Accounting principles used in the consolidated financial statements

Basic information on the group

Alma Media is a media company focusing on digital services and publishing. In addition to news content, the Group’s products provide useful information related to lifestyle, career and business development. Alma Media builds sustainable growth for its customers by utilising the opportunities of digitalisation, including information services, system and expert services and advertising solutions. The services of Alma Media have expanded from Finland to the Nordic countries, the Baltics and Central Europe. The Group’s parent company Alma Media Corporation is a Finnish public company established under Finnish law, domiciled in Helsinki at Alvar Aallon katu 3 C, PL 140, FI-00101 Helsinki.  

A copy of the consolidated financial statements is available online at www.almamedia.fi or from the parent company head office.


The Board of Directors approved the financial statements for disclosure on 13 February 2019. According to the Finnish Limited Liability Companies Act, shareholders have the opportunity to approve or reject the financial statements at the General Meeting of Shareholders held after publication. It is also possible to amend the financial statements at the General Meeting of Shareholders.


The figures in the financial statements are independently rounded.

Accounting principles

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards, IFRS. The IAS and IFRS standards and SIC and IFRIC interpretations in effect on 31 December 2018 have been applied. International Financial Reporting Standards refer to the standards and their interpretations approved for application in the EU in accordance with the procedure stipulated in EU regulation (EU) no 1606/2002 and embodied in Finnish accounting legislation and the statutes enacted under it. The notes to the consolidated financial statements also comply with Finnish accounting and company legislation.

The Group adopted IFRS accounting principles during 2005 and in this connection applied IFRS 1 (First-time adoption), the transition date being 1 January 2004.

The consolidated financial statements are based on the purchase method of accounting unless otherwise specified in the accounting principles below. Figures in the tables in the financial statements are presented in thousands of euros. 

The Group’s parent company, Alma Media Corporation (corporate ID code FI19447574, called Almanova Corporation until 7 November 2005) was established on 27 January 2005. The company acquired the shares of the previous Alma Media Corporation (corporate ID code FI14495809) during 2005. The acquisition has been treated in the consolidated accounts as a reverse acquisition based on IFRS 3. This means that the acquiring company was the old Alma Media Corporation and the company being acquired was the Group’s current legal parent company, Almanova Corporation. The net fair value of the assets, liabilities and contingent liabilities on the acquisition date did not differ from their carrying values in the company’s accounts. The acquisition cost was equivalent to the net fair value of the assets, liabilities and contingent liabilities and, therefore, no goodwill was created by the acquisition. The accounting principles adopted for the reverse acquisition apply only to the consolidated financial statements.


Impact of standards adopted during 2018

The Group has adopted the following new standards and interpretations from 1 January 2018 onwards:


IFRS 2 The amendment to IFRS 2 Share-based Payment concerns incentive schemes with a net settlement feature to cover withholding tax obligations and where the employer has an obligation to withhold tax from the received benefit on the share-based payment. Under the previous standard, the payment was divided into an equity-settled component and a cash-settled component. According to the amended standard, the entire scheme is treated as an equity-settled payment, and the compensation cost is recognised based on the number of gross shares awarded in spite of the employee ultimately only receiving the net shares and the Group paying the portion required for meeting the withholding obligations in cash to the tax authorities. The withholding tax paid by the Group to the tax authorities is recognised directly in equity.

The Group’s financial statements for 2017 included MEUR 1.6 in short-term liabilities related to the cash-settled component.


Due to the amendment to the standard, this component has been adjusted in the opening balance sheet of 1 January 2018 by moving it from liabilities to retained earnings.

IFRS 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and liabilities. It also introduces changes to the rules governing hedge accounting as well as a new impairment model for financial assets. The new standard replaced IAS 39 Financial Instruments: Recognition and Measurement. 


IFRS 9 has been applied by the Group retrospectively starting from 1 January 2018 in such a way as to take advantage of the practical expedients provided by the standard. The comparison figures for 2017 are not adjusted. The most significant impacts of IFRS 9 adoption in the Group are related to the impairment of trade receivables and the classification of financial assets and liabilities. 


The classification is made on initial acquisition and it is based on the objective of the business model and the contractual cash flow characteristics of the financial assets. The classification according to IFRS 9 had no effect on balance sheet.


In recognising expected credit losses, the Group applies the simplified approach defined in IFRS 9, according to which lifetime expected credit losses can be recognised for all trade receivables. For the purposes of determining expected credit losses, trade receivables have been grouped on the basis of shared credit risk characteristics and delinquency in payment. The MEUR 0.2 increase in the loss allowance related to trade receivables reduces the opening balance of retained earnings on 1 January 2018. 


IFRS 15 Revenue from Contracts with Customers is a new standard governing the recognition of revenue. The new standard establishes a five-stage framework for recognising revenue from contracts with customers and replaces existing revenue guidance, including IAS 18, IAS 11 and the related interpretations. Revenue can be recognised over time or at a point in time, with the criterion being the transfer of control. 

Alma Media adopted IFRS 15 Revenue from Contracts with Customers on 1 January 2018, leading to a change in the accounting principles used in the consolidated financial statements. Due to the new standard, the Group has carried out assessments in the financial years 2016, 2017 and 2018 to evaluate the impact of the standard on the revenue recognition practices used by the Group. The assessments reviewed the revenue recognition processes and accrual principles used in the different invoicing systems and accounting of the Group’s businesses, comparing the present situation to the requirements of the new standard. At the same time, manual practices in the revenue accrual process were automated. 

Alma Media has defined its various revenue streams and their recognition based on the standard. Alma Media’s most significant revenue streams are derived from content sales, advertising sales and the service business. Key contracts have been reviewed and documented for all the relevant revenue streams and transaction price. The allocation of transaction prices has been determined based on the revenue contracts.

The new rules were adopted non-retrospectively in accordance with the IFRS 15 transition provisions, using the practical expedient permitted by the standard. Due to the use of the practical expedient, the comparison figures for 2017 have not been adjusted. The adoption of the standard has not resulted in adjustments to items reported in the financial statements or any entries to retained earnings. 

Revenue in accordance with IFRS 15 is itemised in Note 1.2 Operating Income.


Annual Improvements to IFRSs 2015–2017. Through the Annual Improvements procedure, small and less urgent amendments to the standards are collected and implemented together once a year. Their impacts vary standard by standard, but they have not had a material effect on the consolidated financial statements. 


New and amended standards and interpretations to be applied in future periods 

IASB has published the following new or amended standards and interpretations that the Group has not yet applied. The Group will begin applying them starting from the effective date of each standard and interpretation or, if the date of entry into effect is not the first day of the financial year, the Group will apply the standard or interpretation starting from the beginning of the next financial year:


IFRS 16 Leases (effective for financial periods beginning on or after 1 January 2019). Under the new standard, all leases except short-term leases with a term of less than 12 months and leases of low-value assets will be recognised on the balance sheet as right-of-use assets. Operating leases and finance leases will no longer be differentiated between. The change will move off-balance sheet obligations to the balance sheet and thus increase the amount of property, plant and equipment as well as liabilities. Lessor accounting will not be subject to significant changes. Some new notes will be required from next year.


The concepts of agreements processed as off-balance sheet liabilities and the concepts used in IFRS 16 are somewhat different from each other, which is why the number of agreements recognised on the balance sheet may differ from the number of off-balance sheet liabilities. The lease contracts recognised on the balance sheet are mainly for business premises and cars. Leases for IT equipment, on the other hand, are treated as off-balance sheet obligations, unlike under the current IAS 17 standard.


Alma Media has begun preparing for the adoption of the standard and assessed the impact of its adoption by the Group. The change will have a material impact on the consolidated financial statements. The change will also affect balance sheet indicators, such as gearing.  

The effect of the change is also described in Note 3.3 Financial liabilities.


 

Preliminary assessment of the effect of IFRS 16 on Alma Media Corporation’s consolidated financial statements (the figures may deviate from the final amounts shown on the opening balance sheet of 1 January 2019)  
 31 Dec 2018
Balance sheet (MEUR)    Assets Liabilities
Leases for business premises, cars and operating leases                54.4               54.4  
Leases for IT equipment    -1.2   -1.4  
Total                53.2               53.0  

 

Income statement (MEUR)   FY18
Other expenses – decrease   7.4  
EBITDA   7.4  
Depreciation – increase  -7.3  
EBIT  0.1  
Interest expenses – increase  -0.7  
Profit for the period   -0.6  
Balance sheet and key figures
MEUR
 Reported
31 Dec 2018
 Adjusted
31 Dec 2018
Assets total 345.6                    398.8  
Interest-bearing liabilities 51.5                    104.5  
   
Net debt 2.0                        55.0  
Equity ratio, % 57.5                        46.6 
Net debt/EBITDA 0.03                         0.66  
   
EBITDA 76.6                       84.0  
Adjusted EBITDA 72.9                       80.4 
   
Operating profit 61.0                       61.1
Adjusted operating profit 57.3                       57.4
   
Earnings per share (EPS) 0.51                       0.50  



IAS 1 Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and consequent amendments to other standards:
• Adopting a consistent definition of materiality throughout the IFRS standards and the Conceptual Framework for Financial Reporting; 
• clarifies the definition of materiality; and
• includes some guidelines for IAS 1 regarding immaterial information. 


The amendments have not yet been approved for application in the EU. 

IAS 19 Employee Benefits (effective for financial periods beginning on or after 1 January 2019). The amendments to IAS 19 clarify the accounting of the amendment or curtailment of a defined benefit plan as well as the settlement of obligations. According to the amendments, companies are required to: 
• Determine the current service cost and net interest for the remaining 
financial period following the amendment or curtailment of a defined benefit plan or the settlement of an obligation, using updated assumptions effective from the date of amendment
• The potential reduction of the surplus must be immediately recognised in profit or loss, either as part of any past service cost or as a gain or loss on settlement. In other words, the reduction of the surplus must be recognised in profit or loss even if the surplus in question was not previously recognised due to the asset ceiling 
• Recognise changes in the asset ceiling separately in other comprehensive income.


The amendments have not yet been approved for application in the EU.


IAS 28 Investments in Associates and Joint Ventures (amendments to IAS 28, effective for financial periods beginning on or after 1 January 2019) clarifies that investments in associates and joint ventures to which the equity method is not applied are treated according to IFRS 9 before recognising losses or impairment pursuant to IAS 28. The amendments have not yet been approved for application in the EU.

IFRIC 23   Uncertainty over Income Tax Treatments (effective for financial periods beginning on or after 1 January 2019). The interpretation clarifies the recognition and measurement of current and deferred tax assets and liabilities when there is uncertainty over their tax treatment. In particular, the interpretation concerns: 
• Determining the appropriate unit of calculation and the principle that each instance of uncertain tax treatment must be examined either 
separately or together as a group depending on which approach better predicts the uncertain outcome
• The principle that the tax authorities are assumed to investigate all instances of uncertain tax treatment and obtain all necessary information, and the risk of detection is not taken into consideration.
• The principle that the effect of uncertainty must be taken into consideration in the accounting treatment of taxes if it is not probable that the tax authorities will accept an uncertain treatment
• The principle that the effect of the uncertainty is determined either by the most likely amount or the expected value, whichever method is expected to better predict the resolution of the uncertainty, and 
• The principle that judgement-based decisions 
• and estimates must be reassessed if the facts and circumstances change or new information affecting the judgement or estimate is obtained. 


The Group is assessing the effects of the standard’s implementation. 


Comparability of consolidated financial statements 

The financial years 2018 and 2017 are comparable. The company has no discontinued operations to report in the financial periods 2018 and 2017. 

Translation of items denominated in foreign currencies

Figures in the consolidated financial statements are shown in euros, the euro being the functional and presentation currency of the parent company. Foreign currency items are entered in EUR at the rates prevailing at the transaction date. Monetary foreign currency items are translated into EUR using the rates prevailing at the balance sheet date. Non-monetary foreign currency items are measured at their fair value 
and translated into EUR using the rates prevailing at the balance sheet date. In other respects non-monetary items are measured at the rates prevailing at the transaction date. Exchange rate differences arising from sales and purchases are treated as additions or subtractions respectively in the statement of comprehensive income. Exchange rate differences related to loans and loan receivables are taken to other finance income and expenses in the profit or loss for the period.

The income statements of foreign Group subsidiaries are translated into EUR using the weighted average rates during the period, and their balance sheets at the rates prevailing on the balance sheet date. Goodwill arising from the acquisition of foreign companies is treated as assets and liabilities of the foreign units in question and translated into EUR at the rates prevailing on the balance sheet date. Translation differences arising from the consolidation of foreign subsidiaries and associated companies are entered under shareholders’ equity. Exchange differences arising on a monetary item that forms part of the reporting entity’s net investment in the foreign operation shall be recognised in the balance sheet and reclassified from equity to profit or loss on disposal of the net investment.


Operating profit and EBITDA

 
IAS 1 Presentation of Financial Statements does not include a definition of operating profit or gross margin. Gross margin is the net amount formed when other operating profit is added to net sales, and material and service procurement costs adjusted for the change in inventories of finished and unfinished products, the costs arising from employee benefits and other operating expenses are subtracted from the total. 
Operating profit is the net amount formed when other operating profit is added to net sales, and the following items are then subtracted from the total: material and service procurement costs adjusted for the change in inventories of finished and unfinished products; the costs arising from employee benefits; depreciation, amortisation and impairment costs; and other operating expenses. All other items in the profit or loss 
not mentioned above are shown under operating profit. Exchange rate differences and changes in the fair value of derivative contracts are included in operating profit if they arise on items related to the company’s normal business operations; otherwise they are recognised in financial items.

Adjusted items

Adjusted items are income or expense arising from non-recurring or rare events. Gains or losses from the sale or discontinuation of business operations or assets, gains or losses from restructuring business operations as well as impairment losses of goodwill and other assets are recognised by the Group as adjusted items. Adjusted items are recognised in the profit and loss statement within the corresponding income or expense group. Adjusted items are described in the Report by the Board of Directors.


Accounting principles requiring management’s judgement and key sources of estimation uncertainty 

The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions which may differ from actual results in the future. Management is also required to use its discretion as to the application of the accounting principles used to prepare the statements.

Accounting principles requiring management’s judgement 

The management of the Group makes judgement-based decisions pertaining to the selection and application of the accounting principles used in the financial statements. This particularly applies in cases where the existing IFRS regulations allow for alternative methods of recognition, measurement and presentation. A significant area in which the management has exercised this type of judgement is related to the Group’s 
lease agreements. The Group has significant lease agreements for its business premises. Based on assessment of the terms of the agreements, the Group has determined that it does not bear any significant rewards and risks incidental to the ownership of the premises and therefore the agreements are by nature operating lease agreements.


Alma Media has identified subscription products and customer loyalty products in accordance with the provisions of IFRS 15. As the item prices of these products are not material, they are not treated as separate performance obligations based on the management’s assessment of materiality. The revenue derived from such products is recognised as part of the main products.

According to IFRS 15 Revenue from Contracts with Customers, an entity shall recognise revenue when it satisfies a performance obligation by transferring a promised good or service to a customer. Alma Media’s exception to the revenue recognition practices required by IFRS 15 is the recognition of revenue from credit packages associated with the recruitment business. In credit package transactions, the customer 
buys credits against which Alma Media provides advertising sales services during the validity of the credits, subject to an agreed-upon price list. According to the management’s assessment, recognising revenue evenly over the contract period instead of a revenue recognition model based on actual use leads to essentially the same outcome as recognising revenue based on the use of the credits.


Key sources of estimation uncertainty


The estimates made in conjunction with preparing the financial statements are based on the management’s best assessments on the reporting period end date. The estimates are based on prior experience, as well as future assumptions that are considered to be the most likely on the balance sheet date with regard to issues such as the expected development of the Group’s economic operating environment in terms of sales 
and cost levels. The Group monitors the realisation of estimates and assumptions, as well as changes in the underlying factors, on a regular basis in cooperation with the business units, using both internal and external sources of information. Any changes to these estimates and assumptions are entered in the accounts for the period in which the estimate or assumption is adjusted and for all periods thereafter.


Future assumptions and key sources of uncertainty related to estimates made on the balance sheet date that involve a significant risk of changes to the book values of the Group’s assets and liabilities during the following financial year are presented below. The Group’s management has considered these components of the financial statements to be the most relevant in this regard, as they involve the most complicated accounting policies from the Group’s perspective and their application requires the most extensive application of significant estimates and assumptions—for example, in the valuation of assets. In addition, the effects of potential changes to the assumptions 
and estimates used in these components of the financial statements are estimated to be the largest.


The determination of the fair value of intangible assets in conjunction with business combinations is based on the management’s estimate of the cash flows related to the assets in question. The determination of the fair value of liabilities related to contingent considerations arising from business combinations are based on the management’s estimate. The key variables in the change in fair value of contingent considerations are estimates of future operating profit.


Impairment tests: The Group tests goodwill and intangible assets with an indefinite useful life for impairment annually and reviews any indications of impairment in the manner described above. The amounts recoverable from cash-generating units are recognised based on calculations of their fair value. The preparation of these calculations requires the use of estimates. The estimates and assumptions used to test major goodwill items for impairment, and the sensitivity of changes in these factors with respect to goodwill testing is described in more detail in the note which specifies goodwill.

Useful lives: Estimating useful lives used to calculate depreciation and amortisation also requires management to estimate the useful lives of these assets. The useful lives used for each type of asset are described in the notes Property, Plant and Equipment 2.2 and Intangible Assets 2.1. 

Other estimates: Other management estimates relate mainly to other assets, such as the current nature of receivables and capitalised R&D costs, to tax risks, to determining pension obligations and to the utilisation of tax assets against future taxable income.