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Annual Report and Accounts 2011

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Notes to the Annual Financial Statements
For the year ended 30 June 2011

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28. Share-based payments

Employee share options

The Company has an established share option programme that entitles the Remuneration Committee, at its discretion, to grant share options to Directors and Senior Management. The terms and conditions of the share options granted during the year ended 30 June 2011 are disclosed below. The share-based payment expense has been calculated using the Black-Scholes model. All share options are equity settled.

Fair value of share options granted during the year and assumptions are as follows:

2011 2010
Fair value at measurement date 31.0p-51.2p 20.8p-35.7p
Exercise price 92.8p 45.5p-60.5p
Share price at grant date 97.0p 64p-66p
Expected volatility 79.2% 68%-71%
Vesting period 1-3 years 1-3 years
Option life 10 years 10 years
Expected dividends
Risk-free interest rate (based on national Government bonds) 0.98%-2.48% 0.98%-2.48%

The expected volatility is based on historic volatility of the Group's share price, adjusted for any extreme changes in the share price during the historic period. During the year, 2,079,999 (30 June 2010: 233,862) options held by employees were exercised and the Company expensed US$1.9 million (30 June 2010: US$1.7 million) related to the fair value of employee share options. During the year, 130,000 (30 June 2010: 492,805) options with a weighted average option price of 43.4 pence lapsed, 504,079 (30 June 2010: 16,666) share options with a weighted average option price of 42.4 pence (30 June 2010: 9.0 pence) were cancelled immediately before vesting and 500,000 (30 June 2010: 8,186,000) share options were granted at an option price of 92.8 pence.

The terms and conditions of the options in issue are as follows, whereby all options are settled by delivery of shares:

Employees entitled Grant date Number Vesting period Remaining life
of options
(years)
Options granted to Directors 5 September 2003 1,000,000 1/3 per annum from grant date 2
16 June 2005 2,000,000 1/3 per annum from grant date 4
31 May 2006 1,000,000 1/3 per annum from grant date 5
12 March 2009 2,500,000 1/3 per annum from grant date 8
30 September 2009 1,150,000 1/3 per annum from grant date 9
17 March 2010 1,150,000 1/3 per annum from grant date 9
Options granted to Senior Management 13 September 2004 50,000 1/3 per annum from grant date 3
24 September 2004 75,000 25% from grant date for two years,
then 50% in third year
3
28 January 2005 23,750 25% from grant date for two years,
then 50% in third year
4
27 November 2005 84,300 1/3 per annum from grant date 4
31 May 2006 166,388 1/3 per annum from grant date 5
31 July 2006 236,812 1/3 per annum from grant date 7
12 March 2009 4,470,000 1/3 per annum from grant date 8
30 September 2009 2,117,671 1/3 per annum from grant date 9
17 March 2010 3,060,002 1/3 per annum from grant date 9
25 November 2010 500,000 1/3 per annum from grant date 10

2011 2010
Weighted
average
exercise price
(pence)
Number Weighted
average
exercise price
(pence)
Number
Outstanding at beginning of the year 48.60 21,798,001 45.46 14,355,334
Cancelled during the year 42.39 (504,079) 15.92 (16,666)
Lapsed during the year 43.42 (130,000) 62.76 (492,805)
Exercised during the year 51.05 (2,079,999) 49.07 (233,862)
Granted during the year 92.80 500,000 53.08 8,186,000
Outstanding at the end of the year 47.88 19,583,923 48.60 21,798,001
Exercisable at the end of the year 51.38 11,770,578 37.73 5,052,102

The weighted average market price of the shares in respect of options exercised during the year was 156.87 pence (30 June 2009: 45.72 pence). The options outstanding at 30 June 2011 have an exercise price in the range of 27.5 pence to 96 pence (30 June 2009: 27.5 pence to 96 pence) and a weighted average remaining contractual life of seven years (30 June 2010: eight years).

Employees received cash payments of US$0.8 million during the year in respect of options cancelled. The payments equate to the fair value at the date of cancellation and the Group recognised a charge to equity in accordance with IFRS 2 together with the acceleration of the remaining unamortised fair value in respect of the options of US$0.1 million in the income statement.

Warrants

As part of the debt facilities referred to in note 22 parts (iv) and (v), 12,600,000 warrants over Petra shares were granted to the IFC (6,300,000) and RMB (6,300,000). The fair value of the 12,600,000 warrants has been calculated using the Black-Scholes model and debited against pre-payments until such time as the loan is drawn down. The warrants were fair valued at US$7.9 million. When the loan is drawn down, the fair value is debited against the interest bearing non-current borrowings and the effective interest rate and associated accretion charges adjusted accordingly (refer note 22 parts (iv) and (v)).

The fair value of the 5,457,037 warrants in issue as at 30 June 2010 was debited against the share premium account being a directly attributable cost of the December 2009 capital raising exercise.

2011 2010
Fair value at measurement date 36.2p-41.7p 18.5p
Exercise price 90p, 95p and 100p 80p
Share price at date of grant 102.0p 72.2p
Expected volatility 43%-63% 71%
Warrant life 2-4 years 2 years
Expected dividends
Risk-free interest rate (based on national Government bonds) 0.65%-1.16% 1.73%

The expected volatility is based on historic volatility of the Group's share price, adjusted for any extreme changes in the share price during the historic period. During the year nil warrants (30 June 2010: 2,000,000) lapsed and 8,292,777 (30 June 2010: nil) were exercised with option prices in the range of 80 pence to 95 pence.

The terms and conditions of the grants are as follows, whereby all warrants are settled by delivery of shares:

2011 2010
Weighted
average
exercise price
(pence)
Number Weighted
average
exercise price
(pence)
Number
Outstanding at beginning of the year 80.00 5,457,036 130.00 2,000,000
Lapsed during the year 130.00 (2,000,000)
Exercised during the year 86.33 (8,292,777)
Granted during the year 95.00 12,600,000 80.00 5,457,036
Outstanding at the end of the year 93.98 9,764,259 80.00 5,457,036
Exercisable at the end of the year 93.98 9,764,259 80.00 5,457,036

The warrants outstanding at 30 June 2011 have an exercise price in the range of 90 pence – 100 pence (30 June 2010: 80 pence) and a weighted average remaining contractual life of three years (30 June 2010: two years).

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