History Note 17

Notes to the Consolidated Financial Statements

1. Basic information and principles of the report

2. Changes in Group structure

3. Summary of significant accounting policies

4. Risk assessment and management

5. Management of capital

6. Trade accounts receivable

7. Other current assets and current financial assets

8. Inventories

9. Property, plant and equipment

10. Other non-current assets and non-current financial assets

11. Goodwill and intangible assets

12. Short-term debt

13. Other current liabilities and provisions

14. Long-term debt

15. Financial instruments

16. Retirement benefit plans

17. Participation plans

Share plans

In 2017, employees were able to purchase a defined number of shares at a discount of 45% (PY: 35%) compared to the market price (“Employee share purchase plan”). Geberit management was entitled to draw the previous year’s variable remuneration partly or entirely in shares valued at market price (“Management share purchase plan”). For each of these shares, management participants received one option (see part 2: “Option plans”). As part of the “Directors programme”, members of the Board of Directors received their compensation for 2016 in shares of Geberit AG (measured at current market value). All share plans are subject to blocking periods valid beyond the period of employment.

The share plans introduced in 2017 are summarised below:

  End of
blocking
period
Number of
participants
Number
of shares
issued
Issuing
price CHF
Employee share purchase plan (ESPP) 2019 2,785 19,783 239.77
Management share purchase plan (MSPP) 2020 110 14,204 435.95
Directors programme (DSPP) 2021 7 3,145 435.95
Total     37,132  

The 37,132 shares required for these plans were taken from the stock of treasury shares.

As at 31 December 2017, the Board of Directors, the Group Executive Board and the employees owned a combined total of 362,011 (PY: 353,688) shares, i.e. 1.0% (PY: 1.0%) of the share capital of Geberit AG under these plans.

Option plans

The management has the opportunity to invest part or all of their variable remuneration in shares of Geberit AG through the management share purchase plan (MSPP). They may define a fixed number of shares to purchase, or a certain amount or a percentage of their variable remuneration to be invested in shares. In order to encourage management to participate in the programme, a free option is provided for each share purchased through the programme. These options are subject to a vesting period of four years: a quarter of the options can be exercised one year after the grant, a further quarter two years after the grant, a further quarter three years after the grant, and the remaining quarter four years after the grant.

In connection with an additional option plan (MSOP), the members of the Group Executive Board and managing directors are entitled to additional options. The options are subject to a vesting period of five years: a third of the options can be exercised three years after the grant, a further third four years after the grant and a further third five years after the grant.

The exercise price of the options corresponds to the fair market value of the Geberit shares at the time of grant. The options have a term of seven years (MSPP) or ten years (MSOP) respectively after which they expire. They can be exercised between the vesting date and the maturity date. The vesting of share options is subject to the achievement of a performance criterion - the average Return on Invested Capital (ROIC) - over the respective vesting period.

The following is a summary of the options allocated to the management in 2017:

  End of vesting period Maturity Number of participants Number of options allocated Exercise
price CHF
Management share purchase plan (MSPP) 2018 - 2021 2024 110 14,204 435.95
Option plan (MSOP) 2020 - 2022 2027 93 109,590 435.95
Total       123,794  

The fair value of the options granted in 2017 amounted on average to CHF 34.72 (PY: CHF 26.81) for MSPP and CHF 39.87 (PY: CHF 31.42) for MSOP at the respective granting date. The fair value was determined using the binomial model for “American Style Call Options”.

The calculation model was based on the following parameters:

  Exercise
price
1
Expected Ø volatility Expected Ø
dividend
yield
Contractual period Risk­free Ø interest rate
  CHF % % Years %
1 The exercise price corresponds to the average price of Geberit shares for the period from 7. – 20.3.2017.
Management share purchase plan (MSPP) 435.95 16.95 2.28 7 -0.33
Option plan (MSOP) 435.95 16.88 2.28 10 -0.10

The following table summarises all option plans in place as at 31 December 2017:

End of vesting period Maturity Number of options outstanding Ø exercise
price CHF
Number of options in
the money
Ø exercise
price CHF
Vested 2018 - 2023 130,426 282.31 130,426 282.31
2018 2021 - 2024 73,781 319.79 70,230 313.92
2019 2022 - 2026 70,294 361.09 66,743 357.11
2020 2023 - 2027 82,242 397.91 42,161 361.75
2021 2024 - 2027 80,102 398.88 40,021 361.75
2022 2027 36,530 435.95 0 435.95
Total   473,375 351.52 349,581 321.62

The following movements took place in 2017 and 2016:

  MSOP   MSPP   Total 2017   Total 2016
Number of options Ø exercise price Number of options Ø exercise price Number of options Ø exercise price Number of options Ø exercise price
    CHF     CHF     CHF     CHF
Outstanding 1 January 364,838 314.35   37,877 309.68   402,715 313.91   347,084 279.07
Granted options 109,590 435.95   14,204 435.95   123,794 435.95   131,219 361.75
Forfeited options 1,920 361.87   67 305.66   1,987 359.97   3,269 296.03
Expired options 0 0   0 0   0 0   0 0
Exercised options 45,651 258.34   5,496 268.04   51,147 259.38   72,319 233.25
Outstanding 31 December 426,857 351.34   46,518 353.09   473,375 351.52   402,715 313.91
Exercisable at 31 December 114,128 280.71   16,298 293.21   130,426 282.31   86,867 260.16

The 473,375 options outstanding represent 1.3% of the outstanding shares of Geberit AG. In principle, the Group hedges this exposure with treasury shares.

The options outstanding as at 31 December 2017 had an exercise price of between CHF 231.20 and CHF 435.95 and an average remaining contractual life of 6.1 years.

Cost resulting from participation plans amounted to MCHF 4.3 in 2017 (PY: MCHF 2.6); those for option plans totalled MCHF 3.2 (PY: MCHF 2.9).

18. Deferred tax assets and liabilities

19. Other non-current liabilities and provisions

20. Contingencies

21. Capital stock and treasury shares

22. Earnings per share

23. Other operating expenses, net

24. Financial result, net

25. Income tax expenses

26. Operating Leasing

27. Research and development cost

28. Cashflow figures

29. Segment reporting

30. Related party transactions

31. Foreign exchange rates

32. Subsequent events

33. Group companies as at 31 December 2017