CSR report and Annual report 2013

In this section:

Board of Directors' Report 2013

Despite the challenging business environment, performance in 2013 was by and large consistent with targets. Veikkaus took steps to make its services even more reliable and responsible, and to generate long-term value for Finnish society. Financial performance and cost-efficiency improved from the previous year, even if not all of Veikkaus' income targets were met. Veikkaus recorded a turnover of EUR 1,858.4 million for the period under review (+4.6%), with electronic channels accounting for EUR 674.3 million (36.3%) of the turnover. Profit for the year amounted to EUR 506.3 million (+1.1%).

Special attention was paid to operational efficiency improvement and cost savings. Veikkaus completed an organisational overhaul at the beginning of 2013. The changes took effect as planned and, during the year, the new organisation proved highly effective. Active cooperation with partners and beneficiaries continued and was further developed.

Business environment

In 2013, the European Commission gave its full approval to the Finnish gaming system by concluding that Finnish legislation meets the requirements of EU law. At the same time, the Commission ended its legal proceedings against Finland, which had been pending for six years. This sent a positive signal to the beneficiaries of Veikkaus. The economic recession continued to have an impact on Veikkaus' business environment. With the economic gloom persisting throughout the year, the expected upswing did not materialise. Weak consumer demand in the trade sector affected sales, especially in retail channels. To counter this trend, the number of sales points was increased and the available offering was expanded.

The gaming markets in Finland grew by 1.6 per cent in 2013. Measured in terms of the gaming margin, the total market was valued at EUR 1,693 million. The gaming margin is calculated by deducting prizes paid out to players from turnover. The fastest growth was seen in online gaming (+13.6%). Veikkaus' share of the Finnish gaming sector was 49.4 per cent (-0.1 percentage points).

Strong growth in the digital sales channel reflects changes in consumer behaviour. This is a global phenomenon and affects the entire gaming industry.

More than 1.5 million registered customers

For the first time, digital sales accounted for more than a third of Veikkaus' total turnover. The turnover of the mobile channel, overhauled in early 2013, exceeded 10 per cent of total sales of the digital channel, as outlined in Veikkaus' strategy.

More than one third of the Finnish adult population are registered customers of Veikkaus. The number of registered players exceeded 1.5 million in August. In fact, Veikkaus online games represent the largest consumer online trade segment in Finland in terms of turnover. An increasingly large number of players choose to register, which contributes to responsible gaming and improves customers' consumer protection. Customers can sign in as registered players via the veikkaus.fi online service and mobile channel, and at sales points by using their Veikkaus card.

The strongest growth was seen in games that are ideally suited to the digital environment, such as electronic lotteries (eInstant tickets) and Live betting. Conversely, demand for traditional once-a-week jackpot games fell, with the exception of Eurojackpot.

The income per capita generated for society by Veikkaus is the largest in Europe. Veikkaus returns its entire result of EUR 506.3 million and a further EUR 11.2 million in undistributed prize funds to the Ministry of Education and Culture, for distribution to Finnish arts, sports, science and youth work. During the financial year, a total of EUR 14.4 million in undistributed prize funds from previous years was paid to the Ministry of Education and Culture. In addition, EUR 2.9 million of undistributed prize funds were returned to the Ministry of Education and Culture in 2013 as laid down in the second supplementary State budget of 2012.

As well as this return payment, Veikkaus paid a total of EUR 99.8 million (+1.1%) in lottery tax to the Finnish State. Veikkaus is not VAT liable and cannot therefore deduct VAT from its purchases of goods and services. Veikkaus paid a total of EUR 21.9 million (+1.9%) in VAT.

During the year under review, a total of EUR 1,022.5 million (+7.6%) was paid out as prizes to players.

Retail commissions in 2013 amounted to EUR 79.8 million (–1.7%), costs incurred from draws and the result information service to EUR 8.7 million (–21.1%) and playslip and ticket expenses to EUR 5.7 million (-18.5%). Product advertising expenditure totalled EUR 17.2 million (+7.1%). Costs incurred from game event cooperation amounted to EUR 3.7 million (–7.2%). The decision to invest in electronic business translated into higher personnel costs and other costs.

The number of points of sale grew from 3,400 to more than 3,600 in a single year. Regardless of their place of residence, this gives all Finns an equal opportunity to play games offered by Veikkaus.

Growth in daily games and sports games

During the year under review, Veikkaus games were divided into three categories based on their characteristics: jackpot games, daily games and sports games. Daily games and sports games increased their turnover in 2013, with the strongest growth recorded in the digital games offered online at veikkaus.fi, particularly eInstant tickets and Live betting.

Veikkaus offers all of its customers consistent gaming terms and conditions as well as an extensive domestic offering, and works in close cooperation with international partners to safeguard the integrity of sports. The growing popularity of sports games, particularly Fixed Odds Betting, emphasises the importance of this work.

Jackpot games

Jackpot games include Lotto, Viking Lotto, Jokeri and Eurojackpot. This group generated a turnover of EUR 797.0 million (–1.2%) in 2013. The turnover from Lotto was EUR 480.6 million (–8.6%). In July–August, an additional Lotto draw was organised, in other words an additional prize of EUR 200,000 was drawn every week in addition to the regular jackpot. During the year under review, the jackpots accumulated were smaller than a year earlier.

Turnover from the Eurojackpot, which had been available for a full calendar year, totalled EUR 106.4 million (+76.2%). Turnover from Jokeri was EUR 107.8 million (–1.3%).

Viking Lotto generated a turnover of EUR 102.1 million (–8.0%). Viking Lotto was revised in January to make the price per row and prize categories consistent for all players. This revision also enabled faster accumulation of the Onnennumero (lucky number) jackpot and the payment of special national prizes to Finnish players. Upgraded, easier to use websites for Lotto and Viking Lotto were introduced in July.

Daily games

Daily games include Keno, scratch tickets and digital arcade games. Daily games generated a turnover of EUR 657.4 million (+10.1%) Turnover from Keno was EUR 383.4 million (+4.5%); this growth could be largely attributed to the new feature, Kuningaskeno, which received a positive welcome from players. The new feature allows players to pay an additional fee within the amount of the stake and at least double their payout ratio. 

Turnover from scratch tickets amounted to EUR 133.5 million (+3.6%). This marked the best turnover for scratch tickets since 2010, which could be attributed to product revisions and point of sale network development. The strongest growth was seen in eInstant tickets with a turnover of EUR 69.8 million (+51.3%). Following the introduction of two new arcades in September, the turnover from eBingo totalled EUR 65.4 million (+23.9%). Turnover from Syke amounted to EUR 4.1 million (+31.8%) and turnover from the new Pore introduced in September totalled EUR 1.2 million.

Sports games

Sports games sales were at an all-time high, even in the absence of any major sports competitions during the year or actual product overhauls that would have bolstered Result and Winner Odds Betting. Turnover from sports games amounted to EUR 403.9 million (+8.5%). Following an increase in the number of events, turnover from betting games rose to EUR 314.6 million (+8.3%) while turnover from pools games remained at EUR 71.2 million (–0.3%).

Turnover from Fixed Odds Betting, the largest betting game and Veikkaus' third largest game overall, was EUR 198.6 million (+14.2%). To support turnover growth, the optimisation of events for Finnish players continued. Turnover from Multibet totalled EUR 71.0 million (-0.1%), from Result Odds Betting EUR 35.3 million (–0.6%) and from Winner Odds Betting EUR 9.7 million (–3.3%). Turnover from Live Winner Odds Betting was EUR 18.1 million (+74.9%). Football Pools, the longest-standing pools game product offered by Veikkaus, recorded a turnover of EUR 70.7 million (+1.6%).

Creating a strong earnings trend responsibly and consistently

Veikkaus generates broad-ranging value for Finnish society by operating games reliably and responsibly. We have a particular focus on ensuring a high level of consumer protection and on preventing gaming addiction. We keep a close eye on gaming developments from the perspective of responsibility and make every effort to create the best possible practices and procedures to enable gaming control. In the year under review, Veikkaus updated its social responsibility principles in close cooperation with company personnel. The expenses incurred from measures promoting responsible gaming totalled EUR 4.0 million (+1.0%) in 2013. 

Veikkaus draws on its customer information and knowledge in its operations. The number of registered customers rose to 1,538,000 (+5.1%). Since the beginning of 2013, new customers are required to use a strong authentication procedure for registration (TUPAS), which contributes to more reliable and responsible gaming. Online gaming enables customers to use various tools, such as voluntary gaming limitations, in support of responsible gaming. Other means of promoting responsible gaming in the retail channel included publishing a guidebook on the principles of responsible gaming, which was delivered to all points of sale.

Dialogue with customers and game sales clerks has continued to expand in the social media. The number of Veikkaus' Facebook group followers exceeded 160,000 and the Veikkaus Vedot group for sports betting games attracted more than 34,000 followers in its first year.

During the year, registered gaming accounted for 53.7% (+3.6%) of our total sales, and 88.6% (–0.4%) of those registered signed in to play. By making use of customer information, we can develop our products more responsibly. For our customers, registration provides an opportunity to impose voluntary limitations on their gaming. It also strengthens consumer protection.

The Finnish gaming system meets the objective of serving a large base of customers who play with moderate stakes. For most Finns, gaming represents a harmless form of entertainment. In recent years, we have seen an increasingly large number of Finns take part in gaming, but at the same time the number of gaming addicts has remained unaltered or has even decreased (a population survey conducted by the Ministry of Social Affairs and Health in 2011).

Finnish gaming legislation compliant with EU regulations

In November 2013, the Commission concluded that the Finnish legislation establishing an exclusive right to organise gaming services meets the requirements of EU law, and is applied systematically and consistently. The Commission also closed the legal proceedings initiated earlier against Finland. This decision demonstrates strong support for the Finnish monopoly system.

In 2006, the European Commission issued a formal notice to Finland, questioning the legitimacy of the Finnish gaming system. In June, the process continued with a reasoned opinion issued by the Commission. The next occasion on which the Commission expressed an opinion on the Finnish system was in a letter to Finland in 2010.

Finland amended its lottery legislation in 2010 and 2012, as a result of which a so-called legal monopoly was created, in other words an exclusive right under law to arrange gaming activities in Finland was granted to Veikkaus, Fintoto and the Finnish Slot Machine Association.

In its plenary session in September 2013, the European Parliament adopted the resolution on online gambling by an overwhelming majority of 572–79. In its resolution, the Parliament supported national decision-making in gaming. The Parliament resolution underlined the sustainable contribution and specific financial role played by lotteries, and the importance of these remaining within national decision-making processes. The Parliament also emphasised the importance of action taken by member states to prevent crime associated with unsupervised gaming and to strengthen consumer protection. The resolution further underlines the significance to society of gaming revenue.

Other major events in 2013

On 14 May 2013, the Finnish Communications Regulatory Authority FICORA issued a decision forbidding the Finnish Broadcasting Company (YLE) from broadcasting any lottery programmes on its television channels. The decision is based on the Act on Yleisradio Oy, which forbids YLE from broadcasting any advertising and sponsored programmes. Following the decision, the broadcasting of Lotto, Viking Lotto, Eurojackpot and Jokeri lottery programmes was assumed by the MTV3 channel at the beginning of October. This channel switch affects nearly 700 Veikkaus lottery programmes annually.

In September 2013, the opening hours of the gaming system available at veikkaus.fi were extended and the service is now available around the clock. However, money transfer to the gaming account is not available between midnight and 6:00 a.m., in order to support responsible gaming and to combat any harm caused by gaming.

Through Eurojackpot, the two largest gaming prizes in the country's history were won in Finland: EUR 29.5 million in January and EUR 21.5 million in September.

In 2013, Veikkaus participated in several major national and international events, such as the Suomi Areena discussion forum. In September, Veikkaus hosted a joint World Lottery Association and European Lotteries Internet gaming seminar in Helsinki. The event attracted gaming specialists from around the world and showcased several aspects of Finnish gaming competence. 

Veikkaus ranked high in a survey measuring the trust and reputation of companies (T-Media). Of the surveyed companies, Veikkaus ranked second in the category of financial profitability and stability, and fourth in the category of responsibility. Veikkaus' reputation strongly correlates with the support the company receives from consumers.

Research and product development

Veikkaus spent a total of EUR 7.8 million (+6.9%) on research and development in 2013.

Product development efforts focused on digital business development. Key R&D investments affecting the result for the period involved improvements to products available through online stores, over mobile user interfaces and on the Internet.

Personnel

At the end of the year under review, Veikkaus employed 333 people (+13), 89% of whom were salaried full-time employees and 11% of whom worked part-time. The majority of personnel (95%) were employed under permanent contracts. Women represented 52% and men 48% of personnel (more detailed personnel figures and comparison figures are presented in the Personnel section of the social responsibility report).

During the year, 33 new employees were hired, and 20 left the company. The average turnover rate was 9.9% for incoming employees (2012:5.9%) and 6.0% for departing employees (2012:7.2%).

Veikkaus supports employee wellbeing in a number of ways, such as by providing comprehensive occupational healthcare, industrial health and safety, and activities to promote employee working capacity. An early intervention system is also in place to promote employee wellbeing. According to the employee survey conducted in August-September, overall employee satisfaction had improved from the previous year.

Personnel expenses in 2013 totalled EUR 26.6 million (+5.9%). Salaries accounted for EUR 21.2 million (+8.4%), while the remaining EUR 5.4 million (–2.8%) covered statutory personnel insurances, voluntary pension expenses and indirect personnel costs. Factors contributing to the increase in salary costs included the insourcing of external services. Veikkaus' compensation scheme covers all personnel and is closely tied to the achievement of the company's strategic targets.

Control and risk management

In accordance with the Lotteries Act (1047/2001), Veikkaus' lottery, pools and betting operations are supervised by the National Police Board working under the Ministry of the Interior.

Risk management at Veikkaus is part of the company's internal control. Veikkaus estimates that the most significant risks affecting the achievement of targets in 2014 include declining consumer demand, lack of growth in the gaming market, and factors associated with gaming legislation policies. (A more detailed review of control and risk management is available in the Corporate Governance Statement 2013.)

Future prospects

We are committed to pursuing continued operational development and cost-efficiency, and seek enhanced responsibility in our various business sectors. Although Veikkaus is one of the most efficient gaming companies by international comparisons, changes in our business and regulatory environments and in economic conditions continue to present a challenge to our operations. One of the factors strongly affecting our future is the development of illegal gaming provided over the Internet and not supervised or controlled by any authorities.

We believe that, based on our determined work, skilled personnel and ability to renew our gaming offering, we will be able to return prize funds to our extensive beneficiary network in the future, despite the changing business environment. We estimate that our profit in 2014 will improve from 2013.

Veikkaus' projected profit in the 2014 State Budget is EUR 540.8 million, of which EUR 517.5 million have been earmarked for return to the State. The company will also return a minimum of EUR 23.3 million in undistributed prize funds from previous years.

The Board of Directors' proposal for the distribution of profits

Veikkaus' Board of Directors proposes that the company's profit for the financial year 2013 of EUR 506,346,857.36 be returned in full to the Ministry of Education and Culture.