Posted on 20.03.2007
From one hand, the aim of the Group is to ensure that each Olympic Casino offers the highest quality of gaming and entertainment in a safe and secure environment. The Management is convinced that the focus on quality and comfort will contribute to the Group’s ability to maintain existing and attract new customers, thus ensuring the optimal workload of all of its casinos and having a positive effect on profitability.
From the other hand, the Group recognises the inevitable limitations affecting the potential of the Baltic markets and is committed to the strategy of aggressive expansion on both national and international levels. Expansion within the existing 5 markets (Estonia, Latvia, Lithuania, Ukraine and Belarus) is aimed at maintaining (or capturing) and increasing the Group’s share of the local casino markets by opening new venues in select prime locations. At the same time, further expansion to the hitherto untapped new geographic markets is viewed as the inevitable path in order to increase the overall revenues and profits of the Group.
Implementing the Group’s strategy requires constant and careful attention to a number of key areas, which are briefly summarised below.
Implementation of strategy: increasing profitability of existing venues
Maintaining highest standards of service and quality of gaming environment
The markets in which the Group operates or intends to operate in the future are mostly characterised by less-than-outstanding service standards across the whole services sector of the economy. This is especially true for casino business, which is still something of a novelty for most Eastern European countries. The Group is determined to stand out against this background by offering the highest quality of gaming experience in a safe and secure environment. This strategy has proved to be highly effective in the Baltic States and, in the opinion of the Management, may yield even greater results in Ukraine and Belarus, as well as other East European markets, contributing to the Group’s ability to acquire and maintain significant market shares in all jurisdictions in which it operates.
Developing a distinctive trademark
The implementation of the Group’s strategic objective requires that a uniform façade is maintained and developed across all markets in which it operates. In the Baltic States, customers have already come to associate the Olympic brand name with high standards of service and safety. A distinctive and recognisable trademark is yielding direct benefits in terms of financial results by attracting a bigger clientele and decreasing the time needed for each new venue to start generating revenue at full capacity. In addition to conventional advertising and marketing, the Group intends to develop its brand name through the possible expansion of online marketing and services in jurisdictions where the applicable legislation permits doing so (see more under “Operations - Marketing” in Prospectus).
Taking avail of e-commerce opportunities
Although online gaming services are often subject to heavy restrictions, the Group is carefully looking into the e-commerce opportunities that present themselves within the applicable legal framework. Expansion into online services sector would offer an opportunity to develop the distinctive trademark of the Group and eventually attract more customers to its land based casinos. For these purposes, a separate position of the Chief E-Commerce Officer was established within the Group’s management structure.
Given the restrictions applicable to online gaming in the Baltic States (with a moderate exception of Latvia), the Group considers the possibilities of developing online services primarily in relation to other Eastern-European markets. At the same time, care would be taken not to engage in online services unless the applicable local regulatory framework expressly permits doing so.
Improving the image of gaming
A significant share of the regulatory and demand-side risks that have the capacity of affecting the Group’s business is attributable to the controversial image of gaming across Eastern Europe and the Baltics. In order to ensure legislative stability and increase the number of potential customers, the Group is investing considerable efforts in improving the image of gaming as a whole. This is achieved through active involvement in social and charitable programs. The Group is a major contributor to charitable and sports organisations (to illustrate, 2005 saw the Group as the principal sponsor of the Estonian Olympic Committee and the silver sponsor of the Baltic Basketball League) and a keen participant in corporate social responsibility initiatives (the Group commits significant and increasing efforts to implementing measures to combat gaming addictions and underage gambling).
In addition, the Group is willing and able to demonstrate that gaming, when organised in a safe and controlled environment, can offer quality entertainment without the perils that are customarily associated with games of chance. To this end, Olympic Casinos typically host a wide range of services including poker tournaments, cultural events and other social occasions.
Participating in administrative dialogue through professional associations
The Group is fully conscious of the fact that its industry is heavily prone to effects of legislative and administrative change. It is important that any changes are prepared with care and diligence, and that gaming operators have their say in the future of the industry. To this end, associations of gaming operators have been established in all jurisdictions in which the Group operates with the exception of Belarus. The local entities of the Group are either among the founders of or are active members in associations of gaming operators in the Baltic States and Ukraine. The Group is also a full member of the European Casino Association (http://www.europeancasinoassociation.org).
In Estonia and Latvia, chief executives of the relevant associations of gaming operators are the representatives of the Group. In Lithuania and Ukraine, the local Group entities are among the most active participants of the relevant associations. The Group takes an active stance on corporate social responsibility and through the professional associations it is constantly seeking constructive dialogue with the relevant authorities.
The Group intends to remain an active participant in professional associations and intends to offer every possible support and assistance to such bodies in order to improve the image of gaming and ensure that legislative changes are driven by economical and ethical considerations rather than based on emotional and populist decisions.
Implementation of strategy: continued expansion
Developing the structure of the Group
Rapid expansion of the Group’s business to 5 countries (not including Poland) has created certain practical difficulties which would in theory have the potential to inhibit further growth. Among such difficulties are the administration of intra-Group financing relations, the allocation of management resources and certain other aspects of day-to-day international operations. The Management is actively involved in streamlining the corporate and operational structure of the Group in order to facilitate ongoing and future expansion. In particular, internal financing rules and transfer pricing policies are currently in development, while new management resources are being prepared under the recently launched management training program (see respectively “Operations - Financing Matters” and “Operations - Employment” in Prospectus). Numerous other initiatives are being implemented to ensure that significant increases in the number of countries and venues will not affect the manageability of operations.
Pursuing an aggressive acquisition policy
The Group has increasingly considerable experience in entering new markets and expanding its existing market share through corporate acquisitions. So far, a number of operators have been taken over by the Group, including the recent acquisition of Latvia’s second biggest casino operator – Baltic Gaming (see more under “Operations - History and Development of the Group” in Prospectus). The Group intends to remain on the lookout for suitable acquisition targets both in the countries where it already has a presence and in new markets. In many cases, acquiring existing operations holds multiple benefits as opposed to entering a market independently: to name but a few, it often allows bypassing usual entry barriers and securing a faster return on investments. The current financial condition of the Group is characterised by strong cash flows and low leverage, which creates significant potential for M&A activities when and where the opportunity materialises.