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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2022

Notes to the consolidated financial statements
as of March 31, 2022

1. Basis for preparation

1. Basis for preparation

1.1 Corporate information

The Sonova Group (the “Group”) is a global leader in innovative hearing care solutions: from personal audio devices and wireless communication systems to audiological care services, hearing aids and cochlear implants. The Group’s globally diversified sales and distribution channels serve an ever growing consumer base in more than 100 countries. The ultimate parent company is Sonova Holding AG, a limited liability company incorporated in Switzerland. Sonova Holding AGʼs registered office is located at Laubis­rütistrasse 28, 8712 Stäfa, Switzerland.

1.2 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) 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 12, 2022, and are subject to approval by the Annual General Shareholdersʼ Meeting on June 15, 2022.

The consolidated financial statements are presented in millions of Swiss Francs (CHF) and rounded to the nearest hundred thousand. Due to rounding, numbers presented throughout this report may not add up precisely to the totals provided. All ratios and variances are calculated using the underlying amount rather than the presented rounded amounts.

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 7.7.

Accounting policies of relevance for an understanding of the consolidated financial statements are set out in the specific notes to the financial statements.

1.3 Significant accounting judgments and estimates

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-recurring 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 a significant risk of resulting in a material adjustment are described in the following notes:

Description

 

Further information

Allocation of the transaction price to performance obligations

 

Note 2.3: Revenue

Renewal options in leases

 

Note 3.4: Leases

Capitalization of development costs

 

Note 3.5: Intangible assets

Impairment test

 

Note 3.5: Intangible assets

Provisions for warranty, returns and product liabilities

 

Note 3.7: Provisions

Deferred tax assets

 

Note 5.1: Taxes

Business combinations

 

Note 6.1: Acquisitions/disposals of subsidiaries

Defined benefit plans

 

Note 7.3: Employee benefits

Impact of the Covid-19 pandemic

The global health and economic crisis resulting from the COVID-19 pandemic is affecting the hearing care market and with it, the Groupʼs business activities. Audiology stores, the primary consumer channel for hearing care products and services, were partially closed or operating with reduced hours during most of the financial year 2020/21 and to a lesser extent in some markets during financial year 2021/22. The Cochlear Implants business was also significantly impacted, as healthcare providers have deferred non-essential surgeries during financial year 2020/21. However, the situation mostly normalized during financial year 2021/22. In this context, Sonova implemented strict cost-saving programs, and temporary government-subsidized work time reductions in a number of countries. Refer to Note 7.5 for government support received worldwide.

1.4 Changes in accounting policies

In 2021/22 the Group adopted the following minor amendments to existing standards and interpretations, without having a significant impact on the Groupʼs result and financial position:

  • Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

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, 2022 and beyond. These standards are not expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions.

2. Operating result

2. Operating result

2.1 Income statement reconciliation

The Group presents the “Consolidated income statement” based on a classification of costs by function and is continuously amending its business portfolio with acquisitions, resulting in acquisition-related intangibles (see section “Intangible assets” in Note 3.5) and related amortization charges. To calculate EBITA1), which is the key profit metric for internal (refer to Note 2.2) as well as external purposes, acquisition-related amortization is separated from the individual functions as disclosed below.

April 1 to March 31, CHF million

 

2021/22

 

 

Income statement as reported

 

Acquis. related amortization

 

Income statement EBITA separation

Sales

 

3,363.9

 

 

 

3,363.9

Cost of sales

 

(903.3)

 

 

 

(903.3)

Gross profit

 

2,460.7

 

 

 

2,460.7

Research and development

 

(230.5)

 

0.6

 

(230.0)

Sales and marketing

 

(1,137.6)

 

42.4

 

(1,095.3)

General and administration

 

(320.9)

 

 

 

(320.9)

Other income/(expenses), net

 

(11.5)

 

 

 

(11.5)

Operating profit before acquisition-related amortization (EBITA) 1)

 

 

 

 

 

802.9

Acquisition-related amortization

 

 

 

(42.9)

 

(42.9)

Operating profit (EBIT) 2)

 

760.0

 

 

 

760.0

1) Earnings before financial result, share of profit/(loss) in associates/joint ventures, taxes and acquisition-related amortization (EBITA).

2) Earnings before financial result, share of profit/(loss) in associates/joint ventures and taxes (EBIT).

April 1 to March 31, CHF million

 

2020/21

 

 

Income statement as reported

 

Acquis. related amortization

 

Income statement EBITA separation

Sales

 

2,601.9

 

 

 

2,601.9

Cost of sales

 

(728.3)

 

 

 

(728.3)

Gross profit

 

1,873.5

 

 

 

1,873.5

Research and development

 

(204.8)

 

0.9

 

(203.9)

Sales and marketing

 

(924.1)

 

42.9

 

(881.2)

General and administration

 

(250.9)

 

 

 

(250.9)

Other income/(expenses), net

 

125.8

 

 

 

125.8

Operating profit before acquisition-related amortization (EBITA) 1)

 

 

 

 

 

663.3

Acquisition-related amortization

 

 

 

(43.8)

 

(43.8)

Operating profit (EBIT) 2)

 

619.5

 

 

 

619.5

1) Earnings before financial result, share of profit/(loss) in associates/joint ventures, taxes and acquisition-related amortization (EBITA).

2) Earnings before financial result, share of profit/(loss) in associates/joint ventures and taxes (EBIT).

2.2 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 Groupʼs chief operating decision maker (Chief Executive Officer). The financial information that is provided to the Groupʼs chief operating decision maker, which is used to allocate resources and to assess the performance, is primarily based on sales analysis as well as consolidated income statements and other key financial metrics for the two segments. The Group uses EBITA as a key metric to measure profit or loss for both segments (refer to Note 2.1). Transactions between segments are based on market terms.

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, Sweden and Germany. 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.

The hearing instruments segment further includes the new Consumer Hearing business in which Sonova is active in the fast-growing market for true wireless headsets, speech-enhanced hearables as well as audiophile headphones. In financial year 2021/22, Sonova acquired the consumer division from Sennheiser (refer to Note 6.1), which manufactures headphones, microphones and wireless transmission systems and has production facilities in Germany, Ireland, Romania and the USA. Product distribution is done through 21 sales subsidiaries and long-established trading partners.

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.

CHF million

 

2021/22

 

2020/21

 

2021/22

 

2020/21

 

2021/22

 

2020/21

 

2021/22

 

2020/21

 

 

Hearing Instruments

 

 

 

Cochlear Implants

 

 

 

Corporate/ Eliminations

 

 

 

Total

 

 

Segment sales

 

3,089.5

 

2,425.8

 

282.3

 

186.2

 

 

 

 

 

3,371.7

 

2,612.0

Intersegment sales

 

(5.4)

 

(8.4)

 

(2.4)

 

(1.7)

 

 

 

 

 

(7.8)

 

(10.2)

Sales

 

3,084.0

 

2,417.3

 

279.9

 

184.5

 

 

 

 

 

3,363.9

 

2,601.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Timing of revenue recognition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At point in time

 

2,949.3

 

2,273.1

 

268.0

 

179.5

 

 

 

 

 

3,217.4

 

2,452.6

Over time

 

134.7

 

144.2

 

11.9

 

5.0

 

 

 

 

 

146.5

 

149.2

Total sales

 

3,084.0

 

2,417.3

 

279.9

 

184.5

 

 

 

 

 

3,363.9

 

2,601.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit before acquisition-related amortization (EBITA)

 

782.9

 

580.6

 

19.7

 

82.4

 

0.4

 

0.3

 

802.9

 

663.3

Depreciation, amortization and impairment

 

(173.2)

 

(173.3)

 

(37.8)

 

(49.4)

 

 

 

 

 

(211.1)

 

(222.7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment assets

 

4,831.4

 

4,035.7

 

568.2

 

593.3

 

(686.9)

 

(716.0)

 

4,712.6

 

3,913.0

Unallocated assets 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

875.6

 

2,012.6

Total assets

 

 

 

 

 

 

 

 

 

 

 

 

 

5,588.2

 

5,925.6

1) Unallocated assets include cash and cash equivalents, other current financial assets (excluding loans), investments in associates/joint ventures and deferred tax assets.

Reconciliation of reportable segment profit CHF million

 

2021/22

 

2020/21

EBITA

 

802.9

 

663.3

Acquisition-related amortization

 

(42.9)

 

(43.8)

Financial costs, net

 

(34.9)

 

(21.0)

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

 

3.0

 

1.9

Income before taxes

 

728.2

 

600.4

Entity-wide disclosures

Sales by business CHF million

 

2021/22

 

2020/21

Hearing Instruments business

 

1,838.4

 

1,463.9

Audiological Care business

 

1,236.8

 

953.5

Consumer Hearing business

 

8.8

 

n/a

Total Hearing Instruments segment

 

3,084.0

 

2,417.3

Cochlear Implant systems

 

175.8

 

129.3

Upgrades and accessories

 

104.1

 

55.2

Total Cochlear Implants segment

 

279.9

 

184.5

Total sales

 

3,363.9

 

2,601.9

Sales and selected non-current assets by regions CHF million

 

2021/22

 

2020/21

 

2021/22

 

2020/21

Country/region

 

Sales 1)

 

 

 

Selected non-current assets 2)

 

 

Switzerland

 

30.8

 

30.9

 

238.4

 

259.0

EMEA (excl. Switzerland)

 

1,745.1

 

1,385.7

 

1,765.9

 

1,759.8

USA

 

1,009.8

 

732.2

 

1,021.5

 

696.6

Americas (excl. USA)

 

244.6

 

178.2

 

217.5

 

193.7

Asia/Pacific

 

333.6

 

275.0

 

360.6

 

129.2

Total Group

 

3,363.9

 

2,601.9

 

3,603.9

 

3,038.4

1) Sales based on location of customers.

2) Total of property, plant & equipment, right-of-use assets, 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.

2.3 Revenue

The Group generates revenue primarily from the sale of audio devices, hearing instruments, cochlear implants and related services. A disaggregation of revenue from contracts with customers is included in Note 2.2. The following provides information about the Groupʼs revenue recognition policies, performance obligations and related contract assets and liabilities.

The following table summarizes the contract assets and contract liabilities related to contracts with customers:

Contract balances CHF million

 

31.3.2022

 

31.3.2021

Contract assets

 

8.8

 

9.3

Contract liabilities

 

294.1

 

302.0

Contract liabilities relate to advance consideration received from customers for the Groupʼs various services, such as extended warranties, loss and damage and battery plans. In addition to the contract liabilities, the Group also recognizes contract assets that relate to loss and damage services. Contract assets are presented within other operating assets (refer to Note 3.6) in the consolidated balance sheet.

Significant changes in the contract liabilities during the period are as follows:

Movement in contract liabilities CHF million

 

2021/22

 

2020/21

Balance April 1

 

302.0

 

318.4

Changes through business combinations

 

9.3

 

0.4

Increase due to advance consideration received in the period

 

143.4

 

132.4

Decrease due to revenue recognized in the period that,

 

 

 

 

– was included in the contract liabilities at the beginning of the period

 

(102.6)

 

(137.1)

– relates to consideration received in the period

 

(41.7)

 

(21.0)

Reversals

 

(2.3)

 

 

Exchange differences

 

(14.1)

 

8.9

Balance March 31

 

294.1

 

302.0

 

 

 

 

 

Expectation on timing of revenue recognition:

 

 

 

 

Within 1 year

 

106.7

 

101.5

Within 2 years

 

88.4

 

104.2

Within 3 years

 

52.3

 

50.9

Within 4 years

 

21.9

 

16.4

More than 4 years

 

24.7

 

29.1

No material revenue was recognized in the current period from performance obligations satisfied in previous periods.

Accounting policies

The Group recognizes revenue at point in time when control of the products is transferred to the buyer, mainly upon delivery. The transaction price is adjusted for any variable elements, such as rebates and discounts. For audiological care customers, revenue recognition usually occurs after fitting of the device or when the trial period lapses. For hearing instruments sold in bundled packages (i.e. including accessories and services), the transaction price is allocated to each performance obligation on the basis of the relative stand-alone selling price of all performance obligations in the contract.

For cochlear implants, sales are generally recognized at point in time when control of the products is transferred to the buyer (mainly hospitals), either at delivery or after surgery.

When the customer has a right to return the product within a given period, the amount of revenue is adjusted for expected returns, which are estimated based on historical product return rates. A return provision for the expected returns is recognized as an adjustment to revenue. In addition, an asset for the right to recover returned goods is recognized, measured by reference to the carrying amount, which is presented as part of other current operating assets.

The Group also offers various services, such as extended warranties, loss and damage and battery plans. Revenue for these services is predominantly recognized on a straight-line basis over the service period. In the majority of countries in which the Group operates, the standard warranty period is two years and the extended warranty covers periods beyond the second year. Loss and damage is offered in some, but not all countries, in which the Group operates. This service assures replacement of hearing instruments that are not covered by the warranty. In some countries, the Group reinsures loss and damage. Insurance costs are capitalized as contract assets and are recognized as cost of sales over the loss and damage service period.

Payment terms vary significantly across countries and also depend on whether the customer is a private or public customer.

Accounting judgements and estimates

In order to allocate the transaction price to each performance obligation in a contract, management estimates the standalone selling price of the products and services at contract inception. Mostly, the standalone selling price is based on established price lists. For loss and damage services, management considers the likelihood of a customer claim in the calculation of the standalone selling price.

If the sum of the standalone selling prices of a bundle of goods or services exceeds the consideration in a contract, the discount is allocated proportionally to all of the performance obligations in the contract unless there is observable evidence that the discount relates to only one or some of the performance obligations.

2.4 Other income/expenses

In the 2021/22 financial year, the net result of other income and expense amounts to CHF –11.5 million (previous year: CHF 125.8 million). The expense primarily relates to costs in relation to a settlement agreement in principle with the US Department of Justice and ongoing patent litigation in the Cochlear Implants segment. For further information refer to Note 3.9 “Contingent assets and liabilities”. 

In the prior year, the income primarily related to Advanced Bionics which was awarded damages in a patent infringement lawsuit of CHF 124.4 million (for further information refer to Note 3.9 “Contingent assets and liabilities”). The remaining other income and expenses are primarily related to the regular and systematic assessment of the provision for product liabilities in the cochlear implants segment (reversal of CHF 10.8 million recorded in “Other income” and increase of CHF 9.8 million recorded in “Other expenses”). For further information refer to Note 3.7 “Provisions”.

2.5 Earnings per share

Basic earnings per share

 

2021/22

 

2020/21

Income after taxes (CHF million)

 

649.0

 

581.0

Weighted average number of outstanding shares

 

62,270,275

 

62,967,588

Basic earnings per share (CHF)

 

10.42

 

9.23

Diluted earnings per share

 

2021/22

 

2020/21

Income after taxes (CHF million)

 

649.0

 

581.0

Weighted average number of outstanding shares

 

62,270,275

 

62,967,588

Adjustment for dilutive share options

 

440,731

 

255,916

Adjusted weighted average number of outstanding shares

 

62,711,006

 

63,223,504

Diluted earnings per share (CHF)

 

10.35

 

9.19

Accounting policies

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.

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 2015 through to 2022 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.

3. Operating assets and liabilities

3. Operating assets and liabilities

3.1 Trade receivables

CHF million

 

31.3.2022

 

31.3.2021

Trade receivables

 

505.6

 

473.3

Loss allowance for doubtful receivables

 

(31.3)

 

(34.5)

Total

 

474.3

 

438.8

As is common in this industry, the Sonova Group has a large number of customers. There is no significant concentration of credit risk. The increase compared to previous year is primarily driven by the acquisition of the Sennheiser Consumer Division and other acquisitions (refer to Note 6.1).

For further information on the aging of the trade receivables and related allowances, please refer to Note 4.7.

During 2021/22, the Group utilized CHF 3.1 million (previous year CHF 7.8 million) of the loss allowance for doubtful receivables to write-off receivables.

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

CHF million

 

31.3.2022

 

31.3.2021

BRL

 

19.1

 

11.1

CAD

 

17.5

 

19.4

CHF

 

19.4

 

11.2

EUR

 

182.8

 

166.3

GBP

 

15.6

 

11.2

USD

 

144.2

 

147.9

Other

 

75.7

 

71.7

Total trade receivables, net

 

474.3

 

438.8

Accounting policies

Trade receivables are initially recorded at the transaction price and subsequently measured at amortized cost using the effective interest method, less loss allowance. The Group applies the IFRS 9 simplified approach to measuring credit losses, which uses a lifetime expected loss allowance for trade receivables. This approach considers historical credit loss experience as well as forward-looking factors (see Note 4.7). The charges to the income statement are included in general and administration costs. Due to the short-term nature of trade receivables, their carrying amount is considered to approximate their fair value.

3.2 Inventories

CHF million

 

31.3.2022

 

31.3.2021

Raw materials and components

 

64.2

 

36.2

Work-in-process

 

147.0

 

134.8

Finished products

 

254.0

 

185.1

Allowances

 

(52.5)

 

(53.8)

Total

 

412.7

 

302.3

The increase compared to previous year is primarily driven by the acquisition of the Sennheiser Consumer Division and other acquisitions (refer to Note 6.1) and an increase in inventories related to safety stock to manage supply shortages of microelectronic components.

The “cost of sales” corresponding to the carrying value of inventory (which excludes freight, packaging, logistics as well as certain overhead cost) amounted in 2021/22 to CHF 736.2 million (previous year CHF 582.8 million). The Group recognized write-downs of CHF 25.9 million (previous year CHF 28.3 million) on inventories in cost of sales.

Accounting policies

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.

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

Allowances are established for slow moving, phase out and obsolete stock.

3.3 Property, plant and equipment

CHF million

2021/22

 

 

Land & buildings

 

Machinery & technical equipment

 

Room installations & other equipment

 

Advance payments & assets under construction

 

Total

Cost

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

218.9

 

290.9

 

355.1

 

14.4

 

879.4

Changes through business combinations

 

2.9

 

7.8

 

9.3

 

1.8

 

21.9

Additions

 

1.9

 

23.6

 

37.3

 

16.7

 

79.5

Disposals

 

(0.3)

 

(6.0)

 

(11.7)

 

0.0

 

(18.0)

Transfers

 

 

 

3.5

 

7.1

 

(10.6)

 

 

Exchange differences

 

(2.0)

 

(3.9)

 

(15.8)

 

(0.6)

 

(22.3)

Balance March 31

 

221.4

 

315.9

 

381.3

 

21.7

 

940.3

Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

(90.4)

 

(218.9)

 

(234.8)

 

 

 

(544.1)

Changes through business combinations

 

 

 

(0.4)

 

(0.6)

 

 

 

(1.0)

Additions

 

(6.9)

 

(27.0)

 

(31.8)

 

 

 

(65.7)

Disposals

 

0.1

 

4.9

 

10.9

 

 

 

15.9

Exchange differences

 

1.0

 

2.6

 

9.9

 

 

 

13.5

Balance March 31

 

(96.2)

 

(238.8)

 

(246.4)

 

 

 

(581.4)

Net book value

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

128.5

 

72.0

 

120.3

 

14.4

 

335.3

Balance March 31

 

125.2

 

77.0

 

134.9

 

21.7

 

358.9

CHF million

2020/21

 

 

Land & buildings

 

Machinery & technical equipment

 

Room installations & other equipment

 

Advance payments & assets under construction

 

Total

Cost

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

205.7

 

300.4

 

383.2

 

15.9

 

905.3

Changes through business combinations

 

 

 

0.1

 

0.6

 

 

 

0.7

Additions

 

7.6

 

15.5

 

27.0

 

13.6

 

63.8

Disposals

 

(0.7)

 

(35.2)

 

(73.7)

 

(1.0)

 

(110.6)

Transfers

 

3.9

 

5.7

 

4.9

 

(14.5)

 

 

Exchange differences

 

2.4

 

4.4

 

13.2

 

0.3

 

20.2

Balance March 31

 

218.9

 

290.9

 

355.1

 

14.4

 

879.4

Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

(83.3)

 

(225.4)

 

(263.7)

 

 

 

(572.4)

Additions

 

(6.3)

 

(25.2)

 

(32.8)

 

 

 

(64.3)

Disposals

 

0.4

 

34.9

 

70.1

 

 

 

105.3

Exchange differences

 

(1.1)

 

(3.1)

 

(8.4)

 

 

 

(12.6)

Balance March 31

 

(90.4)

 

(218.9)

 

(234.8)

 

 

 

(544.1)

Net book value

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

122.4

 

75.0

 

119.6

 

15.9

 

332.8

Balance March 31

 

128.5

 

72.0

 

120.3

 

14.4

 

335.3

Accounting policies

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 does not increase the estimated useful lifetimes of the related assets are recognized as an expense in the period in which they are incurred.

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. If the recoverable amount is lower than carrying amount, an impairment loss is recognized.

3.4 Leases

Right-of-use assets CHF million

2021/22

 

 

Properties

 

Vehicles

 

Other assets

 

Total

Cost

 

 

 

 

 

 

 

 

Balance April 1

 

365.5

 

10.4

 

2.0

 

377.9

Changes through business combinations

 

30.7

 

 

 

 

 

30.7

Additions

 

58.4

 

1.5

 

0.4

 

60.3

Disposals

 

(84.5)

 

(2.1)

 

(0.5)

 

(87.2)

Exchange differences

 

(18.0)

 

(0.5)

 

(0.1)

 

(18.6)

Balance March 31

 

352.1

 

9.3

 

1.7

 

363.1

Accumulated depreciation

 

 

 

 

 

 

 

 

Balance April 1

 

(110.7)

 

(4.1)

 

(1.5)

 

(116.3)

Additions

 

(63.0)

 

(1.6)

 

(0.4)

 

(65.0)

Disposals

 

84.5

 

2.1

 

0.5

 

87.2

Exchange differences

 

4.6

 

0.1

 

0.0

 

4.7

Balance March 31

 

(84.6)

 

(3.5)

 

(1.3)

 

(89.4)

Net book value

 

 

 

 

 

 

 

 

Balance April 1

 

254.8

 

6.3

 

0.5

 

261.6

Balance March 31

 

267.5

 

5.8

 

0.4

 

273.8

Right-of-use assets CHF million

2020/21

 

 

Properties

 

Vehicles

 

Other assets

 

Total

Cost

 

 

 

 

 

 

 

 

Balance April 1

 

313.1

 

8.7

 

1.5

 

323.3

Changes through business combinations

 

0.2

 

 

 

 

 

0.2

Additions

 

60.5

 

2.0

 

0.6

 

63.1

Disposals

 

(17.7)

 

(0.6)

 

(0.2)

 

(18.4)

Exchange differences

 

9.4

 

0.3

 

0.1

 

9.8

Balance March 31

 

365.5

 

10.4

 

2.0

 

377.9

Accumulated depreciation

 

 

 

 

 

 

 

 

Balance April 1

 

(60.7)

 

(1.7)

 

(0.3)

 

(62.7)

Additions

 

(63.7)

 

(2.9)

 

(1.3)

 

(67.9)

Disposals

 

17.7

 

0.6

 

0.2

 

18.4

Exchange differences

 

(4.0)

 

(0.1)

 

(0.0)

 

(4.1)

Balance March 31

 

(110.7)

 

(4.1)

 

(1.5)

 

(116.3)

Net book value

 

 

 

 

 

 

 

 

Balance April 1

 

252.4

 

7.0

 

1.2

 

260.6

Balance March 31

 

254.8

 

6.3

 

0.5

 

261.6

Lease liabilities CHF million

 

2021/22

 

2020/21

Balance April 1

 

271.3

 

269.0

Changes through business combinations

 

30.7

 

0.2

Additions

 

60.1

 

62.2

Interest expense

 

3.6

 

4.0

Payments

 

(67.7)

 

(70.6)

Exchange differences

 

(13.7)

 

6.5

Balance March 31

 

284.3

 

271.3

thereof short-term

 

68.8

 

58.9

thereof long-term

 

215.5

 

212.4

The maturity analysis of lease liabilities is disclosed in Note 4.7

Lease disclosures CHF million

 

2021/22

 

2020/21

Expenses relating to short-term leases

 

11.2

 

5.1

Expenses relating to leases of low-value assets (excluding short-term leases of low-value assets)

 

0.3

 

0.4

Expenses relating to variable lease payments

 

5.7

 

5.8

The total cash outflow for leases in the financial year 2021/22 amounted to CHF 84.9 million (prior year CHF 81.9 million).

The Group has various lease contracts that as of March 31, 2022 have not yet commenced. The future lease payments for these non-cancellable lease contracts amount to CHF 1.7 million (prior year CHF 0.1 million). The future lease payments relating to variable lease payments amount to CHF 5.7 million (prior year CHF 5.8 million).

Accounting policies

The group leases properties for retail stores as well as for office, laboratory, manufacturing and storage use. The leasing terms vary significantly across countries. The leases of office space typically run for a period of up to 10 years, and leases of retail stores typically for a period of 3 to 5 years. Leases of vehicles and other assets have an average lease term of 3.4 years. Some leases include an option to renew the lease for an additional period after the end of the contract term.

The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and, subsequently at cost less accumulated depreciation and impairment losses and also includes adjustments for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date and are discounted using the Groupʼs incremental borrowing rate if the interest rate implicit in the lease is not readily determinable. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment made. It is remeasured when there is a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

Accounting judgements and estimates

The Group uses judgement to determine the lease term for some lease contracts which include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term which significantly affects the amount of lease liabilities and right-of-use assets recognized. Extension options and termination options are re-assessed only when a significant event or change in circumstances occurs that is within the control of the Group and affects whether it is reasonably certain to exercise an option.

3.5 Intangible assets

CHF million

2021/22

 

 

Goodwill

 

Intangibles relating to acquisitions 1)

 

Capitalized development costs

 

Software and other intangibles

 

Total

Cost

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

2,143.3

 

642.8

 

214.1

 

102.4

 

3,102.6

Changes through business combinations

 

393.8

 

295.4

 

 

 

1.5

 

690.8

Additions

 

 

 

 

 

10.7

 

16.4

 

27.1

Disposals

 

 

 

(13.2)

 

 

 

(0.7)

 

(13.9)

Exchange differences

 

(96.4)

 

(32.4)

 

(0.6)

 

(1.7)

 

(131.1)

Balance March 31

 

2,440.6

 

892.7

 

224.2

 

117.9

 

3,675.5

Accumulated amortization and impairments

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

(145.2)

 

(373.2)

 

(88.3)

 

(74.1)

 

(680.8)

Changes through business combinations

 

 

 

(0.6)

 

 

 

(0.0)

 

(0.7)

Additions

 

 

 

(42.9) 2)

 

(27.4)

 

(10.2)

 

(80.5)

Disposals

 

 

 

13.2

 

 

 

0.6

 

13.9

Exchange differences

 

3.0

 

17.1

 

 

 

1.3

 

21.4

Balance March 31

 

(142.2)

 

(386.4)

 

(115.6)

 

(82.4)

 

(726.6)

Net book value

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

1,998.0

 

269.7

 

125.9

 

28.2

 

2,421.8

Balance March 31

 

2,298.4

 

506.3

 

108.6

 

35.6

 

2,948.9

1) Intangibles relating to acquisitions consists of customer relationships (CHF 298.8 million), trademarks (CHF 193.0 million) and technology (CHF 14.5 million).

2) Relates to research and development (CHF 0.6 million) and sales and marketing (CHF 42.4 million).

CHF million

2020/21

 

 

Goodwill

 

Intangibles relating to acquisitions 1)

 

Capitalized development costs

 

Software and other intangibles

 

Total

Cost

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

2,064.5

 

615.5

 

223.9

 

100.5

 

3,004.3

Changes through business combinations

 

20.0

 

8.3

 

 

 

 

 

28.3

Additions

 

 

 

 

 

15.9

 

9.6

 

25.5

Disposals

 

 

 

(6.7)

 

(25.3)

 

(8.8)

 

(40.9)

Exchange differences

 

58.8

 

25.8

 

(0.3)

 

1.1

 

85.3

Balance March 31

 

2,143.3

 

642.8

 

214.1

 

102.4

 

3,102.6

Accumulated amortization and impairments

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

(148.8)

 

(322.7)

 

(75.3)

 

(73.0)

 

(619.8)

Additions

 

 

 

(42.5) 2)

 

(12.9)

 

(8.5)

 

(63.9)

Disposals

 

 

 

6.7

 

25.3

 

8.6

 

40.7

Impairment

 

 

 

(1.3)

 

(25.3)

 

 

 

(26.6)

Exchange differences

 

3.6

 

(13.4)

 

 

 

(1.3)

 

(11.1)

Balance March 31

 

(145.2)

 

(373.2)

 

(88.3)

 

(74.1)

 

(680.8)

Net book value

 

 

 

 

 

 

 

 

 

 

Balance April 1

 

1,915.6

 

292.7

 

148.5

 

27.5

 

2,384.4

Balance March 31

 

1,998.0

 

269.7

 

125.9

 

28.2

 

2,421.8

1) Intangibles relating to acquisitions consists of customer relationships (CHF 153.6 million), trademarks (CHF 108.8 million) and technology (CHF 7.3 million).

2) Relates to research and development (CHF 0.9 million) and sales and marketing (CHF 41.6 million).

Based on the impairment tests performed, there was no need for the recognition of any impairment of goodwill for the 2021/22 and 2020/21 financial years.

The cash flow projections used for impairment testing, were based on the most recent business plan. The business plan was projected over a five year period.

Hearing instruments

As of March 31, 2022, the carrying amount of goodwill, expressed in various currencies, amounted to an equivalent of CHF 2,000.7 million (prior year CHF 1,694.1 million) and for intangible assets with indefinite useful lives to CHF 100.6 million (prior year: none). The increase in intangible assets with indefinite useful lives relates to a brand value that was acquired as part of the acquisition of the Consumer Division from Sennheiser as disclosed in Note 6.1.

Cash flows beyond the projection period were extrapolated with a long-term growth rate of 2.0% (prior year 2.0%) which represents the projected inflation rate. For the calculation, a pre-tax weighted average discount rate of 9.4% (prior year 9.0%) 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, 2022, the carrying amount of the goodwill, expressed in various currencies, amounted to an equivalent of CHF 297.7 million (prior year CHF 303.9 million).

Cash flows beyond the projection period were extrapolated with a long-term growth rate of 2.1% (prior year 2.2%) which represents the projected inflation rate. For the calculation, a pre-tax weighted average discount rate of 10.2% (prior year 9.3%) 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. Due to a revision of the Cochlear implants product roadmap in the 2020/21 financial year, Sonova identified 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 write-off amounting to CHF 25.3 million. This amount was included in the income statement in the function “Research and development” in the financial year 2020/21. The capitalized development costs are included in the reportable segment “cochlear implants” disclosed in Note 2.2.

Accounting policies

Goodwill

Goodwill is recognized for any difference between the cost of the business combination and the net fair value of the identifiable assets, liabilities, and contingent liabilities (refer to accounting policies in Note 6.1). 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. 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 is compared to the carrying amount. The carrying amount is determined based on a value-in-use calculation considering a five-year cash flow projection period and extrapolated using a terminal value for cash flows beyond the planning period. The cash flow projections are estimated on the basis of the strategic plan approved by the Board of Directors. Future cash flows are discounted with the Weighted Average Cost of Capital (WACC) including the application of the Capital Asset Pricing Model (CAPM).

Intangibles, excluding goodwill

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 (except for the Sennheiser brand name as disclosed below). 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.

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable.

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.

Accounting judgements and estimates

Goodwill

The recoverable amount from cash-generating units is measured on the basis of value-in-use calculations and as such is significantly impacted by the projected cash flows, the discount rate, and the long-term growth rate, which are subject to management judgment. Actual cash flows as well as other input parameters could vary significantly from these estimates.

Capitalized development costs

The Group capitalizes costs relating to the development of cochlear implants. The capitalized development costs are reviewed on a regular basis as a matter of a standard systematic procedure. In determining the commercial as well as the technical feasibility, management judgment may be required.

3.6 Other operating assets

Other current operating assets CHF million

 

31.3.2022

 

31.3.2021

Other receivables

 

98.1

 

54.4

Prepaid expenses

 

37.7

 

28.5

Contract assets

 

3.0

 

3.1

Right to recover products

 

10.2

 

10.6

Total

 

148.9

 

96.6

 

 

 

 

 

Other non-current operating assets CHF million

 

31.3.2022

 

31.3.2021

Contract assets

 

5.8

 

6.2

Total

 

5.8

 

6.2

The largest individual items included in other receivables are recoverable value added taxes and deposits. Prepaid expenses mainly consist of advances to suppliers. Contract assets relate to reinsurance of loss and damage services and rights to recover returned goods relate to hearing instrument sales with a right of return (refer to Note 2.3).

3.7 Provisions

CHF million

2021/22

 

 

Warranty and returns

 

Reimbursement to customers

 

Product liabilities

 

Other provisions

 

Total

Balance April 1

 

125.9

 

2.8

 

111.9

 

52.3

 

292.8

Changes through business combinations

 

9.0

 

1.3

 

 

 

5.2

 

15.5

Amounts used

 

(62.6)

 

(1.4)

 

(15.3)

 

(25.7)

 

(105.0)

Reversals

 

(13.5)

 

(1.7)

 

(0.3)

 

(9.1)

 

(24.6)

Increases

 

81.7

 

3.2

 

 

 

30.8

 

115.6

Present value adjustments

 

 

 

 

 

0.5

 

 

 

0.5

Transfers

 

 

 

 

 

 

 

(1.3)

 

(1.3)

Exchange differences

 

(5.2)

 

(0.1)

 

(2.4)

 

(1.6)

 

(9.3)

Balance March 31

 

135.3

 

4.1

 

94.4

 

50.4

 

284.2

thereof short-term

 

98.3

 

4.1

 

11.8

 

37.5

 

151.6

thereof long-term

 

37.0

 

 

 

82.6

 

12.9

 

132.6

CHF million

2020/21

 

 

Warranty and returns

 

Reimbursement to customers

 

Product liabilities

 

Other provisions

 

Total

Balance April 1

 

111.6

 

5.0

 

120.4

 

31.5

 

268.6

Changes through business combinations

 

 

 

0.0

 

 

 

0.4

 

0.4

Amounts used

 

(72.8)

 

(4.1)

 

(4.8)

 

(19.3)

 

(101.0)

Reversals

 

(10.0)

 

(2.5)

 

(11.0)

 

(3.4)

 

(26.9)

Increases

 

94.4

 

4.4

 

9.8

 

42.1

 

150.6

Present value adjustments

 

 

 

 

 

0.5

 

 

 

0.5

Exchange differences

 

2.7

 

 

 

(3.0)

 

0.9

 

0.5

Balance March 31

 

125.9

 

2.8

 

111.9

 

52.3

 

292.8

thereof short-term

 

92.2

 

2.8

 

15.3

 

37.8

 

148.1

thereof long-term

 

33.7

 

 

 

96.6

 

14.5

 

144.7

Warranty and returns

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 audio devices, hearing instruments and related products and up to 10 years on cochlear implants. The calculation is based on turnover, past experience and projected number and costs of warranty claims and returns.

Reimbursement to customers

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.

Product liabilities

The provisions for product liabilities consider the expected cost for claims in relation to the voluntary recall of cochlear implant products of Advanced Bionics in 2006 and Advanced Bionics voluntary field corrective action regarding cochlear implant products, as announced on February 18, 2020.

The provision for product liabilities are reassessed on a regular and systematic basis and follow a financial model which is consistently applied. The calculation of the provision is based on past experience regarding the number and cost of current and future claims. In the 2021/22 financial year, changes in the assessment of the expected number and cost of current and future claims led to reversals of CHF 0.3 million (previous year reversals/increases, net of CHF 1.0 million). The impact of the reassessment of the legal provisions are considered in the income statement in the lines “Other income” or “Other expenses”. As per March 31, 2022 the provision for product liabilities amount to CHF 94.4 million (previous year CHF 111.9 million). The timing of the cash outflows is uncertain since it will largely depend on the outcome of administrative and legal proceedings. In the case of the voluntary recall of AB products in 2006, considering periods of limitation, claims will have until 2026 to be filed in most jurisdictions. However, depending on the length of proceedings and negotiations, further years may pass until all claims are settled. We expect the main cash outflow relating to the provision for product liabilities to occur within the next 7 years.

Other provisions

Other provisions include provisions for specific business risks such as litigation CHF 21.2 million (prior year CHF 21.6 million), including provisions relating to the agreement in principle with the U.S. Department of Justice (refer to Note 3.9), and restructuring costs CHF 11.3 million (prior year CHF 15.3 million) which arose during the normal course of business. While the timing of the cash outflow from the restructuring provisions is expected to take place within the next 12 months, the cash outflows for the remainder of the other provisions is expected to take place within the next two years.

Accounting policies

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.

Accounting judgements and estimates

Provisions are based upon managementʼs best estimate, taking into consideration past experience regarding the number and cost of claims. Management believes that the provisions are adequate based upon currently available information. However, given that judgment has to be applied, the actual costs and results may differ from these estimates.

3.8 Other operating liabilities

Other short-term operating liabilities CHF million

 

31.3.2022

 

31.3.2021

Other payables

 

111.5

 

54.8

Accrued expenses

 

325.2

 

282.4

Deferred income

 

0.8

 

1.0

Total

 

437.5

 

338.2

Other payables include amounts to be remitted for withholding taxes, value added taxes, social security payments and employeesʼ income taxes deducted at source. Accrued expenses include salaries, social expenses, vacation pay, bonus and incentive compensation as well as accruals for outstanding invoices from suppliers.

3.9 Contingent assets and liabilities

Guarantees

At March 31, 2022 and 2021, there were no pledges given to third parties other than in relation to bank loans and mortgages.

Deposits in the amount of CHF 1.6 million (previous year CHF 1.7 million) were pledged in relation to bank guarantees. Open purchase orders as of March 31, 2022 and 2021, were related to recurring business activities.

Lawsuits and disputes

The patent infringement lawsuit by the Alfred E. Mann Foundation for Scientific Research (AMF) and Advanced Bionics LLC (AB) v. Cochlear was concluded in 2020. As a co-plaintiff, AB was ultimately entitled to a share of the damages awarded, after deduction of certain costs for the proceedings. The verdict resulted in a total amount of CHF 124.4 million in cash for damages, pre-trial interest and attorney fees. This one-time income is reported in “other income” in the financial year 2020/21.

On October 4, 2018 MED-EL Elektronische Geräte GmbH and MED-EL Corporation, US, filed a complaint against Advanced Bionics LLC in the US federal court for the district of Delaware for alleged patent infringement of two MED-EL patents related to products launched in 2018. While the ultimate outcome of the dispute remains open, Advanced Bionics continues to believe the complaint has no merit and is vigorously defending its position and intellectual property. On March 8, 2022, the Regional Court of Mannheim in Germany has reached a judgment in the first instance in a patent infringement lawsuit brought by MED-EL Elektromedizinische Geräte GmbH (Med-El) against its German subsidiary Advanced Bionics GmbH and Swiss subsidiary Advanced Bionics AG (AB). The court’s judgment includes an injunction which, if and when enforced by Med-El, would prevent sales of the HiRes Ultra 3D cochlear implant in and from Germany. AB believes the complaint has no merit and has therefore appealed the judgment.

On January 20, 2020, Advanced Bionics Corporation (“AB”), Delaware, received a subpoena from the Office of the Inspector General at the U.S. Department of Health and Human Services, (the “HHS-OIG”). The subpoena related to ABʼs testing of radio frequency emissions of certain of AB’s sound processors and ABʼs reporting of those test results in submissions to the U.S. Food and Drug Administration from 2010 to the present. AB has continuously cooperated with the HHS-OIG and the U.S. Department of Justice in connection with this subpoena, and has reached an agreement in principle with the U.S. Department of Justice. AB has made appropriate financial provisions for this agreement in principle. AB is negotiating definitive agreements with the U.S. Department of Justice and expects a final settlement to be reached in the first half of FY 2022/23.

4. Capital structure and financial management

4. Capital structure and financial management

4.1 Cash and cash equivalents

CHF million

 

31.3.2022

 

31.3.2021

Cash on hand

 

1.2

 

1.3

Current bank accounts

 

458.9

 

419.8

Term deposits

 

150.4

 

1,351.1

Total

 

610.5

 

1,772.2

Bank accounts and term deposits are mainly denominated in CHF, EUR and USD. The assessment on the credit risk related to cash and cash equivalents is disclosed in Note 4.7.

Accounting policies

Cash and cash equivalents 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.

4.2 Financial income/expenses, net

CHF million

 

2021/22

 

2020/21

Interest income

 

1.4

 

1.8

Other financial income

 

0.3

 

3.2

Total financial income

 

1.7

 

5.0

Interest expenses

 

(17.4)

 

(13.1)

Interest expenses on lease liabilities

 

(3.6)

 

(4.0)

Unwinding of the discount on provisions

 

(0.6)

 

(0.5)

Foreign exchange hedge costs

 

(1.4)

 

(1.5)

Other financial expenses

 

(13.4)

 

(6.9)

Total financial expenses

 

(36.5)

 

(26.0)

Total financial income/expenses, net

 

(34.9)

 

(21.0)

Other financial income and financial expenses include primarily the fair value adjustments of financial instruments.

4.3 Dividend per share

The Board of Directors of Sonova Holding AG proposes to the Annual General Shareholdersʼ Meeting, to be held on June 15, 2022, that a dividend of CHF 4.40 per share shall be distributed (previous year CHF 3.20).

4.4 Other financial assets

Other current financial assets

CHF million

 

31.3.2022

 

31.3.2021

 

 

Financial assets at amortized cost

 

Financial assets at fair value through profit or loss

 

Total

 

Financial assets at amortized cost

 

Financial assets at fair value through profit or loss

 

Total

Marketable securities

 

 

 

0.2

 

0.2

 

 

 

0.2

 

0.2

Positive replacement value of forward foreign exchange contracts

 

 

 

1.3

 

1.3

 

 

 

0.3

 

0.3

Loans to third parties

 

6.9

 

 

 

6.9

 

6.3

 

 

 

6.3

Total

 

6.9

 

1.5

 

8.4

 

6.3

 

0.5

 

6.8

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 principles. Gains and losses on these transactions are recognized directly in the income statement (refer to Note 4.7).

Other non-current financial assets

CHF million

 

31.3.2022

 

31.3.2021

 

 

Financial assets at amortized cost

 

Financial assets at fair value through profit or loss

 

Total

 

Financial assets at amortized cost

 

Financial assets at fair value through profit or loss

 

Total

Loans to associates

 

3.8

 

 

 

3.8

 

3.3

 

 

 

3.3

Loans to third parties

 

25.6

 

 

 

25.6

 

22.8

 

 

 

22.8

Rent deposits

 

2.8

 

 

 

2.8

 

3.6

 

 

 

3.6

Other non-current financial assets

 

 

 

4.0

 

4.0

 

 

 

9.2

 

9.2

Total

 

32.2

 

4.0

 

36.2

 

29.7

 

9.2

 

38.9

The loans are primarily denominated in CAD, CHF, EUR, GBP, JPY, PLN and USD. Loans to third parties consist mainly of loans to customers. As of March 31, 2022, the respective repayment periods vary between one and nine years and the interest rates vary generally between 1% and 3%.

Other non-current financial assets mainly consist of certain minority interests in patent and software development companies specific to the hearing aid industry.

Accounting policies

Financial assets are classified into the following categories:

  • Financial assets at amortized cost
  • Financial assets at fair value through profit or loss (FVPL)
  • Financial assets at fair value through other comprehensive income (FVOCI).

The classification depends on the business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will be recorded either in the income statement or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). The Group reclassifies debt investments when and only when its business model changes for managing those assets.

At initial recognition, the Group measures a financial asset at its fair value. In the case of financial assets at amortized cost and FVOCI the fair value includes transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. Subsequent measurement of debt instruments depends on the Groupʼs business model for managing the asset and the cash flow characteristics of the asset.

Financial assets at amortized cost

Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognized directly in the income statement.

Financial assets at fair value through profit or loss (FVPL)

Assets that do not meet the criteria for amortized cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognized in the income statement in the period in which it arises.

Financial assets at fair value through other comprehensive income (FVOCI) and equity instruments

The Group currently holds no financial assets at fair value through other comprehensive income (FVOCI) and has not elected to account for equity instruments in this category.

4.5 Financial liabilities

As of March 31, 2022, the Group has the following bonds/US Private Placement outstanding:

Financial liabilities

 

Currency

 

Nominal value

 

Interest rate

 

Maturity

Fixed-rate bond

 

CHF

 

330

 

0.55%

 

April 6, 2022

US Private Placement

 

USD

 

180

 

2.84%

 

July 14, 2025

Fixed-rate bond

 

CHF

 

200

 

0.50%

 

October 6, 2025

Fixed-rate bond

 

CHF

 

300

 

0.75%

 

October 6, 2028

Fixed-rate bond

 

CHF

 

100

 

0.00%

 

October 11, 2029

Fixed-rate bond

 

CHF

 

100

 

0.40%

 

October 11, 2034

The Group maintains uncommitted credit facilities from various lenders. The credit facilities are denominated in CHF and can be cancelled at short notice. As of March 31, 2022 the Group did not make use of credit facilities.

Current financial liabilities

CHF million

 

31.3.2022

 

31.3.2021

 

 

Financial liabilities at amortized cost

 

Financial liabilities at fair value through profit or loss

 

Total

 

Financial liabilities at amortized cost

 

Financial liabilities at fair value through profit or loss

 

Total

Bank debt

 

0.4

 

 

 

0.4

 

0.1

 

 

 

0.1

Bond

 

334.7

 

 

 

334.7

 

364.6

 

 

 

364.6

Deferred payments

 

23.8

 

 

 

23.8

 

7.0

 

 

 

7.0

Contingent considerations

 

 

 

13.8

 

13.8

 

 

 

2.9

 

2.9

Other current financial liabilities

 

 

 

1.6

 

1.6

 

 

 

1.1

 

1.1

Total

 

358.8

 

15.3

 

374.2

 

371.7

 

4.0

 

375.7

 

 

 

 

 

 

 

 

 

 

 

 

 

Unused borrowing facilities

 

 

 

 

 

366.1

 

 

 

 

 

366.2

Non-current financial liabilities

CHF million

 

31.3.2022

 

31.3.2021

 

 

Financial liabilities at amortized cost

 

Financial liabilities at fair value through profit or loss

 

Total

 

Financial liabilities at amortized cost

 

Financial liabilities at fair value through profit or loss

 

Total

Bonds/US Private Placement

 

864.9

 

 

 

864.9

 

1,197.8

 

 

 

1,197.8

Deferred payments

 

2.6

 

 

 

2.6

 

3.0

 

 

 

3.0

Contingent considerations

 

 

 

81.5

 

81.5

 

 

 

1.3

 

1.3

Other non-current financial liabilities

 

0.1

 

10.8

 

10.9

 

0.0

 

6.8

 

6.8

Total

 

867.5

 

92.4

 

959.9

 

1,200.8

 

8.1

 

1,208.9

Besides the bonds, financial liabilities mainly consist of contingent considerations (earn-out agreements) and deferred payments from acquisitions.

Other non-current financial liabilities mainly consist of amounts due in relation to the share appreciation rights (SARs) (refer to Note 7.4).

Analysis of non-current financial liabilities by currency

Analysis by currency CHF million

 

31.3.2022

 

31.3.2021

 

 

Bonds/US Private Placement

 

Deferred payments and contingent considerations

 

Other non-current financial liabilities

 

Total

 

Bonds/US Private Placement

 

Deferred payments and contingent considerations

 

Other non-current financial liabilities

 

Total

CHF

 

699.1

 

 

 

10.4

 

709.5

 

1,028.7

 

 

 

6.3

 

1,035.0

USD

 

165.8

 

4.0

 

0.0

 

169.8

 

169.1

 

 

 

0.0

 

169.1

EUR

 

 

 

76.4

 

 

 

76.4

 

 

 

2.9

 

 

 

2.9

AUD

 

 

 

2.1

 

 

 

2.1

 

 

 

 

 

 

 

 

BRL

 

 

 

1.3

 

 

 

1.3

 

 

 

0.3

 

 

 

0.3

Other

 

 

 

0.3

 

0.5

 

0.8

 

 

 

1.1

 

0.5

 

1.6

Total

 

864.9

 

84.1

 

10.9

 

959.9

 

1,197.8

 

4.3

 

6.8

 

1,208.9

Reconciliation of liabilities arising from financing activities

Liabilities from financing activities CHF million

 

 

 

 

 

 

 

 

 

 

 

2021/22

 

 

Bank debt

 

Bonds/US Private Placement

 

Deferred payments and contingent considerations

 

Lease liabilities

 

Other financial liabilities

 

Total

Balance April 1

 

0.1

 

1,562.4

 

14.2

 

271.3

 

7.9

 

1,856.0

Changes through business combinations

 

 

 

 

 

108.9

 

30.7

 

 

 

139.5

Additions to lease liabilities

 

 

 

 

 

 

 

60.1

 

 

 

60.1

Repayment of borrowings

 

 

 

(360.0)

 

 

 

 

 

 

 

(360.0)

Repayment of lease liabilities – principal portion

 

 

 

 

 

 

 

(64.0)

 

 

 

(64.0)

Repayment of lease liabilities – interest portion

 

 

 

 

 

 

 

(3.6)

 

 

 

(3.6)

Exchange differences

 

 

 

(3.5)

 

0.2

 

(13.7)

 

 

 

(17.0)

Other

 

0.3

 

0.7

 

(1.6)

 

3.5

 

4.6

 

7.5

Balance March 31

 

0.4

 

1,199.6

 

121.6

 

284.3

 

12.5

 

1,618.4

thereof short-term

 

0.4

 

334.7

 

37.5

 

68.8

 

1.6

 

443.0

thereof long-term

 

 

 

864.9

 

84.1

 

215.5

 

10.9

 

1,175.4

Liabilities from financing activities CHF million

 

 

 

 

 

 

 

 

 

 

 

2020/21

 

 

Bank debt

 

Bonds/US Private Placement

 

Deferred payments and contingent considerations

 

Lease liabilities

 

Other financial liabilities

 

Total

Balance April 1

 

230.2

 

559.1

 

22.0

 

269.0

 

5.2

 

1,085.5

Changes through business combinations

 

 

 

 

 

(3.7)

 

0.2

 

 

 

(3.5)

Additions to lease liabilities

 

 

 

 

 

 

 

62.2

 

 

 

62.2

Proceeds from borrowings

 

 

 

999.7

 

 

 

 

 

2.8

 

1,002.5

Repayment of borrowings

 

(230.0)

 

 

 

 

 

 

 

 

 

(230.0)

Repayment of lease liabilities – principal portion

 

 

 

 

 

 

 

(66.7)

 

 

 

(66.7)

Repayment of lease liabilities – interest portion

 

 

 

 

 

 

 

(4.0)

 

 

 

(4.0)

Exchange differences

 

 

 

(1.8)

 

 

 

6.5

 

 

 

4.7

Other

 

(0.1)

 

5.4

 

(4.1)

 

4.2

 

(0.1)

 

5.2

Balance March 31

 

0.1

 

1,562.4

 

14.2

 

271.3

 

7.9

 

1,856.0

thereof short-term

 

0.1

 

364.6

 

9.9

 

58.9

 

1.1

 

434.6

thereof long-term

 

 

 

1,197.8

 

4.3

 

212.4

 

6.8

 

1,421.3

Accounting policies

Financial liabilities are classified as measured at amortized cost, at fair value through profit or loss (FVPL) or at fair value through other comprehensive income (FVOCI). A financial liability is classified as at FVPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVPL are measured at fair value and net gains and losses, including any interest expense, are recognized in the income statement. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in the income statement.

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

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

Accounting policies for lease liabilities are included in Note 3.4.

4.6 Movement in share capital

Issued registered shares

 

Issued registered shares

 

Treasury shares 1)

 

Outstanding shares

Balance April 1, 2020

 

64,398,137

 

(1,970,548)

 

62,427,589

Purchase of treasury shares

 

 

 

(40,100)

 

(40,100)

Sale/transfer of treasury shares

 

 

 

238,074

 

238,074

Stock dividend 2)

 

 

 

417,110

 

417,110

Balance March 31, 2021

 

64,398,137

 

(1,355,464)

 

63,042,673

 

 

 

 

 

 

 

Purchase of treasury shares

 

 

 

(250,000)

 

(250,000)

Sale/transfer of treasury shares

 

 

 

307,451

 

307,451

Cancellation of treasury shares 3)

 

(1,225,980)

 

1,225,980

 

 

Purchase of treasury shares from share buyback

 

 

 

(2,012,438)

 

(2,012,438)

Balance March 31, 2022

 

63,172,157

 

(2,084,471)

 

61,087,686

 

 

 

 

 

 

 

Nominal value of share capital CHF million

 

Share Capital

 

Treasury shares 1)

 

Outstanding share capital

Balance March 31, 2022

 

3.2

 

(0.1)

 

3.1

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) The Annual General Shareholder’s Meeting of June 11, 2020, approved the proposed distribution of a stock dividend, resulting in a reduction of retained earnings and other reserves of CHF 100.4 million and changes in treasury shares of CHF 100.2 million.

3) The Annual General Shareholder’s Meeting of June 15, 2021, approved the proposed cancellation of 1,225,980 treasury shares, resulting in a reduction of share capital of 61,299 Swiss francs, retained earnings and other reserves of CHF 277.5 million offset by changes in treasury shares of CHF 277.5 million. This cancellation was executed on September 2, 2021.

Share buyback program

On May 18, 2021, Sonova Holding AG announced that its Board of Directors approved a share buyback program of up to CHF 700 million. The program started in June 2021 and ended in March 2022. In total, 2,012,438 treasury shares were bought under the share buyback program and are intended to be cancelled (proposal to the Annual Shareholders’ Meeting June 15, 2022). On March 29, 2022 the Board of Directors approved a new share buyback program of up to CHF 1.5 billion which is expected to run over a period of up to 36 months.

In the financial year 2021/22, transaction costs related to the share buyback program in the amount of CHF 3.5 million were deducted from equity.

Authorized capital

The 2020 Annual General Shareholdersʼ Meeting authorized the Board of Directors to increase the share capital at any time until June 11, 2022 by a maximum amount of CHF 321,990.65 by issuing a maximum of 6,439,813 registered shares that are to be fully paid up, each with a nominal value of CHF 0.05. Increases in partial amounts shall be permissible. The Board of Directors did not make use of this authorized capital in financial year 2021/22.

Conditional capital

At the Annual General Shareholdersʼ 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, 2022. These shares are reserved for long-term incentive plans (2,021,013 shares) as well as for initiatives to increase the companyʼs financial flexibility (3,301,120 shares).

Accounting policies

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 companiesʼ 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.

4.7 Risk management

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, supports the annual risk assessment and is responsible for the management of the risk mitigating initiatives. The Board of Directors discusses and analyzes the Groupʼs risks at least once a year in the context of a strategy meeting.

Financial risk management

Due to Sonova Groupʼs 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 Groupʼs 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 Group does not apply hedge accounting.

The fundamentals of Sonova Groupʼs 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 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.

Positive replacement values from forward contract hedges 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, 2022, the Group engaged in forward currency contracts amounting to CHF 296.6 million (previous year CHF 280.0 million). The open contracts on March 31, 2022 as well as on March 31, 2021 were all due within one year.

Notional amount of forward contracts CHF million

31.3.2022

 

31.3.2021

 

 

Total

 

Fair value

 

Total

 

Fair value

Positive replacement values

 

111.4

 

1.3

 

96.7

 

0.3

Negative replacement values

 

185.2

 

(1.5)

 

183.3

 

(0.6)

Total

 

296.6

 

(0.3)

 

280.0

 

(0.3)

Exchange rate risk CHF million

 

2021/22

 

2020/21

 

2021/22

 

2020/21

 

 

Impact on income after taxes 1)

 

 

 

Impact on equity

 

 

Change in USD/CHF +5%

 

(5.9)

 

2.7

 

7.8

 

9.6

Change in USD/CHF –5%

 

5.9

 

(2.7)

 

(7.8)

 

(9.6)

Change in EUR/CHF +5%

 

2.6

 

3.1

 

18.4

 

16.9

Change in EUR/CHF –5%

 

(2.6)

 

(3.1)

 

(18.4)

 

(16.9)

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 2021/22 financial year of CHF 1,298.7 million (previous year CHF 1,364.6 million). If interest rates during the 2021/22 financial year had been 1% higher, the positive impact on income before taxes would have been CHF 6.2 million. If interest rates had been 1% lower, the income before taxes would have been negatively impacted by CHF 11.9 million. The Groupʼs long-term financial liabilities are fixed rate instruments not subject to interest rate risk.

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 Groupʼs risk management tolerance level. Therefore, no sensitivity analysis has been conducted.

The Group aims to ensure cost effective sourcing, while at the same time managing the risk of supply shortages that could lead to a failure to deliver certain products at the quantities required. Wherever feasible, critical components are sourced from multiple suppliers in order to mitigate this risk.

The relationship with suppliers is governed by Sonovaʼs Group Supplier Principles (SGSP). We regularly audit and visit suppliers and inspect their management capabilities through employee interviews and on-site inspections. Suppliers have to follow all applicable laws and regulations, ensure a healthy and safe working environment and are prohibited from using child labor.

Through its multiple manufacturing sites around the globe, the Group maintains effective options to rebalance its production capacity between different facilities and to shift production where necessary to avoid delivery shortages and to adapt to potential changes of the operating or general environment.

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, 2022, the largest balance with a single counterparty amounted to 29% (previous year 29%) of total cash and cash equivalents.

The Group performs frequent credit checks on its receivables. Due to customer diversity, there is no single credit limit for all customers, however, the Group assesses its customers based on 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. As part of the normal process, management held the regular Expected Credit Loss (ECL) Committee meeting to review the expected credit loss rates on an annual basis in January 2022.

Impairment of financial assets

Impairment losses on financial assets are calculated based on the expected credit loss (ECL) model of IFRS 9. The Groupʼs loss allowances on financial assets other than trade receivables are not material.

Accounting policies

The Group applies the IFRS 9 simplified approach for measuring expected credit losses (ECLs) for trade receivables, which uses a lifetime expected loss allowance for trade receivables at each reporting date. To measure ECLs, trade receivables are grouped based on regions and the days past due. ECLs are calculated separately for state and non-state customers considering historical credit loss experience as well as forward-looking factors. Data sources in determining ECLs include actual historical losses, credit default swaps, country specific risk ratings, development of the customer structure and change in market performance and trends.

The following table provides information about the exposure to credit risk and ECLs for trade receivables:

CHF million

 

 

 

 

 

 

 

31.3.2022

 

 

 

 

 

 

 

31.3.2021

State customers

 

Expected loss rate

 

Gross carrying amount

 

Loss allowance

 

Net carrying amount

 

Expected loss rate

 

Gross carrying amount

 

Loss allowance

 

Net carrying amount

Not overdue

 

0.4%

 

96.6

 

(0.4)

 

96.3

 

0.3%

 

85.0

 

(0.3)

 

84.7

Overdue 1–90 days

 

0.9%

 

9.1

 

(0.1)

 

9.0

 

0.9%

 

14.4

 

(0.1)

 

14.3

Overdue 91–180 days

 

4.1%

 

3.5

 

(0.1)

 

3.4

 

3.7%

 

2.7

 

(0.1)

 

2.6

Overdue 181–360 days

 

28.2%

 

2.3

 

(0.6)

 

1.6

 

19.0%

 

2.9

 

(0.5)

 

2.3

Overdue more than 360 days

 

98.9%

 

3.9

 

(3.8)

 

0.0

 

98.5%

 

3.2

 

(3.2)

 

0.0

Total

 

4.4%

 

115.4

 

(5.1)

 

110.3

 

3.9%

 

108.2

 

(4.2)

 

103.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHF million

 

 

 

 

 

 

 

31.3.2022

 

 

 

 

 

 

 

31.3.2021

Non-state customers

 

Expected loss rate

 

Gross carrying amount

 

Loss allowance

 

Net carrying amount

 

Expected loss rate

 

Gross carrying amount

 

Loss allowance

 

Net carrying amount

Not overdue

 

1.3%

 

294.3

 

(3.9)

 

290.5

 

1.2%

 

279.9

 

(3.5)

 

276.5

Overdue 1–90 days

 

3.6%

 

57.3

 

(2.0)

 

55.2

 

4.7%

 

43.4

 

(2.0)

 

41.3

Overdue 91–180 days

 

16.2%

 

12.4

 

(2.0)

 

10.4

 

21.1%

 

11.2

 

(2.4)

 

8.8

Overdue 181–360 days

 

34.8%

 

12.1

 

(4.2)

 

7.9

 

53.1%

 

10.2

 

(5.4)

 

4.8

Overdue more than 360 days

 

99.9%

 

14.1

 

(14.1)

 

0.0

 

83.2%

 

20.4

 

(17.0)

 

3.4

Total

 

6.7%

 

390.2

 

(26.2)

 

364.0

 

8.3%

 

365.1

 

(30.3)

 

334.9

The closing loss allowance for trade receivables as at March 31, 2021 reconcile to the closing loss allowance as at March 31, 2022 as follows:

CHF million

 

2021/22

 

2020/21

Loss allowance for doubtful receivables, April 1

 

(34.5)

 

(51.9)

Utilization

 

3.1

 

7.8

Reversal

 

2.7

 

16.5

Additions

 

(3.8)

 

(6.0)

Exchange differences

 

1.1

 

(1.0)

Loss allowance for doubtful receivables, March 31

 

(31.3)

 

(34.5)

Trade receivables are written off when there is no reasonable expectation of recovery. Impairment losses on trade receivables and subsequent recoveries are included in general and administration costs.

At the end of financial year 2020/21, expected credit loss (ECL) rates improved due to an easing of the COVID-19 pandemic, which resulted in a significant reversal of loss allowances.

Liquidity risk

Group finance is responsible for centrally managing the net cash/debt position and to ensure that the Groupʼs 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.

Visibility over the majority of bank accounts is provided by central treasury organization. Cash pools are automated and daily SWIFT balance tracking is applied where feasible.

The following table summarizes the Groupʼs financial liabilities as of March 31, 2022 and 2021 based on contractual undiscounted payments. Bonds include the notional amount as well as interest payments.

CHF million

31.3.2022

 

 

Due less than 1 year

 

Due 1 year to 5 years

 

Due more than 5 years

 

Total

Bank debt

 

0.4

 

 

 

 

 

0.4

Trade payables

 

189.2

 

 

 

 

 

189.2

Lease liabilities

 

68.8

 

140.4

 

75.0

 

284.3

Bonds/US Private Placement

 

338.4

 

390.2

 

506.4

 

1,235.0

Deferred payments

 

23.8

 

2.6

 

 

 

26.4

Contingent considerations

 

13.8

 

39.5

 

69.8

 

123.1

Other financial liabilities

 

0.0

 

10.8

 

 

 

10.9

Total financial liabilities

 

634.4

 

583.5

 

651.2

 

1,869.1

 

 

 

 

 

 

 

 

 

CHF million

31.3.2021

 

 

Due less than 1 year

 

Due 1 year to 5 years

 

Due more than 5 years

 

Total

Bank debt

 

0.1

 

 

 

 

 

0.1

Trade payables

 

103.2

 

 

 

 

 

103.2

Lease liabilities

 

58.9

 

159.8

 

52.5

 

271.2

Bonds/US Private Placement

 

370.3

 

731.1

 

509.1

 

1,610.5

Deferred payments

 

7.0

 

3.0

 

 

 

10.0

Contingent considerations

 

2.9

 

1.3

 

 

 

4.2

Other financial liabilities

 

0.0

 

6.8

 

 

 

6.9

Total financial liabilities

 

542.5

 

902.1

 

561.5

 

2,006.1

Capital management

It is the Groupʼs policy to maintain a strong equity base and to secure a continuous “investment grade” rating. The Groupʼs 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.

4.8 Financial instruments

This note discloses the categorization of financial instruments measured at fair value based on the fair value hierarchy.

Accounting policies

Financial instruments measured at fair value are allocated to one of the following three hierarchical levels:

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.

The following table summarizes the financial instruments of the Group and the valuation method for financial instruments at fair value through profit and loss.

CHF million

 

31.3.2022

 

 

Notes

 

Carrying amount

 

Fair value 1)

 

Level 1

 

Level 2

 

Level 3

Financial assets at amortized cost

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

4.1

 

610.5

 

 

 

 

 

 

 

 

Other financial assets

 

4.4

 

39.1

 

 

 

 

 

 

 

 

Trade receivables

 

3.1

 

474.3

 

 

 

 

 

 

 

 

Total

 

 

 

1,124.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

Other financial assets

 

4.4

 

5.5

 

5.5

 

2.3

 

 

 

3.3

Total

 

 

 

5.5

 

5.5

 

2.3

 

 

 

3.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities at amortized cost

 

 

 

 

 

 

 

 

 

 

 

 

Bank debt

 

4.5

 

0.4

 

 

 

 

 

 

 

 

Bonds/US Private Placement

 

4.5

 

1,199.6

 

1,170.5

 

1,170.5

 

 

 

 

Deferred payments

 

4.5

 

26.4

 

 

 

 

 

 

 

 

Other financial liabilities

 

4.5

 

0.1

 

 

 

 

 

 

 

 

Trade payables

 

 

 

189.2

 

 

 

 

 

 

 

 

Total

 

 

 

1,415.6

 

1,170.5

 

1,170.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities at fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

Contingent considerations

 

4.5

 

95.3

 

95.3

 

 

 

 

 

95.3

Negative replacement value of forward foreign exchange contracts

 

4.7

 

1.5

 

1.5

 

 

 

 

 

1.5

Other financial liabilities

 

4.5

 

10.9

 

10.9

 

 

 

 

 

10.9

Total

 

 

 

107.7

 

107.7

 

 

 

 

 

107.7

1) For financial assets and financial liabilities measured at amortized cost, fair value information is not provided if the carrying amount is a reasonable approximation of fair value.

CHF million

 

31.3.2021

 

 

Notes

 

Carrying amount

 

Fair value 1)

 

Level 1

 

Level 2

 

Level 3

Financial assets at amortized cost

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

4.1

 

1,772.2

 

 

 

 

 

 

 

 

Other financial assets

 

4.4

 

36.1

 

 

 

 

 

 

 

 

Trade receivables

 

3.1

 

438.8

 

 

 

 

 

 

 

 

Total

 

 

 

2,247.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

Other financial assets

 

4.4

 

9.7

 

9.7

 

7.4

 

 

 

2.3

Total

 

 

 

9.7

 

9.7

 

7.4

 

 

 

2.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities at amortized cost

 

 

 

 

 

 

 

 

 

 

 

 

Bank debt

 

4.5

 

0.1

 

 

 

 

 

 

 

 

Bonds/US Private Placement

 

4.5

 

1,562.4

 

1,590.0

 

1,590.0

 

 

 

 

Deferred payments

 

4.5

 

10.0

 

 

 

 

 

 

 

 

Other financial liabilities

 

4.5

 

0.0

 

 

 

 

 

 

 

 

Trade payables

 

 

 

103.2

 

 

 

 

 

 

 

 

Total

 

 

 

1,675.7

 

1,590.0

 

1,590.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities at fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

Contingent considerations

 

4.5

 

4.2

 

4.2

 

 

 

 

 

4.2

Negative replacement value of forward foreign exchange contracts

 

4.7

 

0.6

 

0.6

 

 

 

 

 

0.6

Other financial liabilities

 

4.5

 

7.3

 

7.3

 

 

 

 

 

7.3

Total

 

 

 

12.1

 

12.1

 

 

 

 

 

12.1

1) For financial assets and financial liabilities measured at amortized cost, fair value information is not provided if the carrying amount is a reasonable approximation of fair value.

The following table presents the changes in level 3 financial instruments for the year ended March 31, 2022 and 2021:

Financial assets at fair value through profit or loss CHF million

 

 

 

 

 

2021/22

 

2020/21

 

 

 

 

 

 

Total

 

Total

Balance April 1

 

 

 

 

 

2.3

 

4.2

Additions/(disposals), net

 

 

 

 

 

1.0

 

(2.0)

Gain recognized in profit or loss

 

 

 

 

 

0.0

 

0.1

Balance March 31

 

 

 

 

 

3.3

 

2.3

 

 

 

 

 

 

 

 

 

Financial liabilities at fair value through profit or loss CHF million

 

 

 

 

 

2021/22

 

2020/21

 

 

Contingent considerations

 

Other financial liabilities

 

Total

 

Total

Balance April 1

 

(4.2)

 

(7.9)

 

(12.1)

 

(10.4)

Changes through business combinations

 

(93.3)

 

 

 

(93.3)

 

2.4

(Additions)/disposals, net

 

2.4

 

4.6

 

7.0

 

0.8

Losses recognized in profit or loss

 

(0.2)

 

(9.2)

 

(9.4)

 

(4.9)

Balance March 31

 

(95.3)

 

(12.4)

 

(107.7)

 

(12.1)

Financial liabilities at fair value through profit or loss mainly consist of contingent consideration arrangements arising from business combinations (refer to Note 6.1). The fair values are determined by considering the possible scenarios of the future performance of the acquired companies, contractual obligations and milestone achievements, the amount to be paid under each scenario and the probability of each scenario. The significant unobservable inputs are the forecast sales and other performance criteria. As at March 31, 2022 and 2021, the maximum potential payments under contingent considerations do not differ significantly from the amounts provided.

The increase in contingent considerations in the financial year 2021/22 mainly relate to a license agreement for the Sennheiser brand for which a liability in the amount of CHF 79.5 million was recognized. The amount was determined based on a discounted cash flow calculation over a licensing period of 15 years. Significant unobservable inputs used in the fair value measurement include the projected revenues, the brand licensing fee and the discount rate. For the calculation a licensing fee of 2.5% for the first 8 years, 1.3% for the subsequent years and a discount rate of 4.8% was used.

4.9 Exchange rates

The following main exchange rates were used for currency translation:

 

 

31.3.2022

 

31.3.2021

 

2021/22

 

2020/21

 

 

Year-end rates

 

 

 

Average rates for the year

 

 

AUD 1

 

0.69

 

0.72

 

0.68

 

0.66

BRL 1

 

0.19

 

0.16

 

0.17

 

0.17

CAD 1

 

0.74

 

0.75

 

0.73

 

0.70

CNY 1

 

0.15

 

0.14

 

0.14

 

0.14

EUR 1

 

1.03

 

1.11

 

1.07

 

1.08

GBP 1

 

1.21

 

1.30

 

1.26

 

1.21

JPY 100

 

0.76

 

0.85

 

0.82

 

0.87

USD 1

 

0.92

 

0.94

 

0.92

 

0.92

Accounting policies

The consolidated financial statements are expressed in Swiss francs (“CHF”), which is the Groupʼs 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. 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.

5. Taxes

5. Taxes

5.1 Taxes

CHF million

 

2021/22

 

2020/21

Current taxes

 

98.6

 

61.7

Deferred taxes

 

(34.0)

 

(46.6)

Total income taxes

 

64.5

 

15.2

 

 

 

 

 

Reconciliation of tax expense

 

 

 

 

Income before taxes

 

728.2

 

600.4

Group’s expected average tax rate

 

20.0%

 

15.9%

Tax at expected average rate

 

145.6

 

95.7

+/– Effects of

 

 

 

 

Non-taxable income/non-tax-deductible expenses

 

(0.7)

 

(2.8)

Changes of unrecognized loss carryforwards/deferred tax assets 1)

 

8.6

 

(21.6)

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

 

(49.9)

 

(27.3)

Change in tax rates on deferred tax balances

 

5.4

 

(1.8)

Transitional effect of tax reforms

 

(17.5)

 

(28.0)

Prior year adjustments and other items, net 2)

 

(27.0)

 

0.9

Total income taxes

 

64.5

 

15.2

Weighted average effective tax rate

 

8.9%

 

2.5%

1) In 2020/21, mainly related to the use of tax loss carryforwards as a result of damages awarded in patent infringement lawsuit to Advanced Bionics as described below.

2) Other items include changes in uncertain tax positions.

The Groupʼs expected average tax rate is the rate obtained by applying the expected tax rate for each jurisdiction to its respective result before taxes, adjusted for significant one-time effects. The expected tax rate might vary on a year-over-year basis depending on where the results are achieved.

Deferred tax assets and (liabilities) CHF million

 

31.3.2022

 

31.3.2021

 

 

Assets

 

Liabilities

 

Net amount

 

Assets

 

Liabilities

 

Net amount

Inventories

 

22.9

 

(6.3)

 

16.6

 

22.7

 

(3.3)

 

19.4

Property, plant & equipment

 

2.7

 

(8.2)

 

(5.4)

 

2.5

 

(7.4)

 

(4.9)

Intangible assets

 

 

 

(148.0)

 

(148.0)

 

 

 

(96.9)

 

(96.9)

Right-of-use assets and lease liabilities

 

66.2

 

(65.2)

 

1.0

 

68.0

 

(67.2)

 

0.8

Other assets and liabilities 1)

 

263.1

 

(58.2)

 

204.9

 

204.3

 

(40.4)

 

163.8

Tax loss carryforwards

 

35.1

 

 

 

35.1

 

26.9

 

 

 

26.9

Total tax assets (liabilities)

 

390.0

 

(285.9)

 

104.1

 

324.4

 

(215.2)

 

109.2

 

 

 

 

 

 

 

 

 

 

 

 

 

Offset of assets and liabilities

 

(147.1)

 

147.1

 

 

 

(103.7)

 

103.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts in the balance sheet

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax assets

 

242.9

 

 

 

242.9

 

220.7

 

 

 

220.7

Deferred tax liabilities

 

 

 

(138.8)

 

(138.8)

 

 

 

(111.5)

 

(111.5)

Total deferred taxes, net

 

 

 

 

 

104.1

 

 

 

 

 

109.2

1) Deferred tax assets mainly relate to provisions and contract liabilities, deferred tax liabilities mainly relate to provisions, contract assets and trade and other receivables. Including deferred tax assets in the amount of CHF 128.8 million (2020/21: CHF 88.5 million) related to tax reforms as described below.

Movement of deferred tax assets and (liabilities) CHF million

2021/22

 

 

Inventories

 

Property, plant & equipment

 

Intangible assets

 

Right-of-use assets and lease liabilities

 

Other assets and liabilities

 

Tax loss carryforwards

 

Total

Balance April 1

 

19.4

 

(4.9)

 

(96.9)

 

0.8

 

163.8

 

26.9

 

109.2

Changes through business combinations

 

 

 

 

 

(63.4)

 

 

 

18.5

 

5.5

 

(39.4)

Deferred taxes recognized in the income statement 1)

 

(2.6)

 

(1.2)

 

5.4

 

(0.2)

 

31.0

 

1.7

 

34.0

Deferred taxes recognized in OCI 2)

 

 

 

 

 

 

 

 

 

(9.1)

 

 

 

(9.1)

Exchange differences

 

(0.2)

 

0.7

 

6.8

 

0.4

 

0.7

 

1.0

 

9.4

Balance March 31

 

16.6

 

(5.4)

 

(148.0)

 

1.0

 

204.9

 

35.1

 

104.1

1) Deferred taxes recognized in the income statement include the impact from tax reforms as described below.

2) Other comprehensive income.

Movement of deferred tax assets and (liabilities) CHF million

2020/21

 

 

Inventories

 

Property, plant & equipment

 

Intangible assets

 

Right-of-use assets and lease liabilities

 

Other assets and liabilities

 

Tax loss carryforwards

 

Total

Balance April 1

 

24.1

 

(6.6)

 

(88.4)

 

0.2

 

109.0

 

35.2

 

73.5

Changes through business combinations

 

 

 

 

 

(1.8)

 

 

 

 

 

 

 

(1.8)

Deferred taxes recognized in the income statement 1)

 

(1.0)

 

1.8

 

(5.1)

 

0.4

 

58.2

 

(7.7)

 

46.6

Deferred taxes recognized in OCI 2)

 

 

 

 

 

 

 

 

 

(6.6)

 

 

 

(6.6)

Exchange differences

 

(3.7)

 

(0.1)

 

(1.6)

 

0.2

 

3.2

 

(0.6)

 

(2.5)

Balance March 31

 

19.4

 

(4.9)

 

(96.9)

 

0.8

 

163.8

 

26.9

 

109.2

1) Deferred taxes recognized in the income statement include the impact from tax reforms as described below.

2) 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:

CHF million

 

31.3.2022

 

31.3.2021

Within 1 year

 

24.4

 

2.2

Within 2–5 years

 

36.1

 

70.7

More than 5 years or without expiration

 

434.4

 

442.6

Total

 

494.9

 

515.6

Tax loss carryforwards, which have not been capitalized also include pre-acquisition tax losses with limitation of use and losses that 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.

Tax reforms

On May 19, 2019, the Swiss electorate passed the Federal Act on Tax Reform and AHV Financing (TRAF). The tax reform abolished the tax regimes for holding, domiciliary and mixed companies as of January 1, 2020 and introduced new tax measures. To the extent that the tax reform requires cantonal and communal tax law changes, these had to be implemented through modification of the cantonal tax law. On September 1, 2019, in a public vote, the electorate of the canton of Zurich accepted the respective revision of the cantonal tax law. The relevant changes to the Group include a decrease in the statutory income tax rate in the canton of Zurich, effective from January 1, 2021.

Following the latest international developments: the contemplated introduction of new minimum taxation under GloBe Model Rules (Global anti-Base Erosion – Pillar 2) and the enactment of ATAD 2 (Anti-Tax Avoidance Directive 2) regulations as well as the publication of final ATAD 2 guidance in certain European jurisdictions during financial year 2021/22, the Group has reassessed and revalued its Swiss deferred tax position by an overall positive income tax effect of CHF 17.5 million (prior year: positive effect of CHF 28.0 million after finalization of STAF measures).

Accounting policies

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. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and outcome is uncertain. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.

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 non-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.

Accounting judgements and estimates

The consolidated balance sheet includes deferred tax assets of CHF 114.1 million (previous year CHF 132.2 million) related to deductible differences and, in certain cases, tax loss carry forwards, provided that their utilization is considered 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.

Deferred tax assets further include CHF 128.8 million (previous year: CHF 88.5 million) related to tax reforms as described above. The calculation of the deferred tax assets required management to make significant estimates and assumptions. Some of these estimates are based on interpretations of existing tax laws or regulations. Whenever circumstances have changed or there is new information that affects these judgements, the estimates will be reassessed.

6. Changes in Group structure

6. Changes in Group structure

6.1 Acquisitions/disposals of subsidiaries

On March 1, 2022, Sonova Holding AG completed the acquisition of 100% of the Consumer Division from Sennheiser electronic GmbH & Co. KG, Wedemark (Germany). The Sennheiser Consumer division concentrates on the business of headphones and hearables for private customers and operates with around 600 employees worldwide through a broad online and in-store distribution network. As part of the acquisition, Sonova secured a perpetual license for the Sennheiser brand, under which both existing and new consumer hearing devices will be marketed.

On March 1, 2022, Sonova Holding AG completed the acquisition of 100% of Alpaca Group Holdings LLC, Delaware (USA). Alpaca Audiology is one of the largest independent networks of audiological clinics in the US. The company has over 500 employees and operates around 220 clinics across the country.

In addition to the acquisitions above, during the financial year 2021/22 several small businesses were acquired in EMEA, North America and Asia/Pacific and one small business was divested in Asia. 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.

Assets and liabilities resulting from the acquisitions are as follows:

CHF million

 

2021/22

 

2020/21

 

 

Sennheiser Consumer Division

 

Alpaca Audiology

 

Others

 

Total

 

Total

Cash and cash equivalents

 

65.0

 

0.6

 

16.7

 

82.4

 

1.9

Trade receivables

 

8.7

 

2.8

 

3.3

 

14.8

 

0.5

Inventories

 

50.8

 

2.9

 

3.0

 

56.7

 

0.6

Other current operating assets

 

32.5

 

2.7

 

0.9

 

36.1

 

0.1

Total current assets

 

157.0

 

9.1

 

24.0

 

190.0

 

3.2

Property, plant and equipment

 

13.2

 

2.7

 

4.9

 

20.9

 

0.7

Right-of-use assets

 

3.5

 

9.7

 

17.4

 

30.7

 

 

Intangible assets

 

165.8

 

83.2

 

47.3

 

296.4

 

8.3

Other non-current assets

 

0.3

 

 

 

0.7

 

1.0

 

0.2

Deferred tax assets

 

12.8

 

 

 

3.0

 

15.8

 

0.5

Total non-current assets

 

195.7

 

95.7

 

73.4

 

364.7

 

9.6

Current financial liabilities

 

(0.0)

 

(1.4)

 

(0.8)

 

(2.2)

 

(0.2)

Current lease liabilities

 

(0.9)

 

(2.4)

 

(4.4)

 

(7.7)

 

 

Trade payables

 

(5.2)

 

(4.4)

 

(4.1)

 

(13.7)

 

(0.3)

Short-term contract liabilities

 

 

 

(6.9)

 

(2.4)

 

(9.3)

 

(0.4)

Other short-term operating liabilities

 

(23.5)

 

(1.4)

 

(7.1)

 

(32.0)

 

(1.1)

Short-term provisions

 

(10.2)

 

(0.6)

 

(2.1)

 

(12.9)

 

(0.4)

Total current liabilities

 

(39.9)

 

(17.1)

 

(20.8)

 

(77.8)

 

(2.4)

Non-current financial liabilities

 

(0.0)

 

(1.5)

 

(0.4)

 

(1.9)

 

(0.7)

Non-current lease liabilities

 

(2.6)

 

(7.3)

 

(13.1)

 

(23.0)

 

 

Long-term provisions

 

(0.9)

 

 

 

(1.6)

 

(2.5)

 

(0.0)

Other long-term operating liabilities

 

(6.9)

 

 

 

 

 

(6.9)

 

 

Deferred tax liabilities

 

(39.7)

 

(3.0)

 

(12.6)

 

(55.3)

 

(2.2)

Total non-current liabilities

 

(50.1)

 

(11.7)

 

(27.7)

 

(89.6)

 

(2.9)

Net assets

 

262.6

 

75.9

 

48.9

 

387.4

 

7.5

Goodwill

 

62.9

 

210.4

 

120.5

 

393.8

 

20.0

Purchase consideration

 

325.5

 

286.3

 

169.4

 

781.2

 

27.5

Liabilities for contingent considerations and deferred payments 1)

 

(99.3)

 

 

 

(14.4)

 

(113.7)

 

(3.2)

Cash and cash equivalents acquired

 

(65.0)

 

(0.6)

 

(16.7)

 

(82.4)

 

(1.9)

Cash outflow for contingent considerations and deferred payments

 

 

 

0.3

 

8.7

 

8.9

 

6.9

Cash consideration for acquisitions, net of cash acquired

 

161.2

 

286.0

 

146.9

 

594.1

 

29.3

1) Contingent considerations (earn-out payments) are dependent on the future performance of the acquired companies as well as contractual conditions. The liability for contingent considerations 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.

Liabilities for contingent considerations amount to CHF 90.5 million and deferred payments amount to CHF 23.2 million. Contingent considerations are dependent on the future performance of the acquired companies as well as contractual obligations and milestone achievements. Liabilities for contingent considerations for the Sennheiser Consumer Division include a liability in connection with a license agreement in the amount of CHF 79.5 million that is dependent on future revenues (for further information refer to Note 4.8). For the Sennheiser Consumer Division, Goodwill is attributed mainly to economies of scale and expected synergies. For Alpaca and other acquisitions, 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 reductions 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 for the Sennheiser Consumer Division mainly contain trademarks (CHF 100.6 million), customer relationships (CHF 55.6 million) and technology (CHF 8.2 million). For Alpaca Audiology acquisition-related intangibles contain customer relationships (CHF 83.2 million). For other acquisitions, acquisition-related intangibles assets mainly relate to customer relationships (CHF 47.2 million). In the previous year, acquisition-related intangibles related to customer relationships and amounted to CHF 8.3 million. The assigned lifetime is 7 years for technology and 10 to 15 years for customer relationships. On these intangible assets, deferred taxes have been considered.

As part of the acquisition of the Consumer Division from Sennheiser, the Group acquired a brand value with an indefinite useful life. It has been determined to have an indefinite useful life as there is no intention to abandon the brand name. It has existed for many years and the Group has the ability to maintain its brand value for an indefinite period of time. Thus, the brand is not amortized but is assessed for impairment annually.

Acquisition-related transaction costs in the amount of CHF 9.0 million (previous year CHF 0.3 million) were expensed and are included in the line “General and administration”.

April 1 to March 31, CHF million

 

2021/22

 

2020/21

 

 

Sennheiser Consumer Division

 

Alpaca Audiology

 

Others

 

Total

 

Total

Contribution of acquired companies from date of acquisition

 

 

 

 

 

 

 

 

 

 

Sales

 

8.8

 

8.2

 

40.4

 

57.4

 

2.6

Net income

 

(8.0)

 

(0.0)

 

2.1

 

(5.9)

 

0.6

 

 

 

 

 

 

 

 

 

 

 

Contribution, if the acquisitions had occurred on April 1

 

 

 

 

 

 

 

 

 

 

Sales

 

245.7

 

97.0

 

70.2

 

412.9

 

12.4

Net income

 

1.7

 

0.1

 

8.8

 

10.6

 

3.6

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:

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

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 2021/22 financial year, such liabilities contingent on future events amount to CHF 95.3 million (previous year CHF 4.2 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:

CHF million

 

2021/22

 

2020/21

Current assets

 

4.7

 

2.9

Non-current assets

 

4.7

 

3.6

Total assets

 

9.4

 

6.5

Current liabilities

 

(1.2)

 

(0.8)

Non-current liabilities

 

(0.9)

 

(0.6)

Total liabilities

 

(2.0)

 

(1.4)

Net assets

 

7.4

 

5.1

 

 

 

 

 

Income for the year

 

7.6

 

5.1

Expenses for the year

 

(4.6)

 

(3.2)

Profit for the year

 

3.0

 

1.9

 

 

 

 

 

Net book value at year-end

 

22.3

 

19.7

Share of profit/(loss) recognized by the Group

 

3.0

 

1.9

In the financial year 2021/22, the Group acquired a 27% interest in an associate for a total consideration of CHF 1.6 million. In addition, the Group acquired four associates with interests between 25% and 50% as part of an acquisition in the Asia/Pacific region. All associates are in the business of selling hearing instruments.

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.

Sales to associates in the 2021/22 financial year amounted to CHF 10.9 million (previous year CHF 7.8 million). At March 31, 2022, trade receivables towards associates amounted to CHF 2.6 million (previous year CHF 2.5 million).

At the end of the 2021/22 and 2020/21 financial years, no unrecognized losses existed.

Investments with a net book value of CHF 22.2 million (previous year CHF 19.7 million) have a business year different than the Sonova Group. The latest available information for the respective companies are as per December 2021.

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.

7. Other disclosures

7. Other disclosures

7.1 Number of employees

On March 31, 2022, the Sonova Group employed the full time equivalent (FTE) of 16,733 people (previous year 14,508). They were engaged in the following regions and activities:

By region

 

31.3.2022

 

31.3.2021

Switzerland

 

1,445

 

1,321

EMEA (excl. Switzerland)

 

7,238

 

6,443

Americas

 

4,285

 

3,415

Asia/Pacific

 

3,765

 

3,329

Total

 

16,733

 

14,508

 

 

 

 

 

By activity

 

 

 

 

Research and development

 

1,100

 

879

Operations

 

4,668

 

4,398

Sales and marketing, general and administration

 

10,965

 

9,231

Total

 

16,733

 

14,508

The acquisition of the Sennheiser Consumer Division and Alpaca Audiology (for further details on acquisition impacts refer to Note 6.1) contributed to the increase with 595 FTE’s, and 486 FTE’s respectively.

The average number of employees (full time equivalents) of the Sonova Group for the year was 15,114 (previous year 14,436). Total personnel expenses for the 2021/22 financial year amounted to CHF 1,131.9 million (previous year CHF 940.2 million).

7.2 Transactions and relations with members of the Management Board and the Board of Directors

CHF million

 

2021/22

 

2020/21

 

2021/22

 

2020/21

 

2021/22

 

2020/21

 

 

Management Board

 

 

 

Board of Directors

 

 

 

Total

 

 

Short-term employee benefits

 

9.6

 

7.2

 

1.5

 

1.4

 

11.1

 

8.5

Post-employment benefits

 

0.7

 

0.6

 

 

 

 

 

0.7

 

0.6

Share based payments

 

5.0

 

4.5

 

1.6

 

1.6

 

6.6

 

6.2

Total

 

15.2

 

12.3

 

3.1

 

3.0

 

18.4

 

15.3

The total compensation to the Management Board for the 2021/22 reporting period, as shown above, relates to nine active members and one former member of the Management Board (2020/21: nine active members).

The total compensation to the Board of Directors for the 2021/22 reporting period, as shown above, relates to nine active members and two former members (2020/21: nine active members).

Transactions between the Group and the various post-employment benefit plans for the employees of the Group are described in Note 7.3.

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 Note 3.6 of the financial statements of Sonova Holding AG.

7.3 Employee benefits

Defined benefit plans

Sonova Groupʼs retirement plans include defined benefit pension plans in Switzerland, Austria, Belgium, Canada, France, Germany and Israel. These plans are both funded and unfunded and governed by local regulations using independent actuarial valuations according to IAS 19. Sonova Groupʼs major defined benefit plan is located in Switzerland, which in total accounts for CHF 471.0 million or 98.7% (previous year CHF 483.9 million or 98.7%) of Sonovaʼs 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 Sonovaʼs 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 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. 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. An annuity rate of 5.4% to the individual accumulated retirement savings capital was applied for the financial years 2021/22 and 2020/21.

As of March 31, 2022, 1,476 employees (previous year 1,363 employees) and 154 beneficiaries (previous year 143 beneficiaries) are insured under the Swiss plan. The defined benefit obligation has a duration of 15.7 years (previous year 14.0 years).

The results of all defined benefit plans are summarized below:

Amounts recognized in the balance sheet CHF million

 

31.3.2022

 

31.3.2021

Present value of funded obligations

 

(477.3)

 

(490.1)

Fair value of plan assets

 

516.2

 

474.1

Net present value of funded plans

 

39.0

 

(16.0)

Present value of unfunded obligations

 

(15.0)

 

(5.3)

Total assets (liabilities), net

 

24.0

 

(21.3)

 

 

 

 

 

Amounts in the balance sheet:

 

 

 

 

Retirement benefit obligation

 

(15.7)

 

(21.3)

Retirement benefit asset

 

39.7

 

 

Assets/(liabilities) in the balance sheet, net

 

24.0

 

(21.3)

Remeasurements recognized in equity CHF million

 

2021/22

 

2020/21

Balance April 1

 

21.4

 

77.1

Actuarial losses/(gains) from

 

 

 

 

– changes in demographic assumptions

 

3.6

 

 

– changes in financial assumptions

 

(53.8)

 

10.1

– changes in experience adjustments

 

27.7

 

10.8

Return on plan assets excluding interest income

 

(33.1)

 

(76.7)

Balance March 31

 

(34.4)

 

21.4

Amounts recognized in the income statement CHF million

 

2021/22

 

2020/21

Current service cost 1)

 

20.0

 

19.3

Net interest cost

 

0.1

 

0.3

Total employee benefit expenses 2)

 

20.1

 

19.6

1) Excluding Participants’ contributions.

2) The amount recognized in the consolidated income statement 2021/22 has been charged to:

– cost of sales CHF 2.8 million (previous year CHF 3.3 million);

– research and development CHF 6.8 million (previous year 6.3 million);

– sales and marketing CHF 3.7 million (previous year 3.9 million);

– general and administration CHF 6.6 million (previous year CHF 5.8 million);

– financial expenses CHF 0.1 million (previous year CHF 0.3 million).

Movement in the present value of the defined benefit obligations CHF million

 

2021/22

 

2020/21

Beginning of the year

 

495.5

 

448.9

Interest cost

 

1.6

 

2.0

Current service cost

 

20.0

 

19.3

Participants’ contributions

 

13.8

 

12.4

Benefits paid, net

 

(23.2)

 

(8.0)

Actuarial loss on obligations

 

(22.6)

 

20.9

Changes through business combinations

 

6.8

 

 

Transfers

 

1.3

 

 

Exchange differences

 

(0.9)

 

(0.1)

Present value of obligations at end of period

 

492.2

 

495.5

Movement in the fair value of the plan assets CHF million

 

2021/22

 

2020/21

Beginning of the year

 

474.1

 

375.4

Interest income on plan asset

 

1.5

 

1.7

Employer’s contributions paid

 

16.4

 

15.3

Participants’ contributions

 

13.8

 

12.4

Benefits paid, net

 

(22.4)

 

(7.6)

Return on plan assets excluding interest income

 

33.1

 

76.7

Exchange differences

 

(0.2)

 

0.2

Fair value of plan assets at end of period

 

516.2

 

474.1

The plan assets consist of:

 

31.3.2022

 

31.3.2021

Cash

 

2.9%

 

2.6%

Domestic bonds

 

17.3%

 

16.2%

Foreign bonds

 

7.7%

 

7.5%

Domestic equities

 

12.3%

 

12.8%

Foreign equities

 

29.9%

 

31.5%

Real estates

 

14.6%

 

14.8%

Alternative investments

 

15.4%

 

14.6%

All of the plan assets have quoted market prices. The actual return on plan assets amounted to CHF 34.6 million (previous year CHF 78.4 million). The expected employerʼs contributions to be paid in the 2022/23 financial year amount to CHF 16.0 million.

Principal actuarial assumptions (weighted average)

 

2021/22

 

2020/21

Discount rate

 

1.20%

 

0.30%

Future salary increases

 

1.00%

 

1.00%

Future pension increases

 

0%

 

0%

Fluctuation rate

 

BVG 2020GT

 

10%

Demography

 

BVG 2020GT

 

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 million

 

31.3.2022

 

31.3.2021

Discount rate

 

 

 

 

Discount rate +0.25%

 

(16.8)

 

(15.6)

Discount rate –0.25%

 

19.2

 

17.7

Salary growth

 

 

 

 

Salary growth +0.25%

 

1.0

 

0.8

Salary growth –0.25%

 

(1.0)

 

(0.8)

Pension growth

 

 

 

 

Pension growth +0.5%

 

18.5

 

18.4

Pension growth –0.5%

 

(18.5)

 

(18.4)

Fluctuation rate

 

 

 

 

Fluctuation rate +5%

 

(15.0)

 

(19.2)

Fluctuation rate –5%

 

21.4

 

32.8

Defined contribution plans

Several of the Groupʼs entities have a defined contribution plan. The employerʼs contributions amounted to CHF 22.1 million in the year ended March 31, 2022 (previous year CHF 19.6 million) and are recognized directly in the income statement.

Accounting policies

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 Groupʼs 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 high quality corporate bonds, 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.

Accounting judgements and estimates

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 2021/22 financial year amounts to CHF 492.2 million (previous year CHF 495.5 million). This includes CHF 471.0 million (previous year CHF 483.9 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.

7.4 Equity plans

Equity plans are offered annually to the members of the Board of Directors (BoD), to the members of the Management Board (MB) as well as to other management and senior employees of the Group, entitling them to receive long-term incentives in the form of equity plans free of charge. Equity plans are settled either with Sonova Holding AG shares (equity-settled share-based payment) or for certain US employees with an equivalent amount in cash (cash-settled share-based payment). The amount granted varies depending on the degree of management responsibility held.

In the 2021/22 and 2020/21 financial years, as part of the Executive Equity Award Plan (EEAP) Sonova granted restricted shares, restricted share units (RSUs), performance share units (PSUs), options, and for US employees, share appreciation rights (SARs). Options as well as PSUs granted to the Management Board in 2021/22 and 2020/21 include a performance criterion.

The following share-based payment costs have been recognized in the financial years:

CHF million

 

2021/22

 

2020/21

Equity-settled share-based payment costs

 

19.9

 

20.4

Cash-settled share-based payment costs

 

13.6

 

10.9

Total share-based payment costs

 

33.5

 

31.3

The following table shows the outstanding options and/or SARs, granted as part of the EEAP 2016 to 2022. All of the equity instruments listed below (except for the non-recurring performance options granted to the COO (now CEO) in 2017/18) vest in 4 equal tranches, annually over a period of 4 years. The non-recurring performance options granted to the CEO vest earliest on April 1, 2023, subject to the achievement of the performance criteria.

Summary of outstanding options and SARs granted until March 31, 2022:

Financial year granted

 

Instruments granted

 

First vesting date/ expiry date

 

Granted

 

Exercise price (CHF)

 

Outstanding

 

Average remaining life (years)

 

Exercisable

2015/16

 

Options/SARs 1)

 

1.6.2017 31.1.2023

 

298,520

 

124.20

 

41,425

 

0.8

 

41,425

2016/17

 

Options/SARs 2)

 

1.6.2018 31.1.2024

 

378,652

 

130.00

 

109,176

 

1.8

 

109,176

2017/18

 

Options/SARs 3)

 

1.4.2023 30.9.2027

 

47,415

 

147.85

 

47,415

 

5.5

 

 

2017/18

 

Options 4)

 

1.6.2019 31.1.2028

 

341,943

 

147.85

 

178,498

 

5.8

 

117,727

2018/19

 

Options/SARs 5)

 

1.6.2020 31.1.2029

 

249,760

 

182.40

 

164,878

 

6.8

 

66,173

2019/20

 

Options/SARs 6)

 

1.6.2021 31.1.2030

 

208,245

 

241.80

 

169,734

 

7.8

 

37,205

2020/21

 

Options/SARs 7)

 

1.6.2022 31.1.2031

 

170,694

 

218.70

 

161,915

 

8.8

 

723

2021/22

 

Options/SARs 8)

 

1.6.2023 31.1.2032

 

112,656

 

333.60

 

112,656

 

9.8

 

 

Total

 

 

 

 

 

1,807,885

 

 

 

985'697 9)

 

6.6

 

372'429 10)

Thereof:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-settled

 

 

 

 

 

1,604,418

 

 

 

903,075

 

 

 

347,871

Cash-settled

 

 

 

 

 

203,467

 

 

 

82,622

 

 

 

24,558

1) Including 126,206 performance options, granted to the CEO and MB members.

2) Including 147,948 performance options, granted to the CEO and MB members.

3) Non-recurring performance options, granted to the COO (now CEO). Terms have been amended in the financial year 2020/21 – for further details refer to section "Options" in this note.

4) Including 150,114 performance options, granted to the CEO and MB members.

5) Including 80,850 performance options, granted to the CEO and MB members.

6) Including 77,574 performance options/SAR, granted to the CEO and MB members.

7) Including 61,779 performance options/SAR, granted to the CEO and MB members.

8) Including 38,252 performance options/SAR, granted to the CEO and MB members.

9) Weighted average exercise price of outstanding options/SARs amounts to CHF 199.70

10) Weighted average exercise price for exercisable options/SARs amounts to CHF 155.65

The fair value of options and/or SARs is calculated at the grant date by using an “Enhanced American Pricing Model”. The expected volatility is based on historical measures. The main valuation assumptions used for the options and/or SARs granted in the current and in the previous financial year are as follows:

Assumptions for valuation at grant date

 

EEAP 2022 – Management Board Options/SARs

 

EEAP 2022 Options/SARs

 

EEAP 2021 – Management Board Options/SARs

 

EEAP 2021 Options/SARs

Valuation date

 

1.2.2022

 

1.2.2022

 

1.2.2021

 

1.2.2021

Expiry date

 

31.01.2032

 

31.01.2032

 

31.01.2031

 

31.01.2031

Restriction period

 

5 years

 

 

 

5 years

 

 

Share price on grant date

 

CHF 333.60

 

CHF 333.60

 

CHF 218.70

 

CHF 218.70

Exercise price

 

CHF 333.60

 

CHF 333.60

 

CHF 218.70

 

CHF 218.70

Volatility

 

26.8%

 

26.8%

 

25.0%

 

25.0%

Expected dividend yield

 

1.4%

 

1.4%

 

1.5%

 

1.5%

Weighted risk free interest rate

 

0.3%

 

0.2%

 

(0.4%)

 

(0.5%)

Weighted average fair value of options/SARs issued

 

71.31

 

69.27

 

39.90

 

37.31

Options

The exercise price of options is equal to the market price of Sonova Holding AG shares on the SIX Swiss Exchange at grant date. The fair value of the options granted is estimated at grant date and recorded as an expense over the corresponding vesting period. Assumptions are made regarding the forfeiture rate which is adjusted during the vesting period (including adjustments due to re-assessments of the likely ROCE targets achievements for performance options granted to the CEO and the other members of the MB) to ensure that only a charge for vested amounts occur. Options may be exercised after the vesting date, until their expiry date. If options are exercised, one share per option from the conditional share capital is issued, or treasury shares are used for fulfillment. In the financial year 2021/22 and 2020/21 the options granted to the CEO and the members of the MB include a restriction period of 5 years, which was considered in the fair value of the options at grant date.

Changes in outstanding options:

 

2021/22

 

2020/21

 

 

Number of options

 

Weighted average exercise price (CHF)

 

Number of options

 

Weighted average exercise price (CHF)

Outstanding options at April 1

 

1,005,440

 

175.89

 

1,010,087

 

165.54

Granted 1)

 

101,860

 

333.60

 

149,592

 

218.70

Exercised 2)

 

(177,606)

 

148.03

 

(126,260)

 

133.16

Forfeited

 

(26,619)

 

205.45

 

(27,979)

 

194.12

Outstanding options at March 31

 

903,075

 

198.29

 

1,005,440

 

175.89

Exercisable at March 31

 

347,871

 

154.48

 

310,167

 

139.99

1) 2021/22 includes 35,483 performance options (previous year 57,080 performance options), granted to the CEO and MB members.

2) The total consideration from options exercised amounted to CHF 44.2 million (previous year CHF 29.9 million). The weighted average share price of the options exercised during the year 2021/22 was CHF 299.17 (previous year CHF 204.63).

Share appreciation rights (SARs)

The exercise price of SARs is generally equal to the market price of Sonova Holding AG shares on the SIX Swiss Exchange at grant date. Upon exercise of SARs, an employee shall be paid an amount in cash equal to the number of shares for which the employee exercised SARs, multiplied by any surplus, of the per share market price at the date of exercise versus the per share exercise price (determined at the date of grant of SARs). The initial fair value of the SARs is in line with the valuation of the options of the respective period and recorded as an expense over the corresponding vesting period. Assumptions are made regarding the forfeiture rate which is adjusted during the vesting period (including adjustments due to re-assessments of the likely ROCE targets achievements for performance options/SARs granted to the members of the MB) to ensure that only a charge for vested amounts occur. Until the liability is settled, it is revalued at each reporting date recognizing changes in fair value in the income statement. The SARs may be sold after the vesting date, until they expire, except for the SARs granted to members of the MB in the financial year 2021/22 and 2020/21, which include a restriction period of 5 years.

Changes in outstanding SARs:

 

2021/22

 

2020/21

 

 

 

Number of SARs

 

Weighted average exercise price (CHF)

 

Number of SARs

 

Weighted average exercise price (CHF)

 

Outstanding SARs at April 1

 

114,028

 

184.84

 

107,966

 

173.87

 

Granted 1)

 

10,796

 

333.60

 

21,102

 

218.70

 

Exercised

 

(33,286)

 

150.16

 

(10,903)

 

136.57

 

Forfeited

 

(8,916)

 

213.24

 

(4,137)

 

198.35

 

Outstanding SARs at March 31 2)

 

82,622

 

215.19

 

114,028

 

184.84

 

Exercisable at March 31 3)

 

24,558

 

172.19

 

30,941

 

142.38

 

1) 2021/22 includes 2,769 performance SARs granted to an MB member (previous year 4,699).

2) The carrying amount of the liability relating to the SARs at March 31, 2022 is CHF 10.4 million (previous year CHF 6.8 million).

3) The intrinsic value of the SARs exercisable at March 31, 2022 amounts to CHF 5.3 million (previous year CHF 3.3 million).

Performance share units (PSUs)

In 2022, as well as in the previous year, grants made to the members of the Management Board under the EEAP consist of PSUs. The PSUs are measured on relative TSR (rTSR) against the constituents of a recognized index. The fair value of a PSU at grant date was based on a “Monte-Carlo valuation”. PSUs entitle the holder up to two shares per PSU, subject to the achievement of the performance criterion. PSUs granted are subject to a restriction period, which was considered in the fair value of the PSU at grant date. Upon vesting of the PSUs, the respective shares are either created out of the conditional share capital or treasury shares are used. The cost of the PSUs granted is expensed over their vesting period. Assumptions are made regarding the forfeiture rate which is adjusted during the vesting period, to ensure that only vested amounts are expensed.

Assumptions for valuation at grant date

 

PSU 2022

 

PSU 2021

Valuation date

 

1.2.2022

 

1.2.2021

Date of grant

 

1.2.2022

 

1.2.2021

Share price on grant date

 

CHF 333.60

 

CHF 218.70

Fair value

 

CHF 334.87

 

CHF 198.67

End of restriction period

 

31.1.2027

 

31.1.2026

Performance conditions

 

Total shareholder return (TSR)

 

Total shareholder return (TSR)

TSR performance period

 

1.2.2022 – 31.3.2025

 

1.2.2021 – 31.3.2024

TSR comparator group

 

Swiss Leader Index (SLI)

 

Swiss Leader Index (SLI)

Restricted share units (RSUs)

Under the EEAP grants 2017 to 2022, entitled employees have been granted RSUs. The value of an RSU is equal to the market price of Sonova Holding AG shares on the SIX Swiss Exchange on the grant date, adjusted for the fair value of expected dividends, as RSUs are not entitled to dividends. RSUs entitle the holder to one share per RSU after the vesting period. In the case of RSUs granted to the CEO (2014 to 2018) and the other members of the MB (EEAP 2014 to 2017), vesting of these shares is dependent on the fulfillment of the performance criteria which remains the achievement of a pre-defined minimum return on capital employed (ROCE) target. Upon vesting of the RSUs, the respective shares are either created out of the conditional share capital or treasury shares are used. The cost of the RSUs granted is expensed over their vesting period. Assumptions are made regarding the forfeiture rate which is adjusted during the vesting period to ensure that only vested amounts are expensed.

Restricted shares

In addition to the PSUs granted in respect to the EEAP 2022 and 2021, restricted shares have been granted to the Chairman of the Board of Directors as well as to the other members of the Board of Directors in the financial year 2021/22 and 2020/21. These shares are entitled to dividends and are restricted for a period of 64 months (Chairman), respectively 52 months (other members of the Board of Directors).

The costs for the restricted shares granted to the members of the Board of Directors have been fully expensed in the 2021/22 financial year as these shares have no vesting period.

Changes in outstanding PSUs/RSUs/Restricted shares:

 

2021/22

 

2020/21

 

 

Number of PSUs

 

Number of RSUs

 

Number of restricted shares

 

Total

 

Number of PSUs

 

Number of RSUs

 

Number of restricted shares

 

Total

Balance April 1

 

40,244

 

233,157

 

53,591

 

326,992

 

31,689

 

259,065

 

60,258

 

351,012

Granted

 

20,676

 

49,758

 

4,941

 

75,375

 

10,359

 

68,605

 

7,539

 

86,503

Settled

 

(29,500)

 

(69,799)

 

(13,732)

 

(113,031)

 

 

 

(78,670)

 

(14,206)

 

(92,876)

Forfeited

 

 

 

(15,452)

 

 

 

(15,452)

 

(1,804)

 

(15,843)

 

 

 

(17,647)

Balance March 31

 

31,420

 

197,664

 

44,800

 

273,884

 

40,244

 

233,157

 

53,591

 

326,992

In addition to the plans described above a cash-settled share based payment arrangement exists in relation to an acquisition entered in the financial year 2019/20. A portion of the deferred payments of that transaction can be settled in Sonova shares (number of shares granted 102,421) or in cash at the discretion of the counterparties and represent share-based payments as the payment is linked to employment conditions. The fair value of the shares granted of CHF 21.3 million was calculated at grant date (July 8, 2019) representing the share price on that date and considering that the shares are not entitled to dividends. The associated cost is expensed over the vesting period (four equal tranches vesting equally over four years). Until the liability is settled, it is revalued at each reporting date recognizing changes in the fair value in the income statement. Due to the discretion of the counterparties to request cash payments, the equity plan is classified as a “cash-settled share based payment plan”. For this cash-settled share based payment plan, the corresponding liability is recorded under “Other short-term operating liabilities” in the balance sheet. As per March 31, 2022 the liability amounts to CHF 15.7 million (previous year CHF 11.8 million). The second tranche vested in the financial year 2021/22 and a liability of CHF 9.0 million (previous year CHF 5.1 million) was transferred to equity as the beneficiaries opted for settlement in Sonova shares.

Accounting policies

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. 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.

7.5 Government grants

The Groupʼs result for the financial year 2021/22 includes government support received worldwide in connection with the COVID-19 pandemic in the amount of CHF 1.1 million (prior year: 47.4 million). Most of the government grants relate to compensation of salary costs (furlough) and is recognized as a deduction from the costs in the following functional line items of the consolidated income statement:

April 1 to March 31, CHF million

 

2021/22

 

2020/21

Cost of sales

 

0.3

 

4.9

Research and development

 

0.1

 

2.1

Sales and marketing

 

0.6

 

33.7

General and administration

 

0.1

 

6.7

Total

 

1.1

 

47.4

Accounting policies

Government grants are recognized when there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. Government grants are presented as a deduction from the relevant functional cost line item in the income statement.

7.6 Events after the balance sheet date

On April 6, 2022, the Group repaid a CHF 330 million fixed-rate bond.

On May 2, 2022, Sonova Holding AG issued a CHF 200 million fixed-rate bond with interest rate of 1.05% and maturity on February 19, 2029 and a CHF 250 million fixed-rate bond with interest rate of 1.40% and maturity on February 19, 2032.

Besides the above mentioned transaction there have been no material events after the balance sheet date.

7.7 List of significant companies

Company name

 

Activity

 

Domicile (country)

 

Share/paid-in capital 1) Local currency 1,000

 

Shares held

 

 

 

 

 

 

 

 

 

 

 

Switzerland

 

 

 

 

 

 

 

 

 

 

Sonova Holding AG

 

A

 

Stäfa

 

CHF

 

3,159

 

100%

Sonova AG

 

A, B, C, D

 

Stäfa

 

CHF

 

2,500

 

100%

Advanced Bionics AG

 

A, B

 

Stäfa

 

CHF

 

4,350

 

100%

 

 

 

 

 

 

 

 

 

 

 

EMEA (excluding Switzerland)

 

 

 

 

 

 

 

 

 

 

Boots Hearing Care Ltd.

 

B

 

Conwy (UK)

 

GBP

 

0

2)

51%

SOD Invest SAS

 

A

 

Cahors (FR)

 

EUR

 

58,600

 

100%

Sonova Audiological Care Austria GmbH

 

B

 

Wals-Himmelreich (AT)

 

EUR

 

450

 

100%

Sonova Audiological Care France SAS

 

B

 

Cahors (FR)

 

EUR

 

58,800

 

100%

Sonova Audiological Care Italia S.r.l

 

B

 

Milan (IT)

 

EUR

 

1,166

 

100%

Sonova Audiological Care Nederland B.V.

 

B

 

Rotterdam (NL)

 

EUR

 

19

 

100%

Sonova Audiological Care Polska Sp.z.o.o.

 

B

 

Lodz (PL)

 

PLN

 

678

 

100%

Sonova Consumer Hearing GmbH

 

A

 

Hannover (DE)

 

EUR

 

26,000

 

100%

Sonova Deutschland GmbH

 

B

 

Fellbach (DE)

 

EUR

 

41

 

100%

Sonova France S.A.S.

 

B

 

Bron-Lyon (FR)

 

EUR

 

1,000

 

100%

Sonova Ibérica S.A.U.

 

B

 

San Vicente del Raspeig (ES)

 

EUR

 

7,000

 

100%

Sonova Israel Ltd.

 

B

 

Haifa (IL)

 

ILS

 

5,150

 

100%

Sonova Norway AS

 

B

 

Oslo (NO)

 

NOK

 

1,854

 

100%

Sonova Retail Belgium NV

 

B

 

Groot-Bijgaarden (BE)

 

EUR

 

3,686

 

100%

Sonova Retail Deutschland GmbH

 

B

 

Dortmund (DE)

 

EUR

 

1,000

 

100%

Sonova UK Ltd.

 

B

 

Warrington (UK)

 

GBP

 

2,500

 

100%

Activities:

A Holding/Finance: The entity is a holding or finance company.

B Sales: The entity performs sales and marketing activities.

C Production: This entity performs manufacturing for the Group.

D Research: This entity performs research and development activities for the Group.

1) Share/paid-in capital may not reflect the taxable share/paid-in capital amount and does not include any paid-in surplus.

2) GBP 133

Company name

 

Activity

 

Domicile (country)

 

Share/paid-in capital 1) Local currency 1,000

 

Shares held

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

 

 

 

 

 

 

 

 

Advanced Bionics Corp.

 

A

 

Valencia (US)

 

USD

 

1

 

100%

Advanced Bionics LLC

 

B, C, D

 

Valencia (US)

 

USD

 

0

2)

100%

Alpaca Group Holdings, LLC

 

A

 

Deleware (US)

 

USD

 

298,893

 

100%

Connect Hearing Inc.

 

B

 

Aurora (US)

 

USD

 

0

3)

100%

Development Finance Inc.

 

A

 

Aurora (US)

 

USD

 

0

4)

100%

National Hearing Services Inc.

 

B

 

Kitchener (CA)

 

CAD

 

0

2)

100%

Sonova Canada Inc.

 

B

 

Mississauga (CA)

 

CAD

 

0

2)

100%

Sonova do Brasil Produtos Audiológicos Ltda.

 

B

 

Sao Paulo (BR)

 

BRL

 

120,379

 

100%

Sonova United States Hearing Instruments, LLC

 

A

 

Aurora (US)

 

USD

 

0

2)

100%

Sonova USA, Inc.

 

B

 

Aurora (US)

 

USD

 

46,608

 

100%

 

 

 

 

 

 

 

 

 

 

 

Asia/Pacific

 

 

 

 

 

 

 

 

 

 

Sonova (Shanghai) Co., Ltd.

 

B

 

Shanghai (CN)

 

CNY

 

20,041

 

100%

Sonova Audiological Care Australia Pty. Ltd

 

B

 

NSW (AU)

 

AUD

 

58,000

 

100%

Sonova Audiological Care New Zealand Ltd

 

B

 

Auckland (NZ)

 

NZD

 

20,450

 

100%

Sonova Australia Pty Ltd

 

B

 

Norwest (AU)

 

AUD

 

10,475

 

100%

Sonova Hearing (Suzhou) Co., Ltd.

 

C

 

Suzhou (CN)

 

CNY

 

46,249

 

100%

Sonova Operation Center Vietnam Co., Ltd.

 

C

 

Binh Duong (VN)

 

VND

 

36,156,000

 

100%

Activities:

A Holding/Finance: The entity is a holding or finance company.

B Sales: The entity performs sales and marketing activities.

C Production: This entity performs manufacturing for the Group.

D Research: This entity performs research and development activities for the Group.

1) Share/paid-in capital may not reflect the taxable share/paid-in capital amount and does not include any paid-in surplus.

2) Without par value

3) USD 1

4) USD 10

7.8 Other accounting policies

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.

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.