Annual Report 2017 Annual Report 2017 Index Amplifon at a glance Message from the Chairperson and the Chief Executive Officer 4 2017 Highlights 6 Key events 8 History 10 Our Corporate Culture Purpose 15 Mission 16 Values 17 Our unique business model Strategy 20 Strengths 21 Market scenario 22 Global presence 24 Business model 26 Distribution network 27 Our commitment to stakeholders Sustainability 32 Corporate bodies 38 Report for Investors 40 2 Annual Report 2017 | Amplifon at a glance Report on Operations at 31 December 2017 45 Comments on the Financial Results 47 Statement of changes in Net Equity and the results for the period of the Parent Company Amplifon S.p.A. and the Group Net Equity and results for the period in question at 31 December 2017 83 Risk Management 84 Treasury Shares 95 Research and Development 96 Transactions between Group Companies and with related parties 96 Contigent Liabilities 96 Outlook 97 Report on Corporate Governance and Ownership Structure at 31 December 2017 97 Sustainability Report at 31 December 2017 97 Comments on the Financial Results of Amplifon S.p.A. 98 Consolidated Financial Statements at 31 December 2017 113 Consolidated Statement of Financial Position 116 Consolidated Income Statement 118 Statement of Comprehensive Income 119 Statement of Changes in Consolidated Net Equity 120 Consolidated Cash Flow Statement 122 Supplementary Information to Cash Flow Statement 124 Explanatory Notes 125 Annexes 208 Declaration in respect of the Consolidated Financial Statements pursuant to Article 154-bis of Legislative Decree 58/98 212 Independent Auditor's Report at 31 December 2017 213 Translation from the original text in Italian 3 Message from the Chairperson and the Chief Executive Officer 2017, another record year Dear Shareholders, 2017 represents another key milestone in Amplifon’s success story: we achieved record results for the third year in a row, definitely testifying the effectiveness of our business model as well as of the strategic pillars pursued and supported by significant investments, primarily in marketing, in the expansion of the distribution network in core markets and in our people. Once again both revenues and EBITDA, which came in respectively at 1,266.0 and 212.5 million euros, reached all-time high up 11.7% and 13.7% compared to the previous year. Also reported net profit came in at the record level of 100.6 million euros, showing an increase of 58.1% compared to the previous year. Such solid results allow Amplifon to propose a dividend distribution of 0.11 euro for each ordinary share to shareholders, an increase of 57.1% compared to the previous year. We are very satisfied both with the strong growth of results and improving profitability that we have achieved, as well as with the vitality of our business. Revenue growth was well balanced across all the Company’s geographic areas and outpaced the market thanks to the solid mix between organic growth and acquisitions. In addition to the overall top-line growth, the main drivers of the increased profitability have been the scale reached in key countries and the improved operational efficiency. In 2017, we continued to expand our worldwide distribution network to consolidate our leadership position globally, with the addition of 346 shops and 117 shop-in-shops, thus reaching 10,069 points of sale throughout the world. Acquisitions were made mainly in Germany, France, Portugal and India; while new openings, 45 stores and 59 shop-in-shops, were located primarily in Spain, New Zealand and Australia. During the year, Amplifon continued to pursue its marketing and communication strategy, one of the Company’s key strategic pillars of development, aimed at further strengthening the relationship between its customers and its brands, leading a real cultural change in the industry and redefining the way customers feel about their hearing. During the year, the Company pooled together its marketing, advertising as well as communication strategies in Europe in order to further raise Amplifon’s already high brand awareness thus achieving a greater efficacy and efficiency thanks to an integrated platform for media planning and creative communication. 4 Annual Report 2017 | Amplifon at a glance Finally, we believe that today what is increasingly important is not just achieving results, but how those results are achieved. At Amplifon we intend to continue doing business responsibly and with a view to creating shared and sustainable value. This is why in August, Amplifon published for the first time a Sustainability Report. It represented not only the beginning of a journey towards growing a sustainable business, but also highlighted the Company’s commitment towards corporate social responsibility topics and provided a thorough understanding of our activities in this regard. We are therefore now proudly publishing the Non financial disclosure drawn up in accordance with Italian Legislative Decree No 254/2016 for the year 2017. The coming years will be very important for our Group: we have undertaken new and important projects primarily to anticipate our customers’ needs and satisfy their expectations. Customers have always been our key stakeholder and all our initiatives and strategic decisions are guided by the desire to put them at the heart of what we do. We are convinced that 2017 results represent an excellent basis to start a 2018 with optimism and to meet our mid-long term objectives. We would not have been able to reach such positive results without the commitment and strong determination of our management team and the extraordinary ability, continuing hard work and great passion of our people. Thus, we would like to show them our deepest appreciation, as well as thank our Shareholders for their support and trust in our Company. Susan Carol Holland Enrico Vita Chairperson Chief Executive Officer 5 2017 Highlights All-time high revenues and profitability Revenues Revenues by region (million euros) +11.7% 1,266.0 14.1 6 7. 6 1,133.1 APAC EMEA 18.1 AMERICAS % 0.2 2016 2017 CORPORATE EBITDA Net profit (million euros) +13.7% (million euros) +58.1% 212.5 186.9 63.6 100.6 2016 2017 2016 2017 16.5% 16.8% EBITDA margin EBITDA margin Free cash flow Net debt (million euros) (million euros) 82.5 98.0 296.3 224.4 2016 2017 2016 2017 6 Annual Report 2017 | Amplifon at a glance Global leader in hearing solutions and services ~10% 22 ~14,000 Market share Countries People 4,300 3,800 1,900 Direct points Shop-in-shops Affiliates of sale & corners People People by role* by region* 0.7 32.7 CORPORATE OTHER SHOP 12.5 % PERSONNEL APAC 12.3 31.2 % SUPPORT 55.0 AMERICAS FUNCTIONS HEARING CARE 55.6 PROFESSIONALS EMEA *On payroll and not payroll. 7 Key events Investment, innovation and execution January 16th, 2017 Network expansion in Portugal and France Amplifon acquires around 75 MiniSom stores in Portugal (part of the AudioNova retail business) and 55 shops, always part of the AudioNova retail business in France, from Sonova Holding AG. These acquisitions, which called for a cash-out of 30 million euros, perfectly fit Amplifon’s strategy aimed at strengthening the Company’s positioning in core markets and enable the reap of important synergies. In particular, the first transaction allowed Amplifon to reach an optimal scale in Portugal bringing the local network to a total of over 140 points of sale; while the second one brought a significant acceleration to the French network expansion strategy. March 20th & June 5th, 2017 Integrated platform for media planning and creative communication Amplifon selects LOLA MullenLowe Barcelona as creative agency of record and Dentsu-CARAT as media agency for Europe with a view to centralizing marketing, advertising, as well as communication strategies in order to raise Amplifon’s already high brand awareness. These choices perfectly fit Amplifon’s marketing and communication strategy, one of the Company’s key strategic pillars to accelerate growth, aimed at further strengthening the relationship between its customers and its brand, leading a real cultural change in the industry and redefining the way customers feel about their hearing and the way in which they are educated, involved and served. 8 Annual Report 2017 | Amplifon at a glance August 1st, 2017 2016 Sustainability Report publication Amplifon publishes a Sustainability Report which represents a first and impor- tant step allowing the Company to enjoy stable, long-term sustainable growth by enhancing the value of its key intangible assets. It reflects the Company’s com- mitment towards Corporate Social Responsibility topics and provides a thorough understanding of the Company’s activities in this regard. September & October 2017 Signing of two new financing agreements for a total of 150 million euros Amplifon signs two bilateral medium-term unsecured financing agreements with UniCredit S.p.A. and BPM S.p.A. – Gruppo Banco BPM for the amounts of 100 and 50 million euros respectively. These transactions, alongside the bilateral revolving committed medium-term lines obtained in 2017 for a total amount of 195 million euros, are part of the refinancing program of the 275 million euros Eurobond expiring in July 2018, under significantly better terms and conditions. Such program will allow a reduction of the average cost of debt, an extension of the average residual debt maturity and a decrease of the excess liquidity. December 31st, 2017 The network expansion continues Throughout the year Amplifon has added 463 shops and shop-in-shops to its distribution network which now totals 10,069 points of sale. Acquisitions were carried out mainly in Germany, France (Audionova), Portugal (Minisom) and India (Bloom Senso Hearing Centre) totaling 301 shops and 58 shop-in-shops, while openings took place primarily in Spain, New Zeland and Australia.