2014 Annual Report and Accounts

William Hill PLC

2014 Annual Report and Accounts

27 February 2015

The 2014 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 17 March 2015, together with the Notice of 2015 Annual General Meeting and proxy forms. In accordance with Listing Rule 9.6.1, a copy of the 2014 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 2014 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 2014 Annual Report. Page or note references in the text below refer to page numbers and note numbers in the 2014 Annual Report.

Managing our risks

Assessing risk and putting steps in place to respond appropriately is essential both to protect our Group and to make correct business decisions affecting our future. Over recent years, we have successfully dealt with significant regulatory, fiscal and operational change whilst sustaining growth and expanding internationally. We understand the need to balance the amount of risk we take with the opportunities the Group identifies. Our Board also determines a lower risk appetite in key areas such as regulatory compliance and customer service.

Prioritising risks

We have set out our key risks as assessed by the Executive Management team and approved by the Board. We also 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. The narrative outlines how the Group is placed to deal with risks as they impact the business.

Our approach

The Board is responsible for the process 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 operational results, strategic and financial goals, and is 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 individual businesses.

At the individual business level, risk assessments identify risks outside of defined appetites and local management are tasked with developing 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 Management Committee. An annual assessment is also conducted and reported to the Audit and Risk Management Committee as to the effectiveness of the risk management processes for the year.

Below is a summary of 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 21 to the financial statements.

Area of risk: Change in regulatory requirements

Likelihood: high

Impact: high

Change: stable

What's the issue?

The Group's growing international reach, alongside developments in the UK regulatory landscape, drives continually evolving regulatory challenges for the Group. During the period the Group has successfully adapted to changing regulatory requirements in key territories and a change in the regulatory regime for our Online business. Whilst regulatory change may lead to the opening up of key opportunities, it also has the potential to negatively impact our business, through restricting betting activities or driving increased compliance costs.

What are we doing to address the issue?

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. We remain wholly confident that our investment in our compliance and assurance functions allows us to identify, understand and address changing regulatory requirements in an efficient and effective manner.

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 open manner towards our customers. We have also engaged with the EU and Treasury in respect to the draft EU 4th Money Laundering Directive.

In addition to our ongoing support and continued adherence to the voluntary ABB Code, William Hill (in conjunction with Ladbrokes, Coral and Paddy Power) was instrumental in creating, and has agreed to fund, the recently launched Senet Group, which aims to promote responsible gambling standards and to hold its members to account. Led by an independent Standards Commissioner, Senet's independence and objectivity is guaranteed by its Board structure.

We maintain dialogue with regulators and other key stakeholders in our licensed territories internationally, 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 on a non-locally licensed basis.

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.

Area of risk: Fiscal change

Likelihood: high

Impact: high

Change: stable

What's the issue?

The Group is exposed to multiple taxation regimes throughout our international footprint and to the ability of customers to transact with our Online business in certain areas where we do not have a physical presence. There is, therefore, a risk that changes to the taxation status of gambling or the rates at which gambling is taxed in these territories lead to increased costs for the business.

During the year the UK POCT regulations took effect over UK customers betting with the Online business. The Group has also seen increases in payments required by sporting bodies and further discussion on this topic is ongoing. MGD is expected to increase from 20% to 25% on 1 March 2015.

What are we doing to address the issue?

As a scale operator, the UK POCT and other taxation changes represent an opportunity to take market share from those operators who are not well placed to deal with the imposition of the tax. There will be a requirement to ensure that cost savings and efficiencies throughout the Group help to offset the overall impact of this and other taxes. The Group continues to review options and assess its operations in the light of this. For example, during the year a decision was made to close 108 LBOs which were likely to be rendered unviable by the upcoming increase in MGD.

The Group actively engages in relevant government consultations. Our continued international expansion makes the risk of taxation change more likely, if not certain, to some extent across our footprint. However, it actively reduces the reliance on any individual country and will lessen the impact of changes imposed by any one government.

Area of risk: Key supplier relationships

Likelihood: low

Impact: high

Change: stable

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 in key areas a wholesale failure across multiple suppliers would be a catastrophic issue for the business, if rather unlikely.

What are we doing to address the issue?

The Group is investing significantly in core technology platforms which will reduce reliance on third parties as part of our core technology strategy.

During the year we continued to invest in our Group procurement function, including the introduction of a risk-based supplier management process across all key business partners and a series of supplier audits conducted between our procurement, internal audit and business continuity teams.

We have also assessed our supplier relationships and sought to change suppliers or to exit relationships where our needs were not being successfully delivered throughout the Group, including key supplier relationships in overseas territories. We have strong, active working relationships with remaining 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.

Area of risk: Business continuity and disaster recovery preparedness

Likelihood: high

Impact: low

Change: stable

What's the issue?

During the year we experienced two significant business continuity events in our Online business, which served as a sharp reminder that factors outside our control can materially impact our business. However, in both cases our Business Continuity Plans (BCP) allowed us to continue to operate with minimal disruption to our business and with relatively minor impacts on our customers. This clearly demonstrates the value of the existing BCP and flexible IT capability.

Whilst we have dealt effectively with these major incidents, there remains the risk of further impairment of our operations, 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 our ability to offer products and pricing to customers could be seriously curtailed or shut down altogether.

What are we doing to address the issue?

During 2014, the Group has made significant investments in the business continuity planning and disaster recovery fields. The ongoing status of BCP is regularly reviewed by executive management and the Board.

Ongoing investment in enhancing our capabilities in the Group continues, with significant improvements to existing arrangements and practices across the Group. Further 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‑to‑day activities could be curtailed should an incident occur. Work is currently ongoing to allow the Group to deliver on its planned four-hour targets for technical online systems recovery in the event of a major catastrophic incident.

Business owners are key in identifying the criticality of their services and agreeing their recovery requirements with internal and external service providers. We have commissioned multiple recovery sites across the Group which will provide for continuing operations of business critical functions in the event of major incidents and have introduced communication tools which will cascade information and allow management to effectively plug into recovery processes worldwide should BCP be invoked for any reason. These arrangements have also been extended into our material supplier network in the Online and Retail businesses. We will also continue to test and rehearse our people, technology and building services infrastructure to ensure that business continuity capability and readiness is embedded in the culture of the business.

Area of risk: UK and international growth opportunities

Likelihood: medium

Impact: high

Change: increasing

What's the issue?

Globally, a number of governments are changing or considering changing their regulation of gambling, which could present opportunities for William Hill to expand. Further expansion could place increased demands on the capacity of the management team, require additional integration and alignment activities and increase the complexity of the Group's technology landscape.

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 CEO, manages lead identification and

M&A support.

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.

Our results show profitable growth in the Australian and Nevada businesses as we continue to support local management in maturing and expanding their businesses whilst working with our existing operations to effectively share knowledge and products where appropriate.

A core component of our overall strategy is harnessing the significant opportunities omni-channel represents with our leading Online product and our exceptional Retail base.

Area of risk: Data protection and technology risk

Likelihood: medium

Impact: medium

Change: stable

What's the issue?

The risk of cyber attacks, distributed denial of service (DDoS) attacks and 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 likelihood of cyber attacks and impact of such events could increase as we continue to promote the use of online and mobile products and develop our international businesses which have localised regulations to comply with.

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 regulatory security requirements for the jurisdictions in which we operate.

We have made significant investments during the year in our Technology Security team and security protection, and despite being the subject of increased levels of cyber threats, we have successfully mitigated the vast majority of these attacks and have not experienced major service loss as a result of any such attacks during the year.

Our Online business undertakes regular external security scans and has controls in place to mitigate the effects of DDoS attacks against our systems. We work with a number of specialist IT partners to ensure that our security arrangements and systems are well structured and up-to-date with the latest IT security developments.

Area of risk: Regulatory compliance

Likelihood: low

Impact: high

Change: stable

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 or regulatory sanction. Technology solutions put in place to block access to customers from certain jurisdictions may fail. Failure to detect money laundering, fraudulent activities, or customer behaviour indicative of problem gambling could adversely affect our financial condition.

What are we doing to address the issue?

A Group-wide review determined the design and operation of the compliance operations and reporting were 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. 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. As well as a structured programme of responsible gambling interactions we are also deploying data analytics and modelling which seeks to identify a range of problem gambling indicators.

Area of risk: Recruitment and retention of key employees and succession planning

Likelihood: low

Impact: medium

Change: decreasing

What's the issue?

The William Hill Group is an increasingly complex organisation with operations in multiple 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. During the period we transitioned to a new CEO and saw well-managed turnover within our senior management team, as any business of our size would anticipate.

What are we doing to address the issue?

Overall, the Group provides competitive 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. The Board has visibility to key leadership remuneration arrangements through the Remuneration Committee, and the decision to appoint James Henderson as our new CEO during the year was made by the Board following a recommendation by the Nomination Committee.

The Group continues to utilise robust appraisal and goal setting processes and performs annual talent reviews with the senior management team. The Group regularly reviews the levels of employee engagement through an annual employee survey and implements specific action plans to address areas of improvement.

32. 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 £48.3m (52 weeks ended 31 December 2013: £42.5m) from Satellite Information Services Limited, a subsidiary of the Group's associated undertaking, SIS. At 30 December 2014 the amount receivable from Satellite Information Services Limited by the Group was £nil (31 December 2013: £nil).

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 c£86,000 received by directors in respect of dividends on the Company's ordinary shares (period to 31 December 2013: c£60,000).

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. 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 31.

Directors' Responsibility 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 2014 Annual Report. It is not connected to the extracted information presented in this announcement or the preliminary results announcement released on 27 February 2015.

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, 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 Strategic report, which includes the management 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 financial statements, 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.

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

J Henderson N Cooper

Director Director

27 February 2015 27 February 2015

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 around 16,000 people. Founded in 1934, it is now the UK's largest bookmaker with around 2,360 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. The Group generates revenues of c£1.6bn a year.