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Our Group risk appetite acknowledges the need to proactively balance risk with opportunity, and knowingly taking an approved level of risk is essential to allowing the Group to advance in its strategic aims. Effective management of these risks is an inherent part of our operations.

Principal risks across the Group are managed on a day-to-day basis by the Group Executive and steps are taken to assess whether the business is within the Group’s risk appetite as set by the Board. Regular operational reporting from the executive and independent assurance provided on the Board's behalf to the Audit and Risk Management Committee ensure that the Board is regularly appraised on how risks are being managed. Particular focus is given to those risks which may threaten our strategic priorities or regulatory compliance.

Prioritising risks

Risk KeySet out below 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.

Area of risk

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Regulatory and political risk

Impact on strategy

Diversification into further regulated markets is a cornerstone of our growth strategy. To succeed in this aim, it is important that we maintain our commitment to upholding the standards required of a regulated business. This expansion in our footprint brings increasing complexity as we seek to maintain the standards required by multiple regulatory bodies, each with differing regulations and approaches to compliance. Whilst we believe that an increasingly diverse market mix reduces the impact and influence of any one regulatory regime, it undoubtedly increases complexity. This is especially true in the US, where we are operating with multiple regulatory bodies as new States open up. These bodies may be largely aligned and our experience operating in Nevada helps ensure alignment, however there are inevitable differences and local reporting requirements.

Our 2018 regulatory settlement with the UK Gambling Commission, which related to historic failures, particularly around sources of funds, brings sharply into focus the need to continually test and monitor how we conduct our business and ensure we remain aligned to the expectations of regulators and our shareholders.

We not only look to meet the requirements a regulatory body sets us, but also through our Nobody Harmed ambition we are setting expectations that William Hill will continue to strive to be seen as a leader when it comes to operating responsibly and in a sustainable manner.

Further the regulatory and taxation environments are not static. Political changes can materially alter our risks and the rules we abide by. Looking forward we now have certainty over the timing of the changes arising from the Triennial Review, however there remains continuing political uncertainty over Brexit and how this will impact the European licensing of the Group or possibly taxation, and there have been recent changes to TV advertising with a voluntary ‘whistle-towhistle’ ban. Further evolution in 2019 is inevitable.

What are we doing to address the issue?

Due to the breadth and scope of our business maintaining and ensuring a compliant position is challenging, but this remains our absolute goal. We have significantly bolstered our Compliance functions, addressing areas where improvements can be made to ensure that roles, responsibilities and processes remain efficient, effective and aligned to our licensing requirements. A full review of our compliance and anti-money laundering responsibilities, processes and operations has been led by the Group Counsel with external expertise to support, and will continue throughout 2019. We have made a commitment to ‘go one better’ in our responsible gambling processes and procedures through the publicly announced Nobody Harmed ambition which is being used to drive improvements to the way we protect and support customers throughout the business.

We have clear plans around the mitigation of the impact of the Triennial Review on the Retail business, and despite the short-term impact of the review, we remain committed to the successful and profitable operation of the Retail estate.

The Group has increased diversification of operations to reduce the impact of changes in any one market through expansion in the US and the acquisition of Mr Green, opening up further European markets. We maintain relationships with regulators, tax authorities and other stakeholders in our licensed territories internationally, continually monitoring the legal landscape and adapting our strategy on a country-by-country basis to changes in regulation.

We have well-resourced in-house Compliance functions which have been boosted throughout 2018 and have compliance officers in all our strategic business units who are aligned to and engaged with local management teams, ensuring compliance retains a voice at the top table in each location. Our Compliance functions operate independently of operational management to both support management’s compliance obligations and provide ongoing assurance over adherence to local requirements.

We also engage with governments and regulators on a pro-active basis when changes to regulation are proposed and actively contribute to public consultations 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.

Cyber crime and information security

 

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 cyber crime or malicious activities requires sophisticated protection techniques and growing investment to mitigate against them.

Furthermore, this threat landscape continues to evolve and ongoing investment is required to mitigate the risks. The nature of 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 internally. We have also undertaken changes to our network structures to reduce our exposure to external threats. Cyber threats have had continuing prominence at Executive meetings and Board or Committee meetings throughout the year. The threat continues to evolve 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.

Competitive landscape

Impact on strategy

2018 has seen material and unprecedented changes in the industry, specifically with PASPA being overturned in the US. This opportunity has seen a series of strategic partnerships formed across the industry between European operators with established sports betting platforms and operators with a local presence. Our strategy has been to tailor our response on a state-by-state basis, enabling William Hill to have a presence in all relevant states to date. Whilst results to date are encouraging, there remains a risk that the opportunity is not fully grasped and investments made do not meet expectations.

Our existing digital business continues to operate in a crowded and competitive market. With respect to the gaming element, our investment in Mr Green provides access to further European markets, new content, a Malta operator’s licence and additional expertise and capability through the colleagues who have joined.

Our Retail business is focused on addressing the challenges laid down by the Triennial Review decision, which will drive substantial structural change across the LBO sector over the coming years.

The need for investment to secure these opportunities is clear and the business must carefully manage both the cost and the financial implications of such investments and any subsequent implications for its funding arrangements.

Of course as we make such changes, so do others in the market, emphasising the continuing competitive nature of the industry and the significant interest in the US opportunity.

What are we doing to address the issue?

Through carefully selecting strategic partners and key suppliers in the US we have been able to diversify into all states currently regulating sports betting and have the ability to expand quickly into other states as they regulate. Further relationships are constantly under review to allow us to increase our footprint in existing markets or ensure we are in a position to be at the front of the queue when new markets open up.

The partnerships we have entered into are free from onerous, restrictive terms which allows us the flexibility to look at future strategic options as the details of each new state emerges.

As well as having an established brand name in the US through our existing Nevada business, we became the first business to agree a sponsorship deal with a major US sport franchise in the form of the Vegas Golden Knights ice hockey team and have a similar agreement with the New Jersey Devils.

We continue to develop our marketing activities in order to increase our brand awareness and develop market share in both our Retail and Online channels in the US.

Our response to the Triennial Review decision includes product innovation to offer alternatives to B2 gaming, as well as remodelling the estate and the business.

We continue to invest in improving our product and the customer experience across our Online business. The utilisation of data analytics drives insights that help us to understand our customers and tailor our offering and marketing accordingly.

Our acquisition of Mr Green further reduces our reliance on the core UK market and increases the online share of Group revenue. A strength of the Mr Green management team lies in growing international markets, allowing best practices to be shared across all our brands. Both the US and Mr Green businesses benefit from the support they receive from William Hill management, central functions and technical teams.

The Group will continue to carefully manage its investments, which are well controlled and governed. However, it is feasible that the Group would seek to consider other options for investment in new US states should the need arise, which is made possible through our flexible strategy in the US to date.

Delivery of IT strategy

Impact on strategy

To succeed we must develop our services from commodity-driven offerings. It remains important to enhance customer experience through our time to market, front-end flexibility and performance, 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.

Specifically, as our US business grows we must ensure that our technology platforms are fit for purpose to deal with high volumes and varying local requirements, as the offering in each state differs between channels and partnerships. The complexity of our technologies and our changing business needs means that execution within IT is a key area of management focus.

What are we doing to address the issue?

We continue to evolve our technology services and throughout the year have invested significantly to ensure that the right technology foundations are put in place to meet our customer needs. This includes progressing delivery of a new US technology solution to go live in 2019, incorporating the newest elements of the Group’s existing platform and a bespoke Player Account Management system from NeoGames, whose solution is more feature-rich than any sports betting platform currently live in the US.

We also continue to invest in our Krakow team to further enhance our development capabilities and increase the efficiency of core operations. Additionally, the investment in Mr Green adds fresh development capabilities to the Group.

 

Talent engagement and retention

 

Impact on strategy

We have already talked to the high levels of change across the industry, and the changing focus of the business as we continue to diversify geographically. Further, regulatory changes, specifically the Triennial Review, have instigated the need to take tough decisions around core parts of the existing business.

We have also acquired key talent through Mr Green, and continue to align our development and technology teams across our Group footprint.

The recruitment needs of the US business are challenging and, as with all large employers, the maintenance and development of our existing teams is a big task.

As such, there is a risk that if we do not fully engage with and support our human resources we may suffer the loss of key individuals, and the knowledge/capabilities they hold. There is a clear cost related to keeping such talent, as well as associated costs when they have to be replaced.

What are we doing to address the issue?

This risk was acknowledged on the 2016 and prior corporate risk assessments. In 2017, given the transition to a revised core leadership team and upscaling of HR capabilities, including changes to the talent development and retention programmes, this risk was removed as a top corporate level risk, although it remained as a priority of operational management.

As such, whilst we add this back into our assessment of principal risks due to the factors noted above, we remain confident in our ability to resource our business  effectively and efficiently. We have significantly upskilled our HR capability, including the talent development model, over recent years whilst continuing to supplement our home-grown talent with external hires to bring in new thinking and ideas from the industry and beyond.

The US opportunity also provides secondment and promotion opportunities for high-achieving employees, and similarly in the long term will increase the available talent pool back to Group.

Talent risk management is focused on engagement with staff, and supporting staff through the changes in the business so that key staff in particular are retained to help drive the business forward.

 

Programme optimisation

 

Impact on strategy

During 2019 our transformation programme will be formally brought to a close and projects which remain open have already been transferred into the core business for ownership and oversight. The formal transformation programme delivered material change across the business, but that is not to say that the William Hill environments are now in a steady state. We continue to drive change where required and make key decisions to deal with our rapidly evolving competitive, technological and regulatory environments.

Delivering a continuing level of change as the ‘norm’ has the potential to impact core business if not properly managed. The business faces into change in Retail as we mitigate the impact of the £2 stake limits on B2 gaming products announced through the Triennial Review; there are resource requirements to support the expansion of our US business; this growth must be aligned to our ongoing tech developments, and the integration of Mr Green all represent a level of change which have the potential to draw resource and focus away from business as usual.

What are we doing to address the issue?

We have transitioned control over our portfolio of work from a third-party consultancy firm, bringing programmes back into our core business units and under the management of William Hill staff and Executive sponsors. Solid discipline in programme and portfolio management has been enhanced through working with the third party and stronger governance models on all project-style work is a beneficial legacy of that period of change. Better, simplified programme and project reporting is now embedded and a clearer picture is presented to our business leaders as part of business as usual.

Programmes with significant business impact are also prioritised under the Internal Audit plan with multiple reviews scheduled throughout the year, as well as considering the need for external specialist support. With these developments in mind, we believe the likelihood of this risk having a significant impact has decreased compared to the prior year.