REG - GVC Holdings PLC - Final Results <Origin Href="QuoteRef">GVC.L</Origin> - Part 5
23/03/2017 07:07
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conversion of the loan funds into
GBP and to pay for initial costs including loan arrangement fees. Accordingly, E20m was drawn down immediately on entering
into the contract. The balance of E380m was drawn down on 1 February 2016. This loan was repaid in January 2017 and an
alternate bridge financing facility of E250m provided by Nomura International plc was drawn down. This loan itself was
then replaced with a long term institutional loan in March 2017 (see note 30).
The acquisition of bwin.party included an institutional loan of E39.4m due to Royal Bank of Scotland Plc. This loan was
repaid after the acquisition date in February 2016.
Principal Interest and fees EarlyRepaymentoption Total
Em Em Em Em
Loan balance at 1 January 2015 - - - -
Initial drawdown 20.0 - - 20.0
Initial costs and loan servicing fees paid - (0.8) - (0.8)
Interest instalments - (0.6) - (0.6)
Effective interest (note 4) - 1.2 - 1.2
Loan balance at 31 December 2015 20.0 (0.2) - 19.8
Loan drawdown 380.0 - - 380.0
Arising on business combinations 39.4 - - 39.4
Revaluation of loan balances (0.4) - - (0.4)
Loan repayment (52.5) - - (52.5)
Arrangement fees and loan services fees paid in the prior year - (7.6) - (7.6)
Arrangement fees and loan services fees paid in the current year (7.9) - (7.9)
Fair value of embedded derivatives - - 7.4 7.4
Interest charged - 46.0 - 46.0
Interest instalments paid - (39.7) - (39.7)
Amortisation of loan fees - 23.3 - 23.3
Unwinding of early repayment option - - (4.3) (4.3)
Loan balance at 31 December 2016 386.5 13.9 3.1 403.5
Split between the following as at 31 December 2015:
Current liabilities -
Non-current liabilities 19.8
Split between the following as at 31 December 2016:
Current liabilities 403.5
Non-current liabilities -
17.2 Non-interest bearing loan
As part of the Group's acquisition of Sportingbet PLC, a credit facility was made available to the Group by William Hill
PLC. This loan was fully repaid in February 2016 (31 December 2015: balance of E3.0m).
18. OTHER TAXATION PAYABLE
2016 2015
Em Em
Betting taxes 42.1 1.2
VAT payable 4.3 -
Other taxes 0.8 0.8
47.2 2.0
19. COMMITMENTS UNDER OPERATING AND FINANCE LEASES
19.1 Finance Leases
All finance leases were repaid in 2016 and the Group had no finance leases outstanding as at 31 December:
Within 1 year 1 to 5 years Total
31 December 2016 Em Em Em
Lease payments - - -
Finance charges - - -
Net present values - - -
Within 1 year 1 to 5 years Total
31 December 2015 Em Em Em
Lease payments 0.7 - 0.7
Finance charges - - -
Net present values 0.7 - 0.7
19.2 Operating Leases
The Group leases various offices under non-cancellable operating leases. The leases have varying terms, escalation clauses
and renewal rights. The future minimum lease payments under non-cancellable leases are as follows:
2016 2015
Em Em
No later than one year 5.9 1.2
Later than one year and no later than five years 16.5 0.6
More than five years 4.3 -
26.7 1.8
20. PROVISIONS
Provisions relate to onerous contracts and leases, where the future economic benefits are less than the costs to be
incurred, and legal provisions recognised at fair value as part of the business combination. Further details on the largest
legal provision are set out below in note 20.1.
Provisions for litigation Other provisions Total
Current Em Em Em
At 31 December 2015 - - -
Acquired through business combination - 7.7 7.7
Utilised during the year - (7.1) (7.1)
Transfer from non-current to current - 0.6 0.6
At 31 December 2016 - 1.2 1.2
Non-current
At 31 December 2015 - - -
Acquired through business combination 3.7 3.8 7.5
Utilised during the year - - -
Transfer from non-current to current - (0.6) (0.6)
At 31 December 2016 3.7 3.4 6.9
20.1 Provisions for litigation
On 16 October 2014, the Portuguese Supreme Court confirmed a ruling of the Oporto Court of First Instance of September 2011
against Liga Portuguesa de Futebol Profissional ('Liga') and certain bwin.party entities. In June 2012, APC initiated
enforcement proceedings against the Liga and bwin.party, requesting the payment of pecuniary sanctions in the total amount
of E6.4 million for the alleged violation of the first instance court judgment during the period between 24 September 2011
and 31 January 2012. The Liga and bwin.party remain firmly of the view that such enforcement action is without merit. The
legal process is still ongoing.
Due to the inherent uncertainty in legal proceedings, on acquisition of bwin.party in February 2016 the Group recognised a
fair value provision for the legal case of E3.2 million on a fair value basis together with a further provision of E0.5m
for other unrelated legal cases.
20.2 Other provisions
Other provisions include other uncertainties around potential infrastructure, marketing or taxation costs where the
Directors feel that there is a material but uncertain risk of outflows to the business. These have been measured based on
the estimated probability of such outflows occurring in the near future.
21. DEFERRED TAX
Total
Em
As at 31 December 2015 -
Acquired in business combination (79.6)
Deferred tax credit 11.8
Transfer to liabilities held for sale 3.8
Foreign exchange and other movements (1.6)
As at 31 December 2016 (65.6)
Deferred tax liabilities relate primarily to temporary differences arising from fair value adjustments of acquired
intangibles and also the repatriation of profits from foreign jurisdictions.
22. SHARE CAPITAL
At an Extraordinary General Meeting on 18 December 2015, the authorised share capital of the Company was increased to
350,000,000 ordinary shares.
On 1 February 2016 the Group acquired 100% of the share capital of bwin.party digital entertainment plc ("bwin.party"), an
online gaming company traded on the Main Market of the London Stock Exchange and listed on the Official List (Premium
Segment), for total consideration of E1,508.2m as set out in note 25. Under the terms of the Acquisition, each bwin.party
shareholder received 25p plus 0.231 new GVC shares for each bwin.party share. The total bwin.party shareholding was 843.5
million shares; accordingly, the Group issued 194.8m new shares to bwin.party shareholders. Post the Acquisition,
additional shares have been issued to bwin.party option-holders who had not exercised their options before the date of the
Acquisition but do so subsequently and the value of these has been included in the total consideration.
On the same date as the Acquisition of bwin.party, the Group issued additional shares at a price of 422p. The additional
share capital consisted of 28.0m Placing shares, including the subscription by Directors of shares under the terms of the
LTIP, and 7.5m Subscription shares. The cash consideration for these shares was £150.0m, less costs incurred of £4.9m
(E6.4m), which have been treated as a deduction from share premium.
The authorised and issued share capital is:
2016 2015
Em Em
Authorised
Ordinary shares of E0.01 each
At 31 December - 350,000,000 shares (2015: 350,000,000 shares) 3.5 3.5
Issued, Called Up and Fully Paid
At 31 December - 293,268,229 shares (2015: 61,276,480 shares) 2.9 0.6
The issued share capital history is shown below:
2016 2015
Balance at 1 January 61,276,480 61,276,480
Issue of shares at acquisition 194,841,498 -
Issue of shares via placing 27,978,812 -
Issue of shares via subscription 7,566,212 -
Other share issues 1,605,227 -
Balance at 31 December 293,268,229 61,276,480
23. DIVIDENDS
The dividend history for 2015 is shown below.
Date declared Per share Ec Per share £p Shares in issue Amount E Amount £
12-Jan-15 12.50 9.6000 61,276,480 7,659,560 5,882,542
23-Mar-15 14.00 10.2900 61,276,480 8,578,707 6,305,350
23-Mar-15 (special) 1.50 1.1000 61,276,480 919,147 674,041
08-Jul-15 14.00 9.7575 61,276,480 8,578,707 5,979,053
08-Oct-15 14.00 10.3472 61,276,480 8,578,707 6,340,400
Total in 2015 56.0 41.0947 34,314,828 25,181,386
As a result of the acquisition of bwin.party and the combination of debt covenants and the intended restructuring of the
Group, the Directors did not pay any dividends in 2016.
24. SHARE OPTION SCHEMES
At 31 December 2016, the Group had the following share options schemes for which options remained outstanding at the
year-end:
i. Options were granted to Directors and employees under the existing and already approved LTIP on 2 June 2014. Under this scheme, 2,450,000 options held by Directors were cancelled under the arrangements for the acquisition of bwin.party during the year and as at 31 December 2016, 75,000 employee share options remained outstanding.
ii. Options were granted to Directors under the terms of the 2015 LTIP, as set out in the 13 November 2015 prospectus pages 325-329.
iii. Options were granted under a Management Incentive Plan under the same terms of the 2015 LTIP.
Under the terms of the share option plan, the Group can allocate up to 10% of the issued share capital although it must
take allowance of the shares issued or issuable, post the acquisition of bwin.party, as a consequence of rights to
subscribe for shares under the 2015 LTIP or any other employees' share scheme.
The following options to purchase E0.01 ordinary shares in the Company were granted, exercised, forfeited or existing at
the year-end:
Date of Grant Exercise Price Existing at 1 January 2016 Granted in the year Cancelled in the year Exercised in the year Existing at 31 December 2016 Exercisable at 31 December 2016 Vesting criteria
28 Feb 2013 233.5p 156,947 - - (156,947) - - Note a
02 Jun 2014 1p 3,325,000 - (2,450,000) (800,000) 75,000 75,000 Note b
02 Feb 2016 422p - 13,197,111 (2,932,691) - 10,264,420 - Note c
02 Feb 2016 467p - 4,399,037 (977,564) - 3,421,473 - Note d
02 Feb 2016 422p - 200,000 - - 200,000 - Note e
16 Dec 2016 422p - 8,825,000 - (166,666) 8,658,334 1,794,445 Note f
Total all schemes 3,481,947 26,621,148 (6,360,255) (1,123,613) 22,619,227 1,869,445
The existing share options at 31 December 2016 are held by the following employees and consultants:
Option price 1p 422p 467p 422p
Grant date 02-Jun-14 02-Feb-16 02-Feb-16 16-Dec-16 Total
Kenneth Alexander - 6,842,947 - - 6,842,947
Richard Cooper - 3,421,473 - - 3,421,473
Lee Feldman (note d) - - 3,421,473 - 3,421,473
Norbert Teufelberger (note e) - 200,000 - - 200,000
Employees 75,000 - - 6,963,334 7,038,334
Consultants - - - 1,695,000 1,695,000
75,000 10,464,420 3,421,473 8,658,334 22,619,227
Note a: These equity settled options were granted to third parties as part of the Sportingbet PLC acquisition following
underwriting commitments made at the time. The awards vested on the grant date and the options have the exercise price
reduced by the value of any dividends declared up to the point of exercise. These options were fully exercised on 12
February 2016 at a weighted average price of £1.263.
Note b: These equity settled options were granted to certain Directors and employees. The awards will vest in full (and
become exercisable) on the share price being equal to or exceeding £6.00 per share for a continuous period of 90 calendar
days at any time from the date of grant. If there is a change of control, the awards will vest in full immediately unless
the share price is less than £5.00 per share, in which case the Awards will lapse in full. The awards have been treated as
vesting over a 3 year period. The directors' options under this scheme were cash cancelled during the year on the
acquisition of bwin.party, and the after-tax proceeds of £5.4 million (£10.3 million gross) re-invested in new GVC shares.
The remaining fair value of these options was transferred to equity and the additional cost has been recognised as an
exceptional item in the year, see note 3.2.2.
Note c: These equity-settled awards were issued on completion of the acquisition of bwin.party. The options vest and
become exercisable, subject to the satisfaction of a performance condition, over 30 months, with one ninth vesting six
months after the date of grant and a further ninth vesting at each subsequent quarter. The options lapse, if not
exercised, on 2 February 2026. The performance condition is comparator total shareholder return ("TSR") of the Group
against the FTSE 250. Each ninth of the shares will have its TSR condition reviewed from the date of grant until the
relevant testing date. To the extent the TSR is not met at that time, it is tested again the following quarter and, if
necessary, at the end of the 30 month vesting period. In order to vest, the TSR of the Group must rank at median or above
against the FTSE 250. In the year two ninths of the options had vested. Having received the directors notice to exercise,
the remuneration committee exercised its discretion to make a cash alternative payment to the directors in respect of that
portion of shares. The cash alternative payment was calculated by deducting the option price from the market value of a
share on the day prior to the date the company received the exercise note.
Note d: These awards were issued on the same basis as the awards in Note c but at a higher exercise price which represents
the market value of the shares as at the date the scheme became effective. In order to compensate Lee Feldman for the
higher exercise price, the Company has agreed to pay him a cash bonus of £2.0 million over the 30 month vesting period of
the option, but only upon option vesting and satisfaction of the performance condition described above, and he has to
reinvest 50% of this in GVC shares. In the year two ninths of the options had vested. Having received the directors notice
to exercise, the remuneration committee exercised its discretion to make a cash alternative payment to the directors in
respect of that portion of shares. The cash alternative payment was calculated by deducting the option price from the
market value of a share on the day prior to the date the company received the exercise note.
Note e: These awards were issued on completion of the acquisition of bwin.party. The equity-settled options, which are not
subject to a performance condition, vest and become exercisable over 24 months, with one seventh vesting six months after
the date of grant and a further seventh vesting at each subsequent quarter. The options lapse, if not exercised, on 2
February 2026.
Note f: These equity-settled awards were issued on the same basis as the awards in Note C and granted on 16 December
2016.
The charge to share-based payments within the consolidated income statement in respect of these options in 2016 was E31.1
million, with a further charge of E12.8 million within exceptional items relating to the cashing-out of the 2014 scheme.
Of the 2016 share-based payment charge, E24.0 million related to equity settled options (2015: E0.1 million) and E7.1
million to cash settled options (2015: E0.1 million credit).
24.1 Liability for cash-settled options
During 2015, options granted under a previous scheme were surrendered and in light of this surrender, a new retention plan
was put in place. The liability under this plan at 31 December 2015 was E11.7 million. In addition there was a
cash-settled option liability in respect of the 2014 scheme of E0.2 million. As a result of the acquisition of bwin.party,
these liabilities were settled in the period and the after-tax proceeds were re-invested in new GVC shares. During the
period a new liability was recognised for the cash-settled bonus scheme as set out in note (d) above. Under the annual
share bonus plan, the Group has recognised a cash-settled option liability of E6.0 million.
The movements in cash-settled share option liabilities are set out in the table below:
Em
Balance at 1 January 2016 (11.8)
Charged under the 2 June 2014 scheme (note b above) (0.2)
Settled on the acquisition of bwin.party 11.9
Charged under the 2 February 2016 scheme (note d above) (1.0)
Charged under the annual bonus plan (6.0)
Balance at 31 December 2016 (7.1)
24.2 Weighted Average Exercise Price of Options
The number and weighted average exercise prices of share options is as follows:
Weighted average exercise price 31 December 2016 Number of options 31 December 2016 Weighted average exercise price 31 December 2015 Number of options 31 December 2015
Outstanding at the beginning of the year 11p 3,481,947 94p 6,806,947
Granted during the year 422p 26,621,149 - -
Exercised during the year 126p (834,723) - -
Surrendered/bought out in the year 422p (2,450,000) 184p (3,200,000)
Forfeited in the year - - 1p (125,000)
Outstanding at the end of the year 416p 26,818,373 11p 3,481,947
Exercisable at the end of the year 5,236,844 156,947
The options outstanding at 31 December 2016 have a weighted average contractual life of 9.1 years (31 December 2015: 8.4
years).
24.3 Valuation of Options
The fair value of services received in return for share options granted were measured by reference to the fair value of
share options granted. The Group engaged a third party valuation specialist to provide a fair value for the options.
The 2014 options were valued using a Monte Carlo model due to the performance conditions associated with the options. The
2014 cash-settled options were revalued using a Monte Carlo model at 31 December 2015. During the year, the 2014
cash-settled options and some of the 2014 equity-settled options were cashed out at an exercise price of 422p. The excess
of the cash settlement over the fair value of the options at the date of the settlement has been recognised in the
Consolidated Income Statement as a cost of share-based payments within exceptional items.
Fair value of share options and assumptions:
Date of grant Share price at date of grant*(in £) Exercise price (in £) Expected volatility Exercise multiple Expected dividend yield Risk free rate%** Fair value at measurement date (in £)
02 Feb 16 - equity settled 30 months 4.67 4.22 22%-30% n/a n/a n/a 0.32-0.47
02 Feb 16 - equity settled 30 months 4.67 4.67 22%-30% n/a n/a n/a 0.22-0.28
02 Feb 16 - equity settled 24 months 4.67 4.22 n/a n/a n/a n/a 0.32-0.47
16 Dec 16 - equity settled 30 months 6.48 4.22 30%-28% n/a n/a n/a 1.43-1.94
* This is the bid price, not the mid-market price, at market close, as sourced from Bloomberg.
** The measurement of the risk-free rate was based on rate of UK sovereign debt prevalent at each grant date over the
expected term of the option.
For the 2016 LTIP scheme, the expected volatilities have been calculated using historical prices for companies that were
constituents of the FTSE 250 at the grant date. These options accrue dividend credits and the yield is assumed to be nil
for 2016 and 10% thereafter. As the schemes vest on a staggered basis over a period of up to 30 months, the volatilities
have been calculated over each relevant time period. The fair value of each phase of the options has been calculated
separately, shown as a range in the table above, and the cost of each phase is allocated across the vesting period for that
phase.
25. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Group's principal financial instruments as at 31 December 2016 comprise cash and cash equivalents together with loan
borrowings. The main purpose of these financial instruments is to finance the Group's operations and fund acquisitions and
shareholder dividends. The Group has other financial instruments which mainly comprise receivables and payables, which
arise directly from its operations. The Group does not typically use derivative financial instruments, other than foreign
exchange contracts, to hedge its exposure to foreign exchange or interest rate risks arising from operational, financing
and investment activities. During 2016, the Group did not hold or issue derivative financial instruments for trading
purposes.
25.1 Market Risk
Market risk arises from the Group's use of interest-bearing, tradable and foreign currency financial instruments. It is the
risk that the fair value of future cash flows on its long-term debt finance and cash investments through the use of a
financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates
(currency risk) or other market factors (other price risk). Exposure to market risk arises in the normal course of the
Group's business.
25.2 Foreign Exchange Risk
Foreign exchange risk arises from transactions, recognised assets and liabilities and net investments in foreign
operations. The Group's general operating policy is that all material transaction and currency liability exposures are
economically and fully hedged using foreign exchange contracts and/or by holding cash in the relevant currency.
Following the drawdown of the Cerberus loan in February 2016, the Group held a large position in GBP to meet working
capital requirements. This resulted in a foreign exchange loss following the devaluation of sterling during 2016. This
amount has subsequently been used in 2017 to hedge against significant GBP liabilities which have arisen including the
dividend paid in February 2017 and repay the Cerberus loan. The Group uses foreign exchange contracts to hedge its
currency risk but as at 31 December 2016 there were no open foreign exchange contracts.
The Group is exposed to currency movements in the euro, arising out of changes in the fair value of financial instruments
which are held in non-euro currencies.
25.2.1 Foreign exchange risk sensitivity
A significant proportion of the Group's financial assets and liabilities are denominated in Euros and GBP. Holding the
former currency minimises the Group's exposure to currency translation risk. However its significant holding of GBP net
assets means that it is exposed to movements in the fluctuation of this currency. If the value of GBP relative to EUR was
to rise by 10% then the value of the Group's net assets would increase by E15.9m whilst a 10% fall in the value of GBP
relative to EUR would result in in a fall in the Group's net assets of E15.9m. This exposure was reduced after the year
end as the Group utilised part of its GBP cash balances in refinancing its long term loan and also to pay the dividend
declared in December.
At 31 December 2016 Euro GBP Other Total
Em Em Em Em
Non-current assets 1,607.0 22.5 8.2 1,637.7
Receivables and prepayments 57.6 24.1 23.5 105.2
Derivative financial assets 26.2 - - 26.2
Tax reclaimable 6.7 - - 6.7
Short term investments 5.4 - - 5.4
Cash and cash equivalents 164.0 171.7 19.1 354.8
Assets held for sale 36.2 8.1 15.4 59.7
Total current assets 296.1 203.9 58.0 558.0
Trade and other payables (37.6) (42.2) (14.1) (93.9)
Balances with customers (74.2) (15.7) (44.9) (134.8)
Loans and borrowings (403.5) - - (403.5)
Provisions (0.7) - (0.5) (1.2)
Taxation payable (15.5) (0.6) (2.1) (18.2)
Other taxation liabilities (45.2) (2.0) 0.0 (47.2)
Liabilities held for sale (7.9) (6.5) (8.3) (22.7)
Total current liabilities (584.6) (67.0) (69.9) (721.5)
Net current (liabilities) assets (288.5) 136.9 (11.9) (163.5)
Trade and other payables - - (4.4) (4.4)
Provisions (6.3) - (0.6) (6.9)
Deferred tax (65.5) (0.1) - (65.6)
Total non-current liabilities (71.8) (0.1) (5.0) (76.9)
Total assets less total liabilities 1,246.7 159.3 (8.7) 1,397.3
At 31 December 2015 Euro GBP Other Total
Em Em Em Em
Non-current assets 149.2 9.6 0.3 159.1
Receivables and prepayments 11.8 9.9 13.0 34.6
Derivative financial assets 3.8 - - 3.8
Tax reclaimable 0.3 5.7 - 6.0
Cash and cash equivalents 18.6 6.6 2.9 28.1
Total current assets 34.5 22.2 15.9 72.6
Trade and other payables (5.9) (18.9) (7.2) (32.0)
Balances with customers (6.7) (5.4) (2.7) (14.8)
Loans and borrowings - (3.7) - (3.7)
Deferred consideration (1.6) - - (1.6)
Share option liability - (9.7) - (9.7)
Derivative financial assets (9.9) - - (9.9)
Taxation payable (7.3) - - (7.3)
Other taxation liabilities (0.7) (1.1) (0.2) (2.0)
Total current liabilities (32.1) (38.8) (10.1) (81.0)
Net current assets/(liabilities) 2.4 (16.6) 5.8 (8.4)
Derivative financial liabilities - (0.7) - (0.7)
Loans and borrowings (19.9) - - (19.9)
Share option liability - (2.0) - (2.0)
Total non-current liabilities (19.9) (2.7) - (22.6)
Total assets less total liabilities 131.7 (9.7) 6.1 128.1
25.3 Interest Rate Risk
The Group earns interest from bank deposits. During the year, the Group held cash on deposits with a range of maturities
of less than three months. The Group had a non-interest bearing loan (see note 14.2) which did not carry any interest rate
risk and which was repaid in 2016. On 4 September 2015, the Group entered into an agreement with Cerberus Business Finance
LLC for a loan of up to E400m, in order to part-fund the proposed acquisition of bwin.party. At 31 December 2016, the
Group had E386.5m (2015: E19.8m) of committed and drawn-down borrowing facilities under this loan arrangement, including
E13.5m repaid during the year. The interest on these loans was based on EURIBOR with a floor of 1%, plus a margin of
11.5%. This facility was repaid on 31 January 2017.
Management do not consider the impact of possible interest rate movements based on current market conditions to be material
to the net result for the year or the equity position at the year end for either the year ended 31 December 2015 or 31
December 2016.
25.4 Credit Risk
The Group seldom has any significant concentrations of credit risk, with exposure spread over a large number of customers.
The Group grants credit facilities to its customers and the maximum exposure to credit risk is represented by the carrying
amount of each financial asset in the Statement of Financial Position.
The Group has material exposure to credit risk through amounts owed by payment processors (third party collection agencies)
of E60.0m (2015: E21.7m) and cash and cash equivalent balances held with banking institutions of E354.8m (2015: E28.2m).
There is an inherent concentration of risk with PSPs, most of which are not investment grade banks, in that the majority
derive most of their income from the online gaming sector. To this end, where practicable and economic, the Group seeks to
substitute non-investment grade PSPs with investment grade, or, at least, better quality PSPs. The Group considers the
general credit risk associated with these balances to be low, having assessed the credit ratings and financial strength of
the counter-parties involved. Nevertheless the Group maintains a general provision against the recovery of these processing
entities.
For one particular processor the Group considered that a specific provision may be necessary due to concerns about the
recoverability of that specific debt and accordingly a specific impairment of E4.2m was recorded in the year ended 31
December 2016. No further significant receivable amounts were past due date at 31 December 2016 (2015: Enil).
25.5 Liquidity and capital Risk
Liquidity risk arises from the Group's management of its working capital as well as the finance charges and principal
repayments on its debt instruments. In essence, it is the risk that the Group will encounter difficulty in meeting its
financial obligations as they fall due. Management monitors liquidity to ensure that sufficient liquid resources are
available to the Group. The Group's principal financial assets are cash, bank deposits, loans and trade and other
receivables.
In common with many internet companies that have few physical assets, the Group has no policy as to the level of equity
capital and reserves other than to address statutory requirements. The primary capital risk to the Group is the level of
debt relative to the Group's net income.
At 31 December 2016, the Group had cash and cash equivalents and short term investments of E354.8m (2015: E28.2m). Whilst
current assets are significantly lower than current liabilities, this predominantly relates to the Cerberus loan which was
refinanced to a longer term facility in 2017. Accordingly, the liquidity risk for the Group is judged to be low.
25.5.1 Maturity analysis
All financial liabilities within the Group's balance sheet are due within one year except for certain contingent
consideration of E4.4m which falls due based on certain events. Management's best estimates are that these will fall due
after more than one year but before five years.
25.5.2 Net debt
2016Em 2015Em
Loans and borrowings 403.5 19.8
Client liabilities 112.0 14.8
Progressive prize pools 22.8 -
Gross debt 538.3 34.6
Cash and cash equivalents 354.8 28.2
Net debt 183.5 6.4
25.6 Fair Values
The carrying amounts of the financial assets and liabilities, including deferred consideration in the Statement of
Financial Position at 31 December 2016 and 2015 for the Group and Company are a reasonable approximation of their fair
values.
Financial assets and financial liabilities measured at fair value in the Statement of Financial Position are grouped into
three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to
the measurement, as follows:
· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
· Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly
· Level 3: unobservable inputs for the asset or liability.
The following table shows the Levels within the hierarchy of financial assets and liabilities measured at fair value on a
recurring basis at 31 December 2016 and 31 December 2015:
At 31 December 2016 Level 1 Level 2 Level 3 Total
Em Em Em Em
Financial assets
Available for sale financial assets - 2.2 0.4 2.6
Deferred consideration - - 1.8 1.8
Contingent consideration - 0.6 4.0 4.6
Derivative financial assets - - 26.2 26.2
- 2.8 32.4 35.2
Financial liabilities
Contingent consideration - - (4.4) (4.4)
- - (4.4) (4.4)
At 31 December 2015 Level 1 Level 2 Level 3 Total
Em Em Em Em
Financial assets
Available for sale financial assets - - 2.6 2.6
Derivative financial assets - - 3.8 3.8
- - 6.4 6.4
Financial liabilities
Derivative financial liabilities - (9.9) (0.7) (10.6)
- (9.9) (0.7) (10.6)
There were no transfers between levels in 2016 or 2015.
Measure of fair value of financial instruments:
The Group's finance team performs valuations of financial items for financial reporting purposes, including Level 3 fair
values, in consultation with third party valuation specialists for complex valuations. Valuation techniques are selected
based on the characteristics of each instrument, with the overall objective of maximising the use of market-based
information.
The valuation techniques for the derivative financial assets and liabilities are described in further detail in note 12
above. The valuation technique for the available for sale asset and the contingent and deferred consideration assets and
liabilities were discounted cash flow forecasts using the weighted average cost of capital and expected cash flows.
25.7 Summary of Financial Assets and Liabilities by Category
The carrying amounts of the Group's financial assets and liabilities recognised at the reporting date are categorised as
follows:
2016 2015
Em Em
Non-current assets:
Available for sale financial assets 2.6 2.6
Financial assets measured at fair value through profit or loss:
- Deferred and contingent consideration 4.9 -
Non-current assets 7.5 2.6
Current assets:
Financial assets measured as loans and receivables:
- Trade and other receivables 108.0 23.1
- Short term investments 9.9 -
- Cash and cash equivalents 367.0 28.2
Financial assets measured at fair value through profit or loss:
- Deferred and contingent consideration 1.5 -
- Derivative financial assets 26.2 3.8
Current assets 512.6 55.1
Current liabilities:
Financial liabilities measured at amortised cost:
- Trade and other payables (114.0) (26.7)
- Non-interest bearing loans and borrowings (403.5) (3.0)
- Deferred consideration - (1.6)
Financial liabilities measured at fair value through profit or loss:
- Contingent consideration - -
- Derivative financial liabilities - (9.9)
Current liabilities (517.5) (52.5)
Non-current liabilities:
Financial liabilities measured at amortised cost:
- Interest-bearing loans and borrowings - (19.9)
- Share option liability - (2.0)
Financial liabilities measured at fair value through profit or loss:
- Contingent consideration (4.4) -
- Derivative financial liabilities - (0.7)
Non-current liabilities (4.4) (22.6)
26 RELATED PARTIES
26.1 Identity of Related Parties
The Group has a related party relationship with its subsidiaries and with its Directors and executive officers.
26.2 Transactions with Directors and Key Management Personnel
Karl Diacono is the Chief Executive Officer of Fenlex Corporate Services Limited, a corporate service provider incorporated
in Malta. During the year ended 31 December 2016, Fenlex received E127,999 from the Group in relation to Company
Secretarial and other matters arising in Malta (2015: E97,385).
Peter Isola is a partner at Isolas, a law firm in Gibraltar which charged legal expenses of E209,858 to the Group relating
to the acquisition of bwin.party.
Richard Cooper received dividends during the year of Enil (2015: E934). The wife of Richard Cooper received dividends
during the year of Enil (2015: E184,800) in respect of her interest in the ordinary share capital of the Group.
Lee Feldman received dividends during the year of Enil (2015: E79,265) in respect of his beneficial interest in the
ordinary share capital of the Group. Lee Feldman is the Managing Partner of Twin Lakes Capital, a private equity firm based
in New York. During the year ended 31 December 2016, Twin Lakes Capital received E61,715 (2015: E68,715) in relation to
office services.
Kenneth Alexander received dividends during the year of Enil (2015: E69,264). The wife of Kenneth Alexander received
dividends during the year of Enil (2015: E175,466) in respect of her interest in the ordinary share capital of the Group.
On acquisition of bwin.party, Norbert Teufelberger became a director of the Group and at this date, he had a loan balance
due to the Group of E3.1 million, including accrued interest. This liability was settled in full in the period.
The Group purchased certain customer services of E2.5m from an associate, with amounts owed at 31 December 2016 of E0.2m.
During 2016, the Group purchased certain rights to broadcast licensed media of E3.5m (2015: Enil) from Conspo, a previous
joint venture company which was acquired with bwin.party. Conspo was disposed of on 6 July 2016 and ceased to be a related
party at that point.
26.3 Transactions with Directors and Key Management Personnel
Details of the remuneration of key management are detailed below:
2016 2015
Em Em
Short term employee benefits (Directors) 7.3 8.9
Short term employee benefits (Key Management) 2.6 2.1
Termination benefits - 0.8
Share based payments 25.5 0.5
35.4 12.3
27. CONTINGENT LIABILITIES
27.1 East Pioneer Corporation Guarantee
On 21 November 2011 the Group entered into a service agreement and guarantee relating to the acquisition by East Pioneer
Corporation B.V. ('EPC') from Sportingbet PLC of Superbahis, a Turkish language website. The maximum contingent liability
under this agreement at inception was E171 million. The Directors consider this has a fair value of Enil (2015: Enil).
The Group continues to provide back office and support services to EPC. Following the acquisition of Sportingbet PLC on 19
March 2013 the Group now receives all payments of amounts from EPC under the Business Purchase Agreement and other
Transaction Documents and does not now offer any guarantee of payments to legal entities outside of the Group.
27.2 Indirect taxation
Group companies may be subject to VAT on transactions which have been treated as exempt supplies of gambling, or on
supplies which have been exported outside the scope of VAT where legislation provides that the services are received or
used and enjoyed in the country where the service provider is located. Where group companies have treated supplies of
gambling as exempt based on exemptions available to comparable supplies in the place where the customer is located, the
right to exemption may be restricted if the supplies do not have similar characteristics or meet the same needs as other
exempt gambling from the customer's point of view. Where group companies have determined the taxable amount for supplies of
gambling to be the amount of stakes received less amounts that have to be returned to players, the right to a deduction for
amounts returned to players may be restricted to the extent that the obligation to make a payment is not enforceable in the
place where the customer is located.
Revenues earned from customers located in any particular jurisdiction may give rise to further taxes in that jurisdiction.
If such taxes are levied, either on the basis of current law or the current practice of any tax authority, or by reason of
a change in the law or practice, then this may have a material adverse effect on the amount of tax payable by the Group or
on its financial position. Where it is considered probable that a previously identified contingent liability will give rise
to an actual outflow of funds, then a provision is made in respect of the relevant jurisdiction and period impacted. Where
the likelihood of a liability arising is considered remote, or the possible contingency is not material to the financial
position of the Group, the contingency is not recognised as a liability at the balance sheet date.
28. BUSINESS COMBINATIONS
28.1 Acquisition of bwin.party
It is part of the core strategy for the Group to improve the quality and mix of the Group's earnings through acquisitions,
especially where these increase the markets in which the Group trades and where there are opportunities for high levels of
cash generation through synergies. On 1 February 2016, the Group acquired 100% of the share capital of bwin.party digital
entertainment plc ("bwin.party"), an online gaming company traded on the Main Market of the London Stock Exchange and
listed on the Official List (Premium Segment), for total consideration of E1,506.6 million as set out in the table below.
The acquisition resulted in GVC obtaining control of bwin.party from 1 February 2016, and this is being accounted for as a
business combination in the current year.
The terms of the acquisition included an offer of 25p plus 0.231 new GVC shares for each bwin.party share. At the date of
the acquisition, there were 843m bwin.party shares and 14m of share options and the closing price for GVC Holdings PLC
shares on the previous day was £4.67. The total fair value of the consideration paid was E1,506.6 million as set out
below:
No of sharesM Value £m Exchange rate Value Em
Total bwin.party shareholding 843.5
GVC shares issued (0.231 per bwin.party share, at a price of £4.67) 194.8 909.9 1.3205 1,201.5
Cash payment (£0.25 per bwin.party share) 210.9 1.3205 278.5
Cash settled options 20.1 1.3205 26.6
Total consideration 1,140.9 1,506.6
The fair value of the assets and liabilities recognised at the date of acquisition is set out in the table below:
Fair value Em
Assets
Intangible assets 608.0
Property, plant and equipment 44.5
Trade and other receivables 107.8
Investments and available for sale assets 4.5
Assets held for sale 12.3
Short term investments 15.6
Cash 115.7
Total assets 908.4
Liabilities
Trade and other payables (82.8)
Client liabilities and progressive prize pools (118.0)
Provisions (15.2)
Loans (39.4)
Taxation (including gaming tax) (31.9)
Deferred tax (79.6)
Total liabilities (366.9)
Non-controlling interest 1.2
Net assets 542.7
Fair value of consideration paid 1,506.6
Goodwill recognised 963.9
Business combination costs 54.7
The fair value of trade and other receivables was E108.3m and included trade receivables and payment processor balances
with a fair value of E78.4m. The gross contractual amount for trade receivables and payment processor balances due was
E80.2m, of which E1.8m was deemed to be irrecoverable.
The goodwill consists of assembled workforce, future growth and business reputation.
All contingent liabilities have been provided for.
In the year ended 31 December 2015, bwin.party reported revenue of E576.4m and loss before tax of E40.2m. If the
Acquisition had occurred at the beginning of the year, the revenue of the combined entity in the 12 months to 31 December
2016 would have been E873.5m and the loss after tax would have been E131.8m.
Following the acquisition, GVC has already achieved significant synergistic savings through integration and restructuring
of operations and expects further benefits in 2017.
29. NON-CONTROLLING INTERESTS
Non-controlling interests included a 10% holding in bwin.party entertainment (NJ) LLC, a company incorporated in the United
States. The loss attributable to the non-controlling interest was E0.3m.
The balance of retained earnings attributable to non-controlling interests is disclosed in the table below:
Total
Em
As at 31 December 2015 -
Acquired through business combination (1.2)
Loss attributable to non-controlling interests (0.3)
As at 31 December 2016 (1.5)
30. SUBSEQUENT EVENTS
In October 2016, the Group secured a one year E250m loan facility from Nomura International plc, which was used in part to
repay the outstanding loan provided by Cerberus Business Finance LLP associated with the acquisition of bwin.party. The
Nomura Loan provided a short term facility at a reduced overall cost from that associated with the Cerberus Loan.
The Group has now successfully secured long-term and increased debt facilities comprising of a E320m Senior Secured Term
and Revolving Facility, composed of a E250m term loan (maturity 6 years) and a E70m revolving credit facility (maturity 5
years).
This information is provided by RNS
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