Sanoma’s treasury operations are managed centrally by the Group Treasury unit.  Operating as a counterparty to the Group’s operational units, Group Treasury is responsible for managing external financing, liquidity and external hedging operations.

Centralised treasury operations aim to ensure financing on flexible and competitive terms, optimised liquidity management, cost-efficiency and efficient management of financial risks. Sanoma is exposed to interest rate, currency, liquidity and credit risks. Its risk management aims to hedge the Group against material risks. Sanoma Board of Directors has approved the unit’s guidelines in the Group Treasury Policy.

In the long-term, to ensure financial flexibility, Sanoma’s goal is to reach a capital structure where net debt/adj. EBITDA is below 3.0 and equity ratio is 35% – 45%.

Financial risks can be mitigated with various financial instruments and derivatives whose use, effects and fair values are clearly verifiable. The Group used currency forward contracts to hedge against foreign exchange risks during the year.

For more detailed information on financial risk management, please see note 25 on p. 85  of the Financial Statements 2020.

Interest rate risks

The Group’s interest rate risk is mainly related to changes in the reference rates and loan margins of floating rate loans in the Group’s loan portfolio. In 2020 all loans were denominated in euros. The Group manages its exposure to interest rate risk by ensuring that the interest duration of the gross debt of the Group is within a certain time range approved by the Sanoma Board of Directors as part of the Treasury Policy. According to the Treasury Policy interest rate derivatives may also be utilised.

Currency risks

The majority of the Group cash flow from operations is denominated in euros. However, the Group is exposed to transaction risk resulting from cash flows related to revenue and expenditure in different currencies. Group companies are responsible for monitoring and hedging against transaction risk related to their business operations in accordance with the Group Treasury Policy. The majority of the transaction risk is related to Group's acquisitions of IT services and media operations' programming rights denominated in US dollars.

The Group has adopted forward contracts as a means of hedging against major transaction risks. Derivative instruments are used to hedge future cash flows; hence changes in their value will offset changes in the value of cash flows. Nominal values of derivative instruments in the balance sheet include gross nominal values from all active agreements. The outstanding nominal value is not necessarily a measure or indicator of market risks. Sanoma has entered into netting agreements with all of its derivative instrument counterparties.

The Group is also exposed to translation risk resulting from converting the income statement and balance sheet items of foreign subsidiaries into euros. Business operations outside the euro area (countries in which the currency is not pegged to the euro) mainly consist of revenues in Polish zloty, Norwegian krone and Swedish krona. A significant change in exchange rates may have an effect on the value of the businesses in Poland, Norway and Sweden.  The Group does currently not hedge against translation risk.

Liquidity risks

Liquidity risk relates to servicing debt, financing investments and retaining adequate working capital. Sanoma aims to minimise its liquidity risk by ensuring sufficient revenue financing, maintaining adequate committed credit limits, using several financing institutions and forms of financing, and spreading loan repayment programmes over a number of calendar years. The Group’s undrawn committed credit limits must be sufficient to cover its estimated funding requirements and loan repayments, and part of the outstanding commercial paper commitments. Liquidity risk is monitored daily, based on a two-week forecast, and longer-term based on calendar year. In addition, Sanoma Group Treasury Policy sets minimum requirements for cash reserves.

The Group’s financing agreements include customary covenants related to factors such as the use of pledges and mortgages, disposals of assets and key financial ratios. In 2020, the Group fulfilled the requirements of all covenants.

Credit risks

Sanoma’s credit risks are related to its business operations. The Group’s diversified operations significantly mitigate credit risk concentration, and no individual customer or group of customers is material to the Group. The Group’s operational units are responsible for managing credit risks related to their businesses.

The credit risk relating to financing transactions is low. The Group’s Treasury Policy specifies that financing and derivative transactions are carried out with counterparties of good credit standing, and divided between a sufficient number of counterparties in order to protect financial assets. The Group has spread its credit risks efficiently by dealing with several financing institutions.

Capital risk management

The Group targets a net debt/adjusted EBITDA ratio below 3.0 and an equity ratio between 35% and 45% in the long term.

When calculating the net debt/adjusted EBITDA ratio, the following adjustments are made to the reported EBITDA:

  • one-off items are removed
  • effects of acquisitions are added
  • effects of divestments are deducted
  • effects of the amortisation of programming and prepublication rights are deducted

In 2020, the Group’s equity ratio was 37.4% (2019: 30.5%) and net debt/adjusted EBITDA ratio was 2.6 (2019: 2.7).