Dieser Abschnitt ist nur in englischer Sprache verfügbar.

Notes to the consolidated financial statements as of March 31, 2018

1. Corporate information

The Sonova Group (the “Group”) specializes in the design, development, manufacture, worldwide distribution and service of technologically advanced hearing systems for adults and children with hearing impairment. The Group operates worldwide and distributes its products in over 100 countries through its own distribution network and through independent distrib­utors. The ultimate parent company is Sonova Holding AG, a limited liability company incorporated in Switzerland. Sonova Holding AG’s registered office is located at Laubis­rütistrasse 28, 8712 Stäfa, Switzerland.

2. Basis of consolidated financial statements

The consolidated financial statements of the Group are based on the financial statements of the individual Group companies at March 31 which are prepared in accordance with uniform accounting policies. The consolidated financial statements were prepared under the historical cost convention except for the revaluation of certain financial assets at market value, which were prepared in accordance with International Financial Reporting Standards (IFRS), including International Accounting Standards (IAS) and Interpretations issued by the International Accounting Standards Board (IASB). The consolidated financial statements were approved by the Board of Directors of Sonova Holding AG on May 16, 2018, and are subject to approval by the Annual General Shareholders’ Meeting on June 12, 2018.

The consolidated financial statements include Sonova Holding AG as well as the domestic and foreign subsidiaries over which Sonova Holding AG exercises control. A list of the significant consolidated companies is given in Note 34.

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts report­ed as assets and liabilities and contingent assets and liabilities at the date of the financial statements as well as revenue and expenses reported for the financial year (refer also to Note 2.7, “Significant accounting judgments and estimates”). Actual results could differ from these estimates.

2.1 Changes in accounting policies

In 2017/18 the Group adopted the following minor amendments to existing standards and interpretations, without having a significant impact on the Group’s result and financial position:

  • Disclosure Initiative (Amendments to IAS 7)
  • Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12)
  • Annual Improvements to IFRS Standards 2014 – 2016 Cycle

The Group has assessed the expected impacts of the various new and revised standards and interpretations that will be effective for the financial year starting April 1, 2018, as summarized below.

IFRS 9 “Financial instrument”: The standard completes the guidance on recognition/derecognition of financial instruments. It includes revised principles on classification and measurement of financial instruments, including a new expected credit loss model for calculating provisions for impairments on financial assets. The Group does not expect a significant impact on the Group's result and financial position and will implement the new standard on April 1, 2018.

IFRS 15 “Revenues from Contracts with Customers”: The standard combines, enhances and replaces specific guidance on recognizing revenue with a new single standard based on a five step approach. The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Under IFRS 15, an entity recognizes revenue when a performance obligation is satisfied. The primary impact for the Group will be on the timing of revenue recognition for the performance obligations related to extended warranties, loss and damage, battery plans, loyalty programs, and on additional revenue related disclosures. The transition will decrease the Group's retained earnings for an estimated amount of CHF 125 million due to the recognition of contract assets/liabilities and release of provisions and deferred revenue. The impact on the income statement will not be material. The Group chose the modified retrospective approach with the recognition of the cumulative effect of initial application in retained earnings and will implement the new standard on April 1, 2018.

Furthermore, the Group is also assessing other new and revised standards which are not mandatory until after the financial year 2018/2019, notably the impacts of IFRS 16 (refer below).

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 accounting model, that requires lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. The main impact for the Group will be on the recognition of new assets and liabilities for its property lease agreements. In addition, the nature of the expenses related to those leases will now change as IFRS 16 replaces the straight-line operating lease expenses with a depreciation charge for right-of-use assets and interest expenses on lease liabilities. The current operating lease obligations (see Note 32) provide an indication of the impact of IFRS 16 on the Group's consolidated balance sheet. The Group will implement the new standard on April 1, 2019.

2.2 Principles of consolidation

Investments in subsidiaries

Investments in subsidiaries are fully consolidated. These are entities over which Sonova Holding AG directly or indirectly exercises control. Control exists when the Group is exposed, or has rights, to variable returns from its relationship with an entity and has the power to affect those returns. Control is presumed to exist when the parent owns, directly or in­directly through subsidiaries, more than half of the voting power of an entity unless, in exceptional circumstances, it can clearly demonstrate that such ownership does not constitute control. For the consolidated entities, 100% of assets, liabilities, income, and expenses are included. Non-controlling interests in equity and net income or loss are shown separately in the balance sheet and income statement. Changes in the ownership interest of a subsidiary that do not result in a loss of control will be accounted for as an equity trans­action. Hence, neither goodwill nor any gains or losses will result.

Group Companies acquired during the year are included in the consolidation from the date on which control over the company transferred to the Group. Group companies divested during the year are excluded from the consolidation as of the date the Group ceased to have control over the company. Intercompany balances and transactions (including unrealized profit on intercompany inventories) are eliminated in full.

Investments in associates and joint ventures

Investments in associates and joint ventures are accounted for using the equity method of accounting. Investments in associates are entities in which Sonova has a significant influence but does not exercise control (usually 20%–50% of voting rights). Joint ventures are joint arrangements whereby two or more parties have rights to the net assets of the arrangement.

Under the equity method, the investment in an associate/joint venture is recognized initially at cost (including goodwill on acquisition) and the carrying amount is increased or decreased to recognize Sonova’s share of profit or loss of the associate/joint venture after the acquisition date. When the Group’s share of losses in an associate/ joint venture equals or exceeds its interest in the associate/joint venture, no further losses are recognized, unless there is a legal or constructive obligation. In order to apply the equity method the most recent available financial statements of an associate/joint venture are used, however, due to practi­cability reasons the reporting dates might vary up to three months from the Group’s reporting date.

2.3 Currency translation

The consolidated financial statements are expressed in Swiss francs (“CHF”), which is the Group’s presentation ­currency. The functional currency of each Group company is based on the local economic environment to which an entity is exposed, which is normally the local currency.

Transactions in foreign currencies are accounted for at the rates prevailing on the dates of the transactions. The resulting exchange differences are recorded in the local income statements of the Group companies and included in net income.

Monetary assets and liabilities of Group companies which are denominated in foreign currencies are translated using year-end exchange rates. Exchange differences are recorded as an income or expense. Non-monetary assets and liabilities are translated at historical exchange rates. Exchange differences arising on intercompany loans that are considered part of the net investment in a foreign entity are recorded in other comprehensive income in equity.

When translating foreign currency financial statements into Swiss francs, year-end exchange rates are applied to assets and liabilities, while average annual rates are applied to income statement accounts (see Note 5). Translation differences arising from this process are recorded in other comprehensive income in equity. On disposal of a Group company, the related cumulative trans­lation adjustment is transferred from equity to the income statement.

2.4 Accounting and valuation principles

Cash and cash equivalents

This item includes cash on hand and cash at banks, bank overdrafts, term deposits and other short-term highly liquid investments with original maturities of three months or less. The consolidated cash flow statement summarizes the movements in cash and cash equivalents.

Other current financial assets

Other current financial assets consist of financial assets held for trading as well as short-term loans to third parties. Market­able securities within this category are classified as financial assets at fair value through profit or loss (see Note 2.5). Derivatives are classified as held for trading unless they are designated as hedges (see Note 2.6).

Assets in this category are classified as current assets if they are either held for trading or are expected to be ­realized within 12 months.

Trade receivables

Trade receivables are recorded at original invoice amount less provisions made for doubtful accounts. A provision for doubtful accounts is recorded when there is objective ­evidence that the Group will not be able to collect all amounts due according to the original terms of the invoice. The amount of the provision is the difference between the carrying amount and the recoverable amount with the latter being the present value of expected cash flows.

Inventories

Purchased raw materials, components and finished goods are valued at the lower of cost or net realizable value. To evaluate cost, the standard cost method is applied, which approximates historical cost determined on a first-in first-out basis.

Standard costs take into account normal levels of materials, supplies, labor, efficiency, and capacity utilization. Standard costs are regularly reviewed and, if necessary, revised in the light of current conditions. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion (where applicable) and selling expenses.

Manufactured finished goods and work-in-process are valued at the lower of production cost or net realiz­able value.

Provisions are established for slow-moving, obsolete and phase-out inventory.

Property, plant and equipment

Property, plant and equipment is valued at purchase or manu­facturing cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the expected useful lifetime of the individual assets or asset categories. Where an asset comprises several parts with different useful lifetimes, each part of the asset is depreciated separately over its applicable useful lifetime. The applicable useful lifetimes are 25 – 40 years for buildings and 3 – 10 years for production facilities, machinery, equipment, and vehicles. Land is not depreciated. Leasehold improvements are depreciated over the shorter of useful life or lease term.

Subsequent expenditure on an item of tangible assets is capitalized at cost only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Expenditure for repair and maintenance which do not increase the estimated useful lifetimes of the related assets are recognized as an expense in the period in which they are incurred.

Leasing

There are no assets that are held under leases which effectively transfer to the Group the risks and rewards of ownership (finance leases). Therefore, all leases are classified as operating leases, and payments are recognized as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the Group’s benefit.

Intangible assets

Purchased intangible assets such as software, licenses and patents are measured at cost less accumulated amorti­zation (applying the straight-line method) and any impairment in value. Software is amortized over a useful lifetime of 3 – 5 years. Intangibles relating to acquisitions of subsidi­aries (excluding goodwill) consist generally of technology, client relationships, customer lists, and brand names, and are amortized over a period of 3 – 20 years. Other intangible assets are generally amortized over a period of 3 – 10 years. For capitalized development costs in the Cochlear implants segment, amortization starts when the capitalized asset is ready for use, which is generally after receipt of approval from regulatory bodies. These assets are amortized over the estimated useful lifetime of 2 – 7 years applying the straight-line method. For in-process capitalized development costs these capitalized costs are tested annually for impairment. Except for goodwill, the Sonova Group has no intangible assets with an indefinite useful life.

Research and development

Research costs are expensed as incurred. Development costs are capitalized only if the identifiable asset is commercially and technically feasible, can be completed, its costs can be measured reliably and will generate probable future economic benefits. Group expenditures which fulfill these criteria are limited to the development of tooling and equipment as well as costs related to the development of cochlear implants. All other development costs are expensed as incurred. In addition to the internal costs (direct personnel and other operating costs, depreciation on research and development equipment and allocated occupancy costs), total costs also include externally contracted development work. Such capitalized intangibles are recognized at cost less accumulated amortization and impairment losses.

Business combinations and goodwill

Business combinations are accounted for using the acqui­sition method of accounting. The cost of a business combination is equal to the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Sonova Group, in exchange for control over the acquired company. Any difference between the cost of the business combination and the net fair value of the identifiable assets, liabilities, and contingent liabilities recognized is treated as goodwill. Goodwill is not amortized, but is assessed for impairment annually, or more frequently if events or changes in circumstances indicate that its value might be impaired. Acquisition-related costs are expensed. For each business combination, the Group recognizes the non-controlling interests in the acquiree at fair value or at the non-controlling interests proportionate share in the recognized amounts of the acquiree’s identifiable net assets.

If a business combination is achieved in stages (control obtained over an associate), the previously held equity interest in an associate is remeasured to its acquisition-date fair value and any resulting gain or loss is recognized in “financial income/expenses” in profit or loss.

Other non-current financial assets

Other non-current financial assets consist of investments in third parties and long-term receivables from associates and third parties as well as rent deposits. Investments in third parties are classified as financial assets at fair value through profit or loss and ­long-term receivables from associates and third parties as well as rent deposits are classified as loans and receivables (see Note 2.5).

Financial liabilities

Current financial liabilities consist of short-term bank debt and all other interest bearing debt with a maturity of 12 months or less. Given the short-term nature of these debts, they are recorded at nominal value. In addition, current financial liabil­ities also consist of financial liabilities resulting from contingent considerations as well as deferred payments (earn-out agreements) from acquisitions with a maturity of 12 months or less. In the case of earn-outs, they are classified as financial liabilities at fair value through profit or loss.

Derivative financial instruments are initially recognized in the balance sheet at fair value and are re-measured to their current fair value at the end of each subsequent reporting period.

Bonds are initially measured at fair value and include direct transaction costs. In subsequent accounting periods, they are re-measured at amortized costs applying the effective interest method.

Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, where it is probable that an outflow of resources will be required to settle the obligation, and where a reliable ­estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows.

The Group recognizes provisions for warranty costs to cover any costs arising from the warranty given on its products sold (including costs for legal proceedings and related costs). The provision is calculated using historical and projected data on warranty rates, claim rates and amounts, service costs, remaining warranty period and number of hearing instruments and implants on which the warranty is still active. Short-term portions of warranty provisions are reclassified to short-term provisions at each reporting date.

Share capital

Ordinary shares are classified as equity. Dividends on ordinary shares are recorded in equity in the period in which they are approved by the parent companies’ shareholders.

In case any of the Group Companies purchase shares of the parent company, the consideration paid is recognized as ­treasury shares and presented as a deduction from equity. Any consideration received from the sale of own shares is recognized in equity.

Income taxes

Income taxes include current and deferred income taxes. The Group is subject to income taxes in numerous jurisdictions and significant judgment is required in determining the worldwide provision for income taxes. The multitude of transactions and calculations implies estimates and assumptions. The Group recognizes liabilities based on ­estimates of whether additional taxes will be due.

Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Deferred tax is recorded on the valuation differences (temporary differences) between the tax bases of assets and liabilities and their carrying values in the consolidated balance sheet. Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which the temporary differences and tax losses can be offset. Deferred income tax liabilities are provided for on taxable temporary differences arising from investments in subsidiaries, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Revenue recognition

Sales are recognized net of sales taxes and discounts when the significant risk and rewards of ownership are transferred to the buyer, mainly upon delivery of products and services and reasonably assured collectability of the related receivables.

For hearing instruments sold, probable returns of products are estimated and a corresponding provision is recognized. The portion of goods sold that are expected to be returned are estimated based on historical product return rates.

For cochlear implants, sales are generally recognized upon delivery to the buyer, mainly hospitals. For returns of products, accumulated experience is used to determine the respective provision.

Revenue from the sale of service is recognized when the service has been provided to the customer and where there are no continuing unfulfilled service obligations. Sales of service contracts, such as long-term service contracts and extended warranties, are separated from the sale of goods and recognized on a straight-line basis over the term of the contract.

Interest income is recognized on a time proportion basis using the effective interest method. Dividend income is recognized when the right to receive payment is established.

Acquisition-related amortization

The Group is continuously amending its business portfolio with acquisitions resulting in acquisition-related intangibles (see section “Intangible Assets”) and related amortization charges. The Group discloses acquisition-related amortization as a separate line item in the income statement, and identifies EBITA as its key profit metric for internal (refer to Note 6) as well as for external reporting purposes. The functional allocation of these acquisition-related amortization costs are further disclosed in Note 20 “Intangible Assets” in the notes to the financial statements.

Segment reporting

Operating segments are defined on the same basis as information is provided to the chief operating decision maker. For the Sonova Group, the Chief Executive Officer (CEO) is the chief operating decision maker, who is responsible for allocating resources and assessing the performance of operating segments. Additional general information regarding the factors used to identify the entity’s reportable segments is disclosed in Note 6.

Impairment of non-financial assets

The Group assesses at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the recoverable amount of the asset is estimated. The recoverable amount of an asset or, where it is not possible to estimate the recoverable amount of an individual asset, a cash-generating unit, is the higher of its fair value less cost of disposal and its value in use. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. If the recoverable amount is lower than the carrying amount, an impairment loss is recognized. Impairments of financial assets are described in Note 2.5 “Financial assets”. For the purpose of impairment testing, goodwill as well as corporate assets are allocated to cash generating units. A goodwill impairment test is performed annually, even if there is no indication of impairment (see section “Business combinations and goodwill”).

Related parties

A party is related to an entity if the party directly or indirectly controls, is controlled by, or is under common control with the entity, has an interest in the entity that gives it significant influence over the entity, has joint control over the entity or is an associate or a joint venture of the entity. In addition, members of the Board of Directors and the Management Board or close members of their families are also considered related parties as well as post-employment plan organizations (pension funds) for the benefit of Sonova employees. No related party exercises control over the Group.

Employee benefits

Pension obligations

Most employees are covered by post-employment plans sponsored by corresponding Group companies in the Sonova Group. Such plans are mainly defined contribution plans (future bene­fits are determined by reference to the amount of contributions paid) and are generally administered by autonomous pension funds or independent insurance companies. These pension plans are financed through employer and employee contributions. The Group’s contributions to defined contribution plans are charged to the income statement in the year to which they relate.

The Group also has several defined benefit pension plans, both funded and unfunded. Accounting and reporting of these plans are based on annual actuarial valuations. Defined benefit obligations and service costs are assessed using the projected unit credit method, with the cost of providing pensions charged to the income statement so as to spread the regular cost over the service lives of employees participating in these plans. The pension obligation is measured as the present value of the estimated future outflows using interest rates of government securities which have terms to maturity approximating the terms of the related liability. Service costs from defined benefit plans are charged to the appropriate income statement heading within the operating results.

A single net interest component is calculated by applying the discount rate to the net defined benefit asset or liability. The net interest component is recognized in the income statement in the financial result.

Actuarial gains and losses, resulting from changes in actua­r­ial assumptions and differences between assumptions and actual experiences, are recognized in the period in which they occur in “Other comprehensive income” in equity.

Other long-term benefits

Other long-term benefits are mainly comprised of length of service compensation benefits in certain Group companies. These benefits are accrued and the corresponding liabilities are included under “Other provisions”.

Equity compensation benefits

The Board of Directors of Sonova Holding AG, the Management Board, and certain management and senior employees of other Group companies participate in equity compensation plans. The fair value of all equity compensation awards granted to employees is determined at the grant date and recorded as an expense over the vesting period (for details refer to Note 29). The expense for equity compen­sation awards is charged to the appropriate income statement heading within the operating result and an equivalent increase in equity (for equity-settled compensation) or financial liability (for cash-settled compensation) is recorded. In the case of cash-settled compensation, until the liability is settled, it is revalued at each reporting date, recognizing changes in the fair value in the income statement.

2.5 Financial assets

The Group classifies its financial assets in the categories financial assets at fair value through profit or loss, loans and receivables. Management determines the classification of its investments at initial recognition. All purchases and sales are recognized on the settlement date.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss consist of cash-settled calls on Sonova shares as a hedge against obligations from share appreciation rights (SARs) allocated to US employees partici­pating in the Executive Equity Award Plan (EEAP) and certain minority investments in hearing instrument related businesses. These financial assets are measured at their fair value. Those fair value changes are included in the profit or loss for the period in which they arise.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services, directly to a debtor with no intention of trading the receivable. They are included in current assets, except for matu­rities of more than 12 months, that are ­classified as non-current assets. Loans are measured at amortized cost. Amortized cost is the amount at which the financial asset is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization determined by using the effective interest method of any difference between the initial amount and the maturity amount, minus any reduction for impairment or uncollectability. The effective interest method is a method calculating the amortized cost of a ­financial asset and allocating the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected lifetime of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset.

Impairment of financial assets

A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount. The Group assesses, at each balance sheet date, whether there is any objective evidence that a financial asset may be impaired. If any such evidence exists, the Group estimates the recoverable amount of that asset and recognizes any impairment loss in the income statement. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be objectively related to an event occurring after the write-down, the write-down of the financial asset is reversed. The reversal will not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been, had the impairment not been recognized, at the date the write-down of the financial asset is reversed. The amount of the reversal is included in profit or loss for the financial year.

2.6 Derivative financial instruments and hedging

The Group regularly hedges its net exposure from foreign ­currency balance sheet positions with forward contracts. Such contracts are not qualified as cash flow hedges and are, therefore, not accounted for using hedge accounting. Gains and losses on these transactions are recognized directly in the income statement.

2.7 Significant accounting judgments and estimates

Key management judgments made in applying accounting policies

In the process of applying the Group’s accounting policies, management may be required to make judgments, apart from those involving estimates, which have an effect on the amounts recognized in the financial statements.

These include, but are not limited to, the following areas:

Capitalization of development costs

As outlined under 2.4 “Accounting and valuation principles” the Group capitalizes costs relating to the development of cochlear implants. In determining the commercial as well as the technical feasibility, management judgment may be required.

Business combinations

In the course of recognizing assets and liabilities from ­business combinations, management judgments might be required for the following areas:

  • Acquisition-related intangibles resulting from technology, customer relationships, client lists, or brand names.
  • Contingent consideration arrangements.

Key accounting estimates and assumptions

Preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. This includes estimates and assumptions in the ordinary course of business as well as non-operating events such as the outcome of pending legal disputes. The estimates and assumptions are continuously evaluated and are based on experience and other factors, including expectations 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.

Cost of business combinations

A business combination agreement may provide for an adjustment 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 cost of a business ­combination is revised accordingly, with a resulting change in the income ­statement. At the end of the 2017/18 financial year, such liabilities ­contingent on future events amount to CHF 6.1 million (previous year CHF 10.6 million) and are disclosed under other financial liabilities (Note 22).

Intangible assets, including goodwill

The Group has intangible assets with a carrying value of CHF 2,466.4 million (previous year CHF 2,323.1 million) as disclosed in Note 20.

Included in the intangible assets is goodwill amounting to CHF 1,947.2 million (previous year CHF 1,815.2 million).

Furthermore, intangible assets also include capitalized development costs in the amount of CHF 118.1 million (pre­vious year CHF 100.6 million). The capitalized development costs are reviewed on a regular basis as a matter of a standard systematic procedure. In the current financial year the assessment of the capitalized cost did not lead to any value adjustment. Due to the revision of the Cochlear implants product roadmap in the 2016/17 financial year, Sonova identified in the previous year the need of valuation adjustments on certain R&D projects. As a result, an impairment of previously capitalized development costs was recorded, resulting in a loss amounting to CHF 35.6 million in the previous year. The amount is included in the income statement in the line “other income/(expense), net”.

The Group determines annually, in accordance with the accounting policy stated in Note 2.4, whether any of the assets are impaired. For the impairment tests, estimates are made of the expected future cash flows from the use of the asset or cash-­generating unit. The actual cash flows could vary signifi­cantly from these estimates.

Deferred tax assets

The consolidated balance sheet includes deferred tax assets of CHF 114.6 million (previous year CHF 130.0 million) related to deductible differences and, in certain cases, tax loss carry­forwards, provided that their utilization appears probable. The recoverable value is based on forecasts of the corresponding taxable Group company over a period of several years. As actual results may differ from these forecasts, the deferred tax assets may need to be adjusted accordingly.

Employee benefit plans

The Sonova Group has various employee benefit plans. Most of its salaried employees are covered by these plans, of which some are defined benefit plans. The present value of the defined benefit obligations at the end of the 2017/18 financial period amounts to CHF 373.0 million (previous year CHF 356.5 million) as disclosed in Note 29. This includes CHF 369.1 million (previous year CHF 353.3 million) from the Swiss pension plan. With such plans, actuarial assumptions are made for the pur­pose of estimating future developments, including estimates and assumptions relating to discount rates, and future wage as well as pension trends. Actuaries also use statistical data such as mortality tables and staff turnover rates with a view to determining employee benefit obligations. If these factors change due to a change in economic or market conditions, the subsequent results could deviate considerably from the actuarial reports and calculations. In the medium term, such devi­ations could have an impact on the equity. The carrying amounts of the plan assets and liabilities in the balance sheet, together with a sensitivity analysis considering changes for the main input parameters in the actuarial valuation, are set out in Note 29.

Provisions for warranty and returns

On March 31, 2018, the Group recorded provisions for ­warranty and returns of CHF 125.6 million (previous year CHF 117.5 million) as disclosed in Note 21.

The calculation of these provisions is based on turnover, past experience and projected number and cost of warranty claims and returns. The actual costs for warranty, claims, and returns may differ from these estimates.

Provision for product liabilities

The Sonova Group accounts consider a provision for product liabilities related to products affected by a voluntary cochlear implant product recall of Advanced Bionics LLC in 2006.

The provision for product liabilities is reassessed on a regular and systematic basis. The provision is estimated based on a financial model. Generally, the model used to calculate the provision for the end of the 2017/18 financial year is consistent to the prior year and considers claim rates and cost per case based on historical averages. Improvements in the expected number and cost of current and future claims led to a reversal of CHF 1.8 million in the current financial year 2017/18 (2016/17: reversal of CHF 37.4 million) which contributed to the profit in the same amount (disclosed in the annual income statement in the line “Other income/(expenses), net”).

On March 31, 2018, the provision for the before mentioned cochlear implant product liabilities was CHF 118.4 million (previous year CHF 132.5 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.

3. Changes in Group structure

In the 2017/18 and 2016/17 financial years, the Group entered into several business combinations. The companies acquired/divested are in the business of producing, distributing and servicing hearing instruments.

In the financial year 2017/18, the Group acquired several small companies in Europe, North America and Asia/Pacific. Furthermore, the Group divested two smaller companies in Europe as well as one company in the US. Due to the size of these transactions, they had no material impact on the financial statements.

In the financial year 2016/17, the group entered into several business combinations and divested two smaller group companies. The main acquisition in the previous year was relating to the purchase of AudioNova International B.V.

The effect of the acquisitions and divestments for the 2017/18 and 2016/17 financial years is disclosed in Note 27.

4. Number of employees

On March 31, 2018, the Sonova Group employed the full time equivalent of 14,242 people (previous year 14,089). They were engaged in the following regions and activities:

By region

 

31.3.2018

 

31.3.2017

Switzerland

 

1,219

 

1,178

EMEA (excl. Switzerland)

 

6,471

 

6,399

Americas

 

3,539

 

3,538

Asia/Pacific

 

3,013

 

2,974

Total

 

14,242

 

14,089

 

 

 

 

 

By activity

 

 

 

 

Research and development

 

774

 

742

Operations

 

4,391

 

4,369

Sales and marketing, general and administration

 

9,077

 

8,978

Total

 

14,242

 

14,089

The average number of employees (full time equivalents) of the Sonova Group for the year was 14,073 (previous year 12,802). Total personnel expenses for the 2017/18 financial year amounted to CHF 939.5 million (previous year CHF 861.3 million).

5. Exchange rates

The following main exchange rates were used for currency translation:

 

 

31.3.2018

 

31.3.2017

 

2017/18

 

2016/17

 

 

Year-end rates

 

 

 

Average rates for the year

 

 

AUD 1

 

0.73

 

0.77

 

0.75

 

0.74

BRL 1

 

0.29

 

0.32

 

0.30

 

0.30

CAD 1

 

0.74

 

0.75

 

0.76

 

0.75

CNY 1

 

0.15

 

0.15

 

0.15

 

0.15

EUR 1

 

1.18

 

1.07

 

1.14

 

1.08

GBP 1

 

1.35

 

1.25

 

1.29

 

1.29

JPY 100

 

0.90

 

0.90

 

0.88

 

0.91

USD 1

 

0.96

 

1.00

 

0.97

 

0.99

6. Segment information 

Information by business segments

The Group is active in the two business segments, hearing instruments and cochlear implants, which are reported separately to the Group’s chief operating decision maker (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 activities of the design, development, manufacture, distribution and service of hearing instruments and related products. Research and development is centralized in Switzerland while some supporting activities are also performed in Canada and Sweden. Production of hearing instruments is concentrated in three production centers located 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, Germany and Sweden. The execution of marketing campaigns lies with the sales organizations in each market. Product distribution is done through sales organizations in the individual markets. The distribution channels of the Group vary in the individual markets depending on the sales strategy and the characteristics of the countries. The distribution channels can be split broadly 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, multinational and government customers.

Cochlear implants:

This operating segment includes the activities of the design, development, manufacture, distribution and service of hearing implants and related products. The segment consists of Advanced Bionics and the related sales organizations. Research and development as well as marketing activities of Advanced Bionics are  centralized predominantly 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

 

2017/18

 

2016/17

 

2017/18

 

2016/17

 

2017/18

 

2016/17

 

2017/18

 

2016/17

 

 

Hearing instruments

 

 

 

Cochlear implants

 

 

 

Corporate/ Eliminations

 

 

 

Total

 

 

Segment sales

 

2,425,201

 

2,191,985

 

225,828

 

207,244

 

 

 

 

 

2,651,029

 

2,399,229

Intersegment sales

 

(2,129)

 

(1,688)

 

(2,974)

 

(1,891)

 

 

 

 

 

(5,103)

 

(3,579)

Sales

 

2,423,072

 

2,190,297

 

222,854

 

205,353

 

 

 

 

 

2,645,926

 

2,395,650

Operating profit before acquisition-related amortization (EBITA)

 

520,560

 

454,993

 

11,893

 

8,005

 

 

 

 

 

532,453

 

462,998

Depreciation, amortization and impairment

 

(112,783)

 

(92,767)

 

(21,980)

 

(54,637)

 

 

 

 

 

(134,763)

 

(147,404)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment assets

 

3,780,657

 

3,552,007

 

608,275

 

588,382

 

(767,419)

 

(720,668)

 

3,621,513

 

3,419,721

Unallocated assets 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

680,465

 

515,959

Total assets

 

 

 

 

 

 

 

 

 

 

 

 

 

4,301,978

 

3,935,680

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.

Reconciliation of reportable segment profit 1,000 CHF

 

2017/18

 

2016/17

EBITA

 

532,453

 

462,998

Acquisition-related amortization

 

(49,476)

 

(39,321)

Financial costs, net

 

(7,234)

 

(6,205)

Share of gain/(loss) in associates/joint ventures, net

 

3,197

 

(143)

Income before taxes

 

478,940

 

417,329

Entity-wide disclosures

Sales by product groups 1,000 CHF

 

2017/18

 

2016/17

Premium hearing instruments

 

679,017

 

604,506

Advanced hearing instruments

 

497,627

 

464,710

Standard hearing instruments

 

761,349

 

713,864

Wireless communication systems

 

115,816

 

106,684

Miscellaneous

 

369,263

 

300,533

Total hearing instruments segment

 

2,423,072

 

2,190,297

Cochlear implant systems

 

165,099

 

159,971

Upgrades and accessories

 

57,755

 

45,382

Total cochlear implants segment

 

222,854

 

205,353

Total sales

 

2,645,926

 

2,395,650

Sales by business – hearing instruments segment 1,000 CHF

 

2017/18

 

2016/17 1)

Hearing instruments business

 

1,441,570

 

1,377,228

Retail business

 

981,502

 

813,069

Total hearing instruments segment

 

2,423,072

 

2,190,297

1) Reclassification of US insurance subcontracting business from Retail (as disclosed in the annual report 2016/17) to Hearing instruments business.

Sales and selected non-current assets by regions 1,000 CHF

 

2017/18

 

2016/17

 

2017/18

 

2016/17

Country/region

 

Sales 1)

 

 

 

Selected non-current assets 2)

 

 

Switzerland

 

29,613

 

26,837

 

251,353

 

241,460

EMEA (excl. Switzerland)

 

1,369,231

 

1,135,362

 

1,650,584

 

1,461,948

USA

 

759,610

 

787,324

 

655,239

 

700,766

Americas (excl. USA)

 

230,781

 

210,888

 

129,128

 

130,749

Asia/Pacific

 

256,691

 

235,239

 

109,286

 

109,967

Total Group

 

2,645,926

 

2,395,650

 

2,795,590

 

2,644,890

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.

7. Other income/expenses, net 

“Other income/expenses, net” in the 2017/18 financial year amounts to CHF 7.2 million (previous year CHF 6.3 million). The regular and systematic assessment of the provision for product liabilities in the Cochlear implants segment led to a release of CHF 1.8 million (previous year CHF 37.4 million). In addition, the divestment of two minor group companies in the EMEA region and the sale of a company in the USA led to a gain of CHF 5.4 million (previous year other income from divestments CHF 3.8 million). Furthermore in 2016/17 the “other expenses” also included an impairment of previously capitalized development costs of CHF 35.6 million. For further information refer to Note 2.7 “Provision for product liabilities”, Note 20 “Intangible assets”, Note 21 “Provisions” and Note 27 “Acquisitions/Disposals of subsidiaries”.

8. Financial income/expenses, net

1,000 CHF

 

2017/18

 

2016/17

Interest income

 

1,624

 

3,797

Other financial income

 

506

 

3,596

Total financial income

 

2,130

 

7,393

Interest expenses

 

(1,278)

 

(1,728)

Other financial expenses

 

(8,086)

 

(11,870)

Total financial expenses

 

(9,364)

 

(13,598)

Total financial income/expenses, net

 

(7,234)

 

(6,205)

Other financial expenses in 2017/18 and 2016/17 include, amongst other items, the unwinding of the discount on provisions, contingent considerations and deferred payments, fair value adjustments of financial instruments as well as the costs for entering into forward foreign currency contracts.

9. Taxes

1,000 CHF

 

2017/18

 

2016/17

Income taxes

 

60,433

 

49,235

Change in deferred taxes

 

11,072

 

11,918

Total tax expense

 

71,505

 

61,153

 

 

 

 

 

Reconciliation of tax expense

 

 

 

 

Income before taxes

 

478,940

 

417,329

Group’s expected average tax rate

 

14.6%

 

15.5%

Tax at expected average rate

 

69,946

 

64,887

+/– Effects of

 

 

 

 

Expenses not subject to tax, net

 

3,994

 

3,564

Changes of unrecognized loss carryforwards/deferred tax assets

 

(8)

 

(3,785)

Local actual tax rate different to Group’s expected average tax rate

 

(24,278)

 

(12,759)

Change in tax rates on deferred tax balances 1)

 

19,960

 

7,808

Prior year adjustments and other items, net

 

1,891

 

1,438

Total tax expense

 

71,505

 

61,153

Weighted average effective tax rate

 

14.9%

 

14.7%

1) 2017/18 change mainly relates to a reduction for US corporate income tax rates.

The Group’s expected average tax rate is the aggregate rate obtained by applying the expected tax rate for each individual jurisdiction to its respective result before taxes.

Deferred tax assets and (liabilities) 1,000 CHF

2017/18

 

 

Property, plant & equipment

 

Intangible assets

 

Inventories, receivables, provisions and other liabilities

 

Tax loss carryforwards

 

Total

Balance April 1

 

(7,094)

 

(99,727)

 

35,315

 

64,669

 

(6,837)

Changes through business combinations

 

 

 

(1,940)

 

6,008

 

 

 

4,068

Deferred taxes recognized in the income statement

 

256

 

5,281

 

(4,152)

 

(12,457)

 

(11,072)

Deferred taxes recognized in OCI 1)

 

 

 

 

 

(2,125)

 

 

 

(2,125)

Exchange differences

 

(299)

 

(7,591)

 

(3,199)

 

384

 

(10,705)

Balance March 31

 

(7,137)

 

(103,977)

 

31,847

 

52,596

 

(26,671)

 

 

 

 

 

 

 

 

 

 

 

Amounts in the balance sheet

 

 

 

 

 

 

 

 

 

 

Deferred tax assets

 

 

 

 

 

 

 

 

 

114,645

Deferred tax liabilities

 

 

 

 

 

 

 

 

 

(141,316)

Total deferred taxes, net

 

 

 

 

 

 

 

 

 

(26,671)

1) Other comprehensive income.

Deferred tax assets and (liabilities) 1,000 CHF

2016/17

 

 

Property, plant & equipment

 

Intangible assets

 

Inventories, receivables, provisions and other liabilities

 

Tax loss carryforwards

 

Total

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 OCI 1)

 

 

 

 

 

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 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

 

31.3.2018

 

31.3.2017

Within 1–3 years

 

97,693

 

60,213

Within 4 years

 

10,918

 

39,851

Within 5 years

 

28,049

 

17,585

More than 5 years

 

449,355

 

416,462

Total

 

586,015

 

534,111

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 is calculated by dividing the income after taxes attributable to the ordinary equity holders of the parent company by the weighted average number of shares outstanding during the year.

Basic earnings per share

 

2017/18

 

2016/17

Income after taxes (1,000 CHF)

 

400,135

 

349,172

Weighted average number of outstanding shares

 

65,319,359

 

65,321,391

Basic earnings per share (CHF)

 

6.13

 

5.35

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 2018 and which have not yet been exercised. Options that are out-of-the-money (compared to average share price) are not 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

 

2017/18

 

2016/17

Income after taxes (1,000 CHF)

 

400,135

 

349,172

Weighted average number of outstanding shares

 

65,319,359

 

65,321,391

Adjustment for dilutive share options

 

216,787

 

91,619

Adjusted weighted average number of outstanding shares

 

65,536,146

 

65,413,010

Diluted earnings per share (CHF)

 

6.11

 

5.34

11. Dividend per share 

The Board of Directors of Sonova Holding AG proposes to the Annual General Shareholders’ Meeting, to be held on June 12, 2018, that a dividend of CHF 2.60 shall be distributed (previous year CHF 2.30).

12. Cash and cash equivalents

1,000 CHF

 

31.3.2018

 

31.3.2017

Cash on hand

 

1,335

 

1,129

Current bank accounts

 

413,551

 

289,819

Term deposits

 

137,235

 

83,556

Total

 

552,121

 

374,504

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.

13. Other current financial assets

1,000 CHF

 

31.3.2018

 

31.3.2017

Marketable securities

 

59

 

358

Positive replacement value of forward foreign exchange contracts

 

534

 

819

Loans to third parties

 

3,780

 

2,987

Total

 

4,373

 

4,164

14. Trade receivables 

1,000 CHF

 

31.3.2018

 

31.3.2017

Trade receivables

 

481,470

 

439,453

Provision for doubtful receivables

 

(31,925)

 

(26,078)

Total

 

449,545

 

413,375

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

 

31.3.2018

 

31.3.2017

Total trade receivables, net

 

449,545

 

413,375

of which:

 

 

 

 

Not overdue

 

323,879

 

302,406

Overdue 1–30 days

 

64,384

 

54,547

Overdue more than 30 days

 

61,282

 

56,422

Total

 

449,545

 

413,375

Provision for doubtful receivables is established based on individual adjustments and past experience. 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

 

2017/18

 

2016/17

Provision for doubtful receivables, April 1

 

(26,078)

 

(22,166)

Changes through business combinations

 

(45)

 

(3,039)

Utilization or reversal

 

10,696

 

9,299

Additions

 

(16,411)

 

(10,661)

Disposal

 

84

 

979

Exchange differences

 

(171)

 

(490)

Provision for doubtful receivables, March 31

 

(31,925)

 

(26,078)

During 2017/18, the Group utilized CHF 9.7 million (previous year CHF 7.3 million) of this provision to write-off receivables.

The carrying amounts of trade receivables are denominated in the following currencies:

1,000 CHF

 

31.3.2018

 

31.3.2017

BRL

 

18,765

 

22,155

CAD

 

21,547

 

24,546

CHF

 

14,611

 

13,625

EUR

 

177,604

 

139,628

GBP

 

17,774

 

12,859

USD

 

131,931

 

134,033

Other

 

67,313

 

66,529

Total trade receivables, net

 

449,545

 

413,375

15. Other receivables and prepaid expenses 

1,000 CHF

 

31.3.2018

 

31.3.2017

Other receivables

 

64,482

 

65,240

Prepaid expenses

 

26,133

 

21,088

Total

 

90,615

 

86,328

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

 

31.3.2018

 

31.3.2017

Raw materials and components

 

45,030

 

40,905

Work-in-process

 

90,030

 

93,891

Finished products

 

168,883

 

156,871

Allowances

 

(39,475)

 

(36,012)

Total

 

264,468

 

255,655

Allowances include value adjustments for slow moving, phase out and obsolete stock.

The “cost of sales” corresponding to the carrying value of inventory (which excludes freight, packaging, logistics as well as certain overhead cost) amounted in 2017/18 to CHF 672.3 million (previous year CHF 639.2 million).

17. Property, plant and equipment 

1,000 CHF

2017/18

 

 

Land & buildings

 

Machinery & technical equipment

 

Room installations & other equipment

 

Advance payments & assets under construction

 

Total

Cost

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

195,039

 

277,262

 

313,340

 

5,433

 

791,074

Changes through business combinations

 

10

 

92

 

2,285

 

 

 

2,387

Additions

 

1,428

 

22,261

 

26,660

 

10,860

 

61,209

Disposals

 

(74)

 

(11,162)

 

(19,453)

 

 

 

(30,689)

Transfers

 

(3,146)

 

2,977

 

5,723

 

(5,554)

 

 

Exchange differences

 

2,244

 

2,913

 

15,233

 

(136)

 

20,254

Balance March 31

 

195,501

 

294,343

 

343,788

 

10,603

 

844,235

Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

(69,201)

 

(203,090)

 

(208,462)

 

 

 

(480,753)

Additions

 

(5,567)

 

(25,922)

 

(31,272)

 

 

 

(62,761)

Disposals

 

32

 

10,623

 

17,830

 

 

 

28,485

Transfers

 

1,722

 

323

 

(2,045)

 

 

 

 

Exchange differences

 

(1,004)

 

(1,934)

 

(10,775)

 

 

 

(13,713)

Balance March 31

 

(74,018)

 

(220,000)

 

(234,724)

 

 

 

(528,742)

Net book value

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

125,838

 

74,172

 

104,878

 

5,433

 

310,321

Balance March 31

 

121,483

 

74,343

 

109,064

 

10,603

 

315,493

1,000 CHF

2016/17

 

 

Land & buildings

 

Machinery & technical equipment

 

Room installations & other equipment

 

Advance payments & assets under construction

 

Total

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

Pledged fixed assets amounted to CHF 0.1 million (previous year CHF 0.1 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

 

2017/18

 

2016/17

Current assets

 

1,558

 

919

Non-current assets

 

2,226

 

1,518

Total assets

 

3,784

 

2,437

Current liabilities

 

(801)

 

(394)

Non-current liabilities

 

(35)

 

 

Total liabilities

 

(836)

 

(394)

Net assets

 

2,948

 

2,043

 

 

 

 

 

Income for the year

 

5,804

 

2,170

Expenses for the year

 

(2,607)

 

(2,313)

Profit for the year

 

3,197

 

(143)

 

 

 

 

 

Net book value at year-end

 

13,700

 

11,471

Share of gain/(loss) recognized by the Group

 

3,197

 

(143)

In the 2017/18 financial year, the Group acquired one associate and disposed a majority share (51%) of a previously fully consolidated company (resulting in a minority share and a reclassification to associates). Both transactions were for companies which are in the business of selling hearing instruments but had no significant effect on the financial statements for the group. The net consideration for the two transactions above amounted to CHF 1.2 million (previous year CHF 1.6 million). In the 2016/17 financial year, the Group acquired three and divested one associate.

Sales to associates/joint ventures in the 2017/18 financial year amounted to CHF 10.0 million (previous year CHF 7.3 million). At March 31, 2018, trade receivables towards associates/joint ventures amounted to CHF 2.3 million (previous year CHF 2.2 million).

At the end of the 2017/18 and 2016/17 financial years, no unrecognized losses existed.

Investments with a net book value of CHF 13.7 million (previous year CHF 11.5 million) have a business year different than the Sonova Group. The latest available information for the respective companies are as per December 2017.

19. Other non-current financial assets 

1,000 CHF

 

31.3.2018

 

31.3.2017

Financial assets at fair value through profit or loss

 

1,761

 

3,190

Loans to associates

 

6,713

 

7,855

Loans to third parties

 

12,124

 

7,722

Rent deposits

 

3,316

 

1,598

Total

 

23,914

 

20,365

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. 

The loans are primarily denominated in CAD, EUR, GBP, USD and ZAR. Loans to third parties consist mainly of loans to customers. As of March 31, 2018, the respective repayment periods vary between one and seven years and the interest rates vary generally between 3% and 5%. The valuation of the loans approximates to fair value.

20. Intangible assets 

1,000 CHF

2017/18

 

 

Goodwill

 

Intangibles relating to acquisitions 1)

 

Capitalized development costs

 

Software and other intangibles

 

Total

Cost

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

1,969,218

 

606,961

 

135,083

 

87,482

 

2,798,744

Changes through business combinations

 

77,876

 

26,653

 

 

 

72

 

104,601

Additions

 

 

 

 

 

30,092

 

4,994

 

35,086

Disposals

 

(18,223)

 

(18,602)

 

 

 

(8,115)

 

(44,940)

Exchange differences

 

65,550

 

30,316

 

(109)

 

459

 

96,216

Balance March 31

 

2,094,421

 

645,328

 

165,066

 

84,892

 

2,989,707

Accumulated amortization

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

(154,062)

 

(224,932)

 

(34,489)

 

(62,174)

 

(475,657)

Additions

 

 

 

(49,476) 2)

 

(12,462)

 

(10,064)

 

(72,002)

Disposals

 

 

 

11,135

 

 

 

8,279

 

19,414

Exchange differences

 

6,823

 

(958)

 

 

 

(931)

 

4,934

Balance March 31

 

(147,239)

 

(264,231)

 

(46,951)

 

(64,890)

 

(523,311)

Net book value

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

1,815,156

 

382,029

 

100,594

 

25,308

 

2,323,087

Balance March 31

 

1,947,182

 

381,097

 

118,115

 

20,002

 

2,466,396

1) Intangibles relating to acquisitions include primarily customer relationships, trademarks, in process R&D and technology.

2) Relates to research and development (CHF 1.1 million) and sales and marketing (CHF 48.4 million).

1,000 CHF

2016/17

 

 

Goodwill

 

Intangibles relating to acquisitions 1)

 

Capitalized development costs

 

Software and other intangibles

 

Total

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).

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 monitored 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). 

Based on the impairment tests performed, there was no need for the recognition of any impairment of goodwill for the 2017/18 and 2016/17 financial years.

Hearing instruments

As of March 31, 2018, the carrying amount of the goodwill, expressed in various currencies, amounted to an equivalent of CHF 1,639.0 million (prior year CHF 1,492.7 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 2.2% (prior year 2.0%) representing the projected inflation rate. For the calculation, a pre-tax weighted average discount rate of 8.4% (prior year 9.2%) was used. The group performed a sensitivity analysis which shows that changes to the main input parameters (increase of discount rate +1%, or long-term growth rate –1%) would not result in an impairment of goodwill.

Cochlear implants

As of March 31, 2018, the carrying amount of the goodwill, expressed in various currencies,­ amounted to an equivalent of CHF 308.2 million (prior year CHF 322.5 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 2.4% (prior year 2.1%) representing the projected inflation rate. For the calculation, a pre-tax weighted average discount rate of 8.6% (prior year 9.1%) was used. The group performed a sensitivity analysis which shows that changes to the main input parameters (increase of discount rate +1%, or long-term growth rate –1%) would not result in an impairment of goodwill.

The capitalized development costs are reviewed on a regular basis. In the current financial year 2017/18, this review did not lead to any valuation adjustments. Due to the revision of the ­Cochlear implants product roadmap in the 2016/17 financial year, Sonova had identified the need of valuation adjustments on certain R & D projects. As a result, an impairment of previously capitalized development costs was recorded in previous year, resulting in a loss amounting to CHF 35.6 million. The amount is included in the income statement 2016/17 in the line “other income/(expense), net”. The capitalized development costs are included in the reportable segment “Cochlear implants” disclosed in Note 6.

21. Provisions 

1,000 CHF

2017/18

 

 

Warranty and returns

 

Reimbursement to customers

 

Product liabilities

 

Other Provisions

 

Total

Balance April 1

 

117,489

 

11,186

 

132,525

 

37,008

 

298,208

Changes through business combinations

 

7,413

 

24

 

 

 

413

 

7,850

Amounts used

 

(64,787)

 

(6,404)

 

(7,245)

 

(18,243)

 

(96,679)

Reversals

 

(8,155)

 

(11)

 

(1,835)

 

(4,228)

 

(14,229)

Increases

 

71,458

 

4,656

 

 

 

15,641

 

91,755

Disposals

 

 

 

 

 

 

 

(334)

 

(334)

Present value adjustments

 

2

 

 

 

722

 

(176)

 

548

Exchange differences

 

2,180

 

(290)

 

(5,743)

 

1,196

 

(2,657)

Balance March 31

 

125,600

 

9,161

 

118,424

 

31,277

 

284,462

thereof short-term

 

79,724

 

9,161

 

15,427

 

13,610

 

117,922

thereof long-term

 

45,876

 

 

 

102,997

 

17,667

 

166,540

1,000 CHF

2016/17

 

 

Warranty and returns

 

Reimbursement to customers

 

Product liabilities

 

Other Provisions

 

Total

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

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 instruments 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 voluntary 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 1.8 million (previous year CHF 37.4 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 uncertain since it will largely depend on the outcome of administrative and legal proceedings.

Other provisions include provisions for specific business risks such as litigation and restructuring costs which arise during the normal course of business. The timing of cash outflows for the other provisions is expected to take place within the next two years.

22. Financial liabilities 

In connection with the financing of the acquisition of AudioNova in the previous financial year, 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 (disclosed under current financial liabilities). The fair value as of March 31, 2018 amounts to CHF 150.0 million (100.30%).
  • 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 (disclosed as non-current financial liabilities). The fair value as of March 31, 2018 amounts to CHF 250.0 million (100.58%).
  • 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 (disclosed as non-current financial liabilities. Interests will be paid on an annual basis. The fair value as of March 31, 2018 amounts to CHF 360.0 million (100.28%).

Current financial liabilities

Current financial liabilities 1,000 CHF

 

31.3.2018

 

31.3.2017

Bank debt

 

18

 

19

Bond

 

150,100

 

 

Deferred payments and contingent considerations

 

9,598

 

12,323

Other current financial liabilities

 

1,921

 

1,013

Total

 

161,637

 

13,355

 

 

 

 

 

Unused borrowing facilities

 

187,153

 

187,003

Besides the bond, 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. The credit facility was not used at balance sheet date.

Non-current financial liabilities

Non-current financial liabilities 1,000 CHF

 

31.3.2018

 

31.3.2017

Bank debt

 

62

 

78

Bonds

 

609,227

 

759,198

Deferred payments and contingent considerations

 

7,593

 

6,024

Other non-current financial liabilities

 

2,177

 

1,660

Total

 

619,059

 

766,960

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) (refer to Note 30).

Analysis by currency 1,000 CHF

 

31.3.2018

 

31.3.2017

 

 

Bank debt

 

Bonds

 

Other non-current financial liabilities

 

Total

 

Bank debt

 

Bonds

 

Other non-current financial liabilities

 

Total

CHF

 

 

 

609,227

 

8,693

 

617,920

 

 

 

759,198

 

5,944

 

765,142

USD

 

 

 

 

 

15

 

15

 

 

 

 

 

419

 

419

EUR

 

 

 

 

 

79

 

79

 

 

 

 

 

 

 

 

Other

 

62

 

 

 

983

 

1,045

 

78

 

 

 

1,321

 

1,399

Total

 

62

 

609,227

 

9,770

 

619,059

 

78

 

759,198

 

7,684

 

766,960

Reconciliation of financial liabilities

Reconciliation of financial liabilities 1,000 CHF

 

 

 

 

 

 

 

 

 

2017/18

 

 

Bank debt

 

Deferred payments and contingent considerations

 

Bonds

 

Other financial liabilities

 

Total

Balance April 1

 

97

 

18,347

 

759,198

 

2,673

 

780,315

Repayments

 

(22)

 

(108)

 

 

 

(15)

 

(145)

Exchange differences

 

5

 

163

 

 

 

(423)

 

(255)

Other

 

 

 

(1,211)

 

129

 

1,863

 

781

Balance March 31

 

80

 

17,191

 

759,327

 

4,098

 

780,696

thereof short-term

 

18

 

9,598

 

150,100

 

1,921

 

161,637

thereof long-term

 

62

 

7,593

 

609,227

 

2,177

 

619,059

23. Other short-term liabilities

1,000 CHF

 

31.3.2018

 

31.3.2017

Other payables

 

53,267

 

47,661

Accrued expenses

 

192,607

 

184,190

Deferred income

 

29,796

 

27,324

Total

 

275,670

 

259,175

Other payables include amounts to be remitted for 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 compensation as well as accruals for outstanding invoices from suppliers.

24. 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 is 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 currency 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, 2018, forward currency contracts amounting to CHF 329.4 million (previous year CHF 201.8 million) were open. The open contracts on March 31, 2018 as well as on March 31, 2017 were all due within one year.

Notional amount of forward contracts 1,000 CHF

31.3.2018

 

31.3.2017

 

 

Total

 

Fair Value

 

Total

 

Fair Value

Positive replacement values

 

61,024

 

534

 

57,513

 

819

Negative replacement values

 

268,337

 

(1,740)

 

102,597

 

(870)

Total

 

329,361

 

(1,206)

 

160,110

 

(51)

Foreign currency sensitivity analysis

1,000 CHF

 

2017/18

 

2016/17

 

2017/18

 

2016/17

 

 

Impact on income after taxes 1)

 

 

 

Impact on equity

 

 

Change in USD/CHF +5%

 

4,302

 

1,181

 

14,290

 

32,494

Change in USD/CHF –5%

 

(4,302)

 

(1,181)

 

(14,290)

 

(32,494)

Change in EUR/CHF +5%

 

5,223

 

4,665

 

19,550

 

17,733

Change in EUR/CHF –5%

 

(5,223)

 

(4,665)

 

(19,550)

 

(17,733)

1) Excluding the impact of forward currency contracts.

Interest rate risk

The Group has only limited exposure to interest rate changes. The most substantial interest exposure on assets relates to cash and cash equivalents with an average interest-bearing amount for the 2017/18 financial year of CHF 372 million (previous year CHF 236 million). On liabilities the most significant risk relates to the two year variable rate bond (see Note 22). If interest rates during the 2017/18 financial year had been 1% higher, the positive impact on income before taxes would have been CHF 2.5 million. If interest rates had been 1% lower, the income would have been negatively impacted by CHF 2.0 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 tolerance 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 principally 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, 2018, the largest balance with a single counterparty amounted to 24% (previous year 19%) 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.

The following table summarizes the contractual maturities of financial liabilities as of March 31, 2018 and 2017:

1,000 CHF

31.3.2018

 

 

Due less than 3 months

 

Due 3 months to 1 year

 

Due 1 year to 5 years

 

Due more than 5 years

 

Total

Bonds

 

 

 

150,100

 

 

 

 

 

150,100

Other current financial liabilities

 

3,900

 

7,637

 

 

 

 

 

11,537

Trade payables and other short-term liabilities

 

215,722

 

144,213

 

 

 

 

 

359,935

Total current financial liabilities

 

219,622

 

301,950

 

 

 

 

 

521,572

 

 

 

 

 

 

 

 

 

 

 

Bonds

 

 

 

 

 

609,227

 

 

 

609,227

Other non-current financial liabilities

 

 

 

 

 

9,832

 

 

 

9,832

Total non-current financial liabilities

 

 

 

 

 

619,059

 

 

 

619,059

 

 

 

 

 

 

 

 

 

 

 

Total financial liabilities

 

219,622

 

301,950

 

619,059

 

 

 

1,140,631

 

 

 

 

 

 

 

 

 

 

 

1,000 CHF

31.3.2017

 

 

Due less than 3 months

 

Due 3 months to 1 year

 

Due 1 year to 5 years

 

Due more than 5 years

 

Total

Short-term debt

 

19

 

 

 

 

 

 

 

19

Other current financial liabilities

 

4,563

 

8,773

 

 

 

 

 

13,336

Trade 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

Fair value hierarchy

The following table summarizes the financial instruments carried at fair value, by valuation method, as of March 31, 2018 and 2017. 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 market data, where applicable. If all significant inputs required to 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 analysis, are used to determine fair value.

During the reporting period there were no reclassifications between the individual levels.

1,000 CHF

31.3.2018

 

 

Level 1

 

Level 2

 

Level 3

 

Total

Financial assets

 

 

 

 

 

 

 

 

At fair value through profit or loss

 

59

 

 

 

2,295

 

2,354

Total

 

59

 

 

 

2,295

 

2,354

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

At fair value through profit or loss

 

 

 

 

 

(21,123)

 

(21,123)

Total

 

 

 

 

 

(21,123)

 

(21,123)

 

 

 

 

 

 

 

 

 

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)

The following table presents the changes in level 3 financial instruments for the year ended March 31, 2018 and 2017:

Financial assets at fair value through profit or loss 1,000 CHF

 

2017/18

 

2016/17

Balance April 1

 

1,531

 

6,474

Additions/(disposals), net

 

819

 

(3,263)

Losses recognized in profit or loss

 

(55)

 

(1,680)

Balance March 31

 

2,295

 

1,531

 

 

 

 

 

Financial liabilities at fair value through profit or loss 1,000 CHF

 

2017/18

 

2016/17

Balance April 1

 

(20,598)

 

(21,574)

(Additions)/disposals, net

 

3,369

 

1,620

Losses recognized in profit or loss

 

(3,894)

 

(644)

Balance March 31

 

(21,123)

 

(20,598)

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.

25. Other long-term liabilities 

1,000 CHF

 

31.3.2018

 

31.3.2017

Long-term deferred income

 

106,487

 

80,697

Retirement benefit obligations

 

7,391

 

25,581

Total

 

113,878

 

106,278

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 2017/18 primarily relates to the finalization of the purchase accounting of the fair values assigned in regards to the acquisition of AudioNova. For further information, refer to Note 27. 

The retirement benefit obligation relates to defined benefit plans. For details refer to Note 29.

26. Movements in share capital 

Issued registered shares

 

Issued registered shares

 

Treasury shares 1)

 

Outstanding shares

Balance April 1, 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

Purchase of shares intended to be cancelled 2)

 

 

 

(92,000)

 

(92,000)

Balance March 31, 2017

 

65,422,887

 

(100,190)

 

65,322,697

 

 

 

 

 

 

 

Capital decrease – share buy-back program 2)

 

(92,000)

 

92,000

 

 

Purchase of treasury shares

 

 

 

(318,675)

 

(318,675)

Sale/transfer of treasury shares

 

 

 

323,243

 

323,243

Balance March 31, 2018

 

65,330,887

 

(3,622)

 

65,327,265

 

 

 

 

 

 

 

Nominal value of share capital 1,000 CHF

 

Share Capital

 

Treasury shares 1)

 

Outstanding share capital

Balance March 31, 2018

 

3,267

 

(1)

 

3,266

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 unissued as of March 31, 2018. 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).

27. Acquisitions/Disposals of subsidiaries 

In the financial year 2017/18, the Group acquired several small companies in Europe, North America and Asia/Pacific. Furthermore, the Group divested of two smaller companies in Europe as well as one company in the US. All of these companies acquired/divested are in the business of producing and/or distributing and servicing hearing instruments. Due to the size of these transactions, they had no material impact on the financial statements. The most significant of the businesses acquired related to the acquisition of the “Hörgeräte ISMA GmbH & Co. KG”, a German retail company with 56 points of sale and 190 employees. During the financial year 2016/17 besides several small acquisitions/divestments, AudioNova International B.V. 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

 

2017/18

 

2016/17

 

 

Total

 

AudioNova

 

Others

 

Total

Trade receivables

 

2,270

 

32,486

 

333

 

32,819

Other current assets

 

17,435

 

77,152

 

2,444

 

79,596

Property, plant & equipment

 

2,387

 

45,572

 

1,090

 

46,662

Intangible assets

 

26,725

 

275,742

 

15,126

 

290,868

Other non-current assets

 

553

 

28,010

 

2,183

 

30,193

Current liabilities

 

(14,592)

 

(35,307)

 

(3,450)

 

(38,757)

Non-current liabilities

 

(27,969)

 

(460,818)

 

(5,117)

 

(465,935)

Net assets

 

6,809

 

(37,163)

 

12,609

 

(24,554)

Goodwill

 

77,876

 

720,610

 

33,246

 

753,856

Purchase consideration

 

84,685

 

683,447

 

45,855

 

729,302

Liabilities for contingent considerations and deferred payments 1)

 

(5,766)

 

 

 

(1,487)

 

(1,487)

Cash and cash equivalents acquired

 

(3,423)

 

(53,022)

 

(1,359)

 

(54,381)

Cash outflow for investments in associates, contingent considerations and deferred payments

 

6,978

 

 

 

1,849

 

1,849

Cash consideration for acquisitions, net of cash acquired

 

82,474

 

630,425

 

44,858

 

675,283

Settlement of pre-existing HAL intragroup financing

 

 

 

290,794

 

 

 

290,794

Total consideration paid, net of cash acquired

 

82,474

 

921,219

 

44,858

 

966,077

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 companies 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.

In the 2017/18 reporting period, recognized acquisition-related intangible assets mainly relate to customer relationships. In the financial year 2016/17, 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 0.5 million (prior year period CHF 8.8 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 components resulting from the AudioNova acquisition.

April 1 to March 31, 1,000 CHF

 

2017/18

 

2016/17

 

 

Total

 

AudioNova

 

Others

 

Total

Contribution of acquired companies from date of acquisition

 

 

 

 

 

 

 

 

Sales

 

17,675

 

218,086

 

12,661

 

230,747

Net income

 

1,745

 

11,589

 

1,269

 

12,858

 

 

 

 

 

 

 

 

 

Contribution, if the acquisitions occurred on April 1

 

 

 

 

 

 

 

 

Sales

 

34,778

 

361,867

 

19,754

 

381,621

Net income 1)

 

6,337

 

9,304

 

3,230

 

12,534

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 March 30, 2018, Sonova Holding AG signed an agreement to divest Ear Professional International Corporation (“EPIC”), representing the Group's US insurance subcontracting business. Further in the 2017/18 reporting period, the Group divested two minor group companies in the EMEA region. The total purchase price consideration for the divestments amounted to CHF 23.2 million. The carrying amount of the disposed net assets amounted to CHF 17.8 million including cash and cash equivalents of CHF 0.8 million. The net gain from these transactions of CHF 5.4 million has been recognized in the income statement and is included in “other income/(expense), net”. These transactions have no material impact on the financial statements.

In the financial year 2016/17, the Group divested two minor group companies in the EMEA and 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”.

28. Transactions and relations with members of the Management Board and the Board of Directors 

1,000 CHF

 

2017/18

 

2016/17

 

2017/18

 

2016/17

 

2017/18

 

2016/17

 

 

Management Board

 

 

 

Board of Directors

 

 

 

Total

 

 

Short-term employee benefits

 

9,309

 

8,199

 

1,552

 

1,519

 

10,861

 

9,718

Post-employment benefits

 

883

 

828

 

 

 

 

 

883

 

828

Share based payments

 

6,646

 

5,064

 

1,390

 

1,362

 

8,036

 

6,426

Total

 

16,838

 

14,091

 

2,942

 

2,881

 

19,780

 

16,972

The total compensation to the Management Board for the 2017/18 reporting period, as shown above, relates to 10 members (including two members of the Management Board who joined in October 2017) and two former members of the Management Board until contractual end date. The total compensation to the Management Board for the 2016/17 reporting period, as shown above, related to 10 members.

The total compensation to the Board of Directors for the 2017/18 reporting period, as shown above, relates to eight current members (previous year also eight members).

Transactions between the Group and the various post-employment benefit plans for the employees of the Group are described in Note 29.

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 compensation report and in the Note 3.6 of the financial statements of Sonova Holding AG.

29. Employee benefits

Defined benefit plans

Sonova Group’s retirement plans include defined benefit pension plans in Switzerland, Austria, Canada, Germany and Israel. These plans are both funded and unfunded and governed 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 369.1 million or 99.6% (previous year CHF 353.3 million or 99.6%) 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 as 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, to further reduce the financial risks of the pension fund, the foundation has decided that, above a set insured salary, the savings capital will be split into pension-accumulating and capital-accumulating savings capital. The pension-accumulating savings capital will generate a life-long retirement pension upon retirement. The capital-accumulating savings capital will generate a one-off capital payment upon retirement. In the previous year, the foundation decided to reduce the annuity rate of 5.8% applied to the individual accumulated retirement saving gradually over-time. After 5.8% that was applied for 2016/17, an annuity rate of 5.6% was applied for the financial year 2017/18.

As of March 31, 2018, 1,254 employees (previous year 1,210 employees) and 119 beneficiaries­ (previous year 107 beneficiaries) are insured under the Swiss plan. The defined benefit obligation has a duration of 13.4 years (previous year 14.3 years).

The results of all defined benefit plans are summarized below:

Amounts recognized in the balance sheet CHF 1,000

 

31.3.2018

 

31.3.2017

Present value of funded obligations

 

(370,714)

 

(354,721)

Fair value of plan assets

 

365,616

 

330,864

Net present value of funded plans

 

(5,098)

 

(23,857)

Present value of unfunded obligations

 

(2,293)

 

(1,724)

Total liabilities, net

 

(7,391)

 

(25,581)

 

 

 

 

 

Amounts in the balance sheet:

 

 

 

 

Retirement benefit obligation

 

(7,391)

 

(25,581)

Remeasurements recognized in equity CHF 1,000

 

2017/18

 

2016/17

Balance April 1

 

30,049

 

69,497

Actuarial (gains)/losses from

 

 

 

 

– changes in demographic assumptions

 

 

 

(6,775)

– changes in financial assumptions

 

(12,525)

 

(4,125)

– changes in experience adjustments

 

12,564

 

(4,789)

Return on plan assets excluding interest income

 

(15,039)

 

(23,759)

Balance March 31

 

15,049

 

30,049

Amounts recognized in the income statement CHF 1,000

 

2017/18

 

2016/17

Current service cost 1)

 

21,331

 

23,982

Participants’ contributions

 

(10,973)

 

(10,633)

Net interest cost

 

187

 

435

Total employee benefit expenses 2)

 

10,545

 

13,784

1) Current service cost for the 2017/18 financial year contains the effect of the pension plan change as described above. 2016/17 contains the effect of a gradual reduction of the annuity rate.

2) The amount recognized in the consolidated income statement 2017/18 has been charged to:

– cost of sales CHF 1.9 million (previous year CHF 2.4 million);

– research and development CHF 3.5 million (previous year 4.3 million);

– sales and marketing CHF 2.1 million (previous year 2.7 million);

– general and administration CHF 2.9 million (previous year CHF 4.0 million);

– financial expenses CHF 0.2 million (previous year CHF 0.4 million).

Movement in the present value of the defined benefit obligations CHF 1,000

 

2017/18

 

2016/17

Beginning of the year

 

356,452

 

361,122

Interest cost

 

2,215

 

2,243

Current service cost

 

21,331

 

23,982

Benefits paid, net

 

(7,197)

 

(15,377)

Actuarial loss on obligations

 

39

 

(15,689)

Changes through business combinations

 

 

 

104

Exchange differences

 

167

 

67

Present value of obligations at end of period

 

373,007

 

356,452

Movement in the fair value of the plan assets CHF 1,000

 

2017/18

 

2016/17

Beginning of the year

 

330,759

 

295,778

Interest income on plan asset

 

2,028

 

1,808

Employer’s contributions paid

 

13,992

 

13,944

Participants’ contributions

 

10,973

 

10,633

Benefits paid, net

 

(7,162)

 

(15,218)

Return on plan assets excluding interest income

 

15,039

 

23,759

Changes through business combinations

 

 

 

110

Exchange differences

 

(13)

 

(55)

Fair value of plan assets at end of period

 

365,616

 

330,759

The plan assets consist of:

 

31.3.2018

 

31.3.2017

Cash

 

4.5%

 

1.4%

Domestic bonds

 

17.9%

 

20.0%

Foreign bonds

 

7.6%

 

8.4%

Domestic equities

 

12.9%

 

13.8%

Foreign equities

 

31.9%

 

32.1%

Real estates

 

14.3%

 

15.0%

Alternative investments

 

10.9%

 

9.3%

The actual return on plan assets amounted to CHF 17.1 million (previous year CHF 25.4 million). The expected employer’s contributions to be paid in the 2018/19 financial year amount to CHF 14.0 million.

Principal actuarial assumptions (weighted average)

 

2017/18

 

2016/17

Discount rate

 

0.85%

 

0.60%

Future salary increases

 

1.00%

 

1.00%

Future pension increases

 

0%

 

0%

Fluctuation rate

 

10%

 

10%

Demography

 

BVG 2015GT

 

BVG 2015GT

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 interdependencies were taken into account.

Sensitivity analysis – Impact on defined benefit obligation CHF 1,000

 

31.3.2018

 

31.3.2017

Discount rate

 

 

 

 

Discount rate +0.25%

 

(11,432)

 

(11,694)

Discount rate –0.25%