(27) Shareholders’ equity
| All figures in €’000 | Dec 31, 2008 | Dec 31, 2007 |
|---|---|---|
| Share capital | 107,861 | 108,812 |
| Capital reserves | 142,084 | 16,056 |
| Securities marked to market | –97 | –151 |
| Other equity | 179,278 | 370,749 |
| Treasury stock | – | –155,805 |
| Minority interests | – | 63 |
| Total | 429,125 | 339,723 |
Changes in the fully paid-in shares outstanding:
| All figures in €’000 | 2008 | 2007 |
|---|---|---|
| As at Jan 1 | 99,163,680 | 99,918,294 |
| Treasury stock | –1,172,156 | –785,500 |
| Conversion of convertible debentures | 70,465 | 30,886 |
| Increase in capital stock | 9,799,152 | – |
| As at Dec 31 | 107,861,141 | 99,163,680 |
The changes in the consolidated shareholders’ equity in the financial years 2008 and 2007 are shown here.
Share capital
The share capital consists of 107,861,141 (December 31, 2007: 108,812,289) no-par-value shares in MLP AG. The change results from the retirement of 10,820,765 own shares on the one hand. On the other, based on a resolution by the Executive Board and with the consent of the Supervisory Board, on August 21, 2008, 9,799,152 new no-par-value shares were issued from authorised capital in exchange for a cash contribution of € 123,763,290. The new shares were issued in an accelerated procedure under the exclusion of subscription rights.
The Annual General Meeting of MLP AG on May 28, 2002, conditionally increased the share capital of the company by up to € 1,700,000 by issuing a total of up to 1,700,000 new ordinary bearer shares, each with a proportional value of the share capital of € 1 per share. The conditional capital increase grants conversion rights to the owners of convertible debentures which are issued by the company on account of the authorisation resolution passed. The shares are issued to the owners of convertible debentures by the method for determining the conversion price defined in the authorisation resolution of the Annual General Meeting on May 28, 2002.
70,465 new no-par-value shares were issued in the financial year 2008, up to December 31, 2008, by exercising conversion rights. 242,068 new no-par-value shares had previously been issued by exchanging convertible debentures.
Authorised capital
A resolution passed by the Annual General Meeting on May 31, 2006, authorised the Executive Board, with the Supervisory Board’s approval, to increase the company’s share capital on one or more occasions by up to € 21,000,000 in exchange for cash or non-cash contributions. Due to an increase in share capital by € 9,799,152 agreed by the Executive Board on August 21, 2008, and approved by the Supervisory Board on the same day, as well as through an amendment by the Supervisory Board also on August 21, 2008, the authorised capital now amounts to € 11,200,848.
Acquisition of treasury stock
MLP AG, authorised by the resolutions of the Annual General Meeting between 2005 and 2007, purchased a total of 9,648,609 own shares. A further 1,172,156 own shares were purchased in the first quarter of 2008. The company redeemed all 10,820,765 own shares in March 2008. This corresponds to 9.95 % of the share capital at the time of the resolution.
A resolution passed by the Annual General Meeting of May 16, 2008, also authorised the Executive Board, as per § 71 (1) no. 8 of the German Stock Corporation Act (AktG), to purchase up to 10 % of the share capital during the authorisation period by November 13, 2009.
Share-based payments
The resolution passed by the Annual General Meeting of May 28, 2002, authorised the Executive Board of MLP AG to formally issue non-interest-bearing convertible debentures in one or more tranches up to a total amount of the conditional capital of € 1,700,000 in the period up to May 28, 2007, subject to the approval of the Supervisory Board.
Within the scope of the MLP Incentive Programme, the company formally issued noninterest- bearing convertible debentures made out to the bearer between 2002 and 2005. They incorporate the right to purchase MLP AG shares and were issued to members of the Executive Board, members of the management and the staff of MLP, as well as for MLP consultants acting as self-employed commercial agents and employees of affiliated companies pursuant to § 15 et seq. of the German Stock Corporation Act (AktG).
The convertible debentures rank pari passu with the partial debentures made out to the
bearer with a face value of € 1 each and have a maximum maturity of six years (of which
three years is a qualifying period and three years an exercise period). The conversion right
may only be exercised if the closing price of the MLP AG shares in the XETRA trade (or a
comparable successor system replacing the XETRA system at the Frankfurt/Main Stock
Exchange) exceeds 130 % of the basis price at least once during the qualifying period (exercise
hurdle). The basic price corresponds to the arithmetic mean of the closing price of the
MLP AG shares in the XETRA trade over the last five trading days preceding the MLP AG
Executive Board’s resolution concerning exercising the authority to issue convertible debentures
to qualifying persons. When the right is exercised, each partial debenture with a face
value of € 1 is exchanged for a new no-par-value share of MLP AG against payment of the
conversion price.
The exercise hurdle for the second tranche emitted in the financial year 2003 was reached in the financial year 2006. During the exercise period from August 5, 2006, to August 4, 2009, the bearers of the convertible debentures are entitled to exercise their right to conversion.
The exercise hurdle for the third tranche issued in the financial year 2004 was reached in 2007. During the exercise period from August 17, 2007, until August 16, 2010, the bearers of convertible debentures are entitled to exercise their right to conversion.
The exercise hurdle for the fourth tranche issued in the financial year 2005 was reached in 2006. During the exercise period from August 16, 2008, until August 15, 2011, the bearers of convertible debentures are entitled to exercise their right to conversion.
During the financial year 2008, 70,465 conversion rights (previous year: 30,886 conversion rights) were exercised and converted to MLP AG shares. The conditional capital decreased to a total of € 1,457,932 (previous year: € 1,528,397).
The right to cancel convertible debentures lies exclusively with the bearers and may only be exercised if the issuer is insolvent or in receivership.
MLP estimates the fair value of the conversion rights at the grant date using the Black- Scholes formula and taking into account the conditions upon which the conversion rights are granted. The payments received are recognised over the expected vesting period. The liability from the issue of the convertible debentures is recorded by MLP at the time of its addition based on its fair value. Subsequent measurement is made applying the effective interest rate method.
The costs for the programme included in the income statement for the financial year 2008 are € 513 thsd (previous year: € 1,263 thsd) disclosed under operating expenses and € 0 thsd (previous year: € 109 thsd) under personnel expenses. In return the capital reserves were increased by € 513 thsd (previous year: € 1,373 thsd).
At December 31, 2008, the carrying amount of the liability from the issued convertible debentures amounted to € 933 thsd (previous year: € 1,005 thsd).
The following table shows details of the Incentive-Programme:
| Tranche 2003 |
Tranche 2004 |
Tranche 2005 |
|
|---|---|---|---|
| Exercise period | |||
| Start | Aug 5, 2006 | Aug 17, 2007 | Aug 16, 2008 |
| End | Aug 4, 2009 | Aug 16, 2010 | Aug 15, 2011 |
| Nominal amount (€) | 1.00 | 1.00 | 1.00 |
| Exercise prices (€) | 7.02 | 12.40 | 13.01 |
| Subscribed convertible debenture (€ or units) | 281,040 | 677,042 | 577,806 |
| of which converted until Dec 31, 2007 (€ or units) | 169,753 | 1,850 | – |
| of which repaid in total until Dec 31, 2007 (€ or units) | 32,692 | 92,598 | 24,788 |
| Convertible debentures not converted by Dec 31, 2007 (€ or units) | 78,595 | 582,594 | 553,018 |
| of which Executive Board (€ or units) | – | 32,300 | – |
| Converted in 2008 (€ or units) | 16,445 | 29,087 | 24,933 |
| Repaid in 2008 (€ or units) | 4,320 | 42,619 | 37,538 |
| Convertible debentures not converted by Dec 31, 2008 (€ or units) | 57,830 | 510,888 | 490,547 |
| of which Executive Board (€ or units) | – | 32,300 | – |
| Weighted average share price 2006 (€) | 14.30 | – | – |
| Weighted average share price 2007 (€) | 15.11 | 11.61 | – |
| Weighted average share price 2008 (€) | 11.96 | 13.08 | 13.35 |
| Parameters for the fair value: | |||
| Dividend yield (%) | 1.68 | 2.34 | 2.37 |
| Expected volatility (%) | 64.52 | 47.75 | 31.49 |
| Risk-free interest rate (%) | 3.68 | 3.56 | 2.86 |
| Anticipated remaining term of option (years) | 0.59 | 1.63 | 2.63 |
The anticipated volatility is based on the assumption that future trends can be inferred from historical volatility. The actual volatility may deviate from the assumptions made.
In 2005 a Long Term Incentive-Programme (“LTI”) was launched for the first time. It is designed to include the members of the Executive Board and selected managers of the MLP Group. This is a company performance plan based on key figures, which takes into account both the earnings before taxes (EBT) and the rise in share price. Performance shares (phantom shares) can be allocated here. These are allocated to the members of the Executive Board by the Supervisory Board. A payout in cash of phantom shares will only take place if the earnings before taxes (EBT) of the MLP Group in the years 2005 to 2007 reach a certain amount (performance hurdle), which is established by Supervisory Board in accordance with MLP’s strategic planning. On December 12, 2005, a further tranche was approved for the financial year 2006. In this instance, too, these phantom shares are only paid out in cash if the Group’s earnings before taxes (EBT) for 2006 to 2008 reach a sum established in advance by the Supervisory Board. Two additional tranches were approved in the financial years 2007 and 2008. Unlike previous tranches, the cash payout is determined on the basis of the triple earnings before interest and taxes (EBIT) achieved in the financial year preceding the year of allocation (performance hurdle). Only when this performance hurdle is reached will the beneficiaries be entitled to receive a cash payout.
The LTI-programme does not provide for settlement by issuance of equity instruments.
The anticipated costs resulting from the LTI-programme are valued using the Monte- Carlo simulation based on the fair value of the phantom shares. MLP updates the valuation of the fair value for every balance sheet date and for every settlement date. The company records the anticipated total cost of the programme pro rata temporis over the time period up to the first possible exercise date of the phantom shares.
Details of the LTI can be found in the following table:
| Tranche 2005 |
Tranche 2006 |
Tranche 2007 |
Tranche 2008 |
|
|---|---|---|---|---|
| Performance shares at time of allocation (units) | 144,728 | 135,300 | 233,120 | 228,825 |
| of which Executive Board | 89,592 | 78,173 | 117,899 | 122,983 |
| of which others | 55,136 | 57,127 | 115,221 | 105,842 |
| Performance shares as at Jan 1, 2007 (units) | 124,053 | 117,260 | – | - |
| Performance shares expired in 2007 | 24,121 | 27,060 | – | - |
| Performance shares as at Dec 31, 2007 (units) | 99,932 | 90,200 | 233,120 | – |
| of which Executive Board | 53,411 | 46,603 | 117,899 | – |
| of which others | 46,521 | 43,597 | 115,221 | – |
| Performance shares expired in 2008 | 8,615 | 7,517 | 8,039 | – |
| Performance shares paid out in 2008 | 91,317 | – | – | – |
| Performance shares as at Dec 31, 2008 (units) | 0 | 82,683 | 225,081 | 228,825 |
| of which Executive Board | 46,603 | 117,899 | 122,983 | |
| of which others | 36,080 | 107,182 | 105,842 | |
| Parameters for the fair value as at Dec 31, 2008: | ||||
| Dividend yield (%) | – | – | 5.04 | 4.98 |
| Expected volatility (%) | – | – | 44.91 | 38.97 |
| Risk-free interest rate (%) | – | – | 2.67 | 2.68 |
| Anticipated remaining term of option (years) | – | – | 1 | 2 |
| Parameters for the fair value as at Dec 31, 2007: | ||||
| Dividend yield (%) | – | 4.17 | 4.17 | – |
| Expected volatility (%) | – | 35.24 | 38.58 | – |
| Risk-free interest rate (%) | – | 4.05 | 3.99 | – |
| Anticipated remaining term of option (years) | – | 1 | 2 | – |
The payments for the 2005 tranche took place in the last financial year. The performance shares of the tranche 2006 will be forfeited as the performance hurdle was not achieved. This is subject to verification by the Supervisory Board pending at the time of preparation of these financial statements. At December 31, 2008, the tranches 2006 to 2008 have a value of € 0 thsd (previous year: € 961 thsd). In the financial year 2008 no costs were recorded for the Long Term Incentive-Programme (previous year: € 338 thsd).
In the financial year 2008, MLP launched a participation programme for office managers, consultants and employees in order to keep them loyal to the company in the long-term. The programme grants a certain number of phantom shares for office managers and consultants, depending on their sales performance in the core competencies of old-age provision, health insurance and investment in the assessment period (calendar year 2008), and for the employees, depending on position and gross annual income in the financial year 2008. These phantom shares can only be allocated after a period of three years (after December 31, 2011). The entitlements for the phantom shares distributed in 2009 for the year 2008 vest by December 31, 2011 (end of phase 1), on the condition that the contractual relationship with the eligible parties does not end before this date. The value of these is derived from the value of an MLP share at the time of the payment request. The tranche of phantom shares distributed in 2008 have a share price guarantee, which, however, will be dispensed with, should the eligible party decide to extend the programme beyond 2011. The share price guarantee corresponds to the MLP share price at the close of trading on January 31, 2009. Those eligible parties whose phantom shares have not expired by December 31, 2011, and who have decided to continue their participation in the programme are entitled to a further allocation of phantom shares (turbo shares-1), which corresponds to the number of phantom shares allocated in 2009. In this case the eligible party can request his or her entitlement to be paid out of the phantom shares received in phase 1 (from the assessment year 2008) and turbo shares 1 (from 2012) when the vesting period for turbo shares-1 has expired on December 31, 2015, (turbo I phase) at the earliest.
If, on the other hand, the eligible party decides to request payment of the entitlement he or she has earned once the phase 1 expires on December 31, 2011, he or she receives the higher value of the share price guarantee multiplied by the number of phantom shares held from phase 1 or the current market value of the MLP share multiplied by the number of phantom shares held from phase 1.
If the contractual relationship with an eligible party ends before December 31, 2015, he or she is only entitled to the payment from the phantom shares of the first tranche valued at the current market value of the MLP share. The allocated turbo shares-1 are no longer valid in this case.
Eligible parties whose phantom shares have not lapsed by December 31, 2015, (through exercise or termination of service contract) are once again entitled to an allocation of phantom shares (turbo shares-2), which corresponds to the number of phantom shares allocated in 2009. If the allocation is accepted, the term of the programme is extended by another four years to December 31, 2019, and the previously earned phantom shares will then not be paid out by December 31, 2015. The turbo shares-2 vest if the contractual relationship with an eligible party is extended at least to this date in 2019 (turbo II phase). All nonexpired phantom shares as at December 31, 2019, are paid out in 2020 on the basis of the current MLP share price. If the eligible party decides to receive the payout to which he or she is entitled once the turbo I phase has expired, he or she receives the value from the number of phantom shares held from phase 1 and turbo I phase multiplied by the current MLP share price. No payment is then received from turbo shares-2. The same applies if the eligible party exits the scheme before the turbo II phase has expired.
Capital reserves
The change in the capital reserves in the financial year is due to the retirement of own shares, the increase in capital stock and the recognition of share-based payments pursuant to IFRS 2. The allocation due to share-based payment has resulted in the disclosure of personal expenses of € 0 thsd (previous year: € 109 thsd) and operating expenses of € 513 thsd (previous year: € 1,263 thsd) in the income statement.
Due to the conversion rights exercised in 2008, the capital reserves increased by € 730 thsd. The allocation in the financial year 2008 is the difference between the exercise price of the second, third or fourth tranche conversion rights and the nominal amount of the issued shares (€ 7.02 - € 1; € 12.40 - € 1; € 13.01 - € 1).
| All figures in €’000 | Dec 31, 2008 | Dec 31, 2007 |
|---|---|---|
| As at Jan 1 | 16,056 | 14,487 |
| Retirement of own shares | 10,821 | – |
| Increase in capital stock | 113,964 | – |
| Issue of conversion rights | 513 | 1,373 |
| Exercising of conversion rights | 730 | 196 |
| As at Dec 31 | 142,084 | 16,056 |
Securities marked to market
This item shows unrealised profits and losses on securities available for sale having accounted for deferred taxes.
Other equity
Other equity mainly comprises accumulated non-distributed earnings of the MLP Group.
Proposed appropriation of profit
Executive Board and Supervisory Board of MLP AG propose a dividend of € 0.28 per share for the financial year 2008 (previous year: € 0.50 per share) to the Annual General Meeting.