Össur 2017 Annual Report

Shareholder information

Össur shares were listed on Nasdaq in Iceland in 1999 and on Nasdaq Copenhagen in 2009. In December 2017, the trading of Össur shares was concentrated on Nasdaq Copenhagen following Nasdaq Iceland's decision to accept Össur's request to cancel the trading of Össur shares on Nasdaq Iceland. By concentrating the trading of Össur shares on Nasdaq Copenhagen, trading liquidity of Össur shares will increase with the expectation that price formation will be more effective for the benefit of all shareholders.

Key information table

Market

CPH (DKK)

ISIN

IS0000000040

Ticker

OSSR

Industry

Health Care

Nr. of shares

437,162,725

Stock performance

Össur’s share price increased by 6% in 2017, from DKK 25.2 per share at year-end 2016 to DKK 26.6 per share at year-end 2017. The rise in share price increased Össur’s market capitalization from DKK 11.1 billion to DKK 11.6 billion corresponding to USD 1.9 billion at year-end 2017. Össur was the 38th largest company listed on Nasdaq Copenhagen when measured in terms of market value at year-end 2017.

Share price development (indexed)

Over the past five years, Össur’s stock has generated a compounded average annual return to shareholders of 29%

Shareholders

The share capital of Össur is ISK 437,162,725 nominal value, divided into the same number of shares. There is only one class of shares and all shares carry one vote. Össur’s largest shareholder is William Demant Invest A/S (WDI) which held 47.6% of the total shares and 48.6% of the voting rights at year-end 2017. It should however be noted that on 4 January 2018, WDI announced that its ownership had exceeded 50% and according to their announcement, WDI’s intention is to hold between 50-60% of Össur’s shares going forward. WDI is wholly owned by the Oticon Foundation, and apart from Össur, the fund’s investment activities include a majority share in William Demant Holding A/S, a leading provider of hearing aids, and minority holdings in Jeudan A/S and Vitrolife AB.

At year-end, Össur had more than 4,000 shareholders of whom ~90% were Danish and Icelandic shareholders. The remaining ~10% of the shares are held by investors residing in other countries.

Shareholdings by Country as of 31.12.2017

Share buyback program

During 2017, Össur purchased 9,182,226 of own shares (approx. 2% of outstanding shares). The total purchase price was DKK 250 million (USD 37 million). The purpose of the share buy-back programs was to adjust the capital structure in line with a desired capital level of 1-2x net interest-bearing debt to EBITDA set out in Össur’s Capital Structure and Dividend Policy. At year-end 2017, treasury shares totaled 9,079,662.

The Board of Directors will propose to the Annual General Meeting in 2018 to reduce the share capital by ISK 6,354,662 by way of cancelling 6,354,662 of Össur’s own shares of ISK 1 nominal value each. If the Annual General Meeting approves the motion, the number of outstanding shares will be 430,808,063.

Dividends

The Board of Directors will propose to the Annual General Meeting in 2018 that the Company pays a cash dividend of DKK 0.13 per share for 2017, equivalent to 16% of net profit in 2017, compared to DKK 0.12 per share for 2016.

Share buybacks and dividends

Since 2013, Össur has paid out USD 142 million to shareholders in the form of share buybacks and dividends

Annual General Meeting

According to the Articles of Association, the Annual General Meeting (AGM) shall be held before the end of April. The meeting is convened with at least three weeks’ notice. The AGM results are sent to the news system of Nasdaq immediately following the meeting, and are also made available on the corporate website.

Össur’s AGM will be held at the Company's headquarters in Iceland on 8 March 2018.

Investor Relations

Össur’s policy is to disclose financial and corporate information to provide investors, analysts, and other stakeholders with comprehensive and accurate information to help them understand Össur’s current and expected developments. Five sell-side equity analysts currently cover Össur.

Visit our website for financial reports, presentations, financial calendar, information on Össur and other downloads: ossur.com/corporate/investor-relations

Contact Investor Relations
David Hreidarsson
Investor Relations Manager
Tel.: +354 515 1380
e-mail: dhreidarsson@ossur.com

Corporate Governance

This statutory statement on corporate governance is made in accordance with Article 66 (c) of the Icelandic Financial Statements Act No. 3/2006 as amended. This statement has been approved by the Board of Directors and is published in the Annual Report and on the Company‘s website. This statement covers the financial year that ended on 31 December 2017.

This statement includes information on the following items:

A reference to the corporate governance recommendations the Company follows and how the Company addresses the recommendations, including any deviations and explanations thereto.
A description of the main aspects of the Company‘s internal controls and risk management systems in connection with preparation of financial statements.
A description of the Company‘s organizational structure and the role of each function.
A description of the Company‘s diversity policy relating to the Board of Directors and the CEO, the aim of the policy and execution.

1. Corporate Governance

The Company has chosen to follow the Danish Recommendations on Corporate Governance because the Company‘s shares are traded on Nasdaq Copenhagen and it is recommended in the explanations to clause 4.1 of Nasdaq Copenhagen‘s rules for issuers of shares to apply the Danish Recommendations if foreign companies are not subject to other rules. Applying the Danish Recommendations will also make it easier for investors on the Danish market to assess the Company‘s corporate governance practices.

This Corporate Governance Statement is prepared in accordance with the Danish Recommendations on Corporate Governance, issued by the Corporate Governance Committee in May 2013 and updated in November 2014, available on the Committee‘s website: www.corporategovernance.dk.

The Company complies with the vast majority of the Danish Recommendations. The few deviations are explained below. A complete report on the Company‘s compliance with each recommendation is available on the Company‘s website.

The CEO is responsible for the execution of the Company’s equal opportunities plan. The plan is not discussed annually within the Board of Directors.
The Company’s Articles of Association do not include a provision on a fixed retirement age for members of the Board of Directors. In the Board’s opinion, age is irrelevant as long as the contribution of the respective member of the Board is considered valuable.
The majority of the Board of Directors (3 of 5) is considered dependent. Two of the members of the Board represent the interest of the Company’s controlling shareholder. One member has been on the Board for 19 years. The two other members of the Board are considered independent. In the Board’s opinion it is normal and understandable that two out of five members of the Board represent the controlling shareholder. It is also the Board’s opinion that its longest serving member is in fact acting independently of special interest and his skills and experience, including his medical expertise and knowledge of the US healthcare system, are valuable to the Board and ensures diversity within it.
No nomination committee has been established and a remuneration committee was abolished in 2010 and the Company has not had such a committee since then. In the Board of Directors’ opinion such committees are not necessary considering the size of the Board and the balanced and relevant expertise and experience of the current members of the Board. The Board has the role and responsibilities such committees would otherwise have.
The Remuneration Policy does not include criteria that ensures that vesting period for variable components of remuneration agreements are longer than one calendar year. Bonuses for short-term performance may be paid quarterly, semi-annually, or annually. The Company believes it is important to have certain flexibility to pay out such bonuses. However, the Remuneration Policy states that if bonus payments have clearly been based on false, misleading, or insufficient data, such payments shall be repaid to the extent correct data shows that no or lower bonus would have been paid.

2. Main aspects of internal controls and risk management systems regarding preparation of financial statements

Internal controls

The Board of Directors has an ongoing dialogue with the CEO on the identification, description, and handling of the business risks to which the Company may be exposed. Material risks and risk management are discussed in the chapter relating to risks.

The Company’s risk management and internal controls, in relation to financial processes, are designed to control the risk of material misstatements. The Company designs its processes to ensure there are no material weaknesses with internal controls that could lead to a material misstatement in its financial reporting. The external Auditors’ evaluation of these processes is included in the Auditor’s Report.

The Company goes through a detailed strategic and forecast process each year and a strategy and forecast report is prepared. The Board approves the Company’s strategy, forecasts, and targets each year. Performances against targets are monitored on a monthly basis. This includes a year over year comparison where main reasons for changes are explained. A twelve-month forecast is available at all times and forecasts are updated quarterly and reasons for changes explained.

To ensure high quality in the Company’s financial reporting systems, the following policies, procedures and guidelines for financial reporting and internal controls have been adopted, to which the subsidiaries and reporting units must adhere:

Continuous analysis of year over year comparison.
Continuous follow-up on results achieved compared to assumptions in forecasts.
Policies for IT use, insurance, cash management, procurement etc.
Reporting instructions as well as reporting and finance manuals.

The responsibility for maintaining sufficient and effective internal controls and risk management regarding financial reporting lies with the CEO.

The Company does not have an internal audit function, but uses internal control systems that are monitored by the Audit Committee and assessed by the external Auditors.

External Auditors

An auditing firm is elected at the Annual General Meeting for a term of one year. The external Auditors are not allowed to own shares in the Company. The external Auditors shall audit the Company’s annual consolidated financial statements in accordance with international standards on auditing, and shall, for this purpose, inspect accounting records and other material relating to the operation and financial position of the Company. The external Auditors shall have access to all the Company’s books and documents at all times. The external Auditors report via the Audit Committee to the Board of Directors on any significant findings regarding accounting matters and any significant internal control deficiencies.

3. Organizational structure and the role of each function

According to the Company‘s Articles of Association the Company is managed by:

Shareholders‘ Meetings
The Board of Directors
The Chief Executive Officer

Shareholders’ Meetings

The supreme authority in all affairs of the Company, within the limits established by the Company’s Articles of Association and statutory law, is in the hands of lawful Shareholders’ Meetings.

The Company’s controlling shareholder, William Demant Invest A/S, held 47.6% and 48.6% of the voting rights at year-end 2017.

The Board of Directors

According to the Company’s Articles of Association the Board of DirectorAccording to the Company’s Articles of Association the Board of Directors is responsible for the affairs of the Company between Shareholders’ Meetings. is responsible for the affairs of the Company between Shareholders’ Meetings.

The Board shall operate in accordance with the Company’s Articles of Association and the Board’s Rules of Procedure. The principal duties of the Board are as follows:

Appoint a CEO to manage the Company’s daily operations, decide on the salary and terms of employment, establish terms of reference, and supervise the CEO’s work.
Supervise the Company’s activities and ensure that the Company’s organization and operations are in good and proper order.
Establish goals for the Company in accordance with the Company's objectives pursuant to the Articles of Association, and formulate the policy and strategy required to achieve these goals.
Ensure adequate surveillance of the accounting and financial management of the Company.
Evaluate the Company’s capital structure each year.

The Audit Committee

The Audit Committee shall operate in accordance with its Rules of Procedure. The principal duty of the Audit Committee is to ensure the quality of the Company’s Consolidated Financial Statements and other financial information, and the independence of the Company’s Auditors.

The Chief Executive Officer

According to the Company‘s Articles of Association the Board of Directors appoints a CEO to manage the Company‘s daily operations.

The principal duties of the CEO are as follows:

The CEO is responsible for daily operations and is obliged to follow the Board’s policy and directions, within the limits provided for by the Articles of Association and law. The daily operations do not include measures that are unusual or extraordinary. The CEO may only take such measures if specially authorized by the Board, unless it is impossible to wait for the Board’s decision without substantial disadvantage to the Company’s operations. In such an event the CEO shall inform the Board of his measures, without delay. If the Board has granted the CEO an authority to sign on behalf of the Company and/or granted him with powers of procuration, the foregoing does not limit such authorizations.
The CEO shall decide on directorship in the Company’s subsidiaries and associates on behalf of the Company.
The CEO is responsible for the work and results of the Executive Management.
The CEO shall ensure that the Company’s consolidated financial statements are prepared in accordance with law and accepted practices and the Company’s assets are handled in a secure manner.

References to the executive board in the corporate governance recommendations only apply to the CEO.

Further information on the Board of Directors, the Audit Committee and the CEO can be found in the chapter relating to the Executive Management and Board of Directors and on the Company’s website.

4. Diversity policy

As with the Board and the CEO, the Company follows the provisions on gender equality set out in the Icelandic Companies Act No. 2/1995 as amended. The Board is composed of 3 men and 2 women. When nominating candidates to the Board, the Board shall, in accordance with the Board’s Rules of Procedure, take into consideration the legal requirements as well as the composition of the Board and what kind of experience, knowledge, expertise and other qualities the candidate should possess. The Board applies similar criteria for the CEO.

Össur also has Equal Opportunities Plan in place. The purpose of Össur’s Equal Opportunities Plan is to ensure equal opportunities and equality of women and men within the Company. The goal is to utilize the skills, strengths and knowledge of employees in full, without gender-based discrimination. With this plan, the management and employees are at the same time reminded of the importance of everyone being able to reach their full potential regardless of sex, religion, opinion, nationality, race, sexual orientation, age or position, and to utilize equally the wealth inherent in the education, experience and attitudes of women and men.

The Equal Opportunities Plan is prepared in accordance with Icelandic Act No. 10/2008 on the Equal Position and Equal Rights of Women and Men. Reporting on the progress and objectives of the Equal Opportunities Plan is made in Össur’s Corporate Social Responsibility report that is published on the Company’s website.

Corporate Social Responsibility

Össur takes its responsibility to improve people’s mobility seriously. Össur strives to change the perception of people with disabilities by providing products that help users to live lives without limitations.

Össur is a signatory of the UN Global Compact and of the UN Women's Empowerment Principle.

UN Global Compact Focus Areas

Environment

Key focus is on CO₂ emission, waste management and sustainable product design

Anti-Corruption

Key focus is on screening of distributors and education of key employees

Labor Practices

Key focus is on equal opportunities, safe workplace and employee participation

Human Rights

Key focus is on social compliance auditing of product suppliers

ESG Measurements

In March 2017 Nasdaq’s Nordic and Baltic exchanges issued voluntary guidelines for ESG disclosure to support companies listed on these exchanges. The Nasdaq ESG (Environment, Social and Corporate Governance) Reporting Guide can be found on Nasdaq’s website http://business.nasdaq.com/esg-guide/

Environment

Össur has an environmental management system in place and all its main locations are certified in accordance with ISO 14001:2015. Further details on Össur’s environmental strategy and main initiatives can be found in the CSR report.

Environmental Metrics
Environmental Metrics	2017	2016	2015
E1 Direct & Indirect GHG Emissions (Össur Iceland only)
Scope 1 (tons CO₂e)	43	41	38
Scope 2 (tons CO₂e)	49	47	51
Scope 3 (tons CO₂e)	730	670	1,390
E2 Carbon Intensity (Össur Iceland only)
Kg CO₂e/item manifactured	1.0	0.8	1.5
E3 Direct & Indirect Energy Consumption
Renewable Energy consumption (GJ)	30,090	27,690	27,710
Non-Renewable Energy consumption (GJ)	20,650	19,600	14,650
Renewable Energy generation (GJ)	600	0	0
E4 Energy Intensity
Energy consumed per FTE (GJ/Employee)	44	44	43
E5 Primary Energy Source
Coal (GJ)	620	870	680
Natural Gas (GJ)	920	1,310	850
Liquid Gas (GJ)	920	1,460	1000
Oil (GJ)	18,120	15,860	12,050
Hydro and Geothermal (GJ)	28,910	26,390	26,740
Solar (GJ)	780	320	0
Wind (GJ)	410	990	400
Nuclear (GJ)	70	100	70
E6 Renewable Energy Intensity
Renewable energy / Non-renewable energy	1.5	1.4	1.9
E7 Water Management
Cold water consumed (m3)	80,000	112,000
E8 Waste Management
Waste recycled (tons)	360	380	300
Waste not recycled (tons)	360	520	440
Hazardous waste (tons)	130	150	150
Waste Intensity (kg/employee)	740	990	900
E9 Environmental Policy
Does your company publish and follow an EP: Yes, No? If yes, the location of relevant public information should be declared.	Yes, see Össur website
E10 Environmental Impacts
Did your company bear any legal/regulatory responsibility for an environmental impact: Yes/No? If yes, the location of relevant public information should be declared.	No	No	No

Social

Here below Social Metrics in accordance with the Nadsaq ESG guidance. Further details on other initiative are discussed in Össur’s CSR report.

Social Metrics
Social Metrics	Measurement	Comments
S1 CEO Pay Ratio	25
S2 Gender Pay Ratio	Audits: equal pay for equal responsibility	Össur Headquarters is audited in accordance with the ISO standard on Equal pay for Equal responsibility ISO 85:2012 and Össur Americas complies with the Equal Pay Act in the USA
S3 Employee Turnover Ratio	13%	Excluding Mexico
S4 Gender Diversity	Male 52%, Female 48%	Historically Össur has had good balance beetwen male and female employees
S5 Temporary Worker Ratio	2.7%
S6 Non-Discrimination Policy	In Place	Össur Policies
S7 Injury rate	1.3
S8 Global Health and Safety policy	In Place	Össur Policies
S9 Child & Forced Labor Policy	In Place	Össur Policies
S10 Human Rights Policy	In Place	Össur Policies
S11 Human Rights Violations	None	No Human rights violations were reported in 2017
S12 Board Diversity	Men 60%, Women 40%	No employees have a seat on the Board

Corporate Governance

Össur has various initiatives in place regarding fair operating practices such as regarding human rights and anti-corruption and bribery. Further details and progress on these initiatives can be found in Össur’s CSR Report.

In respect of Corporate Governance reporting Össur complies with the Danish Recommendations on Corporate Governance. Further details on the Company’s Corporate Governance Reporting can be found in the Corporate Governance Statement Össur’s web site: ossur.com/corporate/investor-relations/corporate-governance

Governance Metrics
Governance Metrics	Measurement/Status	Comments
G1 Board Separation of Powers	In Place	The CEO does not have a seat on the Board, act as Chairman or lead Committees
G2 Board - transparent practices	In place	BOD Rules
G3 Incentivized pay	No	Remuneration Policy does not include ESG Strategy
G4 Fair Labor practices	In Place	Össur Policies
G5 Supplier Code of Conduct	In Place	Össur Policies
G6 Ethics - Code of Conduct	In Place	Össur Policies
G7 Anti-Corruption and Bribery	In Place	Össur Policies
G8 Tax transparency	In Place	Össur Policies
G10 Other Framework Disclosures	In Place	UN Global Compact, UN Women, Carbon Disclosure Project, Festa Declaration of Climate Issues
G11 External Validation & Assurance	No

Examples of measurements

Management

33%

Female in management positions

Indicent Rate

1.3

Incident rate pr. 100 employee 2017

Employee Satisfaction

4.4 of 5

Global Score in a Workplace Audit on

Össur believes it has great responsibility towards disabled people, not only by providing products, but equally to support third party initiatives aiming at better care and support for disabled people. In its efforts Össur strives to change the perception of people with physical challenges by promoting strong and successful spokespeople that have disabilities, that can motivate others whose own mobility has been challenged and encouraging them to play more active roles in society with even greater confidence.

Separate CSR Report

The complete CSR Report is available online at ossur.com/corporate/our-responsibility/csr-reports In the report you can read more about Össur‘s approach, our various initiatives as well as find more information on CSR objectives and results

Executive Committee

Board of Directors

Our Business Össur 2017 Annual Report Financial Statements

Össur 2017 Annual Report