Vodafone 2007 Annual Report Download - page 121

Vodafone Group Plc Annual Report 2007 119
Financials
Share awards
Movements in non-vested shares during the year ended 31 March 2007 are as follows:
All Shares Other Total
Weighted Weighted Weighted
average fair average fair average fair
value at grant value at grant value at grant
Millions date Millions date Millions date
1 April 2006 35 £1.19 141 £1.16 176 £1.17
Granted 20 £1.02 107 £0.91 127 £0.93
Vested (19) £1.15 (18) £1.12 (37) £1.14
Forfeited (3) £1.14 (33) £1.08 (36) £1.09
31 March 2007 33 £1.13 197 £1.04 230 £1.05
Fair value
ADS Options Ordinary Share Options
Board of directors and
Other Executive Committee Other
2007 2006 2005 2007 2006 2005 2007 2006 2005
Expected life of option (years) 5 – 6 8 – 9 6 – 7 5 – 6 6 – 7 5 – 6 5 – 7 8 – 9 6 – 7
Expected share price volatility 27.3 – 28.3% 17.9 -18.9% 25.6 – 26.6% 24.0 – 27.7% 17.6 –18.6% 24.3 – 25.3% 25.5 – 28.3% 17.9 –18.9% 25.6% – 26.6%
Dividend yield 5.1 – 5.5% 2.8 – 3.2% 1.7 – 2.1% 4.8 – 5.5% 2.6 – 3% 1.7 – 2.1% 5.1 – 6.1% 2.8 – 3.2% 1.7 – 2.1%
Risk free rates 4.8% 4.2% 5.1% 4.7 – 4.9% 4.2% 5.2% 4.6 – 4.9% 4.2% 5.1%
Exercise price(1) £1.15 £1.36 £1.40 £1.15 – 1.36 £1.45 £1.40 £1.14 – 1.16 £1.36 £1.40
Note:
(1) In the year ended 31 March 2007 there was more than one grant of ordinary share options
The fair value of the options is estimated at the date of grant using a lattice-based option valuation model (i.e. binomial model) that uses the assumptions
noted in the above table. Lattice-based option valuation models incorporate ranges of assumptions for inputs and those ranges are disclosed above. Certain
options granted to the Board of directors and Executive Committee have a market based performance condition attached and hence the assumptions are
disclosed separately.
The Group uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have
similar historical exercise behaviour are considered separately for valuation purposes. The expected life of options granted is derived from the output of the
option valuation model and represents the period of time that options granted are expected to be outstanding; the range given above results from certain
groups of employees exhibiting different behaviour. Expected volatilities are based on implied volatilities as determined by a simple average of no less than
three international banks excluding the highest and lowest numbers. The risk-free rates for periods within the contractual life of the option are based on the
UK gilt yield curve in effect at the time of grant.
Shares used for the Group’s employee incentive plans can be newly issued shares, shares held in treasury or market purchased shares either through the
Company’s employee benefit trust or direct from the market or a combination of sources. The source of the shares is determined by the Company having
regard to what is considered the most efficient source at the relevant time.
Some share awards have an attached market condition, based on Total Shareholder Return (“TSR”), which is taken into account when calculating the fair value
of the share awards. The valuation methodology for the TSR was based on Vodafone’s ranking within the same group of companies (where possible) over the
past five years (2006: ten years, 2005: ten years). The volatility of the ranking over a three year period was used to determine the probability weighted
percentage number of shares that could be expected to vest and hence affect fair value.
Other information
The weighted average grant-date fair value of options granted during the 2007 financial year was £0.22 (2006: £0.30, 2005: £0.34). The total intrinsic value of
options exercised during the year ended 31 March 2007 was £65 million (2006: £164 million, 2005: £28 million). The aggregate intrinsic value of fully vested
share options outstanding at the year end was £102 million and the aggregate intrinsic value of fully vested share options exercisable at the year end was
£73 million. Cash received from the exercise of options under share options schemes was £193 million and the tax benefit realised from options exercised
during the annual period was £21 million.
The total fair value of shares vested during the year ended 31 March 2007 was £41 million (2006: £18 million, 2005: £5 million).
The compensation cost that has been charged against income in respect of share options and share plans for continuing operations was £93 million (2006:
£109 million, 2005: £130 million), which is comprised entirely of equity-settled transactions. Including discontinued operations, the compensation cost
charged against income in respect of share options and share plans in total was £93 million (2006: £114 million, 2005: £137 million). The total income tax
benefit recognised in the consolidated income statement in respect of share options and share plans was £34 million (2006: £50 million, 2005: £17 million).
Compensation costs in respect of share options and share plans capitalised during the years ended 31 March 2007, 31 March 2006 and 31 March 2005 were
insignificant. As of 31 March 2007, there was £130 million of total compensation cost relating to non-vested awards not yet recognised, which is expected to
be recognised over a weighted average period of two years.
No cash was used to settle equity instruments granted under share-based payment schemes.
The average share price for the 2007 financial year was 129 pence.