Risks and uncertainties

Sanoma is exposed to numerous risks and opportunities, which may arise from its own operations or the changing operating environment. Sanoma divides its key risks into four main categories: strategic, operational, non-financial and financial risks.

The most significant strategic, operational and non-financial risks that could have a negative impact on Sanoma’s business, performance, or financial status as well as key mitigation actions are described below. However, other currently unknown or immaterial risks may arise or become material in the future. Financial risks are described in more detail here.

Risk management and internal control policies, processes, roles and responsibilities are presented in the Corporate Governance section.

Significant near-term risks and uncertainties are reported on a continuous basis in each Interim Report during the course of the year.

Strategic risks

General economic conditions
The general economic conditions in Sanoma’s operating countries and the overall industry trends could influence Sanoma’s business, performance or financial status. Risks associated with the performance of learning and media industries in general relate to developments in public and private education spending, media advertising and consumer spending. The volume of media advertising is especially sensitive to overall economic development and consumer confidence. Sanoma’s diverse business portfolio partially mitigates the risk. In 2018, approx. 35% (2017: 33) of Sanoma’s net sales was derived from single copy or subscription sales, approx. 25% (2017: 31) from media advertising, approx. 24% (2017: 22) from learning and approx. 16% (2017: 14) from other sales (2017 comparison figures include the Dutch TV business SBS until the end of June).
Changes in customer preferences and the threat of new entrants
Changes in customer preferences are visible not only in consumer behaviour, but also both directly and indirectly in B-to-B demand. Ongoing digitalisation and mobilisation are the main drivers behind many of these changes. The increasing use of mobile devices is changing the way people consume media, while viewing time of free-to-air TV is decreasing. In education, digital learning methods are gradually penetrating the market. Sanoma partially mitigates the risk by continuous development of digital and hybrid learning and media products and services. In learning, close and long-term relations with schools and teachers play a significant role in the business, and digital solutions are typically combined and sold together with printed materials. The wide cross-media offering provides Sanoma a solid base to constantly develop its offering to advertisers and to introduce new services, such as cross-media solutions, native or branded and premium content. Nevertheless, new entrants and/or new technological developments entering the markets possess a risk for Sanoma’s established businesses.
Mergers & Acquisitions (M&A)
Sanoma’s strategic aim is to grow through acquisitions. In M&A, the key risks may relate to the availability of potential M&A targets, suitability of timing, transaction process, integration of the acquired business, retention of key personnel, or achievement of the targets set. Sanoma mitigates the risks by actively maintaining its industrial networks, proactively seeking for potential targets, working with well-known parties during the transaction processes and following its internal policies and procedures in decision-making, organisation and follow-up of M&A cases.
Political and legislative risks
Changes in governmental or legislative bodies or general political instability in the operating countries may affect Sanoma’s ability to effectively conduct business. Key legislative risks may relate to changing regulations regarding the use of consumer data for commercial purposes, deterioration of publishers’ and broadcasters’ copyright protection, or changes in educational or tax legislation. These risks can have a significant impact on Sanoma’s commercial propositions, content investment needs or financial performance. Close monitoring and anticipation of political and regulatory development and adaption of business models accordingly are ways to partially mitigate these risks. Legislation related to education, in particular, is typically country-specific, limiting the magnitude of the risk on the Group level.

Operational risks

Data and privacy
Data is an increasingly essential part of Sanoma’s products and services. It is used e.g. for personalised features, content recommendations, product development as well as targeted digital advertising and marketing. The relevance of data in Sanoma’s business puts privacy and consumer trust at the core of its daily operations. The importance of privacy is further enhanced by new regulation, such as the EU General Data Protection Regulation (GDPR), which came into force in May 2018, and the proposed ePrivacy Regulation. Non-compliance with the GDPR could lead to fines of up to 4% of the annual global turnover. To mitigate the risk and ensure compliance, Sanoma runs a Privacy Programme that has oversight of the implementation of its Privacy Policy through key processes, such as regular data inventories and management of data lifecycle, data processing agreements with third parties, information security measures to protect data, data breach management procedures, and implementation of consumer rights. Privacy is incorporated into product development through a “Privacy by Design” process and supplemented with “Privacy Champions” (nominated employees with privacy responsibilities) as well as role-based privacy trainings. Privacy impact assessments are regularly conducted to ensure compliance of main products and services.
Risks related to third parties
A wide network of third parties plays an integral role in Sanoma’s daily business. Third-party suppliers in Sanoma’s value chain include, among others, paper and print suppliers and transport, distribution, technology solution and IT hosting service providers. Freelancers support Sanoma’s own editorial staff in creating media and learning content. The status of freelancers may vary by authority and by country. However, no individual case is estimated to become material unless it escalates to concern a large group of freelancers. Certain advertising and marketing efforts are executed with the help of third parties. The advertising technology ecosystem consists of players, such as Google and Facebook, that have a dominant market power, which may lead to an imbalance between their rights and liabilities. Cooperation with third parties exposes Sanoma to certain financial, operational, legal as well as data and GDPR-related risks, which are described in more detail in other sections of this risk review. To mitigate the risks related to third parties, Sanoma follows the guiding principles of supplier risk management set in the Group’s Procurement policy, Supplier Code of Conduct and legal framework. The most significant suppliers are selected through competitive bidding and qualification process. Sanoma performs Know Your Counterparty -controls as part of the supplier approval process, and monitors the performance of third parties by performance approvals and service-level agreements.
Information and communication technology (ICT)
Reliable ICT systems form an integral part of Sanoma’s business. The systems include online services, newspaper and magazine subscriptions, advertising and delivery systems, digital learning platforms, as well as various systems for production control, customer relations’ management, and supporting functions. ICT security risks relate to confidentiality, integrity, and/or availability of information, as well as to reliability and compliance of data processing. The risks can be divided into physical risks (e.g. fire, sabotage and equipment breakdown) and logical risks (e.g. information security, employees and software failure). To mitigate the risks, Sanoma has continuity plans for its critical systems and clear responsibilities regarding ICT security in place.
Intellectual Property Rights (IPRs)
Key IPRs related to Sanoma’s products and services are copyrights including publishing rights, trademarks, business names, domains, and know-how, as well as patents related to e-business and utility models owned and licensed by the Group. Sanoma manages its IPR in accordance with the Group-wide IPR policy and procedures. Because of a dispersed IPR portfolio, no material risks are expected to arise from individual IPR cases.
Hazard risks
Hazard risks include risks associated with business interruption, health and safety or environmental issues. They are mitigated through operational policies, efficient and accurate process management, contingency planning and insurance. Due to the nature of Sanoma’s business, hazard risks are not likely to have a material effect on Sanoma’s performance.

Non-financial risks

Talent attraction and retention
Sanoma’s success depends on competence and continuous development of the skills of its management and personnel. In particular, the ability to develop appealing customer products and services in a constantly and rapidly changing environment is crucial for success. The ability to ensure the right skillset for the digital transformation as well as to attract and retain the right talents may possess a risk to Sanoma’s business and financial performance. To mitigate the risk, Sanoma enhances a corporate culture supporting innovation, creativity, diversity, as well as an ethical and efficient way of working. The culture is further supported by open and transparent leadership and communications, knowledge sharing between businesses and functions, as well as opportunities and resources for learning and professional development. The Code of Conduct and Diversity Policy set the framework for corporate culture and employee relations. Sanoma follows employee engagement closely by an annual survey.
Environmental risks
Sanoma’s main environmental impacts derive from energy use, paper and printing ink use and distribution. Sanoma aims to prevent and minimise negative environmental impacts by focusing on efficient operations and material use as well as responsible procurement. Sanoma’s processes support compliance with relevant environmental legislative, regulatory and operating standards. Due to the nature of Sanoma’s business, no material environmental risks are expected to arise.
Risks related to human rights, anti-corruption and bribery
Sanoma operates in countries that score high on Transparency International’s corruption perception index and where risks related to human rights are assessed as low (Finland, Sweden, the Netherlands and Belgium) or medium (Poland) by Verisk Maplecraft. The media business is based on creating and selling content to individual people, and selling advertising space to companies, while in learning, the business partners mainly include municipalities, schools and teachers. All employees must comply with Sanoma’s Code of Conduct, which supports the international standards on human rights and labour conditions and clearly prohibits all corruption and bribery. The requirements of the Code are extended to Sanoma’s suppliers through the Supplier Code of Conduct. Sanoma mitigates the compliance risk e.g. by an annual e-learning on the Code of Conduct, which is mandatory for all employees. Due to the nature of Sanoma’s business and the current situation in its operating countries, no material risks related to human rights, anti-corruption or bribery are likely to arise.