CSR Report and Annual Report 2014

In this section:

Board of Directors’ Report 2014

In its 74th year of operations, Veikkaus achieved most of the objectives that had been set to it. We were able to level off the effects of the economic stagnation and weak consumer demand through consistent, long-term, customer-oriented development and cost-efficiency. We managed to improve our result by over 2.8 percent, with the financial result for the period amounting to EUR 520.4 million.

The turnover of the financial year totalled EUR 1,959.5 million (+5.4%). The product group to show the strongest growth was that of daily games (+14.7%). This is in line with the current tendency of the gaming industry – trending increasingly towards games with high event frequency. The payout percentage in these games is higher than that of the traditional ones, which is why Veikkaus’ game margin (EUR 863.1 million, +3.3%) did not increase as much as the turnover. The game margin is calculated by subtracting the prizes paid to players from the turnover.

The shift in consumer behaviour is also reflected as a strong growth of the digital sales channel. During the period under review, the share of the electronic channels exceeded 40 percent of the total sales for the first time ever.

In addition to the conscious efforts to develop the sales channels, several product overhauls boosted Veikkaus’ sales. The revisions to Lotto and Fixed Odds Betting were successful, and many Finns already acquainted themselves with the new Neighbours game.

Changes in the operating environment

The Finnish gaming market increased by 0.4% in 2014, and the total market amounted to EUR 1,701 million in terms of the game margin. Veikkaus was the only Finnish gaming company whose game margin grew during the year under review. As a result, Veikkaus’ share of the Finnish gaming went up to 50.7% (+1.3 percentage points).

In February the Cabinet Finance Committee laid down guidelines for strengthening the national gaming monopoly system. The legal gaming companies in Finland shall be ensured a chance to develop their operations responsibly. The objective is to make sure that the game offerings can be revised and kept attractive within a constantly changing operating environment, which is becoming increasingly digital. The Cabinet Committee decided to second the gaming companies’ proposal to set up a digital monitoring team. The team is tasked with, e.g., analysing the means of restricting offerings that violate the Lotteries Act. Further, efforts are made to increase citizens’ awareness of safe and legal gaming.

In December the Cabinet Finance Committee decided to launch a project exploring the option of combining the three Finnish gaming companies – Veikkaus, RAY, and Fintoto. The project is based on the changes that digitalisation and e-gaming have brought about in the Finnish gaming industry, as well as on the requirements set by EU legislation. Gaming operations that are supervised and guided by society continue to enjoy strong support in Finland.

Almost EUR 670 million to society

Veikkaus returns EUR 517.5 million of its profit for the financial year to the Ministry of Education, to be further distributed to Finnish arts, sports, science, and youth work. The rest of the profit, almost EUR 2.9 million, will be transferred to the undistributed prizes’ fund. During the year under review, a total of EUR 23.3 million of funds from the undistributed prizes’ fund was paid to the Ministry of Education and Culture.

In addition to the return, Veikkaus paid a total of EUR 104.2 million (+4.4%) in lottery tax to the Finnish State during the year under review. Veikkaus is not VAT liable, and cannot therefore deduct VAT on its purchases of goods and services. In 2014 Veikkaus paid a total of EUR 22.5 million (+2.8%) of VAT.

Investments in digital sales and quality assurance

The expenses incurred during the year under review were in line with the projected budget. Prizes were paid out to players for a total of EUR 1,096.4 million (+7.2%). The retail commissions totalled EUR 78.0 million (–2.2%). The draw and result information expenses amounted to EUR 9.8 million (+13.0%), and the playslip and instant ticket expenses were EUR 5.8 million (+2.4%).

The product advertising expenditure totalled EUR 18.3 million (+6.5%). The increase in product advertising was based on the costs incurred by the launch of the new Neighbours game and the new Double-Up feature introduced to Lotto. The game event cooperation expenses were EUR 3.9 million (+5.5%). Veikkaus purchased services for a total of EUR 34.9 million (+7.6%). This growth can be explained by investments in the development of digital sales systems and operating models, as well as the reinforcing of quality assurance.

Over 1.6 million registered customers

Over a third of the Finnish adult population have registered as Veikkaus’ customers. The number of registered customers exceeded 1.6 million at the beginning of September. More than 98 200 Finns joined our customer loyalty programme during the year under review. The number of new registrations was boosted by the new Neighbours game for Veikkaus’ loyal customers, launched in the spring, and the development of e-gaming.

An increasing share of Veikkaus’ customers play registered, which reinforces responsibility and strengthens the customers’ consumer protection. The share of registered gaming out of Veikkaus’ total sales was up to 57.3% at the end of the year (53.7% in 2013). People can play registered at our web service veikkaus.fi and the mobile channels, as well as at the points of sale by showing their Veikkaus Cards.

Sales channels invest in usability and coverage

In accordance with its strategy, Veikkaus invests in the development of both the retail channel and the digital sales channels. During the period under review, 59.7% percent of the sales came from the retail channel, whereas 40.3% came from the digital channels.

Veikkaus.fi is Finland’s biggest consumer web store with a turnover of EUR 789.6 million (17.1%). During the year under review, our website had an average of 414,600 (+7.1%) weekly visits. We are continually developing the usability and targetability of the web store, in order to improve the digital services we offer to our customers.

The number of the points of sale was increased to 3,810 (+145 new POS). Points of sale were added to grocery store units with growing customer flows in particular. Express gaming, i.e. checkout counter gaming was extended to cover the S-Group’s Prisma hypermarkets and grocery stores. Checkout counter gaming had previously only been possible in some of the grocery stores of the retail trade companies Kesko and Lähikauppa, and at certain other points of sale to a limited degree.

Daily games and sports games on the increase

Veikkaus games are divided into three major groups on the basis of their characteristics: jackpot games, daily games, and sports games. In 2014 the daily games and sports games increased their turnover. The games to post the strongest growth were the multinational Eurojackpot and the digital games at veikkaus.fi, especially the eInstants and Live Betting.

The jackpot games include Lotto, Viking Lotto, Joker, and Eurojackpot. The turnover of this games group was EUR 777.6 million (–2.4%) in 2014. Among the jackpot games, Eurojackpot posted unprecedentedly high sales figures in the year under review. This multinational game reached a turnover of EUR 160.5 million (+50.8%). Eurojackpot’s sales and increase in the number of players were boosted by historically big jackpots that were landed in Finland: the biggest of them were EUR 57.3 million in April and EUR 61.2 million in September. Finns play Eurojackpot the most per capita. In all, players from sixteen different European countries participate in the game.

Finland’s favourite game Lotto’s turnover went down to EUR 431.1 million (–10.3%). The downward turn was centrally affected by the fact that there were no big jackpots available after the record-high jackpot (EUR 13.3 million) drawn in April. Big jackpots add considerably to what can be called random playing, thus affecting the development of the turnover significantly. In June a product reform to Lotto was introduced. Veikkaus’ customers seemed to find the new Double-Up feature attractive. Up to 65% of them, i.e. almost half a million Finns, have already played Lotto using the Double-Up option since the reform.

The daily games include Keno, the newly introduced Neighbours, the instant games, and the digital games eInstants, eBingo, Syke, and Pore. The turnover of this games group, which showed the strongest growth, went up to EUR 754.1 million (+14.7%).

Keno’s turnover, EUR 394.2 million (+2.8%), increased especially as a result of the new additional feature KingOdds. The instant games posted a turnover of EUR 138.8 million (+3.9%). The eInstants grew the most, reaching a turnover of EUR 119.3 million (+71.0%). Among the newly introduced eInstants, Quick Peck gained success, posting about a fifth of the total sales of the eInstants on its own. During the period under review, especially playing eInstants on the mobile channels showed strong growth.

The Neighbours game that was launched in May offers Veikkaus’ customers a completely new form of gaming. The game is drawn every day. First, the winner of the jackpot is drawn and after that, the rest of the prizes are distributed to the neighbours, the players living closest to the winner. After its launch, the Neighbours game kept increasing its sales every month, and by the end of the year, over 340 000 Finns had already tried it. However, this type of a new game, which is based on localisation data, needs time to develop. We expect it to continue to attract more players and increase its turnover steadily even in 2015.

The sports games generated a turnover of EUR 427.8 million (+5.9%). At the beginning of May, the most popular sports game, Fixed Odds Betting underwent the most important product reform of its entire twenty-year history. The maximum number of the daily betting objects was raised from 150 to one thousand. The increase showed as completely new betting objects and as more versatile objects in the individual game events.

By reforming Fixed Odds Betting, Veikkaus wanted to make sure that the sports events that Finns find interesting and the forms of betting that are popular around the world are comprehensively accessible to its customers. The reform was carried out listening closely to the players’ wishes, and it was received well. In all, Fixed Odds Betting was played for a total of EUR 216.6 million (+9.1%) during the year under review.

The FIFA World Cup in the summer showed as record-breaking sales in many instances. About half a million Finns placed their bets on the World Cup games, and the total World Cup game sales went up to EUR 28.2 million. The previous sales record was exceeded by ca. 40%. In addition to the revised Fixed Odds Betting, Live Betting also gained more popularity than previously among the players during the World Cup. In all, live gaming with high event frequency increased by 63.6% during the year under review, with a turnover of EUR 29.6 million.

Multibet, in turn, was revamped in July. To the customers, the most visible change was the new option to play Super Multibets, in which the odds are smaller but the prize amounts are bigger – as the customers had wished. Multibet was played for a total of EUR 67.1 million (–5.4%) during the year under review. The next game to go through a product revamp will be Veikkaus’ oldest game, Football Pools. Its turnover was EUR 63.8 million (–9.8%) during the year under review.

Research and product development

Veikkaus spent a total of EUR 9.7 million (+24.5%) on research and product development during the year under review.

Veikkaus’ product development focused on the development of digital business. Improving the web store and the games played on the web were among the central product development investments that affected the financial result of the year under review.

Sustainable growth as the responsibility objective

Veikkaus’ objective is to promote responsible gaming and attain sustainable growth. We pay special attention to high-standard consumer protection and the prevention of gambling addiction. We monitor gaming continuously from the perspective of responsibility and aim to create the best possible operating models for gaming management. The measures to promote responsible gaming cost Veikkaus a total of EUR 3.8 million during the year under review.

The company’s core responsibility tool RaVa was updated for its contents and technology at the beginning of the year. At the same time, Veikkaus’ internal operating model and the responsibilities for the ethical evaluation were brought up to date. Using the RaVa tool in the product development processes helps us to ensure that the game products and services ending up on the market are ethically sound and as responsible as possible.

In August and September Veikkaus carried out a prominent campaign about the dangers of gambling addiction. The aim was to start debate about responsible gaming and the disadvantages of gaming, as well as to encourage people to spot possible gambling problems and seek help. The campaign, which covered many channels, reached a total of over a million Finns. Most of those who answered our customer surveys felt it was good that Veikkaus brought up the drawbacks of gaming openly and tried to prevent problems.

Respect for the environment is a significant part of Veikkaus’ responsibility principles. In its environmental objective set in 2009, the company was committed to reducing its carbon dioxide emissions by 35% by the end of 2013. According to the results received during the year under review, Veikkaus had exceeded its environmental objective, reducing its emissions by 47% in the period between 2009 and 2013. The objective activated Veikkaus’ organisation to introduce many improvements.

An extensive stakeholder survey, carried out in August, drew over 4,700 participants. The majority of the respondents were Veikkaus’ customers (89%). The survey aimed at analysing how Veikkaus could operate even more responsibly. As a result, we received over 3,000 ideas related to responsibility. The themes to attract most comments were the responsibility of advertising, prize payout, and game restrictions. The transparency of profit distribution, and support to the underprivileged, children, and youngsters, were cited as the most important things. The respondents gave Veikkaus a good responsibility grade 4.07 (on a scale from 1 to 5).

Strategy and operations planning updated

Veikkaus’ strategy was updated in the spring. The portfolios of several separate strategies were combined into one and, at the same time, obsolete parts were updated. In the same connection, operations planning was also made more simple and turned into a continuous strategic process.

For the period between 2014 and 2017, ten benchmarks with a strong link to the strategy were set, which are used for the quarterly monitoring of how the strategy is implemented. A more detailed description of the company strategy, monitoring, and the benchmarks is provided in the Strategy section of the CSR Report.

Personnel

At the end of the year under review, Veikkaus had 332 employees (-1), 88% of whom were salaried full-time employees and 12% of whom worked part-time. The majority of the personnel (95%) had permanent employment contracts. Women represented 51% and men 49% of the personnel. More detailed personnel figures and comparison figures from previous years are presented in the Personnel section of the CSR Report.

In 2014 20 new employees were hired and 21 employees left the company. The average incoming turnover was 6.0% during the year under review (2013: 9.9%) and departing turnover 6.3% (2013: 6.3%).

Veikkaus supports personnel wellbeing in many ways. Employees are supported by, e.g., comprehensive occupational healthcare, industrial safety, and activities to promote personnel's working capacity. Veikkaus also employs an early intervention system.

According to a personnel survey carried out in early autumn, Veikkaus’ employees were mainly satisfied with their workplace (4.08 on a scale of 1 to 5). The survey showed a positive trend (change +0.15 over the year 2013).
The functionality of Veikkaus’ organisation is evaluated annually from the perspective of how Veikkaus’ dream (vision) and strategy have been realised, as well as through the personnel survey and three benchmarks – the result, the future, and the ambiance.

Veikkaus’ compensation schedule covers the entire personnel, and its different forms are closely connected to the achievement of the company’s strategic goals.

In 2014 Veikkaus’ personnel expenses totalled EUR 27.9 million (+4.8%). Salaries accounted for EUR 22.1 million (+4.2%), whereas the remaining EUR 5.8 million (+7.0%) covered pension expenses and indirect personnel costs. The increase in salary expenses was due to, e.g., additional resourcing to the reliability of the systems and digital sales, as well as adopting longer opening hours.

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 internal control. Veikkaus estimates that the most significant risks affecting the achievement of the objectives in 2015 include the development of consumer demand, and the effects of the regulation of the gaming system. A more detailed review of control and risk management is available in the Corporate Governance Statement 2014.

Future prospects

Veikkaus is committed to reinforcing responsible operations in different sectors, to continuous and long-term development, and cost-efficiency. However, the changes in the overall economic situation and regulation continue to make the company’s operations subject to insecurity. The illegal gaming operators on the Internet that fall outside of the scope of official supervision also have a significant impact on the future development. 

We believe that long-term development and courage to reform will guarantee a steady return to the benefit of all Finns even in the future. We also believe that the year 2015 will yield an even better result than that of 2014. 

Veikkaus' projected profit in the 2015 State Budget is EUR 541.1 million, of which EUR 515.6 million have been earmarked for return to the State. The company will also return EUR 25.5 million at the minimum in undistributed prize funds from previous years to the Ministry of Education and Culture. 

Board of Directors' proposal for the distribution of profits

Veikkaus' Board of Directors proposes that EUR 517,518,647.68 of the company's total profit of EUR 520,368,647.68 for the financial year 2014 be returned to the Ministry of Education and Culture, and that EUR 2,850,000.00 be transferred to the Undistributed Prizes Fund.