AURIS LUXEMBOURG II S.A. CONSOLIDATED FINANCIAL STATEMENTS for the Financial Year from 01 October 2016 to 30 September 2017

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1 AURIS LUXEMBOURG II S.A. CONSOLIDATED FINANCIAL STATEMENTS for the Financial Year from 01 October 2016 to 30 September 2017 (with the report of the Réviseur d Entreprises agréé thereon) R.C.S B Address: 26A Boulevard Royal, L-2449 Luxembourg.

2 CONTENT I. Report of the Réviseur d Entreprises agréé II. Consolidated Statement of Profit or Loss III. Consolidated Statement of Comprehensive Income IV. Consolidated Statement of Financial Position V. Consolidated Statement of Cash Flow VI. Consolidated Statement of Changes in Equity VII. Notes to the Consolidated Financial Statements VIII. Consolidated Report of Directors

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8 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Financial Year from 01 October 2016 to 30 September 2017 Note 01 October 2016 to 30 September October 2015 to 30 September 2016 Net profit/(loss) 132,658 (32,128) Other comprehensive income Items that will not be reclassified to profit or loss Actuarial gains and losses on pension plans and similar obligations Change in actuarial gains/(losses) 24 11,576 (13,162) Tax effect (2,644) 3,100 Net actuarial gains/(losses) from pensions and similar obligations 8,932 (10,062) 8,932 (10,062) Items that may be reclassified to profit or loss Currency translation differences Change in unrealized (losses)/gains, net (10,632) 6,434 Change in fair value of cash flow hedge Tax effect (6) (7) Net unrealized (losses)/gains (10,520) 6,562 Other comprehensive loss, net of tax (1,588) (3,500) Total comprehensive profit/(losses) 131,070 (35,628) Attributable to: Non-Controlling Interests (920) 1,036 Owners of the Company 131,990 (36,664) The accompanying notes are an integral part of these Consolidated Financial Statements. 2

9 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 September 2017 Assets Current assets 30 September 30 September Note Cash and cash equivalents ,692 65,939 Trade receivables , ,109 Other current financial assets 13 19,629 7,601 Inventories 14 48,119 56,728 Current income tax assets 2,597 2,989 Other current assets 15 22,539 21,610 Total current assets 362, ,976 Non-current assets Goodwill 16 1,416,568 1,407,429 Other intangible assets , ,970 Property, plant and equipment 18 66,655 64,917 Investments accounted for using the equity method 19 6,160 2,197 Other financial assets 20 67,659 40,005 Deferred tax assets 10 49,506 54,656 Other assets 15 5,715 3,374 Total non-current assets 2,219,456 2,244,548 Total assets 2,581,974 2,551,524 Liabilities and equity Current liabilities Short-term debt and current maturities of longterm debt 32 4,678 5,094 Trade payables 32 73,053 69,353 Other current financial liabilities 21 18,596 13,582 Current provisions 22 31,855 31,528 Current income tax liabilities 31,009 33,347 Other current liabilities 23 69,439 66,648 Total current liabilities 228, ,552 Non-current liabilities Long-term debt 32 1,122,115 1,149,741 Post-employment benefits 24 12,139 22,664 Deferred tax liabilities , ,058 Provisions 22 14,368 14,670 Other financial liabilities 21 6,483 66,288 Other liabilities 25 14,914 17,115 Total non-current liabilities 1,276,838 1,386,536 Total liabilities 1,505,468 1,606,088 Equity Share Capital Capital Reserve 1,047,108 1,047,108 Retained Earnings 24,281 (117,702) Reserves (3,643) 6,350 Total equity attributable to owners of the Company 1,067, ,787 Non-controlling interests 33 8,729 9,649 Total equity 1,076, ,436 Total liabilities and equity 2,581,974 2,551,524 The accompanying notes are an integral part of these Consolidated Financial Statements. 3

10 CONSOLIDATED STATEMENT OF CASH FLOWS For the Financial Year from 01 October 2016 to 30 September 2017 Note 01 October 2016 to 30 September October 2015 to 30 September 2016 Cash flow from operating activities Net profit/(loss) 132,658 (32,128) Adjustments to reconcile net gain/(loss) to cash provided Amortization and depreciation 17, , ,671 Income tax expense, net 10 8,328 23,700 Interest expense, net 72,854 76,057 (Gains)/losses on sales and disposals of intangibles and property, plant and equipment, net (11,252) 316 Share of profit of associate, net of tax (143) (118) Other non-cash (income)/expenses 28 (27,422) 3,453 Change in current assets and liabilities 3,311 1,223 Decrease in inventories 4,856 27,992 Increase in trade and other receivables (11,896) (29,489) (Increase)/Decrease in other current assets (6,826) 13,151 Increase/(decrease) in trade payables 6,039 (6,572) Increase in current provisions 1, Increase/(decrease) in other current liabilities 9,360 (4,514) Change in other assets and liabilities (91,825) 5,455 Income taxes paid (18,098) (14,356) Interest received 1, Net cash provided by operating activities 171, ,916 Cash flows from investing activities Purchase of intangible assets and property, plant and equipment (45,032) (40,304) Purchase of investments in Associate (4,132) (2,069) Acquisitions of subsidiaries and from asset deals, net of cash 7 (9,503) (1,343) Proceeds from disposal of intangibles and property, plant and equipment 12, Net cash used in investing activities (45,853) (43,004) Cash flows from financing activities Repayment of capital reserve - (107,950) Transaction costs paid for issuance and repricing of SFA 27 (1,062) (2,547) Proceeds of long-term and short term debt ,412 Repayment of long-term and short term debt 27 (10,330) (37,290) Interest paid 27 (62,290) (66,117) Change in short-term debt and other financing activities 27 (9,089) (2,620) Dividends paid to non-controlling interests - (262) Net cash used in financing activities (82,325) (106,374) Effect of exchange rates on cash and cash equivalents 2,070 (475) Net increase in cash and cash equivalents 45,753 27,063 Cash and cash equivalents at beginning of period 65,939 38,876 Cash and cash equivalents at end of period ,692 The accompanying notes are an integral part of these Consolidated Financial Statements. 65,939 4

11 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Financial Year from 01 October 2016 to 30 September 2017 Note Share capital Paid-in capital Attributable to owners of the Company Foreign currency translation Hedge reserve reserve Retained earnings Total Non-controlling interests Total equity Balance at 01 October ,047,108 6, (117,702) 935,787 9, ,436 Total comprehensive income Net gain/(loss) , ,051 (393) 132,658 Other comprehensive income/(loss) - - (10,105) 112 8,932 (1,061) (527) (1,588) Total comprehensive income/(loss) - - (10,105) , ,990 (920) 131,070 Balance at 30 September ,047,108 (3,883) ,281 1,067,777 8,729 1,076,506 Note Share capital Additional/(redemption) paidin capital Attributable to owners of the Company Foreign currency translation reserve Hedge reserve Retained earnings Total Non-controlling interests Total equity Balance at 01 October ,155,058 (183) - (74,505) 1,080,401 8,875 1,089,276 Total comprehensive income Net loss (33,135) (33,135) 1,007 (32,128) Other comprehensive income/(loss) - - 6, (10,062) (3,529) 29 (3,500) Total comprehensive income/(loss) - - 6, (43,197) (36,664) 1,036 (35,628) Transactions with owners of the company Contributions and distributions Capital redemptions - (107,950) (107,950) - (107,950) Dividends paid to non-controlling interest (262) (262) Capital contributions Total contributions and distributions - (107,950) (107,950) (262) (108,212) Balance at 30 September ,047,108 6, (117,702) 935,787 9, ,436 The accompanying notes are an integral part of these Consolidated Financial Statements. 5

12 Basis of Preparation Background Auris Luxembourg II S.A., Luxembourg, (hereinafter the Company or Auris II or Group ) is a limited liability company (société anonyme) seated in Luxembourg. The Company s registered office is located at 26A Boulevard Royal, L-2449 Luxembourg, and is registered with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés Luxembourg) under registration number B The share capital corresponds to the amount disclosed by the Company in its annual accounts and is fully paid in. These Consolidated Financial Statements have been prepared by its parent Auris II in accordance with IFRS as adopted by the European Union. They were authorized for issue by the Company s directors on 30 November Description of the Group The Group's primary activities are the manufacturing and distribution of audiology products (hearing instruments) and related products, supplies and services. The Group has 47 subsidiaries fully dedicated to the audiology business as defined in Note 40 List of companies included in the Consolidated Financial Statements), all operating together under common control and common management of the Group ( Management ). Re-organisation of the Group in fiscal year 2016 and 2017 In prior year, Group undertook an internal re-organization to transfer the shares of Sivantos Pte. Ltd. and its underlying subsidiaries to a new group internal holding company, Sivantos Holding Singapore Pte. Ltd. The shares of Sivantos Pte. Ltd. were previously held by Sivantos GmbH. Sivantos Holding Singapore Pte. Ltd. was incorporated as a wholly owned subsidiary of Auris Luxembourg III S.à r.l. and the former owns 100% of the shares of Sivantos Pte. Ltd. The key objective of the internal re-organization was to align the Group s legal structure with the management structure, because the Group s headquarter is located in Singapore. On 14 December 2016, Group completed the last step of the internal re-organization. Auris Luxembourg III S.à r.l. sold the shares in Sivantos Holding Germany GmbH to Sivantos Pte. Ltd. As a result of the internal re-organization, Sivantos Pte. Ltd. eventually owns 100% shares in Sivantos Holding Germany GmbH. 1. Basis of Preparation The reporting period of the Group is identical with the financial year of Auris II, being from 1 October to 30 September. The Consolidated Financial Statements are presented in Euros, which is also the functional currency of Auris II. All values are rounded to the nearest thousand (EUR), except where indicated otherwise. Differences of EUR1k may occur due to rounding. The Board of Directors has prepared these Consolidated Financial Statements on a going concern basis. 6

13 2. Basis of consolidation Business combinations The Company accounts for business combinations using the acquisition method pursuant to IFRS 3 when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity instruments. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, it is not remeasured, and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss. Common control transactions reflecting purely organizational changes in the Group s structure are accounted for applying book value accounting. Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date on which control commences until the date on which control ceases. Non-controlling interest Non-controlling interests represent the portion of profit or loss and net assets not held by the Group. Noncontrolling interests are presented separately from the parent s equity under equity in the consolidated statement of financial position. The profit or loss of the year attributable to non-controlling interests is presented separately in the consolidated statement of profit or loss and statement of comprehensive income. Non-controlling interests are measured at their proportionate share of the acquiree s identifiable net assets at the date of acquisition. Changes in the Group s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Loss of control When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, as well as any related non-controlling interests and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. Investments in non-controlled entities The Group s interest in non-controlled investees comprises interests in associates and joint ventures. Associates are those entities in which the Group has significant influence, but no control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. Due to the current insignificance of the Group s investments in 6 non-controlled entities and the small size of the business of those entities, it chose to account its investments in those as assets available for sale. The 6 associated companies which are currently accounted for as asset available for sale account for less than 1% of the revenue of the Company for year ended 2017 and Other investments and entities over which the Group has significant influence but not controlled are accounted for using equity method. 7

14 Transactions eliminated on consolidation All intra-group balances, income and expenses, and unrealized gains and losses resulting from intra-group transactions are generally eliminated. 3. Summary of other significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in this Consolidated Financial Statements. Key accounting estimates and judgments- The preparation of the Consolidated Financial Statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amount of income, expenses, assets and liabilities. Actual results may differ from management s estimates. Estimates and assumptions are reviewed on an on-going basis, and changes in estimates and assumptions are recognized in the period in which the changes occur and in future periods impacted by the changes. The estimates in accordance with the basis of preparation made in the Consolidated Financial Statements are consistent with estimates made for the same dates in accordance with the reporting requirements under IFRS as part of the consolidation group of Auris II, unless there is objective evidence that those estimates are not in accordance with IFRS on a stand-alone basis. In addition, the areas involving a high degree of judgment or where estimates and assumptions are significant to the Consolidated Financial Statements are disclosed in the following paragraphs. Foreign currency transactions- Transactions in foreign currencies of Group companies are translated into the respective functional currency of the Group companies at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognized in profit or loss. However, foreign currency differences arising from the translation of the following monetary items are recognized in Other Comprehensive Income ( OCI ): - Available-for-sale equity instruments (except on impairment, in which case foreign currency differences that have been recognized in OCI are reclassified to profit or loss); - A financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; and - Qualifying cash flow hedges to the extent that the hedges are effective. Foreign operations- The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into EUR at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into EUR at the average of the exchange rate for each respective month. Differences arising from such translations are recognized as Other Comprehensive Income and accumulated in the translation reserve, except to the extent that the translation difference is allocated to non-controlling interests. When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. 8

15 The Consolidated Statement of Cash Flow is translated at monthly average exchange rates during the year, whereas cash and cash equivalents are translated at the exchange rate of the reporting period date. The exchange rates of the most significant foreign currencies used in the preparation of the Consolidated Financial Statements are as follows: Spot exchange rate EUR 1 quoted into currencies specified below 30 September 30 September Currency ISO Code U.S. dollar USD Singapore dollar SGD Japanese yen JPY Chinese Yuan Renminbi CNY Annual average rate EUR 1 quoted into currencies specified below 01 O ctober 2016 to 30 September O ctober 2015 to 30 September 2016 Revenue recognition- Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. Under the condition that persuasive evidence of an arrangement exists, revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. In cases where the inflow of economic benefits is not probable due to customer related credit risks the revenue recognized is subject to the amount of payments irrevocably received. Revenue is measured at the fair value of the consideration received or receivable net of discounts and rebates and excluding taxes or duty. In case of a right of return, the sale is analyzed on a case-by-case basis to determine whether delivery is considered probable considering the relevant contractual conditions and other circumstances, as well as historical experience and current forecasts. Only if returns can be reliably estimated at the time of sale, revenue is recognized and a provision for returns is recorded against revenue. In all other cases revenue is deferred until the right of return elapses or returns can be estimated reliably. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. Sales of goods and services sometimes involve the provision of multiple elements. In these cases, the Group determines whether the contract or arrangement contains more than one unit of accounting. If certain criteria are met, foremost if the delivered element(s) has (have) value to the customer on a stand-alone basis, the arrangement is separated and the appropriate revenue recognition convention is then applied to each separate unit of accounting. Generally, the total arrangement consideration is allocated to the separate units of accounting based on their relative fair values. If the criteria for the separation of units of accounting are not met, revenue is deferred until such criteria are met or until the period in which the last undelivered element is delivered. Discounts and Rebates, Sales Incentives for Customers- When measuring revenue, trade discounts and volume rebates are deducted from revenue. Generally, sales incentives are recorded as a reduction of revenue, if they serve, in substance, to reduce the price the customer pays to the Group, unless the Group receives an identifiable benefit in return for the cash incentive that is sufficiently separable from the customer s purchase of Group products and the fair value of the benefit received from the customer can be reasonably estimated. Income from lease arrangements- Operating lease income for equipment rentals is recognized on a straightline basis over the lease term. An arrangement that is not in the legal form of a lease is accounted for as a lease if it is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Functional costs- In general, operating expenses by type are assigned to the functions following the functional area of the corresponding profit and cost centers. Product-related expenses and losses from onerous contracts- Provisions for estimated costs related to product warranties are recorded in line item Cost of sales at the time the related sale is recognized and reflect

16 historic experience of warranty costs and other relevant information. Expected losses from onerous contracts are recognized in the period when the current estimate of total contract costs exceeds contract revenue. Research and development costs- Costs of research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding are expensed as incurred. Costs for development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, are capitalized if (1) development costs can be measured reliably, the product or process is (2) technically and (3) commercially feasible, (4) future economic benefits are probable and (5) the Group intends, and (6) has sufficient resources, to complete development and to use or sell the asset. The costs capitalized include the cost of materials, direct labour and other directly and indirectly attributable expenditure that serves to prepare the asset for use. Such capitalized costs are included in Other intangible assets as other internally generated intangible assets. Other development costs are expensed as incurred. Capitalized development costs are stated at cost less accumulated amortization and impairment losses with an amortization period of generally three years. Amortization expenses are presented as research and development costs as the use of the capitalized development costs is not directly part of the production process. General Administration costs- General Administration includes the corporate function costs, such as Information Technology ( IT ), Finance, Human Resource ( HR ), Legal and Procurement. No allocation of these cost to other functional cost lines are being made. Finance income and finance costs- The Group s finance result include: - Interest income and expenses - the net gain or loss on financial assets and financial liabilities at fair value through profit or loss - the foreign currency gain or loss on financial assets and financial liabilities - the net gain or loss on hedging instruments that are recognized in profit or loss - the reclassification of net gains previously recognized in OCI Interest expense on financial liabilities at amortised cost is recognized using the effective interest method. Other interest expense or income is recognized when incurred. Income taxes- Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or Other Comprehensive Income. The Group calculates current taxes based on the profit or loss before tax of the fiscal year and in accordance with local tax rules of the tax jurisdiction respectively. Expected and executed additional tax payments respectively, tax refunds for prior years are also taken into account. They are measured using tax rates enacted or substantively enacted at the reporting date. Current tax assets and liabilities are offset only if certain criteria are met. Under the liability method, deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax is not recognized for: - temporary differences on the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; - temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and - taxable temporary differences arising from the initial recognition of goodwill. 10

17 Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilized. Future taxable profits are determined based on business plans for individual subsidiaries in the Group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized; such reductions are reversed when the probability of future taxable profits improves. Un-recognised deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset only if certain criteria are met. Goodwill- Goodwill is not amortized, but instead tested for impairment annually, as well as whenever there are events or changes in circumstances (triggering events) which suggest that the carrying amount may not be recoverable. Goodwill is carried at cost less accumulated impairment losses. The goodwill impairment test is performed at the level of a cash-generating unit (CGU), which is the lowest level at which goodwill is monitored for internal management purposes. For the purpose of impairment testing, goodwill arising from a business combination is allocated to the CGU that is expected to benefit from the synergies of the business combination. If the carrying amount of the CGU to which the goodwill is allocated exceeds its recoverable amount, an impairment loss on goodwill allocated to this CGU is recognized. The recoverable amount is the greater of the CGU s fair value less costs to sell and its value in use. The value in use is based on estimated cash flows, discounted to their present value using a discount rate that reflects current market assessments of the time value of money and risks specific to the CGU. Impairment losses on goodwill are recognized in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. Other intangible assets- Other intangible assets are valued at cost less accumulated amortisation and impairment losses. Other intangible assets consist of software and other internally generated intangible assets, acquired intellectual property, customer relationships, trademarks, patents, licenses and similar rights. The Group amortizes intangible assets with finite useful lives on a straight-line basis over their respective estimated useful lives to their estimated residual values. Estimated useful lives for software, patents, licenses and other similar rights generally range from three to ten years, except for intangible assets with finite useful lives acquired in business combinations. Intangible assets acquired in business combinations primarily consist of customer relationships and trademarks. Estimated useful life for customer relationships acquired ranged from two to twenty years. The estimated useful life of acquired trademark has been assessed to be twenty years, the useful life of acquired intellectual property ranges between eight and twelve years. Property, plant and equipment- Property, plant and equipment is valued at cost less accumulated depreciation and impairment losses. If the costs of certain components of an item of property, plant and equipment are significant in relation to the total cost of the item, they are accounted for and depreciated separately. Depreciation expense is recognized using the straight-line method. Residual values and useful lives are reviewed annually and, if expectations differ from previous estimates, adjusted accordingly. The following useful lives are assumed: Useful life Factory and office buildings Technical machinery & equipment Furniture & office equipment 20 to 50 years 4 to 10 years 3 to 5 years 11

18 Impairment of property, plant and equipment and other intangible assets- The Group reviews property, plant and equipment and other intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable anymore. In addition, intangible assets with indefinite useful lives as well as intangible assets not yet available for use are subject to an annual impairment test. Recoverability of assets is measured by the comparison of the carrying amount of the asset to the recoverable amount, which is the higher of the asset s value in use and its fair value less costs of disposal. If assets do not generate cash inflows that are largely independent of those from other assets or groups of assets, the impairment test is not performed at an individual asset level, instead, it is performed at the level of the CGU the asset belongs to. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets or CGU exceeds their recoverable amount. If the fair value cannot be determined, the assets value in use is applied as their recoverable amount. The assets value in use is measured by discounting their estimated future cash flows. If there is an indication that the reasons which caused the impairment no longer exist, the Group assesses the need to reverse all or a portion of the impairment. Inventories- Inventories are valued at the lower of cost and net realizable value, costs being generally determined on the basis of a weighted average or first-in, first-out method. Production costs comprise direct material and labor and applicable manufacturing overheads based on normal operating capacity, including depreciation charges. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Defined benefit plans and other post-employment benefits- The entitlements under the defined benefit plans are measured by applying the projected unit credit method. The approach reflects an actuarially calculated net present value of the future benefit entitlement for services already rendered. In determining the net present value of the future benefit entitlement for service already rendered (Defined Benefit Obligation ( DBO )), the Group considers future compensation and benefit increases, because the employee s final benefit entitlement at regular retirement age depends on future compensation or benefit increases. The assumptions used for the calculation of the DBO as of the year-end of the preceding fiscal year are used to determine the calculation of service cost and interest income and expense of the following year. The net interest income or expense for the fiscal year will be based on the discount rate for the respective year multiplied by the net liability at the preceding fiscal year s end date. The fair value of plan assets and DBO and thus the interest income on plan assets and the net interest expenses on DBO are adjusted for significant events during the fiscal year end, such as a supplemental funding, plan changes or business combinations and disposals. The DBO includes the present value from the effects of taxes payable by the plan on contributions or benefits relating to services already rendered. Current service cost, past service cost and settlements for post-employment benefits as well as other administration costs which are unrelated to the management of plan assets are allocated among functional costs (line items Cost of sales, Research and development expenses, Selling and general administrative expenses) following the functional area of the corresponding profit and cost centers. Past service cost and settlement gains (losses) are recognized immediately in profit or loss when the plan amendment, curtailment or settlement occurs. Administration costs which are related to the management of plan assets and taxes directly linked to the return on plan assets and payable by the plan itself are included in the return on plan assets and are recognized in other comprehensive income, net of income taxes. For unfunded plans, the Group recognizes a postemployment benefit liability equal to the DBO. For funded plans, the Group offsets the fair value of the plan assets with the benefit obligations. The Group recognizes the net amount, after adjustments for effects relating to any asset ceiling, in line item post-employment benefits or in line item other current assets. 12

19 Remeasurements comprise actuarial gains and losses, resulting for example from an adjustment of the discount rate, as well as the difference between the return on plan assets and the amounts included in interest income on the net defined benefit liability (asset) and are recognized in other comprehensive income, net of income taxes. The countries with major pension plans are Germany and the U.S. Termination benefits- Termination benefits are recognized in the period incurred and when the amount can be reasonably estimated. Termination benefits are provided as a result of an entity s offer made in order to encourage voluntary redundancy before the normal retirement date or from an entity s decision to terminate the employment. Termination benefits in accordance with principles of IAS 19, Employee Benefits, are recognized as a liability and an expense when the entity can no longer withdraw the offer of those benefits. Provisions- A provision is recognized in the Statement of Financial Position when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are recognized at present value by discounting the expected future cash flows at a pretax rate that reflects current market assessments of the time value of money. When a contract becomes onerous, the present obligation under the contract is recognized as a provision and measured at the lower of the expected cost of fulfilling the contract and the expected cost of terminating the contract as far as they exceed the expected economic benefits of the contract. Additions to provisions and reversals are generally recognized in the Consolidated Statements of Income. The present value of the recognized obligations associated with the retirement of property, plant and equipment (asset retirement obligations) that result from the acquisition, construction, development or normal use of an asset is added to the carrying amount of the related asset. The additional carrying amount is depreciated over the useful life of the related asset. Additions to and reductions from the present value of asset retirement obligations that result from changes in estimates are generally recognized by adjusting the carrying amount of the related asset and provision. If the asset retirement obligation is settled for other than the carrying amount of the liability, the Group recognizes a gain or loss on settlement. Leasing- The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at the inception date: whether fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Finance leases, which transfer substantially all the risks and benefits incidental to ownership of the leased item to the Group as lessee, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the Consolidated Statements of Income. Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Leases of assets under which substantially all risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the Consolidated Statements of Income on a straight-line basis over the term of the lease. Since the Consolidated Financial Statements present the Group as an independent business, leasing arrangements are accounted for as either finance or operating leases in accordance with the aforementioned accounting. Financial instruments- A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets of the Group mainly include cash and cash equivalents, trade receivables, loan receivables, and derivative financial instruments with a positive fair value. Financial liabilities of the Group mainly comprise loans from banks, trade payables, senior subordinated notes and, senior secured term loans, trade payables and derivative financial instruments with a negative fair value. The Group does not make use of the option to designate financial assets or financial liabilities at fair value through profit or loss at inception (Fair Value Option). Based on their nature, financial instruments are classified as financial assets and financial liabilities measured at cost or amortized cost and financial assets and financial liabilities measured at fair value. 13

20 Financial instruments are recognized in the Consolidated Statements of Financial Position when the Group becomes a party to the contractual obligations of the instrument. Regular way purchases or sales of financial assets, i.e. purchases or sales under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned, are accounted for at the trade date. Transaction costs directly attributable to the acquisition or issue of financial instruments are only included in determining the carrying amount, if the financial instruments are not measured at fair value through profit or loss. Subsequently, financial assets and liabilities are measured according to their assigned category - cash and cash equivalents, loans and receivables, financial liabilities measured at amortized cost or financial assets and liabilities classified as held for trading. The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognized financial asset that is created or retained by the Group is recognized as a separate asset or liability. The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously. Cash and cash equivalents- The Group considers all highly liquid investments with less than three months maturity from the date of acquisition to be cash equivalents. Cash and cash equivalents are measured at cost. Loans and receivables- Financial assets classified as loans and receivables are recognized initially at their fair value less directly attributable transaction costs and considering embedded derivatives. Subsequently they are measured at amortized cost using the effective interest method less impairment losses, if any. Impairment losses on trade and other receivables are recognized using separate allowance accounts. Loans and receivables bearing no or lower interest rates compared to market rates with a maturity of more than one year are discounted. The Group bifurcates embedded derivatives at initial recognition when they are not closely-related to the respective host contract. Bifurcated derivatives are classified as held for trading and are measured at fair value through profit or loss. Financial liabilities- The Group measures financial liabilities, except for derivative financial instruments, at amortized cost using the effective interest method. Derivative financial instruments, including hedge accounting- The Group currently has foreign currency exchange contracts, interest rate swaps, cross currency interest rate swap, interest rate floors and redemption options (last two ones are bifurcated embedded derivatives). All derivative financial instruments are measured at fair value through profit or loss. Changes in the fair value of derivative financial instruments are recognized periodically in the finance result. 14

21 On initial designation of the derivative as the hedging instrument, the Group formally documents the relationship between the hedging instrument and the hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of %. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss. Derivatives are recognised initially at fair value; any attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes therein are accounted for as described below. Cash flow hedges When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance in equity is reclassified to profit or loss. When the hedged item is a non-financial asset, the amount accumulated in equity is retained in other comprehensive income and reclassified to profit or loss in the same period or periods during which the non-financial item affects profit or loss. Segment information- Operating segments are identified on the basis of whether the allocation of resources and/or the assessment of performance of a particular component of the Group s activities are regularly reviewed by the chief operating decision maker as a separate operating segment. By these criteria, the activities of the Group are considered to be one segment, which comprises the the manufacture and distribution of audiology products (hearing instruments) and related products, supplies and services, and the segmental analysis is the same as the analysis for the Group as a whole. The Management Board of the Sivantos Group is identified as the chief operating decision maker and reviews the consolidated operating results regularly to make decisions about the resources and to assess overall performance. The Group consists currently only of one reportable segment. 4. New and amended standards adopted by the Group The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 01 October 2016: Disclosure initiative - amendments to IAS 1 Equity method in separate financial statements- Amendments to IAS 27 Investment entities: Applying the consolidation exception- Amendments to IFRS 10, IFRS 12 and IAS 28 Accounting for acquisition of interests in joint operations- Amendments to IFRS 11 Clarification of Acceptable Methods of Depreciation and Amortization- Amendments to IAS 16, IAS 38 Regulatory Deferral Accounts- IFRS 14 Annual improvements to IFRSs cycle (IFRS 5, IFRS 7, IAS 19, IAS 34) The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods. 15

22 5. New standards and interpretations not yet (early) adopted in fiscal year 2017 A number of new standards are effective for annual periods beginning after 1 Oct 2016 and earlier application is permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements. The following new standards and interpretations with relevance for the Group have been already adapted by the European Union but have not yet been early adopted by the Group: Mandatory first time adoption for fiscal years beginning on or after 1 January 2017: - Disclosure initiative Amendments to IAS 7 - Recognition of deferred tax assets for unrealised losses Amendments to IAS 12 Mandatory first time adoption for fiscal years beginning on or after 1 January 2018: - Financial Instruments (2014) IFRS 9 - Revenue from Contracts with Customers IFRS 15 - Clarifications to IFRS 15 Amendment to IFRS 15 Mandatory first time adoption for fiscal years beginning on or after 1 January 2019: - Leases IFRS 16 The following new standards and interpretations with potential relevance for the Group have not yet been adopted by the European Union: Mandatory first time adoption for fiscal years beginning on or after 1 January 2017: - Improvements to IFRS ( ) IFRS 12 Mandatory first time adoption for fiscal years beginning on or after 1 January 2018: - Classification and measurement of share-based payment transactions Amendments to IFRS 2 - Transfers of Investment Property Amendment to IAS 40 - Foreign Currency Transactions and Advance Consideration IFRIC 22 - Improvements to IFRS ( ) IFRS 1, IAS 28 Mandatory first time adoption for fiscal years beginning on or after 1 January 2019: - Prepayment Features with Negative Compensation Amendments to IFRS 9 - Long-term interests in Associates and Joint Ventures Amendments to IAS 28 - Uncertainty over Income Tax Treatments IFRIC 23 Mandatory first time adoption not determined yet: - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Amendments to IFRS 10, IAS 28 Unless otherwise specified, the effects on the financial statements are currently being assessed. The following standards are expected to have a material impact on the Group s financial statements in the period of initial application: IFRS 9- Financial Instruments IFRS 9, published in July 2014, replaces the existing guidelines in IAS 39 Financial instruments: Recognition and Measurement. IFRS 9 contains reviewed guidelines on the classification and valuation of financial instruments, including a new model of expected credit losses for calculating the impairment of financial assets, as well as the new general accounting regulations for hedging transactions. It also adopts the guidelines for the recognition and de-recognition of financial instruments arising from IAS 39. The Group is required to adopt IFRS 9 Financial Instruments from 1 October The Group has started the assessment of the potential impact of the adoption of IFRS 9 on its consolidated financial statements. The project was started by sending out a questionnaire to analyse the cash flow criteria for classification purposes and requested the impairment data from the subsidiaries. However, the actual impact of adopting IFRS 9 on 16

23 the Group s consolidated financial statements at first time adoption is not known yet and cannot be reliably estimated because: - the Group has not finalised the impairment model that need to be adopted by the Group - the new accounting policies are subject to change until the Group presents its first financial statements that include the date of initial application. IFRS 9 is to be applied for the first time in the Group s financial year commencing on 1 October IFRS 15- Revenue from Contracts with Customers The Group is required to adopt IFRS 15 Revenue from Contracts with Customers from 1 October IFRS 15 establishes a comprehensive framework for determining whether, to what extent and at what point in time revenue is recognised. It replaces existing guidelines for the recognition of revenue, including IAS 18 Revenue, IAS 11 Construction contracts and IFRIC 13 Customer loyalty programmes. The Group has started the assessment of the potential impact of the adoption of IFRS 15 on its consolidated financial statements by sending a questionnaire to the subsidiaries in order to understand the nature of the contract with customers. However, the impact of IFRS 15 on the Group cannot be reliably estimated, yet, because it will depend on the customers contracts that the Group holds and economic conditions at the time as well as accounting elections and judgements that it will make in the future. A first impact analysis indicates that revenue recognition will probably not change significantly under IFRS 15. The actual impacts of adopting the new standard at 1 October 2018 may change because the Group has not yet finalized its implementation project and consequently the new accounting policies are subject to change until the Group presents its first financial statements that include the date of initial application. The Group has to apply IFRS 15 for the first time in financial year commencing on 1 October Premature application is permissible. IFRS 16- Leases IFRS 16 was issued in January IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an arrangement contains a Lease, SIC 15 Operating Leases Incentives and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is effective for annual periods beginning on or after 01 October Early adoption is permitted for entities that apply IFRS 15 at or before the date of initial application of IFRS 16. IFRS 16 introduces a single, on balance sheet lease accounting model for lessees. A lessee recognises a right of use asset representing its right to use the underlying asset and a lease liability representing its obligation to make future lease payments. The standard offers recognition options resulting in exemptions for shortterm leases and leases of low value items. Lessor accounting remains similar to the current standard i.e. lessors continue to classify leases as finance or operating leases. The Group has started an initial assessment of the potential impact on its consolidated financial statements but has not yet completed its detailed assessment. The actual impact of applying IFRS 16 on the financial statements in the period of initial application will depend on future economic conditions, including the Group s borrowing rate at 1 October 2019, the composition of the Group s lease portfolio at that date, the Group s latest assessment of whether it will exercise any lease renewal options and the extent to which the Group chooses to use practical expedients and recognition exemptions. So far, the initial impact identified is that the Group will recognise new assets and liabilities for its operating leases approximately to EUR130,000. In addition, the nature of expenses related to those leases will now change as IFRS 16 replaces the straight line operating lease expense with a depreciation charge for right of use assets and interest expense on lease liabilities. No significant impact is expected for the Group s finance leases. 17

24 The Group plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply IFRS 16 to all contracts entered into before 01 October 2019 and identified as leases in accordance with IAS 17 and IFRIC 4. IFRS 16 is to be applied by the Group for the first time in financial year commencing on 1 October Premature application is permissible if also IFRS 9 is early adopted. 6. Critical accounting estimates The Group s significant accounting policies, as described in Note 3 Summary of other significant accounting policies are essential to understanding the Consolidated Financial Statements. The preparation of the Consolidated Financial Statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities. Actual results may differ from management s estimates. Estimates and assumptions are reviewed on an ongoing basis, and changes in estimates and assumptions are recognized in the period in which the changes occur and in future periods impacted by the changes. The estimates in accordance with the basis of accounting are consistent with estimates made for the same date in accordance with the reporting requirements as part of the consolidation of Auris II, unless there is objective evidence that those estimates were in error. Revenue recognition- The Group maintains various contractual terms with customers related to the sales of its products. In some cases, these contracts include multiple elements for which fair values need to be estimated for purposes of determining the amount of revenue, if any, which should be deferred to future periods. Significant judgment is required to allocate contract consideration to each unit of accounting and determine whether the arrangement is a single unit of accounting or a multiple element arrangement. Depending upon how such judgment is exercised, the timing and amount of revenue recognized could differ significantly. Deferred revenue (current and non-current) as of 30 September 2017 amounted to EUR12,073 (2016: EUR13,924). Additionally, in some markets the customers are granted a right of return. If returns can be reliably estimated at the time of sale, revenue is recognized and a provision for returns is recorded against revenue. The Group has estimated and accrued for the amounts to be returned in the subsequent period. This estimate is based on the right of return policies and practices along with historical data, sales trends and the timing of returns from the original transaction date when applicable. Change in the trend of returns could lead to actual returns being different from the amounts estimated and accrued. Provisions for rights of return as of 30 September 2017 amounted to EUR13,052 (2016: EUR14,574). Trade and other receivables- The allowance for doubtful accounts involves significant management judgment and review of individual receivables based on individual customer creditworthiness, and analysis of historical bad debts on a portfolio basis. For the determination of the country-specific component of the individual allowance, Auris II also considers country credit ratings, which are centrally determined based on information from external rating agencies. As of 30 September 2017, the Group recorded a total valuation allowance for trade and other receivables of EUR7,940 (2016: EUR8,196). 18

25 Impairment- The goodwill impairment test is performed at the level of a CGU, which is the lowest level at which goodwill is monitored for internal management purposes. In fiscal year 2017 and 2016 management monitored goodwill accordingly, performed the goodwill impairment test at the level of Auris II. The determination of the recoverable amount of a CGU to which goodwill is allocated involves the use of estimates by management. The outcome predicted by these estimates is influenced e.g. by the successful integration of acquired entities, volatility of capital markets, interest rate developments, foreign exchange rate fluctuations and the outlook on economic trends. The recoverable amount is the higher of the CGU s fair value less costs of disposal and its value in use. The Group generally uses discounted cash flow based methods to determine these values. These discounted cash flow calculations use five-year projections that are based on financial forecasts. Cash flow projections take into account past experience and represent management s best estimate about future developments. Cash flows after the planning period are extrapolated using individual growth rates. Key assumptions on which management has based its determination of fair value less costs of disposal and value in use include estimated growth rates, weighted average cost of capital and EBITDA. These estimates, including the methodology used, can have a material impact on the respective values and ultimately the amount of any goodwill impairment. Likewise, whenever property, plant and equipment, other intangible assets and investments accounted for using the equity method are tested for impairment, the determination of the assets recoverable amount involves the use of estimates by management that can have a material impact on the respective values and ultimately the amount of any impairment. Post-employment benefit accounting- Obligations for pension and other post-employment benefits and related defined benefit costs are determined in accordance with actuarial valuations. These valuations rely on key assumptions including discount rates, expected salary and inflation increases, mortality rates and health care trend rates. The discount rate assumptions reflect the rates available on high-quality corporate bonds of appropriate duration and currency at the end of the reporting period. Due to changing market and economic conditions, the underlying key assumptions may differ from actual developments and may lead to significant changes in pension and other post-employment benefit obligations. Such differences are recognized in full directly in equity in the period in which they occur without affecting profit or loss. Provisions- Significant estimates are involved in the determination of provisions related to warranty costs, right of return, legal proceedings and onerous contracts. Due to the technological features of the Group's products, the Group incurs a substantial amount of warranty costs and the determination of future warranty costs related to products sold is based on historic results as well as estimated product defects. If it is more likely than not that an obligation of the Group exists and will result in an outflow of resources, a provision is recorded if the amount of the obligation can be reliably estimated. The Company is from time to time subject to legal disputes and regulatory proceedings in several jurisdictions. Such proceedings may result in criminal or civil sanctions, penalties, damage claims and other claims, or disgorgements against the Company. If it is more likely than not that an obligation of the Company exists and will result in an outflow of resources, a provision is recorded if the amount of the obligation can be reliably estimated. Regulatory and legal proceedings as well as government investigations often involve complex legal issues and are subject to substantial uncertainties. Accordingly, management exercises considerable judgment in determining whether there is a present obligation as a result of a past event at the end of the reporting period, whether it is more likely than not that such a proceeding will result in an outflow of resources and whether the amount of the obligation can be reliably estimated. The Company periodically reviews the status of these proceedings with both inside and outside counsel. These judgments are subject to change as new information becomes available. The required amount of a provision may change in the future due to new developments in the particular matter. Revisions to estimates may significantly impact future net income. Upon resolution, the Company may incur charges in excess of the recorded provisions for such matters. It cannot be excluded that the financial position or results of operations of the Company will be materially affected by an unfavorable outcome of legal or regulatory proceedings or government investigations. At this time, however the Group does not expect any significant negative effects on the Group s financial position or finance and earnings situation resulting from legal disputes or regulatory proceedings. 19

26 Income taxes- The Group operates in various tax jurisdictions and therefore has to determine tax positions under respective local tax laws and tax authorities views which can be complex and subject to different interpretations of taxpayers and local tax authorities. Deferred tax assets are recognized if sufficient future taxable profit is available, including income from forecasted operating earnings, the reversal of existing taxable temporary differences and established tax planning opportunities. As of each year-end, management evaluates the recoverability of deferred tax assets, based on projected future taxable profits. As future developments are uncertain and partly beyond management s control, assumptions are necessary to estimate future taxable profits as well as the period in which deferred tax assets will recover. Estimates are revised in the period in which there is sufficient evidence to revise the assumption. If management considers it probable that all or a portion of a deferred tax asset cannot be realized, that portion would not be recognized. See Note 3 Summary of other significant accounting policies. 7. Acquisitions During the fiscal year ended 30 September 2017 and 2016, the Group completed a number of acquisitions. The acquisitions made during fiscal year 2017 and 2016 have been accounted for under the acquisition method and have been included in the Group s Consolidated Financial Statements since the date of acquisition. Aside some smaller acquisitions of retail shops and audiology clinics in the U.S., Canada and Japan, there have been one major business combination in 2017: a) Acquisition of House of Hearing Limited in 2017 The Group acquired House of Hearing Limited with acquisition date of 28 April The difference between purchase price and net assets at fair value at the acquisition date amounting to EUR4,911 was recorded as goodwill. The consideration transferred for the acquisitions was EUR5,221 and consisted of cash of EUR4,438, contingent payments of EUR783. The obligations for contingent considerations are constantly monitored and revalued should certain earning expectations being differing from current underlying expectations. The contingent payments are depending on the business development of the acquired Company business. Acquisition-related costs The Group incurred acquisition-related costs of EUR18 in fiscal year 2017 on legal fees and due diligence costs. These costs have been included in "Other operating expenses". Identifiable assets acquired and liabilities assumed The following table summarises the recognized amounts of assets acquired and liabilities assumed at the date of acquisition. Fiscal year 2017 Cash and cash equivalents 202 Trade and other receivables 351 Property, plant and equipment 279 Trade payables (287) Other current financial liabilities (143) Other current liabilities (92) Total identifiable net assets acquired 310 b) Other acquisitions In 2017 and 2016, the Group acquired some retail businesses in Canada, Japan and US. Due to the relative insignificance of each of these smaller acquisitions, they are shown in a combined form. All acquisitions were closed in respective year. 20

27 The difference between consideration transferred and net assets at fair value at the acquisition dates amounting to EUR4,848 (2016: EUR915) was recorded as goodwill. The consideration transferred for the acquisitions was EUR5,852 (2016: EUR1,617) and consisted of cash of EUR5,267 (2016: EUR1,343), contingent payments of EUR558 (2016: EUR68) and purchase price receivables to the sellers amounting to EUR28 (2016: EUR206). The obligations for contingent considerations are constantly monitored and revalued should certain earning expectations being differing from current underlying expectations. The contingent payments are depending on the business development of the acquired retail businesses. Identifiable assets acquired and liabilities assumed The following table summarizes the recognized amounts of assets acquired and liabilities assumed at the date of the acquisitions. Fiscal year 2017 Other intangible assets 976 Property, plant and equipment 28 Total identifiable net assets acquired 1,004 Fiscal year 2016 Inventories 51 Other intangible assets 183 Property, plant and equipment 240 Other current financial liabilities (47) Other miscellaneous receivables 275 Total identifiable net assets acquired 702 The revenue contributed from the acquired retail business for the Group in fiscal year 2017 and 2016 were not significant. Measurement of fair values The acquired intangible and tangible assets are required under IFRS 3 to be recognized at their fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In the valuation of the intangible assets, the value of any buyer-specific synergies that may arise as a result of purchaser s acquisition of Sivantos is not included. Fair value is assessed assuming a hypothetical market acquirer and as such specific acquirer intentions have not been factored in. The valuation techniques used for measuring the fair value of material assets acquired were as follows: 21

28 Acquired assets Customer relationships Core technology and In-process R&D, Brand rights and Trademarks Tangible fixed assets Inventories Valuation technique used Multi-period Excess Earnings Method ( MEEM ) Relief-from-royalty ( RfR ) Depreciated Replacement Cost Approach Market Comparison Technique Short description of valuation technique The MEEM considers the present value of net cash flows expected to be generated by the customer relationships, by excluding any cash flows related to contributory assets. The RfR-method considers the discounted estimated royalty payments that are expected to be avoided as a result of the patents or trademarks being owned. The Depreciated Replacement Cost Approach applies an indirect / indexation method to estimate the fair value of the assets under considering also the respective asset lives. Used indices have been taken from publicly available statistical sources. The fair value is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reaonable profit margin based on the effort required to complete and sell the inventories. 8. Other operating income Other operating income of EUR14,483 in fiscal year 2017 mainly arise from the sale of a building amounting to EUR12, Interest income, interest expenses and other financial expenses, net Interest income and expenses primarily relate to deposits and financing, receivables from customers and payables to suppliers as well as from derivatives financial instruments. Other financial expense includes expenses as a result of allowances and write-offs of finance receivables as well as changes in the fair value of derivative financial assets and liabilities. The components of financial income are as follows: 01 October 2016 to 30 September October 2015 to 30 September Interest income, other than pension 8,753 7,117 Total interest income, other than pension 8,753 7,117 The components of financial and other financial expense are as follows: 01 October 2016 to 30 September October 2015 to 30 September 2016 Interest expense, other than pension (81,174) (82,770) Interest expense from pension plans (net) (433) (404) Total interest expense (81,607) (83,174) Interest expense other than pension includes interest expense for bank loans of EUR71,612 (2016: EUR72,116). 22

29 01 October 2016 to 30 September October 2015 to 30 September 2016 Foreign currency translation loss 22,219 (2,190) Change in fair values of embedded derivatives 50,275 14,435 Change in fair values of other derivatives (non-hedge accounting) 33,119 (22,963) Other financial expense, net (1,093) (1,101) Total other financial income/(expense), net 104,520 (11,819) Interest income, interest expense and other financial expenses, net 01 October 2016 to 30 September October 2015 to 30 September 2016 Interest income, other than pension plans 8,753 7,117 Interest expense, other than pension plans (81,174) (82,770) Total interest expense, net, other than pension (72,421) (75,653) Interest income, net, other than pension includes the interest income/(expense) from financial assets/ (financial liabilities) not measured at fair value through profit or loss. See Note 24 Post-employment benefits for further details on Interest income/(expense) from pension plans. 10. Income taxes Profit from continuing operations before income tax is EUR140,986 in 2017 and loss of EUR8,428 in Income tax (expense)/benefit consists of the following: 01 October 2016 to 30 September October 2015 to 30 September 2016 Current tax (16,426) (35,732) Deferred tax 8,098 12,032 Total income tax expense (8,328) (23,700) The current income tax expense in fiscal year 2017 includes adjustments recognized for current tax of prior years in the amount of EUR780. The current income tax expense in fiscal year 2016 included adjustments recognized for current tax of prior years in the amount of EUR8,163 which was mainly related to a change of estimates regarding uncertain tax positions. The deferred tax benefit in fiscal year 2017 includes tax effects of the origination and reversal of temporary differences of EUR4,523 (2016: EUR10,665). In Luxembourg, the calculation of current tax is based on a corporate income tax rate of 19% (2016: 21%) and an employment fund surcharges thereon of 7%, for all distributed and retained earnings. In addition to corporate taxation, municipal business tax of 6.75% is levied on profits earned in Luxembourg City. The combined total tax rate amounts to 27.08% (2016: 29.22%). Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realized or the liability is settled. For foreign subsidiaries, current taxes are calculated based on the local tax laws and applicable tax rates in the individual foreign countries. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Income tax expense differs from the amounts computed by applying a combined statutory Luxembourg income tax rate of 27.08% (2016: 29.22%) as follows: 23

30 01 October 2016 to 01 October 2015 to 30 September September 2016 Expected income tax (expense)/benefit (38,179) 2,463 (Increase)/decrease in income taxes resulting from: Non-deductible losses and expenses (3,488) (45,261) Tax-free income 3,470 2,814 Taxes for prior years 2,109 (9,811) Reassessment of deferred tax assets on tax losses and temporary differences (8,220) 2,782 Change in tax rates Foreign tax rate differential 12,485 7,028 Tax incentives 24,153 16,479 Other, net (1,199) (198) Actual income tax expense (8,328) (23,700) Sivantos Pte. Ltd. was granted a tax incentive with effect from 1 October During the period for which the incentive is effective, subject to compliance with certain conditions, Sivantos Pte. Ltd. enjoys privileges on income derived from qualifying activities. The Group undertook an internal reorganization last year, as described on page 6, and this increased the nondeductible losses and expenses for fiscal year 2016 by EUR38,526. There is an ongoing tax audit in Germany covering prior years. In fiscal year 2016, the Group has made a provision for a potential tax audit risk which increased taxes for prior years by EUR7,789. In fiscal year 2017, a valuation allowance for tax loss carry forward of EUR 27,622 lead to a reassessment of deferred tax assets on tax losses of EUR 7,559. The deferred tax assets and liabilities result from temporary differences in the following items: 30 September 30 September Assets Financial assets 14,149 13,828 Intangible assets 3,047 9,363 Property, plant and equipment Inventories 8,092 8,662 Receivables 14,485 5,378 Pension plans and similar commitments 3,671 4,615 Provisions 10,342 12,637 Liabilities 5,875 9,585 Tax loss and credit carry-forward 32,942 29,710 Other 1,411 2,152 Deferred tax assets 94,588 96,330 Set-off of tax (45,082) (41,674) Deferred tax assets after set-off 49,506 54,656 24

31 Liabilities Intangible assets 101, ,479 Property, plant and equipment 5,434 11,818 Inventories Receivables 23,269 19,328 Pension plans and similar commitments 6,645 4,067 Provisions 2,756 2,269 Liabilities 11,929 8,563 Other Deferred tax liabilities 151, ,732 Set-off of tax (45,082) (41,674) Deferred tax liabilities after set-off 106, ,058 Total deferred tax liabilities, net (57,313) (61,402) In assessing the recoverability of deferred tax assets, management considers the extent to which it is probable that the deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable profits during the periods in which those temporary differences and tax loss carryforwards become deductible. Management considers the expected reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is probable the Group will realize the benefits of these deductible differences. Deferred tax assets have not been recognized with respect of the following items (gross amounts): 30 September 30 September Capital loss carry-forward 1,989 3,441 Tax loss carry-forward 39, Interest carry-forward 53,889 58,413 Total unrecognized tax carry-forwards 95,216 62,655 As of 30 September 2017, EUR1,989 (2016: EUR3,441) of the unrecognized capital loss carry-forward expires over the periods after The tax loss of EUR1,436 (2016: EUR801) can be carried forward for 9 years. The remaining tax loss and interest carry-forward amounts can be carried forward indefinitely. The Group has not recognized deferred tax liabilities for income taxes or foreign withholding taxes on the cumulative earnings of subsidiaries of EUR12,570 (2016: EUR11,618) because the earnings are intended to be permanently reinvested in the subsidiaries. Including the items charged or credited directly to equity and the expense: 01 October 2016 to 30 September October 2015 to 30 September 2016 Tax expense recognized in income (8,328) (23,700) Tax (expense)/benefit recognized directly in equity (2,649) 3,093 Total comprehensive income tax expense (10,977) (20,607) 11. Cash and Cash Equivalents The Group had Cash and Cash Equivalents of EUR111,692 (2016: EUR65,939) of which EUR26 (2016: EUR77) was in the form of Cash on hand. EUR111,666 (2016: EUR65,862) were held as Cash in banks with international Investment Grade banks. 25

32 HearX West s bank balance can be considered as Cash and cash equivalents as it is freely available to be used to pay bills and other payables of HearX West. However, due to the fact that HearX West has not entered into the Cash Management agreement with Group Treasury in connection with the fact that the cash amount would not be distributable to Audiology Distribution, LLC (but instead to the minority shareholders), the funds are not available for the repayment of Group debt and hence have been excluded from the calculation of Net Debt and Leverage calculation. 12. Trade receivables 30 September 30 September Trade receivables from sales of goods and services, net 157, ,109 Total trade receivables 157, ,109 Changes to the valuation allowance of trade receivables are as follows: 30 September 30 September Valuation allowance as of the start of the fiscal year 8,196 8,123 Increase in valuation allowances recorded in the statement of income 906 1,284 Changes from business combinations 7 - Write-offs charged against allowance (184) (906) Release of valuation allowances (658) (555) Foreign exchange translation differences (327) 250 Valuation allowance as of the fiscal year end 7,940 8,196 The Group has provided the general valuation allowances of all trade receivables based on the credit rating, customers' ability to pay and aging analysis. 13. Other current financial assets 30 September 30 September Loans receivables from third parties 3,971 1,774 Loans receivables from related parties 9,289 1,656 Deferred transaction costs 1,051 1,366 Derivative financial instruments 3, Other 2,285 2,149 Total other current financial assets 19,629 7,601 Derivative financial instruments consist of foreign currency exchange contracts including foreign currency options and interest rate contracts. 14. Inventories 30 September 30 September Raw materials and supplies 6,964 12,738 Work in process 7,683 10,999 Finished goods and merchandise 33,472 32,653 Advances to suppliers Total inventories 48,119 56,728 26

33 Raw materials and supplies, work in process as well as finished goods and merchandise are valued at the lower of acquisition/production cost and net realizable value. Reversal of allowance of inventories that related to technical, price and quantity risk were EUR191 (2016: EUR4,013) during the fiscal year Cost of goods sold mainly includes costs relating to inventories sold. This includes cost of material as well as labour expense and depreciation. In 2017, inventories of EUR385,717 (2016: 394,619) were recognized as an expense during the period and included in cost of goods sold. 15. Other current/non-current assets Other current assets are as follows: 30 September 30 September Miscellaneous tax receivables 13,439 14,396 Prepaid expenses, current 6,826 6,561 Other 2, Total other current assets 22,539 21,610 Other non-current assets are as follows: 30 September 30 September Pension plan assets 2,331 - Prepaid assets, non-current 2 55 Asset for deferred compensation plan 3,371 3,305 Other Total other non-current assets 5,715 3,374 See Note 24 Post-employment benefits for further details on Pension Plan Asset 16. Goodwill 30 September 30 September Net book value Balance as of the beginning of the fiscal year 1,407,429 1,405,755 Translation differences (620) 759 Acquisitions and purchase accounting adjustments 9, Balance as of the end of the fiscal year 1,416,568 1,407,429 Refer to Note 3 Summary of other significant accounting policies for information regarding goodwill impairment testing within the Group. The Group does not have any accumulated impairment losses or other charges to goodwill. In fiscal year 2017, the acquisition of retail businesses and House of Hearing Limited increased goodwill in the amount of EUR9,759 (2016: EUR915). 27

34 Refer to Note 7 Acquisitions for additional information regarding increases in goodwill related to acquisitions. The Group performs the mandatory annual impairment test within three months ended before fiscal year-end on 30 September. The recoverable amounts for the annual impairment tests 2017 and 2016 were estimated to be higher than the carrying amount. Key assumptions on which management has based its determination of the value in use are the estimated growth rates for the periods beyond the five years planning horizon and discount rates. For the purpose of estimating the value in use, cash flows were projected based on past experience, actual operating results and management s best estimate about future developments as well as market assumptions for the 5 years planning period. The inputs used to determine the fair value of goodwill are assigned to level 3 of the fair value hierarchy. The value in use is mainly driven by the terminal value which is particularly sensitive to changes in the assumptions on the terminal value growth rate and discount rate. Discount rates reflect the current market assessment of the specific risks and are based on the weighted average cost of capital. Terminal value growth rates take into consideration external macroeconomic sources of data and trends in the industry. Impairment test For the purposes of impairment testing, goodwill has been allocated at CGU level. The Group in total is one CGU. The recoverable amount of this CGU was based on its value in use, determined by discounting the future cash flows to be generated from the continuing use of the CGU. The carrying amount of the CGU was determined to be lower than its recoverable amount and no impairment loss has to be recognized. The key assumptions used in the estimation of the value in use are set out below. The values assigned to the key assumptions represent management s assessment of future trends in the relevant industries and have been based on historical data both from external and internal sources. 30 September 30 September in percent Discount rate Terminal value growth rate Budgeted EBITDA growth rate (average of next 5 years) The discount rate was a pre-tax based on the rate of 10-year government bonds issued by the government in the relevant market and in the same currency as the cash flows, adjusted for a risk premium to reflect both the increased risk of investing in equities generally and the systematic risk of the specific CGU. Five years of cash flows were included in the discounted cash flow model. A long-term growth rate into perpetuity has been determined as the lower of the nominal gross domestic product (GDP) rates for the countries in which the CGU operates and the long-term compound annual EBITDA growth rate estimated by management. Budgeted EBITDA was based on expectations of future outcomes taking into account past experience, adjusted for anticipated revenue growth. Revenue growth was projected taking into account the experience of the Group s senior management, as well as external market knowledge. The increase in the budgeted EBITDA growth rate was projected taking into account the average growth levels experienced over the past 2 years after the carve-out and the estimated sales volume growth for the next 5 years. The estimated recoverable amount of the CGU Sivantos Group exceeded its carrying amount by approximately EUR1,754,000 (2016: EUR809,000). Management has identified that a reasonably possible change in two key assumptions would also not cause the carrying amount to exceed the recoverable amount. The changes in key assumptions made were and decrease of the discount rate by 1.1% (2016: 1%) and no change in terminal growth rate (2016: 0.5%). 28

35 17. Intangible assets Fiscal year 2017 Gross carrying amount as of 01/10/2016 Translation differences Additions Additions through business combination Retirement Gross carrying amount as of 30/9/2017 Accumulated amortization and impairment Net book value as of 30/9/2017 Amortization during fiscal year 2017 Software and other intangible assets 21,638 (1,501) 4, (113) 24,992 (9,547) 15,445 (4,579) Customer relationships, trademarks, patents and similar rights 784,872 (2,302) (200) 783,588 (218,034) 565,554 (73,279) Capitalized development cost 25,253 (2,750) 15,100 - (23) - 37,580 (11,386) 26,194 (5,280) 831,763 (6,553) 20, (313) 846,160 (238,967) 607,193 (83,138) Fiscal year 2016 Gross carrying amount as of 01/10/2015 Translation differences Additions Additions through business combinations Reclassification Reclassification Retirement Gross carrying amount as of 30/09/2016 Accumulated amortization and impairment Net book value as of 30/09/2016 Amortization during fiscal year 2016 Software and other intangible assets 13, ,836-1,215 (111) 21,638 (5,993) 15,645 (3,672) Customer relationships, trademarks, patents and similar rights 785, (1,292) (218) 784,872 (146,343) 638,529 (85,618) Capitalized development cost 11,322 1,144 12, ,253 (7,457) 17,796 (2,536) 810,068 1,897 19, (329) 831,763 (159,793) 671,970 (91,826) 29

36 Development Costs 30 September 30 September Development Cost incurred 64,488 58,643 Development costs capitalized as development projects (15,100) (12,656) Depreciation of operating assets etc., used for development purposes 1,055 1,217 Amortization and impairment of capitalized development projects 5,280 2,489 Total expensed development costs 55,723 49,693 Amortization and impairment on intangible assets is contained in line items Cost of sales, Research and development expenses or, Selling and general administrative expenses, depending on the use of the asset. There were no impairment losses recognized on intangible assets in any fiscal year. As of 30 September 2017, contractual commitments for purchases of intangible assets amount to EUR1,206 (2016: EUR121). 30

37 18. Property, plant and equipment Gross carrying amount as of 01/10/2016 * Translation differences Additions Additions through business combinations Retirement Gross carrying amount as of 30/9/2017 Accumulated depreciation and impairment Net book value as of 30/9/2017 Depreciation during fiscal year 2017 Land and buildings 32,814 (3,107) 6, (1,245) 35,830 (11,669) 24,161 (5,306) Technical machinery and equipment 27,073 (2,541) 2, (70) (844) 26,522 (12,887) 13,635 (4,832) Furniture and office equipment 43,223 (4,868) 9, ,676 (5,577) 44,414 (20,990) 23,424 (9,138) Assets under construction 1,977 (91) 5,495 - (1,945) (1) 5,435-5, ,087 (10,607) 24, (7,667) 112,201 (45,546) 66,655 (19,276) Gross carrying amount as of 01/10/2015 * Additions through business combinations Gross carrying amount as of 30/09/2016 Accumulated depreciation and impairment Net book value as of 30/09/2016 Depreciation during fiscal year 2016 Reclassifications Translation Reclassifications Retirement * differences Additions Land and buildings 26, , (407) 32,814 (9,167) 23,647 (4,749) Technical machinery and equipment 23,515 1,201 3,834 - (231) (1,246) 27,073 (10,766) 16,307 (6,924) Furniture and office equipment 36,973 3,196 9, (521) (6,710) 43,223 (20,237) 22,986 (9,172) Assets under construction ,887 - (851) - 1,977-1,977-88,143 5,058 20, (1,190) (8,363) 105,087 (40,170) 64,917 (20,845) * The gross carrying amount and the accumulated depreciation at the beginning of the year have been adjusted to reflect the acquisition cost as at 15 Jan 2015 when the group was carved out from Siemens. * 31

38 Depreciation expense, impairment charges if any, as well as reversals of impairment if any on plant and equipment are included in Cost of goods sold, Research and development expenses, Selling and general administrative expenses, depending on the use of the asset. There were no impairment losses recognized on property, plant and equipment in any fiscal year. As of 30 September 2017, contractual commitments for purchases of property, plant and equipment amount to EUR10,345 (2016: EUR1,293). 19. Investments accounted for using the equity method In year 2017, the Group acquired a 49% (2016: 20%) interest in an associate which is accounted for using the equity method. Under the equity method, the investment in associates is carried in the balance sheet initially at cost including transaction costs. Subsequent to initial recognition, the book value includes postacquisition changes in the Group s share of net assets of the associates. 30 September 30 September Shares, at cost 6,201 2,069 Translation differences (184) 10 Share of post acquisition of retained earnings Carrying amount of the investment 6,160 2,197 The summarised information of the associate, not adjusted for the proportion of ownership interest held by the Group, is as follows: 30 September 30 September Non-current assets 1, Current assets 7,059 4,192 Current liabilities (4,698) (2,177) Net assets 4,280 2,868 Revenue 10,100 4,773 Profit from continuing operation Total comprehensive income Other non-current financial assets 30 September 30 September Loans receivables 18,591 8,162 Cash surrender value of life insurance - 4,595 Trade receivables, non-current 1,259 1,519 Financial derivatives 45,104 23,780 Other 2,705 1,949 Total other financial assets 67,659 40,005 32

39 21. Other current/non-current financial liabilities Other current financial liabilities are as follows: 30 September 30 September Derivative financial instruments 3, Customers with net credit balances 1,390 1,410 Contingent consideration from acquisitions 1, Liabilities from rebates 7,780 7,281 Other 5,026 3,930 Total other current financial liabilities 18,596 13,582 Derivative financial instruments represent negative fair market values of foreign currency exchange forwards. Contingent consideration from acquisitions relates to components of the purchase prices for which the payments depend on the achievement of defined performance measures. For additional information related to these acquisitions, refer to Note 7 Acquisitions. Other non-current financial liabilities are as follows: 30 September 30 September Derivative financial instruments 6,323 65,269 Others 160 1,019 Total other non-current financial liabilities 6,483 66,288 Derivative financial instruments represent the negative fair market values of interest rate swaps and interest rate floors. 22. Provisions Fiscal year 2017 Asset Warranties Right of Return Retirement Obligations Other Total Balance as of 01 October ,508 14,574 1,529 1,587 46,198 Additions 12, ,095 15,829 Use (10,113) (1,345) (339) (62) (11,859) Reversal (1,223) (8) - (441) (1,672) Accretion expenses and effect of changes in discount rates (61) (6) Translation differences (1,576) (525) (141) (25) (2,267) Balance as of 30 September ,246 13,053 1,770 3,154 46,223 Thereof current 15,259 13, ,859 31,855 Thereof non-current 12,987-1, ,368 33

40 Fiscal year 2016 Asset Warranties Right of Return Retirement Obligations Other Total Balance as of 01 October ,136 13,096 1,122 2,731 44,085 Additions 10,391 4, ,013 Use (7,664) (2,990) - (140) (10,794) Reversal (1,617) (47) - (1,039) (2,703) Accretion expenses and effect of changes in discount rates (257) (26) Translation differences (104) 623 Balance as of 30 September ,508 14,574 1,529 1,587 46,198 Thereof current 15,660 14, ,528 Thereof non-current 12,848-1, ,670 The Group s provisions are generally expected to result in cash outflows during the next one to ten years. Warranties primarily relate to products sold. Right of return relates to products sold for which customers have the right to return the products at their own discretion within a specified period. Based on historical data, return rates are calculated and provisions are recorded to cover the expected cost. Asset retirement obligations primarily relate to a building and rented facilities in Japan which are required to be restored to their original condition. See Note 3 Summary of other significant accounting policies and Note 6 Critical accounting estimates for further information concerning our policies for estimating warranty, right of return and asset retirement obligation provisions. 23. Other current liabilities 30 September 30 September Other employee related costs 16,994 13,800 Payroll and social security taxes 14,195 16,887 Bonus obligations 21,686 17,952 Sales tax and other tax liabilities 8,543 11,174 Deferred income 3,471 3,437 Other liabilities 4,550 3,398 Total other current liabilities 69,439 66,648 Employee related costs include accrued vacation payments amounting to EUR7,287 as of 30 September 2017 (2016: EUR6,912). 24. Post-employment benefits During the reporting period post-employment benefits provided by the Group are organized primarily through defined contribution plans as well as defined benefit plans which cover almost all of the Group s domestic employees and many of the Group s foreign employees. Post-employment defined benefit plans include to the major extent pension benefits. Defined benefit plans General principles are determined in a corporate pension policy. That means inter alia that the Group regularly reviews the design of its post-employment defined benefit plans. In order to reduce Group's exposure to certain risks associated with defined benefit plans, such as longevity, inflation, effects of compensation increase, the Group regularly reviews and continuously improves the design of its post-employment defined benefit plans. The benefits of defined benefit plan open to new entrants are based predominantly on contributions made by the Group and are still affected by longevity, inflation adjustments and compensation increases, but only to a lesser extent. The major pension plans are funded with assets in segregated pension entities. 34

41 The existing defined benefit plans cover approximately 2,945 (2016: 3,116) participants, including 1,914 (2016: 2,245) active employees, 655 (2016: 489) former employees with vested rights and 376 (2016: 382) retirees and surviving dependents. Individual benefits are generally based on eligible compensation levels and/or ranking within the Group s hierarchy and years of service. The characteristics of the defined benefit plans and the risks associated with them vary depending on legal, fiscal and economic requirements in each country. For the major defined benefit plans of the Group the characteristics and risks are as follows: Germany: In Germany, the Group provides pension benefits through the cash-balance plan BSAV (Beitragsorientierte Siemens Altersversorgung), frozen legacy plans and deferred compensation plans. Active employees in Germany participate in the BSAV introduced in fiscal A legacy pension plan (Altzusage) has been transformed into BSAV. These benefits are predominantly based on contributions made by the Group and returns earned on such contributions, subject to a minimum return guaranteed. In general, the BSAV is fully funded from the Group s perspective. Sivantos GmbH has set up a CTA (=Contractual Trust Arrangement) in order to take precautions of financing all of its BSAV pension obligations, including the Group. Individual benefits under the frozen legacy plans are based on eligible compensation levels or ranking within the Group s hierarchy and years of service. In connection with the implementation of the BSAV, benefits provided under the frozen legacy plans were modified to substantially eliminate the effects of compensation increases by freezing the accretion of benefits under the majority of these plans. However, these frozen plans still expose the Group to actuarial risks such as investment risk, interest rate risk and longevity risk. Furthermore, deferred compensation plans are offered which are funded via a CTA. In Germany no legal or regulatory minimum funding requirements apply. The Trust which is legally separate manages its plan assets as trustee in accordance with the respective trust agreements. U.S.: The assets under these pension plans are administered by the Group and are, therefore, the sole responsibility of the Group. The assets are not separately identifiable; instead the companies had a common right to the trusts assets. One major defined benefit plan, the Sivantos Pension Plan, is frozen to new entrants and accretion of new benefits. Employees hired prior to April 1, 2006 participate in the Sivantos Pension Plan. Most of the defined benefit plan participants benefits are calculated using a cash balance formula; although a small group of participants are eligible for a benefit based on a final average pay formula. This frozen defined benefit plan exposes the Group to actuarial risks such as investment risk, interest rate risk and longevity risk. The defined benefit plan assets are held in a Master Trust. The Group, as the sponsoring employer, has delegated investment oversight of the plans assets to the Investment Committee. The Investment Committee members have a fiduciary duty to act solely in the best interests of the beneficiaries according to the trust agreement and U.S. law. The Committee has established an Investment Policy Statement which articulates the goals and objectives of the plans investment management, including diversifying the assets of the Master Trust with the intention of appropriately addressing concentration risks. The trustee of the Master Trust acts only by direction of the Investment Committee. It is responsible for the safekeeping of the trust, but generally has no decision making authority over the plan assets. The legal and regulatory framework for the plans is based on the applicable U.S. legislation Employee Retirement Income Security Act (ERISA). Based on this legislation a funding valuation is prepared annually. There is a regulatory requirement to maintain a minimum funding level of 80% in the defined benefit plans in order to avoid benefit restrictions. The amounts included in the Group s Consolidated Statements of Financial Position arising from its postemployment benefits as at 30 September 2017 and 30 September 2016 are as follows: Defined benefit obligation Fair value of plan assets Total 30 September 30 September 30 September 30 September 30 September 30 September Germany 48,641 53,380 48,244 44, ,367 U.S. 38,193 41,283 31,123 31,721 7,070 9,562 Other 4,078 6,190 1,737 2,455 2,341 3,735 Total 90, ,853 81,104 78,189 9,808 22,664 35

42 The total amount of EUR397 for Germany consists of net defined benefit assets of EUR 2,331 and net defined benefit liabilities of EUR2,728 of the respective plans. The following table show the total defined benefit cost that was recognised in profit or loss account and Other Comprehensive Income ( OCI ) at the end of the reporting period. 30 September 30 September Defined benefit costs Current service cost 2,360 2,210 Past service benefit (3,305) (1,335) Net interest expenses Liability administration expenses Plan settlement (7) (1,077) Components of defined benefit costs recognized in the Consolidated Statement of Income (507) 143 Return on plan assets (excluding amounts included in net interest expense and net interest income) (3,619) (516) Remeasurement losses on DBO (7,957) 13,678 Remeasurements of defined benefit plans recognizes in the Consolidated Statements of Comprehensive Income (11,576) 13,162 Defined benefit costs (12,083) 13,305 Reconciliation for defined benefit obligations and plan assets A detailed reconciliation for the changes in the DBO and plan assets for fiscal years 2017 and 2016 are provided in the following tables: 30 September 30 September Change in defined benefit obligations Defined benefit obligation at beginning of year 100,853 91,159 Current service cost 2,360 2,210 Interest expense 1,880 2,590 Contributions paid Net accumulated actuarial (gains)/losses (7,957) 13,678 Benefits paid (3,925) (2,754) Prepaid cost for post employee benefit (2) (2,231) Foreign currency effects (2,525) 479 Reclassification - (3,401) Plan settlement (7) (1,077) Defined benefit obligation at end of year 90, ,853 36

43 30 September 30 September Change in plan assets Fair value of plan assets at beginning of year 78,189 79,300 Interest income 1,447 2,257 Remeasurement gains (Return on plan assets excluding amounts included in net interest income and net interest expense) 3, Contributions paid Benefits paid (2,504) (1,419) Employer contributions 1, Liability administration costs (12) (12) Foreign currency effects (1,753) 323 Others-assumed expenses (206) (103) Reclassification - (3,166) Fair value of plan assets at end of year 81,104 78,189 The reclassified amounts relate to a deferred compensation plan in the U.S. The plan settlement relates to a plan for post-employment health support in the U.S. which was terminated by the Company in fiscal year Plan assets comprise of the followings: 30 September 30 September Investment funds 78,074 75,633 Cash and cash equivalents 1, Qualified insurance policies 1,401 2,353 Other Actuarial assumptions 81,104 78,189 Assumed discount rates, compensation increase rates, pension progression rates and mortality rates used in calculating the DBO vary according to the economic and other conditions of the country in which the retirement plans are situated. The mortality tables used for the actuarial valuation of the DBO were as follows (most significant countries): Germany Heubeck Richttafeln 2005G (modified) U.S... RP-2014 Employee and Healthy Annuitant Tables projected with Scale MP-2015 for all years The DBO was only significantly affected by other financial assumptions in Germany and U.S. For Germany, the long-term rate of compensation increase and the pension increase rate were constant on average in fiscal year For U.S., the DBO was mainly affected by the discount rate as the plan is frozen to new entrants and accretion of new benefits. The DBO is also affected by assumed future inflation rates. The effect of inflation is recognized within the assumptions above where applicable. The following were the principal actuarial assumptions at the reporting date (expressed as weighted averages). 37

44 Germany 30 September 30 September Discount rate 1.80% 1.00% Future salary growth 2.25% 2.25% Expected return on assets 1.80% 1.00% Expected pension progression 1.75% 1.00% U.S. 30 September 30 September Discount rate 3.40% 3.30% Future salary growth n/a n/a Expected return on assets 3.25% 4.00% Expected pension progression 3.00% 3.00% Assumptions regarding future mortality have been based on published statistics and mortality tables. The current longevities underlying the values of the defined benefit obligation at the reporting date were as follows. Germany 30 September 30 September Plan Plan Longevity at age 55 for current pensioners Males Females Longevity at age 55 for current pensioners with 10% reduction in mortality rates Males Females U.S. 30 September 30 September Plan Plan Longevity at age 55 for current pensioners Males Females Longevity at age 55 for current pensioners with 10% reduction in mortality rates Males Females As at 30 September 2017, the weighted-average duration of the defined benefit obligation was years (2016: years). Although the analysis does not take account of the full distribution of cash flows expected under the plan, it does provide an approximation of the sensitivity of the assumptions shown. 38

45 Sensitivity analysis As the significant part of the DBO results from the German and U.S. entities, the sensitivity analysis were as follows: Germany Effect on DBO as of September % increase 0.5% decrease Discount rate (2,991) 3,405 Rate of compensation increase 12 (12) Rate of pension progression 2,105 (1,922) -1 year +1 year Life expectancy (1,202) 1,354 Germany Effect on DBO as of September % increase 0.5% decrease Discount rate (3,771) 4,644 Rate of compensation increase 24 (23) Rate of pension progression 2,757 (2,505) -1 year +1 year Life expectancy (1,485) 1,683 U.S. Effect on DBO as of September % increase 0.5% decrease Discount rate (1,891) 2,065 U.S. Effect on DBO as of September % increase 0.5% decrease Discount rate (2,194) 2,405 The Company expects to pay EUR4,548 (2016: EUR215) in contributions to its defined benefit plans in year 2018 and Defined Contribution Plan The amount recognised as an expense for defined contribution plans in 2017 was EUR11,342 (2016: EUR13,045). 39

46 25. Other non-current liabilities 30 September 30 September Employee related liabilities 2,345 3,103 Deferred income, non-current 8,968 10,596 Other 3,601 3,416 Total other liabilities 14,914 17,115 Deferred income relates to extended warranty sales that have not yet been earned at the respective balance sheet date not all criteria for revenue recognition have been fulfilled. For details on the revenue recognition accounting policy, refer to Note 3 Summary of other significant accounting policies. Employee related liabilities primarily consist of the non-current portion of service anniversary awards, which amounted to EUR777 (2016: EUR1,042) and the non-current portions of early retirement benefits amounting to EUR1,013 (2016: EUR578) as of 30 September Equity Share capital Auris Luxembourg II S.A. has been incorporated as S.à r.l. on 13 October 2014 with a share capital of EUR12, divided into 12,500 shares with a nominal value of EUR1.00 each. The shares have been issued at a value of EUR66,509.50, of which EUR54, has been contributed to the share premium account. The contribution has been made by the sole shareholder Auris Luxembourg I S.A. ( Auris I ) in kind by transferring all of the shares in Auris Luxembourg III S.à r.l. to the Company. By shareholder resolution dated 21 November 2014, Auris II was transformed into a S.A. and the share capital has been increased by EUR18, by issuance of 18,500 new shares at EUR1.00 each. The amount for the share capital increase was taken out of the Company s share premium. With shareholder resolution dated 13 January 2015, the sole shareholder Auris Luxembourg I S.A. has made a capital contribution in cash in the amount of EUR937,139, without the issuance of new shares. With a second shareholder resolution dated 13 January 2015, Auris I made a contribution in kind by assigning a receivable against Auris Holding GmbH in the amount of EUR1.00 without issuance of new shares to the Company. On 14 January 2015 and 24 March 2015 respectively, Auris I made a contribution in kind by assigning a receivable against Auris Holding GmbH in the amount of EUR200,000, and a receivable against Auris Holding GmbH in the amount of EUR17,883, respectively, again without issuance of any new shares. As of 30 September 2017 and 2016, the issued share capital of the Company is set at EUR31, divided into 31,000 shares with a nominal value of EUR1.00 each, all of which is fully paid in. Auris Luxembourg III S.à r.l drew down a new external term loan facility of EUR110,000 in January 2016 and provided the loan proceeds to Auris II. Auris II used these funds to undertake a redemption of share premium account of EUR107,950 (together with the payment of related fees, costs and expenses) up the chain to Auris Luxembourg I S.A. (via Auris Luxembourg II S.A.) on 28 Jan Auris Luxembourg I S.A. is the sole shareholder of Auris Luxembourg II S.A. Reserves and retained earnings This equity category comprises reserves from hedging instruments and translation differences caused by the translation of foreign currency financial statements into the Group s presentation currency and accumulated retained earnings of previous financial years. A breakdown of the content is provided in the statement of changes in equity. No distribution to the sole shareholder has been made in financial year ended 2017 or

47 27. Reconciliation of movements of liabilities and assets to cash flows arising from financing activities Note Senior Notes Loans and borrowings under the Senior Facilities Agreement Overdraft Embedded interest rate floors from financing agreements Embedded redemption options from bond Interest rate swap Cross currency interest rate swap Finance lease liabilities Loan to related party Bank fees Total Balance as at 1 October , , ,614 (23,780) 5,549 24, (1,656) - 1,194,663 Changes from financing cash flows Loan to related party (7,971) - (7,971) Proceeds from loans and borrowings Transaction costs related to loans and borrowings - (1,062) (1,062) Interest paid/received (22,000) (38,361) (74) - - (2,685) (62,321) Repayment of borrowings - (9,544) (786) (10,330) Payment of finance lease liabilities (19) - - (19) Financing related debts expenses paid (1,092) (1,092) Others Total changes from financing cash flows (22,000) (48,967) (414) - - (2,685) 799 (19) (7,971) (1,068) (82,325) Changes arising from obtaining or losing control of subsidiaries or other businesses (390) (390) Effect of changes in foreign exchange rates - (27,297) (48) (12) (27,019) Changes in fair value (30,055) (20,220) (4,395) (25,211) (79,881) Other changes Liability-related Transaction costs related to loans and borrowings - (566) (566) Interest expense 22,000 38, ,685 (799) ,373 Amortisation of transaction costs , ,799 Financing related debts expenses ,092 1,092 Others (24) (24) Total liability-related other changes 22,775 47, ,685 (799) - - 1,068 74,240 Balance as at 30 September , , ,559 (44,000) 764 (1,104) 90 (9,289) - 1,079,288 41

48 28. Non-cash (income)/expenses 01 October 2016 to 30 September October 2015 to 30 September 2016 Unrealised foreign currency (gain)/loss (27,965) 2,352 Others 543 1,101 (27,422) 3, Additional capital disclosures Capital management for the Group is performed by the Group management, and includes the consideration of legal requirements relating to the equity and liquidity requirements of the Group. The Group monitors capital by monitoring the working capital and the liquidity status. Please refer also to Note 32 Financial risk management-capital Management. 30. Commitments and contingencies Commitments Future payment obligations under operating leases are as follows: 01 October 2016 to 30 September October 2015 to 30 September 2016 Within 1 year 21,239 15,336 1 to 5 years 55,195 30,795 Thereafter 10,916 9,995 Total commitments 87,350 56,126 Total operating rental expense relate to building rented from third parties for the fiscal year 2017 was EUR22,123 (2016: EUR17,952). Guarantees The Company has issued Corporate Guarantees, mainly to the business partners, outstanding in an amount of EUR80,389 (2016: EUR81,344). In addition, the Company has a contingent obligation to indemnify the issuing Banks for Bankers Guarantees for an amount up to EUR6,695 (2016: EUR6,367). None of the outstanding guarantees are likely to be drawn, hence no provisions have been made. The Company is securing an overdraft facility for a related company through a Standby Letter of Credit over EUR1,622 (2016: 1,681). 31. Legal Disputes The Group is, from time to time, subject to legal disputes in connection with its business activities. In the light of the number of legal disputes and proceedings in which the Group is involved, it cannot be ruled out that some of these proceedings could result in rulings against the Group. Although the Group maintains liability insurance in its non-amounts the Group considers consistent with industry practice, it may not be fully insured against all potential damages that may arise out of any claims to which we may be party in the ordinary course of the Group s business. At this time, however the Group does not expect any significant negative effects on the Group s financial position or finance and earnings situation resulting from legal disputes. 42

49 32. Financial risk management The Group is managed centrally by the Management Board, which is responsible for the operating business. The Group maintains an in-house banking setup within Sivantos Pte Ltd (Singapore) Treasury. Cash from its related entities is pooled centrally for an efficient cash management and treasury purposes. The arrangement is governed by agreements signed by the Company and its related entities, which limits joint and several liabilities to each party s net credit balance at any time with the Company. The Group has access to a Revolving Credit Facility of EUR75,000 of which EUR4,199 (2016: EUR4,159) was utilized as of 30 September Capital Management The Group s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Group has retained its earnings that have been accumulated since Change of Control to strengthen its Equity. The Group has raised debt to partially finance the acquisition of the Audiology Business from Siemens. Initial Total Net Debt Leverage was 6.75x. The Senior Secured Term Loans over initially EUR305,000 and USD600,000 were priced at Euribor/Libor+4.50% with a 1% floor maturing in 2022 (which was re-priced in June 2015to Euribor/Libor+3.25% with a 1% floor) as well as a Senior Subordinated note over EUR275,000 was priced at 8% maturing in In January 2016 Auris Luxembourg III S.à r.l. has established a new Incremental Facility B5 under the Senior Facilities Agreement dated 18 December 2014, pursuant to which an aggregate amount of EUR110,000 where made available. The applicable interest rate for the new Incremental Facility B5 is 3.25% plus Euribor (subject to a floor of 1.00%). Tenor and amortisation of the new Incremental Facility B5 are the same as for the existing Facility B3. All other terms applicable to the new Incremental Facility B5 are substantially the same as those applicable to the existing Facility B3. The Borrower has applied the proceeds of the new Incremental Facility B5 for the purpose of making direct or indirect distributions to Auris Luxembourg I S.A. (together with the payment of related fees, costs and expenses) to repay the Siemens preferred equity, associated warrants and earn-out prior to maturity to achieve full equity ownership of the Company. Due to its strong operating and financial performance, in February 2017, The Group is able to reprice its Senior Secured Term Loans for EUR (Facility B3 and B5) and USD (Facility B4) at Euribor +3.5% with a 0% floor and Libor+3.0% with a 1% floor respectively. Tenor and amortisation, and all other terms applicable to the newly repriced Facility B6 and B7 remain substantially the same. During the course of the year the Group has continued to deleverage to Total Net Debt Leverage of 4.72x. Financing includes a Revolving Credit Facility over EUR75,000 maturing in 2021 Under the RCF an Ancillary Facility has been established with a major relationship bank to secure Treasury Operations (cash and non-cash such as guarantees). Utilization was at EUR4,199 as of 30 September The Group s external ratings have been confirmed as B2 at Moody s with a positive outlook and B+ at Standard & Poor s with stable outlook. Market risks Market fluctuations may result in cash flow and earnings volatility risk for the Group. Its worldwide operating business as well as its investment and financing activities are affected by changes in foreign exchange rates, interest rates and, to a limited extend, commodity prices. The management of financial market risk is a key priority for the Group s management. As a member of the management, the Chief Financial Officer (CFO) has specific responsibility for this part of the overall risk management system. For practical business purposes, the CFO delegates responsibilities to central functions (i.e. Treasury) and to the individual affiliated entities. The Group manages and controls its financial risks in accordance with the Group policies, primarily through its regular operating and financing activities, and by using derivative financial instruments when deemed appropriate. 43

50 The Group has procured adequate insurance policies for its main risks, i.e. Property All Risks and Business Interruption Insurance, Comprehensive General Liability Insurance, Marine Cargo Insurance, Employment Practices Liability Insurance, Commercial Crime Insurance, Cyber Insurance via its global insurance broker. Foreign currency exchange rate risk Transaction risk and foreign currency exchange rate risk management The Group s international operations expose the Group to foreign currency exchange rate risks, particularly regarding fluctuations of the USD, EUR, GBP, CNY, JPY and SGD in the ordinary course of business. The Group mainly employs the use of foreign exchange forward contracts to mitigate the group s major risks from adverse FX movements impact on consolidated earnings for 6-18 months rolling forward. Foreign currency exchange rate fluctuations may create unwanted and unpredictable earnings and cash flow volatility. The Group manufactures most of its products at its headquarters in Singapore. The products are sold to its regional entities and invoiced in the currency of the buying entities, mostly in EUR and USD. As most of the material cost are also EUR and USD denominated, the Group is able to significantly reduce its net currency exposure. The Group s entities are prohibited from borrowing or investing in foreign currencies on a speculative basis. Intercompany financing or investments of operating units are preferably carried out in their functional currency or on a hedged basis through Treasury. As a matter of principle, the foreign currency risk is centrally managed by Group Treasury in cooperation with the Group entities in the countries. It is the target for the Group to maintain an adequate hedging level of between 40% to 75% of the net foreign currency exposure. Cash-flow hedge accounting shall be applied to the extent possible to mitigate negative impacts of adverse developments from foreign exchange risk on the consolidated operating result of the Group. Sensitivity analysis for foreign currency risk The following table demonstrates the approximate change in the Group s profit or loss in response to a weakening/ strengthening of the currencies which the Group has significant exposure at the balance sheet date. This analysis assumes that all other variables, in particular interest rates, remain constant. Fiscal year 2017 Effect on profit or (loss) Operational Financial income/(expense) income/(expense) Total USD +5% ,148 25,271 USD -5% (123) (25,148) (25,271) EUR +5% 8,336 (1,766) 6,570 EUR -5% (8,336) 1,766 (6,570) GBP +5% - (309) (309) GBP -5% CNY +5% CNY -5% (242) (215) (457) JPY +5% (7,805) 314 (7,491) JPY -5% 7,805 (314) 7,491 44

51 Fiscal year 2016 Effect on profit or (loss) Operational income/(expense) Financial income/(expense) Total USD +5% (524) (20,579) (21,103) USD -5% ,579 21,103 EUR +5% (541) (3,998) (4,539) EUR -5% 541 3,998 4,539 GBP +5% (13) (103) (116) GBP -5% CNY +5% (2) (704) (706) CNY -5% This analysis does not include the effect of derivatives entered into for purpose of hedging which might offset the losses or gains from revaluation and is made on the basis that all other variables remain constant. Effects of foreign currency translation Most of the Group s entities are located outside the EUR zone. Since the Group s financial reporting currency is the EUR, the financial statements of these subsidiaries are translated into EUR for the preparation of the Consolidated Financial Statements. To consider the effects of foreign currency translation in the risk management, the general assumption is that investments in foreign-based operations are permanent and that reinvestment is continuous. Effects from foreign currency exchange rate fluctuations on the translation of net asset amounts into EUR are reflected in the Group s Consolidated equity position. Interest rate risk The Group s long term debt consists of nominal EUR275,000 senior unsecured notes with a fixed interest rate of 8.00% p.a. as well as senior secured term loans of EUR405,467 (2016: EUR409,610) and $585,034 (2016: $591,019) with variable interest of which 58% (2016: 61%) have been swapped into fixed interest rate. The repricing of term loans during the financial year has an annual interest savings of EUR4,400 due to 0.75% and 0.25% reduction in EUR and USD loans. If interest rate during the financial year has increased by 1%, additional annual interest expenses would have been EUR3,923, and therefore the interest rate risk for the Groups is currently insignificant. Liquidity risk Liquidity risk results from the Group s potential inability to meet its financial liabilities, in particular paying its suppliers. In addition to having implemented effective working capital and cash management, the Group has implemented short-term and medium-term liquidity forecasts. The Treasury monitors the level of expected cash inflows on trade and other receivables together with expected cash outflows on trade and other payables. The Group finances itself from its strong operating cash-flow and utilizing the Group s cash pooling and cash management systems, in which excess liquid funds are deposited at Treasury by its affiliates. The Group had cash and other liquid funds of EUR111,692 (2016: EUR65,939) as of 30 September In addition, the Group has access to EUR70,841 (2016: EUR70,841) available Revolving Credit Facility as of 30 September With its strong operating cash-flow the Group expects to be able to meet all of its present and future obligations arising from operational cash needs. 45

52 The Group has secured a bank loans to finance the acquisition of the Group from Siemens. The Senior Secured Term Loans are secured by a pledge of the shares of all subsidiaries as well as pledge of all assets of material subsidiaries and are subject to a loan covenant. The following table reflects all contractually fixed pay-offs for settlement, repayments and interest resulting from recognized financial liabilities. It includes expected net cash outflows from derivative financial liabilities that were in place as per 30 September 2017 and Such expected net cash outflows are determined based on each particular settlement date of an instrument. The amounts disclosed are undiscounted net cash outflows for the respective upcoming fiscal years, based on the earliest date on which the Group could be required to pay. Cash outflows for financial liabilities (including interest) without fixed amount or timing are based on the conditions existing at 30 September 2017 and Year ended September 30, 2019 and 2018 thereafter 2017 Year ended September 30, 2018 and thereafter Non-derivative financial liabilities Liabilities to banks and other finance parties 65,471 1,376,826 72,268 1,495,188 Trade payables 73,053-69,353 - Other financial liabilities 15, ,366 1,019 Derivative financial liabilities 3,059 6, , ,120 1,383, ,203 1,561,476 The risk implied from the values shown in the table above reflects the one-sided scenario of cash outflows only. Obligations under trade payables and other financial liabilities mainly originate from the financing of assets used in the Group s ongoing operations such as property, plant, equipment and investments in working capital for example inventories and trade receivables. These assets are considered in the Group s overall liquidity risk management. Credit risk Credit risk is defined as an unexpected loss in cash and earnings if the customer is unable to pay its obligations in due time. The Group may incur losses if the credit quality of its customers deteriorates or if they default on their payment obligations to the Group. The Group s exposure to credit risk arises primarily from trade and other receivables. The Group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. This includes the review of individual receivables and of individual customer creditworthiness on a case-by-case basis as well as the review of current economic trends, the analysis of historical bad debts on a portfolio basis and the considers country credit ratings. Credit evaluations are performed on all customers requiring credit over a certain amount. The Group does not require collateral in respect of financial assets. There were no significant concentrations of credit risk as of 30 September 2017 and The maximum exposure to credit risk of financial assets is represented by their carrying amount. Concerning trade receivables and other receivables, as well as loans or receivables included in line item Other financial assets that are neither impaired nor past due, there were no indications as of 30 September 2017, that defaults in payment obligations will occur. Concerning trade receivables and other receivables, as well as loans or receivables included in line item Other financial assets that are neither impaired nor past due, there were no indications as of 30 September 2017, that defaults in payment obligations will occur, which lead to a decrease in the net assets of the Group. When substantial expected payment delays become evident, overdue financial instruments are assessed individually for additional impairment and are further allowed for as appropriate. For further information regarding the concept for the determination of allowances on receivables see Note 6 Critical accounting estimates. 46

53 Additional disclosures on financial instruments The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value. Fiscal year September 2017 Held-fortrading Fair valuehedging instruments Carrying Amount Loans and receivables Held-tomaturity Availablefor-sale Fair Value Other financial liabilities Total Level 1 Level 2 Level 3 Total Financial assets measured at fair value Hedge accounting foreign currency contracts - 2, ,840-2,840-2,840 Non-hedge accounting foreign currency contracts including options Cross currency interest rate swaps 1, ,104-1,104-1,104 Redemption call option 44, ,000-44,000-44,000 45,296 2, ,136 Financial sssets not measured at fair value *) Trade and other receivables , , Cash and cash equivalents , , Investments in other entities (nonconsolidated) ,267-6, ,267 6,267 Other financial assets ,174 6, ,945 Financial liabilities measured at fair value Hedge accounting foreign currency contracts - 2, ,588-2,588-2,588 Non-hedge accounting foreign currency contracts including options Interest rate swap Interest rate floors 5, ,559-5,559-5,559 6,794 2, ,382 Financial liabilities not measured at fair value *) Other financial liabilities ,732 15, ,732 15,732 Loans under Senior Facilities Agreement , , , ,533 Senior notes , , , ,431 Trade payables ,053 73, Finance lease liability ,215,542 1,215,542 *) The Group has not disclosed the fair values for financial instruments such as the receivable from trustee and trade payables, because their carrying amounts are a reasonable approximation of their fair value. 47

54 30 September 2016 Held-fortrading Fair valuehedging instruments Loans and receivables Held-tomaturity Availablefor-sale Other financial liabilities Total Level 1 Level 2 Level 3 Total Financial assets measured at fair value Hedge accounting foreign currency contracts Foreign exchange contracts including options Redemption call option 23, ,780-23,780-23,780 Financial assets not measured at fair value *) Carrying Amount 24, ,435 Fair Value Trade and other receivables , , Cash and cash equivalents , , Investments in other entities (nonconsolidated) ,305-2, ,305 2,305 Other financial assets ,731 2, ,416 Financial liabilities measured at fair value Hedge accounting foreign currency contracts Non-hedge accounting foreign currency contracts including options Cross currency and interest rate swaps 29, ,656-29,656-29,656 Interest rate floors 35, ,614-35,614-35,614 65, ,486 Financial liabilities not measured at fair value *) Other financial liabilities ,392 14, ,392 14,392 Loans under Senior Facilities Agreement , , , ,349 Senior notes , , , ,684 Trade payables ,353 69, Finance lease liability ,238,574 1,238,574 *) The Group has not disclosed the fair values for financial instruments such as the receivable from trustee and trade payables, because their carrying amounts are a reasonable approximation of their fair value. 48

55 The fair values of cash and cash equivalents, trade and other receivables and trade payables with a remaining term of up to twelve months, other current financial liabilities and borrowings under revolving credit facilities are approximately equal to their carrying amount, mainly due to the short-term maturities of these instruments. Treasury enters into derivative contracts, in accordance with Group policies. The exact calculation of fair values of derivative financial instruments depends on the specific type of instrument. Derivative currency contracts The fair value of foreign currency exchange contracts is based on forward exchange rates. Currency options are valued on the basis of quoted market prices or on estimates based on option pricing models. The levels of the fair value hierarchy and its application to our financial assets and financial liabilities are described below: Level 1: Level 2: Level 3: Quoted prices in active markets for identical assets or liabilities; Inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Inputs for assets or liabilities, not based on observable market data. TYPE Valuation technique Significant unobservable inputs Sensitivity of Fair Value to significant unobservable inputs FX Derivatives Net present value based on interest rate Not applicable Not applicable differentials; for FX Options Black-Scholes with market-standard inputs including implied volatility Interest Rate Derivatives Discounted cash-flows of fixed leg and Net Not applicable Not applicable Present Value of floating leg based on Forward rate curve Floors Discounted cash-flows of floorlets for intrinsic and Black-Scholes with implied volatility for time value component Credit Default Swap curve for Credit Value Adjustment (CVA) of counterparty / Debit Value Adjustment (DVA) of Issuer Higher CDS rates will lead to a higher DVA and hence to a lower Fair Value of the Floors Cancellation Rights Hull-White-Two-Factor model simulating interest-rate changes as well as credit spread changes Implied Volatility of Options on CDS Higher implied volatility will lead to higher Fair Value and vice versa Other than those financial assets and financial liabilities disclosed above, no other assets or liabilities were recorded at fair value as of 30 September 2017 and Net gains/(losses )of financial instruments are as follows: 01 October 2016 to 30 September 01 October 2015 to 30 September Loans and receivables (759) (3,678) Foreign currency gains and losses on term loan measured at amortized cost 22,219 (2,190) Financial assets and financial liabilities held for trading 83,345 (8,386) Total net gains/ (losses) of financial instruments 104,805 (14,254) 49

56 Net gains/(losses) on loans and receivables contain changes in valuation allowances, gains or losses on derecognition as well as recoveries of amounts previously written-off. Net gains/(losses) in fiscal years 2017 and 2016, on financial liabilities measured at amortized cost are comprised of gains/(losses) from derecognition. Net gains/(losses) in fiscal years 2017 and 2016 on financial assets and financial liabilities held for trading consist of changes in the fair value of derivative financial instruments for which hedge accounting is not applied. 33. Non-controlling interests The subsidiary Audiology Distribution, LLC (USA) has 50% NCI holding 50% in HearX West, LLC (USA). The Group holds 50% of the shares in HearX West, LLC, USA. Due to the set-up of the company s management responsibilities, Sivantos has the rights to control variable return from its involvement with the entity and has the ability to affect those through its power over the entity. Thus the entity is considered to be a subsidiary of the Group. The total assets and liabilities of the non-controlling interests were not significant to the Group in fiscal year 2017 and Personnel costs 01 October 2016 to 30 September October 2015 to 30 September 2016 Wages and salaries 264, ,822 Statutory social welfare contributions and expenses for optional support payments 33,255 30,693 Expenses relating to pension plans and employee benefits 15,291 15,193 Total personnel related expenses 312, ,708 Expenses relating to post-employment benefit plans and other employee benefits include, among others, service costs for the period and losses and gains due to settlements and curtailments. Interest from postemployment benefits is included in line items interest income (expenses). The average total number of full-time employees (FTE) for the fiscal year 2016 was 5,430 (2016: 5,425). Parttime employees are included on a proportionate basis. As at 30 September 2017, the employees were engaged in the following activities: 30 September 30 September Manufacturing and services 2,247 2,376 Sales and marketing 2,179 2,069 Research and development Administration and general services Total number of employees 5,430 5,425 50

57 35. Related party disclosures 1) Transactions with related party, Auris Luxembourg I S.A. a) In fiscal year 2016, Auris Luxembourg III S.à r.l. has established a new Incremental Facility B5 under the Senior Facilities Agreement with an aggregate amount of EUR110,000. Tenor and amortisation of the new Incremental Facility B5 are the same as for the existing Facility B3. Auris Luxembourg III S.à r.l. has applied the proceeds of the new Incremental Facility B5 for the purpose of making distributions to the Company (together with the payment of related fees, costs and expenses) through a redemption of share premium (refer to Note 26 Equity) via Auris II to Auris Luxembourg I S.A., which has entered into an agreement with Siemens International Holding B.V. and Siemens relating to the redemption of all nonvoting preference shares in Auris Luxembourg I S.A., the settlement of all warrants as described therein and the settlement of a certain earn-out claim. b) Based on the participation in the Group cash management system between Auris Luxembourg I S.A. and Group Treasury, Sivantos Pte. Ltd. has paid the interest of a shareholder loan on behalf of Auris Luxembourg I S.A. As of 30 September 2017, the outstanding receivables of EUR9,289 (2016: EUR1,656) and interest income of EUR209 (2016: EUR20) have been reported. The related party interest rate is considered to be at market rate based on the Company s external financing cost. 2) Transactions with Associates In addition to the related party disclosure that disclosed elsewhere in the financial statements, the following the significant transactions between the Group and the associate took place at terms agreed during the fiscal year 2017 and October 2016 to 30 September October 2015 to 30 September 2016 Description Sale of goods and services Associate 4,606 2,172 During fiscal year 2017, the outstanding balances with the associates are EUR2,750 (2016: EUR2,068). 3) Transactions with related individuals The Group s key management is defined as those persons, who are responsible for the Group s worldwide operating business, based on their function within the Group or the interests of Auris II. 01 October 2016 to 30 September October 2015 to 30 September 2016 Short Term Benefits 2,898 4,531 Other Long-Term Benefits - 2 Termination Benefits 2, Total compensation of key management personnel 5,048 5,257 51

58 The following individuals belong or belonged to the Group s key management: Fiscal year 2017 Director Member of key management since / until Jens Hoellerman Director November 2014/ July 2017 Andrea Neubock-Escher Director July 2015/ April 2017 Michael Anatolitis Director July 2015/ September 2017 John Lhoest Director February 2016/May 2017 Thomas Weber Director July 2017/September 2017 James Arrol Director April 2017/ September 2017 John Cox Director September 2017/November 2017 EQT Luxembourg Management S.à r.l. Director September 2017 Key Management Board Ignacio Martinez CEO Sivantos Group December 2016 Ignacio Martinez COO, Sivantos Group March 2016/ November 2016 Dr. Roger Radke CEO Sivantos Group March 2016/ November 2016 Dr. Wolfgang Ollig CFO Sivantos Group July 2016 Fiscal year 2016 Director Member of key management since / until Jens Hoellerman Director November 2014 Andrea Pabst Director December 2014/February 2016 Andrea Neubock-Escher Director July 2015 Michael Anatolitis Director July 2015 John Lhoest Director February 2016 Executive Committee (Until February 2016) Dr. Roger Radke CEO Sivantos Group May 2010/February 2016 Ignacio Martinez VP, Global Sales February 2015/February 2016 Jens Due Olsen Interim CFO Sivantos Group November 2015/February 2016 Scott Davis CEO Sivantos Inc. April 2011/February 2016 Mikael Lundman VP HR PMO & Strategy Office, Sivantos Group April 2015/February 2016 Günther Pausch Head of Research & Development, Sivantos Group January 2011/February 2016 Dr. Marco Vietor CEO, audibene April 2015/February 2016 Frank Wagner Head of Operations, Sivantos Group April 2014/February 2016 Key Management Board (Since March 2016) Dr. Roger Radke CEO Sivantos Group March 2016/November 2016 Ignacio Martinez COO, Sivantos Group March 2016 Jens Due Olsen Interim CFO Sivantos Group March 2016/June 2016 Dr. Wolfgang Ollig CFO Sivantos Group July 2016 Executive committee was replaced by Management Board effective March

59 In fiscal years 2017 and 2016, no other major transactions took place between the Group and members of the key management. 36. Audit Fees Description 01 October 2016 to 30 September October 2015 to 30 September 2016 Audit Fees 1,121 1,015 Audit-Related Fees Tax Fees Other Services Total 1,480 1,614 thereof audit fees of prior year (73) 364 thereof audit related fees of prior year Information about geographies Revenue 01 October 2016 to 30 September October 2015 to 30 September 2016 EMEA-LA 369, ,425 North-America 394, ,578 Asia-Pacific 203, ,505 Auris II Group 967, ,508 thereof U.S. 393, ,686 thereof Germany 148, ,407 thereof other countries 424, ,415 The Region EMEA-LA consists of Europe, the Middle East, Africa and Latin-America. The Region North- America includes the United States and Canada. The Region Asia-Pacific consists of Asia, Australia and the Pacific region. Consolidated revenue mainly derives from the sales of goods and is broken down by the location of the selling entity. No individual customer accounts for 10% or more of the total revenue. Goodwill, Other Intangible Assets and Property, Plant and Equipment 01 October 2016 to 30 September October 2015 to 30 September 2016 EMEA-LA 1,905,426 1,963,803 North-America 117, ,277 Asia-Pacific 67,919 57,236 Auris II Group 2,090,416 2,144,316 thereof Luxembourg 1,327,296 1,323,309 thereof U.S. 105, ,772 thereof Singapore 56,249 47,605 thereof Germany 15,950 10,845 thereof other countries 585, ,785 These assets are reported by the location of the entity holding the assets. 53

60 38. Subsequent events On 19 October 2017, Sivantos Pte. Ltd. acquired 100% of Entone SAS and its subsidiary, a privately-owned company based in France, which operates in the field of the sale and distribution of audiology products and provision of related technical support to customers in France and Morocco, for purchase consideration of EUR 13,800. Further details about the acquisition is impractible as of the date of issuance of this consolidated financial statements due to the nearness of the transaction to the issuance date and unavailability of such information as of now. 39. Comparative information The financial statements for 2017 covers the financial year ended 30 September The financial statements for 2016 covers the period from 01 October 2015 to 30 September List of companies included in the Consolidated Financial Statements Company Country Equity Interest in % Auris Luxembourg II S.A. Luxembourg Auris Luxembourg III S.à.r.l. Luxembourg 100 Subsidiary of Auris Luxembourg III S.à.r.l. Sivantos Holding Singapore Pte. Ltd. Singapore 100 Subsidiary of Sivantos Holding Singapore Pte. Ltd. Sivantos Pte. Ltd. Singapore 100 Subsidiaries of Sivantos Pte. Ltd. EMEA-LA Sivantos Holding Germany GmbH Germany 100 Sivantos A/S Denmark 100 Sivantos B.V. Netherlands 100 Sivantos Isitme Cihazlari Sanayi Ve Ticaret A.S. Turkey 100 Sivantos Hearing Solutions Ltda. Brazil 100 Sivantos Europe GmbH Germany 100 Asia-Pacific Sivantos K.K. Japan 100 Best Sound K.K. Japan 100 audibene K.K. Japan 100 Sivantos Limited Korea 100 Hear.com Korea Limited Korea 100 House of Hearing Limited New Zealand 100 Subsidiaries of Sivantos Holding Germany GmbH Sivantos GmbH Germany 100 audibene GmbH Germany

61 Company Country Equity Interest in % Subsidiaries of Sivantos GmbH EMEA-LA AS-AUDIO SERVICE GmbH Germany 100 Signia GmbH Germany 100 Sivantos Kft. Hungary 100 Sivantos AG Switzerland 100 Sivantos AS Norway 100 Sivantos s.r.o Czech Republic 100 Sivantos Sp. z o.o. Poland 100 Sivantos S.r.l Italy 100 Sivantos S.A.S. France 100 Sivantos Limited United Kingdom 100 Sivantos (Pty) Ltd South-Africa 100 North-America Sivantos, Inc. USA 100 Audiology Distribution, LLC USA 100 HearX West, LLC USA 50 1) HearX West, Inc. USA 100 2) HearUSA IPA, Inc. USA 100 hear.com, LLC USA 100 Sivantos Inc. Canada 100 Hearcanada Inc. Canada 100 Asia-Pacific Sivantos (Suzhou) Co. Ltd. China 100 Sivantos India Pvt. Ltd India 100 Soundrise Hearing Solutions Private Limited India 100 Sivantos Pty Ltd Australia 100 Subsidiaries of audibene GmbH audibene GmbH Switzerland 100 Audiocare Hearing Experts Malaysia Sdn. Bhd. Malaysia 100 audibene B.V. Netherlands 100 Ihre Hörgeräte Beratung GmbH Germany 100 Hearcom Limited UK 100 Hear.com - Simply Good Hearing Inc Canada 100 Hearing Experts (Thailand) Co. Ltd. Thailand 100 3) Other equity investments Koden Co., Ltd. Japan 43 Kikoeno Soudanshitsu Co., Ltd. Japan 50 Kanto Hochouki Co., Ltd. Japan 25 HIMPP A/S Denmark 11 HIMSA II A/S Denmark 17 HIMSA II K/S Denmark 15 Comunicare Aparelhos Auditivos Ltda Brazil 20 Oorwerk B.V. Netherlands 49 55

62 1) Control due to contractual arrangements 2) Company owned 100% by HearX West LLC, a company controlled by Sivantos 3) Out of a total of 7,200,000 shares: 7,199,997 shares are held by Audiocare Hearing Experts Malaysia Sdn. Bhd; 2 shares are held by audibene GmbH; and 1 share is held by Sivantos Pte. Ltd. 56

63 Auris Luxembourg II S.A., Luxembourg Directors report for the financial year ended 30 September 2017 I. General Strategy Auris Luxembourg II S.A., Luxembourg ( Auris II ) is a limited liability company (société anonyme) seated in Luxembourg and parent of the Singapore headquartered Sivantos Group ( Sivantos or Sivantos Group ). Sivantos Group has a long history of more than 100 years in the hearing instruments industry dating back to 1878 when Werner von Siemens developed a telephone receiver for people with hearing impairments. Sivantos has been a pioneer in the hearing instruments industry with multiple industry first milestones to our credit. In 1913, the first industrially-produced hearing instrument was launched, the Esha-Phonophor. At the end of the 1950s, the first Behind-the-Ear ( BTE ) hearing instrument was presented, followed by the first In-the-Ear ( ITE ) device in 1966 and the first digital hearing system in In 2004, Sivantos was the first hearing instruments manufacturer to introduce wireless technology that synchronized hearing instruments in both ears. Since 2010 the global headquarters of Sivantos Group has been located at Singapore. Sivantos Group offers a broad and competitive range of innovative, high-quality hearing instrument products across all price categories and instrument types, serving consumers with varying degrees of hearing loss. The product portfolio comprises BTE, ITE and Receiver-in-the-Canal ( RIC ) devices and related accessories, diagnostic tools and services. Innovations include the binax product family, based upon the proprietary binax binaural technology platform, which has been a key driver of revenue growth since its launch in 2014, and the primax product family, based upon the proprietary primax technology platform, launched in March Following the successful transition from the Siemens brand to Signia in 2016, Sivantos continued its innovation journey with the successful launch of industry leading rechargeable product Cellion in EUHA Additionally, launch of telecare 2.0 and Pure BT (on primax) range with Bluetooth connectivity in AAA 2017 further bolstered the product portfolio as well as the launch of Signia Nx platform in Q1 FY II. Business and general environment Macroeconomic Development In the latest October 2017 World Economic Outlook, International Monetary Fund (IMF) provided a global economic growth projection of 3.6% for Compared to 2016, broad-based upward revisions in the Euro area, Japan, Emerging Asia, Emerging Europe, and Russia more than offset downward revisions for the United States and the United Kingdom. However, the recovery was not complete: while the baseline outlook was strengthening, growth remained weak in many countries, and inflation was below target in most advanced economies. Global growth forecast in 2018 is projected to remain at 3.7% 1 on the back of recoveries in major Emerging Market nations, including Russia, Brazil and a further strengthening of the Euro-zone. 1 Source: IMF World Economic Outlook, October 2017: Seeking Sustainable Growth, Short-Term Recovery, Long- Term Challenges 1

64 Development of hearing aid industry In 2017, demand growth for hearing aids in key markets continued to be stable and supported by favorable megatrends like the expanding aging population (baby boomers in US) and the rise in health care recognition and expenditure. Europe and North America continue to be the dominant markets for hearing aids with moderate continuous growth, while Asia-Pacific is expected to experience higher growth rates in the near future driven by China and India, the fastest growing markets in the industry but still relatively small. The key driving factors for the increase in the Emerging markets are the improved health care infrastructure, increasing disposal income and higher awareness of advanced hearing aid devices. The wholesale market, which is constituted by the Hearing aid manufacturers, is currently estimated by management to be above EUR 4 billion. The market is expected to grow at ~4% per year over the next 5 years, faster than the historical growth trend 1. Going forward, the industry will remain competitive with increasing innovation, more advanced hearing aid features and greater focus on different routes-to-market (end-consumers/patients) like online platforms. III. Overview of the Group s performance For the fiscal year 2017, Sivantos Group grew below the annual market growth resulting in an organic revenue growth of 3.6%. Organic growth was down vs PY mainly based on the portfolio reshuffling in Emerging Markets with increased margin focus and the timing of the product launch cycle leading to reduced revenue growth. Gross margin after normalization improved by 1.3%-points to 64.2% despite lower revenue growth driven by positive effects of transformation and optimized structures. Reported gross margin improved by 0.3%- points to 57.0%. Adjusted EBITDA has reached EUR million, an increase of EUR million compared with FY Adjusted EBITDA margin has improved to 24.6% / +0.9%-points compared to FY 2016 due to improved operational efficiency, improved cost structures and effective management of operating expenses. Reported EBITDA improved by 1.3%-points to 21.9%. 1 Source: Commerzbank, 6 June 2017: Equity Research on Hearing aids 2

65 IV. Results of operations AURIS LUXEMBOURG II S.A. AND ITS SUBSIDIARY COMPANIES Consolidated Financial Key Figures for period ended 30 th September 2017 in mn. EUR Total Total FY 17 FY 16 Revenue Organic Growth % 1) 3.6% 9.3% Gross Profit % of revenue 57.0% 56.7% R&D % of revenue -5.8% -5.3% SG&A % of revenue -41.4% -42.7% Other Income & (expenses) 2) % of revenue 1.4% -0.2% EBIT % of revenue 11.3% 8.5% EBITDA % of revenue 21.9% 20.6% Adj. EBITDA 3) % of revenue 24.6% 23.6% 1) Baseline revenue of acquisitions <12 months is computed as average revenue of last twelve months (LTM) prior to acquisition. 2) Includes the share of associate income for fiscal year. 3) Adjusted figures are after normalization items. The Group considers one-time costs and one-time gains as normalization items if they are non-recurring in nature arising out of exceptional situations having a material impact on the financial results. 3

66 Revenue Sivantos Group achieved a solid, good performance across all regions delivering a revenue growth of 3.7% which translates into 3.6% organic growth. All regions had a favorable performance with North America (NA) at 4% organic growth, Europe including Middle East & Latin America (EMEA-LA) at 5% and Asia/Pacific (APAC) at 1%. Gross Margin Gross margin in fiscal year 2017 was 57.0%. The gross margin included effects from amortization due to the step-up of intangible assets as part of the purchase price allocation and normalization items. Excluding these effects, the gross margin was 64.2% attributed by the improved operational excellence. Research and Development expenses Total research and development costs incurred in fiscal year 2017 amounted to EUR 55.7 million. Capitalized development costs amounted to EUR 15.1 million and amortization and depreciation of assets capitalized and used for development costs amounted to EUR 5.1 million. Total research and development costs expensed were 5.8% as a percentage of revenue both including and excluding effects of normalization items. These investments focused on strengthening the product pipeline for the next years to maintain the competitive advantage currently experienced with the existing platforms. Selling expenses Total selling expenses in fiscal year 2017 were 30.6% as a percentage of revenue and include effects from the amortization of customer relationship management software and depreciation of tangible assets as part of the purchase price allocation and normalization items. Excluding these one-time and non-recurring effects total selling expenses were 28.4% as a percentage of revenue. General Administration expenses Total general administration expenses in fiscal year 2017 were 10.8% as a percentage of revenue and include effects from normalization items. Excluding these effects total general administration expenses were 9.2% as a percentage of revenue. EBITDA and Adjusted EBITDA EBITDA margin for the fiscal year 2017 of 21.9% includes normalization items. Adjusted EBITDA margin excluding these effects was 24.6%. V. Financial position Debt Due to its strong operating and financial performance and based on a favorable market environment, in February 2017 the Group was able to reprice its Senior Secured Term Loans for nominal EUR million (Facility B3 and B5) and USD million (Facility B4) at Euribor +3.5% with a 0% floor and Libor+3.0% with a 1% floor respectively. Tenor and amortization, and all other terms applicable to the newly repriced Facility B6 and B7 remain substantially the same. The repricing of term loans has an annual interest savings of EUR 4.4 million due to 0.75% and 0.25% of margin reduction in the EUR and USD loans respectively. Further financing includes a Senior Subordinated Note EUR million with a coupon rate of 8% per annum, maturing in Under a Revolving Credit Facility for EUR 75.0 million maturing in 2021, an Ancillary Facility of EUR 7.3 million has been established to secure overdraft facility to support Treasury Operations (cash and non-cash such as guarantees). Utilization was at EUR 4.2 million as of 30 Sept

67 With total net debt for the year at EUR 1,108.9 million and consolidated adjusted EBITDA at EUR million Note1, the Group has continued to deleverage to Total Net Debt Leverage of 4.72x during the course of the year. Note 1: The consolidated adjusted EBITDA was computed based on the definition of the Senior Facilities Agreement ( SFA ) Equity Please refer to the Consolidated Financial Statements Note 26 for the Group s equity structure. Credit Rating Sivantos Group s ratings have been confirmed with B2 at Moody s with positive outlook and B+ at Standard & Poor s with stable outlook. VI. Liquidity Capital management for Sivantos Group is performed by the Group Management, and includes the consideration of legal requirements relating to the equity and liquidity requirements of the Group. Sivantos Group finances itself from its operating cash-flow and utilizes Sivantos Group s cash pooling and cash management systems, in which excess liquid funds are deposited at Treasury by its affiliates. Sivantos Group had cash and other liquid funds of EUR million as of 30 September In addition, Sivantos Group has access to EUR 75.0 million Revolving Credit Facility as of 30 September 2017 of which EUR 4.2 million were utilized. With its strong operating cash-flow Sivantos Group expects to be able to meet all of its present and future obligations arising from operational cash needs as well as regular interest and principal repayments under the bond and SFA. The Senior Secured Term Loans are secured by a pledge of the shares of major subsidiaries as well as pledge of assets of major subsidiaries and are subject to a loan covenant. VII. Risk management Sivantos Group considers risk management as a key part of effective management and internal control. We have implemented and coordinate an enterprise risk management (ERM) and control system with the aim to early identify, evaluate, and respond on risks and opportunities that could materially affect the achievement of our strategic, operational, and financial and compliance objectives. Strategy Risk We operate in a competitive industry which is characterized by some downward price pressures. In order to compensate price declines we constantly develop new products and product features and production costs in line with the lower net sales we can expect to receive per unit of existing products. The hearing instrument industry has in the past experienced rapid shifts to new key technologies, for example the switch from analogue to digital hearing instruments in 1990s, that disrupted the market and to large-scale realignment among customers and our competitors. For us to remain competitive, it is essential to develop and bring to market new technologies or to find new applications for existing technologies at an increasing speed. Regulatory Risk Sivantos Group s business and products are subject to a variety of market conditions and regulations in the jurisdictions in which Sivantos Group operates. In particular, these regulations govern: (i) coverage and reimbursement by national health services or by private health insurance services for the purchase of 5

68 hearing instruments, (ii) the supply of hearing instruments to the public and, (iii) the development, testing, manufacturing, labeling, premarket clearance and approval, and marketing, export and import of our hearing instruments. Accordingly, Sivantos Group s business may be affected by changes of laws and regulations, and in particular, changes to the conditions for coverage, the way in which reimbursement is calculated, and the ability to obtain national health insurance coverage. Intellectual Property Risk Intellectual property rights, particularly patents and trade secrets, play a significant role in product development and differentiation in our industry. These proprietary rights are essential to Sivantos Group s business and its ability to compete effectively with other companies in the market is greatly enhanced by the availability of any successful technology through licensing. Sivantos Group pursues a policy of generally obtaining patent protection in key jurisdictions for patentable subject matter in Sivantos Group s proprietary devices and attempt to review third party patents and patent applications to the extent publicly available to develop an effective patent strategy, avoid infringement of third party patents, identify licensing opportunities and monitor patent claims of others. Operational Risk As any interruption in the operations of Sivantos Group s manufacturing facilities may adversely affect the Sivantos Group s business, financial conditions and result of operations, Sivantos Group conduct preventive maintenance in all the Sivantos Group s operating equipment. The operation of production plants and the transfer of data between the affiliates and market organizations depend on the efficient and uninterrupted operation of the Sivantos Group s IT landscape. In 2017 a BCP (Business Continuity Plan) has been introduced to further secure the processes in the event of disruption or disaster. Sivantos Group not only relies on the timely supply from suppliers; for key components or products dual sourcing strategies have been implemented on top of a constant monitoring of supplier quality and delivery performance. Compliance Risk Conducting the Sivantos Group s business in an ethical acceptable manner is important to the Sivantos Group s reputation, status with regulators and business prospects. A major part of the Sivantos Group s revenue is derived under contracts with government agencies, such as the National Health Service in the United Kingdom, and consequently, Sivantos Group are regularly conducting business with public officials and other politically exposed persons. Sivantos Group has policies in place to prevent direct or indirect acts of corruption, bribery, anti-competitive behavior, money laundering, fraud, deception, tax evasion and any other criminal or otherwise unacceptable conduct. A law firm, which is experienced in the duties of an ombudsman, has been entrusted with this function by Sivantos Group. The contacts of the Ombudsman are available on the Sivantos Group intranet and internet. Legal Disputes Risk Sivantos Group may be and has been in the past, subject to legal disputes and regulatory proceedings in connection with our business activities. Although Sivantos Group maintain liability insurance in amounts Sivantos Group believes to be adequate and consistent with industry practice, Sivantos Group may not be fully insured against all potential damages that may arise out of any claims to which Sivantos Group may be party in the ordinary course of our business (though Sivantos Group is not aware of any such claims at present). A negative outcome of these proceedings might prevent Sivantos Group from pursuing certain activities and/or require Sivantos Group to incur additional costs in order to do so and pay damages. Currency Risk The Group s international operations expose the Group to foreign currency exchange rate risks, particularly regarding fluctuations of the USD, EUR, GBP, CNY, JPY and SGD in the ordinary course of business. The Group mainly employs the use of foreign exchange forward contracts to mitigate the group s major risks from adverse FX movements impact on consolidated earnings for 6-18 months rolling forward. As a matter of principle, the foreign currency risk is centrally managed by Group Treasury in cooperation with the Group entities in the countries. It is the target for the Group to maintain an adequate hedging level 6

69 of between 40% to 75% of the net foreign currency exposure. Cash-flow hedge accounting shall be applied to the extent possible to mitigate negative impacts of adverse developments from foreign exchange risk on the consolidated operating result of the Group. Credit Risk Credit risk is defined as an unexpected loss in cash and earnings if the customer is unable to pay its obligations in due time. Sivantos Group may incur losses if the credit quality of its customers deteriorates or if they default on their payment obligations to the Sivantos Group. Sivantos Group s exposure to credit risk arises primarily from trade and other receivables. Sivantos Group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. This includes the review of individual receivables and of individual customer creditworthiness on a caseby-case basis as well as the review of current economic trends, the analysis of historical bad debts on a portfolio basis and the considers country credit ratings. Credit evaluations are performed on all customers requiring credit over a certain amount. Sivantos Group does not require collateral in respect of financial assets. There were no significant concentrations of credit risks as of 30 September The maximum exposure to credit risk of financial assets is represented by their carrying amount. Concerning trade receivables and other receivables, as well as loans or receivables included in line item Other financial assets that are neither impaired nor past due, there were no indications as of 30 September 2017, that defaults in payment obligations will occur. Concerning trade receivables and other receivables, as well as loans or receivables included in line item Other financial assets that are neither impaired nor past due, there were no indications as of September 30, 2017, that defaults in payment obligations will occur, which lead to a decrease in the net assets of Sivantos Group. When substantial expected payment delays become evident, overdue financial instruments are assessed individually for additional impairment and are further allowed for as appropriate. For further information regarding the concept for the determination of allowances on receivables see Note 6 Critical accounting estimates. Liquidity Risk Liquidity risk results from the Sivantos Group s potential inability to meet its financial liabilities, in particular paying its suppliers. In addition to having implemented effective working capital and cash management, Sivantos Group has implemented short-term and medium-term liquidity forecasts. The Treasury monitors the level of expected cash inflows on trade and other receivables together with expected cash outflows on trade and other payables. The Group has access to a Revolving Credit Facility of EUR 75.0 million of which EUR 4.2 million was utilized as of 30 September Interest Rate Risk Sivantos Group s long term debt consists of nominal EUR million senior unsecured notes with a fixed interest rate of 8.00% p.a. as well as senior secured term loans of nominal EUR million and USD million with variable interest of which 58% have been swapped into fixed interest rate payments until December The repricing of senior secured term loans during the financial year has an annual interest savings of EUR 4.4 million due to 0.75% and 0.25% margin reduction in EUR and USD loans respectively. 7

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