Assets

Type	Time	Amount	Unit

Revenue

Type	Start date	End date	Amount	Unit

XML

See the xml submitted here:

No XML document available for this report.

Separator

The full data:

 

Erhvervsstyrelsen
14 apr. 2014

 

 

Således vedtaget på generalforsamlingen
den 9. april 2014.

Dirigent:

 

US ÅL

William Demant /

 

 

 

 

 

 

 

 

 

 

 

 

The front cover shows images from Oticon's Speech Guard E technology film. Speech Guard E, which is available in Oticon's
Premium hearing solutions, Alta, Alta Pro and Sensei Pro, preserves the natural characteristics of each voice and makes it

easier for the user to intuitively engage in conversations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BUILDING A UNIQUE POSITION

 

 

 

 

 

 

 

 

 

 

 

IN HEARING HEALTHCARE 4
THE YEAR AT A GLANCE 6
KEY FIGURES AND FINANCIAL RATIOS | 8
MANAGEMENT COMMENTARY 10
SHAREHOLDER INFORMATION 20
RISK MANAGEMENT ACTIVITIES 22
CORPORATE SOCIAL RESPONSIBILITY 24
CORPORATE GOVERNANCE 26
MANAGEMENT AND ORGANISATION 28
MANAGEMENT STATEMENT 31
INDEPENDENT AUDITOR'S REPORT 32
GROUP ACCOUNTING POLICIES 34

 

CONSOLIDATED FINANCIAL STATEMENTS 43

 

NOTES TO CONSOLIDATED FINANCIAL

 

 

STATEMENTS 48
PARENT ACCOUNTING POLICIES 74
PARENT FINANCIAL STATEMENTS 75

 

NOTES TO PARENT FINANCIAL STATEMENTS. 79

 

SUBSIDIARIES AND ASSOCIATES 86

 

1410410E0GSN05482

 

 

— customers and end-usersthrougha multi-brand approach"

 

BUILDING A UNIQUE POSITION IN HEARING HEALTHCARE

 

Dear reader,

With Oticon's introduction ofa new technological platform,
Inium, in early 2013 and also the launch ofa new Premium
family called Oticon Alta, our largest hearing aid brand em-
barked on a new journey offering not only a new platform,
but also a new product portfolio, both ofwhich generated
renewed momentum for the Group. Alta became an important
growth driver in 2013, and we succeeded in substantially in-
creasing our market share in the Premium segment of the
market. Now at the beginning of 2014, Oticon has almost
completed the renewal of its entire product portfolio with

the launch of new Inium-based hearing instru-

ment families in basically all product seg-
ments and at all price points. Also, both
Bernafon and Sonic now benefit from
having updated product portfolios.

The second half of 2013 turned out to

be what is probably the busiest launch
period the Group has ever had. Thus,
2013 proved to be an important turning
point for the Group after a difficult 2012
where we suffered under a partly outdated

product portfolio and tough comparative figures.

2014 is expected to be another good year for the Group, as all
our business activities are well-positioned for further growth.

To enhance our hearing healthcare activities, we decided

to enter the cochlear implant market by acquiring the French
manufacturer Neurelec in 2013. This is a major milestone for
the Group, as this acquisition has significantly cemented our
position as one of the world's strongest hearing healthcare
companies. Our main ambition is to have the industry's
broadest and deepest product offering that covers all aspects
of hearing care; is based on true innovation; is delivered to

and is backed by a comprehensive global distribution set-up
and efficient shared services.

By acquiring Neurelec, we got access to know-how, skills,
technologies and a strong platform for fully implantable
hearing solutions in a market segment characterised by sig-
nificant, long-term growth potential. The decision to acquire
Neurelec was the natural continuation of our successful efforts
in bone-anchored hearing systems — an area in which we have,
within a few years, captured more than a quarter ofthe world
market.

However, the size of our investment in Neurelec, which
amounted to DKK 428 million, does not really reflect the

actual strategic importance of this acquisition to the Group

as a whole. With a global market share of just 2% at the time
of acquisition, we are obviously nota market leader in the field
of cochlear implants, but we now have a solid platform to grow
from, so in the longer run, the clear goal is to become one of
the leading players in cochlear implants. The fact that we now
have the potential to benefit from the solid growth rates to be
found in the cochlear implant field in the next many years and

4 BUILDING A UNIQUE POSITION IN HEARING HEALTHCARE

 

ur Group is
now the company in the
world with the strongest
offering of hearing solutions  ofalleviation of all kinds of hearing
and equipment for the mea-
surement and treatment
of hearing loss”

thus to significantly outgrow the cochlear implant market will
strengthen the Group's overall growth profile, but will, not
surprisingly, dilute our profitability at the beginning. Over
time, Neurelec is however expected to generate a profit ratio
which will at least be on a par with the profitability ratio de-
livered by the Group's other business activities.

All in all, the three major business areas, i.e. traditional
hearing aids, implantable devices and diagnostic instru-
ments, complement each other in the best possible way.
Our Group is now the company in the world with
the strongest offering of hearing solutions
and equipment for the measurement and
treatment of hearing loss. The Group
thus has a unique position in terms

losses.

Over time, we expect to harvest signifi-

cant synergies from this unique position,
especially in research and development, but also
in areas such as manufacturing and global wholesale dis-

tribution, and also from cross-selling between our business
activities. Overall, we feel that we are in a strong position to
meet our long-term strategic ambition. Also, we have gained
a strong foothold in a number of markets, when it comes to
fitting hearing instruments through our own network of
hearing clinics.

In general, itis important to acknowledge that with a some-
what weak growth outlook for the traditional hearing instru-
ment market, if measured in value, we have in partredirected
our investment focus and investment capacity towards other

——" afeas within hearing healthcare. Obvious examples areour

entry into the markets for bone-anchored hearing systems
(BAHS) and cochlear implants (C]), respectively, under the
Oticon Medical umbrella. Our decision to continue to acquire
distribution activities and our ongoing focus on innovation
and end-user benefits are other examples of how we keep
investing in future growth opportunities despite the fact that
these activities have a margin-dilutive impact in the short to
mid term. This is particularly true for BAHS and CI where the
major part of our total investment in future growth is recog-
nised and expensed as research and development and market-
ing costs in the income statement as opposed to investments
in fully established companies with dominant market positions
and substantial market shares.

To support the Group's top-line growth and to ensure a con-
tinuously high level of profitability, we have based our future
global business model on a clear structure: The sales organ-
isation focuses on sales, and shared services centres deliver
all back-office services, such as IT, HR and Finance, as well as
Production, Supply Chain and Quality. To that end, we estab-
lished DGS in early 2013 as the new identity for the internal
shared services organisation with a view to ensuring a dedi-

 

 

 

 

cated effort towards consolidating back-office functions across
Group companies and optimising our global supply chain. The
vision of DGS is to support the William Demant Group's inter-
national brands and businesses through superior shared ser-
vices, cost efficiency and customer insight. Our DGS set-up and
the philosophy behind it will ensure higher flexibility when we
acquire new businesses and also facilitate the availability of
more specialised competencies when needed.

Establishing DGS is a continuation of the efficiency efforts
made in previous years and a natural part of our cost-
conscious corporate culture. Examples of our currentand
most recent DGS activities are many: Expanding our pro-
duction and distribution set-up in Poland; streamlining

our global supply chain; offering ITE production and repair
services to our European distribution companies; upgrading
our global IT business infrastructure; expanding the number
of local and regional DGS functions etc.

For the past two decades, basically all William Demant busi-
nesses have gained significant market shares, first and fore-
most achieved through innovation and effective execution and
fuelled further by a selective acquisition strategy. Combined
with continuous, high investments in research and develop-
ment and global distribution, our multi-brand strategy is the
right medicine to counterbalance the impact of increasingly
fierce competition in the traditional hearing instrument mar-
ket. Admittedly, this part of the market has been rather chal-
lenging in the last couple of years. Nevertheless, we have
clearly demonstrated in the last few technology cycles that
with dedicated focus on innovation, sound quality, speech
understanding and customer orientation, itis indeed pos-
sible to outperform the market.

Another good example of our commitment to innovation and
to meeting end-user needs is Oticon joining Apple's Made for
iPhone programme in spring 2014 with Oticon's first Made for
iPhone (MFi) connectivity solution for hearing instruments. In
order to ensure that as many end-users as possible will be able
to benefit from Oticon's MFi solution, availability will not be
restricted to specific price segments. In fact, Oticon's MFi
solution will be available for all existing and future users of
Oticon's ConnectLine instruments across the price spectrum,
including an installed base of around two million current users
of Oticon hearing instruments. Based on 2.4 GHz wireless
technology, our new MFi solution enables iPhone remote
control of Oticon's ConneciLine hearing instruments, with-

out compromising the audiological benefits and low power
consumption that are indeed the hallmarks of Oticon's hearing
instruments.

With the Group's entry in 2013 into the market for fully implant-
able devices and given the fact that — in all aspects of hearing
healthcare — we now already have either a strong market posi-
tion or a promising platform to grow from, we have obtained a
very unique position in the market. In my view, this is a privi-

1410410E0GSN05483

 

 

 

 

 

 

 

 

 

 

lege, so it is our obligation to make sure that we get the most
out of it.

Finally, I would like to take this opportunity to thank all our
dedicated and talented employees around the world for their
performance and solid contribution to the results achieved in
2013. The right employees and their various skills are essential
in order for us to fulfil our high ambitions — both in 2014 and in
the years to come.

Niels Jacobsen
President & CEO

 

 

 

 

 

 

 

 

 

 

 

 

BUILDING A UNIQUE POSITION IN HEARING HEALTHCARE 5

 

 

 

 

THE YEAR AT A GLANCE

 

In 2013, the Group's consolidated revenue exceeded DKK 9.2
billion, corresponding to a 10% growth rate in local curren-
cies. Exchange rates had a negative impact of 2 percentage
points, and organic growth and acquisitions contributed by
møre than 3 and 6 percentage points, respectively. Earnings
per share were DKK 23.1, which is 14% above the level real-
ised in 2012.

Operating profit (EBIT) amounted to DKK 1,784 million, or an
increase of 8%, and was mainly driven by solid growth in our
gross profit, even if this growth was dampened by deteriorat-
ing sales in Denmark and the Netherlands. In 2013, our profit
margin was 19.4% and thus on a par with the margin realised
in 2012. When considering the significant dilutive effect of
acquisitions, such as Neurelec and various distribution net-
works, and also the changes to reimbursement systems in
Denmark and the Netherlands, we find our profit margin
satisfactory.

In 2013, the global demand for hearing aids again proved to
be stable, and the industry saw positive volume growth rates
slightly exceeding our normal expectations of 2-4% volume
growth. In our estimation, the average selling price on the
market for hearing aids declined by approximately the same
percentage as volumes increased in 2013, primarily due to
changes in channel mix and reimbursement systems. The
high demand by the NHS (National Health Service) in the UK
and the changes to hearing healthcare systems in Denmark
and the Netherlands clearly had a negative impact on average
wholesale prices. In terms of value, the overall market growth
rate in 2013 was, in our estimation, flat.

 

6 THE YEAR AT A GLANCE

In our core business, wholesale of hearing aids, the organic
growth rate exceeded 5%, when adjusting for the impact from
the Danish and Dutch markets. Unadjusted, we realised 3%
organic growth in a market estimated to have seen flat growth
in terms of value.

With the launch of the Premium product Oticon Alta in January
2013, Oticon launched its first hearing instrument based on
the new Inium platform. The secret behind Alta is Oticon's
unique feature, Speech Guard E, enabling outstanding per-
formance in the most difficult listening situations. Alta be-
came an important growth driver in 2013, and we succeeded
in substantially increasing our market share in the Premium
segment of the market.

With the launch in autumn of the mid-priced product Oticon
Nera and a completely new and very advanced paediatric
family called Oticon Sensei, the renewal of Oticon”s product
portfolio continued. For Bernafon, growth was driven by the
launch of the high-end instruments called Acriva and the new
mid-priced instruments called Carista. Sonic saw fair growth
in 2013 and is expected to continue its growth path in 2014.

With the acquisition ofthe French manufacturer of cochlear
implants, Neurelec, the Group took a crucial step towards
becoming a full-line hearing implant manufacturer and thus
a true hearing healthcare company. Now a part ofthe Group,

 

 

 

 

 

 

 

 

Neurelec will gain access to state-of-the-art sound process-
ing, wireless technologies, audiological knowledge, a strong
capital base and a globat distribution network. Since the ac-
quisition of Neurelec in April 2013, sales have been in tune
with the initial plans made, including a high and increasing
level of research and development activities with a dilutive
effect on earnings.

Oticon Medical's activities in bone-anchored hearing systems
(BAHS) saw satisfactory growth in 2013 and once again cap-
tured market shares. We also saw the rapid penetration ofthe
introduced tissue preservation surgical techniques. A new
wireless Ponto Plus sound processor based on the Oticon
Inium platform was released for sale late in the year, and
feedback from our customers has been very positive. Ponto
Plus is expected to be the main growth driver in 2014 for this
part ofthe Group, and we are confident that it will help us
strengthen our position in both existing and new markets.

The Group's retail activities, which are part of our Hearing
Devices business activity, realised a double-digit growth
rate in 2013, which was to a large extent driven by acquisi-
tions. After a few years of intense acquisition activities, we

1410410E0GSN05484

 

 

 

 

 

 

 

 

 

do, however, expect the acquisition pace to slow down in the
years to come. In the period under review, development in our
retail activities was in line with development on the markets
where we operate.

Revenue in Diagnostic Instruments totalled DKK 883 million,
or an 8% increase in local currencies. Half of this growth was
organic growth. Diagnostic Instruments accounted for 10%
of consolidated revenue in 2013. The total global market for
diagnostic equipment is estimated to have grown by 3-4% in
2013, which means that this business activity has increased
its market share due to a combination of organic and acquisi-
tive growth.

Personal Communication generated revenue of DKK 379 mil-
lion in 2013, matching an increase of as much as 28% in local
currencies. The strong growth in Personal Communication
was mainly driven by strong growth in Sennheiser Commu-
nications, especially in the CC&O segment driven by Unified
Communication (UC).

 

2009 2010 2011 2012 2013

mM Revenue DKK million
MH Earnings per share — DKK

THE YEAR AT A GLANCE 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

KEY FIGURES AND FINANCIAL RATIOS — DKK

 

INCOME STATEMENT, DKK MILLION
Revenue

Gross profit

Research and development costs
EBITDA

Amortisation and depreciation etc.
Operating profit (EBIT)

Net financial items

Profit before tax

Profit for the year

BALANCE SHEET, DKK MILLION
Net interest-bearing debt
Assets

Equity

OTHER KEY FIGURES, DKK MILLION

Investment in property, plant and equipment, net
Cash flow from operating activities (CFFO)

Free cash flow

Average number of employees

FINANCIAL RATIOS
Gross profit ratio
EBITDA margin
Profit margin (EBIT margin)
Return on equity
Equity ratio
Earnings per share (EPS), DKK
Cash flow per share (CFPS), DKK”
Free cash flow per share, DKK”
Dividend per share, DKK”
Equity value per share, DKK”
Price earnings (P/E)
- Shareprice-DKK? —- —  —
Market cap. adjusted for treasury shares, DKK million
Average number of shares outstanding, million

 

2013

9,209 :
6,672 |
664 ;
2,079 |
295 |
1,784

1,712
1,311

2,249
10,357
5,080

394
1,320 :
851,
9,120

72.5%
22.6%
19.4%
28.5% :
49.0%
23.1 ;
23.3
15.0

vo
89.7 |
23)

29,754 |
56.62 ;

ea

 

527 I

2012

8,555
6,127
652
1,920
267
1,653
-132
1,521
1,151

1,804
8,777
4,059

310
1,272

782
8,025

71.6%
22.4%
19.3%
31.8%
46.2%
20.2
22.3
13.7

o

71.2
24

— 487

27,419
57.02

2011

8,041
5,777
633
1,942
233
1,709
-103
1,606
1,199

1,548
7,646
3,304

382
1,381
895
7392

71.8%
24.2%
21.3%
41.7%
43.2%
20.6
23.7
15.4

o

56.7
23

TT 4787

27,397
58.24

2010

6,892
4.959
615
1,654
224
1,430
-116
1,314
988

1,869
6,786
2,443

251
826

494
6,318

71.9%
24.0%
20.7%
49-5%
36.0%
16.9
14.1
8.5

o

41.9
24

—4—

24,173
58.35

1,575
4,626
1,302

181
950
656
5,674

70.8%
23.5%
20.2%
87.2%
28.1%
13.6
16.3
11.2

o

22.3
29

393

22,894
58.31

Financial ratios are calculated in accordance with ”Recommendations and Financial Ratios 2010” from the Danish Society of Financial Analysts. The free
cash flow is calculated as the sum of cash flow from operating activities (CFFO) and investing activities (CFFI) before acquisition of enterprises, participating
interests and activities. On computation ofthe return on equity, average equity is calculated duly considering the buy-back of shares.

=Per share of DKK 1.

8 KEY FIGURES AND FINANCIAL RATIOS — DKK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME STATEMENT, EUR MILLION
Revenue

Gross profit

Research and development costs
EBITDA

Amorttisation and depreciation etc.
Operating profit (EBIT)

Net financial items

Profit before tax

Profit for the year

BALANCE SHEET, EUR MILLION
Net interest-bearing debt
Assets

Equity

 

OTHER KEY FIGURES, EUR MILLION

 

 

 

i

i
Investment in property, plant and equipment, net 53 | 42 51 34 24
Cash flow from operating activities (CFFO) 177 | 171 185 111 127
Free cash flow 114! 105 120 66 88
Average number of employees 9,120 8,025 7,392 6,318 5,674

|

FINANCIAL RATIOS |
Gross profit ratio 72.5% | 71.6% 71.8% 71.9% 70.8%
EBITDA margin 22.6% j 22.4% 24.2% 24.0% 23.5%
Profit margin (EBIT margin) 19.4% i 19.3% 21.3% 20.7% 20.2%
Return on equity 28.5% ) 31.8% 41.7% 49.5% 87.2%
Equity ratio 49.0% 46.2% 43.2% 36.0% 28.1%
Earnings per share (EPS), EUR” 31 | 2.7 2.8 2.3 1,8
Cash flow per share (CFPS), EUR” 3.1 | 3.0 3.2 1.9 2.2
Free cash flow per share, EUR” 20 | 1.8 2.1 1.1 1.5
Dividend per share, EUR” o o 0 o o
Equity value per share, EUR= 12.0 | 9.5 7.6 5.6 3.0
Price earnings (P/E) 23 | 24 23 24 29
Share price, EUR" 71 | 65 64 56 53
Market cap. adjusted for treasury shares, EUR million 3.988 | 3,675 3,672 3,240 3,069
Average number of shares outstanding, million 56.62 i 57.02 58.24 58.35 58.31

(1

Financial ratios are calculated in accordance with ”Recommendations and Financial Ratios 2010” from the Danish Society of Financial Analysts. The free
cash flow is calculated as the sum of cash flow from operating activities (CFFO) and investing activities (CFFI) before acquisition of enterprises, participating
interests and activities. On computation ofthe return on equity, average equity is calculated duly considering the buy-back of shares.

=Per share of.DKK 1.

=%0n the translation of key figures and financial ratios from Danish kroner to euro, Danmarks Nationalbank's rate of exchange at 30 December 2013 of
746.03 has been used for balance sheet items, and the average rate of exchange of 745.80 has been used for income statement and cash flow items.

141041QEQ0GSN05485 KEY FIGURES AND FINANCIAL RATIOS — EUR++ 9

 

 

MANAGEMENT COMMENTARY

 

 

Market conditions

The hearing aid market in general

In 2013, the global demand for hearing aids again proved to
be stable, and the industry saw positive volume growth rates,
slightly exceeding our normal expectations of 2-4% volume
growth. Growth estimates are mainly based on available sta-
tistics from a number of key markets, and despite the fact
that they only cover some two thirds of the approximately 11
million units sold per year, these statistics should serve as
areasonable proxy for determining global unit growth.

US growth in line with global growth

With a 5% unit growth rate in 2013, the rate of growth on the
US market, the world's largest single market for hearing aids,
was in line with the global market growth rate. Once again,
the US Government's demand through Veterans Affairs (VA)
exceeded growth in the commercial market. Overall, demand
by VA rose by 7%, while the unit growth rate in the private
sector of the US market was 4%, which is in line with the
historical average for this part ofthe market.

European growth positively impacted by the NHS

European growth in 2013 was influenced by unusual circum-
stances in several key markets, resulting in some fluctuations
throughout the year: Growth in Denmark and the Netherlands
was adversely affected by a reduction in subsidies at the be-
ginning of 2013. Structural changes in hearing healthcare
services in Norway reduced growth in this market in the first
half-year due to postponed invoicing. Germany changed its
subsidy system as of 1 November, and following a wait-and-
see approach prior to these changes, the German market
came out of 2013 with improved momentum. In the UK, 2013
was characterised by a low double-digit volume growth rate,
which was to a high degree due to strong demand by the
National Health Service (NHS). Part ofthe growth experienced

— by the NHSis attributable tothe Any Qualified Provider (AQP)

scheme according to which some NHS hearing instruments
are dispensed to end-users via Specsavers Hearing Centres.
Growth in the commercial part of the UK market was within
the expected range of 2-4%.

The overall European unit growth rate in 2013 is estimated to
have exceeded the historical growth rate. However, a consid-
erable part can be attributed to the significant contribution
by the NHS.

Slowdown in Japanese growth

After some years with fair growth on the Japanese market, we
witnessed a gradual slowdown in the period under review,
and the growth rate is thus thought to be lower than the glo-
bal growth rate. The Japanese market still has a lower pene-
tration rate than most developed markets for hearing aids
and therefore appears to hold unexploited potential.

10 MANAGEMENT COMMENTARY

Average selling prices

The global average selling price is to a greater extent than
global unit growth based on an estimate, since data on mar-
ket prices and product mixes are limited. In our estimation,
the average selling price on the market for hearing aids de-
clined by approximately the same percentage as volumes
increased in 2013, primarily due to changes in channel mix
and reimbursement systems. The high demand by the NHS
and changes to hearing healthcare systems in Denmark and
the Netherlands clearly had a negative impact on average
selling prices. In terms of value, the overall market growth
rate was, in our estimation, flat.

Focus on user needs

By continuously developing and delivering increasingly dis-
creet and user-friendly solutions, hearing aid manufacturers
considerably help to counter the stigmatisation that many
hearing-impaired people see as the greatest impediment to
investing in a hearing aid and thus alleviating their hearing
loss. The cosmetic aspect is, however, only one prerequisite
for meeting the goal of satisfying users. Above all, solutions
must enable users to live an active life and interact effort-
lessly with others in social contexts regardless of age and
skills. One of our industry”s major challenges is thus to en-
sure proper fitting ofthe right hearing solutions in order for
the user to get maximum joy and benefit from the hearing aid.
Audiologists and hearing care professionals therefore play
an increasingly vital role in relation to end-users, both before
and after the fitting, and thus help to ensure that the user
gets maximum benefit from the new hearing aid and its wire-
less accessories.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

William Demant Holding A/S

Diagnostic Instruments Personal Communication

Bernafon Maico Sennheiser
Oticon Interacoustics Communications
Sonic Amplivox FrontRow

Oticon Medical Grason-Stadler Phonic Ear

Neurelec MedRx

Micromedical

KIF EET Er error ES

 

Operational and distribution activities

The William Demant Group is a leading international hearing healthcare company, which develops, manufactures and sells
products and equipment designed to aid people with hearing loss in their individual communication. Focus areas are: Hearing
Devices, Diagnostic Instruments and Personal Communication. The Group operates in a global market with own companies in

 

 

 

 

more than 25 countries, a total staffof over 9,000 employees and revenue of over DKK 9 billion.

 

Hearing Devices

Market share gains driven by new products

In the period under review, Hearing Devices, including Oticon
Medical and our retail activities, realised an overall growth
rate of 9% in local currencies (8% excluding Oticon Medical.
The Group's core activities, orthe development, manufacture
and wholesale of hearing aids, realised an organic growth
rate of 3%, thereby exceeding the market growth rate by
approximately 3 percentage points. This development can

be attributed to a strong product offering. Due to our rela-
tively strong position in Denmark and the Netherlands, the
structural changes in these two markets had a noticeably
adverse effect on organic growth of DKK 120-140 million in
total. Ifwe disregard these two markets, our organic growth
in the wholesale of hearing aids did in fact exceed 5%.

Oticon's product launches

With the introduction ofthe Premium product Oticon Alta in
January 2013, Oticon launched its first hearing instrument
based on the new Inium platform. The secret behind Alta is
Oticon's unique feature, Speech Guard E, that maintains the
natural dynamics of sound, thereby enabling outstanding per-
formance in the most difficult listening situations. The ideal
hearing solution should not just amplify sound and thus en-
able the userto hear sound. The challenge is to amplify sound
without distorting or corrupting it, thereby retaining all the

subtle nuances of sound and in particular the clarity of sound.

The brain will thus get all the information it needs in order to
easily and effortlessly understand speech, process messages
and respond to such messages. This is where Alta stands out
from other good hearing aids.

A few weeks after its launch, Alta was available in all styles
on all the Group's main markets. The substantial improve-
ments in Alta compared with previous Premium instruments,
such as twice the working memory, a significantly improved
anti-feedback system and a unique customisation tool, re-

1410410E0GSN05486

sulted in very positive responses from both end-users and
dispensers. Alta became an important growth driver in 2013,
and we succeeded in substantially increasing our market
share in the Premium segment ofthe market.

Our practice of launching products in only one price category
at a time meant that for the first three quarters of the year,
Oticon's product portfolio consisted of ageing mid-priced
products. Since most of our competitors have changed their
launch strategies and decided to launch their latest platforms
in all price points at the same time, we saw fiercer competi-
tion in the mid-priced segment, which dampened our overall
growth. With the launch ofthe mid-priced product Oticon Nera
at the end of the third quarter of 2013, we have strengthened
our product portfolio significantly. Built on the Inium plat-
form, Oticon Nera offers features that have not previously
been available in the mid-priced segment, including true
binaural processing, feedback shield and YouMatic. Nera

was well received by hearing aid dispensers and end-users
alike and is expected to contribute positively to growth in

the coming quarters.

 

With the introduction of Oticon Ria in the Essential category
in February 2014, we now have a completely updated product
offering in all three Performance categories — and all of them
based on the Inium platform. September 2013 also saw the
introduction of Oticon Sensei, which is Oticon”s most ad-
vanced paediatric hearing aid family so far. This milestone in
audiology for children is the result of extensive cooperation
with a string of leading experts in this area. Some of the areas
in which Sensei excels are speech understanding and ease

of fitting, and the product family thus supports our efforts

to strengthen our position in this niche segment. The many
product launches in 2013 and 2014 should put us in a rela-
tively stronger position than the competition in the following
quarters.

MANAGEMENT COMMENTARY 11

 

 

 

In spring 2014, Oticon will join Apple”s Made for iPhone pro-
gramme with Oticon's first Made for iPhone (MFi) connecti-
vity solution for hearing instruments. In order to ensure that
as many end-users as possible will be able to benefit from
Oticon's MFi solution, availability will not be restricted to
specific price segments. In fact, Oticon”s MFi solution will be
available to all existing and future users of Oticon”s Connect-
Line instruments across the price spectrum, including an in-
stalled base of around two million current users of wireless
Oticon hearing instruments. Based on 2.4 GHz wireless tech-
nology, our new MFi solution enables iPhone remote control
of Oticon”s ConnectLine hearing instruments, without com-
promising the audiological benefits and low power consump-
tion that are indeed the hallmarks of Oticon's hearing instru-
ments. The controllable functions include program choice,
volume control etc., and this is a clear signal that we are
further exploiting the potential benefits to be derived

from the new wireless technologies.

Updated product portfolios securing growth in Bernafon
and Sonic

For Bernafon, growth in 2013 was driven by important pro-
duct introductions of particularly the high-end instruments
called Acriva 9/7 in April and the mid-priced instruments
called Carista 5/3 in September. Bernafon's now very strong
product offering must in 2014 be used to attract, among
others, new large-volume customers in more markets, such
as retail chains and purchase groups, and also for govern-
ment tenders.

In 2013, Sonic continued the positive trend of re-establishing
itself as a viable brand with new interesting product concepts
based on new technology. A completely reshaped business,
today's Sonic is in stark contrastto the business that joined
the William Demant Group at the end of 2010. Sonic saw fair
”—growth im 2013 andis expected to continue its growth path
in 2014.

NHS and VA

Our Group remains the largest supplier of hearing aids to the
NHS in the UK although we saw a small drop in market share
in 2013, which is due to the fact that we do not supply hearing

 

 

 

 

 

 

 

aids to Specsavers Hearing Centres through the NHS” Any
Qualified Provider (AQP) programme. Sales to VA in the USA
were realised below expectations, as we lost market share
with VA in 2013. A few, but important shortcomings prevented
us from growing our sales to VA, but we expect to bypass
them in 2014 and going forward.

Retail activities

In the period under review, development in our corporate
retail activities was in line with development on the markets
where we operate. A few markets, such as Australia and the
Netherlands, saw negative growth rates, which of course im-
pacted our ability to grow. However, in overall terms 2013 was
a fairly satisfactory year for our retail activities, which saw
double-digit growth rates, mainly driven by acquisitions made
in 2012 and 2013. Organic growth in this part ofthe Group's
activities matched growth in the markets in which we have
distribution activities. We have incurred additional expenses
in connection with the integration and reorganisation of our
acquired retail businesses, and we expect our continued ef-
forts to optimise our retail operations to result in improved
profitability in this part of our business in the years to come.

Entering the cochlear implant market — a major milestone

for Oticon Medical

With the acquisition of the French manufacturer of cochlear
implants (CI), Neurelec SA, the William Demant Group has
taken a crucial step towards becoming a full-line hearing im-
plant manufacturer and thus a true hearing healthcare com-
pany, offering a full range of hearing solutions. The William
Demant Group's entry into this part of the implant market,
which is characterised by significant growth potential, is a
natural continuation of our successful stake in bone-anchored
hearing systems (BAHS) — an area in which we have, within a
few years, captured about a fourth ofthe world market. We

”wilUkeep focusing on bringing high-quality cochlear implants

to the market, and we will benefit from Neurelec's strong his-
tory in terms of patient safety, quick surgery and good clinical
support, which are some of the reasons why several of the
world's leading surgeons have decided to work with our
cochlear implants. Being part ofthe William Demant Group

is crucial for the future expansion of the cochlear implant

 

12 MANAGEMENT COMMENTARY

 

 

 

 

 

 

 

 

 

business, as it gives access to state-of-the-art sound process-
ing, wireless technologies, audiological knowledge, a strong
capital base and a global distribution network. Since the ac-
quisition in April 2013, sales have been in tune with the initial
plans made, including a high and increasing level of research
and development activities with a dilutive effect on earnings.

The BAHS business of Oticon Medical saw satisfactory growth
in 2013 and once again captured market shares. We also saw
the rapid penetration of the introduced tissue preservation
surgical techniques, and surgeons have been quick to adapt
to these new methods. On 1 November, the new wireless
Ponto Plus sound processor family based on the Oticon Inium
platform was released for sale. The product range is very well
received by our customers. The Ponto Plus family of prøces-
sors enables users to hear more everyday sounds by provid-
ing more power and a range of wireless communication op-
tions and by reducing feedback by means of the well proven
Inium feedback shield. Oticon Medical's tissue preservation
surgical techniques and the Ponto Plus family were cleared by
the FDA in late December 2013. Both will be the main growth
drivers in 2014, and we are confident that they will help us
strengthen our position in existing as well as new markets.

Diagnostic Instruments

Diagnostic Instruments, a global market leader in diagnostic
equipment, grew satisfactorily in 2013 by 8% in local curren-
cies. Half ofthis growth was driven by the acquisition of main-
ly SIDs (Special Instrument Distributors) in the USA. The total
global market for diagnostic equipment is estimated to have
grown by 3-4% in 2013, and Diagnostic Instruments has in-
creased its market share due to a combination of organic

and acquisitive growth.

As a result of our active participation in recent years” industry
consolidation, our Diagnostic Instruments business activity
today consists of six audiometer companies, and with the
acquisition of SIDs, not only our distribution, but indeed

our business has been further strengthened, as we have
managed to increase the sale of own products through these
SIDs. We will continue to look for new acquisition opportuni-
ties, but we will first and foremost focus on integrating and

 

1410410E0GSR05487

 

developing the companies already acquired. Today, this busi-
ness activity enjoys strong market positions in most product
categories, and with its multi-brand strategy, it covers every
major customer segment in all the important geographic re-
gions. The fact that Diagnostic Instruments now consists of
many brands and offers a broad product programme makes
it possible to focus on specific product areas and customer
segments for each brand, thus ensuring continued organic
growth. The multiple product introductions by Maico, Grason-
Stadler and Interacoustics in autumn 2013 have further
strengthened our competitiveness and will be among the
drivers of continued growth in 2014.

Personal Communication

In 2013, Personal Communication realised a satisfactory 28%
growth rate in local currencies. This growth was to a large ex-
tent driven by strong organic growth in Sennheiser Communi-
cations, especially in the CC&O (Call Center and Office) seg-
ment driven by Unified Communication (UC).

Personal Communication comprises Phonic Ear (including
FrontRow), a manufacturer of assistive listening devices and
wireless sound systems, and our joint venture Sennheiser
Communications, a manufacturer of both professional and
consumer headsets for the PC, mobile phone and CC&O seg-
ments. As mentioned in our Interim Report 2013, Sennheiser
Communications has moved its inventory closer to the cus-
tomers, as the inventory was acquired by Sennheiser AG. The
full-year impact of this one-off sale of inventory accounts for
only one third of the overall growth generated in Personal
Communication. In the same period, FrontRow, whose pri-
mary activity is the sale of sound systems to schools and
public institutions, has come back on the growth track and
has done well, realising a double-digit growth rate in revenue
in local currencies. Phonic Ear, which sells assistive listening
devices and systems designed for hearing-impaired people,
saw flat development in revenue.

 

 

MANAGEMENT COMMENTARY 13

 

 

Financial review 2013

Revenue and foreign exchange

In 2013, we achieved satisfactory financial results in line with
the outlook previously announced. Our consolidated revenue
amounted to DKK 9,209 million, corresponding to a rate of
growth of 10% in local currencies. Exchange rates had a nega-
tive impact of 2 percentage points, whereas organic growth
and acquisitions contributed by more than 3 and 6 percentage
points, respectively.

With 98% of consolidated sales being invoiced in foreign
currencies, reported revenue is significantly affected by
movements in corporate trading currencies. Based on the
distribution of consolidated revenue in 2013 among the re-
spective trading currencies, the graph below shows month-
by-month trends in the Group's currency basket.

The Group's currency basket — indexed development
110

 

 

 

 

 

 

 

105 AN
- 100 IAA
> Ar DA

95 AL

90

85 z = ” = z = ” z
nd on o o i vi N Ny mom od
o oa -= = -= -= = vi - - -
Så & 3 & i & E 5 3 &

Index 100 = average for 2013

The negative exchange rate impact on consolidated revenue

is in particular attributable to a weakening of some of our ma-

jor invoicing currencies, such as the US dollar, the Japanese

yen, the Canadian dollar and the Australian dollar. Based on
—average exchange rates; the US dollar depreciated by3% in
2013 and the Japanese yen, Canadian dollar and Australian
dollar by as much as 21%, 6% and 10%, respectively.

The year's total negative exchange rate impact on revenue
of about 2% is composed of a negative currency translation
effect of 4% and a positive transaction effect of 2%. The lat-
ter is the net effect of realised gains or losses on forward
exchange contracts, which are used for hedging exchange
rate risks and are recognised in the financial statements
together with the revenue in foreign currencies that such
forward exchange contracts are designed to hedge.

In 2013, the Group generated growth in North America of al-
most 14% in local currencies of which a considerable part
was driven by acquisitions of mainly distribution networks
for hearing instruments and diagnostic instruments. Our mar-
ket share with Veterans Affairs (VA) dropped in 2013, and we
have not managed to benefit from the high growth rates in
this channel in the reporting year. This development is below
our expectations, but we do expect our sales to VA to increase
in the future, as we will intensify our focus on and our product

14 MANAGEMENT COMMENTARY

offering to this customer. Both Diagnostic Instruments and
Personal Communication realised high single-digit growth
rates in local currencies in North America. North America
accounted for 41% of total consolidated revenue.

Revenue by geographic region

Asia. Other countries

     
   

Consolidated revenue in Europe grew by more than 6% in
local currencies in 2013, with acquisitions accounting for
most of this increase. Previously mentioned changes to
subsidy systems in especially Denmark and the Netherlands
adversely affected organic growth in Hearing Devices. How-
ever, adjusting for these unusual circumstances, we did well
in Europe. Our two other business activities also delivered
fair growth in Europe, especially Personal Communication,
which realised a strong double-digit growth rate. Europe
accounted for 38% of total consolidated revenue.

Revenue by business activity
Percentage change

 

 

 

 

DKK million 2013 2012 DKK Local currency
Hearing Devices 7,947 7,410 7% 9%
Diagnostic Instruments 883 844 5% 8%
Personal Communication 379 301 26% 28%

10%

Total

9,209

8,555 8%

 

 

In 2013, our core business, wholesale of hearing aids, realised
an organic growth rate of 3%. Growth was driven by multiple
product introductions by our three hearing aid brands, but
was partly offset by a noticeably adverse effect ofthe struc-
tural changes in Denmark and the Netherlands on organic
growth to the tune of DKK 120-140 million. When adjusting

for these unusual circumstances in Denmark and the Nether-
lands, our organic growth rate in the wholesale of hearing
aids exceeded 5%.

The Group's retail activities, which are part of our Hearing
Devices business activity, realised a double-digit growth rate
in 2013, which was to a large extent driven by acquisitions.
After a few years of intense acquisition activities, we do,
however, expect these activities to slow down in the years

to come.

In the period under review, revenue in Diagnostic Instruments
totalled DKK 883 million, or an 8% increase in local currencies
half of which growth was organic growth. Diagnostic Instru-
ments accounted for 10% of consolidated revenue in 2013.

 

 

 

 

 

 

 

 

 

Personal Communication generated revenue of DKK 379 mil-
lion in 2013, matching an increase of as much as 28% in local
currencies. Sennheiser Communications was the main con-
tributor to this strong growth. Personal Communication ac-
counted for 4% of total consolidated revenue.

Revenue by business activity

Hearing Devices

     
 

Diagnostic
Instruments

”Personal
Communication

Gross profit

In 2013, consolidated gross profit rose by 9% to DKK 6,672
million. The consolidated gross profit margin of 72.5% re-
presents a rise of 0.9 percentage point compared with 2012.
This improvement in our gross profit margin is the result of
economies of scale and the continuous optimisation of pro-
duction and procurement, especially in the wholesale of hear-
ing instruments and diagnostic instruments, all of which has
helped us lower our unit costs. We furthermore saw a positive
effect from the addition of distribution activities to Hearing
Devices and Diagnostic Instruments, whereas the positive
effect of an improved product mix in the wholesale of hearing
instruments was partly offset by lower sales in Denmark and
the Netherlands as well as channel mix changes. Generally
speaking, growing sales of Streamers and other wireless
equipment have a negative impact on the gross profit mar-
gin, as these products are typically not sold at the same

high gross profit margins as hearing aids.

Similarly, our strategy to forward integrate in the value chain
through the acquisition of distribution activities is an ongoing
effort that creates value for the Group and our shareholders,
even if it does dilute the profit margin at the beginning and
until we have streamlined and integrated the acquired units.

Capacity costs

Consolidated capacity costs in local currencies rose by 13% in
2013. Almost two thirds ofthis increase are, however, directly
attributable to acquisitions. In addition to our many acquisi-
tions, we are constantly planting seeds to reap the benefits
of future growth opportunities, meaning that additional capa-
city costs will dilute our short-term profitability, but definitely
have the potential of becoming margin-accretive in the longer
term. Oticon Medical has taken the first major steps on this
journey and in 2013, we took another big step by acquiring
Neurelec. Of course, this acquisition had a dilutive effect on
our EBIT margin in 2013, but holds great future potential in
terms of profitability.

141041QE0GSN05488

 

Capacity costs

 

 

 

 

Percentage change
DKK million 2013 2012 DKK. Local currency
R&D costs 664 652 2% 2%
Distribution costs 3,673. 3,311 11% 16%
Administrative expenses 551 523 5% 9%
Total 4,888 4,486 9% 13%

 

Research and development costs

Driven by the acquisition of Neurelec, consolidated research
and development costs in local currencies rose to DKK 664
million in the reporting period, or a modest increase of 2% in
local currencies. This growth is, however, considerably below
growth in revenue, as we are harvesting the synergies of our
optimised research and development set-up, thereby support-
ing our multi-brand strategy of sharing core technologies
across brands.

R&D costs — DKK million

  

652
576 5
FA hj
== o
SÅ NV

Distribution costs

In terms of local currencies, distribution costs rose by 16%,
two thirds of which are attributable to acquisitions. The rise
in consolidated distribution costs, excluding acquisitions,
therefore exceeds our organic growth in revenue. 2013 saw
the further strengthening of corporate distribution activities,
especially in Hearing Devices, including Oticon Medical, and
in Diagnostic Instruments. After several years of intense ac-
quisition activities and with the addition of multiple new enti-
ties and businesses all over the world, we are now in the pro-
cess of optimising our global supply chain and back-office
functions through various initiatives.

Administrative expenses

In 2013, consolidated administrative expenses in local cur-
rencies rose by 9%, with acquisitions accounting for one quar-
ter ofthis increase. Part of this increase can be attributed to
the strengthening of our IT platforms, which will enable us

to become even more efficient when it comes to running our
business.

Profit for the year

In the period under review, consolidated operating profit
(EBIT) amounted to DKK 1,784 million, ør an increase of 8%
compared with 2012. This improvement was first and fore-
most due to solid growth in our gross profit, even if this
growth was dampened by deteriorating sales in Denmark
and the Netherlands. It has not been possibie to adjust our
cost bases in these two difficult markets to reflect the lower
revenue, which has had a natural negative impact on our
operating profit (EBIT). In 2013, our profit margin was 19.4%
and thus on a par with the margin realised in 2012. When

MANAGEMENT COMMENTARY | 15

 

 

 

 

 

 

 

 

 

 

 

 

considering the significant dilutive effect of acquisitions,
such as Neurelec and various distribution networks, and
also the changes to reimbursement systems in Denmark and
the Netherlands, we find our profit margin satisfactory.

Operating profit (EBIT) — DKK million

78
1799 1,653 Ve

1,430
1,149

    

As it appears from Risk management activities on page 22,
we intend to hedge changes in exchange rates by matching
positive and negative cash flows in the main currencies as
much as possible and by entering into forward exchange
contracts. With our current use of such contractis, forecast
cash flows in the main currencies are hedged with a horizon
of up to 24 months.

In addition to hedging by means of forward exchange con-
tracts, we typically raise loans in foreign currencies to bal-
ance out net receivables.

Atthe end of the reporting year, the Group had entered into
forward exchange contracts at a contractual value of DKK 681
million (DKK 1,093 million at 31 December 2012) and a fair
value of DKK 42 million (DKK 26 million at 31 December 2012).
As at 31 December 2013, our material contracts hedged the
following currencies:

 

Earnings per share — DKK

20.6 20.2

16.9

   

Atthe annual general meeting, our Board of Directors will
propose that the entire profit for the year be retained and
transferred to reserves.

Equity and capital structure

Consolidated equity was DKK 5,080 million at 31 December
2013 (DKK 4,059 million at 31 December 2012), matching an
equity ratio of 49.0%. The increase in equity is mainly due

to retained earnings of DKK 1,311 million and to a lesser ex-
tent to a negative exchange rate effect of DKK 225 million.
We continuously seek to have a net interest-bearing debt of
DKK 2.0-2.5 billion and at 31 December 2013, our net interest-
bearing debt, amounting to DKK 2,249 million, was well with-
in this range. In 2013, the Company bought back shares worth
DKK 101 million and at the end of the year held a total of
201,525 treasury shares acquired at an average price of DKK
500 since the launch of our current buy-back programme in
August 2013. We did not carry through any capital increases
in the period under review.

Consolidated equity

 

 

 

 

 

 

 

DKK million 2013 2012
"Forward exchange contracts at 31 December 2013 TT Equityatsmn 7 4,059 3,304.
Currency Hedging period Hedging rate Foreign currency translation adj., subsidiaries -225 3
USD 4 months 562 Value adjustments, hedging instruments 26 133
JPY 9 months 6.70 Profit forthe year 1,311 1,151
AUD 6 months 519 Other adjustments including buy-back of shares -91 -532
GBP 10 months 878 Equity at 31.12. 5,080 4,059
CAD 3 months 525

 

In 2013, consolidated net financial items amounted to DKK -72
million against DKK -132 million in 2012. The main reasons for
this reduction in our financial expenses are lower interest
rates and the extraordinary interest payment of DKK 37 mil-
lion made in 2012 in connection with the now closed ETG case.

Consolidated profit before tax amounted to DKK 1,712 million,
a satisfactory increase of 13% on 2012. Tax on the year's pro-
fit amounted to DKK 401 million, matching an effective tax
rate of 23.4% (24.3% in 2012). Consolidated profit after tax
amounted to DKK 1,311 million, or an increase of as much as
14%. Earnings per share (EPS) were DKK 23.1, which is a rise
of over 14% on last year.

16 MANAGEMENT COMMENTARY

Consolidated cash flow

Consolidated cash flow from operating activities totalled
DKK 1,320 million in 2013, which is an increase of 4% on the
year before. Income tax paid in 2013 aggregated DKK 380
million, DKK 281 million of which was paid in Denmark.

The free cash flow grew by 9%, amounting to DKK 851 million,
an increase of DKK 69 million compared with 2012. The im-
proved cash flow can be attributed to an increase in the cash
flow from operating activities and a slightly lower level of
investing activities compared with 2012. In 2013, cash flow
from investing activities (exclusive of acquisitions) totalled
DKK 469 million (DKK 490 million in 2012). For 2014, we
expect a similar level of investment.

 

 

 

 

 

Cash flow by main items
DKK million

 

 

 

 

 

 

 

2013 2012
Operating profit (EBIT) 1,784 1,653
Cash flow from operating activities 1,320 1,272
Cash flow from investing activities -469 -490
Free cash flow 851 782
Acquisition of enterprises, interests and activities — -1,176 -682
Financing activities 41 -600
Cash flow for the year -284 "500

 

In 2013, we made a number of acquisitions, the largest ac-
quisition being Neurelec, the French developer and manufac-
turer of cochlear implants, and also a number of acquisitions
strengthening our distribution. The cash acquisition amount
in respect ofthe acquisition of enterprises, participating in-
terests and activities amounted to DKK 1,176 million for the
year, including earn-out payments relating to prior-year
acquisitions.

Financing activities in 2013, totalling DKK 41 million (DKK -600
million in 2012), relate to the buy-back of shares worth DKK
101 million (DKK 497 million in 2012). In 2013, we also took
out new debt in the amount of DKK 652 million and repaid

DKK 510 million.

Cash flow from operating activities — DKK million

1,381

1,320

1,272

950

   

LÆNSS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1410410E0GS805489

Balance sheet

At 31 December 2013, the consolidated balance sheet sum
was DKK 10,357 million, which is an increase of 18% com-
pared with the balance sheet total at year-end 2012. The
majority of this increase is attributable to goodwill, which
at year-end 2013 was DKK 3,548 million (DKK 2,568 million
at year-end 2012) and results from acquisitions, and the re-
sidual increase in the balance sheet can be attributed to or-
ganic growth. The balance sheet total includes a negative
exchange rate impact of around 5%.

We continuously provide loans to our customers and at 31
December 2013, such loans amounted to DKK 429 million,
which is a fall of DKK 48 million on the year before. This fall
can be attributed to debt repayments and exchange rate im-
pacts. The loan amount is expected to grow going forward
and therefore also in 2014, however at a modest pace.

In 2013, our Board of Directors decided to raise the target for
the Group's net interest-bearing debt to DKK 2.0-2.5 billion
from our previous range of. DKK 1.5-2.0 billion. The conso-
lidated net interest-bearing debt rose by DKK 445 million,
amounting to DKK 2,249 million at the end of 2013. This rise
can be attributed to acquisitions. Our continuous buy-back
of shares can be adjusted to reflect the actual acquisition
and investment level, so that the consolidated net interest-
bearing debt is kept within the desired interval of DKK 2.0-2.5
billion. In 2013, we saw an increase in working capital due to
increases in inventories and trade receivables.

In 2013, net financial contracts were positive by DKK 34 mil-
lion. This amount is composed of unrealised gains and losses
on forward exchange contracts of DKK 45 million and DKK 3
million, respectively, and of unrealised losses on interest
swaps in the amount of DKK 8 million.

There have been no events that materially affect the assess-
ment of this Annual Report after the balance sheet date and
until today.

Board of Directors and employees

At our annual general meeting on 9 April 2013, Lars Nørby
Johansen, Peter Foss, Niels B. Christiansen and Thomas
Hofman-Bang were re-elected for one year. After the general
meeting, the Directors elected Lars Nørby Johansen Chairman
and Peter Foss Deputy Chairman of the Board of Directors.

At year-end, our Group had 9,514 employees (8,290 in 2012)
of whom 1,553 were employed in Denmark (1,546 in 2012).
The average number of staff (full-time equivalent) was 9,120
in 2013 (8,025 in 2012).

A significant reason for our success in 2013 is our many em-
ployees, who have made a great effort to ensure corporate
progress. The Board would like to take this opportunity to
thank everyone for their commitment and professionalism
throughout the year.

MANAGEMENT COMMENTARY 17

 

 

 

Knowledge resources

Our aim for continuous growth in revenue and operating profit
(EBIT) is rooted in our mission statement, which says that we
must strive for a high level of innovation through a flexible
and knowledge-based organisation. The prerequisite for the
Group's continued competitiveness is extensive audiological
know-how and a broad spectrum of competencies, such as
further developing wireless technology, designing integrated
circuits for sophisticated analogue and digital processing

of sound signals, developing software for optimum fitting

of hearing aids, designing micro-amplifiers and related acous-
tic systems as well as developing and manufacturing micro-
mechanic components, An example of our dedicated focus on
R&D is our acquisition of Neurelec, which for several years to
come will drive a high level ofR&D activities in order før us to
realise the full potential of this acquisition and to benefit from
our entry into the cochlear implant market.

The Group's products are made through the cooperation of a
wide range of specialists, each with thorough knowledge of
their own field, in-depth understanding of other professional
areas and appreciation of the corporate approach. In order to
utilise competencies and knowledge across the organisation,
substantial resources are channelled into communication and
knowledge sharing through a shared IT platform, a high de-
gree of openness and the secondment of employees to other
corporate companies.

Our corporate development centre in Denmark is a major
catalyst for ongoing as well as future innovation projects.
Eriksholm, our corporate research centre, also plays a key
role in our endeavours to always be at the forefront of devel-
opment, enabling us to deliver the most innovative solutions
and giving end-users and hearing care professionals the most
advantages.

The Oticon Foundation

William Demant Holding's majority shareholder, the Oticon
Foundation, whose full name is William Demants og Hustru
Ida Emilies Fond, was founded in 1957 by William Demant,
son of the Company's founder Hans Demant. Its primary goal
is to safeguard and expand the William Demant Group's busi-
ness and provide support for various commercial and chari-
table causes with particular focus on the field of audiology.
Atthe end of 2011, the majority of the Oticon Foundation's
shares in William Demant Holding were transferred to its
wholiy-owned subsidiary, William Demant Invest. Charitable
tasks are thus handled by the Foundation itself and the Foun-
dation?s business activities by William Demant invest. Voting
rights and decisions to buy or sell William Demant Holding
shares are still exercised and made, respectively, by the
Oticon Foundation.

In accordance with the Oticon Foundation's investment strat-
egy, the Foundation's investments — apart from ownership

in William Demant Holding — also include other assets, as

the Foundation can make active investments in companies
whose business models and structures resemble those of the

18 MANAGEMENT COMMENTARY

 

 

 

 

 

 

William Demant Group, but are outside our strategic sphere

of interest. The Foundation has made a management agree-
ment on a commercial arm's length basis with William Demant
Holding to the effect that the latter will handle the administra-
tion of the investments made through William Demant Invest.

Sound liquidity and a satisfactory free flow are important to
obtain fair pricing of our shares at NASDAQ OMX Copenhagen.
In autumn 2005, the Oticon Foundation therefore announced
that in future it would strive to retain a direct or indirect own-
ership interest of 55-60% through, if necessary, the continu-
ous sale of shares in the market. Any sale of shares by the
Foundation is independent of any purchase of shares by

the Company.

Market and business conditions going forward

The present outlook for the global hearing aid market — and
thus for the Group — is subject to greater uncertainty than
in the past owing to a range of structural factors, including
growth in markets and distribution channels with lower aver-
age selling prices. Even though unit sales in the wholesale
market for hearing instruments are expected to continue to
grow steadily within the usual range of 2-4% per year, it is
our best estimate that in terms of value, the global market
for hearing aids is currently recording very modest growth
at best. This situation is not likely to change in the short to
mid term.

In this context of uncertainty, it is also worth noting that in
January and February 2014, North America has been adverse-
ly impacted by unusual weather conditions with heavy snow-
fall and very low temperatures. Consequently, 2014 was off to
a relatively slow start in North America, although we expect to
see at least part of this pent-up demand being unleashed in
the following months.

In the past years, we have successfully expanded and opti-
mised our manufacturing facilities in Poland in order to se-
cure an even better and more efficient production set-up for
the Group. In 2014, we will complete the establishment of
our new global distribution centre in Poland, a major project,
leading to some restructuring costs in 2014, which is partly
due to a temporary doubling of various functions until the
new distribution set-up is in full operation. However, we ex-
pect efficiency gains in the new distribution centre in Poland
from 2015 and onwards.

Our entry into the cochlear implant market through the acqui-
sition of Neurelec is a major milestone for the Group, as it
has significantly cemented our position as one ofthe world?s
strongest hearing healthcare companies. We will in the com-
ing years not only be able to benefit from the solid growth
rates to be found in the cochlear implant field, but also be
able to significantly outgrow this market. This will definitely
support the Group's overall growth profile, even if the first
phase of integration and the initial research and development
investments will have a dilutive impact on the Group's profit-
ability. Over time, Neurelec is however expected to generate

 

 

 

 

a profit ratio which will at least be on a par with the profitabil-
ity ratio delivered by the Group's other business activities.

With Oticon's introduction ofa new technological platform,
Inium, in 2013 and also with the launch of new Inium-based
hearing instrument families in all product segments and at all
price points, our largest hearing aid brand embarked on a new
journey with a view to innovating the entire product portfolio.
Also, both Bernafon and Sonic now benefit from having up-
dated product portfolios. We have now been through what is
probably the busiest launch period we have ever had, and we
are solidly positioned for future market share gains.

Our three major business areas, i.e. traditional hearing aids,
implantable devices and diagnostic instruments, complement
each other very well. Our Group is now one of the largest hear-
ing healthcare companies in the world with the broadest and
deepest offering of hearing healthcare solutions and equip-
ment for the measurement and treatment of hearing loss.
Also, we have gained a strong foothold in a number of mar-
kets, when it comes to fitting hearing instruments through
our own distribution network. However, acquiring distribution
activities will usually generate revenue growth in the Group,
but such acquisitions will dilute profitability, especially in

the first couple of years. Despite the fact that the Group has
made a large number of acquisitions since late 2012, we have
— based on continuous improvements and economies of scale
— succeeded in maintaining the Group's overall profitability.
However, going forward we still have some room for improving
profitability in our acquired businesses.

Over time, we expectto harvest significant synergies from our
unique position in the hearing healthcare market, especially
in research and development, but also in areas such as manu-
facturing and global wholesale distribution, and also from
cross-selling between our business activities. Overall, we do
feel that we are very well positioned to maintain our current
position as one ofthe world's strongest hearing healthcare
companies.

The Group's implementation of new IFRS accounting stan-
dards eliminates the option of proportionate consolidation
of joint ventures from 1 January 2014. As described in detail
on page 34 in this Annual Report, the changes will in particu-
lar affect the consolidation of the Group's 50% investment in
the headset manufacturer Sennheiser Communications for
which the result after tax will be recognised as a net amount
in Share of profit after tax, associates and joint ventures. if
these changes had been implemented already in the previous
year, we would in 2013 have seen a reduction in consolidated
revenue of DKK 250 million and a decrease in gross profit and
operating profit (EBIT) of DKK 128 million and DKK 17 million,
respectively. However, there would have been no impact on
the Group's net result.

Outlook 2014
In the global hearing healthcare market, the Group holds a
unique and very strong position, which we believe can be

1410410E0GSN05490

 

further strengthened in the years to come. At the same time,
we as a Group are exposed to obvious uncertainties and chal-
lenges, including channel mix changes, price competition,
shøort- to mid-term margin dilution from acquired distribution
activities and the establishment of future growth platforms
like our investment in cochlear implants. The structure and
contents ofthe Group's outlook for 2014 are in essence a
reflection ofthis balance.

In 2014, we expect to continue to deliver growth in all of our
business activities. As far as wholesale of hearing instru-
ments is concerned, our growth will mainly be driven by fully
updated and very competitive product portfolios combined
with the ongoing conversion to Group-manufactured products
in acquired distribution activities. For Oticon, growth will be
backed by the Inium platform and further supported by Oticon
joining Apple's Made for iPhone programme in spring 2014,
result-ing in Oticon's first Made for iPhone connectivity solu-
tion for wireless hearing aids.

Acquisitions are expected to contribute by 3-4% to Group
revenue in 2014, mainly driven by acquisitions made in 2013.
Based on foreign exchange levels in late February, møre than
half ofthe positive impact from acquisitions will be offset by
changes in exchange rates.

In consideration of a weakened set of invoicing currencies

as well as gains from our hedging activities, exchange rates
are expected to negatively affect the Group's operating profit
(EBIT) in 2014 by around DKK 100 million compared with 2013.

In 2013, the Group once again generated a strong cash flow,
reflected in a cash conversion ratio (CFFO/EBIT) of 74%. Also
in 2014, we expect to deliver a high cash conversion ratio.
Keeping in mind that our near-term acquisition opportunities
are rather limited and that our net interest-bearing debt target
is DKK 2.0-2.5 billion, we expect to be able to buy back Com-
pany shares worth more than DKK 500 million in 2014. In or-
der to maintain a high level of flexibility, this level of share
buy-back is subject to change, should additional attractive
acquisition opportunities present themselves.

All in all, the Group will continue to deliver growth in earnings
in 2014. Following a 14% growth rate in the Group's net profit

and earnings per share (EPS) in 2013, we expect to see growth
in EPS of 510% in 2014.

 

 

 

 

 

 

 

 

 

 

 

 

MANAGEMENT COMMENTARY — 19

 

 

 

 

 

 

 

 

 

SHAREHOLDER INFORMATION

Capital

At 31 December 2013, the Company's authorised share capital
was nominally DKK 56,661,638 divided into as many shares of
DKK 1. The shares are not divided into classes and have the

same rights.

William Demants og Hustru Ida Emilies Fond (the Oticon
Foundation) has notified the Company that at 31 December
2013, the Foundation — directly or indirectly — held approxi-
mately 56% of the share capital. The Foundation has previ-
ously communicated its intention to maintain an ownership
interest of 55-60% of William Demant Holdings share capital.
The Capital Group Companies, Inc. (including accounts whose
portfolios are managed by the company and its direct or indi-
rect subsidiaries) holds more than 5% ofthe share capital in
William Demant Holding A/S.

About 30% of the Group's employees are shareholders in the
Company. All members of the Board and the Executive Board
are shareholders in the Company. Shares held by employees
and by members of the Board and the Executive Board ac-
count for just over 1% ofthe total share capital. In 2013, the
Company bought back 201,525 shares at a total price of DKK
101 million.

As a result of a decision made by the general meeting, the
Company cancelled its entire holding of treasury shares in
the first half of 2013. The capital was reduced by nominally
DKK 1,688,237 or as many treasury shares.

Share information

 

 

 

 

 

 

 

 

 

 

 

DKK 2013 2012 2011 2010 2009
Highest share price 544 597 495 480 396
Lowest share price 444 451 352 352 167
Share price, year-end 527 484 478 414 393
Market capitalisation”

Average no. of shares"" 56,62 57.02 58.24 5835 58.31
No. of shares at 31.12." 56,46 56.66 57.64 58.35. 58.35
Treasury shares at 31.127" 0.202 1.688 0.709 0 0.606
£ DKK million excluding treasury shares.

«xx Million shares excluding treasury shares.

xxx Million shares.

Specification of movements in share capital

DKK 1,000 2013 2012 2011 2010 2009
Share capital at 1.1. 58,350 58,350 58,350 58,956 58,956
Capital increase o o 0 o o
Capital reduction -1,688 o 0  -606 o

 

Share capital at 31.12. 56,662 58,350 58,350 58,350 58,956

20 … SHAREHOLDER INFORMATION

 

Powers relating to share capital

The annual general meeting of shareholders has authorised
the Board of Directors to increase the share capital by up to
nominally DKK 1,179,527 in connection with the issue of em-
ployee shares at a subscription price to be determined by the
Board, however minimum DKK 1.05 per share of DKK 1. The
authorisation is valid until 1 January 2016, but is no longer
relevant due to new tax regulation adopted by the Danish
Parliament in 2011. An employee share ownership plan was
most recently implemented in 2010. For other purposes, the
Board of Directors has, until 1 January 2016, been authorised
to further increase the share capital by up to DKK 6,664,384.
The subscription price will be determined by the Board of
Directors.

Untilthe next annual general meeting, the Board of Directors
has been authorised to have the Company buy back shares

at a nominal value of up to 10% of the share capital. The pur-
chase price may, however, not deviate by more than 10% from
the price listed on NASDAQ OMX Copenhagen.

Dividend

Atthe general meeting, the Board of Directors will, as in prior
years, propose that all profits for the 2013 financial year be
retained. The Board has previously decided that the Com-
pany's substantial cash flow from operating activities is first
and foremost to be used for investments and acquisitions.
Any excess liquidity will as a rule be used for the continuous
buy-back of shares. As mentioned earlier, we aim to keep our
net interest-bearing debt at DKK 2.0-2.5 billion and expect to
use future free cash flows (with the deduction of acquisitions)
for the buy-back of shares.

Insider rules
The Group's insider rules and in-house procedures comply

—29;75427;419 27,397 24173 22,894 —— withthe provisions ofthe Danish Securities Trading Actunder ” |

which members of the Executive Board and the Board of
Directors and their related parties are obliged to inform the
Company of their transactions with the Company's securities
with a view to subsequent publication and reporting to the
Danish Financial Supervisory Authority. In 2013, there was
one such announcement. Such announcements can be seen
on the Company's website under /nvestor, Announcements.
As part of its internal rules, the Company operates an insider
register, containing mainly leading staff members, who —
through their involvement in the Company — have reg

access to price-affecting knowledge ofthe Group's internal
affairs. Persons entered in the insider register may only trade
in Company shares for a period of six weeks following publi-
cation of the annual report and the interim report.

 

 

 

 

IR policy and investor information

ltis the aim of William Demant Holding to ensure a steady and
consistent flow of information to IR stakeholders to promote
a basis forthe fair pricing of Company shares — pricing that at
any time reflects corporate strategies, financial capabilities
and prospects for the future. The flow of information will con-
tribute to a reduction ofthe Company-specific risk associated
with investing in William Demant Holding shares, thereby
leading to a reduction of the Company's cost of capital.

We aim to reach this goal by continuously providing relevant,
correct and adequate information in our Company announce-
ments. The Company also maintains an active and open dia-
logue with analysts as well as current and potential investors.
Through presentations, individual meetings and participation
in investor conferences, we aim to maintain an ongoing dia-
logue with a broad section of IR stakeholders. In 2013, we
held approximately 420 investor meetings and presentations.
The Company also uses its website, www.demant.com, for
communication with the share market. Atthe end of 2013,

30 equity analysts were covering William Demant Holding.

Investors and analysts may also contact Stefan Ingildsen,
Senior Vice President, Finance; Søren B. Andersson, Vice
President, IR; or Rasmus Sørensen, IR Officer, by phone
+45 3917 7300 or by e-mail to williamæødemant.com.

 

 

Stefan ingildsen

Søren B. Andersson Rasmus Sørensen
Amendments to articles of association

lfamendments to the articles of association other than those
listed in section 107 of the Danish Companies Act are to be
adopted, at least 51% ofthe share capital must be represented
at the general meeting, and the resolution must be approved
by a two-thirds majority ofthe votes cast and of the repre-
sented share capital, which is entitled to vote. If 51% of the
share capital is not represented at the general meeting, but
two thirds of the votes cast and of the represented share ca-
pital, which is entitled to vote, have approved the proposal,
the Board shall call an extraordinary general meeting within
14 days at which meeting the proposal may be adopted by a
two-thirds majority of the votes cast, irrespective of the size
ofthe share capital represented.

1410410EQ0GSN05491

Company announcements in 2013

 

26 February

Annual Report 2012

 

 

 

 

 

 

 

11 March Notice annual general meeting

2 April Acquisition of Neurelec

9 April Annual general meeting

7 May Interim information, first quarter 2013
15 May Capital reduction
16 August Interim Report 2013

5 November. Interim information, third quarter 2013

 

18 December

Financial calendar 2014

 

Financial calendar 2014

25 February

Deadline for submission of items for the agenda
ofthe annual general meeting

 

27 February

Annual Report 2013

 

 

 

9 April Annual general meeting
8 May Interim information, first quarter 2014
14 August Interim Report 2014

 

13 November

Interim information, third quarter 2014

Annual general meeting

The annual general meeting will be held on Wednesday,
9 April 2014, at 4 p.m. at the Company's head office
Kongebakken 9, 2765 Smørum, Denmark.

Development in share price

650
600
550
500
450
400

Jan - 13

Apr- 13
Jul - 13
Oct - 13

— william Demant Holding ”"T Indexed OMXC20

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDER INFORMATION

 

21

 

 

 

 

 

 

 

 

 

 

RISK MANAGEMENT ACTIVITIES

Risk management activities in the William Demant Group first
and foremost focus on the business-related and financial
risks to which the Company is fairly likely to be exposed. In
general, we act in a stable market with a limited number of
players. In normal circumstances, the risks to which the Com-
pany may be exposed do not change on the short term. There
has been no change in the Company's immediate risk expo-
sure compared to recent years, and the development in the
demand for Group products has thus been stable. In connec-
tion with the preparation ofthe Group's strategic, budgetary
and annual plans, the Board of Directors considers the risks
identified in these processes.

Business risks

The major risks to which the William Demant Group may be

exposed are of a business nature — be they risks within the

Company's control or external risks due to, for instance, the
behaviour of the competition.

The market in which we act is a highly product-driven market.
Our significant research and development initiatives help
underpin our market position. It is therefore also vital in the
long term to maintain our innovative edge and to attract the
most qualified and competent staff. Product risks relate main-
ly to delays in connection with product launches, but due to
our constant focus on all links in the value chain, such delays
rarely occur. Furthermore, we closely monitor the supply situ-
ation and seek to ensure that we always have an inventory
level that can counter any interruptions in production.

Taking out, protecting and keeping patents in the hearing
aid industry are indeed complicated processes. We there-
fore develop and maintain our competencies in this area on
an ongoing basis. The William Demant Group is involved in
a few disputes, however Management is of the opinion that
these disputes do notorwill not significantly affectihe”
Group's financial position. We seek to make adequate pro-
visions for legal proceedings. it is our policy to take out pa-
tents for our own groundbreaking development and technol-
ogy and currently monitor that third-party products do not
infringe our patents and that our products do not infringe

third-party patents.

Financial risks

Financial risk management concentrates on exchange rate,
interest rate, credit and liquidity risks with a view to protect-
ing the Group against potential losses and ensuring that Ma-
nagement's forecasts for the current year are only to a limited
extent affected by changes or events in the surrounding world
— be they changes in exchange rates or in interest rate levels.
lt is corporate policy to exclusively hedge commercial risks
and not to undertake any financial transactions ofa specula-
tive nature.

Exchange rate risks

The Group seeks to hedge against any exchange rate risks
through forward exchange contracts and other hedging in-
struments. Hedging thus gives Management the opportunity

RISK MANAGEMENT ACTIVITIES

22

 

 

 

 

 

 

— and necessary time — to redirect business arrangements in
the event of persistent changes in foreign exchange rates. The
Group aims to hedge such changes in foreign exchange rates
by seeking to match positive and negative cash flows in the
main currencies as much as possible and by entering into
forward exchange contracts. By entering into such contracts,
we can hedge estimated cash flows with a horizon of up to

24 months.

The table below shows the impact on the years operating
profit (EBIT) given a change of 5% in selected currencies.

Effect on EBIT, 5% positive exchange rate impact”

 

(DKK million) 2013 2012
USD +35 | +35
GBP +12 +15
AUD +12 +10
CAD +10 | +10
JPY +5 +5

 

 

 

x Estimated, on a non-hedged basis, i.e. the total annual exchange rate
impact excluding forward exchange contracts.

The exchange rate risk has been calculated on the basis of

a simple addition of the operating profits (EBITs) of Group
enterprises in local currencies. Whereas the addition of EBITs
includes all Group enterprises, the net foreign exchange flow
is identical to the flow in Oticon A/S. We estimate that ap-
proximately 90% of all foreign currency translation is made

in Oticon A/S and that the analysis therefore gives a fair pres-
entation of the flow in the entire Group. The foreign exchange
flow includes actual foreign currency translation as well as

changes in net receivables, i.e. trade receivables, trade

payables and bank balances.

The table below shows the impact on equity given a change
of 5% in selected currencies.

Effect on equity, 5% positive exchange rate impact

 

(DKK million) 2013 2012
USD +70 +45
GBP +10 +10
AUD +10 +10
CAD +25 +25
JPY +2 +2

 

 

 

Interest rate risks

Hedging interest rate risks on corporate loans is limited, as
the Group has limited debt compared to its volume of corpo-
rate activities. A fixed interest rate swap on corporate floating
loans worth EUR 100 million expired in the first half-year 2013.
In this connection, it was decided to keep the majority of our

 

 

 

 

 

corporate loans on floating terms and with limited long-term
commitment. This decision was based on the Group's high
level of cash generation and a relatively low financial gearing,
resulting in a significant lowering of our interest expenses
due to the steep interest rate curve.

Since spring 2011, our pool of assets and cash flow has grown
considerably driven by both organic growth and the comple-
tion of acquisitions. Atthe same time, we have seen some
stabilisation on the financial markets. In 2013, our Board of
Directors therefore decided to raise the target for the Group's
net interest-bearing debt to DKK 2.0-2.5 billion from a previ-
ous range of DKK 1.5-2.0 billion. Based on the net debt of
DKK 2.25 billion at the end of the 2013 financial year, a rise
of 1 percentage point in the general. interest rate level will
Cause an increase in consolidated annual interest expenses
before tax of DKK 20 million (less than DKK 1 million in 2012).

Credit risks

Corporate credit risks relate primarily to trade receivables
and loans to customers or business partners. Our customer
base is fragmented, so credit risks only involve minor losses
on individual customers. Together, our five largest customers
account for less than 10% of total consolidated revenue. We
therefore estimate that we have no major credit exposure,
which is supported by our track record of only insignificant
losses on bad debts. When granting loans to customers or
business partners, we require that they provide security in
their business. The maximum credit risk relating to receiva-
bles matches the carrying amounts of such receivables. The
Group has no major deposits in particular financial institu-
tions for which reason the credit risk of such deposits is
considered to be low.

Liquidity risks

The Group aims to have sufficient cash resources to be able
to continuously take appropriate steps in case of unforeseen
fluctuations in cash outflows. We have access to considerable
undrawn credit facilities, and the liquidity risk is therefore
considered to be low. We are ofthe opinion that the Group
has a strong cash flow and satisfactory credit rating to se-
cure the current inflow of working capital and funds for poten-
tial acquisitions. The Group has neither in the financial year
2013 nor in the comparative year 2012 failed to perform or
defaulted on any loan agreements.

Financial reporting process and internal control
Once a year, we carry through a very detailed planning and
budgetary process, and any deviations from the plans and
budgets resulting from this process are carefully monitored
month by month. In terms of sales and costs, month-by-
month development is very similar, so with the repetitive
nature of our business, even minor deviations will become
visible fairly quickly. To ensure high quality in the Group's
financial reporting systems, the Board of Directors and Exe-
cutive Board have adopted policies, procedures and guide-
lines for financial reporting and internal control to which the
subsidiaries and reporting units must adhere, including:

1410410E0GSWN05492

E Continuous follow-up on results achieved compared to
the approved budgets

= Policies for IT, insurance, cash management, procurement
etc.

E Reporting instructions as well as reporting and finance
manuals

The responsibility for maintaining sufficient and efficient
internal control and risk management in connection with
financial reporting lies with the Executive Board. The Board
of Directors has assessed the Group's existing control envi-
ronment and concluded that it is adequate and that there is
no need for setting up an internal audit function.

Safeguarding corporate assets

Management continuously seeks to minimise any financial
consequences of damage to corporate assets, including any
operating losses incidental to potential damage. We currently
invest in security and surveillance systems to prevent damage
and to minimise such damage, should it arise. Major risks,
which cannot be adequately minimised, are identified by the
Company's Management who will on a continuous basis en-
sure that appropriate insurance policies are taken out under
the Group's global insurance programme administered by rec-
ognised and credit-rated insurance brokers, and that such
insurances are taken out with insurance companies with high
credit ratings. The Group's insurance programme has deduct-
ible clauses in line with normal market terms. The Board of
Directors review the Company's insurance policies once a
year, including the coverage of identified risks, and are regu-
larly briefed on developments in identified risks. The purpose
of this reporting is to keep the members of the Board fully up-
dated and to facilitate corrective action to minimise any such
risks.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RISK MANAGEMENT ACTIVITIES — 23

 

 

 

CORPORATE SOCIAL RESPONSIBILITY

 

Deeply rooted in our corporate culture is an ongoing effort

to meet the social and environmental responsibilities within
our sphere of influence. The ethics we live by — and indeed
require our business partners to live up to — and our integrity
in business affairs are high. In fact, in many cases our stan-
dards are above the legislative requirements imposed upon
us in the markets where we operate.

Our CSR principles and policies as well as more detailed infor-
mation on our work in this area are available on our website
under CSR: www.demant.com/csr.cfm.

Report on corporate social responsibility

Our corporate social responsibility report is prepared in com-
pliance with section 99 a ofthe Danish Financial Statements
Act according to which we are accountable for our social ac-
tivities and obliged to publicise our business strategies and
activities, in such areas as human and labour rights, environ-
mental protection, anti-corruption and climate.

By signing the UN Global Compact and by submitting
annual Communication of Progress reports, we com-
ply with the rules of law as long as our annual re-
port states where information on corporate social
responsibility is published. The advantages of
joining the UN Global Compact are twofold: The
progress report ensures our compliance with

section 99 a ofthe Danish Financial Statements

Act, and the UN Global Compact serves as a recog-
nised global framework for further systematising and
publicising our work with responsibility.

Having joined the UN Global Compact in 2010, we submitted
our first progress report for the 2010 reporting year in spring
2011, and we have now published our fourth report covering
—— thereporting year 2013. 1 TT

AU reports, including the latest report for the 2013 report-
ing year, are available on the UN Global Compact website,
www.unglobalcompact.org/COP, and on our website under
CSR, Downloads: www.demant.com/downloadcsr.cfm.

Environmental awareness

In 2008, we joined the Carbon Disclosure Project (CDP), pro-
viding us with a means of measuring and recording our envi-
ronmental footprint, and each year we submit CDP reports on
corporate CO2 emissions and climate strategy. At the time of
writing, there are no available data forthe 2013 calendar year,
but a look at the development from 2011 to 2012 reveals, ac-
cording to our CDP reports, that emissions in the countries

in which we manufacture our products have risen by 3.7%
compared to a rise in revenue of 6.4%. CO2 emissions per
employee are calculated at 3.16 tonnes per year, which is low
for a manufacturing company, even if emissions rose by 3.7%
from 2011 to 2012.

In every possible way, we aim to act responsibly when it
comes to environmental awareness. A concrete example

24 CORPORATE SOCIAL RESPONSIBILITY

 

 

WE SUPPORT

"fjeld of audiology.

ofthis is a packaging project we have carried out on the sub-
stantial NHS market (National Health Service) in the UK where
we have succeeded in reducing the consumption of paper for
instruction materials by a whopping 70-75%. The paper we
use is recyclable and now certified by the Forest Stewardship
Council (FSC), and we have replaced plastic boxes by paper
boxes.

Social responsibility

To us, acting responsibly means meeting certain principles
and always complying with local legislation. However, it also
means doing more than what is required by law. In this con-
text, we find it relevant to mention that our majority share-
holder, the Oticon Foundation, awarded over DKK 90 million
for social, cultural and scientific causes in 2013. The primary
focus ofthe Foundation, according to its deed, is to support
measures for the alleviation of hearing loss. In 2013, the
Foundation thus donated DKK 76 million for educational
causes and research projects within the audiological field.

In this connection, we would like to point out a special
project: Funded by the Oticon Foundation with just
over DKK 6 million, a new research group based
atthe Technical University of Denmark (DTU) was
established in 2013. The purpose ofthe group is
to do research into the hearing diagnostic field.
The project is — in popular terms — the "missing
link” between the DTU and Oticon, which already
have a close cooperation through the Centre for
Applied Hearing Research (CAHR), the Centre for
Acoustics and Micro Mechanics (CAMM) and the Oticon
Centre of Excellence — all heavily funded by grants from the
Oticon Foundation. Thus, the new diagnostic research group
is a natural addition to the applied and basic research con-
ducted by CAHR and the Oticon Centre of Excellence in the

New rules for female board members and managers
On 1 April 2013, new rules for the gender-specific composition
of top management in all large Danish companies became ef-
fective. The new rules aim to ensure that the proportion of
women in managerial positions in large companies is in-
creased significantly in the coming years.

The new rules oblige the companies to set a target for the
representation of the under-represented gender on the com-
pany's board and to set a deadline for achievement of such
target.

Moreover, companies must adopt policies on how they will
further women's access to managerial positions in the com-
pany based on the assumption that more women in manage-
rial positions will — generally speaking — provide the basis
for the future recruitment ofwomen as board members.

Lastly, the new rules provide that once a year, namely on
publication of its annual report, the company must publicise
its targets and adopted policies as well as the progress made

 

 

 

 

 

 

 

 

 

inthe period under review; please refer to section 99 b (1)
ofthe Danish Financial Statements Act.

The Board of Directors of William Demant has chosen the
reporting procedure outlined below:

m The Company's targets for and status on the share of
female Board members are mentioned in this Annual
Report and on our website under CSR, Downloads:
www.demant.com/downloadcsr.cfm (UN Global Compact
Progress Report 2013); please refer to section 99 b (3) of
the Danish Financial Statements Act.

EH The Company's statutory policy for women in other ma-
nagerial positions is available on our website under CSR:
www.demant.com/csr.cfm; please refer to section 99 b (2)
ofthe Danish Financial Statements Act.

E Details on how the Company follows up on its policy
in respect of women in other managerial positions
are mentioned in this Annual Report and may also be
found on our website under CSR, Downloads:
www.demant.com/downloadcsr.cfm (UN Global Compact
Progress Report 2013); please refer to section 99 b (2) of
the Danish Financial Statements Act.

In April 2013, the Board of Directors of William Demant set
the following target and deadline in respect of female Board
members: Within a period of four years, one woman must be
elected to the Board of Directors. On publication of this An-
nual Report, the Board reassessed the target set, but found
no reason to change it. On 26 February 2014, a female Board
member has not yet been elected, which means that in order
to meet the target, a woman must be elected within the next
three years.

As far as the number of female managers at the Group's other
management levels is concerned, corporate companies focus

1410410E0GSN05493

 

on furthering the number of women in managerial positions,
and the trend is positive. Thus, over the last five years the
total ratio of female managers has risen from 11% in 2009
to 18% in 2013. In senior management, the percentage has
doubled from 7% to 14%.

Atthe beginning of 2012, we defined a diversity policy and
also took concrete initiatives to ensure that equal opportuni-
ties for the genders will to a greater extent than previously
be created in terms of both recruitments and promotions.

Initiatives in 2013
Atthe end of 2013, concrete initiatives supporting the policy
were decided upon.

One initiative is about taking a "talent management ap-
proach” with a view to furthering gender distribution and
female advancement. The outcome of this new approach will
be greater focus for managers on guiding and nudging female
talents towards pursuing opportunities for promotion.

With regard to the external recruitment process to increase
the base of female employees and thus the number of poten-
tial female managers, relevant departments in the William
Demant Group must prioritise sending female employees to
job fairs. In job advertisements and in our general employer
branding material, we will further balance the tone of voice
between "male” and "female” connotations in our communi-
cation, ensuring the use of female employees in employer
branding visuals. Also, when cooperating with external re-
cruiting agencies, we require qualified female candidates
inthe second round.

lt is important, however, to keep in mind that all these ini-
tiatives do not change our basic recruiting goal, which is to
always seek, hire and promote the best qualified employees
— gender set aside.

CORPORATE SOCIAL RESPONSIBILITY — 25

 

 

 

 

 

 

 

 

 

 

 

CORPORATE GOVERNANCE

New recommendations for corporate governance

in 2013

In May 2013, the Danish Committee on Corporate Governance
issued revised recommendations on corporate governance.

Recommendations by the Committee are best-practice guide-
lines for the management of companies admitted to trading
on a regulated market, including NASDAQ OMX Copenhagen.
The recommendations should be viewed together with the
statutory requirements, including not least the Danish Com-
panies Act and the Danish Financial Statements Act, but also
European Union company law etc. and the OECD Principles of
Corporate Governance.

The work on corporate governance is an ongoing process for
our Board of Directors and Executive Board, who determine
the extent to which the Company should comply with the rec-
ommendations and regularly assess whether the recommen-
dations give rise to amendments to our rules of procedure or
managerial processes. The Company's reporting on corporate
governance follows the "comply or explain” approach, mean-
ing that if we fail to meet a recommendation, we will explain
why we have chosen differently and what we have chosen to
do instead.

With the new recommendations from May 2013, we comply
with 43 out of 47 recommendations. The deviations from the
four recommendations that we do not comply with are well-
founded, and we explain what we have done instead. A com-
plete schematic presentation of the recommendations,
Corporate governance 2013 — Statutory report on company
management, cf. section 107 b of the Danish Financial State-
ments Act, is available on our website under Corporate Gov-
ernance: www.demant.com/governance.cfm.

Through ourreference to the website, we meetthe require="
ment that the annual report review is to include a statutory
report on company management, cf. section 107 b ofthe
Danish Financial Statements Act. Since we attach great im-
portance to corporate governance in the operation of the
Company, we find it relevant to accentuate a number of as-
pects and supplementary information on corporate govern-
ance in the William Demant Group in this chapter.

Communication and interaction by the Company
with investors and other stakeholders

The Board of Directors has identified a number of specific
stakeholders, the most important being the Companys cus-
tomers, end-users, shareholders, investors, employees,
society, suppliers and other business partners. The Board

of Directors will ensure good and constructive relations with
the Company's stakeholders, and the Company has adopted
policies concerning our relations with all major stakeholders,
including a Code of Conduct governing relations with our sup-
pliers and business ethics in relation to our staff and their
interaction with customers and other stakeholders. Selected
policies and documents are available on our website.

26 CORPORATE GOVERNANCE

 

William Demant strives towards providing a high level of
information to all existing and potential shareholders, and we
communicate on a current basis with our shareholders and
investors at the annual general meeting and through share-
holder meetings, investor presentations, e-mail, telephone,
website, webcasts, capital market days, the annual report,
Company announcements etc. All information necessary for
the assessment of the Company and its activities by share-
holders and financial markets is published as promptly as
possible in compliance with the rules ofthe Danish Financial
Supervisory Authority and NASDAQ OMX Copenhagen.

In compliance with the Danish Securities Trading Act, we pub-
lish annual and interim reports. In the time span between
such reports, we publish quarterly information rather than
actual quarterly reports. Such quarterly information gives

a general outline ofthe Group and its financial position and
results, including important events and transactions which
have taken place in the period under review, but it does not
contain actual financial information, as we believe that quar-
terly figures will not promote a better understanding of our
activities. Competitive aspects are important reasons for our
decision not to draw up actual quarterly reports: The hearing
aid industry consists of six major players of which only three
are listed companies. The unlisted companies do not publish
such information at all or only to a very limited extent, and of
the listed companies, only one publishes actual quarterly
reports.

Tasks and responsibilities of the Board of Directors
The Board of Directors is responsible for the overall strategic
management as well as the financial and managerial super-
vision ofthe Company, the ultimate goal being to ensure that
the Company creates value. The Board of Directors currently
evaluates the work of the Executive Board as for instance re-

"—flected in the annual plan and budget prepared forthe Board

of Directors. The Board's duties and responsibilities are set
out in its rules of procedure, and the Executive Board's duties
and responsibilities are provided in a set of instructions. Such
rules of procedure and instructions are revised once a year.

Composition and organisation of the Board

of Directors

Currently, the Board has seven members: four members
elected by the shareholders at the general meeting and three
members elected by staff in Denmark. Shareholders elect
Board members for a term of one year and staff elect Board
members for a term of four years. Staff-elected members are
elected in accordance with the provisions ofthe Danish Com-
panies Act. The next staff election will take place in 2015.

A Board member cannot be re-elected once he or she has
reached the age of 70. Halfthe Board members elected by
shareholders at the annual general meeting are independent.

Although the Board members elected by the general meeting
are up for election every year, the individual Board members
are traditionally re-elected and sit on the Board for an ex-

 

 

tended number of years. This ensures consistency and maxi-
mum insight into the conditions prevailing within the Com-
pany and the industry and is considered extremely important
forthe value that the Board members bring to the Company.
All four Board members up for election by the general meeting
in 2013 were re-elected.

The composition of the Board focuses on ensuring the right
combination of competencies and experience, including inter-
national managerial experience. This also applies when elect-
ing new Board candidates. Board experience from major listed
companies will carry particular weight. On our website under
About Us, Executive Board and Board of Directors, Board of
Directors: www.demant.com/management.cfm, a description
is available ofthe competencies and qualifications that the
Board of Directors deems necessary to have at its overall dis-
posal in order for the Board to be able to perform its tasks for
the Company.

The Board of Directors” shareholdings

As at 27 February 2014, all Board members are share-
holders in the Company holding shares as follows (including
movements in 2013): Lars Nørby Johansen, Chairman, 4,278
shares (movement in 2013: + 510); Peter Foss, Deputy Chair-
man, 2,588 shares (unchanged); Niels B. Christiansen 502
shares (unchanged); Thomas Hofman-Bang 2,500 shares
(unchanged); Ole Lundsgaard 1,056 shares (unchanged);
Jørgen Møller Nielsen 55 shares (unchanged); Karin Ubbesen
97 shares (unchanged).

Board committees

Audit committee

The Company's Board of Directors has set up an audit commit-
tee. The Board of Directors appoints the chairman of the audit
committee, who is independent and who is not Chairman of
the Board of Directors.

In 2013, the audit committee held three meetings in connec-
tion with the ordinary Board meetings.

The terms of reference of the audit committee as well as its
members are available on our corporate website under About
Us, Executive Board and Board of Directors, Audit Committee:
www.demant.com/audit.cfm.

Nomination committee

The Company's Board of Directors has established a nomina-
tion committee. The members are the Chairman and the Depu-
ty Chairman of the Company, the Chairman and the Deputy
Chairman of the Company's major shareholder, the Oticon
Foundation, and the President & CEO ofthe Company.

The Chairman of the Company also chairs the nomination
committee.

1410410E0GSN05494

 

The terms of reference ofthe nomination committee can be
found on our corporate website under About Us, Executive
Board and Board of Directors, Nomination Committee:
www.demant.com/nomination.cfm.

Evaluation of the performance of the Board

of Directors

Once a year, the Chairman of the Board evaluates the Board's
work. Every other year, the Chairman performs such evalua-
tion through personal, individual interviews with the Board
members, and every other year, the evaluation is carried out
by means of questionnaires filled out by the Board members.
In both instances, the results of the evaluation are discussed
at the subsequent Board meeting.

Board of Directors” and Executive Board's
remuneration

Once a year, the Board of Directors assesses the remunera-
tion paid to its members and to the Executive Board. The
basis for the assessment is a competitive and reasonable
level that will attract and retain the most suitable and com-
petent candidates.

Board members” remuneration consists of a fixed basic remu-
neration per member of DKK 300,000 per year. The Chairman
receives three times the basic remuneration and the Deputy
Chairman twice the basic remuneration. The Executive Board
too receives a fixed remuneration. Consequently, such re-
muneration does not include any variable bonuses. It is the
opinion ofthe Board of Directors that the fixed remuneration
reflects a competitive remuneration of the Board of Directors
and the Executive Board.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CORPORATE GOVERNANCE 27

 

 

 

BOARD OF DIRECTORS

 

LARS NØRBY
JOHANSEN

Chairman
(born 1949)

Joined the Board of Directors
in 1998 and was most recent-
ly re-elected in 2013 for one
year. Because of his seat on
the Board for more than 12
years, he is not considered an
independent Board member.

E Codan A/S and one
subsidiary, chairman
ofthe board

Em The Danish Growth
Council, chairman

m Dansk Vækstkapital,
chairman of the board

m= Falck A/S and one
subsidiary, chairman
ofthe board

E University of Southern

——Denmark; chafrman of ——
the board

E The Rockwool Foundation,
deputy chairman of the
board

E Arp-Hansen Hotel Group
A/S, board member

E Index Award A/S, board
member

Lars Nørby Johansen holds

a Master's degree in Social
Sciences. His strengths in-
clude extensive international
experience as a corporate
executive, including exten-
sive board experience from
listed companies, and he has
profound knowledge of the
challenges resulting from
globalisation. He is also well
versed in the political aspects
of business.

PETER FOSS

Deputy Chairman
(born 1956)

Joined the Board of Directors
in 2007 and was most recent-
ly re-elected in 2013 for one
year. Because of his seat

on the boards ofthe Oticon
Foundation and William
Demant Invest A/S, he is not
considered an independent
Board member.

= FOSS A/S, chairman
ofthe board

EN. Foss & Co. A/S,
chairman of the board

E The Oticon Foundation,
deputy chairman of the
board

E William Demant Invest A/S,
deputy chairman of the

board Cm

= A.R. Holding af 1999 A/S,
board member

m= TrackMan A/S, board
member

Peter Foss holds a Master of
Science degree in engineering
from the Technical University
of Denmark (DTU) and also
holds a diploma degree in
finance and credit law. He
has extensive managerial
experience from global,
market-leading, industrial
companies that have exten-
sive product development.

In addition, he has board
experience from different
lines of business.

28. MANAGEMENT AND ORGANISATION

 

NIELS B.
CHRISTIANSEN

(born 1966)

Joined the Board of Directors
in 2008 and was most recent-
ly re-elected in 2013 for one
year. He is considered an in-
dependent Board member.

m= Danfoss A/S, President &
CEO and board member-
ships in three subsidiaries

EH Axcel A/S, chairman of
the board

m= Danske Bank A/S, deputy
chairman of the board

Niels B. Christiansen holds
a Master of Science degree
in engineering from the Tech-
nical University of Denmark
(DTU) and also holds an MBA

” from INSEAD in France.His

experience from international
management of major, global,
industrial, hi-tech corpora-
tions is comprehensive. He
also has extensive board
experience from listed com-
panies as well as experience
from different lines of busi-
ness.

 

THOMAS
HOFMAN-BANG

(born 1964)

Joined the Board of Directors
in 2009 and was most recent-
ly re-elected in 2013 for one
year. He is chairman of the
audit committee. He is con-
sidered an independent
Board member.

E KPMG 2014 P/S, CEO
and Senior Partner
(from 1 February 2014)

NE The Bikuben Foundation,
board member

mu Danish Committee on
Corporate Governance,
member

Thomas Hofman-Bang
holds a Master of Science

"degree in business economics

and auditing and is a state-
authorised public accountant.
He has considerable experi-
ence in the management of
large, global, industrial cor-
porations, including special
competencies within econom-
ic and financial affairs. He
also has board experience
from listed companies as well
as experience from different
lines of business.

 

 

 

OLE LUNDSGAARD
(born 1969)

Staff-elected Board member.
Joined the Board of Directors
in 2003 and was most recent-
lyre-elected in 2011 fora term
of four years.

E Interacoustics A/S, staff-
elected board member
since 2003 and deputy
chairman of the joint
consultative committee.

Ole Lundsgaard was trained
as an electronics mechanic
at the University of Odense,
Institute of Biology. He holds
the position of Technical
Product Manager in Diagnos-
tic Instruments and has been
employed with Interacoustics
A/S since 1993.

 

 

 

 

 

 

 

JØRGEN MØLLER
NIELSEN

(born 1962)

Staff-elected Board member.
Elected to the Board of Direc-
tors in 2011 for a term of four
years.

= Deputy chairman of the
local business group under
The Danish Society of
Engineers (IDA).

Jørgen Møller Nielsen holds
a Master of Science degree
in engineering (electrical
engineering) and also holds
a diploma in business admin-
istration (organisation and
strategy). He is Project Man-
ager within microelectronics
at the Group's amplifier fac-
tory in Ballerup, Denmark,
and has been with the
Company since 2001.

1410410E0GSWN05495

KARIN UBBESEN
(born 1962)

Staff-elected Board member.
Elected to the Board of Direc-
tors in 2011 for a term of four
years.

E Oticon A/S, shop steward,
staff-elected board
member since 2007.

Karin Ubbesen is employed at
the Group's factory in Thisted,
Denmark, as a fitter and has
been with the Company since
1987.

EXECUTIVE BOARD

 

 

 

NIELS JACOBSEN

President & CEO
(born 1957)

Joined the Company in 1992
as Executive Vice President
and was appointed President
& CEO in 1998.

Niels Jacobsen holds a Master
of Science in Economics,
1983, from Aarhus University.

E |EGO A/S, chairman
ofthe board

m A.P. Møller - Mærsk A/S,
deputy chairman of the
board

E KIRKBI A/S, deputy
chairman ofthe board

E Thomas B. Thriges Fond
(Thomas B. Thrige
Foundation), chairman

In addition, Niels Jacobsen
holds the following executive
positions and board member-
ships in the William Demant
Group: William Demant Invest
A/S (Managing Director);
board positions in a number
of Group-owned subsidiaries
and in the following partly
owned companies: Ossur hf.
(chairman of the board);
Sennheiser Communications
A/S (chairman of the board);
HIMPP A/S (chairman of the
board); HIMSA A/S (chairman
ofthe board) and HIMSA II
A/S (board member).

MANAGEMENT AND ORGANISATION 29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Age limit for members of the Board of Directors

In compliance with the Company's articles of association,
Board members must resign from the Board no later than
at the first general meeting following their 7zoth birthday.

Remuneration of the Board of Directors

in 2013, the basic remuneration of a Board member amøounted
to DKK 300,000. The Chairman's remuneration is determined
to be three times the basic remuneration and the Deputy
Chairman's remuneration twice the basic remuneration.

There are no separate fees for audit committee or nomination
committee members.

Evaluation of the Board

Once a year, the Chairman of the Board performs an evalua-
tion ofthe Board”s work. Every other year, such evaluation

is performed through personal, individual interviews with
the Board members by the Chairman of the Board, and every
other year, the evaluation is carried out by means of ques-
tionnaires to be filled out by the Board members. In both
instances, the results of the evaluation are presented and
discussed at the subsequent Board meeting.

 

 

 

 

 

 

 

 

 

 

 

 

 

30 MANAGEMENT AND ORGANISATION

In connection with the evaluation in December 2013, the
Board of Directors again expressed great satisfaction with
the manner in which the Board works, including its coopera-
tion with Management.

Board meetings in 2013
In 2013, the Board of Directors convened on five occasions.

Board committees

The Board of Directors has established an audit committee
and a nomination committee. In 2013, the audit committee
convened on three occasions in connection with ordinary
Board meetings. The nomination committee was established
towards the end of 2013 and held its first meeting in early
2014.

Annual general meeting
In 2013, the annual general meeting took place on 9 April.
In 2014, the annual general meeting will take place on 9 April.

Auditor
Deloitte Statsautoriseret Revisionspartnerselskab.

 

 

 

 

 

MANAGEMENT STATEMENT

 

We have today discussed and approved the Annual Report
2013 of William Demant Holding A/S for the financial year
1 January — 31 December 2013.

The consolidated financial statements have been prepared
and presented in accordance with International Financial
Reporting Standards as adopted by the EU, and the Parent
financial statements have been prepared and presented

in accordance with the Danish Financial Statements Act.
Further, the Annual Report 2013 has been prepared in ac-
cordance with Danish disclosure requirements for listed
companies.

In our opinion, the consolidated financial statements and
the Parent financial statements give a true and fair view of

Smørum, 27 February 2014

the Group's and the Parent's assets, liabilities and financial
position at 31 December 2013 as well as ofthe consolidated
financial performance and cash flows and the Parent's finan-
cial performance for the financial year 1 January — 31 Decem-
ber 2013.

We also believe that Management commentary contains a fair
review ofthe development in the Group's and the Parent's
business and financial position, the results for the year and
the Group's and the Parent's financial position as a whole as
well as a description of the principal risks and uncertainties
that they face.

We recommend the Annual Report 2013 for adoption at the
annual general meeting.

Executive Board:

   

Niels Jacobsen

President & CEO

  

ars Nørby Johansen
Chairman

 

Ole Lundsgaard

Board of Directors:

Peter Foss
Deputy Chairman

    

() rgen Møller Nielsen

Karin Ubbesen

1410410QEQGSN05496

MANAGEMENT STATEMENT | 31

 

 

 

INDEPENDENT AUDITOR'S REPORT

 

To the shareholders of William Demant Holding A/S

Report on the consolidated financial statements and Parent
financial statements

We have audited the consolidated financial statements and
Parent financial statements of William Demant Holding A/S for
the financial year 1 January — 31 December 2013, which comprise
the income statement, balance sheet, statement of changes in
equity and notes, including the accounting policies, for the Group
as well as the Parent and the statement of comprehensive income
and the cash flow statement of the Group. The consolidated
financial statements are prepared in accordance with Interna-
tional Financial Reporting Standards as adopted by the EU and
Danish disclosure requirements for listed companies, and the
Parent financial statements are prepared in accordance with the
Danish Financial Statements Act.

Management's responsibility for the consolidated and Parent
financial statements

Management is responsible for the preparation of consolidated
financial statements that give a true and fair view in accordance
with International Financial Reporting Standards as adopted by
the EU and Danish disclosure requirements for listed companies
as well as the preparation of Parent financial statements that give
a true and fair view in accordance with the Danish Financial State-
ments Act, and for such internal control as Management deter-
mines is necessary to enable the preparation of consolidated
financial statements and Parent financial statements that are
free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Ourresponsibility is to express an opinion on the consolidated
financial statements and Parent financial statements based on
our audit. We conducted our audit in accordance with Interna-

”—tional Standards on Auditingand additional requirementsunder

Danish audit regulation. This requires that we comply with ethical
requirements and plan and perform the audit to obtain reason-
able assurance about whether the consolidated financial state-
ments and Parent financial statements are free from material
misstatement.

An audit involves performing procedures to obtain audit evidence

about the amounts and disclosures in the consolidated financial
statements and Parent financial statements. The procedures

Copenhagen, 27 February 2014

selected depend on the auditor's judgement, including the as-
sessment of the risks of material misstatements of the consoli-
dated financial statements and Parent financial statements,
whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity's pre-
paration of consolidated financial statements and Parent finan-
cial statements that give a true and fair view in orderto design
audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness
of the entity's internal control. An audit also includes evaluating
the appropriateness of accounting policies used, the reasonable-
ness of accounting estimates made by Management as well as the
overall presentation of the consolidated financial statements and
Parent financial statements.

We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.

Our audit has not resulted in any qualification.

Opinion

In our opinion, the consolidated financial statements give a true
and fair view of the Group's financial position at 31 December
2013 and of the results of its operations and cash flows for the
financial year 1 January — 31 December 2013 in accordance with
International Financial Reporting Standards as adopted by the
EU and Danish disclosure requirements for listed companies.

Further, in our opinion, the Parent financial statements give a
true and fair view of the Parent's financial position at 31 Decem-
ber 2013 and of the results of its operations for the financial year
1 January — 31 December 2013 in accordance with the Danish
Financial Statements Act.

Statementon Managementreview
Pursuant to the Danish Financial Statements Act, we have read
the Management review. We have not performed any further
procedures in addition to the audit ofthe consolidated financial

statements and Parent financial statements.

On this basis, it is our opinion that the information provided in
the Management commentary is consistent with the consolidated
financial statements and Parent financial statements.

Deloitte
Statsautoriseret Revisionspartnerselskab

 

32 INDEPENDENT AUDITOR'S REPORT

 

  

Kirsten Aaskov Mikkelsen

State Authorised Public Accountant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1410410QE0GSN05497

 

 

 

GROUP ACCOUNTING POLICIES

General

The consolidated financial statements are presented in
compliance with International Financial Reporting Stan-
dards (IFRS) as adopted by the EU and Danish disclosure
requirements for annual reports published by reporting class
D (listed) companies, cf. the Danish executive order on IFRS
issued in compliance with the Danish Financial Statements
Act. The registered office of William Demant Holding A/S is
in Denmark.

The consolidated financial statements are presented in
Danish kroner (DKK), which is the presentation currency for
Group activities and the functional currency for the Parent.

The consolidated financial statements are presented on the
basis of historical cost, except for obligations for contingent
consideration in connection with business combinations,
derivatives and financial assets classified as available for
sale, which are measured at their fair values.

The financial statements for the Parent are presented sepa-
rately from the consolidated financial statements and are
shown on the last pages of this Annual Report. The Parent's
accounting policies are also shown on the last pages ofthis
report in connection with the financial statements for the
Parent.

The accounting policies remain unchanged for the consoli-

dated financial statements compared to 2012. However, in-
significant reclassifications in the comparative figures for

2012 have been made.

Effect of new accounting standards

The Group has implemented all the new, updated and amend-
ed standards and interpretations as approved by the EU and
dated and amended standards or interpretations resulied in
any changes to the accounting policies forthe Group or had
any significant impact on recognitions or measurements in
the consolidated financial statements for 2013. As far as
presentation and disclosure are concerned, impacts are
outlined below:

Amendments to IAS 1 Presentation of Financial Statements
require that items recognised in other comprehensive in-
come are classified in items that, in compliance with other
standards, may be reclassified subsequently to the income
statement or will not be reclassified subsequently to the
income statement.

Amendments to IAS 19 Employee Benefits replace the re-

turn on plan assets in the income statement with an imputed
finance income that is calculated on the plan assets and rec-
ognised as part of operating profit (EBIT). The application of
this change does not have a significant impact on the consoli-
dated financial statements.

34. GROUP ACCOUNTING POLICIES

 

IFRS 13 Fair Value Measurement replaces requirements re-
garding fair value measurement and disclosure previously
contained in individual standards. The standard has a small
impact on our disclosures regarding fair value, but no signi-
ficant impact on measurement.

Effect of new accounting standards not yet in force
Revised or new standards and interpretations issued, but not
yet effective or approved by the EU at the time of publication
of this Annual Report, have not been incorporated into this
Annual Report.

The effects ofthe Group's implementation of IFRS 10 Consoli-
dated Financial Statements, IFRS 11 Joint Arrangements and
IAS 28 Investments in Associates and Joint Ventures have
been analysed to evaluate their effect on the consolidated
financial statements of the Group. These standards became
effective on 1 January 2013 and were approved by the EU with
an effective date from 1 January 2014. Following a concrete
assessment, it has been found that the amendments are
expected to result in the Group's joint ventures from 2014
being recognised using the equity method. Joint ventures are
currently included in the consolidated financial statements
via proportionate consolidation. The amendments are not ex-
pected to affect the classification of entities currently being
recognised as associates, and these will therefore continue
to be recognised using the equity method. Similarly, the as-
sessment of the classification of entities as subsidiaries is
expected to remain unchanged.

Based on the 2013 financial figures, Management expects
the impacts of the above amendments to be as follows:

Em Afall in revenue of DKK 250 million.

E A fall in gross profit of DKK 128 million.

= / fall in operating profit (EBIT) of DKK 17 million.

E= No impact on profit for the year.

E= Some impact on line items in the balance sheet, as
items previously consolidated proportionately will
be recognised as a single net amount in investments
in associates and joint ventures.

Accounting estimates and assumptions

Many items can only be estimated rather than accurately
measured. Such estimates are based on the most recent
information available on preparation of the financial state-
ments. Estimates and assumptions are therefore reassessed
on an ongoing basis. Actual figures may however deviate from
these estimates. Any changes in accounting estimates will be
recognised in the reporting period in which such changes are
made, In connection with the practical application ofthe ac-
counting policies, Management has made usual accounting
estimates and assessments concerning development costs
and business combinations as well as valuation of non-
current assets, inventories, receivables and liabilities,

 

 

 

 

In our opinion, the product development undertaken by the
Group today cannot meaningfully be allocated to either the
development of new products or the further development
of existing products. Further, as our products are subject
to various authority approvals, it is difficult to determine
the final completion of new corporate products.

Definition of materiality

IFRS contain extensive disclosure requirements. The Group
discloses the information required according to IFRS, unless
such information is deemed immaterial or irrelevant.

Consolidated financial statements

The consolidated financial statements comprise William
Demant Holding A/S (the Parent) and the enterprises in which
the Parent can or actually exercises control by either directly
or indirectly holding more than 50% of the voting rights, or

in which the Parent in some other manner exercises control.

Enterprises in which the Group holds 20-50% of the voting
rights and/or in some other manner can or actually does ex-
ercise significant influence are considered to be associates
and are incorporated proportionately into the consolidated
financial statements using the equity method.

Consolidation principles

The consolidated financial statements are prepared on the
basis of the financial statements for the Parent and its sub-
sidiaries by aggregating uniform items. Enterprises which,
by agreement, are managed jointly with one or more other
enterprises are included through proportionate consolida-
tion. The financial statements included in the consolidated
financial statements are prepared in accordance with the
Group's accounting policies. Intra-Group income, expenses,
shareholdings, balances and dividends as well as unrealised
intra-Group profits on inventories are eliminated.

The accounting items of subsidiaries are recognised 100% in
the consolidated financial statements. On initial recognition,
minority interests are measured either at their fair value or at
their proportionate share ofthe fair value ofthe identifiable
assets, liabilities and contingent liabilities ofthe acquired
subsidiary. The particular method is chøsen for each indi-
vidual transaction. Minority interests are subsequently ad-
justed according to their proportional share of changes in
equity of the particular subsidiary. Comprehensive income

is allocated to minority interests whether or not, as a result
hereof, the value of such interests will be negative.

Buying or selling minority interests in a subsidiary, which
does not result in control or discontinuation of control of such
subsidiary, is treated as an equity transaction in the consoli-
dated financial statements, and any difference between the
consideration and the carrying amount is allocated to the
Parent's share of the equity.

1410410EQGSN05498

 

 

 

 

 

Business combinations

Newly acquired or newly established enterprises are recog-
nised in the consolidated financial statements from the time
of acquisition or formation. The time of acquisition is the date
when control of the enterprise is transferred to the Group.
Enterprises either divested or discontinued are recognised

up until the date of divestment or discontinuation. The date

of divestment is the date when control is actually transferred
to a third party. In respect of newly acquired enterprises, com-
parative figures and key figures will not be restated.

On acquiring new enterprises of which the Group obtains
control, the purchase method is applied according to which
their identified assets, liabilities and contingent liabilities
are measured at their fair values on the acquisition date.
Any non-current assets acquired for the purpose of resale
are, however, measured at their fair values less expected
costs to sell. Restructuring costs are solely recognised in
the pre-acquisition balance sheet if they are a liability for
the acquired enterprise. Any tax effect ofrevaluations will
be taken into account.

The cost of an acquired enterprise consists of the fair value
ofthe consideration paid for such an enterprise. If the final
consideration is conditional upon one or more future events,
the consideration will be recognised at the fair value on the
acquisition date. Any subsequent adjustment of contingent
consideration is recognised directly in the income statement,
unless the adjustment is the result of new information about
conditions prevailing on the acquisition date, and this infor-
mation becomes available up to 12 months after the acquisi-
tion date. Acquisition costs are recognised directly in the
income statement when incurred.

lf cost exceeds the fair values ofthe assets, liabilities and
contingent liabilities identified on acquisition, any remaining
positive differences (goodwill) are recognised in the balance
sheet under intangible assets and tested for impairment at
least annually. If the carrying amount of an asset exceeds its
recoverable amount, it will be written down to such lower
recoverable amount.

lf, on the acquisition date, there are any uncertainties with
respect to identifying or measuring acquired assets, liabilities
or contingent liabilities or uncertainty with respect to deter-
mining their cost, initial recognition will be made on the basis
of provisionally calculated values. Such provisionally calcu-
lated values may be adjusted, or additional assets or liabili-
ties may be recognised up to 12 months after the acquisition
date, if new information becomes available about conditions
prevailing on the acquisition date, which would have affected
the calculation of values on that day, had such information
been known.

GROUP ACCOUNTING POLICIES — 35

 

 

 

 

 

 

 

Profit or loss from the divestment or winding up of
subsidiaries and associates

Profit or loss from the divestment or winding up of subsidiar-
les and associates, resulting in the Group no longer having a
controlling or significant interest, will be determined as the
difference between the carrying amount and the sum of the
fair value of the sales proceeds or disposal consideration
and the fair value of any remaining investment in the given
enterprise. Any such profits or losses will be recognised in
the income statement together with any accumulated foreign
currency translation adjustments previously recognised in
other comprehensive income.

Foreign currency translation
On initial recognition, transactions in foreign currencies are
translated at the exchange rates prevailing at the date ofthe
transaction. The functional currencies ofthe enterprises are
determined by the economic environment in which they ope-
rate (normally the local currency).

Receivables, payables and other monetary items in foreign
currency are translated into Danish kroner at the exchange
rates prevailing at the balance sheet date. Realised and un-
realised foreign currency translation adjustments are recog-
nised in the income statement under gross profit or net fi-
nancial items, depending on the purpose ofthe underlying
transaction.

Property, plant and equipment, intangible assets, inventories
and other non-monetary assets purchased in foreign currency
and measured on the basis of historical cost are translated at
the exchange rates prevailing at the transaction date. Non-
monetary items, which are revalued at their fair values, are
translated using the exchange rates at the revaluation date.

OnrTecognition inthe consolidated fmanciatstatements

of enterprises presenting their financial statements in a
functional currency other than Danish kroner, the income
statement is translated using average exchange rates for the
months of the year in question, unless they deviate materially
from actual exchange rates at the transaction dates. In case
of the latter, actual exchange rates are applied. Balance sheet
items are translated at the exchange rates prevailing at the
balance sheet date. Goodwill is considered as belonging to
the acquired enterprise in question and is translated at the
exchange rate prevailing at the balance sheet date.

All foreign currency translation adjustments are recognised
in the income statement, with the exception of the following,
which are recognised in other comprehensive income:

M The translation of net assets of foreign subsidiaries using
exchange rates prevailing at the balance sheet date

EH The translation of income statements of foreign subsidia-
ries using monthly average exchange rates for the months
of the year, whereas their balance sheet items are trans-
lated using exchange rates at the balance sheet date

36 … GROUP ACCOUNTING POLICIES

 

E The translation of non-current, intra-Group receivables
that are considered to be an addition to or deduction
from net investments in foreign subsidiaries

E The translation of investments in associates

Derivatives

On initial recognition, derivatives are measured at their fair
values atthe settlement date. After initial recognition, deriva-
tives are measured at their fair values at the balance sheet
date. Any positive or negative fair values of derivatives are
recognised as separate items in the balance sheet. Forward
exchange contracts and interest swaps are measured based
on current market data and by use of commonly recognised
valuation methods.

Any changes in fair values of derivatives classified as hedging
and satisfying the criteria for hedging of the fair value of a rec-
ognised asset or a recognised liability are recognised in the
income statement together with any changes in the fair value
ofthe hedged asset or hedged liability.

Any changes in fair values of derivatives classified as hedg-
ing and satisfying the criteria for effective hedging of future
transactions are recognised in other comprehensive income.
The ineffective portion is recognised directly in the income
statement. On realisation ofthe hedged transactions, the
accumulated changes are recognised together with the par-
ticular transactions.

Derivatives not fulfilling the conditions for treatment as hedg-
ing instruments are considered trading portfolios and meas-
ured at their fair values, with fair value adjustments being
recognised, on an ongoing basis, in the income statement.

Share-based incentive programmes

Share-based incentive programmes entitling staff to buy
shares in the Parent only (equity schemes) are measured

at the fair value of such equity instruments at the time of
allocation and are recognised in the income statement under
staff costs over the period in which staff earn the right to buy
such shares. The set-off is recognised directly in equity.

Income statement

Income and costs are recognised on an accruals basis. The
income statement is broken down by function, and all costs,
including depreciation, amortisation and impairment losses,
are therefore charged to production, distribution, administra-
tion and research and development.

Revenue

Revenue is recognised in the income statement upon delivery
and transfer of risk to buyer. Revenue from services, including
service packages and extended warranties, is recognised on
a straight-line basis in line with the delivery of such services.

Revenue is measured at the fair value of the agreed conside-
ration excluding charges. Any discounts and profits on goods

 

 

 

 

 

 

 

 

 

expected to be returned are set off against revenue. Revenue
from agency-like business is measured at the value of the
agency commission,

Production costs

Production costs are costs incurred to generate revenue. Dis-
tribution companies recognise cost of sales under production
costs. Production companies recognise cost of raw materials,
consumables, production staff as well as maintenance of and
depreciation, amortisation and impairment losses on prop-
erty, plant and equipment and intangible assets used in the
production process under production costs.

Research and development costs
Research costs are always recognised in the income state-
ment in step with the incurrence of such costs.

Development costs include all costs not satisfying capitali-
sation criteria, but incurred in connection with development,
prototype construction, development of new business con-
cepts and amortisation of capitalised development costs.

Distribution costs

Distribution costs include costs relating to training, sales,
marketing, promotion materials, distribution, bad debts as
well as depreciation, amortisation and impairment losses
on assets used for distribution purposes.

Administrative expenses

Administrative expenses include administrative staff costs,
office expenses as well as depreciation, amortisation and im-
pairment losses on assets used for administrative purposes.

Public subsidies

Public subsidies are recognised when there is reasonable
certainty that the conditions for such subsidies are satisfied
and that they will be granted.

Subsidies received as compensation for costs incurred are
recognised proportionately in the income statement over the
periods in which the related costs are recognised in the in-
come statement and are set off against costs incurred. Public
subsidies relating to the acquisition of non-current assets are
deducted from the cost of such asset.

Net financial items

Net financial items mainly consist of interest income and ex-
penses and also include interest on finance leases, unwind-
ing of discounts on financial assets and liabilities as well as
certain realised and unrealised foreign exchange gains and
losses.

Interest income and expenses are accrued based on the prin-
cipal amount and the effective rate of interest. The effective
rate of interest is the discount rate used for discounting ex-
pected future payments attaching to the financial asset or

1410410E0GSN05499

 

financial liability in order for the present value to match the
carrying amount of such asset or liability.

Tax

Tax on the year's profit includes current tax and any changes
in deferred tax. Current tax includes taxes payable deter-
mined on the basis of the estimated taxable income for the
year and any prior-year tax adjustments. Tax on changes in
equity and other comprehensive income is recognised directly
in equity and in other comprehensive income, respectively.
Foreign currency translation adjustments of deferred tax are
recognised as part of the year”s adjustments of deferred tax.

Current tax liabilities or tax receivables are recognised in the
balance sheet and determined as tax calculated on the year's
taxable income adjusted for any tax on account. The tax rates
prevailing at the balance sheet date are used for calculation
ofthe year's taxable income.

Deferred tax is recognised using the balance sheet liability
method on any temporary differences between the tax base
of assets and liabilities and their carrying amounts, except
for deferred tax on temporary differences arisen either on
initial recognition of goodwill or on initial recognition of a
transaction that is not a business combination, with the tem-
porary difference ascertained on initial recognition affecting
neither net profits nor taxable income.

Deferred tax is determined on the basis ofthe tax rules and
rates prevailing at the balance sheet date in the particular
countries. The effect on deferred tax of any changes in tax
rates is included in tax on the year's profit, unless such de-
ferred tax is attributable to items previously recognised di-
rectly in equity or in other comprehensive income. In the latter
case, such changes will also be recognised directly in equity
or in other comprehensive income. The tax base of a loss, if
any, which may be set off against future taxable income, is
carried forward and set off against deferred tax in the same
legal tax entity and jurisdiction. Deferred tax assets, includ-
ing the tax value of any tax losses allowed for carryforward,
are recognised in the balance sheet at the estimated realis-
able value of such assets either by a set-off against a deferred
tax liability or as a net asset to be set off against future posi-
tive taxable income. At the balance sheet date, an assess-
ment is made as to whether it is probable that sufficient tax-
able income will be available in the future against which the
deferred tax asset can be utilised. Deferred tax on temporary
differences between the carrying amounts and the tax values
of investments in subsidiaries and associates is recognised,
unless the Parent is able to control the time of realisation of
such deferred tax, and itis probable that such deferred tax
will not be released as current tax in the foreseeable future.

Deferred tax is recognised in respect of eliminations of intra-
Group profits and losses.

GROUP ACCOUNTING POLICIES 37

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet

Intangible assets

On initial recognition, goodwill is recognised and measured
as the difference between the cost of the acquisition — includ-
ing the value of minority interests in the acquired enterprise
and the fair value of any existing investment in the acquired
enterprise — and the fair value of the acquired assets, liabili-
ties and contingent liabilities, see description under Business
combinations.

On recognition of goodwill, goodwill is allocated to corporate
activities that generate independent payments (cash-generat-
ing units). The definition of a cash-generating unit is in line
with the corporate managerial structure as well as internal
financial management and reporting.

Goodwill is not amortised, but is tested for impairment at
least once a year. Ifthe recoverable amount of a cash-generat-
ing unit is lower than the carrying amounts of the property,
plant and equipment and intangible assets, including good-
will, attributable to the particular cash-generating unit, the
particular assets will be written down.

Patents and licences acquired from a third party are meas-
ured at cost less accumulated amortisation and impairment
losses.

Patents and licences are amortised over their estimated
economic lives, however maximum 20 years.

Other intangible assets, including intangible assets acquired
in connection with a business combination, are measured at
cost less accumulated amortisation and impairment losses.
Other intangible assets are amortised on a straight-line basis
over their estimated useful lives of 3-5 years.

Property, plant and equipment

Property, plant and equipment are recognised at cost less
accumulated depreciation and impairment losses. Cost is
defined as the acquisition price and costs directly relating
to the acquisition until such time as the particular asset is
ready for use. As regards assets produced by the Group, cost
includes all costs directly attributable to the production of
such assets, including materials, components, sub-supplies
and payroll. In respect of financially leased assets, cost is
calculated as the fair value or the present value of future
lease payments, whichever is lower.

Interest expenses on loans for financing of the production
of property, plant and equipment are recognised in the cost
of the assets if such expenses pertain to the manufacturing
period. Other borrowing costs are recognised in the income
statement.

Ifthe acquisition or the use of an asset requires the Group to
defray costs for the demolition or restoration of such asset,

38 GROUP ACCOUNTING POLICIES

 

the calculated costs hereof are recognised as a provision
and as part ofthe cost of the particular asset, respectively.

The cost of a total asset is divided into various elements,
which will be depreciated separately if their useful lives
are notthe same.

The depreciation basis is cost less the estimated residual
value ofan asset after the end of its useful life. The residual
value is the estimated amount, which could after deduction
of costs to sell be obtained through the sale of the asset
today, such asset already having the age and being in the
state of repair expected after the end of its useful life. The
residual value is determined at the time of acquisition and is
reviewed annually. Ifthe residual value exceeds the carrying
amount, depreciation will be discontinued.

Property, plant and equipment are depreciated on a straight-
line basis over their estimated useful lives. Land is not de-
preciated.

Buildings 33-50 years
Technical installations 10 years
Plant and machinery 3-5 years
Other plant, fixtures and operating equipment 3-5 years
IT hardware and software 3 years

Leasehold improvements over the lease period

Depreciation methods, useful lives and residual values are
reviewed annually.

Property, plant and equipment are written down to their
recoverable amounts, if these are lower than their carrying
amounts.

—"Tnvestments in associates

Investments in associates are recognised and measured
using the equity method, i.e. investments are recognised in
the balance sheet at their proportionate share ofthe equity
value determined in accordance with the Groups accounting
policies after the deduction of and with the addition of pro-
portionate intra-Group gains and losses, respectively, and
with the addition of the carrying amount of any goodwill. The
proportionate shares of profit after tax of associates are rec-
ognised in the income statement after the year's changes in
unrealised intra-Group profits less any impairment loss relat-
ing to goodwill.

The proportionate shares of all transactions and events which
have been recognised in other comprehensive income for the
associate are recognised in consolidated other comprehen-
sive income.

On the acquisition of investments in associates, the acquisi-
tion method is applied.

 

 

 

 

Impairment of intangible assets, property, plant and
equipment and investments in associates

The carrying amounts of property, plant and equipment and
intangible assets with definite useful lives as well as invest-
ments in associates are reviewed at the balance sheet date
to determine whether there are indications of impairment. If
so, the recoverable amount of the particular asset is calcu-
lated to determine the need for impairment, if any. The re-
coverable amounts of goodwill and other intangible assets
with indefinite useful lives will be estimated whether or not
there are indications of impairment.

The recoverable amount is estimated for the smallest cash-
generating unitthat the asset is part of. The recoverable
amount is determined as the higher of the fair value of the
asset or cash-generating unit less costs to sell or the value

in use of such asset or unit. On determination of the value in
use, estimated future cash flows will be discounted to their
present values by using a discount rate that reflects partly
current market valuations of the time value of money, and
partly the special risks attaching to the particular asset or
cash-generating unit for which no adjustment has been made
in the estimated future cash flows. Ifthe recoverable amount
of a particular asset or cash-generating unit is lower than its
carrying amount, such asset or unit is written down fo its re-
coverable amount.

Impairment losses are recognised in the income statement.
On any subsequent reversal of impairment losses due to
changes in the assumptions on which the calculation of the
recoverable amount is based, the carrying amount of an asset
or cash-generating unit is increased to the adjusted estimate
of the recoverable amount, however not exceeding the carry-
ing amount of the asset or cash-generating unit, had the par-
ticular asset or cash-generating unit not been written down.
Amortisation of goodwill is not reversed.

Other investments

On initial recognition, other investments are classified as
”assets available for sale”, recognised at their fair values and
subsequently measured at their fair values. Unrealised value
adjustments are recognised in other comprehensive income.
On realisation, value adjustments are transferred to net finan-
cial items in the income statement.

The determination of fair values is based on their equity
values.

Inventories

Raw materials, components and goods for resale are meas-
ured at cost according to the FIFO principle (according to
which the most recent supplies are considered to be in stock)
or at their net realisable value, whichever is lower. Group-
manufactured products and work in progress are measured
at the value of direct cost, direct payroll costs, consumables
and at a proportionate share of indirect production costs

141041QEQ0GSN05500

 

 

 

 

 

(1PO), which are allocated on the basis ofthe normal capacity
of the production facility. IPO include the proportionate share
of capacity costs directly relating to Group-manufactured
products and work in progress.

The net realisable value of inventories is calculated as the
estimated selling price less costs of completion and costs
to sell.

Receivables

Receivables include trade receivables and other receivables.
Receivables are included in the category loans and receiva-
bles, which are financial assets with fixed or determinable
payments, which are not listed on an active market and are
not derivatives.

On initial recognition, receivables are measured at their fair
values with the addition oftransaction costs. Receivables
with a definite maturity date are measured at amortised cost.
Receivables without a definite maturity date are measured at
cost. Current receivables arisen due to the Group's ordinary
activities are measured at their nominal value. Based on as-
sessments of the risk of losses on individual receivables and
groups of similar receivables, provisions for impairment are
made for bad debts using an allowance account.

Prepaid expenses

Prepaid expenses recognised under assets include costs re-
lating to the following financial year. Prepaid expenses are
measured at cost.

Equity

Foreign currency translation reserve includes foreign currency
adjustments on translation of financial statements of foreign
subsidiaries or associates from their respective functional
currencies into Danish kroner. Foreign currency translation
adjustments are recognised in the income statement on rea-
lisation ofthe net investment.

Hedging reserve includes fair value adjustments of deriva-
tives or loans satisfying the criteria for hedging of future
transactions. The amounts are recognised in the income
statement or the balance sheet in step with recognition of
the hedged transactions.

Treasury shares and dividend

On the buy-back of shares or sale of treasury shares, the
purchase price or selling price, respectively, is recognised
directly in equity under other reserves (retained earnings). A
capital reduction through the cancellation oftreasury shares
willreduce the share capital by an amount corresponding to
the nominal value of such shares.

Proposed dividends are recognised as a liability at the time
of adoption at the annual general meeting.

GROUP ACCOUNTING POLICIES — 39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension liabilities and similar commitmentis

The Group has pension benefit plans and similar agreements
with some of its employees. As regards defined contribution
plans, the Group pays regular, fixed contributions to inde-
pendent pension companies. Contributions are recognised
in the income statement for the period in which employees
have performed work entitling them to such pension contri-
butions. Contributions due are recognised in the balance
sheet as a liability.

As regards defined benefit plans, the Group is obliged to pay
a certain contribution when an employee covered by such a
plan retires, for instance a fixed amount or a percentage of
the employee's final salary. In relation to defined benefit
plans, an actuarial calculation is made periodically ofthe
accrued present value of future benefits to which employees
through their past employment with the Group are entitled
and which are payable under the benefit plan. This defined
benefit obligation is calculated annually using the projected
unit credit method on the basis of assumptions in respect of
the future development in, among other things, wage levels,
interest rates and inflation rates. The defined benefit obliga-
tion less the fair value of any assets relating to the benefit
plan is recognised in the balance sheet under provisions.

Defined benefit costs are categorised as follows:

m Service costs including current service costs, past ser-
vice costs as well as gains and losses on curtailments
and settlements

E Net interest expense or income

= Remeasurement

Remeasurement, comprising actuarial gains and losses, the
effect of changes to the asset ceiling, if applicable, and the

Teturn onplanassets'excluding interest, is reftected immedi=

ately in the balance sheet with a charge or credit recognised
in other comprehensive income in the period in which it oc-
curs. Remeasurement recognised in other comprehensive
income is reflected immediately in retained earnings and
will not be reclassified to profit or loss.

Service costs and net interest expense or income are included
in the income statement as staff costs.

Other non-current employee benefits are recognised also
using actuarial calculation. Actuarial gains or losses on such
benefits are recognised directly in the income statement.

Provisions

Provisions are recognised where, as a result of an earlier
event, the Group has a legal or constructive obligation and
where the settlement of such an obligation is expected to
draw on corporate financial resources, but where there is
uncertainty about the timing or amount ofthe obligation.
Provisions are measured on a discounted basis based on

40 GROUP ACCOUNTING POLICIES

 

Management's best estimate of the amount at which a par-
ticular liability may be settled. The discount effect of any
changes in the present value of provisions is recognised
as a financial expense.

Lease commitments

Lease commitments concerning assets held under a finance
lease are recognised in the balance sheet as a liability and
are measured on signing ofthe particular lease at the fair
value ofthe leased asset or the present value of future lease
payments, whichever is lower. After initial recognition, lease
commitments are measured at amortised cost. The difference
between the present value and the nominal value of lease
payments is recognised in the income statement as a finan-
cial expense over the lease period.

Lease payments concerning operating leases are recognised
on a straight-line basis in the income statement over the lease
period.

Other financial liabilities

Debts to credit institutions are recognised at the date of bor-
rowing at their proceeds less transaction costs. For subse-
quent periods, financial liabilities are measured at amortised
cost in order for the difference between proceeds and the
nominal value to be recognised as a financial expense over
the term of the loan.

On initial recognition, other financial liabilities are measured
at their fair values and subsequently at amortised cost using
the effective interest method, and the difference between
proceeds and the nominal value is recognised in the income
statement as a financial expense over the term of the loan.

Earn-out obligations from acquisition of enterprises and
activities i FEE
Earn-out obligations arising from the acquisition of enter-
prises and activities are recognised at fair value at the time
of acquisition. The obligations are reevaluated on a recurring
basis at fair value.

 

Other non-financial liabilities

Other non-financial liabilities are recognised where, as a re-
sult of an earlier event, the Group has a legal or constructive
obligation and where the settlement of such an obligation is
expected to draw on corporate financial resources. Other
non-financial liabilities are measured on a discounted basis,
and the discount effect of any changes in the present value
of the liabilities is recognised as a financial expense.

On the sale of products with a right of return, a liability is rec-
ognised in respect of the profit on products expected to be
returned and of any costs connected with the return of such
products. Warranty commitments include the obligation to
remedy faulty or defective products in the warranty period.

 

 

 

Deferred income
Deferred income includes income received relating to the
following financial year. Deferred income is measured at cost.

Cash flow statement

The cash flow statement is prepared according to the indirect
method and reflects the consolidated net cash flow broken
down into operating, investing and financing activities.

Cash flow from operating activities includes inflows from
the year's operations adjusted for non-cash operating items,
changes in working capital, financial income received and
expenses paid, realised foreign currency translation gains
and losses and income tax paid.

Cash flow from investing activities includes payments in
respect ofthe acquisition or divestment of enterprises and
financial assets as well as the purchase, development, im-
provement or sale of intangible assets and property, plant
and equipment.

Finance leases are considered transactions that do not have
a cash flow effect. Cash flow relating to finance leases is
recognised as payment of interest and repayment of debt.

Cash flow from financing activities includes payments to
and from shareholders and the raising and repayment of
non-current and current debt not included in working capital.

 

Cash flow in currencies other than the functional currency is
recognised at average exchange rates for the months of the

year, unless they deviate significantly from actual exchange
rates on the transaction dates.

 

Cash and cash equivalents are cash less interest-bearing,
current bank debt.

 

Segment information

Based on the aggregation criteria in IFRS 8 Operating Seg-
ments and the internal reporting model used by Management
forthe assessment of results and the use of resources, we
have identified one operating segment, the development,
manufacture and sale of products and equipment designed
to facilitate people's hearing and communication, which
complies with our approach to the organisation and manage-
ment of activities.

 

 

 

 

Å geographical distribution ofrevenue and non-current assets
is also presented.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

141041QGE0GSWN05501 GROUP ACCOUNTING POLICIES 41

 

 

 

 

CONSOLIDATED INCOME STATEMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

(DKK million) Note 2013 2012
Revenue 1 9,209 8,555
Production costs 2/3/12 -2,537 2,428
Gross profit 6,672 6,127
Research and development costs 2/3 -664 -652
Distribution costs 2/3 73,673 73,311
Administrative expenses 2/3/4 551 ; -523
Share of profit after tax, associates 10 … oil 12
Operating profit (EBIT) 1,784 1,653
Financial income 5 52 44
Financial expenses 5 "124 -176
Profit before tax 1,712 1,521
Tax on profit for the year 6 -401 | -370
Profit for the year 1,311 1,151
Profit for the year attributable to: !
William Demant Holding A/S” shareholders 1,310 1,153
Minority interests i 1 -2
1,311 1,151
Earnings per share (EPS), DKK 7 23.1 i 20.2
Diluted earnings per share (DEPS), DKK 7 23.1 20.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42. CONSOLIDATED INCOME STATEMENT

 

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

RS
(DKK million) 2013 | 2012
i
Profit for the year 1,311 ! 1,151
1
Other comprehensive income: |
i
ltems that have been or may subsequently be reclassified to the income statement:
Foreign currency translation adjustment, foreign enterprises -225 | 3
Value adjustment of hedging instruments: |
Value adjustment for the year 83 I! 4
Value adjustment transferred to revenue -68 i 101
Value adjustment transferred to financial expenses 11 | 28
Tax on items that have been or may subsequently be reclassified to the income statement 6 | -27
Items that have been or may subsequently be reclassified to the income statement -193 i 109
j
Items that will not subsequently be reclassified to the income statement:
Actuarial gains/(losses) on defined benefit plans 5 | -8
Tax on items that will not subsequently be reclassified to the income statement -1 | o
items that will not subsequently be reclassified to the income statement 4 ! -8
i
Other comprehensive income -189 i 101
|
Comprehensive income 1,122 ' 1,252
|
i
Comprehensive income attributable to: i
William Demant Holding A/S” shareholders 1,121 | 1,254
Minority interests 1 -2
1,122 ; 1,252
Breakdown of tax on other comprehensive income:
Foreign currency translation adjustment, foreign enterprises 12 6
Value adjustment of hedging instruments for the year -20 -1
Value adjustment of hedging instruments transferred to revenue 17 -25
Value adjustment of hedging instruments transferred to financial expenses -3 -7
Actuarial gains/(losses) on defined benefit plans -i o
Tax on other comprehensive income 5 | -27
bo]
141041QEQGSN05502 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 43

 

 

CONSOLIDATED BALANCE SHEET AT 31 DECEMBER

 

(DKK million)

Assets
Goodwill

Patents and licences
Other intangible assets
Intangible assets

Land and buildings

Plant and machinery

Other plant, fixtures and operating equipment
Leasehold improvements

Prepayments and assets under construction
Property, plant and equipment

Investments in associates
Receivables from associates
Other investmenfs

Other receivables

Deferred tax assets

Other non-current assets

Non-current assets

Inventories

Trade receivables

Receivables from associates

Income tax

Other receivables

Unrealised gains on financial contracts
Prepaid expenses

Cash

Current assets

Assets

44. CONSOLIDATED BALANCE SHEET — ASSETS

2012

2,568
47
33

 

2,648

 

686
159
259
170

98

 

1,372

 

 

278
124

12
623
268

 

1,305

 

5,325

 

1,014
1,754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEET AT 31 DECEMBER

 

[DKK million)

Equity and liabilities

Share capital

Other reserves

Equity attributable to William Demant Holding A/S” shareholders
Equity attributable to minority interests

Equity

Interest-bearing debt
Deferred tax liabilities
Provisions

Other liabilities
Deferred income
Non-current liabilities

Interest-bearing debt

Trade payables

Income tax

Provisions

Other liabilities

Unrealised losses on financial contracts
Deferred income

Current liabilities

Liabilities

Equity and liabilities

Operating lease commitments

Contingent liabilities

Related parties

Acquisition of enterprises and activities
Government grants

Specifications to consolidated cash flow statement
Events after the balance sheet date

Approval and publication

Shareholders

Board of Directors and Executive Board

1410410E0GSN05503

Note

15
11
14
15/16

15
15

14
15/16
15

17
18
19
20
21
22
23
24
25
26

 

 

 

 

 

 

 

 

[7]
2013 | 2012

|
57 | 58
5,024 ; 4,003
5,081 | 4,061
2! 2
5,080 4059
81: 76
146 | 148
132 121
221 ; 136
34) 1
614 482
3,112 2,637
367 | 351
65 54
16 36
899 | 936
11 | 26
193 196
4,663 4,236

i
5,277 | 4,718
10,357 8,777

CONSOLIDATED BALANCE SHEET — EQUITY AND LIABILITIES — 45

 

CONSOLIDATED CASH FLOW STATEMENT

 

(DKK million)

Operating profit (EBIT)

Non-cash items etc.

Change in receivables etc.

Change in inventories

Change in trade payables and other liabilities etc.
Change in provisions

Cash flow from operating profit

Financial income etc. received

Financial expenses etc. paid

Realised foreign currency translation adjustments
Income tax paid

Cash flow from operating activities (CFFO)

Acquisition of enterprises, participating interests and activities
Investments in and disposal of intangible assets

Investments in property, plant and equipment

Disposal of property, plant and equipment

Investments in other non-current assets

Disposal of other non-current assets

Cash flow from investing activities (CFFI)

Repayment on non-current debt
Proceeds from borrowings

Buy-back of shares

Other adjustments

Cash flow from financing activities (CFFF)

Cash flow for the year, net

Cash and cash equivalents at the beginning ofthe year

Foreign currency translation adjustment of cash and cash equivalents
Cash and cash equivalents at the end ofthe year

Breakdown of cash and cash equivalents at the end of the year:
Cash 77 TT 7 —… ”

Interest-bearing current bank debt

Cash and cash equivalents at the end of the year

 

46. CONSOLIDATED CASH FLOW STATEMENT

 

Note

22

5
15

 

 

 

 

 

 

 

 

 

2013 2012
|
1,784 i 1,653
263 237
"72 31
-68 : 89
112 | -81
713 | -84
1,782 1,783
39 38
-121 | -171
Qi 2
-380 -380
1,320 | 1,272
-1,176 -682
-2 -14
-410 -329
36 i 19
-186 -273
113 ; 107
71,645 | -1,172
-510 -148
652 42
-101 i -497
o| 3
4 -600
"284 -500
-1,338 -846
56 8
1,566 -1,338
38 307
1,929 "1,645
1,566 -1,338

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share Other reserves William Minority Equity
(DKK million) capital Demant interests?
Foreign Hedging Retained Holding A/S' share
currency trans- reserve earnings  shareholders”
lation reserve share
Equity at 1.1.2012 58 92 -88 3,238 3,300 4 3,304
Comprehensive income in 2012:
Profit for the year - - - 1,153 1,153 -2 1,151
Other comprehensive income:
Foreign currency translation
adjustment, foreign enterprises - 3 - - 3 o 3
Value adjustment of hedging
instruments:
Value adjustment, year - - 4 - 4 - 4
Value adjustment transferred
to revenue - - 101 - 101 - 101
Value adjustment transferred
to financial expenses - - 28 - 28 - 28
Actuarial gains/(losses) on
defined benefit plans - - - -8 -8 o -8
Tax on other compr. income - 6 -33 o -27 o -27
Other comprehensive income - 9 100 -8 101 o 101
Comprehensive income, year - 9 100 1,145 1,254 -2 1,252
Buy-back of shares - - - -497 -497 - -497
Other changes in equity - - - 4 4 -4 o
Equity at 31.12.2012 58 101 12 3,890 4,061 -2 4,059
| i | i i
Comprehensive income in 2013: i | i i |
Profit for the year « I - i 1,310 1,310 1 1,311 | |
Other comprehensive income: | | |
Foreign currency translation | | i
adjustment, foreign enterprises - "225 "| - | "225 - ! -225 |
Value adjustment of hedging | i |
instruments: ; |
Value adjustment, year - - 83 "| 83 "i 83;
Value adjustment transferred | i '
to revenue - - -68 | - "68 | 68 i
Value adjustment transferred | |
to financial expenses - - n i 11 |] 11 |
Actuarial gains/(losses) on | i i
defined benefit plans - - | - 5 5 0: 5 |
Tax on other compr. income DH 12 | -6 1 5 om 5 |
Other comprehensive income - 213 | 20 4 "189 0 | -189 i
Comprehensive income, year | - — 213 20 1,314 1,121 1 1,122
Buy-back of shares - - o -101 | -101 - -101
Capital reduction through i !
cancellation of treasury shares -1 74 - 1j 0 | o | (
Other changes in equity - - ; - i o o o ; o |
Equity at 31.12.2013 57 112 | 32; 5,104 5,081 ; 1| 5,080 |
j ] j j åd

 

 

 

 

 

 

 

 

 

 

For changes in share capital, please refer to Parent statement of changes in equity on page 78.

1410410E0GSN05504 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 47

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 — Segment information by geographic region and business activity

 

 

 

Revenue Non-current assets
(DKK million)
Revenue and non-current assets by geographic region: 2013 | 2012 2013 | 2012
|
Denmark 126 | 170 1,047 | 920
Other Europe 3,403 | 3,158 1,618 | 963
North America 3,758 |, 3,349 3,399 | 2,989
Oceania 857 ! 877 345 | 356
Asia 682 I 650 98! 81
Other countries 383 | 351 26 | 16
Total 9,209 | 8,555 6,533 ; 5,325
i 1 i

 

 

Consolidated revenue mainly derives from the sale of goods and is broken down by the customers” geographical location. The five
largest single customers together account for less than 10% of total consolidated revenue. Non-current assets are broken down by

the geographical domicile of such assets.

 

 

 

 

Revenue

. 1
Revenue by business activity: 2013 | 2012
Hearing Devices 7,947 7,410
Diagnostic Instruments 883 | 844
Personal Communication 379 : 301
Total 9,209 8,555
2013 | 2012

Value adjustments transferred from equity relating

to derivatives made for hedging revenue 68 | -101

i

48. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 2 — Employees
(DKK million)

Staff costs:

Wages and salaries

Defined contribution plans
Defined benefit plans (note 14)
Social security costs etc.

Total

Cash remuneration for Executive Board and Board of Directors:
Executive Board, salary
Executive Board, bonus and pension

Board of Directors, remuneration

 

 

The President & CEO of William Demant Holding is entitled to a seniority bonus, equivalent to one year's salary for every four years
of employment after 2005. This seniority bonus is recognised as a defined benefit plan commitment and will be paid out on termi-
nation of his employment. In 2013, the basic remuneration for a member of the Parent's Board of Directors was DKK 300,000 (DKK
300,000 in 2012). The Chairman of the Board of Directors receives three times the basic remuneration and the Deputy Chairman

twice the basic remuneration.

 

 

 

2013 2012
Staff costs by function:
Production costs 672 | 644
Research and development costs 435 | 439
Distribution costs 2,088 1,782
Administrative expenses 342 331
Total 3,537 3,196
Average number of full-time employees 9,120 8,025

 

 

 

The number of employees in proportionately consolidated companies is included with the Group's proportionate ownership
interest in the particular enterprises. The average number of such employees is 114 (472 in 2012) of which 57 (290 in 2012)

have been proportionally consolidated in the William Demant Group.

1410410EQGSN05505

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — 49

 

 

 

Note 3 — Amortisation, depreciation and impairment losses

 

 

 

 

 

 

 

 

 

(DKK million) 2013 2012
Amortisation of intangible assets -23 -20
Depreciation on property, plant and equipment -234 -218
Impairment of property, plant and equipment -10 o
Total 267 -238
Amortisation, depreciation and impairment losses by function:

Production costs -63 -55
Research and development costs 735 -39
Distribution costs -129 -103
Administrative expenses -40 -41
Total -267 i -238
Net gains from sale of assets 0 5
Total 0! 5
Net proceeds from sale of assets by function:

Production costs ”2 | o
Distribution costs 2! 4
Administrative expenses o 1
Total 5

 

 

50 … NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 4 — Fees to Parent's auditors appointed at the annual general meeting

 

 

 

 

 

 

 

 

 

 

(DKK million) 2013 2012
Statutory audit 8 | 8
Other assurance engagements oo: o
Tax and VAT advisory services 2i 3
Other services 2 1
Total 12 12
A few Group enterprises are not audited by the appointed auditors or their foreign affiliates.

Note 5 — Net financial items

po
(DKK million) 2013 |; 2012
Interest on bank deposits etc. 23 i 24
Interest on receivables 19 ; 19
Other financial income 1! 1
Financial income from financial assets not measured at fair value in the income statement 43 44
Foreign exchange gains, net 9 o
Financial income 52 | 44
Interest on bank debt, mortgages etc. 753 ! -96
Value adjustment transferred from equity relating to derivatives made for hedging loans -11 | -28
Interest on finance lease debt 1 | -1
Financial expenses on financial liabilities not measured at fair value in the income statement -65 | -125
|

Foreign exchange losses, net 0 | -3
Unwinding of discounts 2 | 1
Transaction costs "57 | -47
Financial expenses 124 -176

 

 

 

 

 

 

 

 

1410410E0GSN05506

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

51

 

 

Note 6 — Tax

 

 

 

 

 

 

 

 

 

 

(DKK million) KEE
2013 | 2012
Tax on profit for the year: i
Current tax on profit for the year -415 -342
Adjustment of current tax, prior years 11 o
Change in deferred tax -11 ; -45
Adjustment of deferred tax, prior years 6 . 18
Impact of changes in corporate tax rates 8| -1
Total -401 -370
Reconciliation of tax rates:
Danish corporate tax rate 25.0% 25.0%
Differences in tax rates of non-Danish enterprises from Danish corporate tax rate -0.3% ! 0.2%
Impact of changes in corporate tax rates -0.5% | 0.0%
Use of tax assets not previously recognised -0.1% 0.0%
Permanent differences -1.3% -0.2%
Other items, including prior-year adjustments — 0,6% ; -0.7%
Effective tax rate 23.4% | 24.3%
Il
Note 7 — Earnings per share ;
2013 2012
William Demant Holding A/S” shareholders” share of profit for the year, DKK million 1,310 1,153
i
Average number of shares, million 57.3 58.3
Average number of treasury shares, million — 70.7 -1.3
Average number of shares outstanding, million 56.6 57.0
Earnings per share (EPS), DKK 23.1 20.2
Diluted earnings per share (DEPS), DKK 23.1 20.2

 

 

52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 8 — Intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill Patents and Other Total
licences intangible intangible
(DKK million) assets assets
; ] j
Cost at 1.1.2013 2,568 ; 100 ! 74 : 2,742 |
Foreign currency translation adjustments -153 | 0 ; -2 j 7155 |
Additions during the year o! 0! 1 1!
Additions relating to acquisitions 1,133 ; o | 13 | 1,146 i
Cost at 31.12.2013 3,548 ' 100 1 86: 3.734 ;
| , |
Amortisation at 1.1.2013 -i 53 ; Al | -94 i
Foreign currency translation adjustments - | 0 1 | 1.
Amortisation for the year gi -12 -11 | … 23!
Amortisation at 31.12.2013 | -65 i "51 | -116 |
; : ; ;
Carrying amount at 31.12.2013 3.548 i 35 35 | 3,618 i
! i |
Cost at 1.1.2012 1,976 88 65 2,129
Foreign currency translation adjustments 2 o o 2
Additions during the year o 12 14
Additions relating to acquisitions 590 o 7 597
Cost at 31.12.2012 2,568 100 74 2,742
Amortisation at 1.1.2012 - "44 -30 -74
Foreign currency translation adjustments - o o 0
Amortisation for the year - -9 -11 -20
Amortisation at 31.12.2012 - -53 -41 -94
Carrying amount at 31.12.2012 2,568 47 33 2,648

 

Impairment testing is carried out annually on preparation of the annual report or on indication of impairment in which discounted
values of future cash flows are compared with carrying amounts. Group enterprises cooperate closely on research and develop-
ment, purchasing, production, marketing and sales, as the use of resources in the individual markets is coordinated and monitored
by Management in Denmark. Group enterprises are thus highly integrated. Consequently, Management considers the overall busi-
ness as one cash-generating unit. Certain business activities, which to a higher degree act with more autonomy in relation to the
Group, and whose profitability can be measured independently of the other activities, constitute a separate cash-generating unit.
In relation to the existing integration in the Group and the recognised goodwill, neither at 31 December 2013 nor at 31 December
2012, had any separate cash-generating units been identified to which goodwill can be allocated. The annual impairment test was
thus based on the Group as a whole. Based on the impairment test, a material excess value was identified compared to the carry-
ing amounts for which reason no impairment of goodwill was made at 31 December 2013 and 31 December 2012. Future cash flows
are based on the budget for 2014, on strategy plans and on projections hereof. Projections extending beyond 2014 are based on
general parameters, such as expected market growth, selling prices and profitability assumptions. The terminal value for the period
after 2014 is determined on the assumption of 2% growth (2% in 2012). The discount rate is 9% (9% in 2012). Sensitivity calcula-
tions show that even a significant increase in the discount rate or a significant reduction of the growth assumptions will not change
the outcome of the impairment test. Apart from goodwill, all intangible assets have limited useful lives.

1410410QE0GSN05507 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 53

 

 

 

Note 9 — Property, plant and equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land and Plant and Other plant, Leasehoøld  Prepayments Total
buildings machinery fixtures and improve- and assets property,
(DKK million) operating ments under plant and
equipment construction equipment
Cost at 1.1.2013 832 | 736 920 i 353 | 98 ; 2,939 |
Foreign currency translation adjustments 8 -14 -33 i -21 -1 | -77
Additions during the year 4| 33 65 : 41 238 | 381 |
Additions relating to acquisitions | 7 16 8 | 11 32 |
Disposals during the year o -12 i -29 -4 | 4 | -49 :
Transferred to/from other items o 45 74 | 6 ] -125 | oo)
Cost at 31.12.2013 828" 795 1,013 383 | 207 | 3,226 |
” i i 3
i ] '
Depreciation and impairment losses ; | |
at 1.1.2013 -146 7577 -661 "183 - 1,567 |
Foreign currency translation adjustments 2 1 ; 23 12 | | 47.
Depreciation for the year "23 | 63 : -108 j -42 i i -234 |
Impairment losses for the year 10 ; o o | o ” -10 |
Disposals during the year (5; 8 22 å 34
Transferred to/from other items o o o 0 - o
Depreciation and impairment losses :
at 31.12.2013 -177 -619 -724 -210 … -1,730 '
i ; | |
Carrying amount at 31.12.2013 651 176 289 ! 173 | 207 | 1,496 |
| |
Of which financially leased assets 24 2; o | o o! 26 |
ll j | i
Cost at 1.1.2012 799 669 827 305 68 2,668
Foreign currency translation adjustments 5 -1 -1 4 o 7
Additions during the year 28 54 80 48 89 299
Additions relating to acquisitions 5 3 9 2 1 20
Disposals during the year -5 -21 -22 -6 1 -55
Transferred to/from other items 0 32 27 o -59 o
Cost at 31.12.2012 832 736 920 353 98 2,939
Depreciation and impairment losses
at 1.1.2012 -127 -537 -577 -151 - -1,392
Foreign currency translation adjustments 7 To 7 DT TT 2 Ta - 03
Depreciation for the year -19 -59 -104 -36 - -218
Disposals during the year o 17 18 5 - 40
Transferred to/from other items o o o o - o
Depreciation and impairment losses
at 31.12.2012 -146 "577 -661 -183 - "1,567
Carrying amount at 31.12.2012 686 159 259 170 98 1,372
Of which financially leased assets 43 o o o 0 43

 

Group property, plant and equipment with a carrying amount of DKK 1 million (DKK 2 million in 2012) have been provided in secu-
rity of debt to credit institutions of DKK 1 million (DKK 2 million in 2012). Financial leases mainly concern properties acquirable at
favourable prices on expiry of the term of such leases. At year-end, the contractual obligation as regards the acquisition of proper-
ty, plant and equipment amounted to DKK 62 million (DKK o million in 2012). Neither in 2013 nor in 2012, have changes been made
in material estimates in respect of property, plant and equipment, except for the recognition of DKK 10 million (DKK o million in
2012) in respect of impairment of a property expected to be sold in 2-3 years.

In 2013, borrowing costs of DKK 2 million (DKK o million in 2012) have been capitalised as part of property, plant and equipment.
The capitalisation rate used has been 2.5-3.5% depending on the financing of the asset.

54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

Note 10 — Other non-current assets

 

 

 

 

Investments Receivables Other Other

in associates from investments receivables
(DKK million) associates
Cost at 1.1.2013 270 | 124 | 20 ! 665 !
Foreign currency translation adjustments 1 | 5 i 0 | -36 |
Additions during the year 188 ! 138 | 2: 166 ;
Additions relating to acquisitions 0; o| o| 1;
Disposals during the year -30 i -106 -3 | 188 |
Cost at 31.12.2013 427 | 151 19 | 608 |

Value adjustments at 1.1.2013 8,

Foreign currency translation adjustments o |
0 i
Q

o
og
N

Share of profit after tax
Dividends received

1
a
,

2
'
ni

Disposals during the year -6 i

 

 

 

 

 

 

 

 

 

 

 

 

 

 

o o ; Oj

Other adjustments 5 | ci o! -2 '

Value adjustments at 31.12.2013 3 | o| 8 | "42 |

i

Carrying amount at 31.12.2013 424 | 151 11; 566 |
Cost at 1.1.2012 95 83 16 519
Foreign currency translation adjustments 1 -1 o -4
Additions during the year 183 42 4 255
Disposals during the year -9 o o -105
Cost at 31.12.2012 270 124 20 665
Value adjustments at 1.1.2012 1 o -7 -32
Foreign currency translation adjustments o o o o
Share of profit after tax 12 - - -
Dividends received -1 - - -
Disposals during the year -4 o o o
Other adjustments o o -1 -10
Value adjustments at 31.12.2012 8 o -8 -42
Carrying amount at 31.12.2012 278 124 12 623

 

Please refer to Subsidiaries and associates on page 86 for a list of associates. Ownership interest equals share of voting rights.
For further details on associates, please refer to note 19 Related parties.

 

 

 

 

 

 

 

 

141041QE0GSN05508 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — 55

 

 

 

Note 11 — Deferred tax

 

 

 

 

 

 

(DKK million)

2013 | 2012
Deferred tax is recognised in the balance sheet as follows:
Deferred tax assets 267 j 268
Deferred tax liabilities -146 : -148
Deferred tax, net at 31.12. — 424 | 120
Deferred tax, net at 1.1. 120 | 165
Foreign currency translation adjustments -18 -2
Changes in deferred tax assets -11 -45
Additions relating to acquisitions 1 | 8
Adjustment of deferred tax, prior years 6) 18
Impact of changes in corporate tax rates 8 -1
Deferred tax relating to changes in equity, net 5 | -24
Other adjustments o i 1
Deferred tax, net at 31.12. 121 | 120

The tax value of deferred tax assets not recognised is DKK 78 million (DKK 83 million in 2012) and relates mainly to tax losses for
which there is considerable uncertainty about their future utilisation. The tax losses will not expire in the near future. Any sale of
shares in subsidiaries and associates at the balance sheet date is estimated to result in tax in the amount of DKK o million (DKK o

million in 2012).

Breakdown of the Group's temporary differences and changes:

 

 

 

 

 

 

 

 

 

 

 

 

Temporary Foreign Acquisitions Recognised Recognised Temporary
differences currency in profit for in other differences
at 1.1.2013 translation the year comprehen- at 31.12.2013
adjustments sive income
. Å | i
Intangible assets 29! o 6; -43 o -78
Property, plant and equipment -49 1 o | 13 o -37
Inventories 119 1 o | 19 o 137
. ; då
Receivables 9: o 0 |! -2 oa 7
Provisions 34 -5 o | -16 o 13
Tax losses 68 ”5 | 5 | 21 o 47
Other TT TTT 32 (7 ét 7 12 p 53 I BT 32
Total 120 18 11 | 3 5 121
i i j

 

 

 

56 … NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 12 — Inventories

(DKK million)

Raw materials and purchased components
Work in progress

Finished goods and goods for resale
Inventories

Write-downs included in the above

Carrying amount of inventories recognised at fair value after deduction of costs to sell

 

Included in the income statement under production costs: ;
Write-downs of inventories for the year, net 12 | 32
Cost of goods sold for the year 2,006 1,867

 

Write-downs for the year are shown net, as breakdown into reversed write-downs and new write-downs is not possible. Inventories
are generally expected to be sold within one year.

 

 

 

 

 

 

 

 

 

 

 

 

1410410E0GSN05509 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — 57

 

 

 

Note 13 — Receivables

 

 

 

 

 

(DKK million) 2013 | 2012
i
i
Trade receivables 1,881 | 1,754
Other non-current receivables 566 | 623
Other current receivables 211 | 142
Total 2,658 ; 2,519
i
Non-impaired receivables by age: |
Balance not due 1,974 | 1,885
0-3 months 387 | 379
3-6 months 149 | 125
6-12 months 68 | 78
Over 12 months 80 52
Total — 2,658 | 2,519
i
Breakdown of allowance for impairment: ;
Allowance for impairment at 1.1 -134 | -118
Foreign currency translation adjustments 4 ! o
Applied during the year 14 | 16
Additions during the year -31 | -32
Reversals during the year 4 ; o
Allowance for impairment at 31.12. -143 | -134

 

 

The Group makes provisions for anticipated credit losses using an allowance account to record individual impairments. The value
of a receivable is tested for impairment based on an assessment of the particular debtor's and uniform groups of debtors” ability
to pay. Receivables are computed at net realisable value, and write-downs are recognised on an allowance account. For information
on security or collateral, please see Risk management activities on page 22.

 

 

 

 

 

 

 

 

 

 

58 … NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 14 — Provisions
(DKK million)

Other non-current employee benefits
Miscellaneous provisions

Other provisions

Defined benefit plan liabilities, net
Provisions at 31.12.

Breakdown of provisions:
Non-current provisions
Current provisions
Provisions at 31.12.

Other provisions:

Other provisions at 1.1.

Foreign currency translation adjustments
Reclassifications

Additions relating to acquisitions
Provisions during the year

Applied during the year

Reversals during the year

Other provisions at 31.12.

 

 

 

Defined benefit plan costs recognised in the income statement:

 

 

 

 

 

Current service cost 18 ; 14

Calculated interest on net plan liabilities 1 | -1

Costs recognised in the income statement (note 2) 19 ' 13

Defined benefit plan costs by function: ;

Research and development costs 5 4

Distribution costs 6 2 |
Administrative expenses 8 7

Total ag | 13

Accumulated actuarial loss recognised in the statement of comprehensive income -30 -36

 

 

 

 

Miscellaneous provisions relate to provisions for disputes etc. and are essentially expected to be applied within the next two years.
In 2012, the provision for the US patent case against ETG was offset against damages, legal costs and interests.

 

 

 

 

 

 

 

 

 

1410410EQ0GSN05510 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — 59

 

 

 

 

Note 14 — Provisions — continued

 

 

 

 

 

 

 

 

(DKK million) 2013 | 2012
j
Present value of defined benefit plan liabilities: |
Defined benefit plan liabilities at 1.1. 194 ' 161
Foreign currency translation adjustments -2 | 1
Additions relating to acquisitions 33 ; o
Current service costs 18 i 14
Calculated interest on plan liabilities 3 ; 3
Actuarial losses/(gains), demographic assumptions -1 | 0
Actuarial losses/(gains), financial assumptions 1 | o
Actuarial losses/(gains), experience assumptions 0 ; 12
Benefits paid 4! 1
Contributions from plan participants 10 2
Defined benefit plan liabilities at 31.12. 255 194
Fair value of plan assets: i
Plan assets at 1.1. 129 108
Foreign currency translation adjustments -2 i; 1
Additions relating to acquisitions 33 o
Expected return on plan assets 2 4
Actuarial gains/(losses) 5 4
Contributions 19 ; 11
Benefits paid | 1
Plan assets at 31.12. 185 129
i
Net plan liabilities recognised in the balance sheet 70 | 65
Return on plan assets:
Actual return on plan assets 7: 8
Expected return on plan assets 2( 4
Actuarial gains/(losses) on plan assets 5 4
Assumptions: i
Discount rate 2.0% 2.0%
Expected return on plan assets 2.0% | 4.0%
Future salary increase rate 1.5% i 1.5%
KERNER AASE ERE —— — mm — cor fj

 

Generally, the Group does not offer defined benefit plans, but it has such plans in Switzerland and the Netherlands, where they are
required by law. Moreover, the President & CEO of the Company has a seniority bonus. Plan assets at 31 December 2013 include:
bonds (41%), shares (22%), other securities (17%), cash and cash equivalents (6%) and other assets (14%). Plan assets at 31
December 2012 included: bonds (42%), shares (23%), other securities (21%), cash and cash equivalents (1%) and other assets
(13%). All plan assets except other assets are quoted on active markets. The Group expects to pay approximately DKK 18 million

in 2014 (DKK 12 million in 2013) into defined benefit plans. Defined benefit obligations in the amount of DKK 28 million will mature

within 1-5 years and obligations in the amount of. DKK 227 million after 5 years.

If the discount rate were 0.5% higher (lower), the defined benefit obligation would decrease by 7% (increase by 8%). If the ex-
pected salary growth rate were 0.5% higher (lower), the defined benefit obligation would increase by 3% (decrease by 3%).

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

Note 15 — Financial instruments and financial risks

Categories of financial instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

(DKK million) 2013 ; 2012
Unrealised gains on financial contracts i 45 | 31
Financial assets used as hedging instruments 45 i 31
Receivables from associates 154 i 136
Other receivables 777 | 759
Trade receivables 1,881 | 1,754
Cash 363 ; 307
Receivables and cash 3,175 | 2,956
|
Other investments 1 ; 12
Financial assets available for sale 11 | 12
Unrealised losses on financial contracts 6! -18
Financial liabilities used as hedging instruments 6] -18
|
Unrealised losses on financial contracts -5 ; -8
Financial liabilities at fair value through the income statement -5 ' -8
Finance lease debt 710 | -14
Debt to credit institutions etc. "1,254 | -1,054
Interest-bearing bank debt -1,929 | -1,645
Trade payables -367 | -351
Other liabilities -934 | -906
Financial liabilities measured at amortised cost "4,494 | -3,970

As was the case in 2012, most financial liabilities fall due within one year. As regards financial assets and liabilities, their carry-
ing amounts approximate their fair values. The following non-financial items are included in the balance sheet and represent the
difference between the table above and the balance sheet: other receivables DKK o million (DKK 6 million in 2012) and other
liabilities DKK -186 million (DKK -166 million in 2012).

Policies relating to financial risk management and capital structure

Financial risk management concentrates on exchange rate, interest rate, credit and liquidity risks with a view to protecting the
Group against potential losses and ensuring that Management's forecasts for the current year are only to a limited extent affected
by changes or events in the surrounding world — be they changes in exchange rates or in interest rate levels. It is corporate policy
to exclusively hedge commercial risks and not to undertake any financial transactions of a speculative nature.

Since spring 2011, our pool of assets and cash flow has grown considerably driven by both organic growth and the completion
of acquisitions. At the same time, we have seen some stabilisation on the financial markets. In 2013, our Board of Directors

therefore decided to raise the target for the Group's net interest-bearing debt to DKK 2.0-2.5 billion from a previous range of
DKK 1.5-2.0 billion.

Exchange rate risks

The Group seeks to hedge against any exchange rate risks through forward exchange contracts and other hedging instruments.
Hedging thus gives Management the opportunity — and necessary time — to redirect business arrangements in the event of per-
sistent changes in foreign exchange rates. The Group aims to hedge such changes in foreign exchange rates by seeking to match
positive and negative cash flows in the main currencies as much as possible and by entering into forward exchange contracts.
By entering into such contracts, we can hedge estimated cash flows with a horizon of up to 24 months.

1410410E0GSN05511 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 61

 

 

 

Note 15 — Financial instruments and financial risks — continued

Interest rate risks
Hedging interest rate risks on corporate loans is limited, as the Group has limited debt compared to its volume of corporate acti-

vities. A fixed interest rate swap on corporate floating loans worth EUR 100 million expired in the first half-year 2013. In this con-
nection, it was decided to keep the majority of our corporate loans on floating terms and with limited long-term commitment. This
decision was based on the Group's high level of cash generation and a relatively low financial gearing, resulting in a significant
lowering of our interest expenses due to the steep interest rate curve.

Credit risks
Corporate credit risks relate primarily to trade receivables and loans to customers or business partners. Our customer base is

fragmented, so credit risks only involve minor losses on individual customers. Together, our five largest customers account for
less than 10% of total consolidated revenue. We therefore estimate that we have no major credit exposure, which is supported

by our track record of only insignificant losses on bad debts. When granting loans to customers or business partners, we require
that they provide security in their business. The maximum credit risk relating to receivables matches the carrying amounts of such
receivables. The Group has no major deposits in particular financial institutions for which reason the credit risk of such deposits

is considered to be low.

Liquidity risks

The Group aims to have sufficient cash resources to be able to continuously take appropriate steps in case of unforeseen fluctua-
tions in cash outflows. We have access to considerable undrawn credit facilities, and the liquidity risk is therefore considered to
be low. We are of the opinion that the Group has a strong cash flow and satisfactory credit rating to secure the current inflow of
working capital and funds for potential acquisitions. The Group has neither in the financial year 2013 nor in the comparative year

2012 failed to perform or defaulted on any loan agreements.

Exchange rate risks

Exchange rate risks relating to future cash flows

Open forward exchange contracts at the balance sheet date may be specified as shown below, with contracts for sale of currencies
being shown with their negative contract values. The expiry dates reflect the periods in which the hedged cash flows are expected

to be realised.

Realised forward exchange contracts are recognised in the income statement together with the items, typically the revenue in for-
eign currency, that such contracts are designed to hedge. In 2013, our forward exchange contracts realised a gain of DKK 68 million
(loss of DKK 101 million in 2012), which increased reported revenue for the year. In addition, we raised loans in foreign currencies
to balance out net receivables. At year-end 2013, we had entered into forward exchange contracts with a contractual value of DKK
681 million (DKK 1,093 million in 2012) and a fair value of DKK 42 million (DKK 26 million in 2012).

 

 

 

 

 

 

 

 

 

 

 

62. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -

 

 

 

 

 

Note 15 — Financial instruments and financial risks — continued

Forward exchange contracts

 

 

 

 

 

 

(DKK million)
2013 2012

Expiry  Contractual Fair value Positive Negative Expiry  Contractual Fair value Positive Negative
value fair value fair value value fair value fair value
atyearrend  atyearend atyearend — atyear-end

mm 7 TT i
USD 2014 7169 | 7 | | 0; 2013 -233 7 7 o
JPY 2014 -117 27 | 27 i 0 i 2013/14 -231 18 18 o
AUD 2014 "114 8 | 8 | o | 2013 -172 -2 o 2

I

CAD 2014 -79 i 3; 3! 0; 2013 -232 6 6 o
GBP 2014 -202 i -3 | o | 3 | 2013 -225 -3 o 3
-681 42 i 45 ; 3; 71,093 26 31 5

- då i d

Sensitivity analysis in respect of foreign currencies

 

 

 

 

 

 

The below table shows the impact on the year's operating profit (EBIT) and consolidated equity given a change of 5% in the cur-
rencies with the largest exposures. The exchange rate risk has been calculated on the basis of a simple addition of the operating
profits (EBITs) of Group enterprises in local currencies. Whereas the addition of EBITs includes all Group enterprises, the net for-
eign exchange flow is identical to the flow in Oticon A/S. We estimate that approximately 90% of all foreign currency translation is
made in Oticon A/S and that the analysis therefore gives a fair presentation of the flow in the entire Group. The foreign exchange

flow includes actual foreign currency translation as well as changes in net receivables, i.e. trade receivables, trade payables and
bank balances.

Effect on EBIT, 5% positive exchange rate impact=

DKK million

USD
GBP
AUD
CAD
JPY

 

 

2013

+35
+12
+12
+10

+5

 

 

2012

+35
+15
+10
+10

+5

= Estimated, on a non-hedged basis, i.e. the total annual exchange
rate impact excluding forward exchange contracts.

 

 

 

 

 

 

 

 

 

1410410EQGSN05512

Effect on equity, 5% positive exchange rate impact

DKK million

USD
GBP
AUD
CAD
JPY

 

2013

+70
+10
+10
+25

Fr2

2012

+45
+10
+10
+25

+2

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — 63

 

 

 

Note 15 — Financial instruments and financial risks — continued

Liquidity and interest rate risks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NE Contractual cash flows Carrying Weighted
(DKK million) amount average
Less than 1-5 years More than Total effective
year 5 years interest rate
2013 , . , — . ;
Interest-bearing receivables 95 | 290 | 338 723 | 581 ' ;
Cash 363 | 9 | 0]  363| 363 | |
Interest-bearing assets 458 i; 290 |! 338 1,086 | 944 i 2.0% ;
| |
I i ' i
Finance lease debt 1: -10 | o mn, "10 | |
Debt to credit institutions etc. -1,185 i 73 | o -1,258 | 1,254 | |
Interest-bearing bank debt -1,929 | o! o -1,929 | -1,929 ; !
Interest-bearing liabilities 73,115 | -83 | 0 -3,198 ; 73,193 ; 1.,3% |
i i ] i
; i ' ;
Net position -2,657 | 207 338 | -2,112 | -2,249 | 1.0% |
j dd j i ;
2012
Interest-bearing receivables 80 415 228 723 602
Cash 307 o o 307 307
Interest-bearing assets 387 415 228 1,030 909 3.1%
Finance lease debt -6 -8 o -14 -14
Debt to credit institutions etc. -1,001 -73 o -1,074 -1,054
Interest-bearing bank debt -1,645 o o -1,645 -1,645
Interest-bearing liabilities -2,652 -81 o -2,733 -2,713 2.6%
Net position "2,265 334 228 "1,703 "1,804 2.3%

 

 

Cash consists primarily of bank deposits of which DKK 28 million (DKK 3 million in 2012) relate to joint ventures.
Contractual cash flows of finance lease debt equal the minimum lease payments.

Trade payables and other liabilities have a contractual maturity of less than one year, with the exception of other liabilities
of DKK 221 million (DKK 136 million in 2012), which have a contractual maturity of 1-5 years. The contractual cash flows
——approximate thefr carrying amounts. rr rr TR rr rr

 

Interest-bearing debt broken down by currency: 24% in euros (31% in 2012), 6% in Danish kroner (10% in 2012), 57% in
US dollars (47% in 2012), 11% in Canadian dollars (10% in 2012) and 2% in other currencies (2% in 2012).

 

 

 

 

 

 

 

 

 

64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

Note 15 — Financial instruments and financial risks — continued

The Group has fixed the interest rates on part of its non-current debt through interest swaps.

Interest swaps

 

 

 

 

 

 

(DKK million)
2013 2012
Expiry Fixed  Contractual Positive Negative Expiry Fixed  Contractual Positive Negative
interest amount at fair value fair value interest amount at fair value fair value
rate yearend  atyear-end  atyearend rate yearend  atyearend — at year-end
USD/USD 2016 23% 135 | o| 5 | 2016 2.3% 141 0 8
EUR/EUR - 1 oOo! oc! oØ | 2013 4.0% 746 o 9
I . 4 i
DKK/DKK 2015 35% | 40 i 0, 3 ! 2015 3.5% 40 o 4
! 175 | 0! 8" 927 o 21
il j i i

 

 

 

 

 

The fair value of outstanding interest swaps at the balance sheet date is DKK -8 million (DKK -21 million in 2012). The contractual
value of outstanding interest swaps is DKK 175 million (DKK 927 million in 2012), such swaps running up to and including 2016.
This includes one interest swap that is not designated as hedging. This swap has a fair value of DKK -5 million (DKK -8 million

in 2012). There has been no ineffectiveness on interest swaps in 2013 or 2012.

Sensitivity analysis in respect of interest rates

Based on the net debt at the end ofthe 2013 financial year, a rise of 1 percentage point in the general interest rate level will cause

an increase in consolidated annual interest expenses before tax of DKK 20 million (tess than DKK 1 million in 2012). About 6% of
the interest-bearing debt is subject to fixed interest rates, partly due to interest swaps being made at floating interest rates, and

partly due to loans being raised at fixed interest rates.

Methods and assumptions for calculation of fair values
Other investments

Other investments are assessed on the basis of their equity value.

Derivatives

Forward exchange contracts are assessed using discounted cash flow valuation techniques. Future cash flows are based on forward
exchange rates from observable forward exchange rates at the end of the reporting period and contractual forward rates discounted

at a rate that reflects the credit risk of various counterparties.

Interest swaps are assessed using discounted cash flow valuation techniques. Future cash flows are based on forward observable
yield curves at the end of the reporting period and contractual interest rates discounted at a rate that reflects the credit risk of vari-

oUS counterparties.

Fair value hierarchy for financial instruments measured at fair value in the balance sheet
The following classification of financial instruments measured at fair value is divided according to the fair value hierarchy:
— Listed prices in an active market for the same type of instrument (level 1).

— Listed prices in an active market for similar assets or liabilities or other valuation methods, with all significant inputs being

based on observable market data (level 2).

— Valuation methods, with any significant inputs not being based on observable market data (level 3).

1410410E0GSN05513

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

65

 

 

Note 15 — Financial instruments and financial risks — continued

 

 

(DKK million) 2013 2012
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
) 7 : 1
Financial assets used as | | | i
hedging instruments a | 45 i o | 45 o 31 o 31
i ! i
; | |
Other investments (available | | | |
i i |
for sale) of (al 11 | 11 | o o 12 12
| | ) |
Financial liabilities used as | | | ;
. i i i i
hedging instruments o j 6 | o| -6 | o -18 o -18
| | | |
Financial liabilities at fair value | | | |
I l E i
through the income statement o| 5 | 0 i -5 | 0 -8 o -8
; | | |
] 7 i

 

 

 

 

 

There are no transfers between levels 1 and 2 in the 2013 and 2012 financial years.

Financial instruments measured at fair value in the balance sheet based on valuation methods, with any significant inputs

not being based on observable market data (level 3):

Financial assets available for sale

 

 

 

(DKK million) 2013 | 2012
Carrying amount at 1.1. 12 9
Foreign currency translation adjustment o! o
Purchase 2 4
Sale -3 o
Other adjustments o i -1
Transferred to/from level 3 oa o
Carrying amount at 31.12. 11 12
| i

 

66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

Note 16 — Other liabilities

 

 

 

(DKK million) 2013 | 2012
|
Product-related liabilities 186 | 166
Staff-related liabilities 277 | 251
Other debt, public authorities 129 i 105
Debt relating to acquisitions 262 i 329
Other costs payable 266 | 221
Other liabilities 1,120 ; 1,072
Due within 1 year 899 | 936
Due within 1-5 years 221 | 136
.

 

Productrelated liabilities include service packages, warranties, returned products etc. Our liabilities in respect of service pack-
ages and warranties have been calculated on the basis of information on products sold, related service and warranty periods and
past experience of costs incurred by our Group to fulfil our service and warranty liabilities. Our liabilities in respect of returns have
been calculated based on information on products sold, related rights concerning returns and past experience of products returned
in the various markets. Consolidated product-related liabilities are the sum of a large number of small items, the sum changing
constantly due to a large number of transactions.

Staff-related liabilities include holiday pay and payroll costs due.

The carrying amount of other liabilities approximate the fair value of the liabilities.

 

Note 17 — Operating lease commitments

 

 

 

 

 

 

[DKK million) 2013 | 2012
Rent 520 | 543
Other operating leases 29 24
Total 549 567
Operating leases, less than 1 year 161 159
Operating leases, 1-5 years 272 291
Operating leases, over 5 years 116 117
Total 549 567
1

 

Operating leases are recognised in the income statement at an amount of DKK 288 million (DKK 253 million in 2012). The Group's
operating leases mainly relate to rent and vehicles.

1410410E0GSN05514 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 67

 

 

 

Note 18 — Contingent liabilities

The William Demant Group is involved in a few disputes, lawsuits etc. Management is of the opinion that disputes do not or
will not significantly affect the Group's financial position. The Group seeks to make adequate provisions for legal proceedings.

As part of our business activities, the Group has entered into normal agreements with customers and suppliers etc. as well as
agreements for the purchase of shareholdings.

For the purposes of section 17 of the Republic of Ireland Companies (Amendment) Act, William Demant Holding A/S has under-
taken to indemnify the creditors of its subsidiaries incorporated in the Republic of Ireland in respect of all losses and liabilities
as referred to in section 5 c of said act for the financial year ending on 31 December 2013 or any amended financial period incor-
porating the said financial year. The Company does not expect any material loss to arise from this guarantee.

 

 

 

 

 

 

 

 

 

 

68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 19 — Related parties

 

William Demants og Hustru Ida Emilies Fond (the Oticon Foundation) Kongebakken 9, 2765 Smørum, Denmark is the only related
party with a controlling interest. Controlling interest is achieved through a combination of the Oticon Foundation”s own sharehold-
ing and the shareholding of William Demant Invest A/S for which the Oticon Foundation exercises the voting rights. Associated
enterprises of William Demant Invest A/S are related parties to the William Demant Group.

Related parties with significant influence are the Company's Executive Board, Board of Directors and their related parties. Further-
more, related parties are companies in which the above persons have significant interests.

Subsidiaries, joint ventures and associates as well as the William Demant Group's ownership interests in these companies appear
from the Subsidiaries and associates list on page 86.

The Oticon Foundation lets office and production premises to the joint venture, Sennheiser Communications A/S. In 2013, the rent-
al expense amounted to DKK 3 million (DKK 2 million in 2012). In 2013, the Oticon Foundation and William Demant Invest A/S paid
administration fees to the Group of DKK 2 million (DKK 2 million in 2012) and DKK 5 million (DKK 5 million in 2012), respectively. In
20133, Unisense FertiliTech A/S paid consultancy fees to the Group of less than DKK 1 million (DKK o million in 2012).

In 2012 and 2013, William Demant Invest A/S advanced a loan to the Group. At the end of 2013, the loan amounted to DKK o mil-
lion (DKK 56 million in 2012) and the Group paid interest in the amount of DKK 3 million on the loan in 2013 (DKK 1 million in 2012).

In 2012 and 2013, the Group settled Danish tax on account and residual tax with William Demant Invest A/S, the administration
company for the joint taxation.

 

Sales to joint ventures not eliminated in the consolidated financial statements amounted to DKK 1 million (DKK 23 million in 2012).
At year-end, non-eliminated receivables, net, with joint ventures totalled DKK o million (DKK 4 million in 2012).

In 2013, the Group received royalties from and paid licence fees amounting to DKK 2 million (DKK 2 million in 2012) to associates
and also received dividends from associates in the amount of DKK o million (DKK o million in 2012). In 2013, the Group received

interest income from associates in the amount of DKK 5 million (DKK 5 million in 2012).

There have been no transactions with the Executive Board and the Board of Directors apart from normal remuneration, please
refer to note 2 Employees. The Executive Board has 30 months” notice in the event of dismissal.

In the reporting period, transactions with related parties were made on an arm's length basis.

(DKK million) FORDRER

2013 | 2012
The consolidated financial statements include i
the following amounts related to joint ventures: ;
Revenue 254 | 377
Costs 201 | 344
Non-current assets 10 | 8
Current assets 55 i 54
Non-current liabilities o| o
Current liabilities 33 | 30
Financial information in respect of associates: |
Revenue 854 | 386
Net profit for the year 12! 27
Assets 554 ; 348
Liabilities 412 | 274

 

In 2013, Sennheiser Communications A/S was the only joint venture activity in the Group and was proportionately consolidated in
the consolidated financial statements based on the Group”s ownership interest of 50%. In 2012, the Group's joint venture activities
consisted of Sennheiser Communications A/S and Hearing Healthcare Management Inc., which were both proportionately consoli-
dated in the consolidated financial statements based on the Group's ownership interests of 50% and 65%, respectively. At the end
of 2012, the Group obtained 100% ownership of Hearing Healthcare Management inc. In compliance with the shareholder agree-
ments, the Group has exercised a joint controlling interest in both these companies together with the other shareholders. There
are no significant contingent liabilities in the Group's joint ventures.

1410410QE0GSN05515 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — 69

 

 

 

Note 20 — Acquisition of enterprises and activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North Oceania Europe/ Total
(DKK million) America Asia
Fair value on acquisition
2013 ;
Intangible assets 42 | 0 1 | 13 |
Property, plant and equipment 6 1 25 ; 32 |
Other non-current assets 1 o 18 i 19 ;
Inventories o 60 I 65 :
Current receivables 31; a 79 | 110 ,
Cash and bank debt 11 0 13" 24 |
Non-current liabilities 151 | o -77 | -228 i
Current liabilities -33 ol! -121 | 154 |
Acquired net assets 118 |; 11 2; -119 |
Goodwill 481 32 :- 620 i 1,133 |
Acquisition cost 363 33 | 618 | 1,014 |
Minority interests” share of acquisition cost 0 o 0; o.
Fair value of non-controlling interests on obtaining control 54 o | -32 | -86 i
Earn-outs and deferred payments -106 -7 32 | "145 !
Acquired cash and bank debt -11 0 13 | "24 |
Cash acquisition cost 192 26 BAA! 759 |
2012
Intangible assets 6 o 1 7
Property, plant and equipment 14 2 4 20
Other non-current assets 16 o 1 17
Inventories 13 1 6 20
Current receivables 23 o 9 32
Cash and bank debt 17 o 5 22
Non-current liabilities -2 o o -2
Current liabilities -29 -2 -21 -52
Acquired net assets 58 1 5 64
Goodwill 487 34 69 590
Acquisition cost 545 35 74 654
Minority interests” share of acquisition cost -1 o -2 -3
Fair value of non-controlling interests on obtaining control -118 o -9 -127
Earn-out and deferred payments -47 -2 -10 -59
—Acquired cash and bank debt” TT TT TT 47 .— El 22
Cash acquisition cost 362 33 48 443

 

 

70. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 20 — Acquisitions — continued

 

 

 

 

Our most significant acquisition in 2013 was the purchase of the French manufacturer of cochlear implants, Neurelec SA. The
acquisition was finalised on 2 April 2013 and included all shares in the company against an acquisition cost of DKK 428 million.
Identifiable assets accounted for DKK 22 million and goodwill for DKK 406 million. Goodwill is attributable to estimated synergies
between activities in Neurelec and the Group's existing activities, to the future growth opportunities and to the value of staff com-

petencies in Neurelec. In the above geographical segmentation of total acquisitions, the acquisition of Neurelec is included under
Europe/Asia.

The Group's other acquisitions in the period under review include distribution enterprises in North America and Europe relating to
Diagnostic Instruments as well as partial ør full ownership of distribution entities in North America, Oceania and Europe/Asia relat-
ing to Hearing Devices. In respect of these acquisitions, we paid acquisition costs exceeding the fair values of the acquired assets,
liabilities and contingent liabilities. Such positive balances in value can be attributed to expected synergies between the activities
of the acquired entities and our existing activities, to the future growth opportunities and to the value of staff compentencies in the
acquired entities. These synergies are not recognised separately from goodwill, as they are not separately identifiable.

At the time of acquisition, minority investors” shares of acquisitions were measured at their proportionate shares of the total fair
values of the acquired entities including goodwill. In connection with step acquisitions, non-controlling interests were at the time
of achieving control included at their fair values with fair value adjustments in the income statement.

 

In 2013, a few adjustments were made to the preliminary recognition of acquisitions made in 2012 and to the recognition of acqui-
sitions made in 2009 and recognised via goodwill in compliance with IFRS 3 (2004). These adjustments are due to adjustments to
payments in the amount of DKK 1 million and to estimated earn-outs of DKK -5 million, resulting in a goodwill adjustment of DKK -4
million. In relation to acquisitions with final recognition in 2010 to 2012, adjustments were made in 2013 in respect of estimated
earn-outs. Such adjustments are recognised in the income statement in compliance with IFRS 3 (2008).

The total positive impact on the income statement due to the fair value adjustment of non-controlling interests in step acquisitions

(DKK 50 million) and adjustments of estimated earn-outs (DKK 46 million) amounted to DKK 96 million, which was recognised in
distribution costs.

Of the total acquisition costs in 2013, including adjustments to preliminarily recognised acquisitions of DKK -5 million (DKK -1
million in 2012), the fair values of estimated contingent considerations in the form of discounted earn-outs or deferred payments
accounted for DKK 145 million (DKK 59 million in 2012). Contingent considerations are measured at their fair values based on non-
observable inputs (level 3), such as the financial performance and purchasing patterns of the acquired enterprises in a period of
typically one to 1-5 years after the dates of acquisition. The maximum contingent consideration on acquisitions made in 2013 is
DKK 159 million. In 2013, payment of contingent considerations totalled DKK 137 million and foreign currency translation adjust-
ments DKK -29 million. Contingent consideration on the balance sheet is specified in note 16 Other liabilities on page 67.

The acquired assets included contractual receivables amounting to DKK 85 million (DKK 29 million in 2012) of which DKK 5 million
(DKK o million in 2012) was thought to be uncollectible at the date of acquisition. Of total goodwill in the amount of DKK 1,133 mil-
lion (DKK 590 million in 2012), DKK 71 million (DKK 209 million in 2012) can be amortised for tax purposes. Neither in 2012 nor in

2013, were contingent liabilities recognised on acquisition.

 

The above statement of fair values of the respective acquired enterprises is not considered final until 12 months after acquisition.

Transaction costs in connection with acquisitions in 2013 amounted to DKK 4 million (DKK 5 million in 2012), which has been rec-
ognised under distribution costs.

The revenue and profit of the acquired enterprises since our acquisition in 2013 amounted to DKK 311 million (DKK 185 million in
2012) and DKK 17 million (DKK 15 million in 2012), respectively. Had such revenue and profit been consolidated on 1 January 2013,
the consolidated revenue and profit are pro forma estimated to have been DKK 9,471 million (DKK 8,644 million in 2012) and DKK
1,325 million (DKK 1,156 million in 2012), respectively. In our opinion, these pro forma figures reflect the level of consolidated earn-

ings after our acquisition of the enterprises and consequently, the amounts can form a basis for comparison in subsequent finan-
cial years.

From the balance sheet date and until the date of financial reporting in 2014, we have acquired a few minor distribution enter-
prises. We are in the process of calculating their fair values. The acquisition cost is expected to relate primarily to goodwill.

141041QE0GSN05516 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 71

 

 

Note 21 — Government grants

In 2013, the William Demant Group received government grants in the amount of DKK 12 million (DKK 1 million in 2012).
Grants are offset against research and development costs.

Note 22 — Specifications to consolidated cash flow statement

 

(DKK million) 2013 | 2012
Amortisation and depreciation etc. 295 267
Share of profit after tax, associates o ; -12
Gain on sale of intangible assets and property, plant and equipment oa i -5
Other non-cash items -32 | -13
Non-cash items etc. 263 237

 

 

 

 

Note 23 — Events after the balance sheet date

There have been no events that materially affect the assessment of the Annual Report after the balance sheet date and until today.

Note 24 — Approval and publication

Atthe Board meeting on 27 February 2014, our Board of Directors approved this Annual Report for publication. The Annual Report
will be presented to the shareholders of William Demant Holding A/S for adoption at the annual general meeting on 9 April 2014.

Note 25 — Shareholders

The names of the shareholders listed below are recorded in the register of shareholders as owners of minimum 5% of the votes
or minimum 5% of the share capital:

William Demant Invest A/S and this company's parent, William Demants og Hustru Ida Emilies Fond (the Oticon Foundation),
Kongebakken 9, 2765 Smørum, Denmark. Ownership interest is approximately 56%. William Demant Invest A/S prepares con-
solidated financial statements in which the William Demant Group is included.

The Capital Group Companies Inc., Los Angeles, USA. Ownership interest (including ownership interests of customers whose
portfolios are administered by the company and companies owned directly or indirectly by the company) is 510%.

72. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

Note 26 — Board of Directors and Executive Board

 

 

 

 

 

 

The members of the Board of Directors and Executive Board of William Demant Holding A/S hold other executive positions

as specified below:

Board of Directors

Lars Nørby Johansen, Chairman

Peter Foss, Deputy Chairman

Niels B, Christiansen

Thomas Hofman-Bang

Ole Lundsgaard

Jørgen Møller Nielsen

Karin Ubbesen

Executive Board

Niels Jacobsen, President & CEO

 

 

 

 

 

 

 

 

 

1410410E0GSN05517

Other executive positions

Codan A/S and one subsidiary, chairman of the board
The Danish Growth Council, chairman

Dansk Vækstkapital, chairman of the board

Falck A/S and one subsidiary, chairman of the board
University of Southern Denmark, chairman of the board
The Rockwool Foundation, deputy chairman ofthe board
Arp-Hansen Hotel Group A/S, board member

Index Award A/S, board member

FOSS A/S, chairman of the board

N. Foss & Co. A/S, deputy chairman of the board

The Oticon Foundation, deputy chairman of the board
William Demant Invest A/S, deputy chairman of the board
AR. Holding af 1999 A/S, board member

TrackMan A/S, board member

Danfoss A/S, President & CEO and directorships in three subsidiaries
Axcel A/S, chairman of the board
Danske Bank A/S, deputy chairman of the board

KPMG 2014 P/S, CEO and Senior Partner (from 1 February 2014)
The Bikuben Foundation, board member

Danish Committee on Corporate Governance, member

Interacoustics A/S, staff-elected board member and deputy chairman of the joint
consultative committee

Deputy chairman of the local business group under The Danish Society of Engineers (IDA)

Oticon A/S, shop steward, staff-elected board member

LEGO A/S, chairman of the board

A.P. Møller - Mærsk A/S, deputy chairman of the board

KIRKBI A/S, deputy chairman of the board

Thomas B. Thriges Fond (Thomas B. Thrige Foundation), chairman

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — 73

 

 

 

 

 

PARENT ACCOUNTING POLICIES

 

The financial statements for the Parent, William Demant
Holding A/S, are presented in accordance with the provi-
sions of the Danish Financial Statements Act for large
class D entities.

The Parent financial statements are presented in Danish
kroner (DKK), which is also the functional currency for the
Parent. The accounting policies are the same as last year.

The Parent's accounting policies in respect of recognition
and measurement are generally consistent with the Group's
accounting policies. The instances in which the Parent's
accounting policies deviate from those of the Group are
described below.

Income statement

Tax

The Parent is jointly taxed with its Danish subsidiaries and
its Parent, William Demant Invest A/S. Current income tax

is allocated to the jointly taxed Danish companies in propor-
tion to their taxable incomes.

Balance sheet

Goodwill

Goodwill is amortised on a straight-line basis over 20 years,
which is the useful life determined on the basis of Manage-

ment's experience in respect of the individual business acti-
vities. Goodwill is written down to its recoverable amount if

lower than its carrying amount.

Rights .
Rights acquired are amortised on a straight-line basis over

their estimated useful lives and measured at cost less accu-
mulated amortisation and impairment losses. The amortisa-
tion period is five years. Rights acquired are written down to

Investments in subsidiaries and associates

Investments in subsidiaries and associates are recognised
and measured using the equity method, i.e. interests are
measured at the proportionate share of the equity values
of such subsidiaries or associates with the addition or de-
duction of the carrying amount of goodwill and with the
addition or deduction of unrealised intra-Group profits

or unrealised intra-Group losses, respectively.

The Parent's proportionate shares of profits or losses in sub-
sidiaries and associates are recognised in the income state-

PARENT ACCOUNTING POLICIES

74

ment after elimination of unrealised intra-Group profits or
losses less amortisation and impairment, if any, of goodwill.

Subsidiaries and associates with negative equity values are
measured at DKK 0, and any receivables from such compa-
nies are written down with the Parent's share of the negative
equity value, to the extent that such receivable is considered
irrecoverable. Ifthe negative equity value exceeds receiva-
bles, if any, such residual amounts will be recognised under
provisions, to the extent that the Parent has a legal or con-
structive obligation to cover liabilities incurred by the par-
ticular subsidiary or associate.

On distribution of profit or loss, net revaluation and net im-
pairment loss of investments in subsidiaries and associates
are transferred to reserves for net revaluation according to
the equity method under equity.

Other investments

On initial recognition, other investments are measured at
cost. Subsequently, they are measured at their fair values
on the balance sheet date, and any changes in fair values
are recognised in the income statement under net financial
items.

Provisions

Provisions include liabilities, which are uncertain in respect
of the amount or the timing of their settlement. Provisions
may include different types of liabilities, such as deferred
tax liabilities, onerous contracts, pension obligations as
well as provisions før disputes etc.

Statement of changes in equity
In compliance with the format requirements of the Danish
Financial Statements Act, any items included under compre-

hensive income in the consolidated financial statements are

recognised directly in equity in the Parent financial state-
ments, with the exception of actuarial gains and losses on
plan assets and plan liabilities, which in the Parent are rec-
ognised in the income statement.

Cash flow statement

In compliance with section 84(4) ofthe Danish Financial
Statements Act, a cash flow statement is not drawn up for
the Parent, such statement being included in the consoli-
dated cash flow statement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PARENT INCOME STATEMENT

 

 

 

 

 

 

(DKK million) Note 2013 2012
Administrative expenses 1/2 -60 -57
Other operating income and expenses 34 1
Operating loss (EBIT) -26 -58
Share of profit after tax, subsidiaries 7 1,184 1,091
Share of profit after tax, associates 7 -5 3
Financial income 3 31 32
Financial expenses 3 738 758
Profit before tax 1,146 1,010
Tax on profit for the year 4 11 19
Profit for the year 1,157 1,029
Proposed distribution of net profit:
Transferred to reserves for net revaluation according to the equity method 607 236
Retained earnings 550 793
1,157 1,029

1410410QE0GSN05518 PARENT INCOME STATEMENT — 75

 

 

 

 

PARENT BALANCE SHEET AT 31 DECEMBER

 

 

 

 

 

 

 

 

 

 

 

 

(DKK million) Note 2013
Assets

Goodwill 52
Rights 1
Intangible assets 5 53
Land and buildings 24
Other plant, fixtures and operating equipment 2
Property, plant and equipment 6 26
Investments in subsidiaries 7 6,070
Receivables from subsidiaries 7 1,795
Investments in associates 7 40
Receivables from associates 13
Other investments 7 2
Other receivables 7 7
Financial assets 7,927
Non-current assets 8,006
Income tax 7
Prepaid expenses 3
Receivables 10
Cash o
Current assets 10
Assets 8,016

 

76. PARENT BALANCE SHEET — ASSETS

 

2012

56

59

24

26

4,617
1,527
46
13

15
6,222

6,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PARENT BALANCE SHEET AT 31 DECEMBER

 

 

(DKK million)

Equity and liabilities
Share capital

Other reserves
Retained earnings
Total equity

Other provisions
Deferred tax liabilities
Provisions

Interest-bearing debt
Other debt
Non-current liabilities

Interest-bearing debt
Debt to parent

Debt to subsidiaries
Income tax

Other debt

Current liabilities

Liabilities

Equity and liabilities
Contingent liabilities
Related parties

Shareholders
Events after the balance sheet date

 

 

 

 

 

 

 

 

1410410E0GSWN05519

Note

10
11
12

2013

57
1,814

3,152
5.023

30
11
41
12
50
62
1,128

1,722

40

2,890
2,952

8,016

2012

58
1,402
2,700

4,160

25
15
40

25
68

93

897
56
1,020

34
2,015

2,108

6,308

PARENT BALANCE SHEET — EQUITY AND LIABILITIES — 77

 

 

PARENT STATEMENT OF CHANGES IN EQUITY

 

 

 

 

 

 

Share Other reserves Retained Total
capital Foreign cur- Hedging Reserve earnings equity
rency trans- reserve according to

(DKK million) lation reserve equity method
Equity at 1.1.2012 58 -88 "24 1,173 2,404 3,523
Profit for the year - - - 236 793 1,029
Foreign currency translation adjustment of
investments in subsidiaries etc. - -4 - 4 - o
Other changes in equity in subsidiaries - - - 87 0 87
Value adjustment of hedging instruments - - 22 - - 22
Tax relating to changes in equity - 1 -5 - - -4
Buy-back of shares - - - - -497 -497
Other changes in equity - - - - 0 o
Equity at 31.12.2012 58 -91 7 1,500 2,700 4,160
Profit for the year - - - 607 550 1,157
Foreign currency translation adjustment of
investments in subsidiaries etc. - -8 - -213 - -221
Other changes in equity in subsidiaries - - - 18 - 18
Value adjustment of hedging instruments - - 9 - - 9
Tax relating to changes in equity - 2 -2 - - -
Buy-back of shares - - - - -101 -101
Capital reduction through cancellation
of treasury shares -1 - - - 1 o
Other changes in equity - - - -1 2 1
Equity at 31.12.2013 57 "97 o 1,911 3,152 5,023
Changes in share capital: 2013 2012 2011 2010 2009
Share capital at the beginning of the year 58 58 58 59 59
Reduction of share capital through cancellation
of treasury shares -1 o o -1 o
Share capital at the end of the year 57 58 58 58 59

 

At year-end 2013, the share capital was nominally DKK 57 million (DKK 58 million in 2012) divided into the corresponding number
of shares of DKK 1. There are no restrictions on the negotiability or voting rights of the shares. At year-end 2013, the number of
shares outstanding was 56,460,113 (56,661,638 in 2012). For additional information, please refer to note 11 Shareholders.

2013

Treasury

Percentage of

2012

Treasury

Percentage of

 

shares share capital shares share capital
Holding of treasury shares:
Treasury shares at 1.1. 1,688,237 2.9% 708,870 1.2%
Cancellation of treasury shares -1,688,237 -2.9% o 0.0%
Buy-back of shares 201,525 0.4% 979,367 1.7%
Treasury shares at 31.12. 201,525 0.4% 1,688,237 2.9%

 

As part of the Company's share buy-back programme, the Company bought back 201,525 shares in 2013 (979,367 shares in 2012)

worth a total of DKK 101 million (DKK 497 million in 2012).

78

PARENT STATEMENT OF CHANGES IN EQUITY

 

 

 

 

 

NOTES TO PARENT FINANCIAL STATEMENTS

 

Note 1 — Employees

 

 

(DKK million) 2013 2012
Staff costs:

Wages and salaries 32 31
Pension plans o o
Total 32 31
Cash remuneration for Executive Board and Board of Directors:

Executive Board, salary 12 12
Executive Board, bonus and pension o o
Board of Directors, remuneration 3 3

For a description of seniority bonus, reference is made to note 2 Employees in the consolidated financial statements. In 2013, the
basic remuneration for a member of the Parent's Board of Directors was DKK 300,000 (DKK 300,000 in 2012). The Chairman of the
Board of Directors receives three times the basic remuneration and the Deputy Chairman twice the basic remuneration.

 

2013 2012
Average number of full-time employees 15 15
Note 2 — Fees to Parent's auditors appointed at the annual general meeting
(DKK million) 2013 2012
Statutory audit 1
Total 1 1

 

 

 

 

 

 

 

 

 

 

 

 

 

1410410QE0GSN05520 NOTES TO PARENT FINANCIAL STATEMENTS — 79

 

 

 

Note 3 — Net financial items

 

 

 

 

 

 

 

 

 

 

(DKK million) 2013 2012
Interest from subsidiaries 26 31
Interest income 2
Foreign exchange gains, net 3 o
Financial income 31 32
Interest to subsidiaries -13 -12
Interest expenses -24 -42
Transaction costs -1 -2
Foreign exchange losses, net 0 -2
Financial expenses -38 -58
Note 4 — Tax on profit for the year and deferred tax
(DKK million)

2013 2012
Tax on profit for the year:
Current tax on profit for the year 7 10
Adjustment of current tax, prior years o -1
Change in deferred tax 1 10
Adjustment of deferred tax, prior years 2 o
impact of changes in corporate tax rates 1 o
Total 11 19
Reconciliation of tax rates:
Tax on profit for the year 11 24
Tax on entries on equity o -5
Total 11 19
Deferred tax is recognised in the balance sheet as follows:
Deferred tax assets o o

—— Deferred tax liabitities TT TT TT TT -11 AB
Deferred tax, net at 31.12. -11 -15
Deferred tax, net at 1.1. -15 -25
Change in deferred tax assets 1 10
Adjustment of deferred tax, prior years 2 o
Impact of changes in corporate tax rates 4 0
-11 15

 

Deferred tax, net at 31.12.

 

80 NOTES TO PARENT FINANCIAL STATEMENTS

 

 

 

Note 5 — Intangible assets

 

 

 

 

 

 

 

 

 

 

 

Goodwill Rights Total intan-
(DKK million) gible assets
Cost at 1.1.2013 65 7 72
Additions during the year o o o
Cost at 31.12.2013 65 7 72
Amortisation at 1.1.2013 -9 "4 -13
Amortisation for the year -4 -2 -6
Amortisation at 31.12.2013 13 -6 -19
Carrying amount at 31.12.2013 52 1 53
Cost at 1.1.2012 65 7 72
Additions during the year o o
Cost at 31.12.2012 65 7 72
Amortisation at 1.1.2012 -6 -2 -8
Amortisation for the year -3 -2 -5
Amortisation at 31.12.2012 -9 -4 -13
Carrying amount at 31.12.2012 56 3 59

 

Goodwill is amortised over 20 years, reflecting the useful life estimated by Management.

 

 

 

 

 

 

 

 

 

 

 

1410410E0GSN05521 NOTES TO PARENT FINANCIAL STATEMENTS 81

 

 

 

Note 6 — Property, plant and equipment

 

 

 

 

 

 

 

 

 

Land and Other plant, Total

buildings fixtures and property,

(DKK million) operating plant and
equipment equipment

Cost at 1.1.2013 30 2 32
Additions during the year o o o
Cost at 31.12.2013 30 2 32
Depreciation and impairment losses at 1.1.2013 -6 o 6
Depreciation for the year o o 0
Depreciation and impairment losses at 31.12.2013 "6 o -6
Carrying amount at 31.12.2013 24 2 26
Cost at 1.1.2012 30 2 32
Additions during the year o o o
Cost at 31.12.2012 30 2 32
Depreciation and impairment losses at 1.1.2012 -6 o -6
Depreciation for the year o 0 0
Depreciation and impairment losses at 31.12.2012 -6 0 -6
Carrying amount at 31.12.2012 24 2 26

 

The Parent has no financially leased assets.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

82 NOTES TO PARENT FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 7 — Financial assets

 

 

 

 

 

 

 

 

 

 

Investments Receivables Investmentis Other Other
in subsidiaries from in associates investments receivables
(DKK million) subsidiaries
Cost at 1.1.2013 3,118 1,527 46 3 15
Foreign currency translation adjustments o -8 o o 0
Additions during the year 1,041 300 16 o 7
Additions relating to acquisitions o 5 o o o
Disposals during the year o -29 -18 -2 -15
Cost at 31.12.2013 4,159 1,795 44 1 7
Value adjustments at 1.1.2013 1,499 o 0 1 o
Foreign currency translation adjustments -213 o o o o
Share of profit after tax 1,184 - -5 -
Dividends received -577 - o - -
Disposals during the year o o 1 o o
Other adjustments 18 0 o o o
Value adjustments at 31.12.2013 1,911 0 -4 1 0
Carrying amount at 31.12.2013 6,070 1,795 40 2 7
Cost at 1.1.2012 2,823 1,517 20 3 14
Foreign currency translation adjustments o 1 o o
Additions during the year 295 73 32 o 5
Disposals during the year 0 -64 -6 o -4
Cost at 31.12.2012 3,118 1,527 46 3 15
Value adjustments at 1.1.2012 1,176 0 -3 1 0
Foreign currency translation adjustments 3 o o o o
Share of profit after tax 1,091 - 3 - -
Dividends received -855 - -1 - -
Disposals during the year o o -3 o o
Other adjustments 84 o 4 o 0
Value adjustments at 31.12.2012 1,499 0 o 1 0
Carrying amount at 31.12.2012 4,617 1,527 46 4 15

 

The carrying amounts of investments in subsidiaries include capitalised goodwill in the net amount of DKK 3,400 million (DKK
2,398 million in 2012). Amortisation of consolidated capitalised goodwill for the year is DKK 169 million (DKK 113 million in 2012).
Receivables from subsidiaries of DKK 1,795 million (DKK 1,527 million in 2012) are considered additions to the total investments in
the particular enterprises and are therefore considered non-current. Other receivables worth DKK 7 million (DKK 15 million in 2012)
will fall due after five years. Please refer to the Subsidiaries and associates list on page 86 for further information on subsidiaries,
joint ventures and associates.

 

 

 

 

 

 

 

 

 

 

14 10 410EBE0GSN05522 NOTES TO PARENT FINANCIAL STATEMENTS — 83

 

 

 

 

 

 

 

 

 

 

Note 8 — Other debt

 

 

(DKK million) 2013 2012
Staff-related liabilities 1

Other debt, public authorities 1 5
Liabilities relating to acquisitions 84 83
Other costs payable 4 4
Unrealised losses on financial contracts o 9
Other debt 90 102
Due within 1 year 40 34
Due within 1-5 years 50 68

Staff-related liabilities include holiday pay and payroll costs due. The carrying amount of other debt matches the fair value of
the debt.

Of the non-current interest-bearing debt in the amount of DKK 12 million (DKK 25 million in 2012), DKK o million (DKK o million
in 2012) will fall due after five years.

Note 9 — Contingent liabilities

William Demant Holding A/S has provided security in respect of credit facilities established by Danish subsidiaries. In 2013, these
credit facilities totalled DKK 1,713 million (DKK 1,287 million in 2012) of which DKK 1,194 million were drawn (DKK 830 million in
2012). Moreover, we have established a mutual guarantee with Oticon A/S in the amount of DKK 400 million (DKK 400 million in
2012), which is being drawn upon on a current basis.

William Demant Holding A/S has provided security in respect of rent as well as guarantees concerning the continuous operation
and payment of liabilities in 2014 to some of our subsidiaries.

The parent is jointly taxed with William Demant Invest A/S, which is the administration company. Under the Danish Corporation Tax
Act, the parent is liable for any obligation to withhold tax at source in respect of interest, royalties and dividends in relation to the

jointly taxed enterprises
—Før the purposes of sectiorm 17 of the Republic of Irelårid Companies (Amendment) Act, William Demant Holding A/S has under
taken to indemnify the creditors of its subsidiaries incorporated in the Republic of Ireland in respect of all lossses and liabilities

as referred to in section 5 c of said act for the financial year ending on 31 December 2013 or any amended financial period incor-
porating the said financial year. The Company does not expect any material loss to arise from this guarantee.

84. NOTES TO PARENT FINANCIAL STATEMENTS

 

 

 

Note 10 — Related parties

 

William Demants og Hustru Ida Emilies Fond (the Oticon Foundation) Kongebakken 9, 2765 Smørum, Denmark, is the only related
party with a controlling interest. Controlling interest is achieved through a combination of the Oticon Foundation”s own sharehold-
ing and the shareholding of William Demant Invest A/S for which the Oticon Foundation exercises the voting rights. Associated
enterprises of William Demant Invest A/S are related parties to William Demant Holding A/S.

Related parties with significant influence are the Company's Executive Board, Board of Directors and their related parties. Further-
more, related parties are companies in which the above persons have significant interests.

Note 11 — Shareholders

    
 
   
   
    
 

The names of the shareholders listed below are recorded in the register of shareholders as owners of minimum 5% of the votes
or minimum 5% of the share capital:

William Demant Invest A/S and this company's parent, William Demants og Hustru Ida Emilies Fond (the Oticon Foundation),
Kongebakken 9, 2765 Smørum, Denmark. Ownership interest is approximately 56%. The Oticon Foundation prepares consoli-

dated financial statements in which the William Demant Group is included.

The Capital Group Companies Inc., Los Angeles, USA. Ownership interest (including ownership interests of customers whose
portfolios are administered by the company and companies owned directly or indirectly by the company) is 5-10%.

Note 12 — Events after the balance sheet date

Please refer to note 23 Events after the balance sheet date in the consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

14131094 1GQGEO0GSN0 5523 NOTES TO PARENT FINANCIAL STATEMENTS — 85

 

SUBSIDIARIES AND ASSOCIATES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Audiola Sp. Z 0.0., Poland

Company Interest Company Interest
William Demant Holding A/S Parent  Audiomed Tibbi Cihazlar Malzeme ve Implant, Turkey 100%
Oticon A/S, Denmark” 100%  Audionomerna Sweden AB, Sweden 100%
Oticon AS, Norway” 100% — Canada Hearing Centre Lid., Canada 100%
Oticon AB, Sweden” 100% Centro Auditivo Telex S.A., Brazil 100%
Oy Oticon Ab, Finland” 100%  Danacom Høreapparater A/S, Denmark= 100%
Oticon GmbH, Germany 100% — Det Lille Høreapparat ApS, Denmark” 100%
Oticon Nederland B.V., the Netherlands= 100% — Diagnostic Group LLC, USA 100%
Oticon S.A., Switzerland= 100% — Diatec AG, Switzerland 100%
Oticon Italia S.r.l., Italy” 100% — Diatec Spain, S.L.U., Spain 100%
Oticon Esparfia S.A., Spain 100% — Digital Hearing (UK) Ltd., United Kingdom 100%
Oticon Polska Sp. z 0.0., Poland” 100%  Fonikon Biernacki K.A. & Konopka A.K. Sp. z 0.0., Poland 100%
Oticon Limited, United Kingdom= 100% — Gordon N. Stowe and Associates Inc., USA 100%
Oticon Inc., USA 100% — Hearing Healthcare Management Inc., USA 100%
Oticon Canada Ltd., Canada= 100% Hidden Hearing (Portugal), Unipessoal Lda., Portugal 100%
Oticon Australia Pty. Ltd., Australia 100% Hidden Hearing (UK) Ltd., United Kingdom 100%
Oticon New Zealand Ltd., New Zealand” 100% Hidden Hearing Limited, Ireland 100%
Oticon K.K., Japan” 100%  Hårsam AB, Sweden” 100%
Oticon Singapore Pte Ltd., Singapore” 100% — Hormittelzentralen AG, Switzerland 100%
Oticon Shanghai Hearing Technology Co. Ltd., China" 100% HZ Satellit GmbH, Switzerland 100%
Oticon International Trading Shanghai Co. Lid., China= 100% — IDEA Isitme Sistemleri Sanayi ve Ticaret A.S., Turkey 100%
Oticon South Africa (Pty) Ltd., South Africa” 100% — Interacoustics A/S, Denmark” 100%
Oticon Korea Co. Ltd., Korea" 100% — Interacoustics Pty. Ltd., Australia” 100%
Oticon Malaysia Sdn, Malaysia 100% — Kuulopiiri Oy, Finland= 100%
Oticon Medical A/S, Denmark” 100%  M.S.R. West, Inc., USA 100%
Oticon Medical AB, Sweden 100%  Maico Diagnostic GmbH, Germany 100%
Oticon Medical Inc., USA 100%  Maico S.r.l., Italy” 100%
Bernafon AG, Switzerland” 100%  Med-Acoustics Inc., USA 100%
Bernafon Hårgeråte GmbH, Germany 100%  MedRx Inc., USA 100%
— Bernafon Sr.L, Italy” 400%  Micromedical Technologies Inc., USA 100%
Bernafon LLC, USA 100%  Multifon Aparaty Sluchowe Sp. z 0.0., Poland 100%
Bernafon Canada Ltd., Canada 100% — Neurelec GmbH, Germany 100%
Bernafon Australia Pty. Ltd., Australia= 100% — Neurelec Maroc Sarlau, Morocco 100%
Bernafon New Zealand Pty. Ltd., New Zealand 100% — Neurelec S.A., France” 100%
Bernafon K.K., Japan 100% — Ostrea Holding AG, Switzerland" 100%
Bernafon Nederland B.V., the Netherlands= 100%  Phonic Ear A/S, Denmark” 100%
Bernafon AB, Sweden” 100% — Prodition S.A., France” 100%
Bernafon Ibérica S.L.U., Spain 100% Sensory Devices Inc., USA 100%
DGS Poland Sp. z 0.0., Poland 100% — SES Isitme Cihazlari Sanayi ve Ticaret A.S., Turkey 100%
ACS Sluchmed Sp. z 0.0, Poland 100% — Sonic Innovations Inc., USA 100%
Acustic Aparaty Stuchowe Sp. Z 0.0., Poland 100% — Sonic Innovations Pty Ltd., Australia 100%
Acustica Sp. z 0.0., Poland” 100% — Trilogy Audiometrics Inc., USA 100%
AD Styla Sp. z 0.0., Poland 100% — Van Boxtel Hoorwinkels B.V., the Netherlands 100%
Akoustica Medica M EPE, Greece 100% — FrontRow Calypso LLC, USA 75%
American Hearing Aid Associates, Inc., USA 100% Sennheiser Communications A/S, Denmark 50%
Amplivox Ltd., United Kingdom 100% — nEarcom LLC, USA 33%
100% HIMSA A/S, Denmark 25%

 

86  SUBSIDIARIES AND ASSOCIATES

 

The list above includes the Group's active companies.
=Directly owned by the Parent.

 

 

1410410E0GSN05524

 

 

Phone +45 3917 730

Fax +45 3927 890(
williamædemant.co
www.demant.co

CVR no. 7118691

Editing, design and production
William Demant Holding A/

MEE te DTS ens Tale