Dechra Pharmaceuticals PLC

Dechra Pharmaceuticals PLC

Annual Report and Accounts for the year ended 30 June 2012

24. Share-based Payments

During the year, the Company operated the Unapproved Share Option Scheme, the Approved Share Option Scheme, the Long Term Incentive Plan and the Save As You Earn ("SAYE") Share Option Scheme as described below:

Unapproved and Approved Share Option Schemes

Under these Schemes, options are granted to certain Executives and employees of the Group (excluding Executive Directors) to purchase shares in the Company at a price fixed at the average market value over the three days prior to the date of grant. For the options to vest, there must be an increase in earnings per share of at least 12% above the growth in the UK Retail Prices Index (RPI) over a three year period. Once vested, options must be exercised within ten years of the date of grant.

Long Term Incentive Plan

Under this plan vesting is dependent firstly on an earnings per share target. No awards will vest unless underlying diluted earnings per share has grown by at least 3% per annum above the retail prices index over the three year measurement period. Provided this condition is met, then the number of shares that vest depends on the Company's TSR performance against the FTSE Small Cap Index over the three year measurement period. One hundred per cent of the shares vest if the Company achieves an upper quartile performance, 25% of the shares vest at median performance and awards vest on a straight-line basis for performance in between. No shares vest if performance is below median.

SAYE Option Scheme

This Scheme is open to all UK employees. Participants save a fixed amount of up to £250 per month for either three, five or seven years and are then able to use these savings to buy shares in the Company at a price fixed at a 20% discount to the market value at the start of the savings period. The SAYE options must ordinarily be exercised within six months of the completion of the relevant savings period. The exercise of these options is not subject to any performance criteria.

Year ended 30 June 2012

Exercise
Period
Exercise
price
per share*
Pence
At
1 July
2011
Number
Exercised
Number
Granted
Number
Adjusted
for Rights
Issue*
Lapsed
Number
At
30 June
2012
Number
Unapproved Share Option Scheme
22 April 2002†2005-2012140.981,500(1,500)
11 April 2003†2006-201353.752,5002222,722
19 March 2007†2010-2017265.4317,586(3,809)1,449(611)14,615
2 April 2008†2011-2018336.1535,883(8,585)2,731(3,000)27,029
10 October 2008†2011-2018364.6333,500(2,500)2,75233,752
30 March 2009†2012-2019381.1554,921(3,876)4,617(2,800)52,862
1 March 20102013-2020418.8152,8544,250(4,790)52,314
28 February 20112014-2021461.9760,6884,904(5,231)60,361
259,432(20,270)20,925(16,432)243,655
Approved Share Option Scheme
2 April 2004†2007-2014123.5310,00088710,887
3 December 2004†2007-2014165.321,667(1,667)
5 April 2005†2008-2015185.9823,000(2,000)1,86222,862
15 March 2006†2009-2016231.4536,000(10,443)2,392(4,000)23,949
19 March 2007†2010-2017265.4358,901(5,156)4,562(3,389)54,918
2 April 2008†2011-2018336.1553,117(15,784)3,030(3,000)37,363
10 October 2008†2011-2018364.632,5002222,722
30 March 2009†2012-2019381.1523,079(5,921)1,496(6,200)12,454
1 March 20102013-2020418.8133,1462,477(5,210)30,413
28 February 20112014-2021461.9723,3121,730(3,769)21,273
264,722(40,971)18,658(25,568)216,841
Long Term Incentive Plan
19 November 20082011-2012327,272(232,717)(94,555)
24 September 20092012-2013277,75824,663302,421
22 December 20102013-2014235,84120,939256,780
7 September 20112014-2015279,26324,797304,060
840,871(232,717)279,26370,399(94,555)863,261
SAYE Option Scheme

12 October 20062009-2013179.7727,681(24,090)3183,909
17 October 20072010-2014257.1669,2916,73176,022
13 October 20082011-2015315.02105,141(61,816)3,563(4,300)42,588
12 October 20092012-2016304.92117,4269,508(12,221)114,713
13 December 20102013-2017375.64105,4007,716(18,096)95,020
17 October 20112014-2018365.5497,4868,127(5,487)100,126
424,939(85,906)97,48635,963(40,104)432,378
Total1,789,964(379,864)376,749145,945(176,659)1,756,135
Weighted average exercise price*175.24p111.35p94.59p167.92p172.47p

* Adjusted to reflect the bonus element of the Rights Issue — there has been no impact on the overall fair value of options in issue.

† Total share options exercisable at 30 June 2012 are 296,135.

Year ended 30 June 2011

Exercise
Period
Exercise
price
per share
Pence
At
1 July
2010
Number
Exercised
Number
Granted
Number
Lapsed
Number
At
30 June
2011
Number
Unapproved Share Option Scheme
22 April 2002*2005–2012153.503,500(2,000)1,500
11 April 2003*2006–201358.502,5002,500
19 March 2007*2010–2017289.0021,135(3,549)17,586
2 April 2008*2011–2018366.0045,038(6,155)(3,000)35,883
10 October 20082011–2018397.0033,50033,500
30 March 20092012–2019415.0054,92154,921
1 March 20102013–2020456.0052,85452,854
28 February 20112014–2021503.0060,68860,688
213,448(11,704)60,688(3,000)259,432
Approved Share Option Scheme
2 April 2004*2007–2014134.5019,000(9,000)10,000
3 December 2004*2007–2014180.0016,667(15,000)1,667
5 April 2005*2008–2015202.5031,000(8,000)23,000
15 March 2006*2009–2016252.0061,000(25,000)36,000
19 March 2007*2010–2017289.00105,665(43,764)(3,000)58,901
2 April 2008*2011–2018366.0067,962(12,845)(2,000)53,117
10 October 20082011–2018397.002,5002,500
30 March 20092012–2019415.0023,07923,079
1 March 20102013–2020456.0033,14633,146
28 February 20112014–2021503.0023,31223,312
360,019(113,609)23,312(5,000)264,722
Executive Incentive Plan and Long Term Incentive Plan
29 February 20082011–2012152,472(152,472)
19 November 20082011–2012327,272327,272
24 September 20092012–2013277,758277,758
22 December 20102013–2014235,841235,841
757,502(152,472)235,841840,871
SAYE Option Scheme

18 October 20052008–2010204.0019,410(18,779)(631)
12 October 20062009–2013195.7427,68127,681
17 October 20072010–2014280.00139,562(63,020)(7,251)69,291
13 October 20082011–2015343.00109,435(4,294)105,141
12 October 20092012–2016332.00137,993(20,567)117,426
13 December 20102013–2017409.00112,743(7,343)105,400
434,081(81,799)112,743(40,086)424,939
Total1,765,050(359,584)432,584(48,086)1,789,964
Weighted average exercise price183.3p150.9p204.3p336.1p190.8p

* Total share options exercisable at 30 June 2011 are 240,154.

The weighted average exercise price of options eligible to be exercised at 30 June 2012 was 302.5p (2011: 293.2p).

For options exercised during the year, the weighted average market price at the date of exercise was 461p (2011: 503p). The weighted average remaining contractual lives of options outstanding at the consolidated statement of financial position date was four years (2011: four years).

Outstanding options on all Long Term Incentive Plan, Approved and Unapproved plans prior to 30 June 2009 were exercisable at 30 June 2012.

No options issued under SAYE plans were exercisable at 30 June 2012.

The fair values for shares granted under the Unapproved, Approved and SAYE Option Schemes have been calculated using the Black-Scholes option pricing model. The fair values of shares awarded under the Long Term Incentive Plan have been calculated using a Monte Carlo simulation model which takes into account the market-based performance conditions attaching to those shares.

The assumptions used in calculating fair value are as follows:

Long Term Incentive Plan

Date of grant07/09/1122/12/10
Number of shares awarded279,263235,841
Share price at date of grant455.5p514.00p
Exercise priceNilNil
Expected life3 years3 years
Risk-free rate0.85%1.60%
Volatility38%39%
Dividend yield2.66%2.04%
Fair value per share276p322p

Unapproved and Approved Share Option Schemes

Date of grant28/02/11
Number of shares awarded84,000
Share price at date of grant507.5p
Exercise price503p
Expected life5 years
Risk-free rate2.65%
Volatility36%
Dividend yield2.07%
Fair value per share149p

Save As You Earn Option Scheme

Date of grant17/10/1113/12/10
Number of shares awarded97,486112,743
Share price at date of grant478p507p
Exercise price398p409p
Expected life
— three year scheme3.25 years3.25 years
— five year scheme5.25 years5.25 years
— seven year scheme7.25 years7.25 years
Risk-free rate
— three year scheme0.98%1.46%
— five year scheme1.58%2.24%
— seven year scheme2.11%2.90%
Volatility34%36%
Dividend yield2.53%2.07%
Fair value per share
— three year scheme140p165p
— five year scheme147p181p
— seven year scheme161p201p

Expected volatility was determined by calculating the historical volatility of the Group's share price over its entire trading history.

National Insurance contributions are payable by the Company in respect of some of the share-based payments. These contributions are payable on the date of exercise based on the intrinsic value of the share-based payments and are therefore treated as cash settled awards. The Group had an accrual at 30 June 2012 of £73,000 (2011: £229,000), of which £18,000 (2011: £15,000) related to vested options. The total charge to the Income Statement in respect of share-based payments was:

2012
£'000
2011
£'000
Equity settled share-based transactions1,001830
Cash settled share-based transactions(24)118
977948

The above charge to the Income Statement is included within administrative expenses.

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