Board of Director’s Annual Report

Norsk Tipping is a publicly owned limited company based in Hamar in Norway. The company operates gaming activities pursuant to the Norwegian Gaming Act. Norsk Tipping is owned by the state so that it can offer gaming activities safely and subject to governmental control with a view to preventing any negative consequences of the gaming activities, while also ensuring that the surplus funds from the games go to good causes. The company is owned by the Norwegian Ministry of Culture and its terms of reference are set out in guidelines for the corporate governance of companies, etc. that report to the Ministry of Culture. In line with the Ministry’s requirements, the company complies with those parts of the Norwegian Code of Practice for Corporate Governance issued by the Norwegian Corporate Governance Board (NCGB) that are relevant to the company.

Norsk Tipping reports on the economic, environmental, and social impact of its activities in line with the global standards for sustainability reporting issued by the Global Reporting Initiative (GRI). The Annual and Social Report for 2019 has been prepared in line with the GRI Standards (core option). The company’s social responsibility reporting has been incorporated throughout this report rather than published as a standalone document.

Norsk Tipping’s social mission is to offer a responsible and attractive gaming environment in which the surplus funds that are generated flow back to society. As a company set up to achieve sectoral policy objectives, Norsk Tipping must do so in the most effective manner possible. Maximising the amount of surplus funds will never be Norsk Tipping’s primary purpose or the reason behind the state’s ownership of the company. The government’s stated hope is that Norsk Tipping will primarily be an actor that helps to move the gaming market in a responsible sociopolitical direction. There is a broad political consensus that gaming should be regulated in order to prevent negative gaming behaviours. Well-regulated governmental control via Norsk Tipping also guarantees that the surplus funds from gaming benefit society as a whole.

In the meantime, despite this, the company delivered a better financial performance than in 2018. The company offers attractive games to more than two million customers and generated surplus funds of NOK 5.676 billion that will flow back to society.

The monopoly model is constantly being challenged by unregulated actors who want a part of the regulated Norwegian gaming market. These actors have set up their own industry organisation for the purpose of promoting the introduction of a licensing system in the Norwegian market. Three lawsuits were brought against the government challenging the Norwegian system in 2019 alone. All three were won by the government. The Norwegian gaming market is supervised by the Norwegian Gaming and Foundation Authority, and this work includes measures aimed at limiting the prevalence of illegal actors. The prohibition against transferring payments to and from foreign actors without a permit in Norway is an important tool in this work. Further restrictions in the regulations that govern the prohibition were approved in 2019. These came into effect on 1 January 2020 and give the Norwegian Gaming and Foundation Authority further powers to enforce the prohibition.

Norsk Tipping wants to be the whole of Norway’s favourite gaming company. Norsk Tipping wants to be a visible actor and to communicate facts about the gaming market and the importance of the social mission it has been given.

More than two million unique customers played one or more of Norsk Tipping’s games in 2019, and 28 per cent of these were under 40. This proves that the company is delivering on its ambition to thrill a new generation. To do this, the company needs to be constantly developing its portfolio of games so that it remains relevant for all age groups over 18. One of the things the company did in 2019 was to establish a collaboration with Good Games AS, the company behind e-sports events in Norway via the Telia League. Norsk Tipping has launched e-sports as betting objects on Oddsen, and this category is expected to expand in the coming years.

Norsk Tipping’s total operating revenue increased from NOK 38 billion in 2018 to NOK 40 billion in 2019. Because of the different prizes and the high degree to which prizes are reused as stakes in some of the company’s games, the development of gross gaming revenue (gaming revenue less prizes) is considered a better measure of the scale of activity. Gross gaming revenue amounted to NOK 8.2 billion, which is on a par with 2018.

Even though gross gaming revenue was on a par with 2018, the distribution between the games in the portfolio changed. Lotteries developed stably and remain by far the largest game category. This category accounts for 65 per cent of gross gaming revenue. Lotteries are associated with a lower risk of problem gaming than the other categories and having a strong lottery portfolio is therefore important in achieving the responsible gaming objectives. Lotteries are also popular among players under 40 and more than 90 per cent of them played lotteries in 2019.
Online gaming is the category that is growing the most. It grew by NOK 146 million from 2018 to 2019, which is 18 per cent. There is a lot of competition from unregulated actors in this category. The growth in Norsk Tipping’s revenue proves that the company can channel customers to a responsible gaming environment.
The government has put forward draft legislation that aims to curtail the ability of unregulated companies to market their games in Norway. This will strengthen Norwegian regulation in the area and help to channel the desire to gamble towards legal games.

In 2019, the revenue from traditional games (lotteries and sports betting) via digital channels was NOK 9.4 billion, compared with NOK 8.4 billion in 2018. This represents growth of 11 per cent. The growth in revenue via digital channels is increasing the company’s cost-effectiveness by reducing sales commissions but is also increasing the demands on the digital solutions’ capacity and functionality. Advances in digital solutions will therefore remain a priority area for the company. In 2019, new technical guidelines were issued for apps in Apple’s App Store that mean the company must develop a completely new app for this platform.

The Grassroots Share gives players an opportunity to influence the distribution of Norsk Tipping’s surplus funds. In 2019, players distributed NOK 697 million to clubs and associations through this scheme, compared with NOK 648 million in 2018. The largest category of recipients was sports-related purposes, which received 54 per cent. The arts and culture were in second place with 10 per cent.

The company relies on well-functioning operating systems to register sales, carry out draws and pay out prizes. The company has good systems for this and there were no interruptions to operations of significance in 2019. Stable operations provide security for both the company and its customers, and are important for maintaining confidence in Norsk Tipping and its good name.

The most important part of Norsk Tipping’s social mission is to prevent any negative consequences of the gaming activities, and its ambition is to be a world leader in responsible gaming. The company is, therefore, working with several research institutions to increase knowledge in this area and the results from the research are used as a basis for refining the company’s responsibility measures.In 2019, Norsk Tipping further boosted efforts to prevent gambling addiction through three new measures:

1. New, more secure login functionality was introduced for the company’s gaming terminals. Players must enter a one-time password sent to their specified phone number in order to play. This measure helps to prevent players from circumventing loss limits by playing under a false identity by using someone else’s player card.
2. New gaming account information provides players with a better overview of how much money they have spent on games and how much they have won. Easily available information enables people to make better informed choices about their own gaming habits.
3. Larger prizes are now excluded from calculations of players’ net spending.The intention is to prevent winning players from spending all of their winnings and developing problem gaming behaviours due to having won.

The three new measures are additional to the existing framework, where the company has had mandatory loss limits across all games since 2016.All players who play the high-risk games must also set their own maximum loss limits. This raises players’ awareness and improves their ability to control their gaming behaviour.Another important measure is ‘the other type of call from Hamar’.These are follow-up calls received by players deemed to be at risk because of their gaming behaviour or high losses. During the call, the customer is informed about how much they have spent on gaming in the last year and possible measures for curtailing their gaming. Specific measures are agreed if the customer wants to reduce their gaming. If it becomes clear from the call that the customer has a gambling problem, he or she will be given information about services offering help and treatment.

In December, Norsk Tipping was recertified in accordance with European Lotteries’ European Responsible Gaming Standards.The company became the first ever to achieve a top score in every area of the certification process. This is important recognition of the work it is doing in this area.

The Board and owner are heavily focused on achieving sectoral policy objectives as cost effectively as possible. The surplus funds for good causes are a consequence of the regulation, but not the main objective. This means that the aim of the company is not to maximise revenue and that assessments concerning responsible gaming weigh heavily in all decisions concerning the company’s development. Given this framework, the company nonetheless aims to ensure that the activities are run as cost effectively as possible.

The surplus funds for good causes, measured as a percentage of gross gaming revenue, are an important key figure for the company’s cost performance. In 2019, the figure was 69.6 per cent of gross gaming revenue. The corresponding figure for 2018 was 67.8 per cent. The trend over time is that a steadily increasing share of gross gaming revenue is being distributed to good causes. Total costs were reduced by 4 per cent year-on-year in 2019, measured in nominal NOK. The main reason for the improved cost-efficiency is that the company has succeeded in enabling those customers who wish to play games via digital channels to do so thanks to systematic efforts over many years. These channels generate less commission than traditional physical channels. Gaming commissions were NOK 86 million lower year-on-year in 2019.

Other operating expenses were reduced by NOK 64 million from 2018. Of this, NOK 38 million was attributable to lower costs in the new visual identity project than last year. The underlying cost reduction was NOK 26 million. This is a reduction of 1.8 per cent.

At the end of 2019, the company’s total balance sheet was NOK 5.9 billion and its equity ratio 8.5 per cent. The corresponding figures for 2018 were NOK 5.7 billion and 6.4 per cent. The company’s distributable equity amounted to NOK 346 million as at 31 December 2019.

The low equity ratio must be seen in the context of the company’s special situation in which the year’s activities accumulate surplus funds that are distributed the following year. On the date the surplus funds are distributed to recipients, equity is strengthened as a result of the activity that took place in the year after those funds were generated.

In the short term, there is relatively little uncertainty linked to the company’s future financial situation. Norsk Tipping’s status as a ‘statutory company’ with a predictable regulatory framework means that it has adequate equity and a satisfactory financial position in spite of its low equity ratio figure.

Gaming revenue is the company’s most important source of cash flow. After deductions for prizes, gaming revenue was on a par with 2018. In 2019, net cash flow from operating activities amounted to NOK 5.9 billion, compared with NOK 5.7 billion in 2018. The company’s cash holdings were NOK 350 million higher year-on-year.

Norsk Tipping conducts some transactions, and holds some reserves, in foreign currencies and is therefore exposed to a certain degree of financial risk. The largest transactions are linked to prizes in games operated in partnership with publicly owned gaming companies in other countries. The company is also exposed to credit risk related to settlements with its sales agents. Settlements for the preceding week’s sales are paid during the succeeding week by means of automatic deductions. Guarantee and deposit arrangements have been established that considerably reduce this credit risk. The company continuously monitors the status of its outstanding receivables, and measures designed to reduce losses in the event of non-payment are implemented immediately. The company incurred no significant losses linked to receivables from sales agents in 2019.

The liquidity situation is satisfactory since the company generates significant distributable funds by means of its day-to-day operations. At the end of the year, the company had a positive balance of cash and cash equivalents amounting to NOK 5.3 billion, most of which was deposited as sight deposits with the Treasury in Norges Bank. The company believes that the level of uncertainty linked to its financial status next year is relatively low.

In the opinion of the Board, the annual accounts and annual report provide a true and fair picture of the company’s financial position and activities at the end of the year.

The annual accounts were prepared on the basis of an assumption that the company is a going concern. The Board is not aware of any significant factors that have emerged or events that have occurred during the accounting year, or subsequent to the end of the accounting year, that impact the going concern assumption or the annual accounts.

Norsk Tipping does not carry out its own research and development activities as defined in the Norwegian Accounting Act. However, the company continues to involve itself in development activities in several areas linked to innovation and development in connection with its products, systems, and services. At any one time, it is estimated that more than 30 per cent of the company’s employees are working on development projects.

The implementation of a new visual identity and new company logo was completed in the spring of 2019. This ensures a uniform expression, both digitally and at sales agents, and provides the company with a good platform for communicating with customers via a modern and recognisable expression.

The development of a common, consolidated solution for digital channels continued in 2019. In the future, a common code base for all our digital platforms will enable the company to free up resources for the further development and simplification of both operations and refinements.

The company continued to work with other European gaming companies on operations and development in a number of initiatives. The aim of these collaborations is to develop new and attractive digital games that the companies can launch in their respective markets.

Norsk Tipping is by far Norway’s largest gaming company, with an estimated share of 65 per cent of the entire gaming market. There is some uncertainty surrounding the scale of unregulated gaming revenue, but in 2018 the Norwegian Gaming and Foundation Authority estimated that around 250,000 Norwegians used unregulated actors with a combined spend of between NOK 1.8 billion and NOK 2.2 billion. Even though Norsk Tipping enjoys a solid position overall, the unregulated market represents significant competition, particularly in the online gaming and live betting segments.

The company must be able to respond to the competition from unregulated actors in order for Norsk Tipping to fulfil its objective of channelling Norwegians’ desire to gamble into a responsible, regulated gaming environment. The company has therefore established a new platform for online gaming that improves the gaming options it offers in this area. In 2020, the company will also launch a new and improved sports betting solution, which will strengthen the company’s offering in this category.

Further developing the company’s products and solutions is an important means of complying with the company’s social mission of providing an attractive and responsible gaming environment in which the surplus funds go to good causes. The development will take place both under the direction of the company and in collaboration with other gaming companies in the regulated market who are facing similar challenges.

Since the Board originally presented the annual accounts on 5 March 2020, the company’s future prospects have been negatively impacted by the coronavirus outbreak in Norway. There is a great deal of uncertainty about the short-term outlook going forward, and the company believes that it is likely it will see falls in sales, gross gaming revenue and the annual result in 2020. The Board wishes to contribute to stability through the payments of surplus funds to good causes. For this reason, the Board’s proposed distribution of the annual result has been changed such that the transfer to Tippenøkkelen has been maintained at the same level as in previous years. Excess funds are transferred to other equity. This means the company will be able to compensate for a lower result in 2020 by transferring funds from other equity and thus counteract the expected downturn.

As of 27 March, the company has taken the measures necessary to secure operations in the short term. Every employee who is able to will work from home, and infection protection measures have been implemented for technical operating personnel. So far, no furloughs have been imposed, although this is under continuous assessment.

Most of the company’s games are operating normally despite the virus outbreak, with some exceptions. Cancelled sports events mean there are limited opportunities for sports betting. The football pool game Tipping has been stopped for the first time since it started in 1948 and the range of objects on Oddsen has been significantly reduced. The terminal games, Multix and Belago, have been stopped for infection protection reasons since using the terminals could contribute to the spread of infection among the general public. How big an impact the current circumstances will have depends on how long this extraordinary situation lasts. Average gross gaming revenue for sports betting and terminal games in 2019 was NOK 18 million and NOK 10 million per week, respectively.

The company will also be impacted by the fact that many sales agents are experiencing lower footfall. Meanwhile, the company has good solutions for selling games via digital channels meaning that the games will remain available to customers.

Norsk Tipping believes that the coronavirus outbreak in 2020 has no effect on the valuations of the company’s assets or other items in the accounts for 2019, and that the company is well-equipped to get through this situation.

Norsk Tipping wishes to contribute towards the development of a positive and sustainable society. The company’s social responsibility work is based on its social responsibility policy and associated guidelines, and focuses on how the company assesses both risks and opportunities in its work on contributing to long-term value creation.
In line with the government’s expectations in the Report to the Storting on ownership (White paper no. 8 (2019 –2020) The State’s Direct Ownership of Companies – Sustainable Value Creation), Norsk Tipping reports on important matters related to the company’s activities.

Norsk Tipping is committed to fulfilling its social responsibility by managing the company’s social and climate footprint, at the same time as the company, which is a major, high-profile social actor, also wants to assume greater responsibility and produce ripple effects in and for society. Norsk Tipping supports the UN Sustainable Development Goals and has chosen to prioritise those goals where the company can have the greatest impact. The goals the company has chosen include goals 3 (good health and well-being), 5 (gender equality) and 17 (partnerships for the goals).

Responsible gaming is the core concept that drives the company’s work in relation to social responsibility, and this also includes focusing on business ethics, anti-corruption measures, human rights, and the environment. As a major partner of Norwegian sports and culture, Norsk Tipping believes it is natural for it to focus on the theme of equal opportunities in voluntary work. Previously started sports-related initiatives were continued in 2019. A one-year development programme for female filmmakers, which was arranged together with Talent Norge and the Norwegian Film Institute, produced very good results. At the end of 2019, a new collaboration project was therefore started with Talent Norge and the Norwegian National Opera & Ballet aimed at helping female choreographers.

A multidisciplinary project was started in 2019 to establish processes intended to address the company’s social responsibility in procurements. The objective is to address social considerations throughout the procurement process, from tender announcement and the specification of requirements to supplier follow-up. The follow-up of suppliers after agreements have been signed is based on risk assessments in which social considerations such as the climate and environment, human rights and employee rights are included as important elements.

Norsk Tipping is an inclusive workplace company and wants to ensure equal opportunities in the company. Improving the gender balance among the company’s employees and managers is a priority area. 43 per cent of the company’s senior management team are women. The overall proportion of women in management positions is 33 per cent, while 37 per cent of the 423 permanent employees are women. The focus on this area will be redoubled in the coming period with analyses, objective follow-up, and the implementation of relevant measures.

The working environment measures that are implemented must be goal-oriented and contribute to realising the strategy plan for the period up to 2020 and the ongoing plans. The company is also aiming to improve operational efficiency and adaptability in the organisation.

The sick leave rate for 2019 was 4.3 per cent. This is an increase from 3.9 per cent in 2018. While the level is not viewed as worrying, the trend in the last two years has been negative. One LTI injury was recorded in 2019.

The Norwegian Labour Inspection Authority inspected the company’s enforcement of the working hours rules in 2019.
Some breaches of the rules were identified in periods surrounding the Winter Olympics and the football World Cup. The company has made adjustments to its staffing planning to avoid future non-conformities.

The single most important factor that impacts on the external environment is the production and distribution of paper-based materials and their distribution to the company’s sales agents. Our increased use of digital channels means that the quantity of paper play slips and other materials linked to our sales agents’ activities is gradually falling. The company continuously monitors the quantity of such materials it sends to individual sales agents with a view to reducing superfluous materials. Digital screens are increasingly replacing printed materials as a means of providing information at our sales agents’ outlets. The company wants to use eco-friendly alternatives wherever they are available.

The company’s overarching goal is to cut its climate emissions every year. Norsk Tipping’s CO2 emissions for 2019 were estimated to be 914 tonnes. This is a year-on-year reduction of 10 per cent. These emissions primarily stem from electricity used on company premises and for IT systems, as well as from business travel by company employees. The company’s premises are connected to a district heating system that primarily sources its energy from bioenergy and recovered heat. This helps to reduce CO2 emissions from heating. Norsk Tipping is continuing to reduce its energy consumption and make its energy use more efficient.

Norsk Tipping is Eco-Lighthouse certified. This is an accredited system for certification and environmental management. Through this certification, Norsk Tipping commits to systematically improving its environmental performance in the following areas: the working environment, waste management, energy consumption, purchasing and transport.

The company’s distributable equity is held in an investment fund and other equity. Total distributable equity amounted to NOK 346 million as at 31 December 2019.
The Board’s proposal regarding the distribution of the annual result is as follows: