ÖSSUR Q4 and FULL YEAR RESULTS 2016hugin.info/133773/R/2076672/781029.pdf · ÖSSUR Q4 and FULL YEAR RESULTS 2016 Highlights Q4 2016 Sales amounted to USD 138 million compared to

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ÖSSUR Q4 and FULL YEAR RESULTS 2016

Highlights Q4 2016

Sales amounted to USD 138 million compared to USD 125 million in Q4 2015, corresponding to local currency growth of 13% and 4% organic growth.

Gross profit amounted to USD 87 million or 63% of sales, compared to USD 78 million or 63% of sales in Q4 2015.

EBITDA amounted to USD 26 million or 19% of sales, compared to USD 25 million or 20% of sales in Q4 2015. Net profit amounted to USD 14 million or 10% of sales, compared to USD 13 million or 10% of sales in Q4

2015. Cash flow from operations amounted to USD 28 million or 20% of sales, compared to USD 31 million or 25%

of sales in Q4 2015. The safe harbor share buyback program that was launched in December 2015 ended in November 2016. A new

share buyback program was initiated in December 2016 where the Company may purchase up to 5,000,000 shares.

In December, Össur and Nordic Investment Bank (NIB) signed an agreement for EUR 50 million financing.

Highlights Full Year 2016

Sales amounted to USD 521 million compared to USD 483 million in 2015, corresponding to local currency growth of 9% and 4% organic growth.

Bracing and supports sales growth was 2% and 2% organic, both measured in local currency. Prosthetics sales growth was 19% and 7% organic, both measure in local currency. Gross profit amounted to USD 328 million or 63% of sales, compared to USD 303 million or 63% of sales in

2015. EBITDA before special items amounted to USD 98 million or 19% of sales, compared to USD 99 million or 20%

of sales in 2015. Net profit amounted to USD 51 million or 10% of sales compared to USD 51 million or 11% of sales in 2015. Changes in foreign exchange rates had a negative impact on the reported sales and profits when comparing to

prior year results. Cash flow from operations amounted to USD 88 million or 17% of sales compared to USD 84 million or 17% of

sales in 2015. Capital expenditure to net sales was 4.7%. The Board of Directors will propose to the Annual General Meeting that the Company pays a cash dividend of

DKK 0.12 per share for 2016, equivalent to 15% of net profit in 2016. In 2016, Össur purchased 7,853,968 of own shares for approximately DKK 193 million (USD 30 million). The Board of Directors will also propose to the Annual General Meeting to reduce the share capital by cancelling

5,837,832 of the Company's own shares.

Financial Guidance for 2017

The financial guidance for the full year of 2017 is as follows:

Sales growth LCY in the range of 7-8% Organic sales growth LCY in the range of 4-5% EBITDA before special items margin in the range of 19-20% Capital expenditures around 4% of net sales Effective tax rate around 26%

Jon Sigurdsson, President & CEO, comments:

“We are happy to close another year with strong operational results. Sales growth was good in both EMEA and Americas, and in both product segments. We acquired two great companies during the year, Medi Prosthetics and Touch Bionics. Medi Prosthetics brings a full line of products allowing us to offer a complete lower extremity portfolio to our customers and the addition of Touch Bionics allows us to add cutting edge upper extremity prosthetics to our range of products. On the bracing and supports side we had an exciting year of new product launches including our latest OA brace, the Unloader® Hip.”

Conference Call Össur will host a conference call on Wednesday 8 February 2017 at 9:00 CET/ 8:00 GMT/ 3:00 EDT. To participate in the call please dial: Europe: +45 3544 5580, +44 (0) 203 364 5374 or +46 (0) 8 505 564 74, The United States: + 1 855 753 2230, Iceland: +354 800 7417

Announcement from Össur hf. No. 08/2017 Reykjavík, 7 February 2017

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Financial Highlights

*Financial ratios for Q4 2016 and Q4 2015 are based on operations for the preceding 12 months.

USD m Q4 2016 Q4 2015 2016 2015 2014 2013 2012

Income Statement

Net sales 138 125 521 483 509 436 399

Gross profit 87 78 328 303 323 270 248

Operating expenses (excl. other income) 67 59 256 226 237 210 191

EBITDA 26 25 94 97 104 75 70

EBITDA adjusted 26 25 98 99 104 80 70

EBIT 20 19 72 77 86 60 57

Net profit 14 13 51 51 59 41 38

Sales growth

Sales growth USD % 11 (4) 8 (5) 17 9 0

Growth breakdown:

Organic growth in LCY % 4 5 4 5 5 2 3

Currency effect % (2) (9) (1) (10) (1) 1 (3)

Acquired/divested business % 9 0 5 1 13 6 1

Balance Sheet

Total assets 746 653 746 653 678 706 591

Equity 467 463 467 463 442 448 408

Net interest-bearing debt (NIBD) 119 58 119 58 93 108 82

Cash Flow

Cash generated by operations 28 31 88 84 98 73 71

Free cash flow 16 18 42 42 68 49 43

Key ratios

Gross profit margin % 63 63 63 63 63 62 62

EBIT margin % 14 15 14 16 17 14 14

EBITDA margin % 19 20 18 20 20 17 18

EBITDA adjusted margin % 19 20 19 20 20 18 18

Equity ratio % 63 71 63 71 65 63 69

Net debt to adj EBITDA * 1.2 0.6 1.2 0.6 0.9 1.3 1.2

Effective tax rate % 25 27 25 25 24 26 26

Return on equity * % 11 11 11 11 13 10 10

CAPEX / Net sales % 3.7 5.4 4.7 4.9 3.3 3.9 3.6

Full time employees on average 2,795 2,556 2,710 2,420 2,214 1,765 1,860

Market

Market value of equity 1,582 1,546 1,582 1,546 1,311 880 606

Number of shares Millions 443 446 443 446 454 454 454

Diluted EPS US cent 3.3 2.8 11.6 11.5 13.1 9.1 8.4

Diluted cash EPS US cent 4.7 4.1 16.5 16.0 17.2 12.5 11.3

Unaudited

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Management’s Report

Q4 HIGHLIGHTS

Sales Performance Sales amounted to USD 138 million compared to USD 125 million in Q4 2015, corresponding to local currency growth of 13% and 4% organic growth. Due to the depreciation of a few major operational currencies against the USD and the appreciation of the ISK against the USD, currency movements in Q4 2016 compared to Q4 2015 impacted the operating results negatively; sales by USD 2 million and EBITDA by USD 2 million in the quarter.1 Sales by Segments and Regions in Q4 2016

Bracing and supports Bracing and supports sales grew by 3% measured in local currency. Our recently launched Form Fit® line was well received in the quarter, we introduced 7 new Form Fit® products in the quarter broadening the product line even further. High end innovative products continued to perform nicely in the quarter. Sales growth in EMEA was in line with expectation but sales in Americas were somewhat slow. APAC had an excellent quarter but sales performance in this region has historically been volatile between quarters due to concentration of sales to few large distributors.

Prosthetics

Prosthetics sales grew by 28% and 6% organic, both measured in local currency. Sales growth continued to be strong in bionics, with good contribution from the RHEO KNEE® 3 XC that was launched in Q2 2016 as well as other newly launched products. All regions had an excellent quarter with sales growing double digit across the line measured in local currency.

Sales of bionic products in the quarter amounted to 25% of prosthetics component sales, compared to 16% in Q4 2015. The increase in relative share of bionics sales is due to both good growth of bionic sales in our existing business as well as the vast majority of the acquired Touch Bionics sales being bionic products. EBITDA

EBITDA amounted to USD 26 million or 19% of sales, compared to USD 25 million or 20% of sales in Q4 2015. EBITDA growth amounted to 15% measured in local currency.

Gross profit amounted to USD 87 million or 63% of sales, compared to USD 78 million or 63% of sales in Q4 2015.

Currency movements continued to affect the EBITDA margin negatively, by about 80 basis points. Furthermore, the consolidation of the recently acquired companies affected the EBITDA margin negatively by about 20 basis point. The EBITDA margin of the acquired companies is currently lower than the average margin of the pre-acquisition Össur business. Synergies are expected to materialize fully for the Medi Prosthetics business in the second half of 2017 and for the Touch Bionics business in 2018.

Growth in operating expenses were in line with organic sales growth.

USD m Q4 2016 % of sales

Sales growth

USD

Sales growth

LCY

Organicsales

growth LCY

EMEA 69 50% 9% 13% 3%

Americas 60 43% 13% 13% 3%

APAC 10 7% 12% 11% 11%

Total 138 100% 11% 13% 4%

USD m Q4 2016 % of sales

Sales growth

USD

Sales growth

LCY

Organicsales

growth LCY

Bracing and supports 72 52% 0% 3% 3%

Prosthetics 66 48% 26% 28% 6%

Other 0 0% -26% -26% -26%

Total 138 100% 11% 13% 4%

1The methodology used to calculate the currency impact is to convert the Q4 2016 operating results on the average exchange rates of Q4 2015.

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Financial Items, Tax and Net Profit Net financial expenses amounted to USD 0.2 million compared to USD 1.9 million in Q4 2015. Due to major operating currencies depreciating less against the USD in Q4 2016 compared to Q4 2015, the net exchange rate differences are positive by USD 0.4 million in Q4 2016 compared to negative USD 1.1 million in Q4 2015.

Income tax amounted to USD 5 million, corresponding to 25% tax rate, compared to USD 5 million and 27% effective tax rate in Q4 2015.

Net profit amounted to USD 14 million or 10% of sales, compared to USD 13 million or 10% of sales in Q4 2015.

Cash Flow

Cash flow from operations was good in the quarter and amounted to USD 28 million or 20% of sales, compared to USD 31 million or 25% of sales in Q4 2015. Working capital impacted the quarter positively, however the comparable quarter was extraordinary due to shift in working capital between quarters.

Capital expenditure amounted to USD 5 million or 4% of sales, compared to USD 7 million or 5% of sales in Q4 2015.

2016 FULL YEAR HIGHLIGHTS

Sales Performance Sales amounted to USD 521 million compared to USD 483 million in 2015, corresponding to 9% growth and 4% organic growth, both measured in local currency. Due mainly to the depreciation of the GBP against the USD and the appreciation of the ISK against the USD, currency movements in 2016 compared to 2015 impacted the operating results negatively; sales by USD 7 million and EBITDA by USD 5 million.1 Sales by Segments and Regions in 2016

Bracing and supports

Bracing and supports sales amounted to USD 280 million compared to USD 278 in 2015, corresponding to 2% growth measured in local currency. There was growth in all regions with ongoing positive impact from high end and newly launched products. We launched 37 products during the year that has further strengthened our product offering throughout the entire product portfolio. Growth in EMEA was in line with the market throughout the year. Performance in Americas was good but was negatively impacted by discontinued sales of a specific product line.

Prosthetics

Prosthetics sales amounted to USD 240 million compared to USD 204 million 2015, corresponding to 19% growth and 7% organic, both measured in local currency. During Q2 of 2016 we launched our latest version of our RHEO KNEE®, the RHEO KNEE® 3 XC, which has been well received during the year. Both EMEA and Americas showed strong growth throughout the year with bionics and newly launched products driving growth. Sales in APAC were impacted negatively throughout the year due to change in sales model in China.

USD m 2016 % of sales

Sales growth

USD

Sales growth

LCY

Organicsales

growth LCY

EMEA 252 48% 6% 11% 4%

Americas 234 45% 11% 13% 5%

APAC 34 7% -2% -1% -1%

Total 521 100% 8% 9% 4%

USD m 2016 % of sales

Sales growth

USD

Sales growth

LCY

Organicsales

growth LCY

Bracing and supports 280 54% 1% 2% 2%

Prosthetics 240 46% 18% 19% 7%

Other 1 0% -32% -31% -31%

Total 521 100% 8% 9% 4%

1The methodology used to calculate the currency impact is to convert the 2016 operating results on the average exchange rates of 2015.

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In Q3 of 2015 Medicare contractors announced a draft of a proposal to change certain elements of the reimbursement framework for lower-limb prosthetics. The draft met heavy resistance from the industry. In Q4 of 2015 Medicare announced that it was not adopting the draft which means that, in the short term, there are no changes pending in the reimbursement system. However, Medicare has formed a workgroup to draft a proposal describing current best practices in prosthetic care and identifying research evidence gaps. As of now, no new information has been made public regarding this matter since Medicare announced that it was not adopting the draft.

Gross Profit Gross profit amounted to USD 328 million and 63% of sales, compared to USD 303 million or 63% of sales in 2015.

The main factors affecting the gross profit margin are product mix, currency movements, acquisitions, and productivity in manufacturing.

Within the bracing and supports segment there continues to be strong growth in high end innovative products, which has a positive impact on the gross profit margin in the segment. However this is offset by price pressure in the lower end of the portfolio. Prosthetics margins increased during the year driven by sales of bionic products and newly launched innovative products resulting in overall positive impact on gross profit margin. Currency movements impacted the gross profit margin negatively by about 30 basis points. The recently acquired companies and productivity in manufacturing contributed positively. The net results on the gross profit margin were therefore an approximate 30 basis point improvement compared to the previous year. EBITDA

EBITDA amounted to USD 94 million compared to USD 97 million in 2015. EBITDA in 2016 was affected by special items amounting to USD 4.6 million. These special items are costs of USD 2.3 million in relations to the Touch Bionics acquisition, approximately USD 1.5 million in relation to the finance shared service center in Poland, and the remaining amount relates to M&A costs and a provision relating to legal disputes with one of our competitors regarding product design. Adjusting for special items EBITDA amounted to USD 98 million or 19% of sales and grew by 6% measured in local currency.

The EBITDA margin was impacted negatively by currency movements by about 80 basis points compared to 2015 and about 40 basis points by recent acquisitions. Synergies are expected to materialize fully for the Medi Prosthetics acquisition in the second half of 2017 and for the Touch Bionics acquisition in 2018, where both businesses are expected to contribute at a similar margin as the pre-acquisition Össur business.

Growth in operating expenses exceeded organic sales growth for the year, although more in line with sales growth during the latter half of the year as previously communicated. Investment in process improvements and other projects with focus on future improvements and growth were the main reasons for the aforementioned growth. Financial Items, Tax and Net Profit Net financial expenses amounted to USD 2 million compared to USD 8 million in 2015. As previously mentioned, due to major operating currencies depreciating less against the USD in 2016 compared to 2015 the net exchange rate differences are positive by USD 0.3 million in 2016 compared to negative USD 4.9 million in 2015.

Net interest bearing debt increased during the year as a result of two acquisitions and share buybacks. At year end net interest bearing debt amounted to USD 119 million or 1.2x EBITDA adjusted to special items.

Income tax amounted to USD 17 million, corresponding to a 25% effective tax rate, compared to USD 17 million and 25% effective tax rate in 2015.

Net profit amounted to USD 51 million or 10% of sales, compared to USD 51 million or 11% of sales in 2015.

Diluted earnings per share amounted to 11.6 US cents, compared to 11.5 US cents in 2015.

Cash Flow Cash flow from operations was strong, amounting to USD 88 million or 17% of sales, compared to USD 84 million or 17% of sales in 2015.

Capital expenditure amounted to USD 25 million or 5% of sales, compared to USD 24 million or 5% of sales in 2015. During 2015 and 2016 capital expenditures were above the historical average. Going forward we expect to return to the historical average or around 3.5% to 4.0% of sales.

The main reasons for higher capital expenditure in 2016 were; a move to new office facilities and warehouse in EMEA, new datacenter, and investments in new manufacturing capabilities and machinery in our Mexico manufacturing facility.

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Free cash flow continues to be strong. Free cash flow amounted to USD 42 million in 2016 compared to USD 42 million in 2015. Össur has since 2013, which was the first year of dividend payments, returned over USD 100 million to shareholders through cash dividends and share buybacks.

See definitions of Free Cash Flow, NIBD, Total Payout, and Total Payout Ratio in the footnote.

Capital Structure, Share Buybacks and Dividends Össur’s Capital Structure and Dividend policy was updated in February 2017 by the Board of Directors. The only change in the policy is a change in the desired level of net interest bearing debt to EBITDA from 0.5-1.5x to 1-2x.

The Capital Structure and Dividend Policy

Össur’s policy is to maintain a healthy balance sheet and a level of net interest bearing debt of 1-2x to EBITDA. Excess capital is returned to shareholders via annual cash dividends and/or purchase of own shares. Össur’s policy is to distribute a relatively stable cash dividend. The cash dividends will be decided annually in DKK per share. Return of capital to shareholders is based on objectives of maintaining a solid financial position, operational outlook and investment requirements.

Share buybacks and proposal to reduce Share Capital

In December 2015, Össur initiated a “Safe Harbor” share buyback program on Nasdaq Copenhagen. The program was carried out in accordance with the provisions of the European Commission’s Regulation No. 2273/2003. The purpose of the program was to reduce the Company’s share capital and adjust the capital structure by distributing capital to shareholders in line with the Company’s Capital Structure and Dividend Policy. The program ended on 30 November 2016 and the Company purchased 1,981,334 shares for approximately DKK 49 million (USD 7 million) through this program. (124,915 shares were purchased under the program in 2015.) On 1 December 2016, Össur initiated a new share buy-back program on NASDAQ Copenhagen. The program will be carried out in accordance with Regulation No. 596/2014 of the European Parliament and of the Council on market abuse (“MAR”), and the Commission’s delegated regulation 2016/1052. At yearend 2016, Össur had purchased 140,714shares through the new program for approximately DKK 3 million (USD 0.5 million). In 2016, Össur purchased 7,853,968 shares through both the “Safe Harbor” programs on Nasdaq Copenhagen and block trades on both Nasdaq Copenhagen and Nasdaq Iceland for approximately DKK 193 million (USD 30 million).

At year end, Össur held 5,837,832 of own shares.

The Board of Directors will propose to the Annual General Meeting in 2017 to reduce the share capital by ISK 5,837,832 by way of canceling 5,837,832 of the Company’s own shares of ISK 1 nominal value each, lowering the share capital to 437,162,725 shares.

Dividend for 2016

The Board of Directors will propose to the Annual General Meeting in 2017 that the Company pays a cash dividend of DKK 0.12 per share for 2016, equivalent to 15% of net profit in 2016. The amount of the cash dividend is in line with previous years.

Definitions: Free Cash Flow: Net cash provided by operating activities + Cash flows from investing activities – Acquisition of subsidiaries – Changes in financial assets NIBD (Net Interest Bearing Debt): Debt – Cash and Cash Equivalents Total Payout: Dividends Paid + Value of the Share Buybacks Total Payout Ratio: Total Payout / Net Profit excluding Minorities

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Financial Guidance for 2016

The financial guidance was revised three times during the year. First after the acquisition of Touch Bionics where sales growth measured in local currency was upgraded. In Q2 the CAPEX forecast was upgraded mainly due to investments in new manufacturing capabilities and machinery in our Mexico manufacturing facility. In Q3, after the acquisition of Medi Prosthetics, the sales growth measured in local currency was again upgraded and the EBITDA margin was revised due to unfavorable foreign exchange movements as well as the Medi Prosthetics acquisition.

Original

guidance 2016

Q1 2016

revision

Q2 2016

revision

Q3 2016

revision

2016

actuals

Sales growth LCY

3-5% 7-9% 8-10% 9%

Sales growth organic LCY

3-5% 4%

Adjusted EBITDA

margin 20-21% ~19% 19%

CAPEX 3-4% 5% 5%

Financial Guidance for 2017 The financial guidance assumes the prevailing economic outlook in key markets and no major fluctuations of major operating currencies.

Sales growth is expected to be in the range of 7-8% and 4-5% organic, both measured in local currency. In prosthetics, continued good performance is expected in key markets at or slightly above average market growth with the newly acquired companies contributing to growth. In bracing and supports, we expect all regions to grow in line with or slightly above the market growth.

EBITDA margin, adjusted for special items, is expected to be in the range of 19-20% of sales. Key assumptions regarding the expected EBITDA margin are foreign exchange rate assumptions, impact of newly acquired companies and margin development in the underlying business. At current foreign exchange rates, keeping all other factors constant, EBITDA margin will be further negatively affected by approximately 60 basis points in 2017 comparing to 2016. The newly acquired companies are expected to impact EBITDA margin positively as a result of increased operational leverage and synergies in relation to integration into the Össur business. Finally we expect margin improvement in the underlying business, driven by product mix and operational leverage. Profitability is expected to be stronger in the second half of the year. Quarter one is seasonally our weakest quarter, the same goes for the Touch Bionics business, in addition to the expected negative impact from foreign exchange rates.

Split of sales and expenses by main currencies can be found in note 4 in the accompanying Consolidated Financial Statements. As can be seen in the note, the EBITDA margin is fairly well hedged for currency movements but one of the key variables for this hedge to hold is that the EUR and the ISK move in correlation to the USD. During 2016 the ISK has appreciated more against the USD than other major operating currencies, including the EUR, resulting in a negative impact on profitability. The hedging policy has been amended to allow for active hedging of currency exposure that is not covered by the natural hedge in sales and costs by currency. The main exposure in this regard is the ISK, as Össur has very limited sales in ISK, while for 2016 11% of total costs were in ISK. Össur has entered into forward contracts covering approximately half of the estimated ISK costs in 2017.

Capital expenditures are expected to be around 4% of net sales.

Effective tax rate is expected to be around 26% and is in line with previous years.

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Acquisitions in 2016

Medi Prosthetics

In September of 2016 Össur acquired Medi Prosthetics from Medi. Medi Prosthetics is a global provider of mechanical lower limb prosthetic components, located in Bayreuth, Germany. In 2015 total sales amounted to EUR 15 million (USD 17 million).

This acquisition enabled Össur to take another step to complete its prosthetics offering and further strengthen its global market position. Medi Prosthetics offers a well-respected mechanical product line with strongholds in the knee and liner segment.

The integration of the Medi Prosthetics business is going as planned. Synergies between the operations of Össur and Medi Prosthetics are expected to be fully achieved in the second half of 2017, increasing the EBITDA margin of Medi Prosthetics to a similar level as the pre-acquisition Össur business.

Touch Bionics

In April of 2016 Össur acquired Touch Bionics for GBP 27.5 million (USD 40 million) on debt and cash free basis. Touch Bionics is a leading global provider of innovative upper limb prosthesis and supporting services. The acquisition was financed through existing loan facilities. Touch Bionics has over 120 employees with operations in Scotland, Germany, and the United States. In 2015, total sales amounted to GBP 15 million (USD 21 million) with an adjusted EBITDA of GBP 0.9 million (USD 1.3 million).

With the acquisition Össur entered into the upper limb prosthetic market enabling the Company to offer a complete bionic product portfolio to customers in the prosthetic industry. Together, both companies are well positioned to further strengthen their worldwide market position in both lower and upper limb prosthetics. The acquisition of Touch Bionics is a further display of Össur’s commitment to upgrading prosthetic technology resulting in effective clinical outcomes and improved quality of life. The integration is going as planned and synergies between the operations of Össur and Touch Bionics are expected to be fully achieved in 2018, ultimately increasing the EBITDA margin of Touch Bionics to a similar level as the pre-acquisition Össur business.

General Update Litigations

A lawsuit has been filed in Germany against Touch Bionics, claiming that certain products infringe a European patent, valid only in Germany. Touch Bionics and Össur deny the allegations. Management expects the case to be resolved in 2017 and that the majority of the legal costs will materialize during the year. The likely outcome of the case remains uncertain.

New loan agreement

In Q4 of 2016 the Company and the Nordic Investment Bank signed a seven year loan agreement for EUR 50 million. This financing is an addition to the current facility of USD 183 million that the Company has with ING, Nordea, and SEB. The new loan strengthens Össur’s funding structure and the terms and conditions reflect a strong financial profile and good prospects for the Company.

Risks associated to potential changes to the business environment in the United States

Recently the possibility of import tariffs on products manufactured and imported from Mexico to the United States has been discussed by US authorities. Össur currently manufactures the majority of its products in Iceland, Mexico, and in China and could therefore be impacted. The Össur products manufactured in Mexico and sold in the United States are a relatively small share of the total sales in the United States. Therefore it is currently estimated by the management that import tariffs on those products would not have a significant impact on the Company’s operations. There remains high uncertainty regarding any changes to the business environment in the United States.

New IFRS Standards

Two newly issued but not yet effective IFRS standards are relevant to Össur: IFRS 15, Revenue from Contracts with Customers and IFRS 16, Leases. IFRS 15 is effective starting on 1 January 2018 and IFRS 16 on 1 January 2019 with a permission for early adoption. The European Union has endorsed the IFRS 15 but not yet IFRS 16. More details and an assessment from the management on these standards can be found in note 32.2 in the accompanying Consolidated Financial Statements.

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Products

In 2016, 45 new products and product upgrades were introduced to the market; 37 bracing and supports products and 8 prosthetics products. Product highlights during the year include:

RHEO KNEE® 3 upgrade introduces weather proof design and enhanced features. The RHEO KNEE® 3 provides the most natural knee function among all microprocessor knees because it continuously adapts to the user and the environment while providing perfect balance of stability and dynamics

RHEO KNEE® XC is an upgraded version of the current RHEO KNEE® 3. It inherits all the RHEO KNEE® 3 features and is complemented with a few additional features that result in higher functionality and an even more dynamic character of the product for high active users. The RHEO KNEE® XC includes hardware and software upgrades from the current RHEO KNEE® 3 and offers additional activity related features such as stair ascent, running/jogging and automatic bicycling detection.

Unloader® Hip – The brace is designed to reduce pain by optimizing load dispersion and proprioceptive control for patients suffering from mild to moderate hip osteoarthritis (OA), thus contributing to hip stability and improved mobility.

Rebound® Hip - Össur’s Rebound® Hip brace delivers gentle controlling forces and effective functional range of motion restriction in extension / flexion and abduction / adduction to promote optimal post-surgical outcomes. The low-profile, lightweight design supports patient comfort and compliance. The universal frame and soft good are easy to stock, assemble and fit.

Rebound® Dual a versatile double upright brace that provides functional support for patients with ligament instability. The upper frame can be adjusted for patient’s height and can be modified for varus or valgus alignment.

Form Fit® OA Wraparound is a cost effective, low-profile option for patients with mild to moderate unicompartmental knee osteoarthritis. The Dynamic Force Strap tensions as the leg extends, providing pain relief in a single pull motion.

Iceross Seal-In® X is a new liner that provides advanced Seal-In technology for a wider range of users. Iceross Seal-In® X is easier to invert and don, even for less active users who may have hand dexterity issues.

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Financial Calendar and Upcoming Events and Conferences Össur's Annual General Meeting will be held at the Company’s headquarters in Reykjavik on 9 March 2017. Agenda and proposals for the Annual General Meeting will be disclosed no later than 3 weeks prior to the meeting, 16 February 2017.

Financial Calendar

2017 Annual General Meeting (IS)

Q1 2017 Results

Q2 2017 Results

Q3 2017 Results

Q4 and FY 2017 Results

March 9 2017

April 27 2017

July 25 2017

October 24 2017

February 5 2018

Upcoming Events and Conferences

Carnegie Healthcare Seminar – Stockholm

Goldman Sachs Med-tech and Healthcare Conference - London Investordagen – Copenhagen

March 16 2017

September 6-7 2017

September 19 2017

Further information:

Jon Sigurdsson, President & CEO Tel: +354 515 1300 Sveinn Solvason, CFO Tel: +354 515 1300 Oskar Marus Dadason, IR Manager Tel: +1 949 220 4550

Össur press releases by e-mail

If you wish to receive Össur press releases by e-mail please register at the web-site: www.ossur.com/investormailings.

Date

About Össur

Össur (NASDAQ: OSSR) is a global leader in non-invasive orthopaedics that helps people live a life without limitations. Its business is focused on improving people’s mobility through the delivery of innovative technologies within the fields of braces, supports, prosthetic limbs and compression therapy. A recognized “Technology Pioneer”, Össur invests significantly in research and product development; its award-winning designs ensuring a consistently strong position in the market. Successful patient and clinical outcomes are further empowered via Össur’s educational programs and business solutions. Headquartered in Iceland, Össur has major operations in the Americas, Europe and Asia, with additional distributors worldwide. www.ossur.com

Forward-Looking Statements

This press release includes "forward-looking statements" which involve risks and uncertainties that could cause actual results to differ materially from results expressed or implied by these statements. Össur hf. undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this press release. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement.

Össur hf.

Consolidated Financial Statements

December 31 2016

Table of ContentsStatement by the Board of Directors and President and CEO 12

Independent Auditor’s Report 14

Consolidated Income Statement 17

Consolidated Statement of Comprehensive Income 18

Consolidated Balance Sheet 19

Consolidated Statements of Cash Flow 21

Consolidated Statement of Changes in Equity 22

Notes to the Consolidated Financial Statements 23

Statement by the Board of Directors and President and CEO

It is the opinion of the Board of Directors and the President and CEO of Össur hf. (the Company), that these ConsolidatedFinancial Statements present the necessary information to evaluate the financial position of the Company at year end, theoperating results for the year and financial developments during the year 2016. Össur Consolidated Financial Statements areprepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and additionalDanish disclosure requirements for listed companies and additional requirements in the Icelandic Financial Statement Act no.3/2006.

Össur hf. designs, manufactures and sells orthopedic products specializing in prosthetics and bracing and supports solutions. TheCompany is headquartered in Iceland and the Company owns and operates subsidiaries in the United States, Canada, Mexico,France, the Netherlands, Germany, United Kingdom, Sweden, Iceland, Spain, S-Africa, China, Hong Kong and Australia. TheCompany sells its products worldwide, but the principal market areas are North America and Europe.

A requirement to conclude on non-financial information has been made part of Icelandic law from 2016 as part of theimplementation of EU directive 2013/34/EU that will become effective for Member States in 2017. The EU has currently notpublished any further guidelines for implementation of the directive and the Company will review the guidelines when available.It is the Board of Directors opinion that necessary information to analyze the environmental, social and employee aspects of thebusiness can be obtained by reviewing information in the Annual report to help provide fundamental understanding of theCompany’s development, performance and position on non-financial matters. Össur joined the UN Global Compact in 2011 andsigned the UN Women’s Empowerment Principles in 2014. Annually Össur publishes a progress report, reporting on the progressof key projects in the four categories set forth by the Global Compact; environmental concerns, labor practices, human rights andanti-corruption. Further information about Össur’s corporate social responsibilities (CSR) activities can be found in the Annualreport and 2016 progress report, available on the Company’s website: www.ossur.com/CSR.

The total sales of the Össur Consolidation amounted to USD 520.7 million, compared to USD 483.0 million in the preceding year.This represents an increase in sales of 8%. Organic local currency sales growth was 4%. Net profit amounted to USD 51.0 millioncompared to USD 51.2 million in 2015. Diluted Earnings per Share amounted to US 11.6 cents compared to US 11.5 cents in2015. Earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to USD 93.9 million compared to USD97.5 million in the preceding year.

The total assets of the Össur Consolidation amounted to USD 746.4 million at year end, liabilities were USD 279.2 million andequity was USD 467.2 million. The equity ratio at year end was 63%, compared to 71% the preceding year.

The Company employed on average 2,710 employees in 2016 and 2,799 at year end.

Össur is listed on the NASDAQ Copenhagen Stock Exchange. The market value of the Company at year end was USD 1,582million. During the year the share price in DKK increased by 6%. At year end, shareholders in Össur hf. numbered 4,014compared to 4,033 at the beginning of the year. The ten largest shareholders and their ownership percentage are: WilliamDemant Invest A/S - 42.4%, Lífeyrissjóður Verslunarmanna (Pension Fund)- 8.2%, Lífeyrissjóður starfsmanna ríkisins (PensionFund) - 6.4% Gildi lífeyrissjóður (Pension Fund) - 5.9%, Arbejdsmarkedets Tillægspension (Pension Fund) - 5.1%, JP MorganChase Bank - 4.9%, SEB Stockholm (Customer account) - 1.9%, Sameinaði lífeyrissjóðurinn (Pension Fund) - 1.4%, Birtalífeyrissjóður (Pension Fund) - 1.3%, Arion Bank HF - 1.2%.

A “Safe Harbor” share buyback program initiated on NASDAQ Copenhagen on 3 December 2015 ended on 30 November 2016.Össur acquired in total 1,981,334 shares under the program at the average price of DKK 24.7. On 1 December 2016 Össurinitiated a new share buyback program. The program is managed by Nordea, which make its trading decisions independently andwithout influence by the Company with regards to the timing of the purchases. Transactions do not require clearance from thecompliance officer and can be made at any time. The Company’s purchases under the program are announced every Monday forthe previous week. At year end Össur had acquired 140,189 shares under the program. The purpose of the program is to reducethe Company’s share capital and adjust the capital structure by distributing capital to shareholders in line with the Company'sCapital Structure and Dividend Policy and also to be able to meet the Company's share option obligations. During the year1,300,000 of own share were sold to employees at an average price of DKK 7.8 to fulfill the exercisable share option contracts.

Össur Q4 & FY 2016 Company Announcement 12

Statement by the Board of Directors and President and CEO

Reykjavík, 7 February 2017

Board of Directors

Niels JacobsenChairman of the Board

Arne Boye Nielsen Kristján T. Ragnarsson

Guðbjörg Edda Eggertsdóttir Svafa Grönfeldt

President and CEO

Jón Sigurðsson

In its procedures, the Board of Directors complies with the Articles of Association of the Company, the Board of Directors' Rulesof Procedure and follows the Danish Recommendations for Corporate Governance issued by the Danish Committee on CorporateGovernance. The Rules of Procedure address issues such as allocation of responsibilities and power of decision within the Board,independency issues, confidentiality etc. An Audit Committee is present within the Board. The Board of Directors is composed offive members elected at each Annual General Meeting for a term of one year. The Board of Directors consists of two women andthree men and therefore complies with Icelandic law on gender ratio which entered into effect on the 1st of September 2013. NoÖssur employee sits on the Board of Directors.

The Board of Directors recommends payment of dividends to shareholders in 2017 amounting to DKK 0.12 per share, thisapproximates USD 8 million and 15% of 2016 net profit. As regards to changes in the equity of the Company, the Board refers tothe Notes attached to the Consolidated Financial Statements. The Board of Directors proposes to reduce the share capital bycanceling 5,837,832 of the Company’s own shares of ISK 1 nominal value each.

The Board of Directors and President and CEO of Össur hf. hereby confirm the Consolidated Financial Statements of Össur for theyear 2016 with their signatures.


Report on the Audit of the Consolidated Financial Statements

To the Shareholders of Össur hf.

OpinionWe have audited the Consolidated Financial Statements of Össur hf. and its subsidiaries (the Company), which comprise theconsolidated statement of financial position at December 31 2016, the consolidated income statement, consolidated statement ofcomprehensive income, consolidated statement of cash flows for the year then ended, consolidated statement of changes in equityand notes to the Consolidated Financial Statements, including a summary of significant accounting policies.

In our opinion, the accompanying Consolidated Financial Statements give a true and fair view of the Company’s financial position atDecember 31 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordancewith International Financial Reporting Standards (IFRSs) as adopted by the European Union, additional Danish disclosure requirementsfor listed companies and additional requirements in the Icelandic Financial Statement Act no. 3/2006 .

Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards arefurther described in the Auditor’s responsibilities for the audit of the Consolidated Financial Statements section of our report. We areindependent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics forProfessional Accountants (IESBA Code) and Icelandic Institute of State Authorized Public Accountants Code of Ethics (FLE Code) andwe have fulfilled our other ethical responsibilities in accordance with the IESBA and the FLE Code. We believe that the audit evidencewe have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the ConsolidatedFinancial Statements for the period. These matters were addressed in the context of our audit of the Consolidated FinancialStatements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Business combinations Two acquisitions occurred in the year. As detailed in note 26, 35 million of goodwill and 16.3 million of intangible assets have beenrecognized in connection with the acquisitions. The accounting for these transactions is complex due to management judgementstaken in the application of accounting standards, for example the valuation of the businesses, the recognition and valuation ofconsideration, the identification and valuation of intangible assets and the accounting for the financial instruments. Due to this, weconsider the business combination a key audit matter.

We focused our testing of the audit of business combination on the key assumptions made by management. We have performed thefollowing procedures, with assistance from our internal specialists, to address this key audit matter:

• Obtained and reviewed the share purchase agreements, due diligence reports and associated contractual agreements for the currentyear business combinations and understood the terms and conditions of each transaction to assess compliance with IFRS 3 BusinessCombinations (IFRS 3);• Tested the initial consideration to the signed purchase agreement and to bank statements and assessed the appropriateness of thefair value of the total consideration determined by management; • Assessed the valuation models prepared by management to value the businesses and the intangible assets identified in the acquiredbusinesses for both Touch Bionics and Medi Prosthetics and engaged our internal valuation specialists to challenge the assumptionsand methodology used by management;• Examined and assessed the inputs within the valuation models, including the future growth patterns to the historical trends achievedin similar markets.

We also reviewed the disclosures presented in note 26 to the Consolidated Financial Statements to confirm compliance with therequirements within IFRS 3.



Impairment of goodwill and other indefinite useful life intangible assets Book value of goodwill and other indefinite useful life intangible assets at year-end amounted to 405.9 million. The current yearacquisitions have resulted in an increase of 35 million in the goodwill balance.

Management considers each geographical segment constitutes its own cash generating unit (‘CGU’).

The key assumptions applied by management in the impairment reviews are: segment specific discount rates; — future revenuegrowth; and — expected future margins. Determining whether the carrying value of goodwill and intangible assets is recoverablerequires management to make significant estimates regarding the future cash flows, discount rates and long-term growth rates basedon management’s view of future business prospects.

Due to the relative sensitivity of certain inputs to the impairment testing process, in particular the future cash flows of the CGU’snoted above, the valuation of goodwill and other indefinite intangible assets is considered a key audit matter.

In order to address this key audit matter, we audited the assumptions used in the impairment model for goodwill and other indefiniteuseful life intangible assets. As part of our work, we engaged our internal specialists to assist with:

• Critically evaluating whether the model used by management to calculate the value in use of the individual CGU’s complies with therequirements of IAS 36 Impairment of Assets;• Validating the assumptions used to calculate the discount rates and recalculating these rates;• Considering the projected future cash flows, understood variances between the forecast and actual results for the year ended 31December 2016 and compared the forecast growth trends to historic trends;• Comparing the long-term growth rates for each CGU to external market data; • Access the appropriateness of the sensitivity analysis applied by management to the impairment testing model including consideringwhether the scenarios represented reasonably possible changes in key assumptions; and • Analyzing the future projected cash flows used in the models to determine whether they are reasonable and supportable given thecurrent macroeconomic climate and expected future performance of the CGU’s.

We also reviewed the disclosures presented in note 11 to the Consolidated Financial Statements to confirm compliance with therequirements within IAS 36.

Other informationManagement is responsible for other information. Other information comprises the Company announcement for Q4 and full yearresults 2016 as well as Statement by the Board of Directors and President and CEO . Our opinion on the Consolidated FinancialStatements does not cover the other information and we do not express any form of assurance conclusion thereon except theconfirmation regarding Statement of Board of Director and President and CEO as stated below. In connection with our audit of the Consolidated Financial Statements, our responsibility is to read the other information and, in doingso, consider whether the other information is materially inconsistent with the Consolidated Financial Statements or our knowledgeobtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude thatthere is a material misstatement of this other information, we are required to report that fact. We have nothing to report in thisregard.

In accordance with Paragraph 2, article 104 of the Icelandic Financial Statement Act no. 3/2006, we confirm to the best of ourknowledge that the accompanying Statement by the Board of Directors and President and CEO includes all information required by theIcelandic financial statement act no. 3/2006 that is not disclosed elsewhere in the Consolidated Financial Statements.

Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the Consolidated Financial Statements in accordance with IFRSas adopted by the European Union, additional Danish disclosure requirements for listed companies and additional requirements in theIcelandic Financial Statement Act no. 3/2006, and for such internal control as management determines is necessary to enable thepreparation of Consolidated Financial Statements that are free from material misstatement, whether due to fraud or error.

In preparing the Consolidated Financial Statements, management is responsible for assessing the Company’s ability to continue as agoing concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.



Deloitte ehf.

Þorsteinn Pétur Guðjónsson Signý Magnúsdóttir

State Authorized Public Accountant State Authorized Public Accountant

Auditor’s responsibilities for the audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the Consolidated Financial Statements as a whole are free frommaterial misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonableassurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect amaterial misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these ConsolidatedFinancial Statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout theaudit. We also:

• Identify and assess the risks of material misstatement of the Consolidated Financial Statements, whether due to fraud or error,design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to providea basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosuresmade by management.• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidenceobtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’sability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in ourauditor’s report to the related disclosures in the Consolidated Financial Statements or, if such disclosures are inadequate, to modifyour opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future eventsor conditions may cause the Company to cease to continue as a going concern.• Evaluate the overall presentation, structure and content of the Consolidated Financial Statements, including the disclosures, andwhether the Consolidated Financial Statements represent the underlying transactions and events in a manner that achieves fairpresentation.• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within theCompany to express an opinion on the Consolidated Financial Statements. We are responsible for the direction, supervision andperformance of the Company audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit andsignificant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regardingindependence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on ourindependence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance inthe audit of the Consolidated Financial Statements of the current period and are therefore the key audit matters. We describe thesematters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rarecircumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of such communication.

Kópavogur, 7 February 2017


All amounts in USD '000 Notes 2016 2015 Q4 2016 Q4 2015

2 520,748 483,034 138,409 124,528

(192,310) (179,925) (51,887) (46,683)

Gross profit 328,438 303,109 86,522 77,845

150 101 93 (13)

(175,156) (157,761) (45,760) (40,857)

(23,166) (18,361) (6,889) (4,574)

(58,095) (49,746) (14,283) (13,279)

Earnings before interest and tax (EBIT) 72,171 77,342 19,683 19,122

1,001 344 409 82

(3,797) (3,332) (983) (817)

315 (4,882) 371 (1,122)

7 (2,481) (7,870) (203) (1,857)

(1,273) (949) (145) (127)

Earnings before tax (EBT) 68,417 68,523 19,335 17,138

8 (17,419) (17,360) (4,847) (4,553)

Net profit 50,998 51,163 14,488 12,585

Attributable to:

51,029 51,243 14,364 12,648

(31) (80) 124 (63)

50,998 51,163 14,488 12,585

Earnings per share 9

11.6 11.5 3.3 2.8

11.6 11.5 3.3 2.8

Net sales

Consolidated Income Statement 2016 and 2015

Owners of the Company

Non-controlling interests

Basic earnings per share (US cent)

Share in net loss of associates

Net financial income / (expenses)

Unaudited

Diluted earnings per share (US cent)

Income tax

Cost of goods sold

Other income / expenses

Sales and marketing expenses

Research and development expenses

General and administrative expenses

Financial income

Financial expenses

Net exchange rate difference


All amounts in USD '000 2016 2015 Q4 2016 Q4 2015

Net profit 50,998 51,163 14,488 12,585

Items that will not be reclassified subsequently to profit or loss:

Defined benefit plan actuarial gains/losses 0 (41) 0 (41)

0 (60) 0 (60)

0 (101) 0 (101)

Items that may be reclassified subsequently to profit or loss:

44 400 (1) 79

(12,028) (19,913) (11,520) (3,027)

314 (853) (42) (317)

(11,670) (20,467) (11,563) (3,366)

Total comprehensive income 39,328 30,696 2,924 9,218

Attributable to:

39,359 30,776 2,800 9,281

(31) (80) 124 (63)

39,328 30,696 2,924 9,218

Consolidated Statement of Comprehensive Income 2016 and 2015

Translation difference of shares in foreign operations

Change in cash flow hedges

Income tax relating to components of other comprehensive income

Owners of the Company

Non-controlling interests

Income tax relating to components of other comprehensive income

Unaudited


Consolidated Balance Sheet 31 December 2016 and 31 December 2015

Assets

All amounts in USD '000 Notes 31.12.2016 31.12.2015

10 52,837 44,536

11 394,123 369,238

12 45,592 35,119

14 19,376 9,779

22 23,739 17,326

Non-current assets 535,667 475,998

15 75,296 64,882

16 82,109 73,269

17 18,233 13,563

18 35,091 25,707

Current assets 210,729 177,421

Total assets 746,396 653,419

Property, plant and equipment

Goodwill

Other intangible assets

Other financial assets

Deferred tax assets

Inventories

Accounts receivables

Other assets

Bank balances and cash


Consolidated Balance Sheet 31 December 2016 and 31 December 2015

Equity and liabilities

All amounts in USD '000 Notes 31.12.2016 31.12.2015

19 149,606 174,524

(52,867) (42,187)

369,689 329,605

Equity attributable to owners of the Company 466,428 461,942

763 1,085

Total equity 467,191 463,027

21 130,095 83,999

22 28,626 20,952

23 6,519 5,018

0 45

Non-current liabilities 165,240 110,014

21 24,430 58

17,810 16,067

8,152 11,095

23 5,741 2,939

30,844 27,910

25 26,988 22,309

Current liabilities 113,965 80,378

Total equity and liabilities 746,396 653,419

Reserves

Issued capital

Other liabilities

Retained earnings

Non-controlling interest in equity

Borrowings

Deferred tax liabilities

Provisions

Other financial liabilities

Borrowings

Accounts payable

Taxes payable

Provisions

Accrued salaries and related expenses


All amounts in USD '000 Notes 2016 2015 Q4 2016 Q4 2015

72,171 77,342 19,683 19,122

10, 12 21,697 20,153 5,985 5,616

57 248 17 77

1,481 (2,120) (337) (2,339)

(6,438) (4,948) 2,911 802

(2,724) (3,814) 874 4,407

1,487 (3,342) (1,350) 3,029

Cash generated by operations 87,731 83,519 27,783 30,714

753 375 190 159

(3,216) (3,499) (917) (1,408)

(18,956) (14,895) (5,447) (5,271)

Net cash provided by operating activities 66,312 65,500 21,609 24,194

10, 12 (24,583) (23,841) (5,179) (6,664)

71 315 28 150

26 (51,552) 0 9,654 0

(10,880) (1,101) (1,226) (32)

Cash flows from investing activities (86,944) (24,627) 3,277 (6,546)

53,357 3,419 49,751 161

(7,490) (710) (7,490) 235

21,898 (34,350) (59,656) (5,515)

(7,813) (7,536) 0 0

Increase in interest that does not affect control (302) (448) (302) 0

Dividends from subsidiaries paid to non-controlling interests 0 (127) 0 (127)

(27,750) (2,664) (898) (7,793)

Cash flows from financing activities 31,900 (42,416) (18,595) (13,039)

11,268 (1,543) 6,291 4,609

673 (2,461) (6) (321)

(2,557) 1,227 (1,538) 195

25,707 28,484 30,344 21,224

Cash at end of period 35,091 25,707 35,091 25,707

Unaudited

Consolidated Statement of Cash Flow 2016 and 2015

Changes in revolving credit facility

Changes in financial assets

Interest paid

Income tax paid

Purchase of fixed and intangible assets

Proceeds from sale of fixed assets

Acquisition of subsidiaries, net of cash received

Interest received

Profit from operations

Depreciation and amortization

(Gain) / loss on disposal of assets

Change in provisions

Change in payables

Change in inventories

Change in receivables

Effects of exchange rate changes on:

Balance of cash held in foreign currencies

Proceeds from long-term borrowings

Repayments of long-term borrowings

Payment of dividends

Change in treasury shares

Other items held in foreign currencies

Cash at beginning of period

Net change in cash


Consolidated Statement of Changes in Equity 2016 and 2015

Attributable to Non-Share Share Statutory Share option Fair value Translation Accumulated owners of controlling Total

All amounts in USD '000 capital premium reserve reserve reserve reserve profits the parent interests equity

Balance at 1 January 2015 4,968 164,230 1,267 1,571 (857) (23,402) 293,055 440,832 1,292 442,124

Net profit 51,243 51,243 (80) 51,163

Change in cash flow hedges net of tax 300 300 300

Translation difference of shares in foreign operations (20,666) (20,666) (20,666)

Defined benefit plan actuarial gains/losses (101) (101) (101)

Total comprehensive income for the period 0 0 0 0 199 (20,666) 51,243 30,776 (80) 30,696

Change in benefit plans 709 (709) 0 0

Payment of dividends (7,536) (7,536) (127) (7,663)

Share option charge for the period 827 827 827

Share option vested during the period 39 13,733 (1,542) (6,510) 5,720 5,720

Acquisition of Non-controlling interests (231) (231) (231)

Purchase of treasury shares (21) (8,425) (8,446) (8,446)

Balance at 31 December 2015 4,986 169,538 1,267 856 51 (44,068) 329,312 461,942 1,085 463,027

Net profit 51,029 51,029 (31) 50,998

Change in cash flow hedges net of tax 32 32 32

Translation difference of shares in foreign operations (11,702) (11,702) (11,702)

Total comprehensive income for the period 0 0 0 0 32 (11,702) 51,029 39,359 (31) 39,328

Payment of dividends (7,813) (7,813) 0 (7,813)

Share option charge for the period 1,096 1,096 1,096

Share option vested during the period 11 4,361 (399) (2,807) 1,166 0 1,166

Change in Non-controlling interests (32) (32) (670) (702)

Non controlling interest arising on acquisition 0 380 380

Purchase of treasury shares (64) (29,226) (29,290) (29,290)

Balance at 31 December 2016 4,933 144,673 1,267 1,553 83 (55,770) 369,689 466,428 763 467,191

In June 2016 the Icelandic Parliament passed a legal reform of the Icelandic Financial Statements Act no. 3/2006 which became effective on January 1, 2016. Due to uncertainty regarding the interpretation of theamendments the disclosure of retained earnings in the Consolidated Financial Statements of Össur hf. for the year 2016 may change following further clarification of the Act. The amendments require that retainedearnings are separated into two categories: restricted and unrestricted retained earnings. Unrestricted retained earnings consist of undistributed profits and losses accumulated by the Company, less transfers to theCompany's statutory reserve and other restricted retained earnings categories. The Company has transferred its accumulated unrealised share in profit of its subsidiaries and associates from 1 January 2016 to arestricted retained earnings account. Unrealiased share is the amount of profit in subsidiaries and associates net of received or declared dividend payments. The amount of restricted retained earnings in accumulatedprofit is USD 27 million at year end.


Notes to the Consolidated Financial Statements

1. Quarterly statements

Unaudited

Full year Q4 Q3 Q2 Q1

2016 2016 2016 2016 2016

Net sales 520,748 138,409 129,158 138,987 114,194

Cost of goods sold (192,310) (51,887) (47,991) (49,622) (42,810)

Gross profit 328,438 86,522 81,167 89,365 71,384

Gross profit margin 63% 63% 63% 64% 63%

Other income / expenses 150 93 (42) 32 67

Sales and marketing expenses (175,156) (45,760) (42,418) (46,249) (40,729)

Research and development expenses (23,166) (6,889) (5,790) (5,425) (5,062)

General and administrative expenses (58,095) (14,283) (14,053) (17,802) (11,957)

EBIT 72,171 19,683 18,864 19,921 13,703

Net financial income / (expenses) (2,796) (574) (842) (697) (683)

Net exchange rate difference 315 371 (406) 635 (285)

Share in profit of associated companies (1,273) (145) (162) (385) (581)

EBT 68,417 19,335 17,454 19,474 12,154

Income tax (17,419) (4,847) (4,474) (4,918) (3,180)

Net profit 50,998 14,488 12,980 14,556 8,974

EBITDA 93,868 25,668 24,375 25,323 18,502

EBITDA margin 18% 19% 19% 18% 16%

EBITDA adjusted for one time expenses 98,476 25,668 24,375 29,931 18,502

EBITDA adjusted margin 19% 19% 19% 22% 16%

2. Net sales

2016 2015 Q4 2016 Q4 2015

EMEA 252,362 237,312 68,644 62,751

Americas 234,287 210,922 60,010 53,085

APAC 34,099 34,800 9,755 8,692

520,748 483,034 138,409 124,528

Bracing and Supports 279,692 277,545 72,259 71,900

Prosthetics 240,003 203,938 65,892 52,279

Other products 1,053 1,551 258 349

520,748 483,034 138,409 124,528

Specified according to product lines:

Unaudited

Specified according to geographical segments:



3. Segment information

2016 Americas EMEA APAC Eliminations ConsolidatedSalesExternal sales 234,287 252,362 34,099 0 520,748 Inter-segment sales 59,390 244,551 854 (304,795) 0 Total sales 293,677 496,913 34,953 (304,795) 520,748

ResultsSegment results 31,669 35,274 5,228 0 72,171 Net financial income / (expenses) (2,481)Share in net profit of associates (1,273)EBT 68,417 Income tax (17,419)Net profit 50,998

Balance sheet 31.12.2016 Americas EMEA APAC Eliminations Consolidated

AssetsSegment assets 537,857 475,735 37,404 (304,600) 746,396

LiabilitiesSegment liabilities 265,962 373,505 15,095 (375,357) 279,205

Other information 2016Capital additions 10,041 13,959 583 0 24,583 Depreciation and amortization 7,215 14,012 470 0 21,697

2015 Americas EMEA APAC Eliminations ConsolidatedSales

210,922 237,312 34,800 0 483,034 56,258 246,796 1,127 (304,181) 0

267,180 484,108 35,927 (304,181) 483,034

Results27,959 42,002 7,381 0 77,342

(7,870)(949)

68,523 (17,360)51,163

Balance sheet 31.12.2015 Americas EMEA APAC Eliminations Consolidated

Assets499,866 476,327 37,655 (360,429) 653,419

Liabilities229,889 349,128 23,425 (412,050) 190,392

Other information 201510,672 12,611 558 0 23,841 7,343 12,323 487 0 20,153

Net profit

Segment assets

Information reported to the President and CEO for the purposes of resource allocation and assessment of segment performance focuses on geographicalmarkets from the location of customers. The geographical segments are EMEA (Europe Middle-East and Africa), Americas and APAC (Asia-Pacific).

External salesInter-segment salesTotal sales

Segment resultsNet financial income/(expenses)

Sales of approximately USD 23 million (2015: USD 24 million) arose from sales to the Company's largest customer.

Segment liabilities

Capital additionsDepreciation and amortization

Share in net profit of associated companiesEBTIncome tax



4. Sales and expenses split by main currencies

LCY USD % LCY USD %

Sales

USD 223,043 223,043 43% 57,077 57,077 41%

EUR 127,566 141,117 27% 35,553 38,387 28%

ISK 223,511 1,862 1% 72,816 645 1%

Nordic curr. (SEK, NOK, DKK) 74,633 14% 20,870 15%

Other (GBP, AUD, CAD & Other) 80,093 15% 21,430 15%

520,748 100% 138,409 100%

COGS and OPEX

USD 182,233 182,233 40% 45,560 45,560 39%

EUR 87,803 97,843 22% 26,617 28,737 24%

ISK 5,797,617 47,907 11% 1,382,219 12,234 10%


Other (GBP, MXN, CAD & Other) 51,976 12% 14,170 12%

448,577 100% 118,726 100%

LCY USD % LCY USD %

Sales

USD 207,054 207,054 43% 48,035 48,035 39%

EUR 115,325 127,999 26% 31,198 34,155 27%

ISK 251,753 1,909 0% 124,972 967 1%


Other (GBP, AUD, CAD & Other) 70,509 15% 18,389 15%

483,034 100% 124,528 100%

COGS and OPEX

USD 171,685 171,685 42% 42,872 42,872 41%

EUR 72,568 80,543 20% 19,946 21,837 20%

ISK 5,825,259 44,183 11% 1,612,358 12,480 12%


Other (GBP, MXN, CAD & Other) 37,935 9% 9,516 9%

405,692 100% 105,406 100%

LCY amounts are translated at average exchange rates for relevant periods.

Currency split of newly acquired companies is done by using best available information at each time.

Unaudited

Q4 2015

2016 Q4 2016

Unaudited

2015



5. Salaries

2016 2015

Salaries 160,874 143,530

Salary-related expenses 32,645 28,364

193,519 171,894

Included in salary-related expense are pension related expenses amounting to USD 8.4 million (2015: USD 7.1 million).

Full time employees (FTE) on average 2,710 2,420

Full time employees at period end 2,799 2,525

Salaries and salary-related expenses, classified by operational category:

2016 2015

Cost of goods sold 54,967 44,125

Sales and marketing 94,883 89,834

Research and development 13,204 10,489

General and administrative 30,465 27,446

193,519 171,894

Management salaries and benefits

Board of Directors: 2016 2015 2016 2015

Niels Jacobsen - Chairman of the Board(i) 89 85 188,154,919 187,960,514

Kristján Tómas Ragnarsson - Vice Chairman 53 51 619,539 619,539

Arne Boye Nielsen 36 34 0 0

Guðbjörg Edda Eggertsdóttir 36 34 26,318 26,318

Svafa Grönfeldt 36 34 0 0

2016 Fixed base Cash based Other Share based Total

salary incentive Pension benefits incentive remuneration

Executive Management:

Jón Sigurðsson President and CEO(i) 949 466 0 154 292 1,861

Executive management (6 people) (ii) 1,914 370 134 169 465 3,052

2,863 836 134 324 757 4,913

2015 Fixed base Cash based Other Share based Total

salary incentive Pension benefits incentive remuneration

Executive Management:

Jón Sigurðsson President and CEO(i) 914 533 0 165 156 1,768

Executive management (6 people) (ii) 1,750 393 111 114 292 2,660

2,664 926 111 279 447 4,427

No share option contracts were held by the Board of Directors at period end in current and prior year.

(i) Shares owned by William Demant Invest A/S which Niels Jacobsen represents on the Board. Niels and financially related parties own personally 194,405 shares.

(i) Shares owned by Jón Sigurðsson 608,708 (2015: 539,806)(ii) Shares owned by members of executive management 895,929 (2015: 838,119)

Salaries Shares owned



6. Fees to auditors2016 2015

967 959

351 177

1,318 1,136

7. Financial income / (expenses)

2016 2015 Q4 2016 Q4 2015

635 285 139 131

366 59 270 (49)

Financial income 1,001 344 409 82

(2,731) (2,586) (761) (605)

(1,066) (746) (222) (212)

Financial expenses (3,797) (3,332) (983) (817)

315 (4,882) 371 (1,122)

Net financial income / (expenses) (2,481) (7,870) (203) (1,857)

8. Income tax

2016 2015 Q4 2016 Q4 2015

Current tax expenses (16,603) (13,727) (3,506) (1,656)

Deferred tax expenses (816) (3,633) (1,341) (2,897)

(17,419) (17,360) (4,847) (4,553)

2016 2015Amount % Amount %

Profit before taxes 68,417 68,523

Income tax calculated at 20% (13,683) 20% (13,705) 20%

Effect of different tax rates of other jurisdictions (2,650) 4% (2,844) 4%

Effect of non-deductible expenses / nontaxable income (119) 0% (333) 0%

Effect of change in tax rate (175) 0% 0 0%

Other effects (792) 1% (478) 1%

(17,419) 25% (17,360) 25%

Deferred tax: 2016 2015

Origination and reversal of temporary differences (663) (3,634)

Losses (recognized) and utilized 22 1

Effect of changes in tax rate (175) 0

(816) (3,633)

Deferred tax balances:

2016 1.1.2016

Recognized in Income

statement

Recognized directly in

equityAcquisitions /

disposalsExc. rate

difference 31.12.2016

Goodwill (1,443) (5,316) 32 (6,727)

Intangible assets (4,495) 2,126 (2,743) 79 (5,033)

Operating fixed assets (3,333) (40) 31 (3,342)

Tax loss carry forward 1,789 2,607 1,293 5,689

Inventories 2,034 1,125 464 3,623

Provisions 880 526 (2) 1,404

Current liabilities 901 (1,868) 53 (914)

Receivables (86) 296 173 1 384

Other 128 (272) 190 (18) 29

Total (3,626) (816) 190 (813) 177 (4,887)

Other financial expenses

Net exchange rate differences

Audit of Financial Statements

Other services

Unaudited

Interests on bank deposits

Other financial income

Interests on loans

Unaudited



2015 1.1.2015

Recognized in Income

statement

Recognized directly in

equityAcquisitions /

disposalsExc. rate

difference 31.12.2015

Goodwill 2,818 (4,299) 38 (1,443)

Intangible assets (5,767) 832 440 (4,495)

Operating fixed assets (3,003) (352) 22 (3,333)

Tax loss carry forward 4,475 (2,671) (15) 1,789

Inventories 1,754 294 (14) 2,034

Provisions 131 761 (12) 880

Current liabilities (538) 1,369 70 901

Receivables (668) 585 (3) (86)

Other 501 (152) (160) (62) 128

Total (297) (3,633) (160) 464 (3,626)

9. Earnings per share

2016 2015 Q4 2016 Q4 2015

50,998 51,163 14,488 12,585

Total weighted average number of ordinary shares (in thousands) 439,259 443,624 437,274 444,795

440,678 445,661 438,348 446,455

11.6 11.5 3.3 2.8

11.6 11.5 3.3 2.8

16.5 16.1 4.7 4.1

16.5 16.0 4.7 4.1

10. Property, plant and equipment

2016Buildings &

sitesMachinery &

equipmentFixtures &

office equip.Computer

equipments Total

Cost

At 1 January 11,784 65,266 26,614 10,249 113,913

Additions 178 11,447 5,868 3,276 20,769

Acquired on acquisition of subsidiary 0 3,529 2,036 631 6,196

Exchange rate differences (350) (1,189) (1,414) (216) (3,168)

Eliminated on disposal 0 (894) (97) (390) (1,381)

Fully depreciated assets (85) (331) (2,751) (369) (3,536)

At 31 December 2016 11,527 77,828 30,257 13,182 132,794

Depreciation

At 1 January 7,913 38,748 14,755 7,961 69,377

Charge for the period 346 7,561 3,247 1,870 13,024

Acquired on acquisition of subsidiary 0 2,528 1,167 502 4,197

Exchange rate differences (245) (1,005) (464) (142) (1,856)

Eliminated on disposal 0 (796) (79) (375) (1,250)

Fully depreciated assets (85) (331) (2,751) (369) (3,536)

At 31 December 2016 7,929 46,705 15,875 9,448 79,957

At 31 December 2016 3,598 31,123 14,382 3,734 52,837

Depreciation classified by operational category: 2016 2015 Q4 2016 Q4 2015

Cost of goods sold 8,369 6,925 2,692 1,844

Sales and marketing expenses 1,632 1,566 483 447

Research and development expenses 541 450 138 128

General and administrative expenses 2,482 2,589 118 635

13,024 11,530 3,431 3,054

Total weighted average number of shares including potential shares (in thousands)

Unaudited

Cash earnings per share

Diluted cash earnings per share

Net profit

Basic earnings per share (US cent)

Unaudited

Diluted earnings per share (US cent)

The Company has unused tax losses available for which no deferred tax asset is recognized. Per 31.12.2016 these unused losses amount to USD 2.7million (2015: USD 2 million). Of this amount, USD 0.9 million of unused losses will expire in 8-10 years (2015: USD 0.2 million). The remaining taxlosses carry an indefinite term.



2015Buildings &

sitesMachinery &

equipmentFixtures &

office equip.Computer

equipments Total

Cost

At 1 January 13,145 57,847 24,853 9,586 105,431

Additions 7 12,812 4,254 1,641 18,714

Exchange rate differences (1,356) (2,417) (1,831) (220) (5,824)

Eliminated on disposal (12) (1,615) (7) (43) (1,677)

Fully depreciated assets 0 (1,361) (655) (715) (2,731)

At 31 December 2015 11,784 65,266 26,614 10,249 113,913

Depreciation

At 1 January 8,409 36,552 13,476 7,099 65,536

Charge for the period 349 6,411 2,934 1,836 11,530

Exchange rate differences (845) (1,707) (1,055) (238) (3,845)

Eliminated on disposal 0 (1,147) 55 (21) (1,113)

Fully depreciated assets 0 (1,361) (655) (715) (2,731)

At 31 December 2015 7,913 38,748 14,755 7,961 69,377

At 31 December 2015 3,871 26,518 11,859 2,288 44,536

11. Goodwill

31.12.2016 31.12.2015

At 1 January 369,238 388,100

Arising on acquisition of subsidiaries 35,065 0

Exchange rate differences (10,180) (18,862)

394,123 369,238

11.1 Allocation of goodwill to cash-generating units

The carrying amount of goodwill was allocated to the following cash-generating units:

WACC % 31.12.2016 31.12.2015

Americas 8.9 / 7.4 221,211 220,405

EMEA 8.1 / 6.9 157,304 133,063

APAC 9.4 / 7.7 15,608 15,770

394,123 369,238

During the year, the Company assessed the recoverable amount of goodwill and determined that none of the Company's cash-generating units havesuffered an impairment loss.

Cash flow projections in the forecast are based on the same expected gross margins and raw materials prices throughout the period. Cash flows beyond2021 have been extrapolated using a steady 3% per annum growth rate for all segments. This growth rate does not exceed the long-term averagegrowth rate for the market in each market area. Management believes that any reasonable further change in the key assumptions on whichrecoverable amount is based would not cause the carrying amount to exceed its recoverable amount.

The recoverable amount of the cash-generating units is determined based on a value in use calculation which uses cash flow projections based on thefinancial forecast for 2017 approved by management and the Board of Directors. The discount rate of 8.1 - 9.4% (2015: 6.9 - 7.7%) per annum wasused.

None of the Company's properties, plants and equipment are pledged. Major divestments are subject to bank approval.



12. Other intangible assets

2016Cust./distrib. relationships

Patents Trademarks Software and other

Total

Cost

At 1 January 30,423 4,127 13,091 31,070 78,711

Additions 41 155 0 2,164 2,360

Additions - internally generated 0 0 0 1,454 1,454

Acquired on acquisition of subsidiary 5,616 10,699 347 2,877 19,539

Fully depreciated assets 0 (441) 0 (1,662) (2,103)

Exchange rate differences (1,561) (1,286) (813) (616) (4,276)

At 31 December 2016 34,519 13,254 12,625 35,287 95,685

Amortization

At 1 January 22,981 1,693 467 18,451 43,592

Charge for the period 3,269 406 113 4,885 8,673

Acquired on acquisition of subsidiary 45 263 0 1,168 1,476

Fully depreciated assets 0 (441) 0 (1,662) (2,103)

Exchange rate differences (824) (68) (379) (274) (1,545)

At 31 December 2016 25,471 1,853 201 22,569 50,093

At 31 December 2016 9,048 11,402 12,424 12,718 45,592

Amortization classified by operational category: 2016 2015 Q4 2016 Q4 2015

Cost of goods sold 1,006 1,056 136 264

Sales and marketing expenses 5,406 5,497 1,491 1,532

Research and development expenses 505 75 291 18

General and administrative expenses 1,756 1,995 636 748

8,673 8,623 2,554 2,562

2015Cust./distrib. relationships

Patents Trademarks Software and other

Total

Cost

At 1 January 32,913 3,742 14,638 27,490 78,783

Additions 0 511 0 2,213 2,724

Additions - internally generated 0 0 0 2,403 2,403

Fully depreciated assets 0 0 0 (765) (765)

Exchange rate differences (2,490) (126) (1,547) (271) (4,434)

At 31 December 2015 30,423 4,127 13,091 31,070 78,711

Amortization

At 1 January 20,842 1,643 596 14,663 37,744

Charge for the period 3,689 143 10 4,781 8,623

Fully depreciated assets 33,300 0 0 (765) 32,535

Exchange rate differences (1,550) (93) (139) (228) (2,010)

At 31 December 2015 56,281 1,693 467 18,451 76,892

At 31 December 2015 (25,858) 2,434 12,624 12,619 1,819

Unaudited

The Gibaud trademarks amounting to USD 11.8 million (2015: USD 12.2 million) are estimated to have indefinitive life. The trademark has been wellestablished within the French market since the foundation in 1890.



13. The Consolidation

Name of company

Place of registration

and operation Ownership % Principal activity

Össur Americas, Inc. USA 100% Sales, R&D, distribution and services

Össur Australia PTY, Ltd. Australia 100% Sales, distribution and services

Össur Canada, Inc. Canada 100% Sales, distribution and services

Össur Deutschland, GmbH. Germany 100% Sales, distribution and services

Össur Europe, BV. Netherlands 100% Sales, distribution and services

Össur Hong Kong, Ltd. Hong Kong 100% Sales, distribution and services

Össur Iberia, SA. Spain 100% Sales, distribution and services

Össur Iceland, ehf. Iceland 100% Manufacturer and sales

Össur Mexico, S. de R.L. de C.V. Mexico 100% Manufacturer

Össur Nordic, AB. Sweden 100% Sales, distribution and services

Össur Prosth. & Rehabilition Co, Ltd. China 100% Sales, distribution and services

Össur South Africa (Pty), Ltd. South Africa 100% Sales, distribution and services

Össur UK, Ltd. UK 100% Sales, distribution and services

Gibaud, SAS. France 100% Manufacturer, sales, R&D, distribution and services

TeamOlmed, AB. Sweden 100% Sales, distribution and services

Touch Bionics, Ltd. UK 100% Manufacturer and R&D

14. Other financial assets

31.12.2016 31.12.2015

12,912 8,355

906 988

5,558 436

19,376 9,779

Investments in associates

31.12.2016 31.12.2015

8,355 7,485

5,831 1,932

(1,274) (951)

0 (98)

0 (13)

12,912 8,355

The Company has guaranteed a credit lines of approximately USD 2.9 million (2015: USD 2.9 million) for its associates.

15. Inventories

31.12.2016 31.12.2015

Raw material 16,338 14,705

Work in progress 5,022 5,486

Finished goods 53,936 44,691

75,296 64,882

Additions

The cost of inventories recognized as an expense includes USD 2.0 million (2015: USD 3.1 million) in respect of write-downs of inventory to netrealizable value. Reserve for obsolete inventories at year end is USD 4.1 million compared to USD 3.9 million in 2015.

At 1 January

Share in net profit / (loss)

Sale of associates

Exchange rate differences

At end of period

Investment in associates

Restricted cash

Loans and receivables

Inventories of USD 5.9 million (2015: USD 4.7 million) are expected to be sold or used in production after more than twelve months.

In the preparation of the Consolidated Financial Statements, accumulated gains in inventories from intercompany transactions amounting to USD 16.2million (2015: USD 12.8 million) were eliminated. This has an effect on the income tax expense of the consolidated companies, and an adjustment ofUSD 4.7 million (2015: USD 3.8 million) is made in the Consolidated Financial Statements to reduce income tax expense to account for this.

The main operation is carried out in the following companies:



16. Accounts receivables

31.12.2016 31.12.2015

Nominal value 86,774 76,395

Allowances for doubtful accounts (3,561) (2,183)

Allowances for sales return (1,104) (943)

82,109 73,269

Aging of accounts receivables 31.12.2016 31.12.2015

73,084 66,983

6,486 5,659

1,753 909

5,451 2,844

86,774 76,395

Movement in the allowance for doubtful accounts 2016 2015

(2,183) (1,665)

(1,516) (819)

96 171

42 130

At 31 December (3,561) (2,183)

17. Other assets

31.12.2016 31.12.2015

VAT refundable 2,915 2,612

Prepaid expenses 10,959 6,533

Taxes receivable 251 1,736

Other 4,108 2,682

18,233 13,563

18. Bank balances and cash

31.12.2016 31.12.2015

Bank accounts 32,171 22,183

Bankers draft received 2,867 3,420

Cash and other cash equivalents 53 104

35,091 25,707

In determining the recoverability of accounts receivable, the Company considers any change in the credit quality of the accounts receivable from thedate credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated.Accordingly, management believe that there is no further credit provision required in excess of the allowance for doubtful debts. Within accountsreceivables are USD 8.9 million (2015: USD 8.3 million) with more than 30 days past due of which USD 5.4 million (2015: USD 6.1 million) isconsidered recoverable.

The average credit period on sales of goods is 47 days (2015: 47 days). Allowance has been made for doubtful accounts and sales returns, thisallowance has been determined by management in reference to past default experience. Management considers that the carrying amount of receivablesapproximates their fair value.

Less than three months

Three to six months

Six to nine months

Older than nine months

At 1 January

Impairment (losses)/gains recognized on receivables

Amounts written off as uncollectible

Exchange rate difference



19. Issued capital

Common stock is as follows in thousands of shares:

Issued sharesTreasury

shares Total

Balance at 1 January 2015 453,750 (12,107) 441,643

(7,457) 7,457 0

4,650 4,650

Purchased treasury shares (2,593) (2,593)

446,293 (2,592) 443,701

(3,292) 3,292 0

1,300 1,300

(7,838) (7,838)

443,001 (5,838) 437,163

Movement in issued capital is as follows in USD thousands:

Share Share

capital premium Total

Balance at 1 January 2015 4,968 164,230 169,198

39 13,733 13,772

(21) (8,425) (8,446)

4,986 169,538 174,524

11 4,361 4,372

(64) (29,226) (29,290)

4,933 144,673 149,606

20. Share option contracts

The following share-based payment arrangements were in existence at balance sheet date:

Number of shares

Grant/Issue year Exercise year

Exercise price (in DKK)

Fair value at grant date (in

DKK)

Issued to executive management:

Jón Sigurðsson President and CEO 1,250,000 2015 / 2016 2018 / 2019 21.9 / 25.9 24.1 / 25.8

Members of executive management (4 persons) 925,000 2015 2018 19.4 / 21.9 19.0 / 24.1

Members of executive management (7 persons) 1,300,000 2016 2019 22.4 / 26.8 23.0 / 26.9

3,475,000

Issued to management team:

Twenty managers 1,200,000 2015 2018 19.4 / 23.9 19.0 / 24.1

Thirteen managers 625,000 2016 2019 22.4 - 26.8 23.0 - 26.9

1,825,000

Total issued option contracts 5,300,000

Purchased treasury shares

Balance at 31 December 2015


Sold treasury shares


In accordance with resolutions from the Annual General Meeting on 10 March 2016, the share capital was decreased in April by ISK 3,292,688 bycancelling the Company's own shares of ISK 1 nominal value each.

At year end the Company holds 5,837,832 own shares. The Company has renewed its "Safe Harbor" share buyback program where it may purchase upto 5,000,000 shares, corresponding to 1% of the current share capital.

Cancellation of own shares




Cancellation of own shares




Each employee share option converts into one ordinary share on exercise. No amounts are paid or payable by the recipient on receipt of the option. Theoptions carry neither rights to dividends nor voting rights and are valued using the Black-Scholes pricing model. The expected volatility assumptionsused to value the options range from 28.8% to 31.2% and the annual discount rate range from -0.6% to -0.2%. The options expire one year after theexercise date. If a share option vests during a closed period for insider trading the vesting period is automatically extended until the next open windowfor insider trading.

The Company has in place a share option plan, approved at the Company's Annual General Meetings, under which managers may be granted options topurchase ordinary shares at an exercise price. The exercise price of each share option is determined by the average closing price on shares traded inthe OMX Copenhagen stock exchange over the 20 trading days prior to the issue date. The employee must remain continuously employed with theCompany until expiring date, either as an employee or in any other way, deemed satisfactory by the Company.



Movements in share options during the period

Number of shares

Weighted average

contract rate (in DKK)

Number of shares

Weighted average

contract rate (in DKK)

4,050,000 17.0 5,950,000 8.4

2,550,000 25.3 2,750,000 21.3

(1,300,000) 7.8 (4,650,000) 8.6

5,300,000 23.2 4,050,000 17.0

Share options exercised during the period

Number exercised Exercise date

Share price at exercise date

(in DKK)

Issued to Management team 100,000 2/11/2016 21.1



Issued to Executive Management 36,207 5/12/2016 25.9








Total exercised during the year 1,300,000

21. Borrowings

Current Non-current Current Non-current

Loans in USD 12,568 12,280 58 24,229

Loans in EUR 11,862 64,660 0 24,448

Revolver in USD 0 22,850 0 19,400

Revolver in EUR 0 30,305 0 15,922

24,430 130,095 58 83,999

Aggregated maturities of borrowings are as follows:

31.12.2016 31.12.2015

In 2017 / 2016 24,430 58

In 2018 / 2017 24,630 25,008

In 2019 / 2018 63,674 24,936

In 2020 / 2019 10,125 34,055

Later 31,666 0

154,525 84,057

Estimated remaining cost due to the share option contracts is USD 2.5 million. An expense of USD 1.1 million (2015: USD 0.8 million) is recognized inthe Income Statement for the period.

31.12.2016

Exercised during period

Össur has secured facility with ING, Nordea and SEB for a total amount of USD 183m (2015: USD 195m). The facility contains covenants that place various financial and operational restrictions on the Company and are in line with market standards for investment grade rated companies. Össur also has a EUR 50m term loan with the Nordic Investment Bank. Current weighted average interest terms are <100 bps +LIBOR/EURIBOR, changing in line with financial leverage.

The maturity of the revolving credit facility is Q2 2019. The Company has classified the revolving credit facility as non-current liability as the intention is to use it to finance further growth of the Company.

31.12.2015

Outstanding at beginning of period

Outstanding at end of period

Granted during period

31.12.2016 31.12.2015



22. Deferred tax asset / (liability)

31.12.2016 31.12.2015

At beginning of period (3,626) (297)

Income tax payable for the period 16,603 13,727

Calculated tax for the period (17,419) (17,360)

Arising on acquisition of a subsidiary (812) 0

Recognized directly through equity 190 (160)

Exchange rate differences 177 464

At end of period (4,887) (3,626)

Deferred tax in the balance sheet:

Deferred tax asset 23,739 17,326

Deferred tax liabilities (28,626) (20,952)

(4,887) (3,626)

The following are the major deferred tax liabilities and assets recognized:

31.12.2016 Assets Liabilities Net

7,773 (14,500) (6,727)

1,201 (6,234) (5,033)

21 (3,363) (3,342)

5,689 0 5,689

3,623 0 3,623

1,419 (15) 1,404

3,051 (3,965) (914)

418 (34) 384

852 (823) 29

24,047 (28,934) (4,887)

(308) 308 0

23,739 (28,626) (4,887)

31.12.2015 Assets Liabilities Net

14,451 (15,894) (1,443)

0 (4,495) (4,495)

19 (3,352) (3,333)

1,789 0 1,789

2,034 0 2,034

1,380 (500) 880

5,491 (4,590) 901

0 (86) (86)

843 (715) 128

26,007 (29,632) (3,626)

(8,681) 8,681 0

17,326 (20,952) (3,626)

Inventories

Provisions

Current liabilities

Goodwill

Intangible assets

Operating fixed assets

Tax loss carry forward

Goodwill

Intangible assets

Operating fixed assets

Tax loss carry forward

Tax asset and liabilities offsetting

Receivables

Other

Total tax assets / (liabilities)

Tax asset and liabilities offsetting

Inventories

Provisions

Current liabilities

Receivables

Other

Total tax assets / (liabilities)



23. ProvisionsWarranty Other

2016 provisions provisions Total

5,029 2,928 7,957

1,811 5,932 7,743

(1,450) (1,885) (3,335)

(34) (71) (105)

5,356 6,904 12,260

1,895 4,624 6,519

3,461 2,280 5,741

5,356 6,904 12,260

Warranty Other

2015 provisions provisions Total

7,095 3,304 10,399

2,731 1,183 3,914

(4,794) (1,240) (6,034)

(3) (319) (322)

5,029 2,928 7,957

2,681 2,337 5,018

2,348 591 2,939

5,029 2,928 7,957

24. Related party transactions

25. Other liabilities

31.12.2016 31.12.2015

17,420 12,905

684 889

3,458 2,929

5,426 5,586

26,988 22,309

Non-current

Current

At 31 December 2016

At 1 January

Additional provision recognized

Utilization of provision

At 1 January

Additional provision recognized

Utilization of provision


At 31 December 2016

Sales tax and VAT

Other

(i) The warranty provision represents management's best estimate of the Company's liability under warranties granted on prosthetic products, based on past experience.


At 31 December 2015

Non-current

Current

At 31 December 2015

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidationand are not disclosed in this note. The Company had no material transactions with related parties during the period.

Accrued expenses

Accrued royalties



26. Business combinations

Touch Bionics11.4.2016

Medi Prosthetics1.9.2016

Fair value changes

Total

Current assets 10,332 8,238 18,570

Non-current assets 4,180 2,010 16,304 22,494

Non-current liability 0 -7,442 -1,342 -8,784

Current liabilities -7,587 -2,310 -1,723 -11,620

Non controlling interest -380 -380

6,925 116 13,239 20,660

Consideration paid in cash 55,345

Book value of identifiable net assets acquired -7,041

Fair value of identifiable net assets acquired (to be completed) -13,239

Goodwill arising on acquisition 35,065

Consideration paid in cash 55,345

Deferred payment -2,111

Cash from acquired companies -1,682

Consideration shown in Cashflow 51,552

27. Events after the reporting period

28. Financial instruments

28.1 Capital risk management

Net debt to adjusted EBITDA ratio

The net debt to adjusted EBITDA at period end was as follows:

31.12.2016 31.12.2015

Net debt 119,434 58,350

Adjusted EBITDA 98,476 98,962

Net debt/Adj.EBITDA 1.2 0.6

At the beginning of April Össur acquired 100% of the share capital in Touch Bionics Limited, a leading global provider of innovative upper extremitiesprostheses and supporting services. Touch Bionics has over 120 employees with operations in Scotland, Germany, and the United States. In 2015, totalsales amounted to USD 21 million with an adjusted EBITDA of USD 1.3 million. The purchase price was USD 40 million, on a debt and cash free basis.The acquisition was financed through existing loan facilities. Acquisition related costs amounting to USD 2.3 million were expensed in Q2 2016 asgeneral and administrative expenses.

At the beginning of September Össur acquired 100% of the share capital in Medi Prosthetics from Medi Group, with effect from 1 September 2016. MediProsthetics is a global provider of mechanical lower extremities prosthetic components, located in Bayreuth, Germany. In 2015, total sales amounted toEUR 15 million (USD 17 million). The integration of the business is expected to be concluded in 2017. The acquisition was financed through existing loanfacilities. Acquisition related costs amounting to USD 0.3 million were expensed in Q3 2016 as general and administrative expenses.

The Company's management continuously reviews the capital structure. As a part of this review, the management considers, amongst other, the cost ofcapital and net debt to adjusted EBITDA.

The Company manages capital to ensure that affiliates within the consolidation will be able to continue as a going concern while maximizing the returnto stakeholders through the optimization of the debt and equity balance. Össur’s Capital Structure and Dividend policy was updated in February 2017 bythe Board of Directors. The only change in the policy is a change in the desired level of net interest bearing debt to EBITDA from 0.5-1.5x to 1-2x.TheCompany's overall strategy remains unchanged from 2015.

The capital structure of the Company consists of debt, which includes the borrowings disclosed in note 21, cash and cash equivalents and equityattributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in the equity overview.

At beginning of February 2017 the Company entered into a forward currency contract, where the exchange rates are fixed for around half of theCompany´s expected costs denominated in ISK. The contract is considered an effective cash flow hedge for accounting purposes.

Assets acquired and liabilities recognized at the date of acquisition:

The initial accounting for the acquisitions has been provisionally determined at balance sheet date. The fair value of assets and liabilities have beenprovisionally determined based on management best estimate. None of the goodwill arising on this acquisitions is expected to be deductible for taxpurposes.



28.2 Significant accounting policies

28.3 Financial risk management objectives

28.4 Foreign currency risk management

31.12.2016 31.12.2015 31.12.2016 31.12.2015

EUR 131,468 61,655 44,117 35,148

USD 71,683 65,611 64,729 47,184

SEK 12,060 11,008 15,610 14,014

GBP 3,515 1,677 5,456 4,741

Other 19,593 21,531 24,897 21,231

238,319 161,483 154,809 122,318

Foreign currency sensitivity analysis

2016 2015 2016 2015

Net profit 3,063 3,377 (3,384) (3,108)

Equity 19,462 9,825 636 (1,068)

28.5 Interest rate risk management

The general policy is to apply natural hedging to the extent possible but Össur has decided to amend its hedging policy and allow for active hedging ofcurrency exposure that is not covered by the natural hedge in sales and costs by currency. The use of financial derivatives is governed by theCompany's policies approved by the Board of Directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the useof financial derivatives and non-derivative financial instruments and the investment of excess liquidity. The Company does not enter into or tradefinancial instruments, including derivative financial instruments, for speculative purposes.

The Company is exposed to interest rate risks as funds are borrowed at floating interest rates. Interest rate risk is managed by the Corporate Financefunction and the use of interest rate swap contracts may be used to maintain an appropriate mix between fixed and floating rate borrowings. Hedgingactivities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring optimal hedging strategies are applied. Currently,all of the Company's borrowings bear floating interest rates.

The Company's exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.

The Company is mainly exposed to the fluctuation of the Iceland (ISK) and the Eurozone (EUR) currency.

The following table details the Company's sensitivity to a 10% decrease in USD against the relevant foreign currencies with all other variables fixed. Thesensitivity analysis includes all foreign currency denominated items and adjusts their translation at the period end for a 10% change in foreign currencyrates. The table below indicates the effect on profit or loss and other equity where USD weakens 10% against the relevant currency. For a 10%strengthening of USD against the relevant currency, there would be an equal and opposite impact on the profit or loss and other equity.

EUR (i) ISK (ii)

(i) 22% (2015: 20%) of the Company's COGS and OPEX is in EUR against 27% (2015: 26%) of its sales causing an increase in profit if the USDdecreases against the EUR.

(ii) 11% (2015: 11%) of the Company's COGS and OPEX is in ISK against 0.5% (2015: 0.4%) of its sales causing a decrease in profits if the USDdecreases against the ISK.

At the beginning of February 2017 the Company entered into a forward currency contract, where the exchange rates are fixed for around half of itsexpenses denominated in ISK. This new contract is not considered in the above calculations.

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis onwhich income and expenses are recognized, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 33 tothe Consolidated Financial Statements.

The Company's Corporate Finance function provides services to the business, co-ordinates access to domestic and international financial markets,monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze exposures by degreeand magnitude of risks. These risks include liquidity risk, interest rate risk, foreign exchange risk and counterparty credit risk.

The Company operates on a global market, hence exposure to exchange rate fluctuations arises. Exchange rate exposures are managed withinapproved policy parameters. The general policy is to apply natural exchange rate hedging to the extent possible.

The carrying amounts of the Company's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

Liabilities Assets



28.6 Liquidity risk management

Weighted average

effective interest

Less than 1 year 1-5 years 5+ years Total

2016

Borrowings 1.9% 27,896.0 136,691.0 0.0 164,587.0

Non-interest bearing liabilities - 75,637.0 5.0 0.0 75,642.0

103,533 136,696 0 240,229

2015

Borrowings 2.4% 2,719 88,984 0 91,703

Non-interest bearing liabilities - 66,286 45 0 66,331

69,005 89,029 0 158,034

28.7 Credit risk management

28.8 Fair value of financial instruments

Carrying amount Fair value Carrying

amount Fair value

Financial liabilities:

Borrowings 154,525 155,285 84,057 85,324

29. Operating lease arrangements

2016 2015

Payments recognized as an expense 14,871 15,090

Non-cancellable operating lease commitments:

31.12.2016 31.12.2015

12,752 12,122

24,591 25,476

10,985 11,725

48,328 49,323

Operating lease payments represent rentals payable by the Company for certain of its office properties and cars. More than hundred rental agreementsare in place in multiple countries. The leases expire in the periods 2017-2026.

Less than 1 year

1 - 5 years

5+ years

The fair values of financial instruments are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by monitoring forecast andactual cash flows and matching the maturity profiles of financial assets and liabilities. At period end the Company had undrawn revolving credit facilitiesat its disposal amounting to USD 80.8 million (2015: USD 101.0 million) to further reduce liquidity risk.

The following tables detail the Company's remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up basedon the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The table includes bothinterest and principal cash flows.

The Company's counterparty credit risks arise mainly from short-term investment of liquid assets and the market-to-market effect of interest rateswaps.

The Company does not undertake any trading activity in financial instruments.

Accounts receivables consist of a large number of customers spread across geographical areas. Ongoing credit evaluation is performed on the financialcondition of accounts receivables.

Management considers that the carrying amounts of all financial assets and financial liabilities recognized in the Consolidated Financial Statementsapproximate their fair values, except as detailed in the following table:

31.12.2016 31.12.2015



30. Litigation

31. Insurance

Insurance Book Insurance Book

value value value value

Fixed assets and inventories 248,340 133,018 221,727 114,303

32. Adoption of new and revised Standards

32.1 Standards and interpretations effective in the current and prior periods

32.2 Standards not yet effective

33. Summary of Significant Accounting Policies

33.1 Statement of compliance

33.2 Basis of preparation

Vincent Systems, a German manufacturer of prosthetic hands, filed a lawsuit in Germany against Touch Bionics in November 2016. Vincent Systemsclaims that certain Touch Bionics products, which include the i-digit finger element in hand prosthesis, infringe one European patent valid only inGermany. Touch Bionics and Össur deny allegations of infringement. Management expects the case to be resolved during 2017 and that the majority oflegal costs and other related expenses will materialize during the year. While Touch Bionics and Össur are confident in their positions on the merits, thelikely outcome of the case remains uncertain.

31.12.2016 31.12.2015

The Consolidated Financial Statements are presented in accordance with the new and revised standards (IFRS / IAS) and new interpretations (IFRIC),applicable in the year 2016. Management believes that those new and revised IFRS standards do not have material effect on amounts reported in theConsolidated Financial Statements.

The Company has not early adopted new and revised IFRS standards that have been issued but are not yet effective. Two new standards, IFRS 15,Revenue from Contracts with Customers and IFRS 16, Leases are relevant to Össur. IFRS 15 is effective starting on 1 January 2018 and IFRS 16 on 1January 2019 with a permission for early adoption. The European Union has endorsed the IFRS 15 but not yet IFRS 16.

Össur has performed a preliminary assessment of IFRS 15, which is subject to changes arising from a more detailed ongoing analysis. Based on thepreliminary assessment the impact is expected to be non-material and limited to revenue recognition of additional warranties for bionic products thatare occasionally sold separate from the product. In 2016 the amount sold in relation to additional warranties amounted to USD 0.2 million, that underthe new standard would have been deferred.

IFRS 16 introduces a single, on-balance sheet lease accounting model for leasees. Össur has started a preliminary assessment of the impacts on itsConsolidated Financial Statements. The most significant impact identified is that Össur will recognize right to use assets and related liabilities, mainly forits operating leases of facilities. In addition, the nature of expenses related to those leases will change as IFRS 16 replaces the operating lease expensewith a depreciation charge for right-of-use assets and interest expense on lease liabilities reported under financing expenses. As can be seen in note 29,Össur paid USD 15 million for lease arrangements and of that USD 13 million for facilities. Note 29 also shows non-cancellable operating leasecommitments amounting to USD 48 million of which USD 44 million relates to facilities. More detailed assessments of the impacts will be done over thenext twelve months. The transition approach has not yet been finalized but an option for early adoption is considered.

The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EuropeanUnion and additional Danish disclosure requirements for listed companies and additional requirements in the Icelandic Financial Statement Act no.3/2006.

The Consolidated Financial Statements have been prepared under the historical cost basis except for certain financial instruments that are measured atfair values. Historical cost is generally based on the fair value of the consideration given in exchange for assets. Fair value is the price that would bereceived to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless ofwhether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, theCompany takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricingthe asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these Consolidated Financial Statements isdetermined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2, leasing transactions that are within thescope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 or value in usein IAS 36.

The Company has purchased a business interruption insurance intended to compensate for temporary breakdown of operations. The insurance amountis USD 426 million (2015: USD 379 million). In addition the Company has a product and professional liability insurance with a USD 30 million limit and aproduct recall insurance with a USD 2 million limit. The deductible amount on the product and professional liability and product recall insurances is USD25-50 thousand.



33.3 Basis of consolidation

33.4 Business combination

• deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognized and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;

• liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Company entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date;

• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard.

Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the purchase price of the businesscombination over the Company's interest in the net fair value of the identifiable assets, liabilities, contingent liabilities, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree. If, after reassessment, theCompany's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the businesscombination, the excess is recognized immediately in profit or loss. Non-controlling interests that are present ownership interests and entitle theirholders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognized amounts of the acquiree's identifiable net assets. The choice of measurement basis is madeon a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified inanother IFRS.

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fairvalue, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, liabilities incurred by the Company tothe former owners of the acquiree and the equity interests issued by the Company in exchange for control of the acquiree. Acquisition-related costs aregenerally recognized in profit or loss as incurred.

The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognized at their fairvalue at the acquisition date, except that:

The Consolidated Financial Statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries.Control is achieved when the Company:

• has power over the investee;• is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the threeelements of control listed above.

When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient togive it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances inassessing whether or not the Company's voting rights in an investee are sufficient to give it power, including:

• the size of the Company's holding of voting rights relative to the size and dispersion of holdings of the other vote holders; • potential voting rights held by the Company, other vote holders or other parties; • rights arising from other contractual arrangements; and • any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at thetime that decisions need to be made, including voting patterns at previous shareholders' meetings.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of thesubsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profitor loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests.Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in thenon-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Company'saccounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Company are eliminatedin full on consolidation.

Changes in the Company's ownership interests in subsidiaries that do not result in the Company losing control over the subsidiaries are accounted for asequity transactions. The carrying amounts of the Company's interests and the non-controlling interests are adjusted to reflect the changes in theirrelative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of theconsideration paid or received is recognized directly in equity and attributed to owners of the Company.



33.5 Investments in associates

33.6 Goodwill

An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operatingpolicy decisions of the investee but is not control or joint control over those policies.

The results, assets and liabilities of associates are incorporated in the Consolidated Financial Statements using the equity method of accounting. Underthe equity method, investments in associates are initially recognized in the balance sheet and adjusted for post-acquisition changes in the Company'sshare of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Company'sinterest in that associate are recognized only to the extent that the Company has incurred legal or constructive obligations or made payments on behalfof the associate.

Any excess of the cost of acquisition over the Company's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of theassociate recognized at the date of acquisition is recognized as goodwill. The goodwill is included within the carrying amount of the investment and isassessed for impairment as part of that investment. Any excess of the Company's share of the net fair value of the identifiable assets, liabilities andcontingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

The requirements of IAS 39 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Company'sinvestment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordancewith IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal)with its carrying amount, Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss isrecognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

The Company discontinues the use of the equity method from the date when the investment ceases to be an associate, or when the investment isclassified as held for sale. When the Company retains an interest in the former associate and the retained interest is a financial asset, the Groupmeasures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition in accordance with IAS 39.The difference between the carrying amount of the associate or joint venture at the date the equity method was discontinued, and the fair value of anyretained interest and any proceeds from disposing of a part interest in the associate or joint venture is included in the determination of the gain or losson disposal of the associate or joint venture. In addition, the Company accounts for all amounts previously recognized in other comprehensive income inrelation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if again or loss previously recognized in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the relatedassets or liabilities, the company reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method isdiscontinued.

Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

Goodwill is not amortized but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of theCompany's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocatedare tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unitand then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill isrecognized directly in profit or loss in the Consolidated Income Statement. An impairment loss recognized for goodwill is not reversed in a subsequentperiod.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

The Company's policy for goodwill arising on the acquisition of an associate is described at 33.5 above.

When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent considerationarrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in abusiness combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjustedretrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additionalinformation obtained during the ‘measurement period’ about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustmentsdepends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequentreporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability isremeasured at subsequent reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate,with the corresponding gain or loss being recognized in profit or loss.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Companyreports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurementperiod (see below), or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed atthe acquisition date that, if known, would have affected the amounts recognized at that date.

When a business combination is achieved in stages, the Company's previously held equity interest in the acquire is remeasured to fair value at theacquisition date (i.e. the date when the Company obtains control) and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arisingfrom interests in the acquire prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to profitor loss where such treatment would be appropriate if that interest were disposed of.

The measurement period is the period from the date of acquisition to the date the Company obtains complete information about facts and circumstancesthat existed as of the acquisition date – and is subject to a maximum of one year.



33.7 Revenue recognition

Sale of goods

Royalties

Interest revenue and dividend

33.8 Leasing

33.9 Foreign currencies

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is morerepresentative of the time pattern in which economic benefits from the leased assets are consumed. Contingent rentals arising under operating leasesare recognized as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit ofincentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of thetime pattern in which economic benefits from the leased assets are consumed.

For the purpose of presenting the Consolidated Financial Statements, the assets and liabilities of the Company's foreign operations are expressed inUSD using exchange rates prevailing at the balance sheet date. Income and expense items are translated at the average exchange rates for eachmonth, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used.Exchange differences arising, if any, are classified as equity and transferred to the Company's translation reserve (attributed to non-controlling interestsas appropriate).

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation andtranslated at the closing rate. Exchange differences arising, if any, are recognized in equity.

On the disposal of a foreign operation (i.e. a disposal of the Company's entire interest in a foreign operation, or a disposal involving loss of control overa subsidiary that includes a foreign operation or a disposal involving loss of significant influence over an associate that includes a foreign operation) allof the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit orloss.

In addition, in relation to a partial disposal of a subsidiary that does not result in the Company losing control over the subsidiary, the proportionateshare of accumulated exchange differences are re-attributed to non-controlling interests and are not recognized in profit or loss. For all other partialdisposals (i.e. partial disposals of associates that do not result in the Company losing significant influence), the proportionate share of the accumulatedexchange differences is reclassified to profit or loss.

Exchange differences are recognized in the Income Statement in the period they occur, except for exchange differences on monetary items receivablefrom or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in theforeign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on repayment of themonetary items and exchange difference on hedge on net investments in foreign operations. Exchange differences on hedge on net investments inforeign operations are recognized in the Income Statement in the period which the foreign operations are disposed of.

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates andother similar allowances.

Revenue from the sale of goods is recognized when all the following conditions are satisfied; the Company has transferred to the buyer the significantrisks and rewards of ownership of the goods, the Company retains neither continuing managerial involvement to the degree usually associated withownership nor effective control over the goods sold, the amount of revenue can be measured reliably, it is probable that the economic benefitsassociated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Royalty revenue is recognized on an accrual basis in accordance with the substance of the relevant agreement. Royalties determined on a time basis arerecognized on a straight-line basis over the period of the agreement. Royalty arrangements that are based on production, sales and other measures arerecognized by reference to the underlying arrangement (provided that it is probable that the economic benefits will flow to the Company and theamount of revenue can be measured reliably).

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of incomecan be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rateapplicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's netcarrying amount on initial recognition. Dividend income from investments is recognized when the shareholder's right to receive payment has beenestablished.



33.10 Share-based payments

33.11 Taxation

Current tax

Deferred tax

Current and deferred tax for the year

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at thegrant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 20.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period,based on the Company's estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reportingperiod, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, ifany, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve.

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the Consolidated IncomeStatement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are nevertaxable or deductible. The Company's current tax is calculated using tax rates that have been enacted or substantively enacted by the end of thereporting period.

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the Consolidated Financial Statements andthe corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporarydifferences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits willbe available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if thetemporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in atransaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where theCompany is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeablefuture. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to theextent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they areexpected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the assetrealized, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. The measurement of deferredtax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, torecover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and whenthey relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

In the preparation of the Consolidated Financial Statements, accumulated gains in inventories from intercompany transactions are eliminated. This hasan effect on the income tax expenses of the consolidated companies, and an adjustment is included in the deferred tax asset. Income tax expense iscalculated in accordance with tax rates in the countries where the inventories are purchased.

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income ordirectly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively.Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for thebusiness combination.



33.12 Property, plant and equipment

The following useful lives are used in the calculation of depreciation:

Buildings 20 - 50 years

Fixtures and furniture 2 -10 years

Machinery and equipment 2 - 10 years

33.13 Intangible assets

Intangible assets acquired separately

Customer and distribution relationships 4 - 10 years

Patents 5 - 50 years

Trademarks 3 - infinitive

Software and other 2 - 10 years

Internally-generated intangible assets - research and development expenditure

Intangible assets acquired in a business combination

Derecognition of intangible assets

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising fromderecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, arerecognized in profit or loss when the asset is derecognized.

Property, plant and equipment are recognized as an asset when it is probable that future economic benefits associated with the asset will flow to theCompany and the cost of the asset can be measured in a reliable manner.

Property, plant and equipment which qualify for recognition as an asset are initially measured at cost.

The cost of a property, plant and equipment comprises its purchase price and any directly attributable cost of bringing the asset to working condition forits intended use.

The depreciable amount of the asset is allocated on a straight-line basis over its useful life. The depreciation charge for each period is recognized as anexpense. The estimated useful lives, residual values and depreciation method are reviewed at each balance sheet date, with the effect of any changesin estimate accounted for on a prospective basis.

In the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and isrecognized in the Consolidated Income Statement.

Intangible assets with finite useful life are reported at cost less accumulated amortization and accumulated impairment losses. Amortization is allocatedon a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each balancesheet date, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives arecarried at cost less accumulated impairment losses.

Part of the intangible assets included above have finite useful lives, over which the assets are amortized. These intangible assets will be amortized on astraight line basis over their useful lives.

The following useful lives are used in the calculation of amortization:

Expenditure on research activities is recognized as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from the Company's development is recognized only if all of the following conditions are met: thetechnical feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and useor sell it; the ability to use or sell the intangible asset; the intangible asset will generate probable future economic benefits; the availability of adequatetechnical, financial and other resources to complete the development and to use or sell the intangible asset and the ability to measure reliably theexpenditure attributable to the intangible asset during its development.

The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible assetfirst meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognized, development expenditure is chargedto profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairmentlosses, on the same basis as intangible assets acquired separately.

Intangible assets acquired in a business combination are identified and recognized separately from goodwill where they satisfy the definition of anintangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date.

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization andaccumulated impairment losses, on the same basis as intangible assets acquired separately.



33.14 Impairment of tangible and intangible assets excluding goodwill

33.15 Inventories

33.16 Provisions

Warranties

33.17 Risk management

33.18 Financial assets

Effective interest method

Financial risk management is governed by the Company's Treasury Policy, approved by the Board of Directors. The policy sets limits to the extent offinancial risks and guidelines for financial transactions in general. The general policy is to apply natural currency hedging to the extent possible andprohibit any speculative trading of financial instruments.

Long term financing is managed from the Company's Corporate Finance function and individual subsidiaries do not engage in substantial externalfinancing contracts with banks and/or credit institutions.

The Company is exposed to normal business risk in collecting accounts receivable. Adequate allowance is made for bad debt expenses.

Financial assets are recognized when the Company becomes a party to the contractual provisions of the instrument.

Financial assets are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets (otherthan financial assets at fair value through profit or loss) are added to or deducted from the fair value of the financial assets, as appropriate, on initialrecognition. Transaction costs directly attributable to the acquisition of financial assets at fair value through profit or loss are recognized immediately inprofit or loss.

Financial assets are classified into the following specified categories: financial assets as ‘at fair value through profit or loss’ (FVTPL) and ‘loans andreceivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevantperiod. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument or,where appropriate, a shorter period to the net carrying amount on initial recognition.

Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as at fair value through profit or loss.

At each balance sheet date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is anyindication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order todetermine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Companyestimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can beidentified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is anindication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risksspecific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

Inventories are stated at the lower of cost and net realizable value. Costs, including an appropriate portion of fixed and variable overhead expenses, areassigned to inventories held by the method most appropriate to the particular class of inventory, with the majority being valued on a standard costbasis. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make thesale.

Provisions are recognized when the Company has a present obligation as a result of a past event, it is probable that the Company will be required tosettle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date,taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle thepresent obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized asan asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Provisions for expected warranty costs are recognized at the date of sale of the relevant products, at management´s best estimate of the expenditurerequired to settle the Company's obligation.



Financial assets at fair value through profit or loss

Loans and receivables

Impairment of financial assets

Held-to-maturity investments

Available-for-sale financial assets (AFS financial assets)

Derecognition of financial assets

33.19 Financial liabilities

Financial liabilities at fair value through profit or loss

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Company has the positive intent and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment.

AFS financial assets are non-derivatives that are either designated as AFS or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss.

AFS financial assets are stated at fair value at each balance sheet date. Changes in the carrying amount of AFS monetary financial assets relating to changes in foreign currency rate, interest income calculated using the effective interest method and dividend are recognized in profit and loss. Other changes in the carrying amount af AFS are recognized in other comprehensive income.

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financialasset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset, the difference between the asset's carrying amount and the sum of the consideration received and receivable andthe cumulative gain or loss that had been recognized in Other Comprehensive Income and accumulated in equity is recognized in profit or loss. Thedifference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

Financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial liabilities are classifiedas either financial liabilities at ‘fair value through profit and loss’ or ‘other financial liabilities’.

Financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial liabilities(other than financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial liabilities, as appropriate,on initial recognition. Transaction costs directly attributable to the acquisition of financial liabilities at fair value through profit or loss are recognizedimmediately in profit or loss.

Financial liabilities are classified at fair value through profit or loss when the financial liability is either held for trading or it is designated as at fair valuethrough profit or loss.

Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit orloss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability and is included in the ‘other gains and losses’line item in the Income Statement.

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date. Financialassets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financialasset, the estimated future cash flows of the investment have been impacted.

For certain categories of financial assets, such as account receivables, assets that are assessed not to be impaired individually are subsequentlyassessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Company's pastexperience of collecting payments, an increase in the number of delayed payments in the portfolio past the Company's average credit period, as well asobservable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset's carrying amount and the presentvalue of estimated future cash flows, discounted at the financial asset's original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of accounts receivables,where the carrying amount is reduced through the use of an allowance account. When an accounts receivable is considered uncollectible, it is written offagainst the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in thecarrying amount of the allowance account are recognized in profit or loss.

Financial assets are classified as at fair value through profit or loss where the financial asset is either held for trading or it is designated as at fair valuethrough profit or loss.

Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognized in profit or loss. The net gain orloss recognized in profit or loss incorporates any dividend or interest earned on the financial asset.

Account receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified asloans and receivables. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest incomeis recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.



Other financial liabilities

Derecognition of financial liabilities

33.20 Defined employee benefits

33.21 Derivative financial instruments

Hedge accounting

The Company derecognizes financial liabilities when, and only when, the Company's obligations are discharged, cancelled or they expire.

Retirement benefit costs and termination benefits

Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to thecontributions.

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarialvaluations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial gains and losses, the effect of thechanges to the asset ceiling (if applicable) and the return on plan assets (excluding interest), is reflected immediately in the statement of financialposition with a charge or credit recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in othercomprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Past service cost is recognized in profitor loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net definedbenefit liability or asset. Defined benefit costs are categorized as follows:

• service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements);• net interest expense or income; and • remeasurement.

The retirement benefit obligation recognized in the balance sheet represents the actual deficit or surplus in the Company's defined benefit plans. Anysurplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans orreductions in future contributions to the plans.

The Company enters into derivative financial instruments to manage its exposure to interest rate and currency risk. Further details of derivativefinancial instruments are disclosed in note 28.

Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value ateach balance sheet date. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as ahedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Companydesignates certain derivatives as either hedges of cash flow of recognized liabilities or hedges of net investments in foreign operations.

A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it isnot expected to be realized or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on aneffective yield basis.

The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevantperiod. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or,where appropriate, a shorter period to the net carrying amount on initial recognition.

The Company designates certain hedging instruments, which include derivatives and non-derivatives in respect of foreign currency risk and interest rate risk, as either cash flow hedges or hedges of net investment in foreign operations.

At the inception of the hedge relationship the entity documents the relationship between the hedging instrument and hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item.

The hedging reserve within equity represents the cumulative portion of gains and losses on hedging instruments deemed effective in cash flow hedges. The cumulative deferred gain or loss on the hedging instrument is reclassified to profit or loss only when the hedged transaction affects the profit or loss, or is included as a basis adjustment to the non-financial hedged item, consistent with the relevant accounting policy.



Cash flow hedges

Critical accounting judgments and key sources of estimation uncertainty

In the application of the Company's accounting policies, which are described in note 33, management is required to make judgments, estimates andassumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associatedassumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in whichthe estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current andfuture periods.

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated.The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discountrate in order to calculate present value. Details of impairment calculations are set out in note 11.

As described at 33.12, the Company reviews the estimated useful lives of property, plant and equipment at the end of each balance sheet date.

The effective portion of changes in the fair value of derivatives, that are designated and qualify as cash flow hedges, is recognized in othercomprehensive income and accumulated under the heading of hedging reserve. The gain or loss relating to the ineffective portion is recognizedimmediately in profit or loss, and is included in the ‘other financial expense / income' line item.

Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when thehedged item is recognized in profit or loss, in the same line of the income statement as the recognized hedged item. However, when the hedgedforecast transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognized in othercomprehensive income and accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financialasset or non-financial liability.

Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging instrument expires, is sold, terminated,exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognized in other comprehensive income and accumulated in equity atthat time remains in equity and is recognized when the forecast transaction is ultimately recognized in profit or loss. When a forecast transaction is nolonger expected to occur, the gain or loss accumulated in equity is recognized immediately in the income statement.


Documents

ÖSSUR Q4 and FULL YEAR RESULTS 2016hugin.info/133773/R/2076672/781029.pdf · ÖSSUR Q4 and FULL YEAR RESULTS 2016 Highlights Q4 2016 Sales amounted to USD 138 million compared to