Annual Report & ACCOUNTS for the year ended 30 June 2014

HYR 2014

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

For Awards granted before 5 March 2013: Vesting is dependent on an underpin condition based on the Company's adjusted diluted earnings per share performance. No Awards will vest unless adjusted 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. 100% 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.

For Awards granted on and after 5 March 2013: Vesting is dependent on two performance conditions which must be satisfied over a three year performance period commencing from the start of the financial year within which the award is granted. 50% of the Award will vest dependent on the Company's TSR performance against an appropriate comparator group. 50% of the Award will vest subject to a performance condition based on the annual earnings per share growth. Each of the TSR and EPS elements is subject to an additional ROCE underpin. Unless the Company's ROCE is 10% or more in the final year of the performance period, the award will lapse in full.

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 or five 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. Prior to 16 October 2012 participants were able to save for a seven year 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 2014

Exercise
Period
Exercise
price
per share*
Pence
At
1 July
2013
Number
Exercised
Number
Granted
Number
Lapsed
Number
At
30 June
2014
Number
Unapproved Share Option Scheme
19 March 2007†2010–2017265.437,120(7,120)
2 April 2008†2011–2018336.1517,201(7,286)9,915
10 October 2008†2011–2018364.6220,14220,142
30 March 2009†2012–2019381.1534,355(7,141)27,214
1 March 2010†2013–2020418.8129,672(8,998)20,674
28 February 2011†2014–2021461.9752,683(12,526)(3,238)36,919
10 September 20122015–2022541.0090,772(1,307)(24,221)65,244
16 September 20132016–2023721.0054,842(3,000)51,842
5 March 20142017–2024698.002,0002,000
251,945(44,378)56,842(30,459)233,950
Approved Share Option Scheme
5 April 2005†2008–2015185.988,709(8,709)
15 March 2006†2009–2016231.4514,151(14,151)
19 March 2007†2010–2017265.4330,845(23,225)7,620
2 April 2008†2011–2018336.1523,334(13,568)9,766
10 October 2008†2011–2018364.622,722(2,722)
30 March 2009†2012–2019381.155,922(5,922)
1 March 2010†2013–2020418.8121,486(13,976)7,510
28 February 2011†2014–2021461.9715,888(4,550)(861)10,477
10 September 20122015–2022541.0017,228(6,472)10,756
16 September 20132016–2023721.0015,15815,158
140,285(86,823)15,158(7,333)61,287
Long Term Incentive Plan
22 December 20102013–2014207,339(207,339)
7 September 20112014–2015245,722(68,878)(15,803)161,041
5 March 20132016–2016279,323(4,047)(49,108)226,168
27 September 20132014–201583,47883,478
27 November 20132016–2017309,718(33,706)276,012
732,384(280,264)393,196(98,617)746,699
SAYE Option Scheme

12 October 20062009–2013179.773,909(3,909)
17 October 20072010–2014257.168,546(6,694)(1,852)
13 October 20082011–2015315.0236,422(30,909)(207)5,306
12 October 20092012–2016304.9227,814(6,321)(2,070)19,423
13 December 20102013–2017375.6492,291(61,906)(14,006)16,379
17 October 20112014–2018365.5488,145(23,852)(22,683)41,610
16 October 20122015–2019471.00115,059(10,064)(45,014)59,981
7 April 20142017–2019552.00111,078111,078
372,186(143,655)111,078(85,832)253,777
Total1,496,800(555,120)576,274(222,241)1,295,713
Weighted average exercise price*205.61p171.04p195.40p254.63p207.91p

* 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 2014 are 191,976.

Year ended 30 June 2013

Exercise
Period
Exercise
price
per share*
Pence
At
1 July
2012
Number
Exercised
Number
Granted
Number
Lapsed
Number
At
30 June
2013
Number
Unapproved Share Option Scheme
11 April 2003†2006–201353.732,722(2,722)
19 March 2007†2010–2017265.4314,615(7,495)7,120
2 April 2008†2011–2018336.1527,029(9,828)17,201
10 October 2008†2011–2018364.6233,752(13,610)20,142
30 March 2009†2012–2019381.1552,862(18,507)34,355
1 March 2010†2013–2020418.8152,314(16,302)(6,340)29,672
28 February 20112014–2021461.9760,361(7,678)52,683
10 September 20122015–2022541.0093,772(3,000)90,772
243,655(68,464)93,772(17,018)251,945
Approved Share Option Scheme
2 April 2004†2007–2014123.5310,887(10,887)
5 April 2005†2008–2015185.9822,862(14,153)8,709
15 March 2006†2009–2016231.4523,949(9,798)14,151
19 March 2007†2010–2017265.4354,918(24,073)30,845
2 April 2008†2011–2018336.1537,363(14,029)23,334
10 October 2008†2011–2018364.622,7222,722
30 March 2009†2012–2019381.1512,454(6,532)5,922
1 March 2010†2013–2020418.8130,413(5,470)(3,457)21,486
28 February 20112014–2021461.9721,273(5,385)15,888
10 September 20122015–2022541.0017,22817,228
216,841(84,942)17,228(8,842)140,285
Long Term Incentive Plan
24 September 20092012–2013302,421(302,421)
22 December 20102013–2014256,780(49,441)207,339
7 September 20112014–2015304,060(58,338)245,722
5 March 20132016–2016279,323279,323
863,261279,323(410,200)732,384
SAYE Option Scheme

12 October 20062009–2013179.773,9093,909
17 October 20072010–2014257.1676,022(55,777)(11,699)8,546
13 October 20082011–2015315.0242,588(6,166)36,422
12 October 20092012–2016304.92114,713(78,085)(8,814)27,814
13 December 20102013–2017375.6495,020(2,729)92,291
17 October 20112014–2018365.54100,126(11,981)88,145
16 October 20122015–2019471.00125,715(10,656)115,059
432,378(133,862)125,715(52,045)372,186
Total1,756,135(287,268)516,038(488,105)1,496,800
Weighted average exercise price*172.47p294.39p231.11p61.10p205.61p

* 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 2013 are 215,659.

The weighted average exercise price of options eligible to be exercised at 30 June 2014 was 312.8p (2013: 341.8p).

For options exercised during the year, the weighted average market price at the date of exercise was 694p (2013: 629p). The weighted average remaining contractual lives of options outstanding at the Consolidated Statement of Financial Position date was four years (2013: four years).

Outstanding options on all Long Term Incentive Plan, Approved and Unapproved plans prior to 30 June 2011 were exercisable at 30 June 2014. 41,739 options of the 27 September 2013 Long Term Incentive Plan were exercisable at 30 June 2014.

No options issued under SAYE plans were exercisable at 30 June 2014.

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 grant27/11/1327/09/1305/03/13
Number of shares awarded309,71883,478279,323
Share price at date of grant681p715p699p
Exercise priceNilNilNil
Expected life2.58 years1-2 years3 years
Risk-free rate0.73%0.38%0.34%
Volatility25%25%28%
Dividend yield2.05%1.97%1.72%
Fair value per share461p617p590p

Unapproved and Approved Share Option Schemes

Date of grant16/09/13 and
05/03/14
10/09/12
Number of shares awarded72,000111,000
Share price at date of grant738p558.5p
Exercise price721p541p
Expected life5 years5 years
Risk-free rate1.69%0.66%
Volatility33%34%
Dividend yield1.90%2.20%
Fair value per share197p141p

Save As You Earn Option Scheme

Date of grant07/04/1416/10/12
Number of shares awarded111,078125,715
Share price at date of grant675p591p
Exercise price552p471p
Expected life
— three year scheme3.25 years3.25 years
— five year scheme5.25 years5.25 years
Risk-free rate
— three year scheme1.21%0.41%
— five year scheme1.87%0.84%
Volatility
— three year scheme24%34%
— five year scheme27%34%
Dividend yield2.13%2.08%
Fair value per share
— three year scheme158p171p
— five year scheme193p192p

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 2014 of £429,000 (2013: £260,000), of which £50,000 (2013: £39,000) related to vested options. The total charge to the Income Statement in respect of share-based payments was:

2014
£000
2013
£000
Equity settled share-based transactions1,616821
Cash settled share-based transactions378193
1,9941,014

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