Annual Report 2008
Entraction Holding AB is an international Group within the digital gaming industry. The company operates through its subsidiaries Entraction Solutions AB, Casablanca Gaming Group AB and Entraction Investment Holding Ltd.
Entraction Holding works with general issues relating to strategy and business development, as well as the provision of financing and skills within the Group. The rapid development of the gaming industry leads to attractive business opportunities for Entrac- tion Holding, and the company continuously evalua- tes business opportunities that can strengthen and develop the Group.
Entraction Solutions offers complete software systems for online gaming and operates one of the largest open poker networks in the world. Entrac- tion Solutions offers partners software for poker, betting, casino and bingo, as well as access to the poker network, where players from Entraction's partner gaming websites can meet. In addition, Entraction offers peripheral services, such as web
This is Entraction
design, gaming licences, operation, payment solu- tions, promotional tools and 24-hour end-user supp- ort. The poker network is operated by subsidiaries in Malta that are licensed to market and conduct proprietary gaming activities and to deliver gaming services to partners in the poker network.
Casablanca Gaming Group is a gaming group aimed at the consumer market. The company owns the subsidiary Casagaming Ltd in Malta, which ope- rates the gaming websites 24hPoker.com and Mart- inspoker.com, two of Scandinavia’s most well-known gaming websites.
Entraction Investment Holding Ltd owns 50 percent of TNPT, which operates European Masters of Poker, a poker tournament series held at some of Europe's leading casinos.
Entraction Holding AB
• Listed on First North
Premier and has approx- imately 8,000 shareholders.
• Approximately 110 employees.
• Operations in Sweden,
Estonia, Malta and Spain.
Financial Calendar Annual General Meeting 7 May 2009
Interim Report Q1, January – March 7 May 2009 Interim Report Q2, January – June 26 August 2009 Interim Report Q3, January – September 5 November 2009 Year-End Report January – December 18 February 2010
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2006 2007 2008
0 50,000 100,000 150,000 200,000 250,000 300,000 350,000
2006 2007 2008
-20,000 -10,000 0 10,000 20,000 30,000 40,000 50,000
Sales, SEK 000s Operating income, SEK 000s
Contents Strong growth and profitability
In 2008, Entraction conducted a turnaround from a negative outcome in 2007 to strong growth and a strong positive result. The company's market va- lue has also increased by 26 percent during the year, despite a weak climate in the stock market. This so- lid improvement has been achieved via a strategy ba- sed on four cornerstones: streamlining, cost control, revenue focus, and product development.
The world's fastest growing poker network During 2008, Entraction's poker network exhibited the fastest growth in the world and liquidity more than doubled. The network thereby surpassed seve- ral competitors and in early January 2009, Entraction reached fourth place among open poker networks.
New customers
During 2008, Entraction signed an agreement with a number of established gaming operators, which con- firms that Entraction is an attractive network for the largest operators in the industry. NoiQPoker, Gold- win and Bet1128 integrated with Entraction's poker platform and contributed to the strong growth. In ad- dition to poker, our new turnkey partner, Devilfish, offers casino and betting via Entraction.
Establishment in Spain
In order to meet demand from southern Europe, Entraction has established itself in Madrid, Spain.
This process is a cost-effective way to reach new customers and strengthen ties with existing custo- mers, while also representing a step in the strategy of growing in new markets.
Launch of bingo
In October, bingo was launched in the Entraction network. Bingohuone was the first out, with a site designed especially for Finnish bingo players.
Entraction's bingo solution offers chat functions in regional languages, which is important as bingo is a rapidly growing game where community spirit among bingo players is very important.
2008 2007 2006
Net sales, SEK 000s 346,132 234,625 208,512
Sales growth, % 47.6 12.5 53.3
Operating income, SEK 000s 40,071 –18,514 1,630
Operating margin, % 11.6 –7.7 0.8
Return on shareholders' equity, % 75.1 –89.9 22.4
Earnings per share, SEK 0.07 –0.07 0.02
Equity/assets ratio, % 24.3 20.8 29.2
Market capitalisation at end of period, SEK 000s 331,580 264,228 347,123
Average number of employees 103 106 98
Net sales per employee, SEK 000s 3,361 2,213 2,128
Key data
Key events in 2008
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Success factors 2009
• Focus on supplier operations
• Development of existing products
• Expand own product range
• Growth markets
• New types of customers
Key events in 2008 3
A message from the CEO 4 Entraction Holding AB 6 Market and competition 8 Entraction Solutions AB 10
Products 12
Tools and services 14
Secure gaming 15
Casablanca Gaming Group AB 16 Corporate governance 18
Shares 20
Financial statements 23
Close cooperation with partners
During 2008, we achieved sales of SEK 346 M, which was an increase of 48 percent and we are growing considerably faster than the gaming market as a whole. Our operating profit was SEK 40 M, allowing Entraction, for the first time, to pass on some of its profits to shareholders.
The improvement in earnings was made possible by the Group's improvement efforts at all levels.
We have implemented a general strategy based on cost control, a focus on revenues, streamlining and product development, and we have introduced a more efficient working method and carried out improvements to the gaming systems, which has increased sales.
Over the year, we have signed agreements with several new partners, of whom several are established gaming operators who have chosen to switch to Entraction. This represents a clear trend shift and is the result of our broad offering, the strong growth of the poker network and the appreciation of our attitude among existing and potential partners. We view each agreement as a long-term partnership characterised by a constructive dialogue aimed at achieving optimum results together. Put briefly, our partners' success is our success.
Leading supplier in Europe
Entraction has developed from a Nordic poker company into a leading provider of online gaming in Europe. We have secured a broader revenue base in terms of products and geographical
Positive trend
ENTRACTION hOldINg AB A MESSAGE FROM THE CEO 4
We laid the foundations for today's Entraction in late 2007.
In 2008, we continued to build,
increasing sales substantially and
achieving favourable profitability
in our operations. In 2009, we
will establish Entraction at a new
level in terms of earnings and
market share.
markets, making Entraction more attractive both as a supplier and as an investment. The trend in our poker network has bordered on the phenomenal and we have overtaken several significant competitors. Despite this, our casino games are actually growing fastest of all.
In 2008, we signed agreements with new customers with operations mainly in south and central Europe. Our strategy is to continue expanding in these markets and we established a sales office in Spain at the end of 2008. Entraction's broad offering of first-class products and auxiliary services makes us an attractive supplier for both established gaming operators and companies seeking to complement their Internet offering with gaming services.
We have enhanced our sales efforts by strengthening the organisation in terms of personnel and by improving the efficiency of our methods. Historically, Entraction's international expansion has depended on where our partners have chosen to establish themselves. While this has certainly been successful, by proactively processing select markets and customers, we have been able to improve the quality of our sales efforts and achieve faster growth. In addition to Spain, we have selected a handful of growth markets on which to focus. In mature markets, we mainly seek cooperation with established gaming operators.
Although Entraction is part-owner of the operator Casablanca Gaming Group, our long-term focus is the supplier market. The trend in the sector has seen a number of suppliers strengthening their ownership interests in operators and operators have begun to offer their products to external actors. Consequently, Entraction will gain a strong competitive advantage by focusing even more clearly on being a leading supplier of online gaming, which has been confirmed by our discussions with leading gaming operators.
Product focus
Entraction has grown very quickly and to meet demand and be able to continue growing, we have initiated a number of projects to improve our products and increase the flexibility, stability and scalability of the gaming platform. This is a long-term process to be able to adapt Entraction's offering to various markets and customers. Our proprietary poker and betting products are more profitable than third-party products and naturally we want to continue developing these while considering opportunities to add more products through in-house development or acquisitions.
Entraction is one of few suppliers in Europe that can offer a betting solution tailored to the customer's requirements. Our betting system is a more-or-less unexploited asset and in 2009 we will develop the betting platform for more extensive stand- alone sales than previously.
Entraction's turnkey offering represents a strong competitive advantage, since it opens the gaming market to new actors. For media companies and others with a strong Internet presence, this provides a simple opportunity to extend their customer offering
ENTRACTION hOldINg AB A MESSAGE FROM THE CEO 5
with gaming services – regardless of whether this is with the
intention of getting customers to spend more time at their sites or to add gaming to their sources of revenue.
Stable enterprise for continued growth
Like many colleagues in the sector, Entraction has weathered the recession very well and we have captured market share and built up strong cash base in 2008. Moreover the company does not have any interest-bearing liabilities that could entail a risk. Online gaming is an easily accessible and relatively cheap entertainment and demand does not appear to have been weakened by the recession. Our stable financial position and growing sales allow us to take advantage of the business opportunities that arise. We are investing in our existing systems while also seeking potential new acquisitions to complement our organic growth.
Prospective investments of interest to the Entraction Group are companies operating as suppliers within the digital gaming industry and which have a core product with strong growth and profitability potential. Entraction Holding is not a financial investor, but is only interested in companies where there are significant synergies to be achieved with the current operations.
Raising the pace
Having brought a company to a stable level of sales and profitability, it would be easy to feel satisfied and therefore afraid to continue pushing ahead. We take the opposite view. We have now established a strong foundation on which to build and we have the operations and financial muscle necessary to be able to press on to the next level. In practice, this means that in 2009 we will sign agreements with additional established operators and with companies in new sectors, and extend our product portfolio, thereby building value for shareholders.
In February 2009, Entraction Holding AB was listed on First North Premier, a market segment that imposes stricter demands on companies in terms of reporting and communications.
The purpose of First North Premier is to prepare companies for inclusion in the main list of the Stockholm Stock Exchange, which is where we have set our sights. However, we are in no hurry and intend to report further successful quarters before applying for listing.
On the whole, we have entered 2009 at full speed and with all of the conditions necessary to make this the best year in Entraction's history.
Solna, April 2009
Peter Åström,
CEO
Entraction Holding AB
The Entraction Group
Entraction Holding operates through its subsidiaries Entraction Solutions, Casablanca Gaming Group and Entraction Investment Holding. The Group is one of the world's leading suppliers within the digital gaming industry and works to create profitable growth and long-term value enhancement for its shareholders.
The global digital gaming industry has developed quickly since 2000, and annual growth for 2008- 2012 is anticipated to be more than 11 percent. En- traction Holding works continuously to evaluate attractive business opportunities in the fast-gro- wing digital gaming industry and during 2009 these efforts will be further reinforced.
Prospective investments of interest to the En- traction Group are companies operating as supp- liers within the digital gaming industry and which have a core product with strong growth and profit- ability potential. Entraction Holding is not a financi- al investor, but is only interested in companies offe- ring significant synergies with the current supplier operations. Entraction can contribute knowledge, management and access to the considerable opp- ortunities for cross-selling and advantages of scale that exist within the Group. The common factor for all operations within the Entraction Group is a method- ology that focuses on clear positioning, revenue maxi- misation, cost control and product development.
Supplier of digital gaming
The Entraction Group was founded in 2000 and the current business model has developed against a background as a successful supplier and operator of online poker. Today, the Entraction Group is di- vided into two principal businesses, Entraction So- lutions, an international supplier of complete sys- tems for digital gaming, and Casablanca Gaming Group, an operator of gaming websites aimed at end customers. Supplier operations predominate in the Entraction Group and the Group will focus pri- marily on this aspect going forward.
The Entraction Group supplies complete systems for online gaming, meaning that, for example, a me- dia company wishing to integrate gaming into its website does not need to invest in payment solu- tions, customer support and other infrastructure.
Over and above systems for poker, casino, betting and bingo, the Entraction Group supplies support,
affiliate systems, promotional tools and payment so- lutions (see page 10 for more information). Entrac- tion Solutions has developed proprietary systems for poker, betting and parts of the peripheral systems on offer. Other systems are supplied by third parties.
The Entraction Group's strategy is to successively replace third party systems with those it has develo- ped or acquired, where commercially justified. A pre- requisite for success in the Group's endeavours to be one of the world's three largest suppliers within the digital gaming industry is to be able to control the development of new products and services to ensure that the Group has the best offerings in the market.
European Masters of Poker
During 2008, Entraction Investment Holding Ltd was established, which, via subsidiaries, launched Euro- pean Masters of Poker™ together with partners in the poker network and some of Europe's best and most exclusive casinos. The tournaments are aimed at all types of poker players, with a relatively low re- gistration fee that allows non-professional players to compete for the title "European Master of Poker".
This series of live tournaments is an opportunity for partners in Entraction's poker network to both att- ract new players and to strengthen relationships with existing players.
Vision
The Entraction Group shall be one of the world's three largest suppliers within the digital gaming industry.
Business concept Entraction Holding will generate the highest possible long-term return for its shareholders by operating as an international supplier within the digital gaming industry.
Entraction shall offer gaming operators, media companies, and other companies with strong brands, a complete portfolio of products and services that provide these companies with the opportunity to offer online gaming to their respective customers.
Objectives
• By 2010, 40 percent of the
Group's sales shall come from sources other than poker.
• By 2010, at least 50 percent
of sales shall come from new markets outside the Nordic countries.
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Contact information
Peter Åström, CEO +46 8 564 884 60
peter.astrom@entraction.com Pia Rosin
Communications Director
+46 70 753 22 46
pia.rosin@entraction.com
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The gaming market continues to grow
-and Entraction is growing faster than the market
Global market turnover is expected to be EUR 12.5 billion in 2008, of which the European market comprises approximately 42 percent. North America comprises 32 percent of the global market and Asia, in which several of Entraction's competitors have opted to invest, comprises approximately 15 percent and is expected to develop at around the same rate as the gaming market in general.
Focus on Europe
The Entraction Group operates in a global market, but focuses on Europe as that market is growing faster than the total digital gaming market, while Entraction's subsidiaries are licensed in Malta, which permits them to market and operate gaming acti- vities within the EU. In the longer term, the Group will also seek business partnerships in other markets.
The Nordic countries are Entraction's largest market, but the Group sees strong growth in southern and eastern Europe.
During 2008, Entraction established a sales office in Madrid to better protect business opportunities in the prioritised markets Spain, Italy and France that are expected to grow by 15-20 per- cent over the coming years.
Competition
The digital gaming market can be divided into suppliers (B2B) and operators (B2C). The Entraction Group focuses on the supplier market and Entraction Solutions' competitors are found primarily among actors offering poker software and access to poker networks. Suppliers of casino and bingo count as secon- dary competitors since Entraction does not own the software for these products, but instead offers third party products to its partners. It is possible that in the future, Entraction will also acquire, develop or otherwise offer its own solutions for casino, bingo and additional gaming services.
Entraction has a background as both supplier and operator but in autumn 2007, the Group was streamlined to comprise En- traction Solutions AB, a supplier, and Casablanca Gaming Gro- up AB, an operator. The purpose was to clarify the Entraction Group's different offerings both towards the financial market and existing and prospective customers.
During 2008, competition in the poker market has increased and certain competitors have chosen a strategy in which they
combine being an operator and a supplier. There are examples of suppliers that have acquired operators and of operators that have begun selling their services to other operators. Entraction's strategy is the opposite of this, and the Group strives to divide the roles as clearly as possible so as not to risk that Entraction Solutions' partners, the gaming operators, perceive that they are competing with their supplier.
Products
Entraction's largest product is systems for poker, even if sales from casino activities have more than doubled during 2008.
Entraction's share of the European poker market is approx- imately 4 percent, but Entraction is capturing additional shares of this market. Annual growth in the poker market 2008-2012 is expected to be approximately 10 percent for poker and Entraction expects to continue growing faster than the market.
An important competitive factor is liquidity in the poker net- work, that is, how many active players there are in the network on average. Entraction is one of the world's largest poker networks and, in addition, has grown the fastest of all networks during 2008. Players’ demands for liquidity in the poker network are one of the greatest barriers for new actors in the poker market and Entraction's growth is therefore a major competitive advantage.
The casino market is believed to grow the most in the coming years, by nearly 13 percent, and is also the fastest growing of all Entraction products. Competition in the casino market is, how- ever, stiffer than within poker since there are more suppliers of casino products. And because the player plays against a system and not against other players, no liquidity is required.
Betting is the product that sells best in Europe, but it is still a relatively small product for Entraction. Most actors in the betting market are gaming operators that have developed their own ga- ming systems. Only a few can offer a betting system in which the interface as well as the supply can be customised according to the partner's wishes, which is possible in Entraction's betting system.
Online bingo is a relatively new product, but it has grown quickly.
There are relatively few large, established bingo suppliers, which makes it an interesting market for Entraction. The UK is the world's largest bingo market with a 20 percent market share, followed by the US with 17.5 percent and Sweden, Germany and Spain, each with a 10 percent market share.
The global digital gaming industry consists of poker, casino, betting, bingo and lotte- ries offered to players via the Internet, mobile phone or interactive TV. Entraction offers primarily online gaming to gaming operators active in Europe.
ENTRACTION hOldINg AB MARKET AND COMPETITION 8
Customer groups
Entraction's partners are primarily companies specialised in gaming, both traditional land-based companies that wish to digitalise their products and companies that started as online entities. The trend is that media companies, companies with well-known brands and online actors with large networks also supplement their offerings with ga- ming products.
Legislation
Online gaming is subject to legislation and restric- tions in many markets. Indeed, Entraction and most other actors in the industry, and even independent commentators, are unanimous that the trend is mo- ving towards a more open market that is exposed to competition. Entraction closely follows legal deve- lopments in the gaming market and does not offer its products in markets where the company consi- ders that it is not possible from a legal standpoint, for example Entraction does not accept players from the US.
Entraction's primary market is Europe, and since the company's Maltese subsidiaries are appropria- tely licensed within the EU, the company judges that the business is not in contravention of EC law.
Individual EU countries have taken steps intended to obstruct market conditions for private gaming operators. These measures, Entraction claims, may be inconsistent with the overarching legal fram- ework in the EU, and the attempts of individual EU countries towards more restrictive legislation sur- rounding digital gaming products is not seen as a long-term threat for the Group's operations.
Asia and Middle East Europe North America Central/South America
and the Caribbean 12,000
10,000 8,000 6,000 4,000 2,000 0
2005 2006 2007 2008E 2009E 2010E 2011E 2012E
Suppliers Poker Casino Bingo Betting gaming Operators
Entraction x x x x
Dragonfish x x x 888.com
Ongame x x Bwin
Cereus x Absolute Poker
Boss Media x x x
Microgaming x x x
Partygaming x x x x Partypoker etc.
Playtech x x x William Hill
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Online gaming (MEUR)
2008E 2009E 2010E 2011E 2012E
Betting Poker Casino Bingo
0 2,000 4,000 6,000 8,000 10,000 12,000
Market growth, Europe (MEUR)
Competitors
Leading supplier of online gaming
Entraction Solutions is one of the world's leading suppliers of complete systems for online gaming and offers a complete portfolio of products and services to partners who would like to offer their players a superior gaming experience. Entraction Solutions subsidiary is licensed to conduct gaming operations within the EU and all gaming takes place in EUR.
Independent supplier of complete gaming systems Entraction Solutions offers complete solutions for partners who would like to offer poker, casino, betting and bingo online. The company offers proprietary software for poker and betting, as well as third party solutions for casino and bingo. Entraction Solutions is an independent supplier that off-ers attractive, user-friendly and secure systems for digital gaming to establis- hed and new gaming actors, media companies and other strong brands. Entraction Solutions' subsidiary operates through its turnkey solution gaming websites on behalf of its partners, but does not market any gaming websites.
Entraction's partners can choose a tailor-made solution of different products or Entraction's turnkey solution where the customer is only responsible for marketing. The turnkey solu- tion gives the partner access to the company's broad gaming portfolio, as well as a complete array of peripheral services such as web design, gaming licences, operation, payment so- lutions, promotional tools and 24/7 support. This offer makes it possible for an actor with a strong customer base, for example a media company, to start a gaming website without the need to invest in the comprehensive infrastructure needed to operate a gaming business.
Offering first-class service and maintaining a close relation- ship with partners is critical for Entraction's success. The de- velopment of new functions and improved systems takes place in close cooperation with partners and every year Entraction arr- anges several workshops where partners can meet and exchange ideas with staff from Entraction's development department.
Revenue model
Entraction's revenues are based on profit sharing of gross ear- nings from players on Entraction's platform, fixed fees from part- ners and other sources of income from partners. At the end of each month, a settlement is conducted whereby Entraction's and its partner's respective shares of the earnings are distributed.
Partners integrated with Entraction's poker system and that use their own payment solution administer revenues from their players in-house and pay a monthly royalty to Entraction. The royalty comprises only Entraction's share, which entails that the entire sum is added to the gross profit.
Partners that use Entraction's turnkey solution use Entraction's payment solutions. Entraction therefore administrates revenues
ENTRACTION SOluTIONS AB 10
from the players. In a monthly settlement, Entraction pays the partner's share of revenues in the form of commission to the partner. This entails that all revenues from players on turnkey partner websites are included in Entraction's net sales and that commission and licence fees to suppliers of external systems are deducted in the form of direct costs gaming operations in Entraction's financial statements. The gross margin for turnkey partners is therefore lower than for partners who pay royalties.
The world's fastest-growing poker network
Systems for online poker are Entraction's largest product, and the trend in 2008 was very positive. Liquidity in Entraction's po- ker network more than doubled and the network surpassed se- veral competitors in size. Casino is the product that is growing the fastest in relative terms, and Entraction offers casino games from two of the world's leading suppliers, Net Entertainment and WagerWorks. The latest addition to Entraction's gaming portfolio is bingo, which is licensed from a third party.
Entraction is one of few suppliers in the world that can offer customised solutions for betting through software developed in- house. During 2009, betting will be developed further to include features such as live betting. Entraction Solutions continuously adds new products to its gaming portfolio and then chooses be- tween developing software in-house, licensing gaming products or acquiring companies with interesting products.
All software development takes place in Sweden, while the subsidiaries Entraction Operations Ltd and Entraction Network Ltd in Malta run the actual gaming operations, and Entraction Estonia OÜ in Tallinn offers support and works with security iss- ues and compliance in the gaming network.
Growth in new markets
Entraction's strategy is to grow in new markets in Europe, without
losing ground on the Group's domestic market in the Nordic re-
gion. This strategy has been successful and during 2008, nearly
40 percent of the Group's sales came from new markets, compa-
red with only 20 percent in 2006. To safeguard its strong growth,
Entraction has recently established itself in Spain. A local pre-
sence means that Entraction can give even better service to both
existing and potential partners, which creates satisfied partners
and better business opportunities.
Secure, stable and scalable gaming platform Entraction's gaming platform is developed in close cooperation with skilled system developers and ex- perienced players. Therefore the platform caters for the need for user friendliness, entertainment and security while also making it possible to add additional services and accept more players.
The gaming platform is a complex system where gaming software and support systems are inte- grated with third party systems such as payment solutions, for example. In and around the gaming platform are advanced security systems to protect against hacking and fraud attempts. The random number generator, which decides for example which cards are dealt at the poker table, is controll- ed by iTech Labs and approved by The Lotteries and Gaming Authority (LGA) in Malta, in order to guarantee fair gaming.
During 2008, the number of players on Entraction's gaming platform grew strongly and therefore several development projects are being conducted that aim at both improving the gaming experience and increasing scalability in order to meet the considerable demand. In technical terms, this means for example an increase of database ca- pacity, an increase in the number of error-tolerant and redundant server nodes, the implementation of faster and more secure communication protocols, increased amounts of hardware, improved system monitoring, improvement of data cache solutions and refactoring of certain software to be able to accept more players in the poker network simul- taneously.
Advanced security systems
Entraction uses a number of strong and establi- shed security solutions in order to ensure the best possible accessibility for its services. In addition to usernames, passwords and singe-use passwords, different types of encryption techniques are used for sensitive systems. Moreover, the system is pro- tected by different types of firewalls, such as web
ENTRACTION SOluTION AB 11
2006 2007 2008
Nordic countries New markets 0
20 40 60 80 100
Products
• Poker
• Casino
• Betting
• Bingo
Share of sales%
application firewalls that analyse web traffic and stop hacking attempts, and firewalls that analyse and block hacking attempts at the network level.
There is also an advanced so-called IDP system that recognises known security attacks and blocks these automatically. There is also advanced pro- tection against overload attacks, so-called DDOS attacks, which otherwise can be a risk for real-time systems with many users. These attacks aim to overload networks and systems so that they be- come inaccessible to end users.
Entraction's security protection is checked regu- larly by external experts and the company also con- ducts its own inspections and upgrades continu- ously. The basic security level in the system fulfils all requirements from the PCI DSS (Payment Card Industry Data Security Standard) and the LGA in Malta. Over and above this, additional protective
measures have been implemented. Tools and services
• Payment solutions
• Content Management Systems
• Back Office
• Multi-language
• Design and production
of websites
• Affiliate systems
• Promotional tools
gaming software. The new version appeals to more players through features including a new design, with improved user-friendliness both for beginners and professional players, leading to a substantial in- crease in the number of hands played.
During 2008, a new poker game called 32-Card- Draw was also developed. The game is an interesting addition to Entraction's offer since the introduction of the game has resulted in new partners and more active players from southern Europe. An additional key improvement developed during 2008 was the timer function. The timer function means that play- ers can easily see how much time they have left to consider their move, which results in a better flow in the game and more hands played.
At year-end, Entraction Bad Beat Jackpot, an old network promotion, was replaced with a flexible sys- tem that enables campaigns that are more attractive to players. Entraction adjusted its price setting in the poker system at the end of 2008, which resulted in an increase in revenues. Combined, the new functions help strengthen Entraction's market position.
Casino
Entraction Solutions offers casino gaming from the two world-leading casino suppliers Net Entertain- ment and WagerWorks. This gives Entraction's part- ners a broad range of both popular and well-known casino games, and new innovative casino products and games based on known brands. Growth in casi- no has been achieved through Entraction improving its efforts to help existing partners develop in their target markets and to help new casino customers establish themselves.
Entraction has continuously launched new games, including Golden Derby, a virtual horse racing game, and Champion of the Track, a related game from Net Entraction Solutions operates via subsidiaries one of
the world's leading poker networks, which is also the fastest growing in the world. The poker software is developed in-house and offers one of the most var- ied selections of types of poker. Players from many different countries meet on the network via Entrac- tion's partners. Texas Hold’em and Omaha are the two most popular games.
Cash game
Cash game entails players sitting at a virtual gam- ing table and playing against each other for real money. Entraction takes no financial risk as the game on the network takes place between players.
Entraction is not actively involved in the game but ensures only that the conditions exist for a large se- lection of different types of games at different stake levels. For each pot played, Entraction takes out a fee called a rake.
Tournaments
Besides ordinary cash games, Entraction's system also supports tournaments. The difference is that the player buys into a tournament for a pre-determined amount and then receives chips with a nominal value.
The tournament is played until one player has won all of the chips. Entraction takes out a percentage in fees on each player's purchase. Tournaments are an increasingly popular form of gaming and the selec- tion of tournaments has therefore increased, which has resulted in increased revenues and more active players. A new type of popular turbo-tournament has also been introduced.
Considerable improvements in software In 2008, Entraction implemented considerable up- dates and improvements to the functionality of the
ENTRACTION SOluTIONS AB PRODUCTS 12
Poker
A wide range of online gaming systems
Entraction offers software for poker, casino, betting and bingo to esta- blished gaming operators and other actors that wish to offer online ga- ming. Furthermore, subsidiaries to Entraction operate the world's fastest growing poker network.
2006 2007 2008
Poker Casino Betting
Bingo Other
0 20 40 60 80 100
Share of sales%
Entertainment. In addition, Entraction has increased its range of tournaments, a form of gaming that is also becoming increasingly popular in casino, and has implemented technical improvements that make it possible to play on full screen.
Entraction has also worked more actively with analysing profitability in different games and has improved the bonus system in order to optimise its offering to partners.
Betting
Entraction Solutions offers a user-friendly betting product that makes it is easy to place bets, which is appreciated by both beginners and experienced players. The betting offers favourable odds, a broad range of objects to bet on and a back office system that enables professional risk management.
Entraction Solutions is one of few suppliers on the market that can offer a tailor-made solution for bett- ing. In pace with non-traditional operators such as media companies, supplementing their online servi- ces with gaming, demand is increasing on completely adaptable products.
During 2008, Entraction's betting offer increased with several sports, leagues and events, but the biggest sales come from football, ice hockey and tennis. In addition, several functions for increasing user-friendliness and clarity have been implemented.
During 2009, the betting system will be developed further and Entraction Solutions will invest more on betting as a stand-alone product.
Bingo
Entraction launched bingo together with Finnish partner Bingohuone in October 2008.
Several of Entraction's partners have ordered bin- go and in parallel with new websites launching bingo
ENTRACTION SOluTION AB PRODUCTS 13
during 2009, Entraction will release new functions and
other new features, including 90-ball bingo for the UK market, daily chat hosts and private game rooms.
The product allows every individual operator to choose language and design, which is an impor- tant part of Entraction's goal to be able to meet all partners' needs.
Compound Annual Growth Rate in the European gaming market 2008-2012
Poker: + 10%
Casino: + 13%
Betting: + 12%
Bingo: + 12%
Tools and services
To operate a successful gaming website requires not only good gaming software, but also different types of auxiliary systems such as adminis- trative systems, payment solutions, promotional systems and support.
Entraction Solutions can support its partners with everything from the design of gaming websites and advanced affiliate systems to secure payment solutions.
up activity with their players and affiliates through segmenting and analysing their customer database, administrating affiliate accounts and exporting sta- tistics to external computing and campaign pro- grammes. Affiliate marketing is an important tool for gaming operators. Entraction offers both its own aff- iliate system developed in-house, that is completely integrated with back office and an additional system from market leader Income Access, where partners gain access to graphic reports, a large number of compensation models and in-depth analyses.
During 2008, collaboration was initiated with external supplier Compost for the launch of a new, top-of-the-range newsletter system. In this way partners can segment their customer database and conduct tailor-made newsletter campaigns and there- after easily analyse the effect of the campaign.
During 2009, the tool will be developed to support text messaging.
To attract new poker players, Entraction's partners can add a graphically adapted poker school on their website. This is a very useful tool to educate play- ers and create confidence for the partner's brand.
The poker school can be delivered in several diff- erent languages. Partners can also choose to add Entraction's integrated web shop where players can use their earned VIP points to buy products.
Good service and user-friendly systems Entraction considers the keys to profitable busi- ness partnerships to be good service and close relationships with partners. That is why each part- ner has a dedicated Entraction contact person who leads the partner through the start-up phase and then conducts a dialogue with the partner to be able to support development of the partner's offer and to receive input so that Entraction Solutions products can become even better.
In everyday activities, the partner has contact with Entraction Estonia. Partner support is avai- lable every day, around the clock, and the support team is trained in Entraction's products and sys- tems. Entraction Estonia also offers professional player support in several different languages. In the highly competitive online gaming industry, it is extra important to build strong relationships and therefore rapid feedback, correct information and availability crucial to be able to meet players' needs.
Entraction's partners have access to professional developers and designers. These can help Entraction's partners build websites, and then provide support on an ad hoc basis with most of the design work, from minor adjustments to major new products.
Entraction also offers stable and secure web hosting.
Entraction offers secure, fast and smooth mo- netary transactions, through credit and debit card transactions, several e-wallets and bank transfers in local currencies. Entraction continuously inte- grates payment solutions and also helps customers with tailor-made solutions for a certain market.
Effective promotional tools
To make it easy for partners to publish content, banners, flash animations and texts in different languages on their websites, Entraction has deve- loped a user-friendly Content Management System.
Entraction offers web content in 20 different lan- guages and new ones are being added continually.
In Entraction's back office, partners can follow Tools and services:
• Content Management Systems
• Back Office
• Multi-language
• Design and production
of websites
• Affiliate systems
• Newsletters
• Poker school
• VIP shop
Support:
• Partner support
• Technical support
• Player support
Payment solutions :
• Credit-/Debit cards:
VISA, MasterCard, Maestro
• E-wallets: MoneyBookers,
NETeller, WebMoney, PaySafeCard
• Bank transfers
in local currencies
ENTRACTION SOluTIONS AB TOOLS & SERVICES 14
Secure gaming
It is essential for Entraction's operations to be able to offer a secure gaming experience in a regulated environment. The subsidiaries that operate the gaming are licensed by the Lotteries and Gaming Authority (LGA) in Malta, and all transactions are monitored.
Gaming is licensed and operated from Malta All direct gaming operations within the Group are operated by the company's Maltese subsidiary En- traction Operations Ltd and Entraction Network Ltd.
These companies hold all relevant gaming licences issued by the Lotteries & Gaming Authority (LGA), the Maltese counterpart of the Gaming Board for Sweden. LGA is also a regulatory authority and is re- sponsible for ensuring that the licensing conditions are followed by Entraction's subsidiary.
There are four licence classes for online gaming operations in Malta, and Entraction's subsidiary has been granted all of these. Entraction Operations Ltd has a class 1 licence that regulates casino opera- tions, a class 2 licence for betting and a class 3 li- cence that permits marketing and operating gaming operations, including poker, from Malta. Finally, En- traction Network Ltd holds a class 4 licence which enables the poker network to be offered to third party customers, for example within the framework for Entraction's turnkey offer.
Focus on security
The company works proactively to prevent fraud and money laundering in the network and has dedicated staff that monitors the system around the clock. For example, checks are conducted so that no one att- empts to use stolen credit cards or cheat in any other way. In addition, different automatic systems are used to discover and counteract fraud attempts.
These include systems that verify the player's iden- tity and alert to suspicious behaviour. Entraction foll- ows EU directives on money laundering and works with the Financial Intelligence Analysis Unit in Malta that has been assigned with counteracting money laundering. Every suspicion of fraud or money laun- dering is followed up closely.
It is important for Entraction to be able to offer safe payment solutions and the company fulfils PCI DSS (the Payment Card Industry Data Security Standard).
Responsible gaming
Entraction sees online gaming as a form of entertain- ment for adults. Most players share this understan- ding, but a small number allows gaming to become too great a part of their lives. Entraction works in diff- erent ways to help its players play responsibly. For example, Entraction can adapt how much money the player can deposit via credit card according to the player's wishes, set limits for the maximum amount that can be bet in one month or closing the player's account for a requested period of time.
Tips for online gaming
• Do not trust unknown links
or attachments you receive via email or text messages.
• Websites in Entraction's
network never send you pro- gramme updates or queries about user details via email.
• You must have an upda-
ted antivirus programme and spyware installed on your computer. There are many freeware programmes available to download if you prefer not to spend money on software.
• Choose a difficult password
for your player profile, which preferably consists of both letters and other characters.
ENTRACTION SOluTION AB SECURE GAMING 15
Casablanca Gaming Group
Casablanca Gaming Group AB is a Swedish holding company and does not operate its own gaming operation, but administers ownership of gaming-related companies that target the consumer market.
24hPoker.com
24hPoker was founded in 2001 as the first commerci- al poker website in Scandinavia and offers a secure, easily-navigated and controlled poker environment for its customers. The product range consists of po- ker in Entraction's network and Cardroom2 as well as casino, betting and bingo.
Martinspoker.com
Martinspoker.com is positioned as a glamorous website for players with international ambitions. The website is interactive with forums, blogs and a community.
Casablanca Gaming Group owns Casagaming Ltd, which runs operations in Malta. The parent company, Casablanca Gaming Group, is responsible for realis- ing business opportunities in the ongoing consolida- tion of the operator market.
The focus for 2008 was to clarify the segmentation of Casagaming's brand and optimise the company for growth. This has resulted in resources being alloca- ted to 24hPoker.com and Martinspoker.com, which has been repositioned to attract selected target groups. The repositioning efforts have been suc- cessful and poker revenues have risen by 50 percent, while casino sales have doubled. There is also ongo- ing consolidation on the operator market, which also gives Casablanca Gaming Group the opportunity to grow through strategic acquisitions.
Casablanca Gaming Group's primary market is the Nordic countries, but during 2008 the company has also grown strongly on other markets within the EU and the focus from here on will be on emerging markets in other parts of Europe. The company has chosen to broaden its offering, from focusing exclu- sively on poker to also increasing sales from casino and betting. During 2009, bingo will also be launched on the websites.
Vision
Casablanca Gaming Group shall, via subsidiaries, offer a comprehensive range of gaming-related products and services to end customers.
Business concept The Group shall grow by participating actively in the consolidation of the gaming market, and by realising the synergistic effects enabled by acquisitions and partner- ships. The Group shall work with different brands in order to optimise growth through market segmentation, in every market.
Facts
Entraction owns 57 percent of Casablanca Gaming Group AB.
CASABlANCA gAmINg gROuP AB 16
Contact information
info@casablancagaminggroup.com www.casablancagaminggroup.com
ThE OP ERATIO NS IN CASAg AmINg lTd.
wERE d IvESTE d IN
APRIl 2 009.
CASABlANCA gAmINg gROuP AB 17
The purpose of corporate governance is to create a clear di- vision of roles and responsibility among owners, the Board of Directors and executive management. Corporate governance at Entraction is based on current legislation, the rules for compa- nies listed in the First North Premier segment of the Nasdaq OMX Nordic Exchange and internal guidelines.
Swedish Code of Corporate Governance
In 2004, a Swedish code was drawn up for corporate governan- ce. This follows the principle of “comply or explain”. Although Entraction Holding is not covered by the Swedish Code of Corporate Governance as the company is listed on First North Premier, the Board of Entraction has commenced a voluntary adjustment to the provisions of the code. This Corporate Gover- nance Report is intended to provide an overview of Governance within the Entraction Group. Additional information is available at the Company's website www.entraction.com.
Annual General Meeting
According to the Swedish Companies Act, the Annual General Meeting is the ultimate decision-making body through which shareholders exercise their voting rights. The Annual General Meeting makes decisions regarding the annual report, dividends, election of the Board and auditors, remuneration to Board mem- bers and auditors, as well as other matters in accordance with the Swedish Companies Act and the Articles of Association.
Shareholders are informed of their right to have matters add- ressed by the Annual General Meeting via the Company web- site, where documentation and minutes from General Meetings are also made available.
Nomination Committee
At the 2008 Annual General Meeting, a decision was made to establish a Nomination Committee for the preparation and submission of proposals for shareholders in the Company in respect of the Chairman of the Meeting, Board of Directors, Board Chairman and auditors. The Nomination Committee shall also put forward proposals in respect of Board fees and their division between the Chairman and other Board members, fees to auditors and remuneration for committee work.
The Meeting decided that the Nomination Committee should consist of representatives of the four largest shareholders in terms of voting rights and the Board Chairman. The Board Chairman should be the convenor of the Nomination Commit- tee. The Nomination Committee’s composition is communicated in the interim report for the third quarter. Prior to the 2009 Annual General Meeting, the Nomination Committee consists of Börje Fors (convenor), Per Hildebrand, Niklas Borg, Linda Hildebrand and Hubert Johansson (representing Jobbxtra OÜ).
Board of Directors
In conjunction with its constituent meeting each year, the Board reviews and establishes a work procedure to guide its activities.
This consists of instructions governing the division of responsi- bility and work among the Board, the CEO and Board committ-
Corporate governance report
ees, and also in respect of the presentation of the Company's ongoing financial reports.
The Board of Directors is also responsible for the development and review of the Company's strategies by means of plans and targets, decisions on acquisitions and divestments of operations, major investments, the appointment and remuneration of the CEO, as well as ongoing review of operations over the year. The Board of Directors also sets the business plan and annual acc- ounts, as well as monitoring the work of the CEO.
The Board Chairman supervises and distributes work within the Board and is responsible for key matters dealt with at Board meet- ings. The Chairman monitors operations through dialogue with the CEO and is responsible for other members receiving the information necessary for a high level of quality in discussions and decisions.
Entraction’s Board consists of five members. The CEO is conti- nually called upon to attend Board meetings, and other members of the management group participate whenever required in Board meetings for information purposes. The company’s Communica- tion Manager, Pia Rosin, is the Board’s secretary. The table on page 19 shows the composition of the Board of Directors and the Board's assessment regarding relationships of dependence towards the Company and its owners.
Agenda of the Board of Directors
The Board meets in accordance with an annual schedule and whenever required. All Board meetings are minuted, and meet- ings follow a set agenda. During the 2008 fiscal year, 14 Board meetings were held. At these meetings, the Board dealt with the set points, which, in accordance with the Board’s work procedure, were to be addressed at each Board meeting, such as business status, strategy, budget, interim reports and annual financial statements. In addition, other major points of discussion were included: a new strategic focus to enable Entraction Holding to leverage over the long term its position as a supplier of systems for digital gaming, the settlement of a dispute with HQ Bank, possible structural transactions, improvements to the gaming platform, arbitration regarding the compulsory purchase of the minority holding in Entraction Solutions AB and an incentive pro- gramme for the CEO. For detailed information on remunerations to the Board and senior executives, see Note 5.
The Board's work procedure also requires it to conduct an annual assessment of the CEO's performance in comparison with establi- shed long and short-term targets and to assess the performance, working practices and decision-making procedures of the Board.
For the 2008 year of operations, Entraction Holding has not app- ointed particular Remuneration or Audit Committees - instead, the assignments of these committees have been dealt with by the Board as a whole.
CEO and Group Management
The CEO heads operations within the framework established by the Board at its constituent meeting. In advance of Board mee- tings, the CEO prepares the information and documentation ne- cessary as a basis for decisions, presents the points of business and explains proposed decisions.
ENTRACTION hOldINg AB CORPORATE GOVERNANCE 18
The CEO leads the work of the Group Management team and makes decisions in consultation with other members of manage- ment. Group Management holds regular meetings at which strategic operational issues are discussed. In addition to these meetings, most members of Group Management meet on a daily basis. The rapid development of the company means that such daily contact is a prerequisite for functioning control and ma- nagement. Group Management consists of managers for key areas of operations within the Group.
External auditors
The extraordinary meeting of shareholders in June 2006 chose PricewaterhouseCoopers (with Michael Bengtsson as auditor in charge) and Mathias Carlsson, PricewaterhouseCoopers, as the Company’s external auditors. The audit was presented to share- holders in the form of an auditors' report. This is in the form of a recommendation to shareholders ahead of the decision at the Annual General Meeting to approve the consolidated income statements and balance sheets and those of the Parent Com- pany, the appropriation of the Parent Company's profits and the issue of discharge from liability for the Board and the CEO. The auditors have been appointed for the period extending until the 2009 Annual General Meeting.
Board control of financial reporting
The Board of Directors monitors the quality of financial re- porting through measures including instructions to the CEO.
According to these instructions, the CEO is responsible for re- viewing and safeguarding the quality of all financial reporting and for otherwise ensuring that the Board receives the reports it requires to be able to continuously assess the Group's finan- cial position. The internal reporting and control system is based on annual financial plans, monthly reports and daily checks on key operational figures.
The CEO is also responsible for other financial information, such as press releases and presentation materials, being corr- ect and of good quality.
The interim reports for the first, second and third quarters of 2008 have not been subject to review by the Company's auditors.
The Group's auditors annually report their observations from the audit to the entire board in connection with the annual accounts.
Annual General Meeting Nomination Committee
Shareholders
Auditors Board of Directors
ENTRACTION hOldINg AB CORPORATE GOVERNANCE 19
Name Elected Attendance The Company Owners Shareholding **
Börje Fors, Chairman 2007 14/14 550,000 series B shares
Christer Larsson 2008 9/9* -
Lisbeth Gustafsson 2006 13/14 -
Niklas Borg
2006 12/14
4,231,500 series A shares and 8,028,500 series B shares x 6,280,500 series A shares,
6,800,000 series B shares and 18,395,800 series B shares via Altraplan.
Members of the Board of Directors, elected by the Annual General Meeting of 14 May 2008
Name Number of votes %
Per Hildebrand* 88,000,800 12.9%
Linda Hildebrand 6,742,388 1.0%
Niklas Borg 50,343,500 7.4%
Hubert Johansson** 49,140,000 7.2%
Nomination Committee ahead of 2009 Annual General Meeting
* Privately and through endowment insurance.
** Representing Jobbxtra OÜ.
CEO
CFO Communication Manager Business Development Manager
COO Sales and Marketing Manager IT manager
G ro u p M an ag em en t
* Christer Larsson was elected to the Board during the year of operations.
**As per 28 February 2009.
Position of dependency towards
14/14 2000
Per Hildebrand
Trading and share price trend
During 2008, a total of 528 million shares were tra- ded with a total value of SEK 299 M. The highest paid price during the year was SEK 0.74 (5 February 2007) and the lowest price was SEK 0.43 (2 August 2007). At year end, the share price was SEK 0.64 and Entraction’s market capitalisation was SEK 332 M (264).
Share capital
At 31 December 2007, the share capital in Entrac- tion totalled SEK 25,904,705.9. The par value was SEK 0.05 per share. The number of shares totalled 518,094,118 distributed among 18,213,800 series A shares, each with ten voting rights, and 499,880,318 series B shares, each with one voting right. At the Annual General Meeting, shareholders may vote for the full number of shares owned and represented by them with no limit to voting rights. All shares carry equal rights to participation in profits and in the company’s assets in the event of liquidation.
Series A shares are not listed.
Stock options
At an extraordinary meeting of shareholders on 15 January 2007, a resolution was passed to issue 9,100,000 stock options aimed at all Entraction em- ployees in Sweden. The stock options were valid until 28 February 2009. Each stock option carried the right to subscribe to a new series B share at a strike price of SEK 0.92 per share for the period from and including 1 February 2009, up to and in- cluding 28 February 2009. A market-compatible
The share
premium according to the Black & Scholes model has been paid for the stock options. Since the quo- ted price for the company's shares on the exercise date of 28 February was less than SEK 0.92, no sha- res were subscribed within the programme, which was consequently cancelled. At an extraordinary meeting of shareholders on 14 December 2007, a re- solution was passed to issue without charge a stock option with the right to subscribe 125 million series B shares to Global Betting Exchange. The exercise price for the options corresponds to SEK 0.42 per share, totalling SEK 52.5 M. The option expires on 14 December 2009.
Ownership structure
At 28 February 2009, the number of shareholders to- talled 7,856. The Board of Directors and executive management jointly hold approximately 20 per cent of the number of votes.
Dividend policy
The objective is to pay an annual dividend equivalent to approximately 30 percent of net profit, provided that the distributable unrestricted capital is avail- able and the company's equity/assets ratio is no less than 30 per cent. The dividend will take the form of a normal dividend, share redemption, share buyback or a combination of these dividend forms. However, no dividend can be paid prior to 2011 (for the 2010 finan- cial year) due to the fact that the Company reduced its share capital during 2007 to cover losses. However, share redemptions and buybacks may be conducted.
Entraction Holding AB's shares are listed on the First North Premier segment.
A round lot consists of one share.
Ticker: ENT B
ISIN code: SE 0000355729.
ENTRACTION hOldINg AB THE SHARE 20
Contact information
Peter Åström, CEO +46 8 564 884 60
peter.astrom@entraction.com Britt-Marie Boije, CFO +46 8 564 884 60
britt-marie.boije@entraction.com Pia Rosin,
Communications Director +46 70 753 22 46 pia.rosin@entraction.com
2007 2008 2009
200,000 150,000 100,000 50,000
Nasdaq OMX Number of shares traded in thousands OMX Small Cap Stockholm
Series B shares 1.0
0.8 0.6
0.4
0.2
0.1
ENTRACTION hOldINg AB THE SHARE 21
NUMBER OF SHARES NUMBER OF
SHAREHOLDERS
SERIES A SHARES
SERIES B SHARES
HOLDING (%)
VOTES (%)
1 - 10,000 6,132 0 12,644,298 2.44 1.85
10,001 - 20,000 506 13,800 8,469,553 1.64 1.26
20,001 - 30,000 228 0 6,069,187 1.17 0.89
30,001 - 40,000 144 0 5,299,048 1.02 0.78
40,001 - 50,000 123 0 5,883,408 1.14 0.86
50,001 - 60,000 54 0 3,072,166 0.59 0.45
60,001 - 70,000 81 0 5,273,061 1.02 0.77
70,001 - 80,000 34 0 2,578, 272 0.50 0.38
80,001 - 90,000 17 0 1,462,952 0.28 0.21
90,001 - 100,000 112 0 11,032,762 2.13 1.62
100,001 - 425 18,200,000 438,095,611 88.07 90.92
Total 7,856 18,213,800 499,880,318 100.00 100.00
NAME SERIES
A SHARES
SERIES B SHARES
HOLDING (%)
VOTES (%)
Försäkringsaktiebolaget, Avanza Pension 0 56,442,259 10.89 8.28
JP Morgan Bank 0 23,095,724 4.46 3.39
Walldov, Anders 0 20,000,000 3.86 2.93
BK Julius Baer & CO Sweden Main AC 0 19,505,500 3.76 2.86
Altraplan Bermuda Limited 0 18,395,800 3.55 2.70
Swedbank Robur Småbolagsfond Sverige 0 14,999,990 2.90 2.20
Hildebrand, Per Alexander 6,280,500 6,800,000 2.52 10.21
Borg, Niklas 4,231,500 8,028,500 2.37 7.38
Nordnet Pensionsförsäkring AB 0 10,986,465 2.12 1.61
Sköld, Hans 0 10,280,000 1.98 1.51
Total, the ten largest shareholders – in terms of shareholding 10,512,000 188,534,238 38.42 43.06
Total, other shareholders 7,701,800 311,346,080 61.58 56.94
Total 18,213,800 499,880,318 100.00 100.00
