Note 23 – Share capital
- Share option and award schemes
- Lattice Sharesave scheme
- Share-based payment charges
- Awards under share option plans
- Awards under other share scheme plans
| Group |
Allotted, called up and fully paid |
|
|---|---|---|
| millions | £m | |
| At 1 April 2002 (i) | 3,100 | 310 |
| Issued during the year | 1 | – |
| Redeemed during the year | (24) | (2) |
| At 31 March 2003 | 3,077 | 308 |
| Issued during the year | 11 | 1 |
| At 31 March 2004 | 3,088 | 309 |
| Issued during the year | 2 | – |
| At 31 March 2005 | 3,090 | 309 |
| Nil £1 special rights non-voting redeemable preference share (2004: one; 2003: one). | ||
| (i) | In accordance with merger accounting principles, the shares issued in connection with the merger of National Grid Group plc and Lattice Group plc (‘the Merger’) have been treated as if those shares were in issue throughout the year ended 31 March 2003 and comparative periods. |
The total consideration received by the Group and Company in respect of ordinary shares issued during the year ended 31 March 2005 was £9m.
| Company | Allotted and issued | Called up and partly paid | Called up and fully paid | ||||||
|---|---|---|---|---|---|---|---|---|---|
| number | £ | number | £ | millions | £m | ||||
| At 1 April 2002 | 1,776,932,870 | 177,693,287 | 23,450(i) | 2,345 | 1,777 | 178 | |||
| Issued during the year | 1,324,195,509 | 132,419,551 | – | – | 1,324 | 132 | |||
| Fully paid up during the year | – | – | (23,450) | (2,345) | – | – | |||
| Repurchased and cancelled during the year | (24,225,000) | (2,422,500) | – | – | (24) | (2) | |||
| At 31 March 2003 | 3,076,903,379 | 307,690,338 | – | – | 3,077 | 308 | |||
| Issued during the year | 10,700,377 | 1,070,038 | – | – | 11 | 1 | |||
| At 31 March 2004 | 3,087,603,756 | 308,760,376 | – | – | 3,088 | 309 | |||
| Issued during the year | 2,599,199 | 259,920 | – | – | 2 | – | |||
| At 31 March 2005 | 3,090,202,955 | 309,020,296 | – | – | 3,090 | 309 | |||
| Nil £1 special rights non-voting redeemable preference share (2004: one; 2003: one). | |||||||||
| (i) | These shares were nil paid at 31 March 2002. They represented shares issued to financial institutions in order to purchase Niagara Mohawk which were not required to form part of the final consideration and were sold on the open market during the year ended 31 March 2003. |
At 31 March 2002, the authorised share capital of the Company was £250m (2,500m ordinary shares of 10 pence each and one £1 special rights non-voting redeemable preference share).
On 21 October 2002, the authorised share capital of the Company was increased to £500m (5,000m ordinary shares of 10 pence each and one £1 special rights non-voting redeemable preference share). This remained unchanged at 31 March 2003 and 31 March 2004. During the year ended 31 March 2005 the one £1 special rights non-voting redeemable preference share was removed from the authorised share capital of the Company.
During the year ended 31 March 2003, the Group purchased for cancellation 24,225,000 of its ordinary shares at an average price per ordinary share of 401.59p.
The special rights non-voting redeemable preference share of £1 in National Grid Transco plc (‘the Special Share’), held on behalf of the Crown, was issued by National Grid to the Secretary of State for Trade and Industry on 31 January 2002 as part of a scheme of arrangement. It was redeemed at par on 5 May 2004 and on 26 July 2004, an ordinary resolution was passed cancelling this share from being included in the authorised share capital of the Company. The Special Share did not carry any rights to vote at general meetings but entitled the holder to receive notice of and to attend and speak at such meetings. Certain matters, in particular the alteration of certain Articles of Association of the Company, required the prior written consent of the holder of the Special Share. The Special Share conferred no right to participate in the capital or profits of the Company, except that on a winding-up the holder of the Special Share was entitled to repayment of £1 in priority to other shareholders. Prior to 31 January 2002, the Secretary of State for Trade and Industry held a Special Share with equivalent rights in National Grid Holdings One plc. A similar special share in Lattice was held at 31 March 2002 by the Crown. This share was redeemed on 21 October 2002 as part of the Merger arrangements.
Share option and award schemes
The Group operates two principal forms of share option scheme. They are an employee Sharesave scheme and an Executive Share Option Plan (‘the Executive Plan’). The details given below relate to the schemes operated by the Group and the Sharesave scheme formerly operated by Lattice. Following the Merger, most Lattice scheme options were converted into 0.375 National Grid Transco plc options. The remaining Lattice scheme options lapsed on 29 April 2003.
In any 10-year period, the maximum number of shares that may be issued or issuable pursuant to the exercise of options under all of the Group’s share option schemes may not exceed the number of shares representing 10% of the issued ordinary share capital from time to time.
The Sharesave scheme is savings related where, under normal circumstances, share options are exercisable on completion of a three or a five-year save-as-you-earn contract. The exercise price of options granted represents 80% of the market price at the date the option was granted.
The Executive Plan applies to senior executives, including Executive Directors. Options granted for the 1999/2000 financial year are subject to the achievement of performance targets related to earnings per share growth over a three-year period and have now vested. Options granted for the 2000/01 financial year and thereafter are subject to the achievement of performance targets related to total shareholder returns over a three-year period. The share options are generally exercisable between the third and tenth anniversaries of the date of grant if the relevant performance target is achieved.
The Company also operates a number of share award schemes including a Performance Share Plan (PSP), a Share Matching Plan and a Transitional Share Award and Special Share Award in relation to former Crown Castle UK employees.
Under the PSP, awards have been made to Executive Directors and approximately 350 senior employees who have significant influence over the Group’s ability to meet its strategic objectives. Under the PSP, awards are conditional on the Group’s total shareholder return over a three-year period. Awards are delivered in National Grid Transco plc shares. At 31 March 2005 the number of conditional awards of ordinary share equivalents outstanding under the PSP was 5,864,904 (2004: 3,458,055) of which nil (2004: nil) were exercisable. The number of conditional awards during the year ended 31 March 2005 was 2,846,546 (2004: 3,458,055) with lapses/forfeits during the year of 436,700 (2004: nil) and exercises of 2,997 (2004: nil).
The Share Matching Plan applies to Executive Directors whereby a predetermined part of each Director’s bonus entitlement is automatically deferred into National Grid Transco plc shares and a matching award may be made under the Plan after a three-year period provided the Director is still employed by the Group. At 31 March 2005 the number of conditional awards of ordinary share equivalents outstanding under the Share Matching Plan was 341,482 (2004: 212,185) of which 28,534 (2004: nil) were exercisable. The number of conditional awards during the year ended 31 March 2005 was 171,460 (2004: 88,455) with exercises during the year of 42,163 (2004: 11,245).
The Transitional Share Awards and Special Share Awards were made during the year ended 31 March 2005 to former Crown Castle UK employees and have a vesting period of four and two years respectively, provided the employee is still employed by the Group. The number of awards made during the year were 188,650 and 45,700 respectively.
Movement in options to subscribe for ordinary shares under the Group’s various options schemes for the three years ended 31 March 2005 are shown below and include those options related to shares issued to employee benefit trusts:
| Sharesave scheme options |
Executive Plan options |
Total options | ||||||
|---|---|---|---|---|---|---|---|---|
| |
Weighted average price £ |
millions |
Weighted average price £ |
millions |
millions |
|||
| At 1 April 2002 | 3.33 | 9.8 | 4.81 | 8.5 | 18.3 | |||
| Converted from Lattice Sharesave scheme | 3.18 | 26.7 | – | – | 26.7 | |||
| Granted | 3.62 | 9.9 | 4.78 | 5.1 | 15.0 | |||
| Lapsed - forfeited | 4.14 | (3.7) | 5.10 | – | (3.7) | |||
| Lapsed - expired | 3.68 | (1.0) | 2.85 | (0.1) | (1.1) | |||
| Exercised | 2.39 | (3.7) | 2.84 | (0.4) | (4.1) | |||
| At 31 March 2003 | 3.31 | 38.0 | 4.86 | 13.1 | 51.1 | |||
| Granted | 3.17 | 10.4 | 4.05 | 0.1 | 10.5 | |||
| Lapsed - expired | 3.52 | (5.1) | 5.24 | (0.9) | (6.0) | |||
| Exercised | 3.16 | (11.6) | 2.90 | (0.3) | (11.9) | |||
| At 31 March 2004 | 3.32 | 31.7 | 4.84 | 12.0 | 43.7 | |||
| Granted | 3.83 | 4.8 | – | – | 4.8 | |||
| Lapsed - expired | 3.36 | (1.5) | 5.02 | (1.1) | (2.6) | |||
| Exercised | 3.37 | (3.8) | 3.90 | (0.5) | (4.3) | |||
| At 31 March 2005 | 3.35 | 31.2 | 4.86 | 10.4 | 41.6 | |||
Included within options outstanding at 31 March 2005 and 31 March 2004 were the following options which were exercisable:
| At 31 March 2005 | 3.25 | 0.3 | 4.99 | 6.3 | 6.6 | |||
|---|---|---|---|---|---|---|---|---|
| At 31 March 2004 | 3.32 | 0.8 | 3.78 | 2.4 | 3.2 | |||
| At 31 March 2003 | 3.34 | 1.7 | 3.72 | 2.4 | 4.1 |
The weighted average remaining contractual life of options in the employee Sharesave scheme at 31 March 2005 was
The weighted average share price at the exercise dates were as follows:
| 2005 | 2004 | 2003 | |
|---|---|---|---|
| Sharesave scheme options | 4.49 | 3.97 | 4.38 |
| Executive Plan options | 4.65 | 3.99 | 4.48 |
Lattice Sharesave scheme
| |
Weighted average price £ |
Sharesave scheme millions |
|---|---|---|
| At 1 April 2002 | 1.19 | 79.2 |
| Lapsed - forfeited | 1.21 | (1.4) |
| Lapsed - expired | 1.20 | (3.4) |
| Exercised | 1.19 | (1.9) |
| Converted to National Grid Transco options | 1.19 | (71.2) |
| At 31 March 2003 | 1.20 | 1.3 |
| Lapsed - expired | 1.20 | (1.3) |
| At 31 March 2004 and 31 March 2005 | – | – |
Following the merger of Lattice Group plc and National Grid Group plc, a number of employees did not convert their Lattice Sharesave options into National Grid Transco options. These options lapsed on 29 April 2003 if they had not been exercised by that date.
Options outstanding and exercisable and their weighted average exercise prices for the respective ranges of exercise prices and years at 31 March 2005 are as follows:
| |
Weighted average exercise price of exercisable options £ |
Number exercisable millions |
Weighted average exercise price of outstanding options £ |
Number outstanding millions |
Exercise price per share pence |
Normal dates of exercise years |
|---|---|---|---|---|---|---|
| Executive Plan | 2.81 | 0.6 | 2.81 | 0.6 | 258.0 - 280.5 | 2001 - 2008 |
| 3.79 | 0.6 | 3.79 | 0.6 | 375.8 - 490.0 | 2002 - 2009 | |
| 5.41 | 1.6 | 5.41 | 1.6 | 424.0 - 566.5 | 2003 - 2010 | |
| 5.32 | 1.1 | 5.32 | 1.1 | 526.0 - 623.0 | 2004 - 2011 | |
| 5.49 | 2.1 | 5.49 | 2.1 | 479.5 - 563.0 | 2005 - 2012 | |
| 4.71 | 0.3 | 4.68 | 4.3 | 434.3 - 481.5 | 2006 - 2013 | |
| 4.05 | – | 4.05 | 0.1 | 405.0 | 2007 - 2014 | |
| 4.99 | 6.3 | 4.86 | 10.4 |
Share-based payment charges
Under UK GAAP, a charge is made to the profit and loss account based on the fair value of grants in accordance with FRS 20 ‘Share-based Payment’. All share awards are equity settled.
The charge to the profit and loss account for the year ended 31 March 2005 was £16m (2004: £25m; 2003: £40m, of which £3m was included within exceptional merger costs).
Awards under share option plans
The average share prices at the date of options being granted during each of the three financial years ended 31 March were as follows:
| 2005 | 2004 | 2003 | |
|---|---|---|---|
| Where the exercise price is less than the market price at the date of grant | 496.0p | 400.0p | 429.9p |
| Where the exercise price is equal to the market price at the date of grant | – | 408.0p | 464.0p |
The average exercise prices of the options granted during each of the three financial years ended 31 March were as follows:
| 2005 | 2004 | 2003 | |
|---|---|---|---|
| Where the exercise price is less than the market price at the date of grant | 383.0p | 317.0p | 362.0p |
| Where the exercise price is equal to the market price at the date of grant | – | 405.0p | 478.0p |
The average fair values of the options granted during each of the three financial years ended 31 March were estimated as follows:
| 2005 | 2004 | 2003 | |
|---|---|---|---|
| Where the exercise price is less than the market price at the date of grant | 90.4p | 67.4p | 123.0p |
| Where the exercise price is equal to the market price at the date of grant | – | 73.6p | 50.0p |
The fair values of the options granted were estimated using the following principal assumptions:
| 2005 | 2004 | 2003 | |
|---|---|---|---|
| Dividend yield (%) | 5.5-5.8 | 7.0 | 3.5 |
| Volatility (%) | 15.4 | 20.4 | 35.0 |
| Risk-free investment rate (%) | 4.5 | 4.6 | 4.4 |
| Average life (years) | 4.0 | 3.4 | 4.0 |
The fair values of awards under the Sharesave scheme have been calculated using the Black-Scholes model. This is considered appropriate given the short exercise window of sharesave options.
Volatility has been derived based on the following:
| (i) | implied volatility in traded options over the Group’s shares; |
| (ii) | historical volatility of the Group’s shares from October 2002 (the date of the merger of National Grid Group plc and Lattice Group plc); and |
| (iii) | implied volatility of comparator companies where options in their shares are traded. |
Volatility is assumed to revert from its current implied level to its long run mean, based on historical volatility under (ii) above.
Awards under other share scheme plans
The average share prices and fair values at the date share awards were granted during each of the three financial years ended 31 March were as follows:
| 2005 | 2004 | 2003 | |
|---|---|---|---|
| Average share price | 431.7p | 407.8p | 477.5p |
| Average fair value | 210.6p | 390.3p | 477.5p |
The fair values of the awards granted were estimated using the following principal assumptions:
| 2005 | 2004 | 2003 | |
|---|---|---|---|
| Dividend yield (%) | 5.3-5.7 | 7.0 | 3.5 |
| Volatility (%) | 15.4 | 20.4 | 35.0 |
| Risk-free investment rate (%) | 4.5-5.2 | 4.6 | 4.4 |
In 2003 the fair value of awards under the PSP were estimated using the Black-Scholes model. In 2004 the awards were estimated using the share price at the date of grant less an adjustment for dividends not payable in the vesting period. In 2005 fair values have been calculated using a Monte Carlo simulation model, which better reflects the total shareholder return performance conditions of the plan.
For other share scheme awards, where the primary vesting condition is that employees complete a specified number of years service, the fair value has been calculated as the share price at date of grant, adjusted to recognise the extent to which participants do not receive dividends over the vesting period.
Volatility for share awards has been calculated on the same basis as used for share options, as described above.