avatar Sonova Nederland B.V. Retail Trade

Pages

  • Page 1

    Financial reporting Financial review 80 5 year key figures 86 Consolidated financial statements 88 Consolidated income statements Consolidated statements of comprehensive income Consolidated balance sheets Consolidated cash flow statements Consolidated changes in equity Notes to the consolidated financial statements Report of the statutory auditor on the consolidated financial statements Financial statements of Sonova Holding AG 140 Income statements Balance sheets Notes to the financial statements Appropriation of available earnings Report of the statutory auditor on the financial statements Investor information


  • Page 2

    Financial review In the 2016 / 17 financial year, Sonova generated sales of CHF 2,395.7 million, an increase of 15.3 % in local currencies or 15.6 % in reported Swiss francs. Normalized for one-time costs, Group EBITA rose by 12.1 % in local currencies and 11.8 % in reported Swiss francs to CHF 481.4 million. Solid organic growth further boosted ments business was negatively affected by expected reactions by strategic acquisitions from wholesale customers, mainly in Germany, following the an- Sonova Group sales in 2016 / 17 grew by 15.3 % in local curren- nouncement of the AudioNova acquisition in May 2016; these cies and 15.6 % in reported Swiss francs to CHF 2,395.7 million. were mainly felt during the first half of the financial year. The Organic growth was 4.3 %, driven both by the hearing instruments cochlear implants business achieved strong progress throughout and cochlear implants segments, and saw a marked acceleration the year. over the course of the year. Exchange rate fluctuations had a min- imal impact, adding just 0.3 % to the reported growth rate. The The Group’s business in the United States, representing 33 % of sales increase was strongly supported by acquisitions made total sales, accelerated in the second half of the year, resulting in the reporting period, as well as annualizations of prior year in a sales increase of 1.0 % in local currency. Growth in the hear- acquisitions. In total, acquisitions added CHF 244.6 million or ing instruments segment was driven by the Phonak brand, which 11.8 % to the increase, mainly stemming from the acquisition of benefited from the highly successful introduction of new products. AudioNova, effective September 2016. Prior year business dispos- This was partially offset by a decline at Unitron ahead of a new als reduced growth by 0.8 %. platform introduction towards the end of the fiscal year, along with no growth in our US retail network, which is undergoing a Strong momentum driven by Europe streamlining program. The cochlear implants business maintained Sales in EMEA (Europe, Middle East, and Africa), the largest region strong momentum throughout the year, achieving a double digit with 48 % of Group sales, increased 33.8 % in local currencies. sales increase. The rest of the Americas (excluding the US), which A solid organic sales increase in both segments was further represented 9 % of total sales, reported a sales increase of 3.8 % boosted by acquisitions, in particular AudioNova. Good progress in local currencies. Solid overall performance was partly offset was achieved in major European markets including the UK, the by a targeted reduction of low-margin government tender busi- Nordics, France, and Italy. The development of our hearing instru- ness in Brazil and a sales decline at Unitron Canada. Sonova Group key figures Change in Change in in CHF m unless otherwise specified 2016 / 17 2015 / 16 Swiss francs local currencies Sales 2,395.7 2,071.9 15.6 % 15.3 % EBITA 463.0 430.6 7.5 % 7.9 % EPS (CHF) 5.35 5.11 4.7 % Operating free cash flow 424.8 344.2 23.4 % 1) ROCE 20.4 % 26.0 % EBITA (normalized)2) 481.4 430.6 11.8 % 12.1 % EBITA margin (normalized)2) 20.1 % 20.8 % EPS (CHF) (normalized)2) 5.58 5.11 9.2 % 1) For detailed definitions, please refer to “Key figures”. 2) 2016 / 17 excluding one-time costs of CHF 18.4 million, consisting of transaction costs and integration related restructuring costs in connection with the acquisition of AudioNova. 80 Sonova Annual Report 2016 / 17


  • Page 3

    FINANCIAL REVIEW Sales by regions in CHF m 2016 / 17 2015 / 16 Sales Share Growth Sales Share in local currencies EMEA 1,162.2 48 % 33.8 % 883.0 43 % USA 787.3 33 % 1.0 % 767.6 37 % Americas (excl. USA) 210.9 9% 3.8 % 197.1 9% Asia / Pacific 235.3 10 % 2.0 % 224.2 11 % Total sales 2,395.7 100 % 15.3 % 2,071.9 100 % Accounting for 10 % of Group sales, the Asia / Pacific region Normalized G & A costs increased by 17.3 % in local currencies to achieved a sales increase of 2.0 % in local currencies. This in part CHF 228.5 million. As a percentage of sales, normalized G & A reflects the demanding base level set after the exceptional sales costs were stable at 9.5 % (2015 / 16: 9.4 %). increase achieved in the prior year. Australia, New Zealand, and Japan showed solid growth, while China and India saw a refocus- Other income amounted to CHF 6.3 million, down from CHF 17.9 ing on higher-margin business, resulting in targeted reductions million in the prior year. A CHF 37.4 million provision release for in certain channels. cochlear implant product liabilities that resulted from a better than expected development in related claims was broadly offset Business transformation affecting the cost structure by costs of CHF 35.6 million stemming from the impairment of Reported gross profit reached CHF 1,651.8 million, an increase previously capitalized development costs. The latter was the re- of 20.1 % both in local currencies and reported Swiss francs. Gross sult of changes in the development roadmap, specifically the de- profit margin was 68.9 %, up strongly from 66.4 % in the prior cision to skip directly to our new 2.4 GHz platform for our cochlear year. The gross profit margin was lifted by a solid organic increase implant sound processor technology. Furthermore, the current and the effect of an increased share of retail revenues with higher year figure includes a CHF 3.9 million capital gain from the sale gross margin arising from the acquisition of AudioNova. of non-core retail activities in France. During the 2015 / 16 finan- cial year, other income included a capital gain of CHF 8.7 million Reported operating expenses, including other operating income, from divestments, mainly consisting of our previous Italian retail reached CHF 1,188.8 million (2015 / 16: CHF 944.8 million). This business, and a CHF 8.8 million release from a provision for includes CHF 18.4 million in one-time costs in connection with cochlear implant product liabilities. the AudioNova acquisition, which related to transaction as well as restructuring costs. Where relevant, we refer to figures normal- Reported operating profit before acquisition-related amortization ized for such one-time costs. Normalized operating expenses in (EBITA) was CHF 463.0 million (2015 / 16: CHF 430.6 million), local currencies rose by 23.7 % or by 23.9 % in Swiss francs to an increase of 7.9 % in local currencies or 7.5 % in Swiss francs CHF 1,170.3 million, mainly driven by the acquisition of AudioNova. from the prior year. Reported EBITA margin reached 19.3 % (2015 / 16: 20.8 %). For the year under review, exchange rate de- Underpinning its commitment to innovation, the Group main- velopment had a minimal impact on the reported EBITA margin. tained its high level of investment in research and development Normalized for one-time costs, EBITA increased by 12.1 % in local (R & D) with R & D expenses reaching CHF 137.1 million, an increase currencies or 11.8 % in Swiss francs to CHF 481.4 million, cor- of 5.3 % in local currencies. Due to the increased relative share responding to a margin of 20.1 %. Reported operating profit (EBIT) of the retail business after the acquisition of AudioNova, R & D as reached CHF 423.7 million, compared to CHF 403.4 million for a percentage of sales declined from 6.3 % to 5.7 %. the prior year, up by 5.0 %, reflecting the growth in reported EBITA and an expected increase in acquisition related amortization. Both sales and marketing as well as general and administrative (G & A) costs showed a significant increase as a result of the Audio- Earnings per share Nova acquisition, which led to higher cost ratios as a percentage Net financial expenses, including the result from associates, of sales compared to the prior year. Normalized sales and market- was stable at CHF 6.3 million (2015 / 16 CHF 6.4 million). Income ing costs were up 26.9 % in local currencies to CHF 811.0 million. taxes for the financial year totaled CHF 61.2 million, up from As a percentage of sales, normalized sales and marketing ex- CHF 51.2 million in 2015 / 16, and representing an effective tax penses rose to 33.9 %, compared to 30.8 % in the prior year. rate of 14.7 %, compared to 12.9 % in the prior year. The increase Sonova Annual Report 2016 / 17 81


  • Page 4

    FINANCIAL REVIEW Sales by product groups – Hearing instruments segment in CHF m 2016 / 17 2015 / 16 Sales Share Growth Sales Share in local currencies Premium hearing instruments 604.5 28 % 14.7 % 512.8 27 % Advanced hearing instruments 464.7 21 % 12.8 % 403.4 21 % Standard hearing instruments 713.9 32 % 15.8 % 599.8 32 % Wireless communication systems 106.7 5% 14.9 % 90.5 5% Miscellaneous 300.5 14 % 24.9 % 278.5 15 % Total hearing instruments segment 2,190.3 100 % 15.9 % 1,885.0 100 % in the tax rate reflects a higher legacy tax rate at the acquired The hearing instruments business, which includes sales to inde- AudioNova entities; the effect is temporary until the acquired pendent audiologists, retail chains, multinational and government businesses are fully integrated into the Sonova group structures. customers, but excludes our own retail business, grew 2.8 % in Reported income after taxes was CHF 356.2 million, up 3.0 % from local currencies to CHF 1,311.2 million. Sales saw a marked ac- the previous year. Basic earnings per share (EPS) therefore celeration in the second half, driven by the successful introduction reached CHF 5.35 (2015 / 16: CHF 5.11), an increase of 4.7 % from of Phonak Audéo™ B in September 2016. Specifically, the re- the previous year. Normalized for one-time costs, EPS increased chargeable version, based on innovative lithium-ion technology, 9.2 % to CHF 5.58. resulted in market-beating demand in the US and key European markets. The rechargeable technology product range was further Workforce increases to 14,089 broadened by the launch of the same feature in the Phonak At the end of the 2016 / 17 financial year, the Group’s total work- Bolero™ product family in February 2017. Growth in Europe was force stood at 14,089 full-time equivalents – an increase of 3,195 strong, despite an expected headwind from independent custom- over the previous year. This growth comes mainly from the acqui- ers in Germany after the announcement of the AudioNova acquisi- sition of AudioNova. Our manufacturing work force also increased tion in May 2016. Phonak in the US and Canada grew strongly at the Vietnam operation center, where we expanded the capacity across the main channels and we also increased market share of our production facility. in our business with the US Department of Veterans Affairs (VA). An updated product offering at Costco was very well received and Hearing instruments segment – contributed to strong growth in the second half-year. This was Growth from new products and acquisitions partially offset by a decline at Unitron in both countries, where Sales in the hearing instruments segment reached CHF 2,190.3 the product portfolio was coming to the end of its current product million, representing an increase of 15.9 % in local currencies cycle ahead of the introduction of the new Tempus platform and 16.2 % in reported Swiss francs. Organic growth was 3.8 % in March / April 2017. With the exception of China and India, the in local currencies, supplemented by 12.1 % or CHF 227.1 million Asia / Pacific region continued its growth trajectory with strong from acquisitions net of disposals. The bulk of this came from the increases in Australia, Japan, and Korea. In China and India, acquisition of AudioNova. Organic growth in the second half ac- the Group has proactively reduced its exposure to low-margin celerated significantly with several successful new product business. launches, in particular the introduction of the rechargeable Phonak Audéo™ B product. The retail business, consisting of over 3,300 Sonova owned points of sale in 12 key markets, increased sales by 42.7 % in local cur- All hearing instrument product categories achieved solid double- rencies to CHF 879.1 million. Good organic growth across Europe digit growth in local currencies. The acquisition of AudioNova did was supplemented by the acquisition of AudioNova and a number not result in a significant shift of the product mix. Wireless com- of smaller chains in several countries, thereby further extending munication systems were up 14.9 % in local currencies, almost our market-leading position across the region. Boots Hearingcare exclusively from organic growth. This marks the third consecutive continued on its long term growth trajectory supported by new year with double digit growth, reflecting a continued strong mar- product introductions. The retail market environment in the US ket response to our innovative solutions for school and workplace remained challenging and the business could not grow beyond use. Sales in the “miscellaneous” product category increased by the prior year’s result. The US network is undergoing a further 24.9 % in local currencies, largely driven by AudioNova. This cate- streamlining and productivity improvement. Canada and Asia / gory includes accessories, batteries, and services. Pacific continued to perform strongly. 82 Sonova Annual Report 2016 / 17


  • Page 5

    FINANCIAL REVIEW Sales by business – Hearing instruments segment in CHF m 2016 / 17 2015 / 16 Sales Share Growth Sales Share in local currencies Hearing instruments business 1,311.2 60 % 2.8 % 1,266.2 67 % Retail business 879.1 40 % 42.7 % 618.7 33 % Total hearing instruments segment 2,190.3 100 % 15.9 % 1,885.0 100.0 % AudioNova was consolidated from September 2016. The integra- Cochlear implants segment – Accelerating in the second half tion of the business is well on track and did not affect day-to-day After a good first half, the cochlear implants business continued retail business. Geers in Germany kept up its strong growth re- to build momentum in the second half of the year. Total sales were cord, expanding on its leading position in the market. AudioNova CHF 205.4 million, an increase of 9.6 % in local currencies and in the Netherlands initiated a restructuring program to adjust 9.8 % in reported Swiss francs. the store network and cost structure to recent changes in the reimbursement conditions. In a successive transaction, the Double digit new systems sales growth across North America and AudioNova business in France was sold effective March 1, 2017. the EMEA region was driven by an attractive product portfolio Effective April 1, 2017, AudioNova’s Portuguese business was and new product introductions in the second half-year, including also sold to the same buyer. This transaction will appear in the the new HiRes™ Ultra implant. This was partially offset by slower accounts for the 2017 / 18 financial year. growth in Latin America and the Asia / Pacific region. Upgrade sales to existing users were held back by a decline in the first Reported EBITA for the hearing instruments segment amounted half-year, largely related to a smaller qualifying customer base to CHF 455.0 million, up 6.0 % in local currencies. The normal- eligible for insurance funded replacement of their sound proces- ized EBITA for the hearing instruments segment increased by sors. Increasing at a double-digit rate, upgrade sales recovered 10.3 % in local currencies to CHF 473.4 million, corresponding strongly in the second half of the year. to an EBITA margin of 21.6 %. The EBITA margin development in the ongoing business was positive through a strong focus on EBITA increased to CHF 8.0 million, compared to a break-even managing operating costs and achieving additional efficiency result in the prior year, reflecting good operating leverage and and scale in manufacturing. The acquisition of AudioNova and strict cost management. CHF 35.6 million in capitalized develop- other retail businesses, with its resulting higher relative share ment costs were impaired as a result of changes in the develop- of retail revenues, negatively affected the margin. This was par- ment roadmap, specifically the decision to skip directly to our tially offset by a CHF 3.9 million capital gain from the sale of new 2.4 GHz platform for the sound processor technology in co- AudioNova France. In the prior year, reported EBITA included a chlear implants. This cost was offset by a CHF 37.4 million provi- capital gain of CHF 8.7 million from the sale of two non-core sion release for cochlear implant product liabilities that resulted businesses, partly offset by a CHF 2.3 million foreign exchange from a better than expected development in related claims. The loss on working capital. assessment of both of these items is based on a regular systematic review. In summary, this resulted in a net benefit of CHF 1.8 mil- lion, which was reflected in the reported EBITA. Sales by product groups – Cochlear implants segment in CHF m 2016 / 17 2015 / 16 Sales Share Growth Sales Share in local currencies Cochlear implant systems 160.0 78 % 12.8 % 141.6 76 % Upgrades and accessories 45.4 22 % 0.5 % 45.3 24 % Total cochlear implants segment 205.4 100 % 9.6 % 186.9 100 % Sonova Annual Report 2016 / 17 83


  • Page 6

    FINANCIAL REVIEW Strong operating free cash flow Balance sheet remains strong Cash flow from operating activities reached CHF 522.4 million, Reported net working capital was CHF 169.7 million, compared compared to CHF 428.4 million in the prior year. Investments in to CHF 185.5 million at the end of the prior year, reflecting a strong tangible and intangible assets increased by CHF 15.2 million or focus on working capital management. Capital employed was 18.3 % to CHF 98.2 million, resulting in a strong operating free CHF 2,535.9 million, compared to CHF 1,608.0 million in the prior cash flow of CHF 424.8 million, up by 23.4 % or CHF 80.6 million. year; the increase was largely driven by the acquisition of Cash consideration for acquisitions amounted to CHF 675.3 mil- AudioNova. The Group’s equity position amounted to CHF 2,131.3 lion, compared to 121.3 million in the prior year. The increase is million, resulting in a solid equity ratio of 54.2 %. The net debt mainly caused by the AudioNova acquisition, with its gross pur- position stood at CHF 404.6 million, compared to a net cash po- chase price of CHF 921.2 million and acquired debt of CHF 290.8 sition of CHF 298.3 million the end of the prior year. As a result million. The cash inflow from divestments amounted to CHF 17.8 of acquisitions, the return on capital employed (ROCE) experi- million as against CHF 29.6 million in the prior year. In summary, enced an expected decrease to 20.4 %, compared to 26.0 % in this resulted in a negative free cash flow of CHF 232.6 million, the prior year. compared to a positive free cash flow of CHF 252.6 million in the prior year. In light of the continued strong operating free cash flow of the Sonova Group, as well as its healthy financial position, the Board The cash inflow from financing activities in the 2016 / 17 finan- of Directors will propose to the Annual General Shareholders’ cial year was CHF 290.5 million, compared to a cash outflow of Meeting on June 13, 2017 a dividend of CHF 2.30. This proposed CHF 325.6 million in the prior year. This reflects an increase in distribution is up 9.5 % over the prior year, and represents a sta- net borrowings by CHF 468.9 million, mainly consisting of the ble payout ratio, normalized for one-time cost, of 41 % (reported: bond issue related to the financing of the AudioNova acquisition. 43 %). Cash spent under the share buy-back program decreased signifi- cantly to CHF 11.8 million (2015 / 16: CHF 155.6 million) as a result Outlook 2017 / 18 of the suspension of the program following the announcement of We expect to achieve continued solid growth in sales and profit- the acquisition of AudioNova in May 2016. In the 2016 / 17 finan- ability in both the hearing instruments and cochlear implants cial year, a net amount of CHF 20.8 million was spent on the segments during 2017 / 18. The development will be supported purchase of treasury shares to support equity-based compensa- by our attractive product and solutions portfolio as well as our tion plans, compared to CHF 19.7 million in the prior year. The continued commitment to innovation. Coupled with the annuali- cash outflow from financing also reflects dividend payments of zation of prior year acquisitions, in particular AudioNova, we CHF 137.2 million. expect overall sales to grow in the range of 10 % – 12 % in local currencies. 84 Sonova Annual Report 2016 / 17


  • Page 7

    FINANCIAL REVIEW Share price performance 456 160 120 80 40 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sonova shares Swiss Performance Index (Rebased) Share price performance 1) 10 years 5 years 3 years 2 years 1 year Sonova shares 49.4 % 38.5 % 7.4 % 2.7 % 13.1 % Swiss Performance Index (SPI)2) 34.2 % 68.6 % 18.6 % 5.5 % 15.9 % Sonova shares relative to the SPI 15.2 % (30.1 %) (11.1 %) (2.8 %) (2.8 %) 1) Performance of the Sonova shares and SPI refers to the respective period prior to the last trading day of the 2016 / 17 financial year. 2) The Swiss Performance Index (SPI) is considered Switzerland’s overall stock market index. It comprises practically all of the SIX Swiss Exchange-traded equity securities of companies that are domiciled in Switzerland or the Principality of Liechtenstein. Sonova Annual Report 2016 / 17 85


  • Page 8

    5 year key figures Normalized Reported performance performance in 1,000 CHF unless otherwise specified 2016 / 171) 2016 / 17 2015 / 16 Sales 2,395,650 2,395,650 2,071,930 change compared to previous year (%) 15.6 15.6 1.8 Gross profit 1,651,752 1,651,752 1,375,468 change compared to previous year (%) 20.1 20.1 (0.9) in % of sales 68.9 68.9 66.4 Research & development costs 137,134 137,134 130,255 in % of sales 5.7 5.7 6.3 Sales & marketing costs 810,988 815,018 638,240 in % of sales 33.9 34.0 30.8 Operating profit before acquisition-related amortization and impairment (EBITA) 481,441 462,998 430,632 change compared to previous year (%) 11.8 7.5 (5.5) in % of sales 20.1 19.3 20.8 Operating profit (EBIT) 442,120 423,677 403,437 change compared to previous year (%) 9.6 5.0 (6.0) in % of sales 18.5 17.7 19.5 Income after taxes 371,484 356,176 345,847 change compared to previous year (%) 7.4 3.0 (6.1) in % of sales 15.5 14.9 16.7 Basic earnings per share (CHF) 5.58 5.35 5.11 Dividend / distribution per share (CHF) 2.3012) 2.3012) 2.10 Net cash4) (404,634) (404,634) 298,274 5) Net working capital 169,706 169,706 185,459 Capital expenditure (tangible and intangible assets)6) 97,120 97,120 83,051 Capital employed7) 2,535,906 2,535,906 1,607,992 Total assets 3,935,680 3,935,680 2,751,611 Equity 2,131,272 2,131,272 1,906,266 8) Equity financing ratio (%) 54.2 54.2 69.3 Free cash flow9) (232,615) (232,615) 252,573 Operating free cash flow10) 424,847 424,847 344,212 in % of sales 17.7 17.7 16.6 11) Return on capital employed (%) 20.4 20.4 26.0 Number of employees (average) 12,802 12,802 10,697 change compared to previous year (%) 19.7 19.7 7.4 Number of employees (end of period) 14,089 14,089 10,894 change compared to previous year (%) 29.3 29.3 7.0 1) Excluding one-time costs of CHF 18.4 million, consisting of transaction cost and integration related restructuring costs in connection with the acquisition of AudioNova. Balance sheet related key figures (including respective ratios) as reported. 2) Restated following the implementation of IAS 19 (revised). 3) Excluding one-off cost, mainly related to the increase of the product liability provision within the cochlear implants business. Balance sheet related key figures (including respective ratios) as reported. 4) Cash and cash equivalents + other current financial assets (without loans) – current financial liabilities – non-current financial liabilities. 5) Receivables (incl. loans) + inventories – trade payables – current income tax liabilities – other short-term liabilities – short-term provisions. 86 Sonova Annual Report 2016 / 17


  • Page 9

    5 YEAR KEY FIGURES Normalized Reported performance performance 2014 / 15 2013 / 14 2012 / 132) / 3) 2012 / 132) 2,035,085 1,951,312 1,795,262 1,795,262 4.3 8.7 10.8 10.8 1,387,524 1,340,449 1,239,780 1,239,780 3.5 8.1 12.1 12.1 68.2 68.7 69.1 69.1 130,897 125,657 113,884 113,884 6.4 6.4 6.3 6.3 613,217 589,627 559,077 559,077 30.1 30.2 31.1 31.1 455,564 430,109 385,304 181,688 5.9 11.6 22.2 (42.4) 22.4 22.0 21.5 10.1 429,069 404,030 359,175 155,559 6.2 12.5 24.8 (45.9) 21.1 20.7 20.0 8.7 368,323 347,382 307,745 110,869 6.0 12.9 24.9 (55.0) 18.1 17.8 17.1 6.2 5.37 5.08 4.60 1.65 2.05 1.90 1.60 1.60 382,343 311,525 185,800 185,800 181,379 190,571 187,148 187,148 88,735 93,918 82,354 82,354 1,489,461 1,462,850 1,455,460 1,455,460 2,691,631 2,593,748 2,680,042 2,680,042 1,871,804 1,774,375 1,641,260 1,641,260 69.5 68.4 61.2 61.2 308,700 288,618 262,370 262,370 366,385 318,430 318,553 318,553 18.0 16.3 17.7 17.7 29.1 27.7 10.4 10.4 9,960 9,175 8,709 8,709 8.6 5.4 9.3 9.3 10,184 9,529 8,952 8,952 6.9 6.4 8.9 8.9 6) Excluding goodwill and intangibles relating to acquisitions. 7) Equity – net cash. 8) Equity in % of total assets. 9) Cash flow from operating activities + cash flow from investing activities. 10) Free cash flow – cash consideration for acquisitions and from divestments, net of cash acquired / divested. 11) EBIT in % of capital employed (average). 12) Proposal to the Annual General Shareholders’ Meeting of June 13, 2017. Sonova Annual Report 2016 / 17 87


  • Page 10

    Consolidated financial statements Consolidated income statements 1,000 CHF Notes 2016 / 17 2015 / 16 Sales 6 2,395,650 2,071,930 Cost of sales (743,898) (696,462) Gross profit 1,651,752 1,375,468 Research and development (137,134) (130,255) Sales and marketing (815,018) (638,240) General and administration (242,893) (194,223) Other income / (expenses), net 7 6,291 17,882 1) Operating profit before acquisition-related amortization (EBITA) 462,998 430,632 Acquisition-related amortization 20 (39,321) (27,195) Operating profit (EBIT)2) 423,677 403,437 Financial income 8 7,393 4,298 Financial expenses 8 (13,598) (12,249) Share of profit / (loss) in associates / joint ventures, net 18 (143) 1,574 Income before taxes 417,329 397,060 Income taxes 9 (61,153) (51,213) Income after taxes 356,176 345,847 Attributable to: Equity holders of the parent 349,172 337,026 Non-controlling interests 7,004 8,821 Basic earnings per share (CHF) 10 5.35 5.11 Diluted earnings per share (CHF) 10 5.34 5.10 1) Earnings before financial result, share of profit / (loss) in associates / joint ventures, taxes and acquisition-related amortization (EBITA). 2) Earnings before financial result, share of profit / (loss) in associates / joint ventures and taxes (EBIT). The Notes are an integral part of the consolidated financial statements. 88 Sonova Annual Report 2016 / 17


  • Page 11

    CONSOLIDATED FINANCIAL STATEMENTS Consolidated statements of comprehensive income 1,000 CHF Notes 2016 / 17 2015 / 16 Income after taxes 356,176 345,847 Other comprehensive income Actuarial gain / (loss) from defined benefit plans, net 30 39,448 (6,610) Tax effect on actuarial gain / (loss) from defined benefit plans, net (5,539) 893 Total items not to be reclassified to income statement in subsequent periods 33,909 (5,717) Currency translation differences (5,815) (2,547) Tax effect on currency translation items (2,040) 760 Total items to be reclassified to income statement in subsequent periods (7,855) (1,787) Other comprehensive income, net of tax 26,054 (7,504) Total comprehensive income 382,230 338,343 Attributable to: Equity holders of the parent 377,154 330,309 Non-controlling interests 5,076 8,034 The Notes are an integral part of the consolidated financial statements. Sonova Annual Report 2016 / 17 89


  • Page 12

    CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets Assets 1,000 CHF Notes 31.3.2017 31.3.2016 Cash and cash equivalents 12 374,504 317,266 Other current financial assets 13 4,164 6,748 Trade receivables 14 413,375 354,672 Current income tax receivables 6,426 7,755 Other receivables and prepaid expenses 15 86,328 69,610 Inventories 16 255,655 240,451 Total current assets 1,140,452 996,502 Property, plant and equipment 17 310,321 267,870 Intangible assets 20 2,323,087 1,349,628 Investments in associates / joint ventures 18 11,471 9,275 Other non-current financial assets 19 20,365 19,970 Deferred tax assets 9 129,984 108,366 Total non-current assets 2,795,228 1,755,109 Total assets 3,935,680 2,751,611 Liabilities and equity 1,000 CHF Notes 31.3.2017 31.3.2016 Current financial liabilities 22 13,355 6,546 Trade payables 106,028 77,828 Current income tax liabilities 117,583 93,812 Other short-term liabilities 23 259,175 214,189 Short-term provisions 21 112,279 105,220 Total current liabilities 608,420 497,595 Non-current financial liabilities 24 766,960 15,174 Long-term provisions 21 185,929 191,880 Other long-term liabilities 26 106,278 94,764 Deferred tax liabilities 9 136,821 45,932 Total non-current liabilities 1,195,988 347,750 Total liabilities 1,804,408 845,345 Share capital 27 3,271 3,331 Treasury shares (12,130) (155,676) Retained earnings and reserves 2,117,271 2,034,677 Equity attributable to equity holders of the parent 2,108,412 1,882,332 Non-controlling interests 22,860 23,934 Equity 2,131,272 1,906,266 Total liabilities and equity 3,935,680 2,751,611 The Notes are an integral part of the consolidated financial statements. 90 Sonova Annual Report 2016 / 17


  • Page 13

    CONSOLIDATED FINANCIAL STATEMENTS Consolidated cash flow statements 1,000 CHF Notes 2016 / 17 2015 / 16 Income before taxes 417,329 397,060 Depreciation, amortization and impairment of tangible and intangible assets 17, 20 147,404 88,743 Loss on sale of tangible and intangible assets, net 727 769 Share of loss / (gain) in associates / joint ventures, net 18 143 (1,574) Decrease in long-term provisions (38,384) (7,403) Financial (income) / expense, net 8 6,205 7,951 Share based payments and other non-cash item 19,985 4,061 Income taxes paid (36,353) 99,727 (40,545) 52,002 Cash flow before changes in net working capital 517,056 449,062 (Increase) / decrease in trade receivables (23,926) 312 (Increase) / decrease in other receivables and prepaid expenses (6,505) 4,415 Decrease in inventories 3,604 5,019 Increase / (decrease) in trade payables 14,497 (11,327) Increase / (decrease) in other payables, accruals and short-term provisions 17,665 5,335 (19,038) (20,619) Cash flow from operating activities 522,391 428,443 Purchase of tangible and intangible assets (98,220) (83,051) Proceeds from sale of tangible and intangible assets 997 576 Cash consideration for acquisitions, net of cash acquired 28 (675,283) (121,252) Cash consideration from divestments, net of cash divested 28 17,821 29,613 Changes in other financial assets (1,486) (5,034) Interest received and realized gain from financial assets 1,165 3,278 Cash flow from investing activities (755,006) (175,870) Proceeds from borrowings 880,493 Repayment of borrowings (411,597) (479) (Purchase) / sale of treasury shares, net (32,603) (175,377) Dividends paid by Sonova Holding AG (137,178) (136,039) Transactions with non-controlling interests (6,150) (11,403) Interest paid and other financial expenses (2,443) (2,312) Cash flow from financing activities 290,522 (325,610) Exchange losses on cash and cash equivalents (669) (183) Decrease in cash and cash equivalents 57,238 (73,220) Cash and cash equivalents at the beginning of the financial year 317,266 390,486 Cash and cash equivalents at the end of the financial year 374,504 317,266 The Notes are an integral part of the consolidated financial statements. Sonova Annual Report 2016 / 17 91


  • Page 14

    CONSOLIDATED FINANCIAL STATEMENTS Consolidated changes in equity 1,000 CHF Attributable to equity holders of Sonova Holding AG Share Retained Translation Treasury Non- Total capital earnings and adjustment shares controlling equity other reserves interests Balance April 1, 2015 3,359 2,207,642 (295,027) (71,473)1) 27,303 1,871,804 Income for the period 337,026 8,821 345,847 Actuarial loss from defined benefit plans, net (6,610) (6,610) Tax effect on actuarial loss 893 893 Currency translation differences 19 (1,779) (787) (2,547) Tax effect on currency translation 760 760 Total comprehensive income 331,328 (1,019) 8,034 338,343 Capital decrease – share buy-back program (28) (73,551) 73,579 Share-based payments 7,565 7,565 Sale of treasury shares (6,222) 22,732 16,510 Purchase of treasury shares (180,514) (180,514) Dividend paid (136,039) (11,403) (147,442) Balance March 31, 2016 3,331 2,330,723 (296,046) (155,676)1) 23,934 1,906,266 Balance April 1, 2016 3,331 2,330,723 (296,046) (155,676)1) 23,934 1,906,266 Income for the period 349,172 7,004 356,176 Actuarial gain from defined benefit plans, net 39,448 39,448 Tax effect on actuarial gain (5,539) (5,539) Currency translation differences (67) (3,820) (1,928) (5,815) Tax effect on currency translation (2,040) (2,040) Total comprehensive income 383,014 (5,860) 5,076 382,230 Capital decrease – share buy-back program (60) (155,579) 155,639 Share-based payments 4,824 4,824 Sale of treasury shares (6,627) 38,780 32,153 Purchase of treasury shares (50,873) (50,873) Dividend paid (137,178) (6,150) (143,328) Balance March 31, 2017 3,271 2,419,177 (301,906) (12,130)1) 22,860 2,131,272 1) Includes derivative financial instruments on treasury shares. The Notes are an integral part of the consolidated financial statements. 92 Sonova Annual Report 2016 / 17


  • Page 15

    Notes to the consolidated financial statements as of March 31, 2017 1. Corporate information 2. 1 Changes in accounting The Sonova Group (the “Group”) specializes in the design, de- policies velopment, manufacture, worldwide distribution and service of technologically advanced hearing systems for adults and children In 2016 / 17 the Group has adopted the following minor amend- with hearing impairment. The Group operates worldwide and ments to existing standards and interpretations, without having distributes its products in over 100 countries through its own a significant impact on the Group’s result and financial position: distribution network and through independent distributors. The ultimate parent company is Sonova Holding AG, a limited liabil- • Accounting for acquisitions of interest in joint operations ity company incorporated in Switzerland. Sonova Holding AG’s (Amendment to IFRS 11) registered office is located at Laubisrütistrasse 28, 8712 Stäfa, • Clarification of acceptable methods of depreciation Switzerland. and amortization (Amendments to IAS 16 and IAS 38) • Annual improvements to IFRSs 2012 – 2014 • Equity method in separate financial statements 2. Basis of consolidated financial (Amendment to IAS 27) • Sale or contribution of assets between an investor statements and its associate or joint venture (Amendments to IFRS 10 and IAS 28) The consolidated financial statements of the Group are based on • Investment entities: applying the consolidation exception the financial statements of the individual Group companies at (Amendments to IFRS 10, IFRS 12 and IAS 28) March 31 prepared in accordance with uniform accounting poli- • Disclosure Initiative (Amendment to IAS 1) cies. The consolidated financial statements have been prepared under the historical cost convention except for the revaluation Although the Group is still assessing the potential impacts of the of certain financial assets at market value, in accordance with various new and revised standards and interpretations that will International Financial Reporting Standards (IFRS), including be effective for the financial year starting April 1, 2017, based International Accounting Standards (IAS) and Interpretations on the analysis to date the Group does not expect a significant issued by the International Accounting Standards Board (IASB). impact on the Group’s result and financial position. The Group The consolidated financial statements were approved by the is also assessing other new and revised standards which are not Board of Directors of Sonova Holding AG on May 9, 2017, and are mandatory until after 2017, notably: subject to approval by the Annual General Shareholders’ Meeting on June 13, 2017. IFRS 9 “Financial instrument”: The standard completes the guid- ance on recognition / derecognition of financial instruments. It The consolidated financial statements include Sonova Holding includes revised principles on classification and measurement AG as well as the domestic and foreign subsidiaries over which of financial instruments. The Group does not expect IFRS 9 to Sonova Holding AG exercises control. A list of the significant have a significant impact on its consolidated financial statements companies which are consolidated is given in Note 35. and will implement the new standard on April 1, 2018. The preparation of financial statements requires management to IFRS 15 “Revenues from Contracts with Customers”: The standard make estimates and assumptions that affect the amounts report- combines, enhances and replaces specific guidance on recogniz- ed as assets and liabilities and contingent assets and liabilities ing revenue with a single standard based on a five step approach. at the date of the financial statements as well as revenue and The Group is currently assessing the impact of adopting the stan- expenses reported for the financial year (refer also to Note 2.7, dard. A reliable estimation of the impact, however, is not pos- “Significant accounting judgments and estimates”). Actual results sible prior to the completion of the assessment. Implementation could differ from these estimates. of the standard is planned for April 1, 2018. IFRS 16 “Leasing”: The standard will replace IAS 17 and sets out new principles for recognition, measurement, presentation and disclosure of leases. The standard provides a single lessee ac- counting model, requiring lessees to recognize assets and lia- bilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The Group is currently assessing the impact of adopting the standard. A reliable estima- tion of the impact, however, is not possible prior to the comple- tion of the assessment. Implementation of the standard is planned for April 1, 2019. Sonova Annual Report 2016 / 17 93


  • Page 16

    CONSOLIDATED FINANCIAL STATEMENTS 2. 2 Principles of consolidation Monetary assets and liabilities of Group companies which are denominated in foreign currencies are translated using year-end Investments in subsidiaries exchange rates. Exchange differences are recorded as an income Investments in subsidiaries are fully consolidated. These are or expense. Non-monetary assets and liabilities are translated entities over which Sonova Holding AG directly or indirectly ex- at historical exchange rates. Exchange differences arising on in- ercises control. Control exists when the Group is exposed, or has tercompany loans that are considered part of the net investment rights, to variable returns from its relationship with an entity in a foreign entity are recorded in other comprehensive income and has the power to affect those returns. Control is presumed in equity. to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity un- When translating foreign currency financial statements into less, in exceptional circumstances, it can be clearly demonstrated Swiss francs, year-end exchange rates are applied to assets and that such ownership does not constitute control. For the con- liabilities, while average annual rates are applied to income solidated entities, 100 % of assets, liabilities, income, and ex- statement accounts (see Note 5). Translation differences arising penses are included. Non-controlling interests in equity and net from this process are recorded in other comprehensive income income or loss are shown separately in the balance sheet and in equity. On disposal of a Group company, the related cumula- income statement. Changes in the ownership interest of a sub- tive translation adjustment is transferred from equity to the in- sidiary that do not result in a loss of control will be accounted come statement. for as an equity transaction. Hence, neither goodwill nor any gains or losses will result. 2. 4 Accounting and Group Companies acquired during the year are included in the consolidation from the date on which control over the company valuation principles was transferred to the Group. Group companies divested during the year are excluded from the consolidation as of the date the Cash and cash equivalents Group ceases to have control over the company. Intercompany This item includes cash on hand and cash at banks, bank over- balances and transactions (including unrealized profit on inter- drafts, term deposits and other short-term highly liquid invest- company inventories) are eliminated in full. ments with original maturities of three months or less. The con- solidated cash flow statement summarizes the movements in cash Investments in associates and joint ventures and cash equivalents. Investments in associates and joint ventures are accounted for using the equity method of accounting. Investments in associates Other current financial assets are entities in which Sonova has a significant influence but does Other current financial assets consist of financial assets held for not exercise control (usually 20 % – 50 % of voting rights). Joint trading as well as short-term loans to third parties. Marketable ventures are joint arrangements whereby two or more parties securities within this category are classified as financial assets have rights to the net assets of the arrangement. at fair value through profit or loss (see Note 2.5). Derivatives are classified as held for trading unless they are designated as Under the equity method, the investment in an associate / joint hedges (see Note 2.6). venture is initially recognized at cost (including goodwill on ac- quisition) and the carrying amount is increased or decreased to Assets in this category are classified as current assets if they are recognize Sonova’s share of profit or loss of the associate / joint either held for trading or are expected to be realized within 12 venture after the acquisition date. When the Group’s share of months. losses in an associate / joint venture equals or exceeds its inter- est in the associate / joint venture, no further losses are recog- Trade receivables nized, unless there is a legal or constructive obligation. In order Trade receivables are recorded at original invoice amount less to apply the equity method the most recent available financial provisions made for doubtful accounts. A provision for doubtful statements of an associate / joint venture are used, however due accounts is recorded when there is objective evidence that the to practicability reasons the reporting dates might vary up to Group will not be able to collect all amounts due according to three months from the Group’s reporting date. the original terms of the invoice. The amount of the provision is the difference between the carrying amount and the recoverable amount, the latter being the present value of expected cash flows. 2. 3 Currency translation Inventories The consolidated financial statements are expressed in Swiss Purchased raw materials, components and finished goods are francs (“CHF”), which is the Group’s presentation currency. The valued at the lower of cost or net realizable value. To evaluate functional currency of each Group company is based on the local cost, the standard cost method is applied, which approximates economic environment to which an entity is exposed, which is historical cost determined on a first-in first-out basis. normally the local currency. Standard costs take into account normal levels of materials, sup- Transactions in foreign currencies are accounted for at the rates plies, labor, efficiency, and capacity utilization. Standard costs prevailing on the dates of the transactions. The resulting ex- are regularly reviewed and, if necessary, revised in the light of change differences are recorded in the local income statements current conditions. Net realizable value is the estimated selling of the Group companies and included in net income. price in the ordinary course of business less the estimated costs of completion (where applicable) and selling expenses. Manu- 94 Sonova Annual Report 2016 / 17


  • Page 17

    CONSOLIDATED FINANCIAL STATEMENTS factured finished goods and work-in-process are valued at the costs), total costs also include externally contracted development lower of production cost or net realizable value. Provisions are work. Such capitalized intangibles are recognized at cost less established for slow-moving, obsolete and phase-out inventory. accumulated amortization and impairment losses. Property, plant and equipment Business combinations and goodwill Property, plant and equipment is valued at purchase or manu- Business combinations are accounted for using the acquisition facturing cost less accumulated depreciation and any impairment method of accounting. The cost of a business combination is equal in value. Depreciation is calculated on a straight-line basis over to the fair values, at the date of exchange, of assets given, liabil- the expected useful lifetime of the individual assets or asset ities incurred or assumed, and equity instruments issued by the categories. Where an asset comprises several parts with differ- Sonova Group, in exchange for control over the acquired company. ent useful lifetimes, each part of the asset is depreciated sepa- Any difference between the cost of the business combination and rately over its applicable useful lifetime. The applicable useful the net fair value of the identifiable assets, liabilities, and con- lifetimes are 25 – 40 years for buildings and 3 – 10 years for pro- tingent liabilities so recognized is treated as goodwill. Goodwill duction facilities, machinery, equipment, and vehicles. Land is is not amortized, but is assessed for impairment annually, or not depreciated. Leasehold improvements are depreciated over more frequently if events or changes in circumstances indicate the shorter of useful life or lease term. that its value might be impaired. Acquisition-related costs are expensed. For each business combination, the Group recognizes Subsequent expenditure on an item of tangible assets is capital- the non-controlling interests in the acquiree at fair value or at ized at cost only when it is probable that future economic ben- the non-controlling interests proportionate share in the recog- efits associated with the item will flow to the Group and the cost nized amounts of the acquiree’s identifiable net assets. of the item can be measured reliably. Expenditure for repair and maintenance which do not increase the estimated useful lifetimes If a business combination is achieved in stages (control obtained of the related assets are recognized as an expense in the period over an associate), the previously held equity interest in an as- in which they are incurred. sociate is remeasured to its acquisition-date fair value and any resulting gain or loss is recognized in “financial income / ex- Leasing penses” in profit or loss. There are no assets that are held under leases which effectively transfer to the Group the risks and rewards of ownership (finance Other non-current financial assets leases). Therefore all leases are classified as operating leases, Other non-current financial assets consist of investments in third and payments are recognized as an expense on a straight-line parties and long-term receivables from associates and third par- basis over the lease term unless another systematic basis is more ties as well as rent deposits. Investments in third parties are representative of the time pattern of the Group’s benefit. classified as financial assets at fair value through profit or loss and long-term receivables from associates and third parties as Intangible assets well as rent deposits are classified as loans and receivables (see Purchased intangible assets such as software, licenses and pat- Note 2.5). ents are measured at cost less accumulated amortization (apply- ing the straight-line method) and any impairment in value. Soft- Financial liabilities ware is amortized over a useful lifetime of 3 – 5 years. Intangibles Current financial liabilities consist of short-term bank debt and relating to acquisitions of subsidiaries (excluding goodwill) con- all other interest bearing debt with a maturity of 12 months or sist generally of technology, client relationships, customer lists, less. Given the short-term nature of these debts they are recorded and brand names, and are amortized over a period of 3 – 20 years. at nominal value. In addition, current financial liabilities also Other intangible assets are generally amortized over a period of consist of financial liabilities resulting from contingent consid- 3 – 10 years. For capitalized development costs in the Cochlear erations as well as deferred payments (earn-out agreements) implants segment amortization starts when the capitalized asset from acquisitions with a maturity of 12 months or less. In the is ready for use, which is generally after receipt of approval from case of earn-outs, they are classified as financial liabilities at regulatory bodies. These assets are amortized over the estimated fair value through profit or loss. useful lifetime of 2 – 7 years applying the straight-line method. For in-process capitalized development costs these capitalized Derivative financial instruments are initially recognized in the costs are tested annually for impairment. Except for goodwill, balance sheet at fair value and are re-measured to their current the Sonova Group has no intangible assets with an indefinite fair value at the end of each subsequent reporting period. useful life. Bonds are initially measured at fair value including direct trans- Research and development action costs. In subsequent accounting periods, they are re-mea- Research costs are expensed as incurred. Development costs are sured at amortized costs applying the effective interest method. capitalized only if the identifiable asset is commercially and tech- nically feasible, can be completed, its costs can be measured Provisions reliably and will generate probable future economic benefits. Provisions are recognized when the Group has a present obliga- Group expenditures which fulfill these criteria are limited to the tion (legal or constructive) as a result of a past event, where it development of tooling and equipment as well as costs related is probable that an outflow of resources will be required to set- to the development of cochlear implants. All other development tle the obligation, and where a reliable estimate can be made of costs are expensed as incurred. In addition to the internal costs the amount of the obligation. If the effect of the time value of (direct personnel and other operating costs, depreciation on money is material, provisions are determined by discounting the research and development equipment and allocated occupancy expected future cash flows. Sonova Annual Report 2016 / 17 95


  • Page 18

    CONSOLIDATED FINANCIAL STATEMENTS The Group recognizes provisions for warranty costs to cover any Revenue from the sale of service is recognized when the service costs arising from the warranty given on its products sold (in- has been provided to the customer and where there are no con- cluding costs for legal proceedings and related costs). The provi- tinuing unfulfilled service obligations. Sales of service contracts, sion is calculated using historical and projected data on warranty such as long-term service contracts and extended warranties are rates, claim rates and amounts, service costs, remaining war- separated from the sale of goods and recognized on a straight- ranty period and number of hearing instruments and implants line basis over the term of the contract. on which the warranty is still active. Short-term portions of war- ranty provisions are reclassified to short-term provisions at each Interest income is recognized on a time proportion basis using reporting date. the effective interest method. Dividend income is recognized when the right to receive payment is established. Share capital Ordinary shares are classified as equity. Dividends on ordinary Acquisition-related amortization shares are recorded in equity in the period in which they are The Group is continuously amending its business portfolio with approved by the parent companies’ shareholders. acquisitions resulting in acquisition-related intangibles (see sec- tion “Intangible Assets”) and related amortization charges. The In case any of the Group Companies purchase shares of the par- Group discloses acquisition-related amortization as a separate ent company, the consideration paid is recognized as treasury line item in the income statement, and identifies EBITA as its key shares and presented as a deduction from equity. Any consider- profit metric for internal (refer to Note 6) as well as for external ation received from the sale of own shares is recognized in equity. reporting purposes. The functional allocation of these acquisi- tion-related amortization costs are further disclosed in Note 20 Income taxes “Intangible Assets” in the notes to the financial statements. Income taxes include current and deferred income taxes. The Group is subject to income taxes in numerous jurisdictions and Segment reporting significant judgment is required in determining the worldwide Operating segments are defined on the same basis as information provision for income taxes. The multitude of transactions and is provided to the chief operating decision maker. For the Sonova calculations implies estimates and assumptions. The Group rec- Group, the Chief Executive Officer (CEO) is the chief operating ognizes liabilities based on estimates of whether additional taxes decision maker, who is responsible for allocating resources and will be due. assessing the performance of operating segments. Additional general information regarding the factors used to identify the Where the final tax outcome is different from the amounts that entity’s reportable segments are disclosed in Note 6. were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such de- Impairment of non-financial assets termination is made. Deferred tax is recorded on the valuation The Group assesses at each reporting date whether there is any differences (temporary differences) between the tax bases of indication that an asset may be impaired. If any such indication assets and liabilities and their carrying values in the consolidated exists, the recoverable amount of the asset is estimated. The balance sheet. Deferred tax assets are recognized to the extent recoverable amount of an asset or, where it is not possible to that it is probable that future taxable income will be available estimate the recoverable amount of an individual asset, a cash- against which the temporary differences and tax losses can be generating unit is the higher of its fair value less cost of disposal offset. Deferred income tax liabilities are provided for on taxable and its value in use. Value in use is the present value of the future temporary differences arising from investments in subsidiaries, cash flows expected to be derived from an asset or cash-gener- except for deferred income tax liability where the timing of the ating unit. If the recoverable amount is lower than the carrying reversal of the temporary difference is controlled by the Group amount, an impairment loss is recognized. Impairments of finan- and it is probable that the temporary difference will not reverse cial assets are described in Note 2.5 “Financial assets”. For the in the foreseeable future. purpose of impairment testing, goodwill as well as corporate assets are allocated to cash generating units. A goodwill impair- Revenue recognition ment test is performed annually, even if there is no indication of Sales are recognized net of sales taxes and discounts when the impairment (see section “Business combinations and goodwill”). significant risk and rewards of ownership has been transferred to the buyer, mainly upon delivery of products and services and Related parties reasonably assured collectibility of the related receivables. A party is related to an entity if the party directly or indirectly controls, is controlled by, or is under common control with the For hearing instruments sold, probable returns of products are entity, has an interest in the entity that gives it significant influ- estimated and a corresponding provision is recognized. The por- ence over the entity, has joint control over the entity or is an tion of goods sold that are expected to be returned are estimated associate or a joint venture of the entity. In addition, members based on historical product return rates. of the Board of Directors and the Management Board or close members of their families are also considered related parties as For cochlear implants, sales are generally recognized upon de- well as post-employment plan organizations (pension funds) for livery to the buyer, mainly hospitals. For returns of products, the benefit of Sonova employees. No related party exercises con- accumulated experience is used to determine the respective pro- trol over the Group. vision. 96 Sonova Annual Report 2016 / 17


  • Page 19

    CONSOLIDATED FINANCIAL STATEMENTS Employee benefits 2. 5 Financial assets Pension obligations Most employees are covered by post-employment plans spon- The Group classifies its financial assets in the categories financial sored by corresponding Group companies in the Sonova Group. assets at fair value through profit or loss, loans and receivables. Such plans are mainly defined contribution plans (future benefits Management determines the classification of its investments at are determined by reference to the amount of contributions paid) initial recognition. All purchases and sales are recognized on the and are generally administered by autonomous pension funds settlement date. or independent insurance companies. These pension plans are financed through employer and employee contributions. The Financial assets at fair value through profit or loss Group’s contributions to defined contribution plans are charged Financial assets at fair value through profit or loss consist of to the income statement in the year to which they relate. cash-settled calls on Sonova shares as a hedge against obliga- tions from warrant appreciation rights (WARs) and share appre- The Group also has several defined benefit pension plans, both ciation rights (SARs) allocated to US employees participating in funded and unfunded. Accounting and reporting of these plans the Executive Equity Award Plan (EEAP) and certain minority are based on annual actuarial valuations. Defined benefit obliga- investments in hearing instrument related businesses. These tions and service costs are assessed using the projected unit financial assets are measured at their fair value. Those fair value credit method: the cost of providing pensions is charged to the changes are included in the profit or loss for the period in which income statement so as to spread the regular cost over the service they arise. lives of employees participating in these plans. The pension ob- ligation is measured as the present value of the estimated future Loans and receivables outflows using interest rates of government securities which have Loans and receivables are non-derivative financial assets with terms to maturity approximating the terms of the related liability. fixed or determinable payments that are not quoted in an active Service costs from defined benefit plans are charged to the ap- market. They arise when the Group provides money, goods or propriate income statement heading within the operating results. services, directly to a debtor with no intention of trading the receivable. They are included in current assets, except for matu- A single net interest component is calculated by applying the rities of more than 12 months, these are classified as non-current discount rate to the net defined benefit asset or liability. The net assets. Loans are measured at amortized cost. Amortized cost is interest component is recognized in the income statement in the the amount at which the financial asset is measured at initial financial result. recognition minus principal repayments, plus or minus the cu- mulative amortization using the effective interest method of any Actuarial gains and losses, resulting from changes in actuar ial difference between the initial amount and the maturity amount, assumptions and differences between assumptions and actual minus any reduction for impairment or uncollectibility. The ef- experiences, are recognized in the period in which they occur in fective interest method is a method calculating the amortized “Other comprehensive income” in equity. cost of a financial asset and allocating the interest income over the relevant period. The effective interest rate is the rate that Other long-term benefits exactly discounts estimated future cash payments or receipts Other long-term benefits mainly comprise length of service com- through the expected lifetime of the financial instrument or, when pensation benefits in certain Group companies. These benefits appropriate, a shorter period to the net carrying amount of the are accrued and the corresponding liabilities are included under financial asset. “Other provisions”. Impairment of financial assets Equity compensation benefits A financial asset is impaired if its carrying amount is greater than The Board of Directors of Sonova Holding AG, the Management its estimated recoverable amount. The Group assesses, at each Board, and certain management and senior employees of other balance sheet date, whether there is any objective evidence that Group companies participate in equity compensation plans. The a financial asset may be impaired. If any such evidence exists, fair value of all equity compensation awards granted to employ- the Group estimates the recoverable amount of that asset and ees is determined at the grant date and recorded as an expense recognizes any impairment loss in the income statement. If, in a over the vesting period (for details refer to Note 31). The expense subsequent period, the amount of the impairment loss decreases for equity compensation awards is charged to the appropriate and the decrease can be objectively related to an event occurring income statement heading within the operating result and an after the write-down, the write-down of the financial asset is equivalent increase in equity (for equity-settled compensation) reversed. The reversal will not result in a carrying amount of the or financial liability (for cash-settled compensation) is recorded. financial asset that exceeds what the amortized cost would have In the case of cash-settled compensation, until the liability is been, had the impairment not been recognized, at the date the settled it is revalued at each reporting date, recognizing changes write-down of the financial asset is reversed. The amount of the in the fair value in the income statement. reversal is included in profit or loss for the financial year. Sonova Annual Report 2016 / 17 97


  • Page 20

    CONSOLIDATED FINANCIAL STATEMENTS 2. 6 Derivative financial Cost of business combinations A business combination agreement may provide for an adjustment instruments and hedging to the cost of the combination contingent on future events. If the future events do not occur or the estimate needs to be revised, The Group regularly hedges its net exposure from foreign the cost of a business combination is revised accordingly, with currency balance sheet positions with forward contracts and a resulting change in the carrying value of goodwill (for business options. Such contracts are not qualified as cash flow hedges and combinations entered into before April 1, 2010) or in the income are therefore not accounted for using hedge accounting. Gains statement (for business combinations entered into after April 1, and losses on these transactions are recognized directly in the 2010). At the end of the 2016 / 17 financial year, such liabilities income statement. contingent on future events amount to CHF 10.6 million (previous year CHF 13.9 million) and are disclosed under other provisions (for business combinations entered into before April 1, 2010) or 2. 7 Significant accounting other financial liabilities (for business combinations entered into after April 1, 2010). judgments and estimates Intangible assets, including goodwill Key management judgments made in applying The Group has intangible assets with a carrying value of accounting policies CHF 2,323.1 million (previous year CHF 1,349.6 million) as dis- In the process of applying the Group’s accounting policies, man- closed in Note 20. agement may be required to make judgments, apart from those involving estimates, which have an effect on the amounts recog- Included in the intangible assets is goodwill amounting to CHF nized in the financial statements. 1,815.2 million (previous year CHF 1,069.5 million). These include, but are not limited to, the following areas: Furthermore intangible assets also include capitalized develop- ment costs in the amount of CHF 100.6 million (previous year Capitalization of development costs CHF 113.8 million). The capitalized development cost are re- As outlined under 2.4 “Accounting and valuation principles” the viewed on a regular basis as a matter of a standard systematic Group capitalizes costs relating to the development of cochlear procedure. Due to the revision of the Cochlear implants product implants. In determining the commercial as well as the technical roadmap in the 2016 / 17 financial year, Sonova has identified the feasibility, management judgment may be required. In the cur- need of valuation adjustments on certain R&D projects. As a re- rent financial year the group impaired development costs in the sult, an impairment of previously capitalized development costs amount of CHF 35.6 million (disclosed in the annual income state- was recorded, resulting in a loss amounting to CHF 35.6 million. ment in the line “Other income / (expenses), net”). The amount is included in the income statement in the line “other income / (expense), net”. Business combinations In the course of recognizing assets and liabilities from business The Group determines annually, in accordance with the account- combinations, management judgments might be required for the ing policy stated in Note 2.4, whether any of the assets are following areas: impaired. For the impairment tests, estimates are made of the expected future cash flows from the use of the asset or cash- • Acquisition-related intangibles resulting from technology, generating unit. The actual cash flows could vary significantly customer relationships, client lists or brand names. from these estimates. • Contingent consideration arrangements. Deferred tax assets Key accounting estimates and assumptions The consolidated balance sheet includes deferred tax assets of Preparation of financial statements in conformity with IFRS re- CHF 130.0 million (previous year CHF 108.4 million) related to quires management to make estimates and assumptions that af- deductible differences and, in certain cases, tax loss carry- fect the reported amounts of assets, liabilities, revenue, ex- forwards, provided that their utilization appears probable. The penses, and related disclosures. This includes estimates and recoverable value is based on forecasts of the corresponding assumptions in the ordinary course of business as well as non- taxable Group company over a period of several years. As actual operating events such as the outcome of pending legal disputes. results may differ from these forecasts, the deferred tax assets The estimates and assumptions are continuously evaluated and may need to be adjusted accordingly. are based on experience and other factors, including expecta- tions of future events that are believed to be reasonable. Actual results may differ from these estimates and assumptions. The main estimates and assumptions with the potential of causing an adjustment, are discussed below. 98 Sonova Annual Report 2016 / 17


  • Page 21

    CONSOLIDATED FINANCIAL STATEMENTS Employee benefit plans 3. Changes in Group structure The Sonova Group has various employee benefit plans. Most of its salaried employees are covered by these plans, of which some In the 2016 / 17 and 2015 / 16 financial years, the Group entered are defined benefit plans. The present value of the defined ben- into several business combinations. The companies acquired / efit obligations at the end of the 2016 / 17 financial period divested are in the business of producing and distributing hear- amounts to CHF 356.5 million (previous year CHF 361.1 million) ing instruments. as disclosed in Note 30. This includes CHF 353.3 million (previ- ous year CHF 356.4 million) from the Swiss pension plan. With On September 14, 2016 Sonova Holding AG completed the ac- such plans, actuarial assumptions are made for the purpose of quisition of AudioNova International B.V., a Rotterdam (Nether- estimating future developments, including estimates and as- lands) based hearing aid retailer, following regulatory approvals. sumptions relating to discount rates, and future wage as well as The company is one of Europe’s leading hearing aid retailers and pension trends. Actuaries also use statistical data such as mor- service providers. AudioNova employs around 2,750 staff (includ- tality tables and staff turnover rates with a view to determining ing 1,600 acousticians) across eight countries. In the calendar employee benefit obligations. If these factors change due to a year 2015 sales were approx. EUR 360 million (CHF 395 million). change in economic or market conditions, the subsequent results could deviate considerably from the actuarial reports and calcu- On April 16, 2015, Sonova Holding AG announced that it has lations. In the medium term such deviations could have an impact completed the acquisition of Hansaton Akustik GmbH, a Hamburg on the equity. The carrying amounts of the plan assets and lia- (Germany) based wholesale hearing aid company, following reg- bilities in the balance sheet together with a sensitivity analysis ulatory approvals. The company develops and manufactures considering changes for the main input parameters in the actu- hearing aids and employs around 200 staff in Germany, France arial valuation are set out in Note 30. and the US. In calendar year 2014 sales were EUR 42 million (CHF 44 million). Provisions for warranty and returns On March 31, 2017, the Group recorded provisions for warranty On January 16, 2017, Sonova Holding AG announced that Sonova and returns of CHF 117.5 million (previous year CHF 96.3 million) is engaged in negotiations regarding a potential sale of Audio- as disclosed in Note 21. Nova retail business in France. In February 2017 all necessary regulatory approvals were obtained and the transaction has been The calculation of these provisions is based on turnover, past closed on March 1, 2017. Furthermore on January 16, 2017 experience and projected number and cost of warranty claims Sonova also announced that it has signed an agreement to sell and returns. The actual costs for warranty, claims, and returns its MiniSom retail business in Portugal. In March 2017 all neces- may differ from these estimates. sary regulatory approval were obtained and the transaction will be closed on April 1, 2017. Further in the reporting period the Provision for product liabilities Group divested a minor Group company in the Americas region. The Sonova Group accounts consider a provision for product li- These three transactions have no material impact on the financial abilities related to products affected by a voluntary cochlear statements. implant product recall of Advanced Bionics LLC in 2006. The effect of the acquisitions and divestments for the 2016 / 17 The provision for product liabilities is reassessed on a regular and 2015 / 16 financial years is disclosed in Note 28. and systematic basis. The provision is estimated based on a fi- nancial model. Generally the model used to calculate the provi- sion for the end of the 2016 / 17 financial year is consistent to the prior year, except for a change in the claim rates and cost per case used to calculate the provision. Due to more available his- torical data about the claims and cost per case to date, these factors are now based on historical averages and no longer based on expert estimation. In the 2016 / 17 financial year, improve- ments in the expected number and cost of current and future claims led to a reversal of CHF 37.4 million which is contributing to the profit of 2016 / 17 in the same amount (disclosed in the annual income statement in the line “Other income / (expenses), net”). In the previous year the positive effect in the income state- ment amounted to CHF 8.8 million. On March 31, 2017, the provision for the before mentioned co- chlear implant product liabilities was CHF 132.5 million (previous year CHF 166.4 million). The calculation of this provision is based on past experience regarding the number and cost of current and future claims. As actual results may differ from these forecasts, the respective provision may need to be adjusted accordingly. Sonova Annual Report 2016 / 17 99


  • Page 22

    CONSOLIDATED FINANCIAL STATEMENTS 4. Number of employees On March 31, 2017, the Sonova Group employed the full time equivalent of 14,089 people (previ- ous year 10,894). They were engaged in the following regions and activities: By region 31.3.2017 31.3.2016 Switzerland 1,178 1,200 EMEA (excl. Switzerland) 6,399 3,452 Americas 3,538 3,622 Asia / Pacific 2,974 2,620 Total 14,089 10,894 By activity Research and development 742 697 Operations 4,369 4,033 Sales and marketing, general and administration 8,978 6,164 Total 14,089 10,894 The average number of employees (full time equivalents) of the Sonova Group for the year was 12,802 (previous year 10,697). Total personnel expenses for the 2016 / 17 financial year amounted to CHF 861.3 million (previous year CHF 746.3 million). 5. Exchange rates The following main exchange rates were used for currency translation: 31.3.2017 31.3.2016 2016 / 17 2015 / 16 Year-end Average rates rates for the year AUD 1 0.77 0.74 0.74 0.72 BRL 1 0.32 0.27 0.30 0.27 CAD 1 0.75 0.74 0.75 0.74 CNY 1 0.15 0.15 0.15 0.15 EUR 1 1.07 1.09 1.08 1.07 GBP 1 1.25 1.38 1.29 1.47 JPY 100 0.90 0.86 0.91 0.81 USD 1 1.00 0.96 0.99 0.97 100 Sonova Annual Report 2016 / 17


  • Page 23

    CONSOLIDATED FINANCIAL STATEMENTS 6. Segment information Segment information by business segments Since the acquisition of Advanced Bionics as of December 30, 2009, the Group is active in the two business segments cochlear implants and hearing instruments, which are reported separately to the Group’s chief operating decision maker (i.e. Chief Executive Officer). The financial information that is provided to the Group’s chief operating decision maker, which is used to allocate resources and to assess the performance, is primarily based on the sales analysis as well as the consolidated income statements and other key financial metrics for the two segments. Hearing instruments: This operating segment includes the companies that are active in the design, development, manufacture, distribution and service of hearing instruments and related products. Research and development is centralized in Switzerland while some activities are also performed in Canada and Sweden. Production of hearing instruments is concentrated in three production centers in Switzerland, China, and Vietnam. Technologically advanced production processes are performed in Switzerland, whereas standard assembly of products is conducted in Asia. Most of the marketing activities are steered by the brand marketing departments in Switzerland, Canada, the United States and Sweden. The execution of marketing campaigns lies with the sales organiza- tions in each market. The distribution of products is effected through sales organizations in the individual markets. The distribution channels of the Group in the individual markets vary depend- ing on the sales strategy and the characteristics of the countries. The distribution channels of the Group in the individual markets vary depending on the sales strategy and the characteristics of the countries. The distribution channels can broadly be split into a retail business where Sonova operates its own store network and sells directly to end consumers and a hearing instruments business, reflecting the wholesale sales to independent audiologists, 3rd party retail chains, mul- tinational and government customers. Cochlear implants: This operating segment includes the companies that are active in the design, development, manufacture, distribution and service of hearing implants and related products. The segment consists of Advanced Bionics and the related sales organizations, which were acquired as of December 30, 2009 and which provide cochlear implant systems. In addition, since the ac- quisition the Group set up further sales organizations. Research and development as well as mar- keting activities of Advanced Bionics are predominantly centralized in the United States and Switzerland while production resides in the United States. The distribution of products is effected through sales organizations in the individual markets. 1,000 CHF 2016 / 17 2015 / 16 2016 / 17 2015 / 16 2016 / 17 2015 / 16 2016 / 17 2015 / 16 Hearing Cochlear Corporate / Total instruments implants Eliminations Segment sales 2,191,985 1,887,211 207,244 187,267 2,399,229 2,074,478 Intersegment sales (1,688) (2,243) (1,891) (305) (3,579) (2,548) Sales 2,190,297 1,884,968 205,353 186,962 2,395,650 2,071,930 Operating profit before acquisition-related amortization (EBITA) 454,993 430,753 8,005 (121) 462,998 430,632 Depreciation, amortization and impairment (92,767) (70,901) (54,637) (17,842) (147,404) (88,743) Segment assets 3,552,007 2,423,715 588,382 582,286 (720,668) (689,297) 3,419,721 2,316,704 Unallocated assets1) 515,959 434,907 Total assets 3,935,680 2,751,611 1) Unallocated assets include cash and cash equivalents, other current financial assets (excluding loans), investments in associates / joint ventures, employee benefit assets and deferred tax assets. Sonova Annual Report 2016 / 17 101


  • Page 24

    CONSOLIDATED FINANCIAL STATEMENTS Reconciliation of reportable segment profit 1,000 CHF 2016 / 17 2015 / 16 EBITA 462,998 430,632 Acquisition-related amortization (39,321) (27,195) Financial costs, net (6,205) (7,951) Share of (loss) / gain in associates / joint ventures, net (143) 1,574 Income before taxes 417,329 397,060 Entity-wide disclosures Sales by product groups 1,000 CHF 2016 / 17 2015 / 16 Premium hearing instruments 604,506 512,796 Advanced hearing instruments 464,710 403,356 Standard hearing instruments 713,864 599,814 Wireless communication systems 106,684 90,510 Miscellaneous 300,533 278,492 Total hearing instruments segment 2,190,297 1,884,968 Cochlear implant systems 159,971 141,647 Upgrades and accessories 45,382 45,315 Total cochlear implants segment 205,353 186,962 Total sales 2,395,650 2,071,930 Sales by business – hearing instruments segment 1,000 CHF 2016 / 17 2015 / 16 Hearing instruments business 1,311,207 1,266,240 Retail business 879,090 618,728 Total hearing instruments segment 2,190,297 1,884,968 Sales and selected non-current assets by regions 1,000 CHF 2016 / 17 2015 / 16 2016 / 17 2015 / 16 Country / region Sales1) Selected non-current assets2) Switzerland 26,837 24,883 241,460 263,910 EMEA (excl. Switzerland) 1,135,362 858,087 1,461,948 462,191 USA 787,324 767,631 700,766 682,090 Americas (excl. USA) 210,888 197,144 130,749 123,856 Asia / Pacific 235,239 224,185 109,967 94,726 Total Group 2,395,650 2,071,930 2,644,890 1,626,773 1) Sales based on location of customers. 2) Total of property, plant & equipment, intangible assets and investments in associates / joint ventures. As common in this industry, the Sonova Group has a large number of customers. There is no single customer who accounts for more than 10 % of total sales. 102 Sonova Annual Report 2016 / 17


  • Page 25

    CONSOLIDATED FINANCIAL STATEMENTS 7. Other income / expenses, net “Other income / expenses, net” in the 2016 / 17 financial year amounts to CHF 6.3 million (previous year CHF 17.9 million). The regular and systematic assessment of the provision for product liabil- ities led to a release of CHF 37.4 million (previous year CHF 8.8 million). Further there was an impairment of previously capitalized development costs of CHF 35.6 million. For further informa- tion refer to Note 2.7 “Provision for product liabilities”, Note 20 “Intangible assets” and Note 21 “Provisions”. In addition the divestment of the AudioNova retail business in France together with a smaller divestment in the Americas region led to a gain of CHF 3.8 million (previous year other income from divestment CHF 8.7 million). For further information refer to Note 28. 8. Financial income / expenses, net 1,000 CHF 2016 / 17 2015 / 16 Interest income 3,797 2,007 Other financial income 3,596 2,291 Total financial income 7,393 4,298 Interest expenses (1,728) (1,475) Other financial expenses (11,870) (10,774) Total financial expenses (13,598) (12,249) Total financial income / expenses, net (6,205) (7,951) Other financial expenses in 2016 / 17 and 2015 / 16 include, amongst other items, the unwinding of the discount on provisions, contingent considerations and deferred payments, fair value adjust- ments of financial instruments as well as the costs for entering into forward foreign currency contracts. 9. Taxes 1,000 CHF 2016 / 17 2015 / 16 Income taxes 49,235 37,920 Change in deferred taxes 11,918 13,293 Total tax expense 61,153 51,213 Reconciliation of tax expense Income before taxes 417,329 397,060 Group’s expected average tax rate 15.5 % 13.7 % Tax at expected average rate 64,887 54,384 + / – Effects of Expenses not subject to tax, net 3,564 1,106 Changes of unrecognized loss carryforwards / deferred tax assets (3,785) 10,131 Local actual tax rate different to Group’s expected average tax rate (12,759) (23,183) Change in tax rates on deferred tax balances 7,808 7,441 Prior year adjustments and other items, net 1,438 1,334 Total tax expense 61,153 51,213 Weighted average effective tax rate 14.7 % 12.9 % The Group’s expected average tax rate is the aggregate obtained by applying the expected tax rate for each individual jurisdiction to its respective result before taxes. Sonova Annual Report 2016 / 17 103


  • Page 26

    CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets and (liabilities) 1,000 CHF 31.3.2017 Property, plant Intangible Inventories, Tax loss Total & equipment assets receivables, carryforwards provisions and other liabilities Balance April 1 (6,168) (25,570) 27,295 66,877 62,434 Changes through business combinations (612) (78,784) 8,294 9,662 (61,440) Deferred taxes recognized in the income statement (356) 3,238 (4,414) (10,386) (11,918) Deferred taxes recognized in OCI1) 5,539 5,539 Exchange differences 42 1,389 (1,399) (1,484) (1,452) Balance March 31 (7,094) (99,727) 35,315 64,669 (6,837) Amounts in the balance sheet Deferred tax assets 129,984 Deferred tax liabilities (136,821) Total deferred taxes, net (6,837) 1) Other comprehensive income. Deferred tax assets and (liabilities) 1,000 CHF 31.3.2016 Property, plant Intangible Inventories, Tax loss Total & equipment assets receivables, carryforwards provisions and other liabilities Balance April 1 (5,907) (16,106) 28,532 71,907 78,426 Changes through business combinations (7,165) (7,165) Deferred taxes recognized in the income statement 34 (1,479) (3,288) (8,560) (13,293) Deferred taxes recognized in OCI1) 893 893 Exchange differences (295) (820) 1,158 3,530 3,573 Balance March 31 (6,168) (25,570) 27,295 66,877 62,434 Amounts in the balance sheet Deferred tax assets 108,366 Deferred tax liabilities (45,932) Total deferred taxes, net 62,434 1) Other comprehensive income. Deferred tax assets have been capitalized based on the projected future performance of the Group companies. The gross values of unused tax loss carryforwards, which have not been capitalized as deferred tax assets, with their expiry dates are as follows: 1,000 CHF 31.3.2017 31.3.2016 Within 1 – 3 years 60,213 61,202 Within 4 years 39,851 11,009 Within 5 years 17,585 42,182 More than 5 years 416,462 386,436 Total 534,111 500,829 104 Sonova Annual Report 2016 / 17


  • Page 27

    CONSOLIDATED FINANCIAL STATEMENTS Tax loss carryforwards which have not been capitalized also include pre-acquisition tax losses with limitation of use and losses which do not qualify for capitalization. The inherent uncertainty regarding the level and use of such tax losses, and changes in tax regulations and laws can impact the annual assessment of these unused tax loss carryforwards. 10. Earnings per share Basic earnings per share are calculated by dividing the income after taxes attributable to the ordi- nary equity holders of the parent company by the weighted average number of shares outstanding during the year. Basic earnings per share 2016 / 17 2015 / 16 Income after taxes (1,000 CHF) 349,172 337,026 Weighted average number of outstanding shares 65,321,391 65,946,732 Basic earnings per share (CHF) 5.35 5.11 In the case of diluted earnings per share, the weighted average number of shares outstanding is adjusted assuming all outstanding dilutive options will be exercised. The weighted average number of shares is adjusted for all dilutive options issued under the stock option plans which have been granted in 2012 through to 2017 and which have not yet been exercised. Anti-dilutive options have not been considered. The calculation of diluted earnings per share is based on the same income after taxes for the period as is used in calculating basic earnings per share. Diluted earnings per share 2016 / 17 2015 / 16 Income after taxes (1,000 CHF) 349,172 337,026 Weighted average number of outstanding shares 65,321,391 65,946,732 Adjustment for dilutive share options 91,619 100,524 Adjusted weighted average number of outstanding shares 65,413,010 66,047,255 Diluted earnings per share (CHF) 5.34 5.10 11. Dividend per share The Board of Directors of Sonova Holding AG proposes to the Annual General Shareholders’ Meet- ing, to be held on June 13, 2017, that a dividend of CHF 2.30 shall be distributed (previous year CHF 2.10). 12. Cash and cash equivalents 1,000 CHF 31.3.2017 31.3.2016 Cash on hand 1,129 714 Current bank accounts 289,819 276,962 Term deposits 83,556 39,590 Total 374,504 317,266 Bank accounts and term deposits are mainly denominated in CHF, EUR and USD. For details of the movements in cash and cash equivalents refer to the consolidated cash flow statements. Sonova Annual Report 2016 / 17 105


  • Page 28

    CONSOLIDATED FINANCIAL STATEMENTS 13. Other current financial assets 1,000 CHF 31.3.2017 31.3.2016 Marketable securities 358 1,918 Positive replacement value of forward foreign exchange contracts 819 810 Loans to third parties 2,987 4,020 Total 4,164 6,748 14. Trade receivables 1,000 CHF 31.3.2017 31.3.2016 Trade receivables 439,453 376,838 Provision for doubtful receivables (26,078) (22,166) Total 413,375 354,672 As is common in this industry, the Sonova Group has a large number of customers. There is no significant concentration of credit risk. The aging of trade receivables and related provisions is as follows: 1,000 CHF 31.3.2017 31.3.2016 Total trade receivables, net 413,375 354,672 of which: Not overdue 302,406 255,086 Overdue 1 – 30 days 54,547 46,517 Overdue more than 30 days 56,422 53,069 Total 413,375 354,672 Provision for doubtful receivables is established based on individual adjustments and past expe- rience. The charges to the income statement are included in general and administration costs. The following table summarizes the movements in the provision for doubtful receivables: 1,000 CHF 2016 / 17 2015 / 16 Provision for doubtful receivables, April 1 (22,166) (22,755) Changes through business combinations (3,039) (2,023) Utilization or reversal 9,299 10,488 Additions (10,661) (8,308) Disposal 979 255 Exchange differences (490) 177 Provision for doubtful receivables, March 31 (26,078) (22,166) During 2016 / 17 the Group has utilized CHF 7.3 million (previous year CHF 5.7 million) of this pro- vision to write-off receivables. 106 Sonova Annual Report 2016 / 17


  • Page 29

    CONSOLIDATED FINANCIAL STATEMENTS The carrying amounts of trade receivables are denominated in the following currencies: 1,000 CHF 31.3.2017 31.3.2016 BRL 22,155 22,350 CAD 24,546 22,502 CHF 13,625 13,201 EUR 139,628 103,237 GBP 12,859 13,962 USD 134,033 116,904 Other 66,529 62,516 Total trade receivables, net 413,375 354,672 15. Other receivables and prepaid expenses 1,000 CHF 31.3.2017 31.3.2016 Other receivables 65,240 50,590 Prepaid expenses 21,088 19,020 Total 86,328 69,610 The largest individual items included in other receivables are recoverable value added taxes and deposits. Prepaid expenses mainly consist of advances to suppliers. 16. Inventories 1,000 CHF 31.3.2017 31.3.2016 Raw materials and components 40,905 46,381 Work-in-process 93,891 96,090 Finished products 156,871 129,218 Allowances (36,012) (31,238) Total 255,655 240,451 Allowances include value adjustments for slow moving, phase out and obsolete stock. In 2016 / 17, CHF 639.2 million (previous year CHF 594.5 million) were recognized as an expense and included in “cost of sales”. Sonova Annual Report 2016 / 17 107


  • Page 30

    CONSOLIDATED FINANCIAL STATEMENTS 17. Property, plant and equipment 1,000 CHF 31.3.2017 Land & Machinery & Room Advance Total buildings technical installations payments & equipment & other assets under equipment construction Cost Balance April 1 177,323 236,953 182,728 7,835 604,839 Changes through business combinations 10,650 25,726 122,691 2,069 161,136 Additions 7,509 22,782 22,585 3,059 55,935 Disposals (311) (13,449) (15,225) (28,985) Transfers 4,572 2,972 (7,544) Exchange differences (132) 678 (2,411) 14 (1,851) Balance March 31 195,039 277,262 313,340 5,433 791,074 Accumulated depreciation Balance April 1 (60,095) (171,618) (105,256) (336,969) Changes through business combinations (3,623) (20,166) (90,685) (114,474) Additions (5,673) (24,033) (26,436) (56,142) Disposals 233 12,897 12,510 25,640 Transfers 402 (402) Exchange differences (43) (572) 1,807 1,192 Balance March 31 (69,201) (203,090) (208,462) (480,753) Net book value Balance April 1 117,228 65,335 77,472 7,835 267,870 Balance March 31 125,838 74,172 104,878 5,433 310,321 1,000 CHF 31.3.2016 Land & Machinery & Room Advance Total buildings technical installations payments & equipment & other assets under equipment construction Cost Balance April 1 169,130 224,000 167,009 14,598 574,737 Changes through business combinations 497 1,647 2,989 20 5,153 Additions 910 15,936 20,096 10,045 46,987 Disposals (142) (8,809) (11,637) (61) (20,649) Transfers 7,225 5,506 3,793 (16,524) Exchange differences (297) (1,327) 478 (243) (1,389) Balance March 31 177,323 236,953 182,728 7,835 604,839 Accumulated depreciation Balance April 1 (55,027) (157,886) (91,836) (304,749) Additions (5,261) (22,260) (19,982) (47,503) Disposals 140 7,609 6,722 14,471 Exchange differences 53 919 (160) 812 Balance March 31 (60,095) (171,618) (105,256) (336,969) Net book value Balance April 1 114,103 66,114 75,173 14,598 269,988 Balance March 31 117,228 65,335 77,472 7,835 267,870 108 Sonova Annual Report 2016 / 17


  • Page 31

    CONSOLIDATED FINANCIAL STATEMENTS Pledged fixed assets amounted to CHF 0.1 million (previous year CHF 0.03 million). There are no assets held under finance leases. 18. Investments in associates / joint ventures The Group’s share in the results as well as in assets and liabilities of associates / joint ventures, all unlisted enterprises, is as follows: 1,000 CHF 2016 / 17 2015 / 16 Current assets 919 442 Non-current assets 1,518 1,096 Total assets 2,437 1,538 Current liabilities (394) (278) Non-current liabilities (32) Total liabilities (394) (310) Net assets 2,043 1,228 Income for the year 2,170 2,847 Expenses for the year (2,313) (1,273) Profit for the year (143) 1,574 Net book value at year-end 11,471 9,275 Share of (loss) / gain recognized by the Group (143) 1,574 In the 2016 / 17 financial year, the Group acquired three and divested one associate, being all in the business of selling hearing instruments. The total purchase consideration for the associates acquired amounted to CHF 1.6 million. In the 2015 / 16 financial year, there have been no changes in the number of associates / joint ventures. Sales to associates / joint ventures in the 2016 / 17 financial year amounted to CHF 7.3 million (previous year CHF 7.5 million). At March 31, 2017, trade receivables towards associates / joint ventures amounted to CHF 2.2 million (previous year CHF 1.8 million). At the end of the 2016 / 17 and 2015 / 16 financial years, no unrecognized losses existed. Investments with a net book value of CHF 11.5 million (previous year CHF 9.3 million) have a busi- ness year different than the Sonova Group. The latest available information for the respective companies are as per December 2016. Sonova Annual Report 2016 / 17 109


  • Page 32

    CONSOLIDATED FINANCIAL STATEMENTS 19. Other non-current financial assets 1,000 CHF 31.3.2017 31.3.2016 Financial assets at fair value through profit or loss 3,190 7,442 Loans to associates 7,855 8,102 Loans to third parties 7,722 4,171 Rent deposits 1,598 255 Total 20,365 19,970 Financial assets at fair value through profit or loss mainly consist of minority interests in patent and software development companies specific to the hearing aid industry. Besides these non- controlling investments, financial assets at fair value through profit or loss also consists of war- rants to hedge the financial exposure in connection with the employee share option program (refer to Note 31). The loans are primarily denominated in CAD, EUR, GBP, USD and ZAR. Loans to third parties con- sist mainly of loans to customers. As of March 31, 2017, the respective repayment periods vary between one and eight years and the interest rates vary generally between 3 % and 5 %. The valu- ation of the loans approximates to fair value. 20. Intangible assets 1,000 CHF 31.3.2017 Goodwill Intangibles Capitalized Software Total relating to development and other acquisitions1) costs intangibles Cost Balance April 1 1,217,979 303,894 138,217 67,356 1,727,446 Changes through business combinations 753,856 315,541 12,673 1,082,070 Additions 32,369 8,816 41,185 Disposals (4,302) (6,099) (35,569) (974) (46,944) Exchange differences 1,685 (6,375) 66 (389) (5,013) Balance March 31 1,969,218 606,961 135,083 87,482 2,798,744 Accumulated amortization and impairments Balance April 1 (148,518) (158,834) (24,420) (46,046) (377,818) Changes through business combinations (26,556) (10,790) (37,346) Additions (39,321)2) (10,069) (6,303) (55,693) Disposals 437 35,569 958 36,964 Impairment (35,569) (35,569) Exchange differences (5,544) (658) 7 (6,195) Balance March 31 (154,062) (224,932) (34,489) (62,174) (475,657) Net book value Balance April 1 1,069,461 145,060 113,797 21,310 1,349,628 Balance March 31 1,815,156 382,029 100,594 25,308 2,323,087 1) Intangibles relating to acquisitions include primarily customer relationships, trademarks, in process R & D and technology. 2) Relates to research and development (CHF 5.1 million) and sales and marketing (CHF 34.2 million). 110 Sonova Annual Report 2016 / 17


  • Page 33

    CONSOLIDATED FINANCIAL STATEMENTS 1,000 CHF 31.3.2016 Goodwill Intangibles Capitalized Software Total relating to development and other acquisitions1) costs intangibles Cost Balance April 1 1,121,654 271,267 112,325 63,519 1,568,765 Changes through business combinations 106,531 38,072 895 145,498 Additions 26,366 9,698 36,064 Disposals (7,389) (6,028) (430) (6,940) (20,787) Exchange differences (2,817) 583 (44) 184 (2,094) Balance March 31 1,217,979 303,894 138,217 67,356 1,727,446 Accumulated amortization and impairments Balance April 1 (150,151) (136,029) (16,010) (46,977) (349,167) Additions (27,195)2) (8,410) (5,635) (41,240) Disposals 3,683 6,643 10,326 Exchange differences 1,633 707 (77) 2,263 Balance March 31 (148,518) (158,834) (24,420) (46,046) (377,818) Net book value Balance April 1 971,503 135,238 96,315 16,542 1,219,598 Balance March 31 1,069,461 145,060 113,797 21,310 1,349,628 1) Intangibles relating to acquisitions include primarily customer relationships, trademarks, in process R&D and technology. 2) Relates to research and development (CHF 4.4 million) and sales and marketing (CHF 22.8 million). For the purpose of impairment testing, goodwill is allocated to the cash-generating unit, which is expected to benefit from the synergies of the corresponding business combination. For the Group, a meaningful goodwill allocation can only be done at the level of the segments, hearing instruments and cochlear implants. This also reflects the level that the goodwill is moni- tored by management. For both of the two cash-generating units, the recoverable amount (higher of the cash-generating unit’s fair value less cost of disposal and the cash-generating units value in use) is compared to the carrying amount. Future cash flows are discounted with the Weighted Average Cost of Capital (WACC) including the application of the Capital Asset Pricing Model (CAPM). Value in use is nor- mally assumed to be higher than the fair value less cost of disposal. Therefore, fair value less cost of disposal is only investigated when value in use is lower than the carrying amount of the cash- generating unit. Based on the impairment tests performed, there was no need for the recognition of any impairment of goodwill for the 2016 / 17 and 2015 / 16 financial years. Hearing instruments As of March 31, 2017, the carrying amount of the goodwill, expressed in various currencies, amounted to an equivalent of CHF 1,492.7 million (prior year CHF 758.6 million). The cash flow projections were based on the most recent business plan approved by management. The business plan for the hearing instruments business was projected over a five year period. Cash flows beyond the projection period were extrapolated with a long-term growth rate of 2.0 % (prior year 2.1 %) representing the projected inflation rate. For the calculation, a pre-tax weighted aver- age discount rate of 9.2 % (prior year 9.9 %) was used. An increase in the discount rate of 1 % would not result in an impairment of goodwill. Sonova Annual Report 2016 / 17 111


  • Page 34

    CONSOLIDATED FINANCIAL STATEMENTS Cochlear implants As of March 31, 2017, the carrying amount of the goodwill, expressed in various currencies, amounted to an equivalent of CHF 322.5 million (prior year CHF 310.9 million). The cash flow projections were based on the most recent business plan approved by management. The business plan for the Cochlear implants business was projected over a five year period. Cash flows beyond the projection period were extrapolated with a long-term growth rate of 2.1 % (prior year 2.1 %) representing the projected inflation rate. For the calculation, a pre-tax weighted aver- age discount rate of 9.1 % (prior year 9.8 %) was used. An increase in the discount rate of 1 % would not result in an impairment of goodwill. The capitalized development cost are reviewed on a regular basis. Due to the revision of the Cochlear implants product roadmap in the 2016 / 17 financial year, Sonova has identified the need of valuation adjustments on certain R & D projects. As a result, an impairment of previously capi- talized development costs was recorded, resulting in a loss amounting to CHF 35.6 million. The amount is included in the income statement in the line “other income / (expense), net”. The capital- ized intangibles are included in the reportable segment “Cochlear implants” disclosed in Note 6. 21. Provisions 1,000 CHF 31.3.2017 Warranty Reimbursement Product Other Total and returns to customers liabilities Provisions Balance April 1 96,293 11,380 166,385 23,042 297,100 Changes through business combinations 16,250 16,901 33,151 Amounts used (63,621) (6,816) (3,157) (11,520) (85,114) Reversals (2,792) (6) (37,380) (3,439) (43,617) Increases 70,798 6,302 12,479 89,579 Disposals (60) (539) (599) Present value adjustments 3 960 963 Exchange differences 618 326 5,717 84 6,745 Balance March 31 117,489 11,186 132,525 37,008 298,208 thereof short-term 78,793 11,180 14,062 8,244 112,279 thereof long-term 38,696 6 118,463 28,764 185,929 1,000 CHF 31.3.2016 Warranty Reimbursement Product Other Total and returns to customers liabilities Provisions Balance April 1 83,042 10,841 192,504 30,694 317,081 Changes through business combinations 5,866 132 3,033 9,031 Amounts used (50,710) (6,726) (16,369) (10,745) (84,550) Reversals (5,869) (166) (8,847) (5,490) (20,372) Increases 64,553 7,406 6,909 78,868 Disposals (77) (1,336) (1,413) Present value adjustments 14 1,167 1,181 Exchange differences (526) (107) (2,070) (23) (2,726) Balance March 31 96,293 11,380 166,385 23,042 297,100 thereof short-term 70,656 11,361 12,899 10,304 105,220 thereof long-term 25,637 19 153,486 12,738 191,880 112 Sonova Annual Report 2016 / 17


  • Page 35

    CONSOLIDATED FINANCIAL STATEMENTS The provision for warranty and returns considers any costs arising from the warranty given on products sold. In general, the Group grants a 12 to 24 months warranty period for hearing instru- ments and related products and up to 10 years on cochlear implants. During this period, products will be repaired or a replacement product will be provided free of charge. The provision is based on turnover, past experience and projected warranty claims. The provision for reimbursement to customers considers commitments to provide volume rebates. The provision is based on expected volumes. The large majority of the cash outflows are expected to take place within the next 12 months. The provision for product liabilities considers the expected cost for claims in relation to the vol- untary recall of cochlear implant products of Advanced Bionics LLC in 2006. The calculation of this provision is based on past experience regarding the number and cost of current and future claims. It covers the cost of replacement products, medical expenses, compensation for actual damages as well as legal fees. The provision for the above mentioned cochlear implant product liabilities is reassessed on a regular and systematic basis. Further improvements in the expected number and cost of current and future claims led to a reduction of CHF 37.4 million (previous year CHF 8.8 million) in “other income / (expense), net”. For further information refer to Note 2.7 “Provision for product liabilities”. The timing of the cash outflows corresponding to the said provision for product liabilities is un- certain since it will largely depend on the outcome of administrative and legal proceedings. Other provisions include earn-out provisions as well as provisions for specific business risks such as litigation and restructuring costs which arise during the normal course of business. The main change compared to previous year is primarily related to the acquisition of AudioNova. The timing of cash outflows for the other provisions are expected to take place within the next two years. 22. Current financial liabilities 1,000 CHF 31.3.2017 31.3.2016 Short-term debt 19 45 Deferred payments and contingent considerations 12,323 5,652 Other current financial liabilities 1,013 849 Total 13,355 6,546 Unused borrowing facilities 187,003 187,836 Current financial liabilities mainly consist of financial liabilities resulting from earn-out agreements related to contingent considerations and deferred payments from acquisitions. Given the short-term nature of the deferred payments they are recognized at nominal value. The book value of deferred payments approximates fair value. In the 2015 / 16 financial year, the Group entered into an agreement for a credit facility in the amount of CHF 150 million with an option to increase to CHF 250 million. The terminal date of this credit facility is July 31, 2018, with an option to extend for two years. The credit facility was not used at balance sheet date. Sonova Annual Report 2016 / 17 113


  • Page 36

    CONSOLIDATED FINANCIAL STATEMENTS 23. Other short-term liabilities 1,000 CHF 31.3.2017 31.3.2016 Other payables 47,661 39,772 Accrued expenses 184,190 146,600 Deferred income 27,324 27,817 Total 259,175 214,189 Other payables include amounts to be remitted in respect of withholding taxes, value added taxes, social security payments, employees’ income taxes deducted at source, and customer prepayments. Accrued expenses include salaries, social expenses, vacation pay, bonus and incentive compensa- tion as well as accruals for outstanding invoices from suppliers. 24. Non-current financial liabilities 1,000 CHF 31.3.2017 31.3.2016 Bank debt 78 101 Bonds 759,198 Other non-current financial liabilities 7,684 15,073 Total 766,960 15,174 In connection with the financing of the acquisition of AudioNova, on October 11, 2016 the Group issued bonds in three tranches with different coupons and terms: • A two year variable rate bond (floating rate note) with a nominal value of CHF 150 million (ISIN CH0340912135) issued at 100.40 % with interest at 3-month CHF Libor plus 50 bps p.a. paid quarterly. The loan pays an interest between 0.00 % p.a. (floor) and 0.05 % p.a. (cap). The maturity will be on October 11, 2018. The fair value as of March 31, 2017 is amounting to CHF 150.0 million (100.23 %). • A three year fixed-rate bond with a nominal value of CHF 250 million (ISIN CH0340912143) issued at 100.15 % with a 0.00 % interest rate and maturity on October 11, 2019. The fair value as of March 31, 2017 is amounting to CHF 250.0million (100.04 %). • A five year fixed-rate bond with a nominal value of CHF 360 million (ISIN CH0340912150) issued at 100 % with interest of 0.01 % p.a. and maturity on October 11, 2021. Interests will be paid on an annual basis. The fair value as of March 31, 2017 is amounting to CHF 360.0 million (100.13 %). Other non-current financial liabilities consist of obligations in relation to earn-out agreements from acquisitions as well as amounts due in relation to the share appreciation rights (SARs) and warrant appreciation rights (WARs) (refer to Note 31). Analysis by currency 1,000 CHF 31.3.2017 31.3.2016 Bank debt Bonds Other Total Bank debt Other Total non-current non-current financial financial liabilities liabilities CHF 759,198 5,944 765,142 13,615 13,615 USD 419 419 1,075 1,075 EUR 3 3 Other 78 1,321 1,399 101 380 481 Total 78 759,198 7,684 766,960 101 15,073 15,174 114 Sonova Annual Report 2016 / 17


  • Page 37

    CONSOLIDATED FINANCIAL STATEMENTS 25. Risk management and financial instruments Group risk management Risk management at Group level is an integral part of business practice and supports the strategic decision-making process. The assessment of risk is derived from both “top-down” and “bottom-up” and covers corporate, all business segments, and all consolidated Group companies. This approach allows for the Group to examine all types of risk exposures caused by internal and external impacts and events, from financial, operational processes, customer and products, management and staff. The risk exposures are managed by specific risk mitigating initiatives, frequent re-evaluations, communication, risk consolidation and prioritization. The responsibility for the process of risk assessment and monitoring is allocated to the corporate risk function. The Management Board, in addition to Group companies and functional managers, support the annual risk assessment and are responsible for the management of the risk mitigating initiatives. The Board of Directors discusses and analyzes the Group’s risks at least once a year in the context of a strategy meeting. Financial risk management Due to Sonova Group’s worldwide activities, the Group is exposed to a variety of financial risks such as market risks, credit risks and liquidity risks. Financial risk management aims to limit these risks and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses selected financial instruments for this purpose. They are exclusively used as hedging instruments for cash in- and outflows and not for speculative positions. The fundamentals of Sonova Group’s financial risk policy are periodically reviewed by the Audit Committee and carried out by the Group finance department. Group finance is responsible for implementing the policy and for ongoing financial risk management. Market risk Exchange rate risk The Group operates globally and is therefore exposed to foreign currency fluctuations, mainly with respect to the US dollar and the Euro. As the Group uses Swiss francs as presentation currency and holds investments in different functional currencies, net assets are exposed to foreign cur- rency translation risk. Additionally, a foreign currency transaction risk exists in relation to future commercial transactions which are denominated in a currency other than the functional currency. To minimize foreign currency exchange risks, forward currency contracts are entered into. The Group hedges its net foreign currency exposure based on future expected cash in- and outflows. The hedges have a duration of between 1 and 6 months. No hedge accounting has been applied to these hedges, since they do not qualify for such treatment under IAS 39. Positive replacement values from hedges which do not qualify for hedge accounting are recorded as financial assets at fair value through profit or loss whereas negative replacement values are recorded as financial liabilities at fair value through profit or loss. As of March 31, 2017, forward currency contracts amounting to CHF 201.8 million (previous year CHF 173.8 million) were open. The open contracts on March 31, 2017 as well as on March 31, 2016 were all due within one year. Notional amount of forward contracts 1,000 CHF 31.3.2017 31.3.2016 Total Fair Value Total Fair Value Positive replacement values 57,513 819 146,841 810 Negative replacement values 102,597 (870) 26,976 (637) Total 160,110 (51) 173,817 173 Sonova Annual Report 2016 / 17 115


  • Page 38

    CONSOLIDATED FINANCIAL STATEMENTS Foreign currency sensitivity analysis 1,000 CHF 2016 / 17 2015 / 16 2016 / 17 2015 / 16 Impact on Impact on income equity after taxes Change in USD / CHF + 5 % 1,181 2,589 32,494 23,100 Change in USD / CHF – 5 % (1,181) (2,589) (32,494) (23,100) Change in EUR / CHF + 5 % 4,665 3,708 17,733 6,576 Change in EUR / CHF – 5 % (4,665) (3,708) (17,733) (6,576) Interest rate risk The Group has only limited exposure to interest rate changes. The most substantial interest expo- sure on assets relates to cash and cash equivalents with an average interest-bearing amount for the 2016 / 17 financial year of CHF 236 million (previous year CHF 249 million). On liabilities the most significant risk relates to the two year variable rate bond (see Note 24). If interest rates dur- ing the 2016 / 17 financial year had been 1 % higher the positive impact on income before taxes would have been CHF 1.3 million. In case interest rates had been 1 % lower the income would have been negatively impacted by CHF 0.2 million. Other market risks Risk of price changes of raw materials or components used for production is limited. A change in those prices would not result in financial effects being above the Group’s risk management toler- ance level. Therefore, no sensitivity analysis has been conducted. Credit risk Financial assets which could expose the Group to a potential concentration in credit risk are prin- cipally cash and bank balances, receivables from customers and loans. Core banking relations are maintained with at least “BBB+” rated (S & P) financial institutions. As of March 31, 2017, the largest balance with a single counterparty amounted to 19 % (previous year 32 %) of total cash and cash equivalents. The Group performs continuous credit checks on its receivables. Due to the customer diversity there is no single credit limit for all customers, however the Group assesses its customers taking into account their financial position, past experience, and other factors. Due to the fragmented customer base (no single customer balance is greater than 10 % of total trade accounts receivable), the Group is not exposed to any significant concentration risk. The same applies to loans to third and related parties. The Group does not expect any significant losses either from receivables or from other financial assets. Liquidity risk Group finance is responsible for centrally managing the net cash / debt position and to ensure that the Group’s obligations can be settled on time. The Group aims to grow further and wants to remain flexible in making time-sensitive investment decisions. This overall objective is included in the asset allocation strategy. A rolling forecast based on the expected cash flows is conducted and updated regularly to monitor and control liquidity. 116 Sonova Annual Report 2016 / 17


  • Page 39

    CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the contractual maturities of financial liabilities as of March 31, 2017 and 2016: 1,000 CHF 31.3.2017 Due Due Due Due more Total less than 3 months 1 year to than 3 months to 1 year 5 years 5 years Short-term debt 19 19 Other current financial liabilities 4,563 8,773 13,336 Trade payables and other short-term liabilities 232,106 111,198 343,304 Total current financial liabilities 236,688 119,971 356,659 Long-term bank debt 78 78 Bonds 759,198 759,198 Other non-current financial liabilities 7,684 7,684 Total non-current financial liabilities 766,960 766,960 Total financial liabilities 236,688 119,971 766,960 1,123,619 1,000 CHF 31.3.2016 Due Due Due Due more Total less than 3 months 1 year to than 3 months to 1 year 5 years 5 years Short-term debt 45 45 Other current financial liabilities 4,694 1,807 6,501 Trade and other short-term liabilities 179,042 104,016 283,058 Total current financial liabilities 183,781 105,823 289,604 Long-term bank debt 101 101 Other non-current financial liabilities 15,073 15,073 Total non-current financial liabilities 15,174 15,174 Total financial liabilities 183,781 105,823 15,174 304,778 Fair value hierarchy The following table summarizes the financial instruments carried at fair value, by valuation method as of March 31, 2017 and 2016. The different levels have been defined as follows: Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. Level 2: The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques are based on observable mar- ket data, where applicable. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Level 3: If a significant amount of inputs is not based on observable market data the instrument is included in level 3. For this level other techniques, such as discounted cash flow analy- sis, are used to determine fair value. During the reporting period there were no reclassifications between the individual levels. Sonova Annual Report 2016 / 17 117


  • Page 40

    CONSOLIDATED FINANCIAL STATEMENTS 1,000 CHF 31.3.2017 Level 1 Level 2 Level 3 Total Financial assets At fair value through profit or loss 1,788 1,531 3,319 Total 1,788 1,531 3,319 Financial liabilities At fair value through profit or loss (704) (20,598) (21,302) Total (704) (20,598) (21,302) 1,000 CHF 31.3.2016 Level 1 Level 2 Level 3 Total Financial assets At fair value through profit or loss 2,886 6,474 9,360 Total 2,886 6,474 9,360 Financial liabilities At fair value through profit or loss (21,574) (21,574) Total (21,574) (21,574) The following table presents the changes in level 3 financial instruments for the year ended March 31, 2017 and 2016: Financial assets at fair value through profit or loss 1,000 CHF 2016 / 17 2015 / 16 Balance April 1 6,474 6,695 Additions / (disposals), net (3,263) 29 Losses recognized in profit or loss (1,680) (250) Balance March 31 1,531 6,474 Financial liabilities at fair value through profit or loss 1,000 CHF 2016 / 17 2015 / 16 Balance April 1 (21,574) (7,966) (Additions) / disposals, net 1,620 (13,563) Losses recognized in profit or loss (644) (45) Balance March 31 (20,598) (21,574) Capital risk management It is the Group’s policy to maintain a strong equity base and to secure a continuous “investment grade” rating. The Group’s strong balance sheet and earnings tracking provides for additional debt capacity. The company aims to return excess cash to shareholders as far as not required for organic and acquisition related growth, and amortization of debt. 118 Sonova Annual Report 2016 / 17


  • Page 41

    CONSOLIDATED FINANCIAL STATEMENTS 26. Other long-term liabilities 1,000 CHF 31.3.2017 31.3.2016 Long-term deferred income 80,697 29,440 Retirement benefit obligations 25,581 65,324 Total 106,278 94,764 Long-term deferred income relates to long-term service contracts with customers and is recognized as a sale over the period of the service contract. The increase in the financial year 2016/17 pri- marily relates to the acquisition of AudioNova. The retirement benefit obligation relates to defined benefit plans. For details refer to Note 30. 27. Movements in share capital Issued Treasury Outstanding registered shares1) shares Issued registered shares shares Balance April 1, 2015 67,173,287 (547,313) 66,625,974 Capital decrease – share buy-back program (546,900) 546,900 Purchase of treasury shares (182,420) (182,420) Sale / transfer of treasury shares 176,344 176,344 Purchase of shares intended to be cancelled2) (1,203,500) (1,203,500) Balance March 31, 2016 66,626,387 (1,209,989) 65,416,398 Capital decrease – share buy-back program (1,203,500) 1,203,500 Purchase of treasury shares (294,791) (294,791) Sale / transfer of treasury shares 293,090 293,090 Balance March 31, 2017 65,422,887 (8,190) 65,414,697 Share Treasury Outstanding Nominal value of share capital 1,000 CHF Capital shares1) share capital Balance March 31, 2017 3,271 (1) 3,270 Each share has a nominal value of CHF 0.05. 1) Treasury shares are purchased on the open market and are not entitled to dividends. 2) Shares purchased by the Group as part of the share buyback program. At the Annual General Shareholder’s Meeting on July 7, 2005, the conditional share capital of CHF 264,270 (5,285,400 shares) has been increased by CHF 165,056 (3,301,120 shares) to CHF 429,326 (8,586,520 shares). Consistent with the prior year, 5,322,133 shares remain unis- sued as of March 31, 2017. These shares are reserved for long-term incentive plans (2,021,013 shares) as well as for initiatives to increase the company’s financial flexibility (3,301,120 shares). Sonova Annual Report 2016 / 17 119


  • Page 42

    CONSOLIDATED FINANCIAL STATEMENTS 28. Acquisitions / Disposals of subsidiaries Apart from the acquisition of AudioNova International B.V. as of September 14, 2016 (for further information refer to “3. Significant events and transactions”) several small companies were ac- quired in Europe, North America and Asia / Pacific in the 2016 / 17 and 2015 / 16 financial year. Further during the financial year 2015 / 16 Hansaton Akustik GmbH was acquired. All of the acquired companies are engaged in the business of selling hearing instruments and have been accounted for applying the acquisition method of accounting. Assets and liabilities resulting from the acquisitions are as follows: 1,000 CHF 2016 / 17 2015 / 16 AudioNova Others Total Total Trade receivables 32,486 333 32,819 12,998 Other current assets 77,152 2,444 79,596 27,948 Property, plant & equipment 45,572 1,090 46,662 5,153 Intangible assets 275,742 15,126 290,868 38,967 Other non-current assets 28,010 2,183 30,193 5,366 Current liabilities (35,307) (3,450) (38,757) (36,297) Non-current liabilities (460,818) (5,117) (465,935) (19,546) Net assets (37,163) 12,609 (24,554) 34,589 Goodwill 720,610 33,246 753,856 106,531 Purchase consideration 683,447 45,855 729,302 141,120 Liabilities for contingent considerations and deferred payments1) (1,487) (1,487) (17,154) Cash and cash equivalents acquired (53,022) (1,359) (54,381) (7,056) Cash outflow for investments in associates, contingent considerations and deferred payments 1,849 1,849 4,342 Cash consideration for acquisitions, net of cash acquired 630,425 44,858 675,283 121,252 Settlement of pre-existing HAL intragroup financing 290,794 290,794 Total consideration paid, net of cash acquired 921,219 44,858 966,077 121,252 1) Contingent considerations and deferred payments (earn-out payments) are dependent on the future performance of the acquired companies as well as contractual conditions. The liability for contingent considerations and deferred payments is based on the latest estimate of the future performance. The initial accounting for the acquisitions completed in the current financial year is provisional and the fair values assigned to the identifiable assets acquired and liabilities assumed are still subject to change. The goodwill is attributed mainly to economies of scale and expected synergies such as favorable sales growth potential, increase in share of Sonova products within acquired distribution compa- nies and cost reduction in administrative and corporate functions as well as to the labor force. Recognized goodwill is not expected to be deductible for income tax purposes. All acquisitions have been accounted for applying the acquisition method of accounting. Recognized acquisition-related intangible assets for AudioNova largely contain trademarks (CHF 142.3 million) and customer relationships (CHF 131.5 million). For acquisition-related intangibles the lifetimes assigned range between 10 and 20 years. On these intangibles deferred taxes have been considered. Acquisition-related transaction costs in the amount of CHF 8.8 million (prior year period CHF 2.0 million), thereof CHF 8.1 million relating to the acquisition of AudioNova, have been expensed and are included in the line “General and administration”. There are no variable purchase price com- ponents resulting from the AudioNova acquisition. 120 Sonova Annual Report 2016 / 17


  • Page 43

    CONSOLIDATED FINANCIAL STATEMENTS 1,000 CHF 2016 / 17 2015 / 16 AudioNova Others Total Total Contribution of acquired companies from date of acquisition Sales 218,086 12,661 230,747 60,434 Net income 11,589 1,269 12,858 (203) Contribution, if the acquisitions occurred on April 1 Sales 361,867 19,754 381,621 76,917 Net income1) 9,304 3,230 12,534 1,053 1) The contribution from AudioNova has been normalized for interest costs on the pre-existing intragroup financing arrangements with the former owners (HAL Investments B.V.) and includes amortization on additional acquisition- related intangibles. On January 16, 2017, Sonova Holding AG announced that Sonova is engaged in negotiations regard- ing a potential sale of AudioNova retail business in France. In February 2017 all necessary regula- tory approvals were obtained and the transaction has been closed on March 1, 2017. Further in the 2016 / 17 financial year, the Group divested a minor group company in the Americas region. The total consideration amounting to CHF 18.3 million was settled in cash. The carrying amount of the disposed net assets amounted to CHF 14.0 million including cash and cash equivalents of CHF 0.5 million. The net gain from these transactions of CHF 3.8 million has been recognized in the income statement and is included in “other income/(expense), net”. Furthermore on January 16, 2017 Sonova also announced that it has signed an agreement to sell its MiniSom retail busi- ness in Portugal. In March 2017 all necessary regulatory approval were obtained and the transac- tion was closed on April 1, 2017. These transactions have no material impact on the financial statements. In the 2015 / 16 reporting period, the Group divested two minor group companies in the EMEA region. The consideration amounting to CHF 33.4 million was settled in cash. The carrying amount of the disposed net assets amounted to CHF 24.7 million including cash and cash equivalents of CHF 3.8 million. The net gain from those transactions of CHF 8.7 million has been recognized in the income statement and is included in “other income / (expense), net”. Sonova Annual Report 2016 / 17 121


  • Page 44

    CONSOLIDATED FINANCIAL STATEMENTS 29. Transactions and relations with members of the Management Board and the Board of Directors 1,000 CHF 2016 / 17 2015 / 16 2016 / 17 2015 / 16 2016 / 17 2015 / 16 Management Board of Total Board Directors Short-term employee benefits 8,199 8,884 1,519 1,590 9,718 10,474 Post-employment benefits 828 848 828 848 Share based payments 5,064 4,987 1,362 1,344 6,426 6,331 Total 14,091 14,719 2,881 2,934 16,972 17,653 The total compensation to the Management Board for the 2016 / 17 reporting period, as shown above, relates to the 10 current members of the Management Board (including one member of the Management Board joined in January 2017) and one former member. The total compensation to the Management Board for the 2015 / 16 reporting period, as shown above, related to 13 members. The total compensation to the Board of Directors for the 2016 / 17 reporting period, as shown above, relates, as in previous year, to eight current members and one former member (considered until retirement from the Board of Directors). Transactions between the Group and the various post-employment benefit plans for the employees of the Group are described in Note 30. Further information in accordance with Swiss law relating to remuneration and ownership of shares and options of the Board of Directors and the Management Board can be found in the compensa- tion report and in the Note 3.6 of the financial statements of Sonova Holding AG. 122 Sonova Annual Report 2016 / 17


  • Page 45

    CONSOLIDATED FINANCIAL STATEMENTS 30. Employee benefits Defined benefit plans Sonova Group’s retirement plans include defined benefit pension plans in Switzerland, Austria, Norway, Canada, Germany and Israel. These plans are both funded and unfunded and determined by local regulations using independent actuarial valuations according to IAS 19. Sonova Group’s major defined benefit plan is located in Switzerland which in total accounts for CHF 353.3 million or 99.6 % (previous year CHF 356.4 million or 99.2 %) of Sonova’s defined benefit obligation. Pension plans in Switzerland The current pension arrangement for employees in Switzerland is made through a plan governed by the Swiss Federal Occupational Old Age, Survivors and Disability Pension Act (BVG). The plan of Sonova’s Swiss companies is administered by a separate legal foundation, which is funded by regular employer and employee contributions defined in the pension fund rules. The Swiss pension plan contains a cash balance benefit which is in essence contribution-based with certain minimum guarantees. Due to these minimum guarantees, the Swiss plan is treated as a defined benefit plan for the purposes of these IFRS financial statements, although it has many of the characteristics of a defined contribution plan. The plan is invested in a diversified range of assets in accordance with the investment strategy and the common criteria of an asset and liability management. A potential under-funding may be remedied by various measures such as increasing employer and employee contributions or reducing prospective benefits. In the reporting period the foundation decided to reduce the actual annuity rate of 5.8 % applied to the individual accumulated retirement saving gradually over-time. Between now and 2019 the annuity rate will be reduced by 0.2 % per annum, to reach 5.4 % in 2019. Previous year the decision had been taken to reduce the annuity rate by 0.2 % on a straightline basis to reach 5.8 % in 2017 respectively 5.6 % in 2018. In addition the new generation tables BVG 2015 with higher life expectancy and lower invalidity incidence rates have been adopted. As of March 31, 2017, 1,210 employees (previous year 1,238 employees) and 107 beneficiaries (previous year 84 beneficiaries) are insured under the Swiss plan. The defined benefit obligation has a duration of 14.3 years (previous year 14.5 years). The results of all defined benefit plans are summarized below: Amounts recognized in the balance sheet CHF 1,000 31.3.2017 31.3.2016 Present value of funded obligations (354,721) (359,282) Fair value of plan assets 330,864 295,796 Net present value of funded plans (23,857) (63,486) Present value of unfunded obligations (1,724) (1,838) Total liabilities, net (25,581) (65,324) Amounts in the balance sheet: Retirement benefit obligations (25,581) (65,324) Sonova Annual Report 2016 / 17 123


  • Page 46

    CONSOLIDATED FINANCIAL STATEMENTS Remeasurements recognized in equity CHF 1,000 2016 / 17 2015 / 16 Balance April 1 69,497 62,887 Actuarial (gains) / losses from – changes in demographic assumptions (6,775) – changes in financial assumptions (4,125) (1,053) – changes in experience adjustments (4,789) (2,180) Return on plan assets excluding interest income (23,759) 9,843 Balance March 31 30,049 69,497 Amounts recognized in the income statement CHF 1,000 2016 / 17 2015 / 16 Current service cost1) 23,982 21,350 Participants’ contributions (10,633) (10,800) Net interest cost 435 560 Total employee benefit expenses2) 13,784 11,110 1) Current service cost for the 2016 / 17 as well as the 2015 / 16 financial year contains a gradual reduction of the annuity rate. In addition, 2015 / 16 included the implementation of a restructuring plan, announced on March 2, 2015, which provided for the reduction of approx. 100 positions in Switzerland. 2) The amount recognized in the consolidated income statement 2016 / 17 has been charged to: – cost of sales CHF 2.4 million (previous year CHF 2.4 million); – research and development CHF 4.3 million (previous year 3.3 million); – sales and marketing CHF 2.7 million (previous year 2.0 million); – general and administration CHF 4.0 million (previous year CHF 2.8 million); – financial expenses CHF 0.4 million (previous year CHF 0.6 million). Movement in the present value of the defined benefit obligations CHF 1,000 2016 / 17 2015 / 16 Beginning of the year 361,122 350,315 Interest cost 2,243 2,886 Current service cost 23,982 21,350 Benefits paid, net (15,377) (11,715) Actuarial loss on obligations (15,689) (3,233) Changes through business combinations 104 1,536 Exchange differences 67 (17) Present value of obligations at end of period 356,452 361,122 Movement in the fair value of the plan assets CHF 1,000 2016 / 17 2015 / 16 Beginning of the year 295,778 288,505 Interest income on plan asset 1,808 2,326 Employer’s contributions paid 13,944 14,128 Participants’ contributions 10,633 10,800 Benefits paid, net (15,218) (11,626) Return on plan assets excluding interest income 23,759 (9,843) Changes through business combinations 110 1,512 Exchange differences (55) (24) Fair value of plan assets at end of period 330,759 295,778 124 Sonova Annual Report 2016 / 17


  • Page 47

    CONSOLIDATED FINANCIAL STATEMENTS The plan assets consist of: 31.3.2017 31.3.2016 Cash 1.4 % 1.2 % Domestic bonds 20.0 % 22.0 % Foreign bonds 8.4 % 10.2 % Domestic equities 13.8 % 13.3 % Foreign equities 32.1 % 30.0 % Real estates 15.0 % 16.0 % Alternative investments 9.3 % 7.3 % The actual return on plan assets amounted to CHF 25.4 million (previous year CHF – 7.5 million). The expected employer’s contributions to be paid in the 2017 / 18 financial year amount to CHF 14.1 million. Principal actuarial assumptions (weighted average) 2016 / 17 2015 / 16 Discount rate 0.60 % 0.60 % Future salary increases 1.00 % 1.00 % Future pension increases 0% 0% Fluctuation rate 10 % 10 % Demography BVG 2015GT BVG 2010GT The following sensitivity analysis shows how the present value of the benefit obligation for the Swiss retirement benefit plan would change if one of the principal actuarial assumptions was changed. For the analysis, changes in the assumptions were considered separately and no inter- dependencies were taken into account. Sensitivity analysis – Impact on defined benefit obligation CHF 1,000 31.3.2017 31.3.2016 Discount rate Discount rate + 0.25 % (11,694) (11,961) Discount rate – 0.25 % 13,315 13,635 Salary growth Salary growth + 0.25 % 823 959 Salary growth – 0.25 % (802) (936) Pension growth Pension growth + 0.5 % 13,485 13,466 Pension growth – 0.5 % (13,485) (13,466) Fluctuation rate Fluctuation rate + 5 % (14,357) (17,199) Fluctuation rate – 5 % 24,750 29,307 Defined contribution plans Several of the Group’s entities have a defined contribution plan. The employer’s contributions amounting to CHF 17.7 million in the year ended March 31, 2017 (previous year CHF 13.7 million) are recognized directly in the income statement. Sonova Annual Report 2016 / 17 125


  • Page 48

    CONSOLIDATED FINANCIAL STATEMENTS 31. Equity plans Equity plans are offered annually to the members of the Board of Directors (BoD), to the members of the Management Board (MB) as well as to other management and senior employees of the Group, entitling them to receive long-term incentives in the form of equity plans free of charge. Equity plans are settled either with Sonova Holding AG shares (equity-settled share-based payment) or for certain US employees with an equivalent amount in cash (cash-settled share-based payment). The amount granted varies depending on the degree of management responsibility held. In the 2016 / 17 and 2015 / 16 financial years, Sonova granted restricted shares, restricted share units (RSUs), options, and for US employees, share appreciation rights (SARs). From 2014, grants made under the Executive Equity Award Plan (EEAP) to the CEO and the other members of the MB includes a performance criterion: the vesting of options and RSUs in a given year is subject to achievement of a pre-defined minimum return on capital employed (ROCE) target. The following share-based payment costs have been recognized in the financial years: 1,000 CHF 2016 / 17 2015 / 16 Equity-settled share-based payment costs 18,708 18,938 Cash-settled share-based payment costs 254 403 Total share-based payment costs 18,962 19,341 The following table shows the outstanding options and / or SARs, granted as part of the EEAP 2012 to 2017. All of the equity instruments listed below vest in 4 equal tranches, annually over a period of 4 years. Summary of outstanding options and SARs granted until March 31, 2017: Financial year Instruments First vesting Granted Exercise price Outstanding Average Exercisable granted granted date / (CHF) remaining life Expiry date (years) 1.6.2013 2011 / 12 Options / SARs 31.1.2019 298,474 95.85 78,753 1.8 78,753 1.6.2014 2012 / 13 Options / SARs 31.1.2020 227,188 109.10 108,502 2.8 65,029 1.6.2015 2013 / 14 Options / SARs1) 31.1.2021 242,673 124.60 156,076 3.8 62,098 1.6.2016 2014 / 15 Options / SARs2) 31.1.2022 308,459 121.10 238,729 4.8 44,878 1.6.2017 2015 / 16 Options / SARs3) 31.1.2023 298,520 124.20 265,360 5.8 1.6.2018 2016 / 17 Options / SARs4) 31.1.2024 378,652 130.00 378,652 6.8 5) Total 1,753,966 118.18 1,226,072 5.2 250,7586) Thereof: Equity-settled 1,551,500 1,123,708 239,356 Cash-settled 202,466 102,364 11,402 1) Including 107,567 performance options, granted to the CEO and MB members. 2) Including 135,223 performance options, granted to the CEO and MB members. 3) Including 126,206 performance options, granted to the CEO and MB members. 4) Including 147,948 performance options, granted to the CEO and MB members. 5) Weighted average exercise price of outstanding options / SARs amounts to CHF 122.28. 6) Weighted average exercise price for exercisable options / SARs amounts to CHF 110.92. 126 Sonova Annual Report 2016 / 17


  • Page 49

    CONSOLIDATED FINANCIAL STATEMENTS The fair value of options and / or SARs is calculated at the grant date by using an “Enhanced American Pricing Model”. The expected volatility is based on historical measures. Valuation as- sumptions used for the options and / or SARs granted in the current financial year and the 2015 / 16 financial year are as follows: Executive Equity Executive Equity Assumptions for valuation at grant date Award Plan 2017 Award Plan 2016 Valuation date 1.2.2017 1.2.2016 Expiry date 31.1.2024 31.1.2023 Share price on grant date CHF 130.00 CHF 124.20 Exercise price CHF 130.00 CHF 124.20 Volatility 21.7 % 24.4 % Expected dividend yield 2.1 % 2.3 % Weighted risk free interest rate (0.3 %) (0.4 %) Weighted average fair value of options / SARs issued CHF 16.99 CHF 20.60 Options The exercise price of options is equal to the market price of Sonova Holding AG shares on the SIX Swiss Exchange at grant date. The fair value of the options granted is estimated at grant date and recorded as an expense over the corresponding vesting period. Assumptions are made regarding the forfeiture rate which is adjusted during the vesting period (including adjustments due to re- assessments of the likely ROCE targets achievements for performance options granted to the CEO and the other members of the MB) to ensure that only a charge for vested amounts occur. Options may be exercised after the vesting date, until their expiry date. If options are exercised, one share per option from the conditional share capital is issued, or treasury shares are used for fulfillment. Changes in outstanding options / warrants: 2016 / 17 2015 / 16 Number of Weighted Number of Weighted options average options / average exercise price warrants1) exercise price (CHF) (CHF) Outstanding options / warrants at April 1 1,010,026 117.07 1,019,036 114.50 Granted2) 334,440 130.00 263,418 124.20 Exercised / sold3) (168,642) 108.20 (248,876) 114.20 Forfeited (52,116) 121.82 (23,552) 115.82 Outstanding options / warrants at March 31 1,123,708 122.03 1,010,026 117.07 Exercisable at March 31 239,356 110.71 203,464 105.04 1) For better comparison, the number of warrants have been adjusted according to exercise ratio 25:1. 2) 2016 / 17 includes 147,948 performance options (previous year 126,206 performance options), granted to the CEO and MB members. 3) The movement in options / warrants for the 2016 / 17 financial year fully relates to options exercised as no warrants remain outstanding. In 2015 / 16 the movement related to 70,761 options exercised and 178,115 warrants sold. Total consideration from options exercised amounted to CHF 32.5 million (previous year CHF 7.6 million). The weighted average share price of the options exercised during the year 2016 / 17 was CHF 132.29 (previous year CHF 131.67). Sonova Annual Report 2016 / 17 127


  • Page 50

    CONSOLIDATED FINANCIAL STATEMENTS Share appreciation rights (SARs) The exercise price of SARs is generally equal to the market price of Sonova Holding AG shares on the SIX Swiss Exchange at grant date. Upon exercise of SARs, an employee shall be paid, an amount in cash equal to the number of shares for which the employee exercised SARs , multiplied by any surplus, of the per share market price at the date of exercise versus the per share exercise price (determined at the date of grant of SARs). The initial fair value of the SARs is in line with the valuation of the options of the respective period and recorded as an expense over the correspond- ing vesting period. Until the liability is settled, it is revalued at each reporting date recognizing changes in fair value in the income statement. The SARs may be sold after the vesting date, until their expiry. Changes in outstanding SARs / WARs: 2016 / 17 2015 / 16 Number of Weighted Number of Weighted Number of Weighted SARs average exercise SARs average exercise WARs average exercise price (CHF) price (CHF) price (CHF) Outstanding SARs / WARs at April 1 103,956 119.45 91,706 116.34 8,783 118.40 Granted 44,212 130.00 35,102 124.20 Exercised / sold (19,963) 110.83 (8,151) 105.14 (8,783) 118.40 Forfeited (25,841) 122.18 (14,701) 119.30 Outstanding SARs / WARs at March 311) 102,364 125.00 103,956 119.45 0 2) Exercisable at March 31 11,402 115.43 13,489 108.71 1) The carrying amount of the liability relating to the SARs at March 31, 2017 is CHF 1.2 million (previous year CHF 1.0 million). 2) The intrinsic value of the SARs exercisable at March 31, 2017 amounts to CHF 0.3 million (previous year CHF 0.2 million). Restricted shares / Restricted share units (RSUs) Under the EEAP grants 2012 to 2017, entitled employees have been granted RSUs. The value of an RSU is equal to the market price of Sonova Holding AG shares on the SIX Swiss Exchange on the grant date, adjusted for the fair value of expected dividends, as RSUs are not entitled to dividends. RSUs entitle the holder to one share per RSU after the vesting period. In the case of performance RSUs, granted to the CEO and the other members of the MB (EEAP 2014 to 2017), vesting of these shares is also dependent on the fulfillment of the performance criteria. In addition to the RSUs granted in respect to the EEAP 2017, restricted shares have been granted to the Chairman of the Board of Directors as well as to the other members of the Board of Directors. These shares are entitled to dividends and are restricted for a period of 64 months (Chairman), respectively 52 months (other members of the Board of Directors). Upon vesting of the RSUs, the respective shares are either created out of the conditional share capital or treasury shares are used. The cost of the RSUs granted is expensed over their vesting period. Assumptions are made regard- ing the forfeiture rate which is adjusted during the vesting period (including adjustments due to re-assessments of the likely achievements of the ROCE targets for performance RSUs granted to CEO and the other members of the MB) to ensure that only vested amounts are expensed. The costs for the restricted shares granted to the members of the Board of Directors have been fully expensed in the 2016 / 17 financial year as these shares have no vesting period. 128 Sonova Annual Report 2016 / 17

  • View More

Get the full picture and Receive alerts on lawsuits, news articles, publications and more!