AB Svenska Spel Head Office AB Svenska Spel Svenska Spel s Customer Service Svenska Spel on the Internet 2011 Casino Cosmopol Playscan AB

Transcription

1 2011 Annual Report

2 Financial Calendar 2012 Annual General Meeting, 24 April Svenska Spel s AGM will be held on Tuesday, 24 April in Visby, Gotland. Interim reports 2012 January March 24 April 2012 January June 23 July 2012 January September 24 October 2012 Year-end report, January December February 2013

3 2011 in brief 2 CEO s commentary 4 Four questions for the Chairman 5 contents: 7Directors report 7 SVENSKA SPEL GROUP Significant events in This is Svenska Spel 8 The Swedish gaming market 11 Svenska Spel s operations and structure 14 Strategic orientation and objectives 16 Risks and risk management 22 Brand management 24 Svenska Spel s games 28 Group financial results and position 34 Pages 7 94 Annual Report The Board and CEO of AB Svenska Spel, corporate registration number , with its registered office in Visby, hereby submit the Annual Report and the Consolidated Financial Statements for the financial year 1 January 31 December 2011, as presented on pages The Corporate Governance Report is an integral part of the Company s Directors Report. Unless otherwise stated, all amounts are in SEK million. Information in parentheses refers to the preceding year. SVENSKA SPEL S BUSINESS AREAS 36 Gaming & Lotteries business area 37 Vegas business area 40 Casino Cosmopol business area 43 CORPORATE GOVERNANCE REPORT 48 Board of Directors 54 Executive management 56 Proposed distribution of profits 58 Events after balance sheet date Financial statements 61 GROUP Consolidated statement of comprehensive income 62 Consolidated balance sheet 63 Consolidated statements of cash flows 64 Consolidated statement of changes in equity 64 PARENT COMPANY Income statement 65 Balance sheet 66 Statements of cash flow 68 Statement of changes in equity 68 NoteS 69 Pages CSR Report (Corporate Social Responsibility) Svenska Spel s CSR Report along with the Combined Statement of Conformity is published for the fifth year, see pages The report was prepared in accordance with the Global Reporting Initiative (GRI), level C+. Unless otherwise stated, all amounts are in SEK million. Information in parentheses refers to the preceding year. Board signatures 92 Auditors report 93 Five-year summary CSR report 95 Commentary of the CEO and CSR Manager 96 Long-term sustainable development 97 Stakeholder expectations 101 Social responsibility and responsible gaming 103 Responsibility for employees 112 Economic responsibility 116 Environmental responsibility 119 Comments on the CSR Report 122 Svenska Spel s GRI profile 123 Board signatures 130 Auditor s Combined Assurance Report 131 TERMS AND DEFINITIONS 133 Svenska Spel ANNUAL REPORT

4 2011 in brief Key data, Svenska Spel Group, SEK million Gross gaming revenue 22,284 21,751 Net gaming revenue, total 9,687 9,624 Net sales from gaming operations, etc. 7,919 7,885 Operating profit 4,940 4,795 Operating margin, % Income for the year 5,007 4,766 Average number of employees 1,774 1,764 The Swedish gaming market * Cooperation with Foppa The renowned Swedish icehockey player, Peter Foppa Forsberg signed a cooperation agreement with Svenska Spel. His role is to strengthen Svenska Spel s commitment to Swedisk sports. Read more about Svenska Spel s brand programmes and sponsorship on page 25. Net gaming revenue 2011 Net market share 2011 Svenska Spel including Casino Cosmopol and Poker 9,687 MSEK (9,624) ATG Horse racing, 3,910 MSEK (3,813) NGO games and lotteries, 3,484 MSEK (3,200) Foreign Internet companies, 2,217 MSEK (1,900) Restaurant casinos, 218 MSEK (217) Svenska Spel including Casino Cosmopol and Poker, 50% Noteworthy marketing TV commercials for Triss were awarded two Silver Lions at the Cannes Lions International Advertising Festival. A commercial for Lotto was nominated for the Swedish Guldägget (Golden Egg) award in Read more about branding programmes on page 24. ATG Horse racing, 20% NGO games and lotteries, 18% Foreign Internet companies, 11% Restaurant casinos, 1% * Refers to the total known market in Sweden. Source: Preliminary statistics from the Swedish Gaming Board and Svenska Spel s estimates of the net gaming revenue of foreign Internet companies. These sources estimate the size of the total Swedish net gaming market to have been approximately SEK 19,500 million (18,600) figures in parentheses. High profile anniversaries Triss and Oddset celebrated their 25th anniversary and remain among Sweden s largest and most popular games. The largest contributors to net gaming revenues was the Vegas game, which celebrated its 15th year. Casino Cosmopol marked its tenth birthday at the Sundsvall Casino, the very first casino in Sweden. Read more about the games on page Svenska Spel ANNUAL REPORT 2011

5 SEK 5,007 million for the Swedish Treasury Svenska Spel s surplus of SEK 5,007 million (4,766) is paid to the State, representing an increase of 5.0% compared with 2010, and the third best result ever. Lennart Käll, new President and CEO, and Anitra Steen, new Chairman. New President and new Chairman At the AGM in April 2011, Anitra Steen was elected as Chairman of Svenska Spel. On 12 September, Lennart Käll took up his position of President and CEO. Read the CEO s Commentary and interview with the Chairman on pages 4 5. Debate gathers intensity The debate on the re-regulation of the Swedish gaming market intensified during the year. Read about the Swedish gaming market on page 11. Continuing work for long-term sustainability Mobile trends The mobile web m.svenskaspel.se, offering gaming on the Oddset Live and Mixen games, was extended with the opportunity for customers to open an account, transfer money and play Lotto. The Svenska Spel Målservice (scores service) application was also developed for Android, whose customers ranked it as the best free app. Read about the games on page 28. Efforts to integrate responsibility and sustainability issues throughout operations continued in Svenska Spel s Spelkort customer card marked its 10th anniversary. A great deal of the responsible gaming programmes aimed at customers in stores and on the website svenskaspel.se are based on the card. A new central system for Vegas VLTs was commissioned. In the long run, this will permit responsible gaming tools to be linked up to the customer card for Vegas customers. The Vegas business area launched a new responsible gaming training programme for its business partners. The subsidiary Playscan AB, which provides the responsible gaming tool, Playscan TM, has now signed an agreement with A-lotterierna having previously had contracts with Miljonlotteriet, La Française des Jeux, Finland- based Ray and the Canadian Atlantic Lottery. Playscan TM was upgraded during 2011 for the svenskaspel.se site and now has 53,844 users (47,000). 85% approved test purchases at Vegas business partners. The result for retailers was 84%, while the lottery retailers, who since 2010 have been compelled to demand identification for the purchase of lottery tickets, have not yet attained equally positive results. Casino Cosmopol s responsible gaming programmes continued to focus on young guests in the age group during the year. Renewable energy was introduced in Casino Cosmopol s premises in Malmö and is now available in all Svenska Spel s properties. The CSR (Corporate Social Responsibility Report) for 2011 is available on pages and at svenskaspel.se. Svenska Spel ANNUAL REPORT

6 CEO S COMMENTARY A new and clear course We are assigning the necessary priorities to stand strong ahead was an eventful year, which in many ways entailed a new beginning for Svenska Spel. We launched a new vision, new values and a new brand platform a clear foundation that places the customer and the future in focus. We experienced a strong launch and we are bringing this positive energy with us as we now move the Company forward. When I first joined the Company, I listened and learned about the Company s mission, situation, market, product portfolio and customer offering. I travelled to our neigh bouring countries to learn more about how to work with gaming and gained valuable know ledge and inspiration. I also conducted many dialogues with the Board and our owners to attain a clear impression of their view of Svenska Spel and our challenges. We must face the competition Svenska Spel has a mission that calls for our responsibility for and care of our customers to take priority over profit maximisation. Our vision is for gaming to provide enjoyment for all, which is the foundation for our company. However, continuing to take responsibility and shaping a sound and safe gaming market requires us to constitute a substantial share of that market. To continue to maintain our market share and develop our offering, we must face the forcefully increasing competition, in terms of the regulated market, foreign unregulated online companies and illegal companies that do not comply with the same terms and conditions and regulatory framework as Svenska Spel. In reviewing the results for 2011, a great deal is progressing in the right direction: our revenue increased and our costs decreased. Net gaming revenue rose SEK 63 million year-onyear and all business areas reported higher operating profit than in Earnings for the full-year the third best ever rose by SEK 240 million, in part as a result of our focus on cost efficiency in the Company during the year. We delivered strong earnings and we should be proud of this. However, despite this, we did not manage to grow at the same rate as the market we lost market shares. Accordingly, our major challenge remains. We must reverse the declining trend to enable us to achieve our mission successfully. The market shares differ between our various products and channels. In certain product categories, such as sports games and digital platforms, we lost shares, while we maintain a monopoly in casinos and slot machines. We have laid the foundation for the future During the autumn, we took several key steps toward tomorrow s Svenska Spel. We launched a new vision and new corporate values, which provide energy in our daily work and help us envision the goal ahead of us. We must continue to build long-term relationships with our customers and make it easier to choose us by being accessible, considerate and committed. We will deliver attractive games and always go the extra mile for our customers, business partners and colleagues. We also created a brand platform that enables us to more clearly shape our offering and prioritise the activities on which 4 Svenska Spel ANNUAL REPORT 2011

7 we must focus based on what our customers want. In other words, the journey has begun which we are sure that our customers and the market will notice moving forward. We must accelerate and slow down We have concluded that we are in a negative spiral which is why we must act now. It is a matter of being able to say that we saw the warning signs in time five years from now, that we were awake, listened to our customers and enacted the necessary changes. Our position in the market will be dependent on a clear organisation that possesses the drive and ability to adapt its operations to market conditions, technological advances and customers needs. To achieve this, we must simultaneously accelerate and slow down. Based on our goals and the market s expectations, we must prioritise so that we can spend more resources where they make the greatest difference for the customer. This entails reinforcing certain areas of the operations and cutting back in others. We are assigning the necessary priorities to stand strong ahead regardless of the situations that arise. We must invest more in customer meetings and focus more on developing attractive games that customers demand modern and digital games, image-enhancing games, and effective responsible gaming measures. We have begun to build the next generation s digital platform, whereby we responsibly raise the customer experience to an entirely new level. We shall always be the customer s best alternative Many opt for gaming with us because it feels safe and be - cause we offer the tools to personally be in control of their gaming. This gives us a competitive advantage that we want to maintain and strengthen. By being proactive and working more closely on research, we will continue to strive to be at the forefront in our responsible gaming. We will also further improve at showing our commitment and contributing our knowledge and experiences in the public debate. As you can see, we have an exciting time ahead of us. We have a new situation in the market, which we must face with innovation and drive. Naturally, this is all made possible by Svenska Spel s proficient employees, whose efforts I am proud of and grateful for. Together, we will demonstrate what Svenska Spel represents and continue to offer our customers games that provide enjoyment and excitement in their everyday lives. Visby, February 2012 Lennart Käll, President and CEO 4questions for Anitra Steen, Chairman How do you view your first year as Svenska Spel s Chairman? I was very pleased to be asked if I would accept the assignment. I was attracted by the challenge and am able to utilise my experience from, for example, Systembolaget (Swedish alcohol monopoly). One of Svenska Spel s challenges is to satisfy customer requirements in the form of stimulating games, while also offering responsible gaming tools for the customers in order to minimise risks. We re also subject to gaming regulations that fail to progress in pace with reality. To date, my expectations regarding the assignment have been realised. How is Svenska Spel s market role impacted by the gaming regulations? Svenska Spel fulfils a key market role, especially when it involves accepting responsibility for social considerations. Updated gaming regulations would facilitate our efforts, since development has rapidly outpaced the current regulatory system. In this context, the Swedish Supreme Court s decision during the autumn was welcomed. It decided that gaming via slot machines located in Sweden must be viewed as being arranged here, irrespective of where the servers are located. This permits the Swedish Gaming Board to act more aggressively in removing illegal gaming machines, which is a positive development. How should Svenska Spel balance responsibility with profit? I see no contradiction between responsibility and profit. Ultimately, it involves our product range and the manner in which we help customers to keep an eye on the situation and their gaming. We view responsibility as part of our customer offering. Personally, I feel they go hand in hand. What do you wish to see in terms of the regulatory system on the Swedish gaming market? Discussions among politicians regarding the need for re-regulation creates uncertainty for the future. Denmark has opted for a form involving a large number of licensed gaming companies. I believe that the Danes face a tough time, with aggressive marketing and growing gaming problems. On the other hand, the Norwegians and Finns have decided to tighten regulations, while in Sweden we could easily move in the same direction. This would increase the potential to develop consumer-friendly offerings, with due consideration of the individual. Svenska Spel ANNUAL REPORT

8 Förvaltningsberättelse / den Svenska Spel in brief Svenska Spel is Sweden s only wholly State-owned gaming company. Svenska Spel arranges sports betting, number games and lotteries via retailers, subscriptions, mobile phones and on svenskaspel.se, as well as gaming on Vegas VLTs in restaurants and bingo halls. The Group includes Casino Cosmopol AB which runs Sweden s four international casinos in Stockholm, Gothenburg, Malmö and Sundsvall. The Playscan AB subsidiary pursues the development and sale of the responsible gaming tool Playscan TM. The gaming offering includes a number of well-known brands such as Triss, Lotto, Oddset and Stryktipset. In 2011, Svenska Spel paid out winnings amounting to some SEK 12 billion (excluding Casino Cosmopol), transforming 350 customers into millionaires during the year. The Company is Sweden s major sports sponsor, and the main sponsor of football, ice hockey and other sports. Svenska Spel s surplus is utilised as prescribed by the Government. In 2011, the surplus totalled SEK 5,007 million. 6 Svenska Spel ANNUAL REPORT 2011

9 Directors Report Svenska Spel Group The Board and CEO of AB Svenska Spel, corporate registration number , with its registered office in Visby, hereby submit the Annual Report and the Consolidated Financial Statements for the financial year 1 January 31 December 2011, as presented on pages 7 92 and page 94. Significant events in 2011 New Chairman At the Annual General Meeting on 19 April, Anitra Steen was appointed the new Chairman of the Board of AB Svenska Spel. Anitra Steen was formerly the Managing Director of Systembolaget, Director-General of the Swedish Tax Agency and the Swedish Agency for Higher Education Services, as well as a State Secretary in the Government Offices of Sweden. New CEO In May, the Board appointed Lennart Käll as the new President and CEO of AB Svenska Spel. Lennart Käll, who was previously President of Wasa Kredit, CEO of Ticket Travel Group, President of ICA Bank and President of SEB Finans, assumed his position at AB Svenska Spel on 12 September. Competition-impeding restaurant operations The Swedish Competition Authority pursued a case against Casino Cosmopol concerning competition-impeding restaurant operations, although it decided to dismiss the case in January 2011 as a result of Casino Cosmopol presenting an action plan. Lotto s commercials nominated for Guldägg (Golden Egg) Lotto s commercials, featuring the rock group Kiss, were nominated for the Golden Egg in the film category, in Sweden s largest and oldest competition for creative communications. Expanded mobile telephone application In March, Svenska Spel launched an updated version of the Score and result service iphone application. The application offers an expanded score and result service for more products and a direct portal to Svenska Spel s website for the mobile telephone: m.svenskaspel.se. Svenska Spel s customers are now offered several of Svenska Spel s games in their mobile telephones. Peter Foppa Forsberg ambassador for Svenska Spel During the fourth quarter, the hockey legend Peter Foppa Forsberg, was appointed as a new ambassador for Svenska Spel. Forsberg will be part of a training programme sponsored by Svenska Spel for ice-hockey coaches in junior and youth teams, thus supporting Svenska Spel s commitment to Swedish sports. Embezzlement at Casino Cosmopol in Gothenburg The internal controls under Svenska Spel s security procedures proved that they function as intended when eight individuals were arrested and detained, suspected of grand embezzlement. Seven of the detainees were employees of Casino Cosmopol in Gothenburg and have been dismissed. Judgments in cases concerning slot machines In two cases on 18 December 2011, the Swedish Supreme Court ruled that Svenska Spel s slot machines are the only legal machines in Sweden. Advancement of responsible gaming The responsible gaming tool Playscan TM was upgraded and customers are now offered an even better tool to monitor their gaming at svenskaspel.se. The tool is primarily aimed at protecting consumers from developing gambling addiction. Accordingly, the company has changed its sales strategy to enable private foreign companies that conduct cross-border gaming operations under the permission of foreign authorities to offer the tool to their customers. Svenska Spel ANNUAL REPORT

10 DIRECTORS REPORT / THIS IS svenska spel Gaming shall Vision Gaming shall be enjoyed by all! Mission We develop and offer gaming in a responsible manner so that the many people who use our products experience gaming enjoyment. Svenska Spel s mandate AB Svenska Spel is to arrange gaming and lotteries under licence from the Government. AB Svenska Spel is to respond to consumer interest in terms of offering a reliable alternative to illegal gaming operations. A broad service is to be provided both in urban and rural areas. Social considerations are to be prioritised in the development of gaming forms and in the business as a whole. The risk of fraud and illegal gaming is also to be observed. Security in gaming management is to be maximised. Regulators should be able to maintain efficient and independent control. AB Svenska Spel must adopt a prudent approach to new games and new markets. The Company is to maintain a responsible marketing approach that reflects social commitment and prevents it being perceived as overly assertive. The business is to be run cost-efficiently within the confines of the Company s mandate. 8 Svenska Spel ANNUAL REPORT 2011

11 offer enjoyment Values: We at Svenska Spel are accessible We listen to our customers and each other and develop longterm relations. We make it easy for our customers to select us by delivering the right games, at the right time and through the right channels. We contribute to the customer s overall experience by combining presence, speed and personal service. We offer help when a colleague irrespective of location or department needs our competence in solving a task. considerate We care for our customers and work conscientiously to offer secure, readily accessed gaming enjoyment. We are proud of our mandate and put responsibility before profit maximisation. We treat our environment both internally and externally with openness, respect and trust. and committed We love excitement and dreams, and are passionate about delivering attractive games that offer enjoyment for everyone. To meet future competition and customer requirements, we ensure that innovative thinking, professionalism and effective implementation permeate all our work. We re generous with our enthusiasm, endurance and driving power we offer our customers and each other that little extra. We seek inspiring leadership that promotes motivation and personal development. Svenska Spel ANNUAL REPORT

12 63% of Swedes are explicitly positive to Svenska Spel. Source: Svenska Spel s image tracking % of the age group are customers of Svenska Spel. Source: Svenska Spel s 2011 gaming survey. 10 Svenska Spel ANNUAL REPORT 2011

13 The Swedish gaming market The number of gaming companies on the Swedish market has increased in recent years in pace with technological progress. Svenska Spel competes both with Swedish regulated gaming companies and foreign gaming companies and an illegal market. Historically, the Swedish gaming market has been relatively insensitive to macroeconomic fluctuations. This was also the case in 2011, when gaming increased despite the prevailing global financial turbulence. Growth is likely to continue in the foreseeable future, though perhaps at a slightly slower rate. regulations. None theless, they compete with the regulated gaming com panies offering similar games: poker, horse racing, bingo, sports games, number games and lotteries. Moreover, there are numerous casinos on the Internet with a wide-ranging offering of slot machines, and table games games that are strictly reserved for restaurant casinos and Svenska Spel s casinos and Vegas VLTs. Social consideration lays the basis for regulation According to Swedish law, it is essentially illegal to organise gaming for monetary gain for the general public. However, in a bid to restrain illegal gaming, the State has granted exemptions for a number of gaming companies, for reasons of social consideration, whose operations are strictly controlled through, for example, the Lotteries Act. The Swedish Gaming Board has overall responsibility for the control and supervision of gaming and lottery activities Unknown illegal market In parallel with the known gaming market, there is an unknown illegal market with gaming machines and gaming clubs operating without a permit. An assessment by the Swedish Gaming Board indicates that there are thousands of illegal gaming machines nationwide that have a combined turn over amounting to several billion annually. Police crackdowns are conducted every year and machines confiscated, but to date such measures have proved insufficient in halting illegal operations. Competitive situation The known Swedish gaming market consists of regulated, nationwide gaming companies and foreign gaming companies with cross-border operations. The wholly State-owned company Svenska Spel; the State-controlled horse racing organisation, AB Trav och Galopp (ATG); NGO gaming activities, plus bingo halls and PostkodLotteriet, the A-lotteries and Miljonlotteriet are the major Swedish gaming companies. There are also private operators of restaurant casinos, but they account only for a very minor market share. There are hundreds of Internet gaming companies targeting Swedish players, such as Ladbrokes of the UK, based in Gibraltar, and Unibet, Expekt and Betsson, which are based in Malta. Foreign Internet companies are not covered by the legislation and restrictions for the gaming companies subject to Swedish Swedish Supreme Court establishes precedent for practice A decision by the Supreme Court established that a licence for arranging gaming on VLTs could essentially be granted solely to Svenska Spel. The decision made clear that only Svenska Spel s VLTs are to be available on the market. Following several years of uncertain practice, the legal authorities now have the support to act against illegal slot machines. The Supreme Court adopted a definite position regarding what are referred to as the two EMV cases, which involved gaming machines connected via the Internet to a server outside Sweden. The cases involved two issues of principle. One issue was whether the machines should be viewed as slot machines or whether it was a matter of Internet-based gaming (virtual lottery). The other case involved whether this gaming should be viewed as being arranged in Sweden or abroad. >> Svenska Spel ANNUAL REPORT

14 DIRECTORS REPORT / THE SWEDISH GAMING MARKET Sweden s neighbours have different approaches to their gaming markets: In Finland and Norway efforts are in progress to retain the monopoly or strictly regulated markets. In Denmark, the market has been opened for a licencebased system, with special requirements in terms of taxes, surcharges, marketing and financial contributions for the treatment of gambling addiction. In its decision, the Supreme Court established that machines and games for monetary gain that were linked to a server abroad represent slot machines pursuant to the Lottery Act. The slot machine gaming was viewed as being arranged in Sweden. The decision entailed that the gaming machines are illegal, since they lack a permit. The debate intensifies Over a number of years, there has been a need to adjust gaming market regulations to reality saw the appearance of the Future Gaming Regulation report, which had been initiated by the Government. The report has not led to any decisions. During the past year, spokespersons for the various political parties agreed that at least parts of the Swedish gaming market should be opened up to foreign gaming companies. They note the deregulation process in other European countries, notably Denmark. Svenska Spel believes that far too little is said about the core of Swedish gaming policy that social consideration should be in the foreground and questions the need for a new gaming policy. What is required is greater focus on the gaming policy objectives established by the Swedish Parliament, and more effective sanctions against regulatory breaches. Swedish National Audit Office to study the gaming market In March 2011, the Swedish Audit Office decided to conduct a review of the State s role in the gaming market. The review is expected to be completed in May This is aimed at examining the Government s current gaming regulations and the organisation of the State s undertakings so that Parliament s goal of a sound and secure gaming market can be attained in an effective manner. Deregulation and monopoly The EU Court established that each member state shall itself determine the form of regulation. Licencing systems or more restrictive regulation, such as a monopoly, are thus permissible. As a result, the legal trend in the European gaming market is developing in different directions. In some countries, such as Norway and Finland, efforts are being made to retain a monopoly or strictly regulated markets. In other countries, such as Denmark, Italy, France and Belgium, deregulation has been conducted and a system introduced that involves the purchase of licences and special tax rules for licensed gaming companies. This offers a favourable situation for major gaming companies to acquire or merge with small companies that lack the resources to invest in the license system. The European Parliament proposes national regulation for gaming companies and a system in which European gaming companies can gain licenses and be blacklisted. This applies in particular to Internet gaming as part of efforts to prevent crime and gambling addiction. There is also a desire to have a common system to ring-fence tax receipts and combat organised crime. Increased revenue from a shrinking player base Over a five-year period, Svenska Spel s market share in the known Swedish gaming market has declined from 56% to 50%. This is the result of competition and the restrictive issuance of permits to Svenska Spel, but also to a certain extent as the result of the responsible gaming programmes pursued by Svenska Spel, which have adversely impacted on gaming revenue. The gaming market is growing in absolute terms while the player base is contracting: fewer players are playing more. In 2011, net gaming revenue for the regulated Swedish gaming companies totalled SEK 17,299 million (16,673) according the Swedish Gaming Board s annual estimates. Adding the net gaming revenue approximately SEK 2,200 million (some SEK 1,900) according to Svenska Spel s estimate the total known Swedish gaming market in 2011 amounted to some SEK 19,500 million (18,600). Overall, Svenska Spel is the market leader with a market share of 50% (52); ATG accounts for 20% (21); and other regulated gaming companies have raised their market share to 19% (17), primarily due to the success of PostkodLotteriet (Post Code Lottery). According to Svenska Spel s estimates, foreign Internet companies have a market share of about 11% (approx. 10). For Internet-based gaming, Svenska Spel has a net market share of 25% (27), ATG 29% (29), NGO games and lotteries hold 1% (1) and foreign-based Internet com panies 45% (43). 12 Svenska Spel ANNUAL REPORT 2011

15 Data on the regulated Swedish gaming market Total, confirmed Swedish net gaming market, 2011 Svenska Spel, including Casino Cosmopol and Poker 50% ATG 20% NGO games and lotteries 18% Foreign Internet companies 11% Restaurant casinos 1% Source: Preliminary statistics from the Swedish Gaming Board and Svenska Spel s estimates of the net gaming revenue of foreign Internet companies. Net market share, Internet, % The regulated Swedish net gaming market, 2011 Svenska Spel, including Casino Cosmopol and Poker 56% ATG 23% svenskaspel.se atg.se Foreign Internet companies bingolotto.se NGO games and lotteries 20% Restaurant casinos 1% Source: Preliminary statistics from the Swedish Gaming Board. Source: The graph is based on actual net gaming revenue from Svenska Spel, ATG, NGOs and estimated net gaming revenue of foreign Internet companies. The estimates for foreign Internet companies net gaming revenue are based largely on Svenska Spel s regular market analysis. The regulated Swedish net gaming market Net gaming revenue, SEK million Svenska Spel 1 9,687 9,624 9,889 9,771 9,594 ATG 3,910 3,812 3,776 3,544 3,521 Restaurant casinos NGO games and lotteries 3 3,484 3,021 2,793 2,411 2,426 Total 17,299 16,673 16,686 15,971 15, The Swedish Gaming Board shows net gaming revenue from bingo games in Svenska Spel s Bingo-Live halls for the period under NGO games and lotteries/bingo. 2. There is a low response frequency from surveyed restaurant casino operators, which means the information on restaurant casino gaming is not as reliable as other areas. 3. NGO games and lotteries include: Bingo, national lotteries (e.g. PostkodLotteriet, Folkspel, Miljonlotteriet, A-lotterierna), regional lotteries, local lotteries. Source: Swedish Gaming Board values are preliminary or estimated. The ten major games in Sweden 4 Net gaming revenue, SEK million Vegas 2,083 2,039 2,081 2,011 1,928 PostkodLotteriet 5 1,773 1,590 1, V75 1,726 1,647 1,660 1,490 1,502 Triss 1,640 1,621 1,682 1,682 1,672 Lotto 1,625 1,610 1,585 1,462 1,393 Casino Cosmopol 1,203 1,190 1,198 1,224 1,153 Oddset Keno Joker Dagens Dubbel Net gaming revenue reported, that is after the pay-out of winnings. 5. Since the Gaming Board for Sweden only has gross data for PostkodLotteriet in 2011, Svenska Spel has only calculated net gaming revenues following the same deductions for paid winnings in 2010, meaning 40%. Svenska Spel ANNUAL REPORT

16 DIRECTORS REPORT / OPERATIONS AND STRUCTURE Svenska Spel s legal structure AB Svenska Spel Svenska Spels Förvaltnings AB Casino Cosmopol AB AB Svenska Spels Internetservice Casino Cosmopols Fastighets AB CC Casino Restaurang AB AB Svenska Spels Servicecenter Playscan AB Svenska Spel s operational structure* Applies from February 2012 Svenska Spel s Board of Directors Chairman of the Board Internal audit CEO Risk manager and Compliance Parent brand Projects Strategy Finance & Security Legal Result area Sports Games & Lotteries Result area Casino Cosmopol Result area Vegas Communication and CSR HR * Units with broken lines report directly to the CEO, but organisationally, are included in one of the staffs. The new organisation includes three result areas, which were called business areas in the 2011 organisation. In the 2011 Annual Report, the expression business areas is used. In 2011, the organisation comprised the three business areas, two operational areas and four staffs. IT 14 Svenska Spel ANNUAL REPORT 2011

17 Svenska Spel s operations and structure Svenska Spel s operations are based on the mandate from the owner, the Swedish State. During the year, the Company s vision and values were reformulated. A new organisation applies from February Owner relationship AB Svenska Spel was founded in 1997 following a merger of AB Tipstjänst (established in 1934) and Svenska Penninglotteriet AB (formed in 1897), and is 100% owned by the Swedish State. Articles of Association Svenska Spel s Articles of Association state the business purpose as: The Company s business is, under licence from the Government, to arrange lotteries for money and bookmaking in conjunction with competitions and pursue other compatible operations. Current licences The Government issues various forms of licences to Svenska Spel. The applicable licences are as follows: Lotteries and bookmaking at sporting events The Government licensed AB Svenska Spel to arrange public lotteries and bookmaking for money for the period 1 January 2012 to 31 December Video Lottery Terminals (VLTs) The Government licensed AB Svenska Spel to arrange public gaming on VLTs for the period 1 January 2012 to 31 December Casino gaming The Government licensed AB Svenska Spel or its wholly owned subsidiaries to arrange public casino games including games as specified under section 6 of the Lotteries Act (1994:1000) for the period 1 January 2011 to 31 December In addition, Svenska Spel has licence from 16 December 1999 applying to Locations for casino games. Internet poker The Government licensed AB Svenska Spel or its wholly owned subsidiaries to arrange and provide poker gaming on the Internet for the period 1 January 2012 to 31 December The owner s financial requirements Section 4 of AB Svenska Spel s Articles of Association specifies that no dividend is to be made to shareholders when available profits are distributed. All profit available for distribution is to be allocated as specified by the Government. The government licence for AB Svenska Spel to arrange lotteries states that as much of the Company s profits as possible be loaned to the National Debt Office of the Swedish State during the financial year. Payments are to be made quarterly, not later than 30 April, 31 July, 31 October and 16 February. Profits available for distribution are to be offset against AB Svenska Spel s receivables from the Swedish National Debt Office. Remaining profits available for distribution after the offset of receivables, statutory funding, allocations determined by Parliament and Government, and other generally accepted dispositions, are to be paid to the Swedish State. Legal and operational structure The Svenska Spel Group comprises the Parent Company AB Svenska Spel and subsidiaries Svenska Spel s Förvaltnings AB and Casino Cosmopol AB. Svenska Spel s Förvaltnings AB forms a sub-group with the subsidiaries AB Svenska Spel s Internetservice, Casino Cosmopols Fastighets AB, CC Casino Restaurang AB, AB Svenska Spel s Servicecenter and Playscan AB. In addition, there are a number of dormant companies, see Note 28 on page 91. Svenska Spel s organisation in 2011 Changes in executive management during the year included the appointment of Lennart Käll as the new CEO and President in September; Annika Ferm as Communication Manager in February and Mattias Mildenborn as interim Manager of the Gaming & Lotteries business area following the resignation of Håkan Sjöstrand in May The organisation comprised three business areas, two operational areas and four staffs. Svenska Spel s organisation from February 2012 A new operating structure applies as of February 2012, in which the former business areas are named result areas and the former operational areas of Development and Production were merged to form an IT unit. Svenska Spel ANNUAL REPORT

18 DIRECTORS REPORT / STRATEGIC ORIENTATION AND OBJECTIVES Strategic orientation and objectives Svenska Spel has four strategic target areas: Customers, Responsibility, Business-like approach and Employees. Just as in the case of the Vision and Values, these are based on the owner s mandate. The plan for orientation, objectives and strategies covers a three-year period. It is revised annually and extended by one year for another three-year period. Smooth customer interaction Customer target area If customers are to select Svenska Spel, the company must work continually in developing activities in all dimensions. This is necessary in an effort to channel customers from Svenska Spel s competitors and also to retain loyal customers. Younger generations are growing up with new gaming habits, with technological progress increasing accessibility. Svenska Spel shall offer enjoyable and exciting games that meet customer demand. Svenska Spel shall be a credible alternative to illegal gaming activities, and the customer s first choice in times in which the range of gaming opportunities is greater than ever. Optimum responsibility Responsibility target area Svenska Spel cares for its customers and assumes responsibility for ensuring that gaming remains enjoyable. Customers shall perceive Svenska Spel as the most responsible gaming company. Svenska Spel seeks to be the most responsible alternative on the market. Customers shall have a sound, mindful gaming behaviour based on gaming enjoyment and excitement. Sound business-like approach Business-like approach target area Svenska Spel shall have a revenue-optimised and cost-effective operation. Revenue optimisation always entails a trade-off between increasing revenue to its maximum while also applying the responsible gaming programmes required to ensure that customers maintain a healthy gaming behaviour. Operations shall be marked by high cost-efficency and valued on the basis of a commercial perspective, but not based on a revenue perspective alone. Motivated employees Employees target area Svenska Spel shall be an attractive employer, offering excellent leadership, and with motivated employees that perform to their best. Professional and inspired leaders are required if Svenska Spel is to succeed both in the gaming market and labour market. Svenska Spel has a strong brand as an employer, which can be further enhanced. Employees must be aware of the applicable priorities. They shall be aware of the mandate, values, strategies and targets, as well as of their personal work role and responsibility. Work satisfaction, creativity and well-being emerge when individuals strive to attain the same objective and are aware of and understand the significance of their input. In this way, the company can attract skilled employees. >> 16 Svenska Spel ANNUAL REPORT 2011

19 Identity requirements Customer security at retailers was enhanced in 2011 through, for example, the introduction of an identity requirement for winnings of more than SEK 1,000. So now, foresighted and informed customers take their ID card and Spelkort with them when they visit a retailer. Svenska Spel ANNUAL REPORT

20 DIRECTORS REPORT / STRATEGIC ORIENTATION AND OBJECTIVES Objectives and target fulfilment Gaming represents enjoyment for adults, and thus Svenska Spel has an age limit for all games. The best that Svenska Spel can offer its customers is gaming enjoyment it should be fun whether you win or lose. Customers target area: 63% positive Svenska Spel s annual gaming survey highlights customer attitudes and behaviour. From 16 February to 21 April 2011, a major postal survey was conducted using randomly selected Swedes in the group. The effective response frequency was 52%, with the number of completed questionnaires amounting to 5,131, representing a representative selection of the adult population. Among other things, this survey shows: 73% (74) are customers of Svenska Spel. The customer base consists of 50% men and 50% women. Men play more often and, generally, for higher stakes than women. The most common driving forces are the chance of gaining a major win and the excitement of playing. Triss, Lotto and Stryktipset remain the leaders in terms of positive image. The most negative image is associated with casinos, Internet gaming and Vegas. Svenska Spel s Group management supports Swedish sports. According to Svenska Spel s gaming surveys over the past six years, the player base has steadily narrowed while customers average age has increased. That the known gaming market nevertheless continued to grow during the same period was because certain customers spend more money on gaming than in the past. In contrast to the overall gaming market, the number of customers on svenskaspel.se has largely increased while the average stake has decreased. This is a positive development in view of the fact that svenskaspel.se is tasked with channelling gaming from foreign sites. Playscan TM for gaming control Since 2009, the French gaming company La Française des Jeux has used the Playscan TM responsible gaming tool, supplied by Svenska Spel s subsidiary Playscan AB. During 2011, the tool was updated and now provides full support for customers for online gaming, sports betting, bingo, Lotto and lotteries. Playscan TM helps customers to maintain control over their gaming and is used in Sweden by Svenska Spel, Miljonlotteriet and A-lotterierna. Target fulfilment: Customers The percentage positive to the Svenska Spel brand: The target is 60% of the adult population; the result was 63% (64). (Source: Svenska Spel s image tracking 2011). Responsibility target area: Best responsible gaming Svenska Spel seeks to strike a balance between gaming revenue and responsibility. One example of Svenska Spel s sense of responsibility is the outreach dialogues with frequent guests at the casinos, requirements in terms of maximum transfers to gaming accounts before a person can start playing on svenskaspel.se 18 Svenska Spel ANNUAL REPORT 2011

21 and the age limits for the purchase and payout of winnings on all games. Despite the expansion of the gaming market, Svenska Spel s gaming survey and the study undertaken by Swedish National Institute of Public Health in 2010 show that the proportion of customers with problems remained unchanged during the past ten years, that is, 1 2%. However, there has been a redistribution in the sense that problems have increased particularly among young men in the age group, while decreasing in other groups. Sustainable development For the fifth consecutive year, Svenska Spel is publishing its CSR Report in line with the principles for GRI (Global Reporting Initiative), see page 95. The report is prepared once annually as part of the annual report. Reporting refers to the 2011 calendar year and covers the Parent Company and subsidiaries. The previous report (CSR Report 2010) was published in April Svenska Spel s responsibility programmes are also described in the social responsibility report that the Swedish Ministry of Finance requests on an annual basis. The CSR Report describes Svenska Spel s work in the focus areas of: business ethics and security social responsibility and responsible gaming responsibility for employees economic responsibility environmental responsibility Target fulfilment: Responsibility Svenska Spel s quarterly image surveys rank the Company as the leader among gaming companies in Sweden in the area of responsible gaming. More information about objectives and their fulfilment in the Responsibility target area is provided in the CSR Report on page 110. >> Support for research Gaming research in Sweden is a recent area of research. Compared with alcohol and narcotics-dependence, little attention has been given to gaming problems. In a bid to increase insight into gaming and develop measures to prevent gaming problems Svenska Spel in 2010 established a research council that distributes an annual SEK 5 million to research on gaming problems. In 2011 the research council granted funds to the work of three researchers. The research council consists of experienced researchers and representatives from various societal interest groups. The council assesses incoming applications on the basis of scientific quality and social relevance. Read more in the CSR Report on page 118. The chairman of the research council is Stefan Borg, senior lecturer at the Karolinska Institute and previously board member of Svenska Spel. Svenska Spel ANNUAL REPORT

22 DIRECTORS REPORT / STRATEGIC ORIENTATION AND OBJECTIVES Business-like approach target area To fulfil Svenska Spel s efficiency assignment, the Company proactively evaluates work processes in the organisation to gain higher efficiency and cost savings in the optimal manner. Another aim is to raise the quality of the decisionmaking base in an effort to offer management greater potential to set appropriate priorities Target fulfilment: Business-like approach The financial objectives governing the Company consist primarily of the results budget set by the Board ahead of the financial year. At the Board meeting after mid-year, a revision of the annual budget is presented in the form of a forecast extending to the end of the year. Goal Goal fulfilment SEK million Budget Forecast Outcome Net gaming revenue 9,718 9,598 9,687 Net sales from gaming operations, etc. 7,923 7,839 7,919 Employee expenses 1,026 1,016 1,011 Other operating expenses 2,041 2,009 1,968 Operating profit 4,856 4,814 4,940 Target area: Employees high motivation During 2011, the HR Staff unit improved the monitoring of employee motivation, which was previously done via annual employee surveys. Moreover, in 2011, three smaller quarterly surveys were conducted in order to provide operations with speedier linkage to changes in motivation and how work progresses in an effort to follow up and strengthen motivation. Some fifty managers have undergone the executive training course initiated in 2010, which included change leadership. Casino Cosmopol followed up its successful internal World-class Hospitality programme, with advanced development as one of the ingredients for executives and employees. At year-end 2011, the number of employees totalled 2,199 (2,263). Recalculated as the average number of employees during the year, the total was 1,774 (1,764). Distribution by gender was 57% men (56) and 43% women (44). Svenska Spel seeks variation in terms of gender and age, ethnic origin and competence, as diversity contributes to better results and, thus, a more business-like approach. Pay is determined on the basis of working tasks, competency and performance. An annual salary review is made to analyse and identify any deviations from the adopted guidelines. Appropriate action plans are drawn up if the analysis points to the need for action measures. The annual employee dialogue evaluates performance, and a development and competency plan is prepared jointly by the employee and manager. The dialogue is followed up on a six-month basis. The health level, defined as the percentage of employees who in the past 24 months had sickness absence of less than 3.5%, amounted to 70.0% (71.3). Sickness absence was 4.1% (3.8). During 2011, a health programme was conducted that gave priority to employees who competed in exercise teams. Target fulfilment: Employees ESI/Motivation index: Target of 85 on a scale of 100, result 86 (83). Leadership index: Goal of 70 on a scale of 100, result 73 (70). (Source: Svenska Spel s employee surveys 2011.) The CSR Report features additional information under the section entitled Responsibility for employees on page 112. Assessments for 2012 The key factors affecting Svenska Spel s development potential during 2012 are deemed to be: Continuing growth in the overall gaming market. Stiffer competition with new gaming companies, constellations and consolidations. International cooperation is a strong trend. Continuing development of mobile-based gaming and customer dialogue via social media. Responsible gaming and customer care are becoming increasingly crucial for the brand. Nationwide accessibility is one of Svenska Spel s major assets. The relationship with retailers and business partners shall continue to be fostered and developed, along with a focus on svenskaspel.se and mobile-based gaming. 20 Svenska Spel ANNUAL REPORT 2011