2017 Annual Report and Accounts

The 2017 Annual Report and Accounts, incorporating the audited financial statements, have been published today and are available as a PDF document on the Group's corporate website at www.williamhillplc.com. Notifications will be sent to shareholders who have opted for electronic communication.

Copies of the Annual Report will be posted to shareholders on 13 March 2018, together with the Notice of 2018 Annual General Meeting and proxy forms. In accordance with Listing Rule 9.6.1, a copy of the 2017 Annual Report is being uploaded today to the National Storage Mechanism and will shortly be available for viewing.

A condensed set of the Company’s financial statements and information on important events that have occurred during the financial year and their impact on the financial statements, were included in the preliminary results announcement released on 23 February 2018. That information, together with the information set out below, which is extracted from the 2017 Annual Report, is provided in accordance with the Disclosure and Transparency Rule 6.3.5 which is required to be communicated to the media in full unedited text through a Regulatory Information Service. This information should be read in conjunction with the Company’s preliminary results announcement. This announcement is not a substitute for reading the full 2017 Annual Report. Page or note references in the text below refer to page numbers and note numbers in the 2017 Annual Report.

Managing our risks

As we drive towards the delivery of our strategy, incurring change and investing to support our growth, it is important we understand the risks we face and take proactive action to manage our exposure to that risk.

Our targets cannot be met without taking an element of risk, but focusing on the potential implications allows us to take action to mitigate where necessary, or potentially to knowingly take balanced risks to capitalise on opportunities. The extent to which we seek to accept risk, after mitigations, must be balanced with safeguarding our operations and stakeholder needs.

Our Board are the ultimate owners of our Risk Management process, with day-to-day management of risk delegated to the Group Executive, guided by an agreed-upon risk appetite. Regular operational reporting from the Executive and Internal Audit team to the Audit and Risk Management Committee ensure that the Board is regularly apprised of how risks are being managed. Particular focus is given to those risks which may threaten our strategic priorities or regulatory compliance.

Our approach

The Board is responsible for oversight and approval of appropriate responses to potentially significant risks in pursuit of the Group’s strategic objectives. During the year the Board re-affirmed the existing risk appetite as being appropriate. The Board confirms that its assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity, and which are set out in this ‘Managing our risks’ section, was robust.

Each defined business unit has fully considered their own risk profile which has been appraised, challenged and approved by the Executive, with a consolidated view presented to the Board. The Group Executive are charged with managing risk, and undertake these duties through specific review of the risk assessment in the Committee, as well as formally considering risk as part of the investment appraisal process, Group and regional capital expenditure and project appraisals, review of key changes and through discussion with the Board as part of Group strategy days.

Throughout 2017 we have undertaken detailed bottom-up risk assessments in business units and support functions, highlighting key risks, their current mitigations and areas which require further action. This was presented to the Group Executive to support a consolidated assessment and prioritise areas for action and assurance. This process is ongoing throughout the year and continues to evolve alongside our risk profile.

Set out on the following pages is the Board’s view of key risks currently facing the Group, along with commentary on how this directly affects our strategic goals. Setting these risks out in priority order, we provide a view on the likelihood of these risks crystallising in the coming year and the potential impacts, along with an indicator of the change in risk compared to the prior year assessment.

An explanation of how the Group manages its various financial risks is provided in note 23 to the financial statements.

Area of Risk: Regulatory Compliance and Change

Likelihood: High
Impact: High
Change: Stable

Impact on strategy

William Hill remains committed to upholding the standards required in all of our licensed territories. In our primary market, the UK, the impact of the Triennial Review is still to be finalised, but our continuing dialogue with the UK regulator allows us to focus on the need to monitor and evolve our ways of working to ensure that we remain a business with compliance embedded into its key operations.

Holding licences in key markets is an essential part of our growth strategy and therefore a breach of local licensing regulations is a clear risk. Further, the complexities of regulation in multiple jurisdictions must be carefully managed. This multi-territory licensing drives a need to continually update processes and controls which seek to ensure compliance, and to review the ongoing changes to our business to assess the impact on our licensing position. Changes to regulations in each of our licensed markets may have a negative impact on Group results.

What are we doing to address the issue?

Given the breadth and scope of our business, and the multiple territories and regulated markets we operate within, it is an ongoing challenge to maintain a fully compliant position, but this remains a cornerstone of our strategy. We support sustained investment in our compliance and other assurance functions to identify, understand and address changing regulatory requirements in an efficient and effective manner. We actively engage with the UK Government and significant other parties to discuss the measures by which we fulfil our obligations under the licensing objectives in the UK.

We provide ongoing support and continued adherence to the voluntary ABB Code, and remain a committed member of the Senet Group, which aims to promote responsible gambling standards and to hold its members to account.

We maintain a dialogue with regulators and other key stakeholders in our licensed territories internationally, continually monitor the changing legal landscape and adapt our strategy on a countryby-country basis to changes in regulation. A high proportion of Online’s revenues are derived from licensed territories, which mitigates risks associated with operating on a non-locally licensed basis.

We have well-resourced in-house compliance functions and have compliance officers in all of our strategic business units who are a core part of the local management teams, ensuring compliance has a voice at the top table in each location. Our Compliance processes and controls across the group are well established and the compliance functions operate independently of operational management to both support management’s compliance obligations and to provide ongoing assurance over the adherence to local requirements. A bi-monthly Group Compliance Committee provides all compliance officers with direct access to senior Group leadership including the Group CEO, and ensures compliance issues are shared across the Group to allow for the identification of trends and common issues.

We also engage with governments and regulators on a pro-active basis when changes to regulation are proposed and we actively contribute to public consultations. This is designed to promote the consideration of the interests of the Group and the industry before regulation is finalised. The Group Risk and Audit function also considers regulatory compliance as a core part of audit delivery, reporting directly to the Audit and Risk Management Committee, as an independent third line of defence.

The Board has considered the potential impact of an unfavourable ruling from the Triennial Review of staking limits and gaming, is developing alternative strategies depending on a range of outcomes and will continue to apply its existing dividend policy of a payout ratio around 50% of adjusted earnings, which could lead to reductions in the dividend per share.

Area of Risk: Cyber Crime and IT Security

Likelihood: High
Impact: High
Change: Increasing

Impact on strategy

The ability to provide a leading offering to retain and attract customers, and the associated complex back-office functionality we require, is underpinned by significant investment in proprietary technology and carefully selected third party offerings. In the course of operating these technologies and delivering services to customers, we also need to store and process a wide range of data, including customer and employee data. Increasing threats to these technologies, and the privacy of associated data, from cybercrime or malicious activities requires sophisticated protection techniques and growing investment to mitigate against them. Furthermore, this threat landscape has evolved particularly rapidly over the course of the last year, as evidenced by the volume of high-profile incidents throughout 2017, and continues to do so. The sports betting and online gaming industries, and the increasing digital footprint of our global operations, means that this risk is a material threat facing the Group.

What are we doing to address the issue?

As a large multi-national technology based business we remain a target for attacks such as sustained DDoS activity or account enumeration attacks. We continue to work with leading prevention and mitigation partners globally to prevent and react to such attacks. The level of threat activity continues to be high across the Group, but steps taken to prevent or to swiftly and successfully address rapidly emerging threats continue to support the value of investments made in this area.

As well as working with a range of specialist security firms to enhance, review and test our defences against these threats, we continue to invest significantly in our in-house capabilities. We have also undertaken changes to our network structures, with further changes planned, to reduce our exposure to external threats.

Cyber threats have had consistently high levels of air-time at Executive meetings and Board or Committees meetings throughout the year. The threat continues to change and it is clear that no company or sector is immune. We believe our exposure is being well managed and continue to be vigilant and not complacent.

Area of Risk: Programme optimisation

Likelihood: Medium
Impact: Medium
Change: Stable

Impact on strategy

In the prior year we specifically noted a risk in relation to our transformation programme. That programme has progressed significantly and involves a considerable number of initiatives which have delivered, or are due to deliver, material change across the business. The mechanisms for managing this change and ensuring the cumulative effect is well understood are now embedded in our ways of working and will likely continue beyond the formal period of transformation itself. However this level of change is both time and resource heavy and must be delivered alongside other day-to-day activity, business change and externally imposed compliance initiatives such as the GDPR programme. Delivering such widespread change has the potential to impact core business processes, disrupt staffing models and adversely affect existing development roadmaps or business-as-usual activity if not properly managed. For this reason we have widened the definition of the risk to include the need to effectively direct resources in order that programmes are delivered in an optimal way. 

What are we doing to address the issue?

We continue to work with a leading global consultancy firm who bring significant experience in delivering wide-reaching programmes of this type, which is now aligned to their in-depth understanding of William Hill’s ways of working. The cadence of oversight and operational meetings across the transformation is now embedded in our business and the information needs of each management group is well understood. A fully resourced programme office is in place to manage the delivery timelines, dependencies and resourcing requirements in order to minimise delivery risk and the impact on existing plans. Where other significant programmes or business needs are likely to clash with the transformation roadmap, they are discussed with the Group Executive and, if necessary, brought under the same governance model to ensure that all conflicting needs are understood and can be managed.

Each initiative is sponsored by a member of the Group Executive and led by a member of the senior management team within the relevant business unit to ensure full visibility of the impacts of change.

Programmes with significant business impact are also prioritised under the Internal Audit plan with multiple reviews scheduled throughout 2018, as well as considering the need for external specialist support.

Area of Risk: Competitive Landscape

Likelihood: Medium
Impact: High 
Change: Increasing

Impact on strategy

The challenge to acquire, retain and service customers remains a significant challenge across the industry. Competitor mergers have transitioned from proposed deals into the process of merging and refining their offerings throughout a period of transition. Meanwhile, new opportunities continue to arise, such as the prospect of international growth should the US Supreme Court opinion lead to the repeal of PASPA and open up new territories for licensed sports betting on a state-by-state basis.

Failure to differentiate and meet the needs of our customers may lead to a ‘race to the bottom’ on pricing, this being a natural outcome for those who serve commoditised offerings. Meanwhile, selecting the right business model and maximising the opportunities, should states open up in the US, will go a long way to determining success.

What are we doing to address the issue?

We continue to offer our customers an increasingly personalised experience, without resting on our laurels. Investment in product development is continuing and our commitment to strengthening the Krakow (Grand Parade) development capabilities is a clear indication of this. We continue to leverage the significant efforts put in place to develop our UNO database and during the year introduced our William Hill Plus Card as a demonstration of the strategic strength of aligning our Retail and Online offerings.

The industry experience of the Board and key management positions aligned to operational excellence and insights brought in from other industries is driving a continuous improvement culture at William Hill, and this leaves us well placed to continue to evolve in established markets. Our long-term investments in the US, through our Nevada licence and contribution to the Delaware Sports Lottery leaves us in a position of strength to capitalise on in the US.

Area of Risk: International footprint

Likelihood: Medium
Impact: High
Change: New risk

Impact on strategy

Our Group operates across multiple locations, servicing customers in a large number of markets across the globe, regulated in multiple markets and partnering with third parties worldwide. These operations bring with them significant opportunities for growth or efficient and effective ways of working, however, as is well understood, globally diverse operations carry risk.

Although well established in key locations, the risk continually evolves. For example the ongoing negotiations which will determine the UK’s relationship with our European neighbours. Key services throughout Europe, internally or with key business partners, requires the employment and movement of staff in EU locations; intellectual and physical properties are created and owned across the EU.

The nature of the Brexit arrangements are not yet known and may yet affect our ability to operate under current arrangements.

What are we doing to address the issue?

Our governance model ensures that local CEOs and functional leads have a clear voice in the Executive Management meetings to raise issues specific to a location or region. This model is supported by clear reporting lines from local legal and compliance teams which provide a dual voice to local management and Group functional leads. Other governance meetings such as the Group Compliance meetings provide a platform for consideration of the impact of local changes on the Group with the direct involvement of the Group CEO.

Specifically we have assessed Brexit risk, and at this stage there is no clear material impact on our ability to service customer needs, although this remains under review. This global diversification also presents significant opportunities, such as the potential repeal of PASPA in the US and the opportunities which would be available to us given our significant presence in Nevada already.

We also utilise the geographic spread of our business as an asset in our business continuity planning. Local sites have specific business continuity plans to allow for impacts to a specific location, whilst on a strategic level we consider the ability to switch work across locations and countries should there be wider issues which prevent us operating in any key locations.

Area of Risk: Delivery of IT strategy

Likelihood: Medium
Impact: High
Change: Stable

Impact on strategy

To succeed we must develop our services from commodity-driven offerings. It will be vital to enhance customer experience through our time to market, front-end flexibility, customer analytics and personalisation.

Our global technology footprint comprises a sophisticated combination of core central services and capabilities and more targeted, more localised and business-specific capabilities, delivered from multiple locations, to meet specific local business needs. The complexity of this technology footprint and our changing business needs means that the execution within IT is a key area of management focus.

What are we doing to address the issue?

We continue to evolve our technology infrastructure and throughout the year have made significant investment in ensuring we are fit to meet our customer needs. Our support for the change in ownership of NYX ensures we retain access to a critical supplier whilst also delivering a sound financial result for the Group. The prior year acquisition of Grand Parade continues to drive strong benefits to our technology strategy, specifically to increasing our development capabilities. The roll-out of our proprietary SSBTs across the Retail estate provides us with a market differentiator on the UK high street and has been supplemented by the successful recent launch of our Plus card Omni-channel product.

Area of Risk: IT disaster recovery

Likelihood: Low
Impact: High
Change: Stable

Impact on strategy

As a global business sharing elements of our trading platforms across different time zones, and with a global sporting calendar generating round-the-clock activity, any disruption to core platforms or online
services is likely to have a significant impact on our ability to service customer needs regardless of its timing. It is therefore important that we establish robust disaster recovery mechanisms for such services, to ensure that any customer visible downtime is minimised in the event of disruption.

What are we doing address the issue?

Minimising the impact of any platform or online service interruption to our customers, and the ability to serve their needs is essential. We therefore continue to work on refreshing our IT Disaster Recovery solution for the Online business, as well as leveraging next-generation technologies to continuously improve the underlying resilience of core services. In addition, as we look to drive efficiencies across the Group, we continue to consider whether our current data centre strategy is fully aligned to our needs, including whether opportunities exist to benefit our IT Disaster Recovery posture.

For our US and Australian businesses, separate local IT Disaster Recovery facilities, plans and processes are also in place.

We continue to monitor the status of our IT Disaster Recovery capabilities across the Group to ensure that our protective solutions are in line with business requirements, and that remedial action is taken where necessary. The status of our IT Disaster Recovery solutions have been regularly monitored by the Group Audit and Risk Management Committee.

33. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates are disclosed below. Transactions between the Company and its subsidiaries and associates are disclosed in the Company’s separate financial statements.

Trading Transactions

Associates
During the period, the Group made purchases of £52.5m (52 weeks ended 27 December 2016: £50.5m) from Sports Information Services Limited, a subsidiary of the Group’s associated undertaking, Sports Information Services (Holdings) Limited. At 26 December 2017, the amount receivable from Sports Information Services Limited by the Group was £nil (27 December 2016: £nil).

The Group made no purchases from its associated undertaking, NeoGames. At 26 December 2017 and 27 December 2016, no amounts were due to or from NeoGames.

All transactions with associates were made on market terms.

The Group has made available a US$15m loan facility to NeoGames, of which $nil is drawn down.

Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 ‘Related Party Disclosures’. 

The disclosures above include c£46,000 received by directors in respect of dividends on the company’s ordinary shares (period to 27 December 2016: c£26,000).

The values presented above include share-based payments measured in accordance with IFRS 2. This is a different basis from that used for the presentation in the directors’ Remuneration Report (‘DRR’). In addition, the above includes bonuses on a paid basis, whereas the DRR includes them on an accrued basis. Other than the inclusion of dividends, the timing of bonus inclusion and the basis of measurement of share-based payments, all values above are presented on a consistent basis with those disclosed in the DRR.

Pension schemes
The pension schemes of the Group are related parties. Arrangements between the Group and its pension schemes are disclosed in note 32.

DIRECTORS' RESPONSIBILITY STATEMENT

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including FRS 101 ‘Reduced Disclosure Framework’. Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period.

In preparing the parent company financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. 

In preparing the Group financial statements, International Accounting Standard 1 requires that directors:

• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and
• make an assessment of the Company’s ability to continue as a going concern. 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
• the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
• the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. 

This responsibility statement is approved by the board of directors and is signed on its behalf by:

Philip Bowcock
Chief Executive Officer
23 February 2018

Ruth Prior
Chief Executive Officer
23 February 2018

Enquiries:

Luke Thomas
Company Secretary, William Hill plc
Tel:  (00 44) 207 612 3090 

About William Hill PLC

William Hill, The Home of Betting, is one of the world's leading betting and gaming companies, employing around 16,000 people. Founded in 1934, it is the one of the UK's largest bookmakers with around 2,340 licensed betting offices that provide betting opportunities on a wide range of sporting and non-sporting events, and gaming on machines, providing customers with the opportunity to access William Hill's products online, through their smartphone or tablet. William Hill US was established in June 2012 and provides land-based and mobile sports betting services in Nevada, and is the exclusive risk manager for the State of Delaware's sports lottery. William Hill Australia was established in 2013 when the Group acquired Sportingbet and tomwaterhouse.com. It offers sports betting products online, by telephone and via mobile devices. William Hill PLC is listed on the London Stock Exchange and is a member of both the FTSE 250 and FTSE4Good Indices

William Hill PLC, Press team

Tel +44 (0)20 8918 3732

Email pressteam@williamhill.co.uk