2013 Annual Report and Accounts

William Hill PLC

2013 Annual Report and Accounts

28 February 2014

The 2013 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 18 March 2014, together with the Notice of 2014 Annual General Meeting and proxy forms. In accordance with Listing Rule 9.6.1, a copy of the 2013 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 earlier today. That information, together with the information set out below, which is extracted from the 2013 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 2013 Annual Report. Page or note references in the text below refer to page numbers and note numbers in the 2013 Annual Report.

HOW DO WE MANAGE OUR RISKS?

The Board acknowledges its responsibility to determine and execute appropriate responses to the potentially significant risks to be addressed in pursuit of the Group's strategic objectives. These actions are taken in the context of a defined risk appetite which has clear standards and definitions and which is reviewed annually by the Board. This is supported by a structured risk management process as defined below.

The Board routinely monitors risks that could materially and adversely affect William Hill's ability to achieve strategic goals, financial condition and operational results, supported by executive management and the Risk and Audit function. Risks are identified and monitored through a series of risk workshops and risk registers, both at the Group level and within the key divisions. Where we identify risks outside of defined appetites, we develop action plans to mitigate the impact of them with clear allocation of responsibilities. Progress is monitored at the executive level and reported upon to the Board's Audit and Risk Committee. An annual assessment is also conducted and reported to the Audit and Risk Committee as to the effectiveness of the risk management processes for the year. Below is a summary of what the Board's assessment and response to the principal risks facing William Hill. A more extensive list of risks is provided in the investor relations section of our corporate website at www.williamhillplc.com. An explanation of how the Group manages its various financial risks is provided in Note 22 to the Accounts.

Area of risk

UK and overseas regulation

What's the issue?

Our continued internationalisation, alongside developments in the domestic regulatory landscape, presents continually evolving regulatory challenges to the Group. At the same time, the regulatory position in online gambling is changing rapidly, particularly in Europe where several countries are implementing tax and regulatory regimes. The European Commission is also reviewing its Money Laundering Directive and it has been suggested in its latest directive in draft that this be extended to encompass betting shops for the first time. This directive also applies to all our European licensed businesses, including Gibraltar. Our scale and position within the market sets the expectation that William Hill will be a leader in regulatory compliance and standards in the industry.

What are we doing to address the issue?

· We actively engage with both the UK Government and opposition parties to discuss the measures by which we fulfil our obligations under the licensing objectives in the UK, in terms of protecting the vulnerable (particularly by setting standards in promoting responsible gambling), keeping crime out of our business and behaving in a fair and responsible manner towards our customers.

· In 2013, we established with the rest of the British retail betting industry the voluntary ABB Code, which shares best practice on the provision of responsible gambling information, interactions with customers and tools to enable customers to better control their gambling in the betting shops.

· At an international level, we continually monitor the changing legal landscape and adapt our strategy on a country-by-country basis to changes in regulation. A high proportion of Online's revenues are derived from licensed territories, which mitigates risks associated with operating in territories without specific licensing regimes.

· Senior management are responsible for regulatory issues and work with an internal team and various industry bodies to build relationships with political decision-makers and to make representations to governments. The Group actively engages in relevant government consultations, such as the stakes and prizes review undertaken in 2013.

Area of risk

UK and overseas taxation and duties

What's the issue?

In the current economic climate, governments may seek to tax the gambling industry more to increase their revenues. In addition, many governments are introducing new taxation regimes as they change regulations to take account of online gambling. In particular, the expected introduction of the UK Point of Consumption tax will drive changes to the dynamics of operating in the UK online market.

What are we doing to address the issue?

· The Group actively engages in relevant government consultations. For instance, we supported reports by Deloitte and Gambling Compliance to help inform HM Treasury about the implications of different online taxation models.

· As a Group, we are seeking to reduce our exposure to the UK, which accounted for 85% of 2013 revenues down from 91% in 2012, by investing selectively in other territories.

· We are already preparing for the expected introduction of the Point of Consumption tax in the UK in December 2014. While we believe this represents an opportunity for William Hill, as a scale operator, to take market share from other operators who are weakened by the imposition of the tax, we are also reviewing ways to offset some of the additional cost through savings across the Group.

Area of risk

Key supplier relationships

What's the issue?

The Group is dependent on a number of key suppliers for operations, software, systems, marketing and customer services in both Retail and Online. Contractual, operational or financial failures could cause significant damage to the business and multiple supplier failure would be a catastrophic issue for the business.

What are we doing to address the issue?

· We have strong, active working relationships with key strategic and software partners, with identified executives managing key relationships.

· All significant contracts and service level agreements go through a robust procurement process to ensure terms and service levels provide effective protection for the business.

· We monitor key supplier performance and processes are under review to strengthen this further.

Area of risk

Business continuity and disaster recovery preparedness

What's the issue?

The Group's continuity of operation could be impaired, for example by a technology failure or terrorist attack. In particular, the Group is reliant on extensive IT systems and, if our primary systems failed and back-up systems were ineffective, our ability to offer products and pricing to customers could be seriously curtailed or shut down altogether. The growth of Online highlights the need to ensure that Online's disaster recovery capability evolves at the same pace as the live system evolution.

What are we doing to address the issue?

· Business continuity planning and disaster recovery are regularly reviewed by executive management and the Board.

· Plans have been or are being put in place for all key operations including, where appropriate, the provision of alternative sites that could be accessed at short notice.

· Back-up IT systems have been put in place for a number of business critical systems, generally in different geographic locations from the main system. However, this is not intended to be a full duplication of the operational systems as this would not be cost effective so some day-today activities could be curtailed should an incident occur.

· Investment is currently planned for 2014 to upgrade disaster recovery systems for Online to further enhance capabilities and minimise business interruption in the event of an incident.

Area of risk

UK and international growth opportunities

What's the issue?

The UK accounted for 85% of Group revenues in 2013. While this is reducing as a result of our international expansion strategy, it remains a substantial proportion of our revenues and increasing our UK market share continues to be a key growth driver in our short- and medium-term strategy. Globally, a number of governments are changing or considering changing their regulation of gambling, which could present opportunities for William Hill to expand.

What are we doing to address the issue?

· We perform extensive analysis of different markets and closely monitor regulatory changes in different countries to identify expansion opportunities. The Corporate Development Office, reporting to the Group Finance Director, manages lead identification and M&A support, such as the US acquisitions and the Australia acquisitions.

· Online is targeting its international expansion on a small number of territories (primarily where we can take a local licence), ensuring focused investment of marketing spend in priority markets.

· Acquisitions made in Nevada and Australia give the Group a foothold in new markets and reduce our dependence on the UK.

· We continue to invest in product channel offerings to make our products attractive to customers.

Area of risk

Data protection and technology risk

What's the issue?

The risk of cyber attacks, distributed denial of service (DDoS) or unauthorised access is a key issue for the industry and the wider online world. In addition, failure to comply with regulations regarding the use of personal customer data could risk litigation or damage to our corporate reputation. The impact of such events could increase as we continue to promote the use of online and mobile products.

What are we doing to address the issue?

· The Group's Retail, Telephone and Online divisions are compliant with the Payment Card Industry Data Security Standard and we regularly test the effectiveness of these systems.

· Online undertakes regular external security scans and has controls in place to mitigate the effects of DDoS attacks against our systems.

· We also continue to increase our capabilities to protect our systems against attacks.

Area of risk

Regulatory compliance

What's the issue?

We have to ensure we have robust processes for meeting the British Gambling Commission's three licensing objectives and for complying with all the regulatory requirements of the jurisdictions in which we operate. Continuing changes in regulation, particularly of online gambling, could result in a regulatory breach and sanctions if not identified in a timely manner and result in damage to our reputation. Technology solutions put in place to block access to customers from certain jurisdictions may fail. Failure to detect money laundering or fraudulent activities could adversely affect our financial condition.

What are we doing to address the issue?

· A Group-wide review determined the design and operating effectiveness of the compliance operations and reporting.

· A specific review, with third party validation, assessed the risks in our Online operation and to ensure that preventative controls for William Hill US are effective.

· We adhere to the Proceeds of Crime Act 2002 in the UK and online gaming is a regulated sector for money laundering. We have dedicated regulatory and compliance teams within the business and we have a number of processes to detect and report suspicious activity, and to handle requests for assistance from law enforcement agencies and regulators, all of which is overseen by the Group's Money Laundering Reporting officer.

Area of risk

Recruitment and retention of key employees and succession planning

What's the issue?

The William Hill Group is an increasingly complex organisation with operations in nine different countries across the world. Our success is driven through the development and retention of a focused leadership team and a number of skilled specialist employees throughout our business. The development of this population of key employees and the appropriate recruitment and integration of new talent to supplement this team underpins our growth strategy, as well as the need to ensure appropriate succession plans are developed and monitored to support our growth in the longer term.

What are we doing to address the issue?

· Overall, the Group provides good salary and benefits packages, including short-term bonuses and long-term share-based incentives, and regularly reviews these for competitiveness.

· All employees are encouraged to become owners of the business through annual Save-As-You-Earn programmes.

· Where appropriate, reward and retention packages are put in place with individuals at risk of being targeted by headhunters.

· The Board has visibility to key leadership arrangements through the Remuneration Committee and undertook a thorough review of executive and senior management remuneration in 2013.

· Over the last three years, the Group has conducted an annual talent review process. In 2013, this involved the top 240 managers across the entire Group.

· The Group regularly reviews the levels of employee engagement through an annual employee survey and implements specific action plans to address areas of improvement.

· A process is underway to identify a successor for the Chief Executive as Ralph Topping has indicated his intention to retire by the end of 2015. This process, which is being led by the Chairman and the Nomination Committee, is reviewing both internal and external candidates.

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

Associate

During the period the Group made purchases of £42.5m (53 weeks ended 1 January 2013: £41.3m) from Satellite Information Services Limited, a subsidiary of the Group's associated undertaking, SIS. At 31 December 2013 the amount receivable from Satellite Information Services Limited by the Group was £nil (1 January 2013: £3.1m).

Purchases were made at market price.

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 ca. £60,000 received by directors in respect of dividends on the Company's ordinary shares.

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. Other than the inclusion of dividends and the basis of measurement of share-based payments, all values above are presented on a consistent basis with those disclosed in the Directors' Remuneration Report.

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' RESPONSILITY STATEMENT

This statement is repeated here solely for the purposes of complying with Disclosure and Transparency Rule 6.3.5. This statement relates to and is extracted from the 2013 Annual Report. It is not connected to the extracted information presented in this announcement or the preliminary results announcement released on 28 February 2014.

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). 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 judgements 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; and

· the management report, which is incorporated into 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.

In addition, each of the directors considers that the Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

By order of the board

R J Topping

Director

28 February 2014

N Cooper

Director

28 February 2014

Enquiries:

Luke Thomas

Company Secretary, William Hill plc

Tel: 020 8918 3935

About William Hill

William Hill, The Home of Betting, is one of the world's leading betting and gaming companies, employing more than 17,000 people. Founded in 1934, it is now the UK's largest bookmaker with around 2,430 licensed betting offices that provide betting opportunities on a wide range of sporting and non-sporting events, gaming on machines and numbers-based products including lotteries. The Group's Online business (www.williamhill.com) is one of world's leading online betting and gaming businesses, providing customers with the opportunity to access William Hill's products online, through their smartphone or tablet, by telephone and by text services. 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 is one of the largest online betting businesses in Australia after the Group acquired the Sportingbet Australia business in March 2013 and tomwaterhouse.com in August 2013, two of the leading online corporate bookmakers in Australia, offering sports betting products online, by telephone and via mobile devices. William Hill PLC is listed on the London Stock Exchange and became part of the FTSE100 in May 2013. The Group generates revenues of c£1.5bn a year.