Carphone Warehouse 2012 Annual Report Download - page 70

Carphone Warehouse Group plc Annual Report 201266
5 Employee costs and share-based payments continued
c) Joint venture incentive schemes
Best Buy Europe also had a long‑term incentive scheme, in which certain members of the joint venture’s senior management team
participated, which enabled participants to share in incremental profits generated by Best Buy Europe (based in part on Best Buy Mobile)
over a base defined in respect of the year to 3 April 2010, which was to vest over periods to September 2014. As a result of the Best Buy
Mobile Disposal, this scheme was cancelled, in return for which the Remuneration Committee has allowed the transfer of 7.0m shares
inthe Company to senior executives of Best Europe. Best Buy Europe has provided cash compensation of approximately £11.7m to the
Group in respect of this transfer; this compensation was paid in April 2012. As part of this agreement, participants will not be permitted
(unless the Remuneration Committee determines otherwise) to sell these shares until dates in 2015.
Best Buy Europe also had a share option scheme, which was to vest over periods to September 2014, and in which a broad group of senior
BestBuy Europe employees participated. As a result of the Best Buy Mobile Disposal, the option scheme was cancelled and replaced by
ascheme which will vest in 2015. Under the scheme, participants will receive options over A shares in New BBED and each of Best Buy
and theCompany has an obligation to acquire 50% of these shares at a value based on the Headline PBT of CPW Europe over the vesting
period. The pool is based onearnings in excess of minimum growth targets, against the earnings for the year ended 31 March 2009.
TheCompany and Best Buy have agreed a minimum value of the pool, in recognition of the value that had already accrued in the
schemein relation to Best Buy Mobile.
In order to align the interests of participants with those of the Company, the value of the A shares in New BBED will beassessed at
defined points during the vesting period, and nil‑priced options over shares in the Company will be granted to participants through the
Carphone Warehouse Group plc Participation Plan 2011 to match this value, so that participants benefit from any growth in the market
capitalisation of the Company during the vesting period.
Virgin Mobile France has issued market‑priced and nil‑priced share options in Omer Telecom Limited, the parent company of Virgin Mobile
France, to certain employees of the business. These options vest over periods of two to four years.
d) Fair value model
The fair value of options with external performance targets was estimated at the date of grant using a Monte Carlo model. The model combines
the market price of a share at the date of grant with the probability of meeting performance criteria, based on the historical performance
of Old Carphone Warehouse shares.
The Best Buy Europe VES shares described in note 5a above were acquired by participants at market value as calculated by third party
valuation experts using option pricing methodology, cross‑checked to an expected returns approach adopting discounted cash flow
methodology. The discount rates and discounts for lack of marketability employed, where appropriate, reflected the market risk and
volatility of the VES shares in question over their expected vesting period. An accounting charge arose on this scheme since the loans
provided to acquire the shares were in certain circumstances not fully repayable. The charge was derived using a Black Scholes option
pricing model, reflecting equity volatilities specific to the relevant shares.
The Best Buy Europe share option scheme described above was valued based on market perception of the likely future earnings
ofCPWEurope with appropriate discounts made for lack of marketability, lack of control and the volatility of the Company's share price.
e) Charge to income statement and entries in reserves
During the year ended 31 March 2012, the Group recognised a non‑cash accounting charge to the income statement of £14.9m (2011:£1.9m)
in respect of equity settled share‑based payments, which is offset by an entry through reserves. As detailed in note 4, this charge relates
principally toa gift of shares to Best Buy Europe executives (£11.4m) and the accelerated vesting of other incentive schemes (£2.0m).
Asexplained above, there were circumstances in which part of the loans advanced to Best Buy Europe VES participants would not have
been repayable. During the year these loans were repaid in full. Asrequired by IFRS 2 ‘Share‑based Payment’, the element of the loans
onwhich repayment was previously uncertain has been reflected as a credit inreserves, being £4.7m (2011: debit of £0.7m).
f) Employee share ownership trust
The Group has an ESOT which held 0.2m shares in the Company at 31 March 2012 (2011: 2.9m) for the benefit of the employees of the Group.
The maximum number of shares held by the Group’s ESOT during the year was 10.3m in November 2011 which represented 2.3% of the
Group’s issued share capital. The ESOT has waived its rights to receive dividends and its shares have not been allocated to specific schemes.
At 31 March 2012 the shares had a market value of £0.3m (2011: £10.4m).
NOTES TO THE FINANCIAL STATEMENTS CONTINUED