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58 Carphone Warehouse Group plc Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
6 SHAREBASED PAYMENTS
In the years prior to the Demerger, Old Carphone Warehouse issued equity settled share-based payments to certain employees
of Best Buy Europe, TalkTalk Group and the Group, and since the Demerger the Company has issued equity settled share-based
payments to certain employees of the Group. With the exception of share schemes which lapsed due to the Demerger, following the
Demerger all shares and share options in Old Carphone Warehouse were cancelled and replaced with shares and share options in
the Company and TalkTalk. Share and option holders received two shares or share options in TalkTalk and one share or share option
in the Company for every two shares or share options previously held in Old Carphone Warehouse. The following analysis includes
options in the Company held by employees and former employees of Best Buy Europe, TalkTalk Group and the Group. The share
options data reflects the share consolidation that occurred on Demerger as though it had applied throughout the year ended
31March 2010. The WAEP for each scheme has also been restated to reflect the Demerger, with the WAEP for Old Carphone
Warehouse allocated between the Company and TalkTalk based on their respective market capitalisations in the 60 days following
the Demerger.
a) Value enhancement schemes
Prior to the Demerger, Old Carphone Warehouse introduced two value enhancement schemes to provide long-term incentives to
its senior management group in relation to its principal businesses, Best Buy Europe and the TalkTalk Business.
Best Buy Europe VES
The Best Buy Europe VES enables participants to share in up to 2.24% of any increase in the value of Best Buy Europe over an
opening valuation determined by the Old Carphone Warehouse board as at 1 April 2009. The incremental value is measured after a
minimum annual rate of return of 7% on this valuation. The Group advanced loans totalling £5.8m to participants to enable them to
purchase A shares in CPW Retail Holdings Limited, which holds part of the Group’s investment in Best Buy Europe. The value of the
Best Buy Europe VES pool is adjusted on vesting for any change in the Company’s market capitalisation since 6April 2009, such that
an increase in the Company’s market capitalisation increases the value of the pool. The Company’s opening market capitalisation
for this purpose represents an allocation of the market capitalisation of Old Carphone Warehouse at that date, based on the market
capitalisation of the Company and TalkTalk in the five days following Demerger. The Company has an obligation to acquire these
shares if performance conditions are met, to provide participants with the share of value described above. It is intended that the
Company’s shares would be used as consideration for this purpose. Performance is measured over an initial performance period to
July 2013, at which point participants have a put option over 60% of their shares, and a subsequent performance period to July 2014,
at which point participants have a put option over the remainder of their shares. On a change of control, Best Buy Europe VES
shares may vest early if the relevant performance conditions have been achieved. Loans are ordinarily repayable in full if
performance conditions are met. If performance conditions are not met or a participant leaves the scheme before vesting, the
Best Buy Europe VES shares are transferred to the Group for the lower of market value at that date and the value of the participant’s
outstanding loan. However, if market value at the date of transfer is lower than the value of the loan, the participant will ordinarily
be required to repay only 20% of the difference. At 31March 2011, all of the shares in the Best Buy Europe VES pool had been issued
to senior management.
TalkTalk VES
The Group also advanced loans totalling £3.6m to certain participants in the TalkTalk VES. This scheme has a similar structure
to the Best Buy Europe VES, but the value of the scheme is dependent on the performance of TalkTalk Group, and the obligation to
acquire the TalkTalk VES shares lies with TalkTalk rather than the Company.
b) Joint venture incentive schemes
Best Buy Europe also introduced a VES during the year ended 31 March 2010, to provide long-term incentives to senior
management. The scheme enables participants to share in incremental profits generated by Best Buy Europe over a base defined
in respect of the year to 3 April 2010, with the percentage of incremental profits varying by Best Buy Europe division. Participants
acquired A and B shares in Best Buy Europe Distributions. The Company and Best Buy jointly have an obligation to acquire these
shares if certain performance conditions are met. These performance conditions are measured over a performance period to
March2014.
Virgin Mobile France has also issued nil priced and market priced share options to certain employees of the business, which would
be settled with shares in Virgin Mobile France if exercised.