Risks and risk management

A number of risks could influence Svenska Spel’s target fulfilment to a lesser or greater extent. Svenska Spel relates its major risks to the four general target areas. One single risk can affect one or more of them. Risk assessment is conducted by means of a continuous risk management process.

isk is defined as uncertainty that could affect Svenska Spel’s objectives. Many of the risks could impact on the Company positively or negatively. Working with risk management permits the Company to prevent or be prepared for what can occur in operations. Not all risks can be eliminated, but effective risk management helps their identification and management in the Company.

The account below presents Svenska Spel’s key risks as related to the four overall target areas of Customer, Responsibility, Profitability and Employees.

Competition over customers

The trend in gaming behaviour towards faster games and higher percentage paybacks to winners is a tangible risk affecting the Customer target area. By being subject to game rules that differ from those applying to Svenska Spel, competitors have the potential to offer alternative gaming experiences and bonus offers. This could enable our competitors to more readily meet customer demands, thereby eliminating Svenska Spel as the player’s first choice.

Balance between responsibility and profit

The risks relating to the Responsibility target area include the core risk that Svenska Spel fails to manage to strike a balance between responsibility and profit, meaning that the mandate is not fulfilled in an optimal manner. The organisation is keenly aware of this balance and works actively to maintain it, such as through the continuing development of responsible gaming tools and effective controls. One example of another risk in this area is that of failing to prevent internal and external fraud.

Profitability could be threatened by re-regulation

Risks related in the Profitability target area primarily include potential re-regulation of the gaming market or the introduction of further restrictions that would compel the organisation to work under new conditions.

Operating risks to profitability relate to gaming disruptions or a disruption in the supply of lottery tickets. Generally, Svenska Spel depends on only a few suppliers, since a large share of the gaming system is owned by the Company and is operated using in-house resources.

Financial risks

Financial risks are an additional risk to Profitability, but these are generally considered low. The Svenska Spel Group is self-financing as its cash flow easily covers its investment requirements and operating costs. The Group has no interest-bearing liabilities.

Management of financial risks in the Group is regulated by established financial policy and credit lines.

The Group operates only in Sweden but has a certain degree of currency exposure through the purchasing of materials and services from suppliers outside Sweden. Interest-rate risks affecting cash flow are also considered low as cash flow from operating activities is largely independent of changes in market interest rates.

Risks of credit losses are deemed to be limited as gaming on credit is prohibited. Regular ratings are made of Svenska Spel’s retailers, restaurants and associations to identify at an early stage whether or not business partners are able to meet their financial commitments.

The Group invests surplus liquidity primarily in an account in its main bank with special terms of interest, prior to lending it on a quarterly basis to the National Debt Office.

Liquidity risk has historically been low and each year the Group accumulates substantial amounts of cash and cash equivalents and non-restricted equity, which, as of 2010, is paid annually and in its entirety to its owner, the State. The statements of cash flows, presented in the 2010 financial statements, provide a good summary of the forecast cash flow for 2011.

Further detailed information can be found in Note 1, Accounting and valuation policies.

Employee security

As regards the Employees target area, the primary risk scenario is that employees are seriously injured. Casino operations represent an exposed environment and, for example, a robbery or other violent incidents could result in serious injury to an employee. Examples of other risks in this area are related to leadership and employees. Svenska Spel must have competent and committed personnel in order to attain the set strategic and operational objectives.