Board of Directors’ Annual Report 2020

Norsk Tipping’s primary social mission is to provide a responsible and attractive gaming offering such that the public are provided with publicly regulated opportunities to gamble. 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 socio-political direction. There is also broad political consensus that gaming should be regulated via a monopoly model to mitigate the negative consequences of gaming. Well-regulated governmental control via Norsk Tipping also guarantees that the surplus funds from gaming benefit society as a whole.

2020 was a special year because of the Covid-19 pandemic, which impacted the company’s operations in several ways. The shutting down of society resulted in an immediate and significant reduction in the range of sports betting available. The company also chose to close terminal games as a preventive infection control measure. The scale of problematic gambling behaviour also fell during this period. Norsk Tipping’s turnover increased again during autumn 2020. At the same time, there were also indications that the scale of problematic gaming behaviour had also increased. As a consequence of this, Norsk Tipping implemented a number of measures from 1 December onwards. These included reducing the maximum loss limits in the instagames category from NOK 10,000 to NOK 7,500 per month. The change was designed to reduce the maximum losses the most engaged players could suffer.

The overarching goal of the responsibility work in the company is to protect vulnerable players, and our ambition is to be a world leader in this area. In addition to adjusting playing limits, the company is constantly working on modifications, large and small, aimed at strengthening the protection for these groups.

A new public survey on the scale of gaming and video game problems in Norway was published in 2020. The survey shows that the scale of gaming problems in Norway is relatively low compared with findings from international studies. Nevertheless, the trend is negative, and the proportion of problems has increased in the last few years. Going forward, Norsk Tipping must help to reverse this negative trend.

The marketing of the state games must be strictly limited to what is necessary to channel the public’s existing desire to gamble towards Norsk Tipping’s offering. From 1 January 2021, amendments were made to the Broadcasting Act that are intended to halt the distribution of advertising by foreign gaming companies that targets Norwegian consumers. From the same date, the Ministry of Culture established new guidelines for Norsk Tipping’s marketing. The company has adapted to the new guidelines and has adjusted its marketing to align with the new guidelines. Both the content and design of the market communications have been adjusted, which includes reducing the promotion of large prize pots. Norsk Tipping will also reduce the scope of its marketing in line with decreases in the marketing pressure from foreign gaming companies.

The overall effects of the reduced offering in the first half of the year and increasing gaming activity in the autumn have been growth in the number of customers, turnover, and annual result. The number of customers ended up at almost 2.1 million in 2020, while the surplus funds amounted to NOK 6.167 billion. That is NOK 491 million more than in 2019.

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 the company has been given.

Never before have as many people played the company’s games as in 2020. More than 2.1 million unique customers played one or more of Norsk Tipping’s games, and 29 per cent of them were younger than 40. This shows that the company’s offering is attractive enough to channel the desire to gamble in all age groups 18+ to a regulated offering within a responsible framework.

Norsk Tipping’s total operating revenue increased from NOK 40 billion in 2019 to NOK 42 billion in 2020. Because of the high prize shares and high degree to which prizes are reused as stakes in some of the company’s games, the development of net gaming revenue (gaming revenue less prizes) is considered a better measure of the scale of activity. Net gaming revenue amounted to NOK 8.5 billion. This represents growth of NOK 355 million (4.4 per cent) from 2019. This figure was however affected by 2020 containing an extra game cycle (week 53). Adjusted for this, the growth was 2.3 per cent.

Operating expenses decreased by NOK 207 million compared with the year before, mainly due to a reduction in depreciation and lower sales commissions. Overall, the surplus funds grew from NOK 5.7 billion to NOK 6.2 billion, which represents year-on-year growth of 8.6 per cent.

The pandemic period had a significant impact on the company’s turnover during the year, both overall and in the individual game categories. Terminal games in small shops and bingo halls were affected the most and saw a drop of 40 per cent compared with the year before. Sports betting fell sharply during the first wave of Covid-19, although it has recovered after the sports betting offering was reopened. Overall, the category saw a drop of 7 per cent compared with the year before.

Lotteries have not been particularly affected by the Covid-19 measures and saw growth of 6 per cent compared with 2019. This consolidated the lotteries’ position as the largest category of games. The category accounts for 66 per cent of net gaming revenue. Lotteries represent a lower risk of problem gambling than the other categories and are widely supported by the playing segment of the public, and a strong lottery portfolio is therefore important for channelling the desire to gamble to a responsibly regulated offering.

Ever since their launch in 2014, online games under the category name instagames have grown the most. The category grew by NOK 268 million from 2019 to 2020, which is 27 per cent. This category is more prone to problem gambling and the company monitors developments closely. Loss limits were reduced from December 2020 and the company is constantly working on further adjustments to balance responsibility and attractiveness in this category. It is important in relation to the monopoly model that Norsk Tipping is able to channel customers in this category to a regulated and responsible offering with a view to mitigating the negative consequences of the gaming.

In 2020, the revenue from traditional games (lotteries and sports betting) via digital channels was NOK 10 billion, compared with NOK 9.4 billion in 2019. This represents growth of 9 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.

The Grassroots Share gives players an opportunity to influence the distribution of part of Norsk Tipping’s surplus funds. In 2020, players distributed NOK 717 million to clubs and associations through this scheme, compared with NOK 697 million in 2019. The largest individual recipient was a pet re-homing non-profit organisation called Foreningen for Omplassering av Dyr. The largest category of recipients was sports-related purposes, which received 52 per cent. The categories art and culture and recreation and social associations were the next largest and accounted for 10 per cent each.

The most important part of Norsk Tipping’s social mission is to prevent negative consequences from gaming by offering attractive and responsible gaming, 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.

The Covid-19 pandemic has affected the whole world and there was great uncertainty about the impact it would have on vulnerable players. Through analyses and customer surveys Norsk Tipping has, therefore, paid particularly close attention to how the pandemic has impacted players. Overall, Norsk Tipping did not see a general increase in problem gamblers in the first three quarters of 2020, although the company did see an upwards trend in the last quarter.

In 2020, Norsk Tipping strengthened the measures for preventing gambling addiction. The main measures were as follows:

1. Immediate measures to reduce gaming activity. Norsk Tipping introduced a number of immediate measures in December aimed at dampening the expected increase in gaming activity in a period when society was still experiencing comprehensive Covid-19 measures. These included reducing the maximum loss limits for instagames from NOK 10,000 to NOK 7,500 per month.
2. Research collaboration on gaming breaks. Norsk Tipping conducted a unique research project into mandatory gaming breaks after one hour’s play together with the recognised researchers Michael Auer and Mark Griffiths. Although the regulatory authorities in many countries set requirements for such mandatory breaks, there has been little research into them. The main purpose of the study was to find the variant of mandatory breaks that has the best effect vis-à-vis preventing gambling problems. The results will be published, and Norsk Tipping has already introduced new playing breaks in line with the study’s findings.
3. Personalised player follow-up. Norsk Tipping’s social mission entails the company having to take a proactive role in preventing gambling problems. The company has to prevent, detect, and respond to adverse gaming behaviour and take the initiative regarding new measures when there are grounds to do so.
   A dedicated innovation team spent 2020 working on developing a comprehensive solution for event-based, personalised player follow-up. The solution is intended to prevent players becoming or remaining at-risk gamblers and a number of pilots were carried out over the course of the year.

Norsk Tipping wants to contribute to the development of a positive and sustainable society. The company’s ambition is to be a leader within social responsibility and sustainable development in relevant areas, and the company wants to take responsibility for how its operations impact people, society, and the environment.

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 managing the company’s social and climate footprint, at the same time as the company, which is a major, high-profile social stakeholder, also wants to contribute to producing 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) as top priority areas.

Responsible gaming is the core concept that drives the company’s work in relation to social responsibility, and this also includes its work on business conduct, anti-corruption measures, human rights, and the environment. As a major partner of Norwegian sports and culture, Norsk Tipping also focuses on the theme of equal opportunities in voluntary work. Previously started sports-related initiatives were continued and expanded in 2020. Since 2017, the company has systematically signed several agreements aimed at supporting women’s initiatives within, for example, football, wrestling, rowing, Nordic combined, ski jumping, ice hockey, the board association and the Norwegian Olympic and Paralympic Committee and Confederation of Sports via the women’s sports boost. Equal opportunities are included in a clause in all of the company’s cooperation agreements and it is systematically working with sport to recruit and qualify more female trainers and managers. Cooperation projects with Talent Norway and the Norwegian Film Institute have produced excellent results. The work was continued in 2020 and a new 3-year development programme was started for filmmakers with immigrant, indigenous people, and national minority backgrounds, and for people with disabilities.

A project aimed at boosting corporate social responsibility and expertise in sustainability in Innlandet County and among our own employees was started in 2020. The work on addressing social responsibility considerations in procurements was continued in 2020. The follow-up of suppliers is based on risk assessments in which social considerations such as the climate and environment, human rights, and labour rights are key elements.

The owner and the Board 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. Assessments concerning responsible gaming weigh heavily in all decisions concerning the company’s development and can in isolation result in lower cost-effectiveness. Given this framework, the company must nonetheless operate as cost effectively as possible.

The surplus funds for good causes, measured as a percentage of net gaming revenue, are an important key figure for the company’s cost performance. In 2020, the figure was 72.5 per cent of net gaming revenue. The corresponding figure for 2019 was 69.6 per cent. The trend over time is that a steadily increasing share of net gaming revenue is being distributed to good causes. The main reason for the improved cost-effectiveness 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, which triggers lower commissions than physical channels. This trend was further reinforced in 2020 and is assumed to be to some extent connected to the social Covid-19 measures. Gaming commissions were NOK 100 million lower year-on-year in 2020.

At the end of 2020, the company’s total balance sheet was NOK 6.9 billion and its equity ratio 7 per cent. The corresponding figures for 2018 were NOK 5.9 billion and 8.5 per cent. The company’s distributable equity amounted to NOK 335 million as at 31 December 2020.

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 ‘hybrid state-owned company established by law’ 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. The gaming revenue after deductions for prizes was NOK 355 million higher than in 2019. In 2020, net cash flow from operating activities amounted to NOK 6.7 billion, compared with NOK 5.9 billion in 2019. The company’s cash holdings were NOK 900 million higher year-on-year.

Norsk Tipping is by far Norway’s largest gaming company, with an estimated share of 66 per cent of the entire gaming market measured in terms of turnover. 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 2.2 billion and NOK 1.8 billion. This accounts for about 10 per cent of Norsk Tipping’s customers and most of those who use the illegal offering from foreign gaming companies are also customers of Norsk Tipping. Even though Norsk Tipping enjoys a solid position overall, it faces competition from the unregulated market, particularly in the online casino games and live betting segments. The sports betting solution scheduled to be launched in connection with the European football championships in 2020 was delayed but will be launched in 2021. This will make Norsk Tipping’s offering more competitive than before.

The Norwegian authorities have introduced a number of measures to restrict the ability of unregulated gaming companies to offer games to Norwegian players. The most important recent measures are stronger enforcement of the ban on payment systems and amendments to the Broadcasting Act. At the same time, the ban on marketing games that do not have a licence in Norway has worked well for a long time, with the exception of advertising that is broadcast via foreign TV channels. Each of these in their own way make it harder for unregulated gaming companies to offer games targeted at the Norwegian market, which strongly supports Norsk Tipping’s channelling efforts.

As these measures reduce the scale of unregulated gaming, Norsk Tipping will adjust its scope of marketing to the changed competition situation. In addition, the stronger enforcement of the monopoly model will result in Norsk Tipping gaining a larger share of total gaming revenue and an ever more important role in helping to reduce problem gambling in Norway.

Further developing the company’s products and solutions is an important means of complying with our 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.

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 development of digital sales solutions and services represents an important element of the company’s renewal and there is always a need to improve and modify the company’s solutions. The further development and integration of responsibility measures in order to help reduce problematic gaming behaviour is an important component of this work.

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 incurred no significant losses linked to receivables from sales agents in 2020.

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 6.2 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 Board of Directors’ 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 is an inclusive workplace company and has an explicit ambition of ensuring equal opportunities in the company. The company is constantly working on measures aimed at improving the gender balance among the company’s employees and managers. 43 per cent of the company’s senior management team are women. The overall proportion of women in management positions is 38 per cent, while 37 per cent of the 413 permanent employees are women. The attention paid to 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 were implemented in 2021 must be goal-oriented and they must contribute to realising the strategy plan for the period up to 2023.

The company has produced a report on the gender equality situation and the activities that have been initiated to fulfil the activity duty, see the employee chapter (in Norwegian) in the annual report.

Total sick leave for 2020 was 3.9 per cent. This is a reduction of 0.4 per cent from 2019. Norsk Tipping’s overarching goal is to keep sick leave below 4 per cent.

No injuries resulting in absence were registered in 2020.

The two most important factors that impact on the external environment are the production and distribution of paper-based materials and their distribution to the company’s sales agents and the operation of the company’s premises and IT equipment. The company continuously monitors the quantity of such materials it sends to individual sales agents with a view to reducing superfluous materials in line with the turnover moving from sales agents to digital channels. Digital screens are increasingly replacing posters 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 and the trend in the last few years has been downwards. In 2019, emissions were calculated to be 914 tonnes of CO2. No figures are available for 2020, although the level is assumed to be about the same. These emissions primarily stem from electricity used by the company’s premises and IT systems. The amount of travel fell significantly in 2020 due to Covid-19 measures. 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 335 million as at 31 December 2020.
The Board’s proposal regarding the distribution of the annual result is as follows: