Notes 28 and 29

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28. Employee Benefits

28a. Share Based Payments

Group employees participate in a number of employee incentive schemes including a sharesave plan, an unapproved share option plan, a long term incentive plan and a deferred bonus plan. The recognition and measurement principles in IFRS 2 have not been applied to awards granted before 7 November 2002 in accordance with the transitional provisions in IFRS 1 and IFRS 2.

Share option plans

The share option plans currently operated by the Group are:

2002 Sharesave and International Sharesave Plan ("SAYE")
This is a share option plan. Employees can elect at the outset to save a fixed amount per month into the Sharesave Plan. The vesting period is either three, five or seven years. At the vesting date, the employees have the option to use the savings to purchase shares at a discount to the share price (determined at the date of grant). The option expires six months after vesting.

2002 Approved Share Option Plan
This plan is approved by HM Revenue and Customs. Executive directors and other senior employees are selected to receive options over shares. Exercise of an option is subject to growth in the Company's earnings per share, excluding exceptional or extraordinary items, exceeding the growth in the retail prices index over a performance period. The percentage growth over the retail price index determines the proportion of the award that may be exercised. Options are exercisable between the third and the tenth anniversaries of their dates of grant.

2002 Unapproved Share Option Plan ("USOP")
The USOP is a share option plan. Options are granted with a vesting period of three years. There is an Earnings Per Share ("EPS") performance condition attached to the awards. If this performance condition is met, exercise is possible after the third anniversary of date of grant but before the tenth anniversary .

For awards granted prior to 2005, 100% of awards vest if the EPS growth over three years increases by more than cumulative RPI + 9.30%. If the EPS growth is lower than this, but more than cumulative RPI + 3.03%, then between 33.3% and 100% of the awards will vest. If the EPS growth is less than cumulative RPI + 3.03%, then no awards will vest.

For awards granted in 2005 and subsequent years (until replaced or varied by the Committee), 100% of the awards vest if the EPS growth over three years increases by more than cumulative RPI + 12%. If the EPS growth is lower than this, but more than cumulative RPI + 6%, then between 33% and 100% of the awards will vest. If the EPS growth is less than cumulative RPI + 6%, no awards will vest.

Awards are settled with shares.

Options outstanding under the 2002 Sharesave Plan and 2002 Unapproved Share Option Plan as at 31 December 2006 together with their exercise prices and vesting periods, are as follows:

Range of exercise prices £	Number outstanding	Weighted average exercise price £	Weighted average remaining contractual life (years)
£2.21 to £2.40	66,824	2.31	1.9
£2.61 to £2.80	176,016	2.70	2.1
£2.81 to £3.00	446,875	2.98	7.6
£3.41 to £3.60	369,857	3.55	6.6
£4.01 to £4.20	64,964	4.11	3.6
£4.21 to £4.40	12,871	4.36	3.2
£4.81 to £5.00	596	4.92	-
£5.01 to £5.20	140,138	5.10	4.3
£5.21 to £5.40	37,367	5.32	5.9
£5.41 to £5.60	238,249	5.49	3.8
£5.61 to £5.80	19,100	5.76	2.4
£6.21 to £6.40	11,000	6.25	0.4
£6.41 to £6.60	4,594	6.53	1.3
Total	1,588,451	3.80	5.3

Options granted, exercised and lapsed during the years ended 31 December 2006 and 2005 under these share option plans were as follows:

	Sharesave	Weighted average exercise price £	USOP	Weighted average exercise price £
Awards @ 31/12/2004	552,591	2.92	1,322,394	4.28
Exercised	5,614	2.51	-	-
Lapsed	52,007	3.06	264,443	4.93
Expired	35,696	4.92	-	-
Granted	74,303	2.73	358,639	3.00
Awards @ 31/12/2005	533,577	2.75	1,416,590	3.84
Awards exercisable @ 31/12/2005	143,722	2.99	572,734	4.93

Exercised	171,548	2.67	-	-
Lapsed	36,679	2.91	222,217	2.78
Expired	24,893	4.20	-	-
Granted	73,050	4.16	20,571	5.25
Awards @ 31/12/2006	373,507	2.95	1,214,944	4.05
Awards exercisable @ 31/12/2006	4,656	4.23	572,734	4.93

The weighted average share price at the date of exercise for share options exercised during the year was £4.42 (2005: £3.31).

Share award plans

Long Term Incentive Plan ("LTIP")

The LTIP are subject to the similar performance conditions as the USOP, with the target for all of the shares to vest being EPS growth over the vesting period of at least cumulative RPI + 36%. If the EPS growth is lower than this, but more than cumulative RPI + 9%, then between 25% and 100% of the awards will vest. If the EPS growth is less than cumulative RPI +9%, no awards will vest. Employees are not entitled to dividends on the awarded shares until they vest.

Awards are settled with shares.

2005 Long Term Incentive Plan ("2005 LTIP")

The 2005 LTIP are also subject to performance conditions but these conditions are market related, based on the Total Shareholder Return (TSR) of the Company over a three year period compared to the TSR of comparator companies over a similar period. At the end of the performance period, the TSR of the Company and the comparator companies shall be calculated and ranked from highest to lowest. All awards will vest if the Company's TSR growth is in or above the 20th percentile. If the Company's TSR performance lies between the 50th and 20th percentile, between 35% and 100% of the awards will vest. For the 2006 awards, the performance period commences on 1 January 2006.

Employees are entitled to dividends on the awarded shares that are paid over the performance period - these are paid either as cash or the equivalent number of shares at the vesting date. Awards are settled with shares.

2005 Deferred Bonus Plan ("DBP")

Under the 2005 DBP, employees can exchange up to 100% of their bonus in a financial period for shares of the same value. These awards will vest three years after the date of grant (or immediately if the employee leaves the Company). Awards, in any form other than an option, can be exercised within a period of one year (or an alternative period as determined by the Company for leavers).

The employee may also receive matching shares at the end of the vesting period. The number of matching shares is dependent on the outcome of a market performance condition. At the end of the performance period, the TSR of the Company and the comparator companies are calculated and ranked from highest to lowest. All awards will vest if the Company's TSR growth is in the top 20%. No awards will vest if the Company's TSR performance is below the median. Where the Company's TSR growth is between the median and the 20th percentile, awards will vest on a straight line basis between 0% and 100%. For the 2006 awards, the performance period commences on 1 January 2006.

For share options and share awards granted during the year the following information is provided:

Arrangement	2002 UK and International Sharesave Plan three year	2002 UK and International Sharesave Plan five year	2002 UK and International Sharesave Plan seven year	2002 Unapproved Share Option Plan	2005 Long Term Incentive Plan	2005 Deferred Bonus Plan
Nature of Arrangement	"Save as you earn" scheme	"Save as you earn" scheme	"Save as you earn" scheme	Share option plan	Share award plan	Share award plan
Date of Grant	2 May 2006	2 May 2006	2 May 2006	19 April 2006	19 April 2006	17 May 2006
Number of instruments granted	43,154	25,736	4,160	20,571	364,649	11,715 Basic/ 11,715 ^(3),(5) Matching
Exercise Price	£4.11/£4.36 ⁽¹⁾	£4.11/£4.36 ⁽¹⁾	£4.11	£5.25	n/a	n/a
Share price at date of grant	£5.04	£5.04	£5.04	£5.02	£5.02	£5.05
Contractual Life (years)	3.5	5.5	7.5	10	3	4
Vesting conditions	Three year service period and savings requirement	Five year service period and savings requirement	Seven year service period and savings requirement	EPS growth relative to RPI and three year service period	Relative TSR performance against comparator group and three year service period	Exchange of cash bonus for shares and three year service period
Settlement	Shares	Shares	Shares	Shares	Shares	Shares
Expected volatility ⁽²⁾	19.8%	26.7%	25.0%	27.0%	18.3%	17.5%
Expected option life at grant date (years)	3.25	5.25	7.25	3.5	n/a	n/a
Risk free interest rate	4.7%	4.7%	4.7%	4.6%	n/a	n/a
Expected dividend (dividend yield)	3.1%	3.1%	3.1%	3.1%	n/a	n/a
Expected departures (per annum from grant date)	5%	5%	5%	5%	5%	0%
Expected outcome of meeting non-market related performance criteria (at the grant date)	n/a	n/a	n/a	100%	n/a	n/a
Fair value per granted instrument determined at the grant date	£1.23/£1.09 ⁽¹⁾	£1.53/£1.42 ⁽¹⁾	£1.56	£1.09	£4.13	£5.05/£4.10 ⁽⁴⁾
Valuation model	Black Scholes	Black Scholes	Black Scholes	Black Scholes	Monte Carlo ⁽³⁾	Black Scholes/Monte Carlo ⁽³⁾

⁽¹⁾ For the Sharesave three year and five year awards, the exercise price for awards made to US employees was different from those granted to European employees. The first figure represents awards granted to European employees while the second figure relates to awards granted to employees in the US.

⁽²⁾ The expected volatility is based on historical volatility determined by the analysis of daily share price over a period commensurate with the expected lifetime of the award and ending on the date of grant of the award.

⁽³⁾ For the LTIP 2005 and the DBP matching award, a Monte Carlo valuation methodology has been used. Under this valuation method, the share price for Vitec is projected to the end of the performance period as is the Total Shareholder Return for Vitec and the companies in the comparator group. Based on these projections, the number of awards that will vest is determined and then the present value of this outcome is calculated. Thousands of simulations are run and the fair value of the award is calculated as the average present value of these outcomes.

⁽⁴⁾ Represents fair value for basic and matching award respectively.

⁽⁵⁾ Assumed 100% vesting. See page 78 for relative performance condition.

The amounts recognised in the income statement for share based payment transactions with employees for the year ended 31 December 2006 was £1,500,000 (2005: £328,000), of this £1,283,000 (2005: £300,000) related to equity-settled share based payment transactions.

The liability recognised in the balance sheet for cash-settled awards as at 31 December 2006 was £246,000 (2005: £29,000).

The total intrinsic value as at 31 December 2006 for cash-settled awards which had vested by this date was £36,000.

28b. Post-employment Obligations

Defined benefit plans - pensions and other post-retirement plan disclosures

Amounts recognised on the Group balance sheet

	2006 £m	2005 £m
Plan assets
Equities	29.6	27.3
Bonds	10.3	9.2
Other	2.6	2.4
Total fair value of plan assets	42.5	38.9
Present value of defined benefit obligation	(47.5)	(46.4)
Net (deficit) recognised in the Group balance sheet	(5.0)

Analysis of net recognised deficit
UK pension fund	(1.0)	(3.1)
Total funded plans	(1.0)	(3.1)
Italian pension scheme	(3.0)	(3.2)
Other unfunded plans	(1.0)	(1.2)
Total unfunded plans	(4.0)	(4.4)
Liability recognised in the Group balance sheet	(5.0)	(7.5)

Amounts recognised in the Group income statement

	2006 £m	2005 £m
Amounts in net operating costs
Current service costs - defined benefit schemes	2.2	2.2
Employers' pension costs - defined contribution schemes	0.4	0.4
	2.6	2.6
Amounts in net financial expense
Expected return on plan assets	(2.6)	(2.2)
Interest cost	2.1	2.0
	(0.5)	(0.2)

Total amounts charged to the income statement	2.1	2.4

UK Pension Scheme

The nature of the scheme is a funded final salary scheme, closed to new entrants.

i) Assumptions used to determine defined benefit obligation

	31 December 2006 % pa	31 December 2005 % pa	31 December 2004 % pa
Inflation rate	3.0	2.8	2.8
Expected rate of salary increases ⁽¹⁾	5.0	4.8	4.8
Rate of increase of pensions in payment ⁽²⁾	3.0	2.8	2.8
Rate of increase for deferred pensions	3.0	2.8	2.8
Discount rate	5.2	4.8	5.3

⁽¹⁾ These exclude an age-related allowance for promotional and merit awards.

⁽²⁾ In addition, we have made allowance for the special pension increase guarantees applying to certain executive members of the Scheme.

The assumptions relating to longevity underlying the pension liabilities at the balance sheet date are based on standard actuarial mortality tables and include an allowance for future improvements in longevity. The assumptions are equivalent to expected longevity at age 65 for members in normal health approximately as follows:
– pensioners currently aged 65: ranging from 19 years to 22 years
– non-pensioners currently aged 45: ranging from 21 years to 24 years

ii) Scheme assets and expected rate of return

A summary of the assets of the scheme, classified into the major asset classes, is shown below, together with the expected return on each major asset class.

	Fair value at 31 December 2006 £m	Expected long term rate of return at 31 December 2006 £m	Fair value at 31 December 2005 £m	Expected long term rate of return at 31 December 2005 £m	Fair value at 31 December 2004 £m	Expected long term rate of return at 31 December 2004 £m
Equities	29.6	7.8	27.3	7.8	21.3	7.9
Bonds	10.3	4.7	9.2	4.3	7.4	4.8
Property	2.1	6.2	1.2	6.3	1.4	6.8
Cash/net current assets	-	4.8	0.6	3.8	-	3.8
Insurance policies	0.5	5.2	0.6	4.8	0.6	5.3
Total value of assets	42.5		38.9		30.7

Note: the asset values shown are, where relevant, estimated bid values of market securities.

iii) Reconciliation of funded status at 31 December 2006

	31 December 2006 £m	31 December 2005 £m	31 December 2004 £m
Present value of defined benefit obligation	(43.5)	(42.0)	(36.5)
Assets at fair value	42.5	38.9	30.7
Funded status	(1.0)	(3.1)	(5.8)
Unrecognised past service cost	-	-	-
Unrecognised net gain/(loss)	-	-
Effect of asset ceiling	-	-	-
Defined benefit asset/(liability)	(1.0)	(3.1)	(5.8)

iv) Pension expense for year to 31 December 2006

a) Components of pension expense

	Year ending 31 December 2006 £m	Year ending 31 December 2005 £m
Group service cost	1.5	1.5
Interest cost	2.0	1.9
Expected return on assets	(2.6)	(2.2)
Past service costs	-	-
Curtailments	-	-
Settlements	-	-
Total pension expense/(income)	0.9	1.2

b) Statement of Recognised Income and Expense (SORIE)

	Year ending 31 December 2006 £m	Year ending 31 December 2005 £m	Year ending 31 December 2004 £m
Actuarial gain/(loss) recognised in SORIE during the period	2.0	0.5	(0.3)

v) Return on assets for year to 31 December 2006

	Year ending 31 December 2006 £m	Year ending 31 December 2005 £m
Expected return on assets	2.6	2.2
Actuarial gain/(loss) on assets	1.0	4.0
Actual return on assets	3.6	6.2

vi) Reconciliation of present value of defined benefit obligation (DBO) for the year to 31 December 2006

	Year ending 31 December 2006 £m	Year ending 31 December 2005 £m
Present value of DBO at start of year	42.0	36.5
Group service cost	1.5	1.5
Interest cost	2.0	1.9
Employee contributions	0.4	0.4
Actuarial (gain)/loss on change of assumptions	(1.0)	3.6
Experience (gain)/loss	-	(0.1)
Actual benefit payments and expenses	(1.4)	(1.8)
Past service costs	-	-
Curtailments	-	-
Settlements	-	-
Present value of DBO at end of year	43.5	42.0

vii) Reconciliation of the fair value of assets for the year to 31 December 2006

	Year ending 31 December 2006 £m	Year ending 31 December 2005 £m
Fair value of assets at start of year	38.9	30.7
Expected return on assets	2.6	2.2
Actuarial gain/(loss) on plan assets	1.0	4.0
Group contributions	1.0	3.4
Employee contributions	0.4	0.4
Actual benefit payments	(1.2)	(1.5)
Administration expenses paid	(0.2)	(0.3)
Curtailments	-	-
Settlements	-	-
Fair value of assets at end of year	42.5	38.9

viii) Reconciliation of change in funded status for the year to 31 December 2006

	Year to 31 December 2006 £m	Year to 31 December 2005 £m
Defined benefit asset/(liability) at start of year	(3.1)	(5.8)
Total pension (expense)/income	(0.9)	(1.2)
Employer contributions actually paid	1.0	3.4
Benefits paid directly by Group	-	-
Gain/(loss) recognised in SORIE	2.0	0.5
Gain/(loss) due to exchange rate movements	-	-
Defined benefit asset/(liability) at end of year	(1.0)	(3.1)

ix) Expected 2007 contributions

	Year commencing 1 January 2007 £m
Group Contributions	1.0
Employee Contributions	0.4

Italian pension provision

In accordance with Italian law, Italian employees are entitled to a lump sum payment ("TFR") from their employers when they resign or retire.

The TFR is accrued over the years in which the employee is in service. In each year, the accrued amount is increased by 6.91% of the employee's gross annual salary. At the end of each year, the employee's TFRs are revalued by 1.5% plus 75% of the national increase in the consumer price index (as published by the Italian National Statistical Institute "ISTAT").

After eight years of service, an employee can ask his employer to advance up to 70% of his total TSR. Once the employee has left the Company and received the balance of his TSR, the Company is not liable for any further pension obligations in respect of that employee.

The International Financial Reporting Interpretations Committee (IFRIC) of IASB (International Accounting Standard Bureau) has established that, in accordance with IAS 19, TFRs must be accounted for as defined benefit pension schemes and the present value of the TFRs must be computed using actuarial assumptions.

Assumptions used to determine defined benefit obligation

	31 December 2006 %pa	31 December 2005 %pa
Inflation rate	2%	2%
Expected rate of salary increases	2%	2%
Expected salary increase on promotion	10.54%	10.54%
Discount rate	4.33%	4.33%

Pension expense for the year to 31 December 2006

	2006 £m	2005 £m
Group service cost	0.5	0.5
Interest cost	0.1	0.1
Total pension expense	0.6	0.6

Statement of Recognised Income and Expense (SORIE)

	2006 £m	2005 £m
Actuarial gain/(loss) recognised in SORIE during the period	0.2	-

Reconciliation of present value of defined benefit obligation (DBO) for the year to 31 December 2006

	2006 £m	2005 £m
Present value of DBO at start of year	(3.2)	(2.9)
Group service cost	(0.5)	(0.5)
Interest cost	(0.1)	(0.1)
Actuarial gain/(loss)	0.2	-
Contributions paid	0.6	0.3
Present value of DBO at end of year	(3.0)	(3.2)

29. Post balance sheet events

There are no post balance sheet events to report.

Information correct at 23/04/2007