6. Changes in Group structure

6.1 Acquisitions/disposals of subsidiaries

In the financial year 2020/21, the Group acquired several small companies in EMEA, Americas and Asia/Pacific. All of these companies acquired 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. During the financial year 2019/20, the Group acquired several small companies in EMEA and North America which are in the business of producing and/or distributing and servicing hearing instruments. Further the Group made an acquisition in that year in the EMEA region, which is active in technology development.

 Assets and liabilities resulting from the acquisitions are as follows:

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.

Liabilities for contingent considerations amount to CHF 1.7 million and deferred payments amount to CHF 1.5 million. Contingent considerations are dependent on the future performance of the acquired companies as well as contractual obligations and milestone achievements. 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. 

Acquisition-related intangible assets in the amount of CHF 8.3 million (previous year CHF 17.2 million) for the acquisitions in the current financial year fully relates to customer relationships (previous year: customer relationships CHF 10.2 million, in-process research & development CHF 7.0 million). The assigned lifetime range is between 10 and 15 years for customer relationships (previous year: 5 years for in-process research & development). On these intangibles deferred taxes have been considered.

Acquisition-related transaction costs in the amount of CHF 0.3 million (previous year CHF 1.0 million) have been expensed and are included in the line “General and administration”. 

In 2019/20, the Group acquired a 51% majority stake in a company active in technology development with put and call options over the 49% remaining shares not legally acquired. The Group has concluded it has obtained present access to the returns of all shares and therefore considers the 49% ownership stake acquired for accounting purposes.

In the second half of 2020/21 the Group became aware of a misinterpretation of an accounting standard in determining the purchase consideration for the acquisition. Some of the deferred and the contingent payments related to milestones are also conditional on the selling shareholders remaining employed at the time of payment. These future payments therefore need to be recognized as personnel expenses over the period of required service rather than as purchase consideration. Goodwill, purchase consideration and liabilities for deferred and contingent payments 2019/20 have therefore been reduced by CHF 35.8 million as of acquisition date. Of the CHF 35.8 million decrease in goodwill CHF 13.3 million is offset against equity while CHF 22.5 million are expensed over the respective service period (in the financial year 2020/21 and subsequent years). The net assets acquired and the cash flows 2019/20 are not affected.

The Group has evaluated the impact on the reported results and comparative figures included in the consolidated income statement 2019/20 and balance sheet as at March 31, 2020 and has concluded that the overall impact is qualitatively and quantitatively not material. Therefore, the net effect of the correction was recognized in the affected balance sheet line items and opening equity as at April 1, 2020, rather than by restating the comparative period as follows:

A portion of the deferred payments can be settled in Sonova shares or in cash at the discretion of the counterparties and represent share-based payments, refer to Note 7.4 for further information. These liabilities for share-based payments and other employee benefits have been recognized in other short-term operating liabilities.

Changes have been made to note disclosures where necessary.

Accounting policies

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 (Refer to Note 3.5). 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 acquireeʼs 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.

Accounting judgements and estimates

Business combinations

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

Liabilities for contingent considerations

Contingent considerations are dependent on the future performance of the acquired companies as well as contractual obligations. If the future performance is not achieved or the estimate needs to be revised, the liability is adjusted accordingly, with a resulting change in the income statement. At the end of the 2020/21 financial year, such liabilities contingent on future events amount to CHF 4.2 million (previous year CHF 34.4 million) and are disclosed under other financial liabilities (Note 4.5).

6.2 Investments in associates/joint ventures

The Groupʼs share in the results as well as in assets and liabilities of associates/joint ventures, all unlisted enterprises, is as follows:

In the financial year 2020/21, no associates were acquired/divested. In the case of one associate, an additional contribution of CHF 1.2 million was made, without increasing the participation rights.

In the financial year 2019/20, the Group acquired two associates with a share of 49% and 24.99% respectively. One company is in the business of selling hearing instruments, the other one is a medical technology company. The total consideration for both transactions amounted to CHF 6.2 million. In addition, the group acquired additional shares in one previously held equity investment, resulting in a change of control (step up acquisition). Since the change of control, this company is fully consolidated. The net book value at the time of gaining control over this entity amounted to CHF 1.4 million.

Sales to associates in the 2020/21 financial year amounted to CHF 7.8 million (previous year CHF 8.7 million). At March 31, 2021, trade receivables towards associates amounted to CHF 2.5 million (previous year CHF 1.9 million).

At the end of the 2020/21 and 2019/20 financial years, no unrecognized losses existed.

Investments with a net book value of CHF 19.7 million (previous year CHF 17.4 million) have a business year different than the Sonova Group. The latest available information for the respective companies are as per December 2020.

Accounting policies

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 no 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 Sonovaʼs share of profit or loss of the associate/joint venture after the acquisition date. When the Groupʼs 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 Groupʼs reporting date.