a period of five years.
The Group also operates a Long Term Incentive Scheme (“LTIS") for senior executives. Under this Scheme, executives will be awarded a variable number of shares depending on the level of total shareholder return over the next three years relative to that of a number of comparator companies. The vesting period is three years. The maximum award under the scheme is determined at grant date and then adjusted at vesting date in accordance with the market performance condition.
Share options outstanding during the year
| Year ended 31 July | ||||
|---|---|---|---|---|
| 2006 | 2006 | 2005 | 2005 | |
| Shares
000’s |
Weighted
average exercise price £ |
Shares
000’s |
Weighted
average exercise price £ |
|
| Executive Option Schemes | ||||
| Outstanding as at 1 August | 11,809 | 7.22 | 11,061 | 5.64 |
| Granted | 4,588 | 11.87 | 4,131 | 9.51 |
| Exercised | (1,358) | 5.09 | (2,819) | 4.37 |
| Surrendered or expired | (457) | 8.89 | (564) | 7.07 |
| Outstanding as at 31 July | 14,582 | 8.83 | 11,809 | 7.22 |
| Exercisable as at 31 July | 3,172 | 5.10 | 1,831 | 4.42 |
| Weighted average fair value of options granted during the year | 3.97 | 3.06 | ||
| Employees Savings Option Schemes, ESPP and SAP | ||||
| Outstanding as at 1 August | 8,129 | 6.38 | 10,708 | 4.83 |
| Granted | 1,521 | 12.01 | 3,434 | 9.26 |
| Exercised | (2,725) | 3.80 | (4,215) | 4.85 |
| Surrendered or expired | (3,247) | 8.75 | (1,798) | 6.24 |
| Outstanding as at 31 July | 3,678 | 8.53 | 8,129 | 6.38 |
| Exercisable as at 31 July | 88 | 4.44 | 72 | 4.12 |
| Weighted average fair value of options granted during the year | 3.83 | 2.70 | ||
The weighted average share price at the date of exercise for share options exercised during the period was £12.67 (2005: £10.16). The total intrinsic value of options exercised during the period was £22 million (2005: £29 million). The aggregate intrinsic value of options outstanding and exercisable at 31 July 2006 was £48 million and £21 million respectively (2005: £99 million and £14 million).
Maximum number of shares that can be issued under the Long Term Incentive
Scheme
| Year ended 31 July | ||||
|---|---|---|---|---|
| 2006 | 2006 | 2005 | 2005 | |
| Shares
000’s |
Share
price at award date £ |
Shares
000’s |
Share
price at award date £ |
|
| Outstanding as at 1 August | 604 | 9.27 | – | – |
| Granted | 730 | 11.29 | 628 | 9.27 |
| Surrendered or expired | (12) | 9.25 | (24) | 9.25 |
| Outstanding as at 31 July | 1,322 | 10.39 | 604 | 9.27 |
| Exercisable as at 31 July | – | – | – | – |
| Weighted average fair value of shares awarded | 3.99 | 4.85 | ||
Details of options exercisable
Options outstanding and exercisable at 31 July 2006 under the Executive Option Schemes, the Employees Saving Option Schemes and ESPP can be analysed as follows:
| Options Outstanding | Options Exercisable | |||||
|---|---|---|---|---|---|---|
| Range of exercise prices | Shares
000’s |
Weighted
average remaining contractual life Years |
Weighted
average exercise price £ |
Shares
000’s |
Weighted
average remaining contractual life Years |
Weighted
average exercise price £ |
| £2.51 – £3.50 | 404 | 2.5 | 3.15 | 211 | 3.8 | 3.48 |
| £3.51 – £4.50 | 668 | 2.0 | 4.07 | 198 | 2.1 | 3.96 |
| £4.51 – £5.50 | 2,740 | 5.7 | 5.14 | 2,740 | 5.7 | 5.14 |
| £5.51 – £6.50 | 228 | 1.1 | 5.62 | 3 | 1.1 | 5.63 |
| £6.51 – £7.50 | 3,774 | 6.3 | 7.29 | 57 | 6.8 | 7.37 |
| £7.51 – £8.50 | 24 | 7.9 | 8.42 | – | – | – |
| £8.51 – £9.50 | 4,376 | 7.4 | 9.40 | 52 | 7.8 | 9.44 |
| £10.51 – £11.50 | 50 | 8.6 | 11.00 | – | – | – |
| £11.51 – £12.50 | 5,883 | 7.3 | 11.90 | 4 | 7.7 | 11.64 |
| £12.51 – £13.50 | 111 | 9.5 | 12.81 | – | – | – |
| 18,258 | 6.5 | 8.77 | 3,265 | 5.4 | 5.08 | |
The fair value at the date of grant of options awarded during the year has been estimated by the binomial methodology for all schemes except the LTIS, for which a Monte Carlo simulation was used.
The principal assumptions required by these methodologies were:
| Executive Share Options | Employee Share Options | Long Term
Incentive Schemes | ||||
|---|---|---|---|---|---|---|
| 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |
| Risk free interest rate | 4.45% | 4.72% | 4.52% | 4.60% | 4.40% | 4.70% |
| Expected annual increase in dividends* | 10% | 10% | 10% | 10% | – | – |
| Expected dividend yield* | – | – | – | – | 2.75% | 2.29% |
| Expected volatility | 39.00% | 40.10% | 31.06 | 40.00% | 20.58% | 27.74% |
| Expected life | 5.7 years | 5.7 years | 1-7 years | 1-7 years | 3 years | 3 years |
* The initial assumption was for 2006 interim and final dividends of 9.68 pence and 19.36 pence respectively (2005: 8.73 pence and 17.45 pence respectively).
Expected volatility has been estimated on the basis of historic volatility over the expected term. Expected life has been estimated on the basis of historical data on the exercise pattern.
