Annual Review 2018 Contents Year 2018 in Brief Financial Statements Highlights 2018 4 Consolidated income statement 35 Chairman’s greetings 6 Statement of comprehensive income 36 CEO’s greetings 8 Consolidated balance sheet 37 Our businesses in brief 10 Changes in consolidated equity 38 Key acquisitions and divestments in 2018 11 Consolidated cash flow statement 39 Sanoma value creation model 12 Notes to the consolidated financial statements 40 Board of Directors’ Report 13 Parent Company financial statements 96 Board’s proposal for distribution of profits This Sanoma Annual Review 2018 consists of the following parts: 108 Auditor’s report 109 1. Board of Directors’ Report, including non-financial information 2. Audited consolidated and parent company financial statements 3. Corporate Governance Statement Corporate Governance Statement 114 4. Remuneration Statement Further information on Sanoma as an investment is available at Remuneration Statement 127 sanoma.com/investors For Investors 131 Audited Part of the Board of Directors’ Report 2 Year 2018 in Brief Board of Directors’ Report Financial Statements Corporate Governance Statement Remuneration Statement Sanoma in brief Sanoma is a front running learning and media company impacting the lives of millions every day. We enable teachers to excel at developing the talents of every child, provide consumers with engaging content, and offer unique marketing solutions to business partners. With operations in Finland, the Netherlands, Poland, Belgium and Sweden, our net sales totalled EUR 1.3 billion and we employed more than 4,400 professionals in 2018. Sanoma shares are listed on Nasdaq Helsinki. More information at sanoma.com. Sanoma 2018 3 Year 2018 in Brief Board of Directors’ Report Financial Statements Corporate Governance Statement Remuneration Statement Highlights 2018 Operational EBIT margin Free cash flow Dividend per share 14.9% M€ 109 € 0.45 (2017: 13.5%) (2017: 106) (2017: 0.35) Operational EBIT improved Free cash flow excluding Several growth enhancing in all SBUs one-off costs related to the acquisitions during the year Discontinued operations in Net sales were stable Focusing of the business Belgium was M€ 126 portfolio continued More than 4,400 employees Sanoma 2018 4 Year 2018 in Brief Board of Directors’ Report Financial Statements Corporate Governance Statement Remuneration Statement Operational EBIT Net sales by category Print and non-print sales 14.9% 197 13.5% 179 11. 3% 15% 150 Print 9% 6.2% 119 26% 4.9% 28% 46% 84 54% 25% 72% 24% Non-print 2018 2014 2015 2016 2017 2018 Learning Single copy Operating EBIT, EUR million Advertising Other Print Margin, % Subscription Non-print Dividend Equity ratio Net debt 0.76 0.77 44.7% 42.2% 5.1 0.65 41.0% 39.5% 4.8 38.2% 100 100 3.2 0.45 802 801 786 Dividend 0.35 policy 40%–60% Target < 2.5 0.20 0.20 1.7 0.14 1.4 0.10 392 338 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 -0.18 2014 2015 2016 2017 2018* Net debt, EUR million Free cash flow per share, EUR Hybrid bond, EUR million Dividend per share, EUR Net debt / Adjusted EBITDA * Board’s proposal, FCF excl. one-off costs related to the divestment of Belgian women’s magazine portfolio Sanoma 2018 5 Year 2018 in Brief Board of Directors’ Report Financial Statements Corporate Governance Statement Remuneration Statement Chairman’s greetings “Innovative combinations of new and existing ideas create new, insightful and unexpected services.” Sanoma 2018 6 Year 2018 in Brief Board of Directors’ Report Financial Statements Corporate Governance Statement Remuneration Statement Dear Shareholders, in different businesses is richness for us. Transformation brings about new opportunities for Sanoma particularly It gives me a great pleasure to share with you this Annual Re- in the learning sector. Digitalisation in learning opens up view. Year 2018 was the third consecutive year on Sanoma’s intriguing paths of development for us. positive financial track. Innovations are at the core of all successful businesses. In- In the annual report three years ago I stated that we need to be novation and creativity are the source of inspiration for the aware of and comprehend change, yet focus on things we can organisation and people. All things, from the social way of affect. This allows us to invest our resources in key areas. We working to deeper understanding and development of the have firmly progressed along this path and made appropriate digital user experience, are important elements of innova- choices. Our improved financial results along with our healthy tion. Successful companies discover means to work together balance sheet widen the range of future options in our scope. “The task of learning and exceed limits. Innovative combinations of new and ex- isting ideas create new, insightful and unexpected services. By acquisitions Sanoma has expanded its business in each of and media is to provide the SBUs already in 2018. We have acquired or increased our Transformation opens us opportunities to work together shareholding in companies we already know well and have people with readiness to with our partners in a new way. In times of transformation, cooperated with for some time. By doing so, we have expanded successful companies share the capability to endure uncer- our accessible market and position in the value chain. tainty. In times when the future is difficult to predict, errors understand the changing must be accepted, tolerated and learned from. Discourse on values in our society is getting more polarised. Learning and media play a crucial role in maintaining and im- world, thereby enabling Sanoma wants to foster a culture of positive renewal and proving equality. The task of learning and media is to provide way of working. People, who with courage and humbleness people with readiness to understand the changing world, there- them to form their own aspire and envisage opportunities as individuals and teams, by enabling them to form their own opinions and ability to be can reach out over their own current capabilities and knowl- active members of the society. In this context, Sanoma has had edge, which is the profound foundation of renewal. and will have a special and important role to play. opinions and ability to Dear shareholders, this year marks 130 years since the first The total number of subscriptions for Helsingin Sanomat grew be active members of the newspaper called Päivälehti was published. Sanoma plays for the second year in a row. An important element of our suc- an important role in society and has a firm foundation to look cess is that we have reached new customer groups. It is very society.” confidently into the future. I would like to take this opportu- pleasing to see that half of the growth comes from new sub- nity to thank Sanoma’s management and employees for scribers under 40 years of age. Young people are once more their valuable input, and Sanoma’s shareholders for their becoming interested in quality journalism when forming their continued trust. own world view. Also our Dutch news service NU.nl has attracted new users. I wish you interesting moments reading this annual review. Transformation is a continuum but also cycles. Sanoma’s dif- Pekka Ala-Pietilä ferent business sectors balance one another and involvement Chairman of the Board Sanoma 2018 7 Year 2018 in Brief Board of Directors’ Report Financial Statements Corporate Governance Statement Remuneration Statement CEO’s greetings Dear Shareholders, 2018 was another successful year for Sanoma even though the media markets continue to be a tough business environment. I am very pleased to share this review with you. Starting to grow again Last year, we spoke about being prepared for growth as the next phase in Sanoma’s development. We are very excited that this year we’ve managed to accomplish the beginning of this growth by acquiring several companies that we already knew well and had partnered with successfully. Sanoma Media Finland expanded into festivals and events by acquiring N.C.D. Productions, one of the largest festival and events companies in Finland, followed up by the acquisition of Tikkurila Festival. These acquisitions significantly strengthen Sanoma’s cross-media entertainment proposition and complement our existing businesses by creating advantages for advertisers, consumers as well as creative talents. “Transformation driven Sanoma Media Netherlands increased its share in the marketing and cash back service Scoupy and integrated this into its media business. These transactions show that in both our media busi- by digitalisation and nesses, where autonomous growth proves to be hard to come by, we can expand into interesting adjacent businesses that data continues both in utilise and complement our strong core skills, assets and brands. the learning and in the An important milestone for Sanoma was its announcement of the intention to acquire Iddink, a leading Dutch educational platform and service provider, in December. Closing of the acquisition is media industry.“ expected in summer 2019. This is a sizeable acquisition and a major step in the transformation of Sanoma from a predominantly media company into a learning and media company. Learning is a stable, slightly growing business, in which we have leading positions in five European countries. Sanoma 2018 8 Year 2018 in Brief Board of Directors’ Report Financial Statements Corporate Governance Statement Remuneration Statement The transformation continues determine the speed and direction of the change, not only in our women’s magazine portfolio to Roularta and made some smaller existing businesses but also in our choices of acquisitions. We and larger restructurings in all three of our businesses. This is often Transformation driven by digitalisation and data continues both aim to develop our business in order to enrich and enhance the painful, but in this rapidly changing market, it is an unavoidable in the learning and in the media industry.