Notes to the Accounts For the year ended 31 December 2007

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18. Called–up share capital

2007 2006
  £'000 Number of
shares
£'000 Number of
shares
Authorised        
Ordinary shares of 1p each 5,713 571,250,000 5,713 571,250,000
Allotted, called–up and fully paid        
At 1 January 3,332 333,242,076 3,326 332,637,799
Shares issued 57 5,676,073 238 23,874,277
Cancellation of own shares (115) (11,524,415) (232) (23,270,000)
At 31 December 3,274 327,393,734 3,332 333,242,076

Executive Share Option Scheme (ESOS)

The Group has an Executive Share Option Scheme (ESOS) that entitles key management personnel and senior employees to receive shares in the entity. In accordance with these programmes, options are exercisable at the market price of the shares at the date of the grant.

Two grants under the ESOS were made before 7 November 2002. The recognition and measurement principles in IFRS 2 have been applied to all grants after 7 November 2002. They have not been applied to the two grants made prior to 7 November 2002 in accordance with the transitional provisions in IFRS 1 “First–time Adoption of International Financial Reporting Standards” and IFRS 2 “Share–based Payment”.

At 31 December 2007 the following options had been granted and remained outstanding in respect of the Company's ordinary shares of 1p under the Michael Page Executive Share Option Scheme. All options granted are settled by the physical delivery of shares. The Group has no legal or constructive obligation to repurchase or settle the options in cash.

Executive Share Option Scheme (ESOS)

Year of grant Balance at
1 January
2007
Granted
in year
Exercised
in year
Lapsed
in year
No. of shares
outstanding at 31
December 2007
Base
EPS
Exercise price
per share
Exercise period
2001
(Note 1)
5,552,900 (2,578,787) (191,415) 2,782,698 9.9 175p March 2004 – March 2011
2002
(Note 2)*
197,500 (105,000) 92,500 10.6 186p March 2005 – March 2012
2002
(Note 2)*
410,000 (185,000) 225,000 5.8 186p March 2006 – March 2012
2003
(Note 2)*
1,817,300 (1,355,000) 462,300 5.8 81.5p–86.1p April 2006 – April 2013
2004
(Note 2)
2,173,775 (1,349,803) (25,619) 798,353 4.1 171p–190.3p March 2007 – March 2014
2005
(Note 2)
2,305,800 (60,800) (138,111) 2,106,889 7.5 190.75p–191.5p March 2008 – March 2015
2006
(Note 2)
2,023,184 (41,684) (116,688) 1,864,812 15.5 309.9p March 2009 – March 2016
2007
(Note 2)
2,818,000 (59,611) 2,758,389 21.3 464.5p–494.1p March 2010 – March 2017
Total 2007 14,480,459 2,818,000 (5,676,074) (531,444) 11,090,941      
Weighted average exercise price
2007 (£)
1.84 4.66 1.53 2.41 2.69      
Total 2006 38,066,555 2,123,500 (23,447,721) (2,261,875) 14,480,459      
Weighted average exercise price
2006 (£)
1.63 3.10 1.60 1.80 1.84      

*These options have fully vested

3,090,561 options were exercisable at the end of 2007 at a weighted average exercise price of £1.61 (2006: £1.51).

In 2007, options were granted on 2 March with the estimated fair values of the options granted on that day of £4.65. In 2006, options were granted on 7 March. The estimated fair values of the options granted on that date was £3.10.

Share options are granted under service and non-market performance conditions. These conditions are not taken into account in the fair value measurement at grant date. There are no market conditions associated with the share option grants other than those on the initial grant in 2001.

The options outstanding at 31 December 2007 have an exercise price in the range of 81.5 pence to 494.1 pence and a weighted average contractual life of 6.6 years. The fair values of options granted during the year were calculated using the Black-Scholes option pricing model. The inputs into the model were as follows:

Share Option Scheme Incentive Share Scheme Deferred Bonus Shares
  2007 2006 2007 2006 2007 2006
Share price (£) 4.65 3.10 4.65 3.10 4.65 3.10
Average exercise price (£) 4.65 3.10 Nil Nil Nil Nil
Weighted average fair value (£) 4.65 3.10 4.65 3.10 4.65 3.10
Expected volatility 30% 35% 30% 35% 30% 35%
Expected life 5 years 5 years 3 years 3 years 2 years 3 years
Risk free rate 5.00% 4.75% 5.00% 4.75% 5.00% 4.75%
Expected dividend yield 1.25% 1.5% Nil Nil Nil Nil

Expected volatility was determined by reference to historical volatility of the Company's share price since flotation. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Expectations of early exercise are incorporated into the Black-Scholes option pricing model.

The Group recognised total expenses of £6.8m (2006: £4.5m) related to equity-settled share-based payment transactions during the year.

Option plan details

Note 1 Pre flotation options

On flotation, options over 33,750,000 (9%) ordinary shares were granted to the Executive Directors and 427 employees. These options are subject to the following:

(a) 55 .6% of an individual's option entitlement will normally only be exercisable to the extent that Earnings Per Share (EPS) targets have been satisfied over a period of 3 to 10 years. None of these options will vest unless EPS has grown in line with the UK Retail Prices Index (RPI) plus an average of 5% per annum. At that point one third of this portion of the options vest. If EPS growth is higher than this level, vesting increases on a sliding scale basis until 100% of this portion of the options vest where EPS growth matches RPI plus an average of 10% per annum. The base earnings per share is 9.9p. The results for the year ended 31 December 2005 met the EPS performance conditions for 85% of the outstanding options. The result for the year ended 31 December 2006 met the EPS performance conditions for the remaining 15% of the outstanding options, these vested on 1 March 2007.

(b) 44 .4% of an individual's option entitlement will normally only be exercisable to the extent that share price growth targets have been satisfied over a period of at least 3 years. None of these options will vest unless the Company's share price has achieved 50% growth after 3 years and not later than 5 years. At that point one third of this portion of the options vest. Vesting then increases progressively for further share price growth until full vesting occurs where there is 200% growth after 3 years and not later than 5 years. These hurdles rise from the fifth anniversary of the date of grant at compound rates of growth of 8.45 % and 24.57% respectively. At 31 December 2007, the performance conditions were met for 81.8% (2006: 62.4%) of the outstanding share price dependent options.

Note 2 Grants post flotation

The respective base earnings per share for each grant are shown in the table above. For grants since 2004, the performance condition is tested on the third anniversary and no retesting will occur thereafter. These options were granted subject to a performance condition requiring that an option may only be exercised, in normal circumstances, if there has been an increase in base earnings per share of at least 3% per annum above the growth in the UK Retail Price Index.

All future grants of options under this scheme will be subject to similar EPS performance conditions which is considered the best measure of the Group's performance and is designed to provide a direct link between the rewards for executives and the returns to shareholders, whilst at the same time ensuring that senior executives can measure the results of their efforts through the Company's share price.

Other share-based payment plans

The Company also operates an Incentive Share Plan for the Executive Directors and senior employees and an Annual Bonus Plan for the Executive Directors. Details of these schemes are disclosed on remuneration report, and are settled by the physical delivery of shares, currently satisfied by shares held in the Employee Benefit Trust, to the extent that service and performance conditions are met.

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