REG - GVC Holdings PLC - Half-year Report <Origin Href="QuoteRef">GVC.L</Origin> - Part 3
20/09/2016 07:07
- Part 3: For the preceding part double click ID:nRST2604Kb
Contribution 54.2 11.2 - 65.4 - - 65.4
Contribution margin 52% 68% - 54% - - 54%
Other operating costs:
Personnel expenditure (17.2) - (6.2) (23.4)
Professional fees (0.3) - (1.8) (2.1)
Technology costs (12.3) - 0.7 (11.6)
Office, travel and other costs (1.3) - (0.6) (1.9)
Foreign exchange differences (0.5) - (0.4) (0.9)
Clean EBITDA 33.8 - (8.3) 25.5
* Variable costs include betting taxes, payment service provider charges, software royalties, chargebacks & bad debt,
commissions and marketing costs
Management do not review the performance of each segment below the level of Clean EBITDA.
The Corporate segment does not allocate its net costs to other divisions other than on a local statutory basis.
2.3 Reconciliation of segments to Group totals
Period ended Period ended 30 June 2015
30 June 2016
Notes Em Em
Segmental Clean EBITDA 91.2 25.5
Exceptional items 3 (89.3) (4.7)
Share option charges 3 (6.5) (0.2)
Change in value of available for sale asset 9 (4.8) -
Movement in fair value of derivative financial instruments 10 14.1 -
EBITDA 4.7 20.6
Depreciation and amortisation* 3 (65.5) (2.2)
Financial income 4 0.9 -
Financial expense 4 (29.4) (1.3)
Dividend income 3.1 -
Share of profit/(loss) of associate 0.1 -
(Loss)/profit before tax (86.1) 17.1
Taxation 5 1.9 (0.3)
(Loss)/profit after tax from continuing operations (84.2) 16.8
* Including amortisation of acquired intangibles of E52.2 million.
3. OPERATING COSTS
Period ended Period ended 30 June 2015
30 June 2016
Notes Em Em
Wages and salaries, including Directors (excluding incentive schemes) 37.1 11.6
Incentive schemes, including Directors 5.0 8.1
Amounts paid to long term contractors 10.5 1.6
Compulsory social security contributions 6.1 1.0
Compulsory pension contributions 0.4 0.3
Health and other benefits 1.9 0.4
Recruitment and training 0.7 0.4
Personnel expenditure (excluding share option charges) 61.7 23.4
Professional fees 8.3 2.1
Technology costs 32.5 11.6
Office, travel and other costs 10.7 1.9
Foreign exchange differences on operating activity (3.5) 0.9
Administrative costs 109.7 39.9
Equity settled share option charges 13 5.9 0.3
Cash settled share option (credit)/charges 13 0.6 (0.1)
Exceptional items 3.1 89.3 4.7
Change in value of available for sale asset 4.8 -
Movement in the fair value of derivative financial instruments 8 (14.1) -
Depreciation 10.4 0.4
Amortisation 7 55.1 1.8
261.7 47.0
3.1 Exceptional Items
The Group incurred expenditure on exceptional items of E89.3 million (Period ended 30 June 2015: E4.7 million). These are
items which are exceptional in size or nature.
Period ended Period ended 30 June 2015
30 June 2016
Em Em
Acquisition of bwin.party
- Legal advice 1.2 2.6
- Financial advisors 11.2 1.2
Total professional fees 12.4 3.8
- Currency option, including fair value adjustment (see note 3.1.2) 10.8 -
- Bonuses and share options (see note 3.1.1) 21.9 -
- Legal fees for securitisation 1.0 -
- Foreign exchange differences 8.6 -
Total Acquisition costs 54.7 -
Non-deal income/expenditure
- Romanian back taxes and license fees - 0.9
- Premium Listing application costs 4.4 -
- Reorganisation costs 5.1 -
- Foreign exchange on deposit 5.0 -
Total cash-based items 14.5 0.9
- Accelerated depreciation 12.5 -
- Progressive jackpots 7.6 -
Total non-Acquisition costs 34.6 0.9
Total exceptional items 89.3 4.7
Transaction bonuses and share options
Period ended 30 June 2016 Period ended 30 June 2015
Em Em
2014 share option plan rolled into share placing * 18.4 -
Transaction bonuses rolled into share placing ** 3.0 -
Other transaction bonuses 0.5 -
21.9 -
* Includes employer's National Insurance. See pages 322-325 of the prospectus.
** Includes employer's National insurance. See page 349 of the prospectus.
3.1.1 Currency option
A currency option was taken out in 2015, in order to meet the cash confirmation requirements of the offer for bwin.party.
Under the terms of the contract, the Group would sell E365.0 million and buy £260.7 million. Hedge accounting was not
applied. The derivative, recognised as a current liability, was valued at 31 December 2015 at E9.9 million. The option
was exercised on 2 February 2016. The movement in exchange rate between 31 December 2015 and 2 February 2016 created an
additional fair value loss of E10.8 million which has been recognised as an exceptional item above.
At 30 June 2016 there were no other forward exchange contracts taken out in the ordinary course of business. The cost of
forward exchange options during the period is included within administrative costs and not treated as an exceptional cost.
4. FINANCIAL EXPENSE
Period ended Period ended 30 June 2015
30 June 2016
Em Em
- Unwinding of discount on non-interest bearing loan - 0.1
- Finance lease interest - 0.1
- Foreign exchange revaluation - 1.1
- Interest on Cerberus loan* 31.3 -
- Amortisation of the early repayment option (1.9) -
29.4 1.3
* This represents the effective interest on the loan which includes interest payments of E21.1 million at the contracted
rate of 12.5% and an accrual of E10.2 million for exit and similar fees not yet due but obliged to be accounted for.
5. TAXATION
GVC Holdings PLC is an international business incorporated in the Isle of Man and the Group's two largest trading entities
are in Gibraltar and Malta. As a result, there are significant differences between the Group's effective rate of tax and
the UK Corporation tax rate.
The effective rate in respect of ordinary activities after exceptional items is 2.2% (six months ended 30 June 2015: 1.6%).
The effective tax rate for the period is different from that which would result from applying the standard rate of UK
Corporation Tax of 20.0% (2015: 20.5%) due to the geographic spread of the income earned by the Group and other tax
adjustments.
5.1 Deferred Taxation Amounts Recognised in the Statement of Financial Position
Deferred tax
Asset Liability Total
Em Em Em
Balances at 1 January 2015 and 31 December 2015 - - -
Acquired in business combination 1.9 (2.0) (0.1)
Arising on Intangible fixed assets acquired in business combination - (79.4) (79.4)
(Charge)/credit in income statement for the period ended 30 June 2016 (1.1) 7.1 6.0
Transfer to Liabilities held for sale - 3.4 3.4
Balances at 30 June 2016 0.8 (70.9) (70.1)
6. EARNINGS PER SHARE
6.1 Basic Earnings Per Share and Adjusted Earnings Per Share
Basic earnings per share has been calculated by taking the profit attributable to ordinary shareholders and dividing by the
weighted average number of shares in issue. Adjusted earnings per share has been calculated by taking the profit before
tax, adding back certain costs that are not directly related to trading activities in the period and dividing by the
weighted average number of shares in issue.
Period ended 30 June 2016 Period ended 30 June 2015
(Loss)/profit for the period attributable to ordinary shareholders (Em) (84.0) 16.8
Weighted average number of shares (m) 251.3 61.3
Basic earnings per share (E) (0.334) 0.273
(Loss)/profit before tax (86.1) 17.1
Exceptional items 89.3 4.7
Change in value of available for sale asset 4.8 -
Change in fair value of derivative financial instruments (14.1) -
Dividend income (3.1) -
Acquired intangible amortisation 52.2 -
Debt fee amortisation 10.2 -
Early repayment amortisation (1.9) -
Taxation (1.2) (0.4)
Adjusted profit for the period (Em) 50.1 21.4
Adjusted earnings per share (E) 0.199 0.349
6.2 Diluted Earnings Per Share and Adjusted Diluted Earnings Per Share
Diluted earnings per share has been calculated by taking the profit attributable to ordinary shareholders and dividing by
the weighted average number of shares in issue as diluted by share options. Adjusted diluted earnings per share has been
calculated by taking the profit before tax, adding back certain costs that are not directly related to trading activities
in the period and dividing by the weighted average number of shares in issue, as diluted by share options.
Period ended 30 June 2016 Period ended 30 June 2015
(Loss)/profit for the period attributable to ordinary shareholders (Em) (84.0) 16.8
Weighted average number of shares (m) 251.3 61.3
Effect of dilutive share options (m) - 3.2
Weighted average number of dilutive shares (m) 251.3 64.5
Diluted earnings per share (E) (0.334) 0.260
Adjusted profit for the period (see note 6.1) (Em) 50.1 21.4
Adjusted diluted earnings per share (E) 0.198 0.332
Share options that could potentially dilute basic earnings per share but were not included in diluted earnings per share
because they are antidilutive for the period ended 30 June 2016 amounted to 1.3 million effective shares (2015: nil). They
have been included in the calculation of adjusted diluted earnings per share where they are not antidilutive.
7. INTANGIBLE ASSETS
Leased Software Licence Owned Software Licence Total Software Licence Goodwill Trade-marks & Trade Name Consulting & Magazine Non-contractual Customer Relationships Total
Em Em Em Em Em Em Em Em
Cost
At 1 January 2015 1.1 26.4 27.5 166.2 17.0 4.9 2.4 218.0
Additions - 5.0 5.0 - - - - 5.0
At 31 December 2015 1.1 31.4 32.5 166.2 17.0 4.9 2.4 223.0
Additions - 12.6 12.6 - - - - 12.6
Acquisition of subsidiaries - 224.0 224.0 960.1 176.0 - 208.0 1,568.1
Reclassified as assets held for sale - (2.0) (2.0) (6.5) - - (12.0) (20.5)
At 30 June 2016 1.1 266.0 267.1 1,119.8 193.0 4.9 198.4 1,783.2
Amortisation and Impairment
At 1 January 2015 0.4 21.5 21.9 33.3 1.3 4.9 2.3 63.7
Amortisation 0.4 3.5 3.9 - 0.2 - 0.1 4.2
At 31 December 2015 0.8 25.0 25.8 33.3 1.5 4.9 2.4 67.9
Amortisation 0.2 27.8 28.0 - 6.2 - 20.9 55.1
Reclassified as assets held for sale - (0.1) (0.1) - - - (0.5) (0.6)
At 30 June 2016 1.0 52.7 53.7 33.3 7.7 4.9 22.8 122.4
Net Book Value
At 31 December 2015 0.3 6.4 6.7 132.9 15.5 - - 155.1
At 30 June 2016 0.1 213.3 213.4 1,086.5 185.3 - 175.6 1,660.8
Certain intangible assets are deemed to have an indefinite useful life as there is no foreseeable limit to the period over
which the asset is expected to generate net cash inflows for the entity. The carrying amounts of such assets at 30 June
2016 were as follows:
30 June 2016 31 December 2015
Em Em
Trademarks & Trade Names 15.1 15.1
Included within Owned Software Licence additions of E12.6 million is E6.7 million of capitalised development costs.
7.1 Impairment Tests for Cash-Generating Units Containing Goodwill and Trademarks
An assessment of the Group's goodwill was carried out for the period ended 30 June 2016 to identify whether there were any
indicators of impairment. The goodwill relates to Betboo, CasinoClub and Sportingbet, which had all been assessed for
impairment at 31 December 2015, and the bwin assets acquired in the period. No indicators of impairment were found. As
the period from the Acquisition of bwin to the reporting date is so short, management have assessed that the fair value
less costs to sell of these assets would not be materially different from their carrying value.
The following units have significant carrying amounts of goodwill:
30 June 31 December 2015
2016
Em Em
Betboo 8.3 8.3
CasinoClub 40.4 40.4
Sportingbet 84.2 84.2
Bwin Sportsbook 616.6 -
Bwin Gaming 244.7 -
Bwin other 92.2 -
Total Goodwill 1,086.5 132.9
8. DERIVATIVE FINANCIAL INSTRUMENTS: OPTIONS
On 24 March 2015, GVC contracted with Winunited Limited for the day-to-day back office operations of the Winunited
business, licensed in Malta. Under the terms of the agreement, GVC obtained a call option to purchase the Winunited assets
comprising goodwill, customers, licenses, brands and websites. The exercise period for the option is in the three months
prior to the five year anniversary of the 24 March 2015. No consideration was paid for the call option.
A summary of the movement in the option values during the period and the balances at 30 June 2016 is shown below:
Winunited option Early repayment option Betit option Total
Em Em Em Em
Balance at 1 January 2015 - - (1.7) (1.7)
Movement in fair value 3.8 - 1.0 4.8
Balance at 31 December 2015 3.8 - (0.7) 3.1
Recognised on loan draw-down - 7.4 - 7.4
Disposal in the period - - 0.7 0.7
Movement in fair value (1.0) 15.1 - 14.1
Balance at 30 June 2016 2.8 22.5 - 25.3
8.1 Winunited option
At 30 June 2016 the option was valued by a third party valuation specialist using a Monte Carlo valuation model and two
methodologies: a discounted cash flow and a multiples based calculation. A long-term growth rate of 1.5% was assumed (31
December 2015: 2%), and a discount rate of 14% (31 December 2015: 15%) based on industry peers and observable inputs.
Based on this model, the value of the call option at 30 June 2016 was E2.8 million (31 December 2015: E3.8 million). This
increase in the fair value of the option has been recognised in the income statement in accordance with IAS 39.
8.2 Cerberus loan early repayment option
On 2 February 2016 a further E380 million was drawn down under the Cerberus loan facility. The facility has a repayment
date of 4 September 2017 but may be repaid at any date, subject to a "make-whole" premium on the interest. Early repayment
will change the profile and size of the cash payments and this feature has been identified as an embedded derivative
therefore separated from the host contract. Changes in the Group's credit rating will have an impact on the value of the
option for early repayment. The option has been valued by a third party valuation specialist based on the contracted cash
flows under the terms of the facility and applying a probability weighted measure to the cost saving opportunities. The
value of the early repayment at inception and at 30 June 2016 was E22.5 million.
8.3 Betit option
On 14 May 2014, the Group acquired a 15% stake in Betit Holdings Limited ('BHL'). The Group had a call option to acquire
the balance of the outstanding shares which could be exercised no earlier than 1 July 2017 and no later than 30 September
2017, and would be subject to further Maltese Gaming Authority clearance and the Stock Exchange Rules. The minimum call
option price was E70 million, and the actual price would be determined by the mix of revenues between regulated and
non-regulated markets and certain multiples attaching thereto.
In the period the Group disposed of its investment in BHL and its call option was also disposed of as part of this
arrangement. The net loss on disposal of the investment and the option has been included within changes in value of
available for sale assets.
9. ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE
The Group has classified certain of its non-core assets as held for sale. This includes the Group's investment in the
Conspo joint venture, a provider of sports content, and its Kalixa business including its investment in Visa Europe
Limited.
The Kalixa business, a fully integrated digital payments company, was transferred to assets held for sale as at 31 March
2016 and its net valuation of E41.2 million was reviewed by management as at that date. Management are actively pursuing a
disposal within the next 12 months.
The carrying value of the Conspo investment of E3.9 million represents the lower of cost and the current fair value. The
assets held for sale are disclosed in the table below. The investment was disposed of shortly after the end of the
reporting period for a total of E15.3 million, of which E13.5 million was received in cash and a further E1.8 million is
due in two equal instalments in the next year providing there are no claims on warranties given.
Assets held-for-sale Liabilities held-for-sale Total
Em Em Em
As at 31 December 2015 - - -
Acquisition in business combination 12.3 - 12.3
Reclassified as held-for-sale 55.7 (25.0) 30.7
Trading and working capital movements 7.3 (4.8) 2.5
As at 30 June 2016 75.3 (29.8) 45.5
Consisting of:
Kalixa disposal group held for sale 71.4 (29.8) 41.6
Conspo asset held for sale 3.9 - 3.9
The major classes of assets and liabilities held for sale as at 30 June 2016 are:
Assets held-for-sale Liabilities held-for-sale Total
Em Em Em
Investment in Visa 1.8 - 1.8
Investment in Conspo 3.9 - 3.9
Intangible fixed assets 19.7 - 19.7
Property, Plant and Equipment 2.3 - 2.3
Trade and other receivables 10.8 - 10.8
Short term investments 2.2 - 2.2
Cash and cash equivalents 34.6 - 34.6
Trade and other payables - (23.6) (23.6)
Client liabilities - (2.3) (2.3)
Income tax payable - (0.5) (0.5)
Deferred tax - (3.4) (3.4)
As at 30 June 2016 75.3 (29.8) 45.5
10. LOANS AND BORROWINGS
10.1 Interest bearing loan
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. Under the terms of the loan, a 'Hedging Loan' of up to E20m
could be drawn on in advance of the Acquisition, in order to fund a hedging arrangement for the 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. In the original agreement, the full
amount of the loan was to be repaid by September 2017; on 30 June 2016, an extension to the loan repayment date to April
2018 was agreed on similar terms.
IAS 39 Financial Instruments: Recognition and Measurement, states that all financial liabilities should initially be
measured at their fair value and subsequently measured at amortised cost using the effective interest rate method. The
effective interest has been calculated using the internal rate of return on the cash outflows across the period of the
loan.
As set out in note 8.2 above, there is an option to repay the loan during the loan period which has been treated as an
embedded derivative. This was valued at inception as an asset of E7.4 million. The value of this embedded derivative has
been added to the initial cost of the loan and is therefore included in the amortised cost.
PrincipalEm Effective Early repayment optionEm Total Em
interestEm
Loan balance at 1 January 2015 and 30 June 2015 - - - -
Initial drawdown 20.0 - - 20.0
Initial costs and loan servicing fees paid - (0.8) - (0.8)
Interest instalments paid to 31 December 2015 - (0.6) - (0.6)
Effective interest due to 31 December 2015 - 1.2 - 1.2
Loan balance at 31 December 2015 20.0 (0.2) - 19.8
Loan drawdown 380.0 - - 380.0
Recognition of embedded derivative - - 7.4 7.4
Initial costs and loan servicing fees paid in prior year - (7.6) - (7.6)
Initial costs and loan servicing fees paid in the period - (7.6) - (7.6)
Interest instalments paid to 30 June 2016 - (13.3) - (13.3)
Effective interest due to 30 June 2016 - fees - 10.2 - 10.2
Effective interest due to 30 June 2016 - interest - 21.1 - 21.1
Amortisation of early repayment option - - (1.9) (1.9)
Loan balance at 30 June 2016 400.0 2.6 5.5 408.1
Split between: 30 June 2016Em 31 December 2015Em
Current liabilities - -
Non-current liabilities 408.1 19.8
10.2 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. The loan balance was repaid in full on 2 February 2016.
11. SHARE CAPITAL
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 note 17. 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 194.8 million new shares to bwin.party shareholders. Post the
Acquisition, additional shares are being 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 28.0 million Placing shares, including the subscription by Directors of shares under the terms
of the LTIP, and 7.5 million Subscription shares. The cash consideration for these shares was £150.0 million, less costs
incurred of £4.9 million (E6.4 million), which have been treated as a deduction from share premium.
On 18 February 2016, third party option holders exercised their options and a further 0.2 million shares were issued.
The authorised and issued share capital is:
30 June 2016 31 December 2015
Em Em
Authorised
Ordinary shares of E0.01 each
At 30 June 2016 - 350,000,000 shares (31 December 2015: 350,000,000 shares) 3.5 3.5
Issued, Called Up and Fully Paid
At 30 June 2016 - 292.0 million shares (31 December 2015: 61.3 million shares) 2.9 0.6
The issued share capital history is shown below:
2004 to 2014 2015 2016
Balance at 1 January - 61,276,480 61,276,480
Shares issued on initial listing in 2004 31,135,762 - -
Share options exercised by employees
- at £1.00 260,000 - -
- at £1.26 265,000 - -
- at £1.29 154,590 - -
- at £0.01 100,000 - -
Share options exercised by third parties
- at £2.36 343,053 - -
- at £1.26 - - 156,947
Issue of shares for Acquisition 29,018,075 - 194,841,498
Issue of shares via placing - - 27,978,812
Issue of shares via subscription - - 7,566,212
Issue of shares in the period to bwin option-holders - - 160,831
Balance at end of period 61,276,480 61,276,480 291,980,780
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote
per share at meetings of the Company. However, should the Company not be satisfied as to the true identity of the
shareholders it can suspend the entitlement of those shareholders to a) vote at general meetings of the Company; and/or b)
to receive dividends.
12. DIVIDENDS
The dividend history for 2015 is shown below:
Date declared Per share Ec Per share £p Shares in issue m Amount Em Amount £m
12-Jan-15 12.50 9.6000 61.3 7.6 5.9
23-Mar-15 14.00 10.2900 61.3 8.6 6.3
23-Mar-15 1.50 1.1000 61.3 0.9 0.7
08-Jul-15 14.00 9.7575 61.3 8.6 6.0
08-Oct-15 14.00 10.3472 61.3 8.6 6.3
Total in 2015 56.0 41.0947 34.3 25.2
As a result of the Acquisition of bwin.party and the combination of debt covenants and the intended restructuring of the
Group, the Directors have not proposed any further dividends during 2016.
13. SHARE OPTION SCHEMES
At 30 June 2016, the Group had the following share options schemes for which options remained outstanding at the period
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 period and as at 30 June 2016, 875,000 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.
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 period end:
Date of Grant Exercise Price Existing at 1 January 2016 Granted in the period Cancelled in the period Exercised in the Period Existing at 30 June 2016 Exercisable at 30 June 2016 Vesting criteria
28 Feb 2013 233.5p 156,947 - - (156,947) - - Note a
02 Jun 2014 1p 3,325,000 - (2,450,000) - 875,000 - Note b
02 Feb 2016 422p - 13,197,112 - - 13,197,112 - Note c
02 Feb 2016 467p - 4,399,037 - - 4,399,037 - Note d
02 Feb 2016 422p - 200,000 - - 200,000 - Note e
Total all schemes 3,481,947 17,796,149 (2,450,000) (156,947) 18,671,149 -
The existing share options at 30 June 2016 are held by the following employees:
Option price 1p 422p 467p
Grant date 02-Jun-14 02-Feb-16 02-Feb-16 Total
Kenneth Alexander - 8,798,075 - 8,798,075
Richard Cooper - 4,399,037 - 4,399,037
Lee Feldman (note d) - - 4,399,037 4,399,037
Norbert Teufelberger (note e) - 200,000 - 200,000
Employees 875,000 - - 875,000
875,000 13,397,112 4,399,037 18,671,149
Note a: These 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 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 period on the
Acquisition of bwin.party, and the after-tax proceeds of £5.4 million 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
period, see note 3.1.1.
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.
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 the after tax amount retained of this in GVC shares.
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.
The charge to share-based payments within the consolidated income statement in respect of these options in 2016 was E6.5
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, E5.9 million related to equity settled options (2015: E0.1 million) and E0.6
million to cash settled options (2015: E0.1 million credit).
13.1 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 E0.1 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.
The movements in cash-settled share option liabilities are set out in the table below:
30 June 2016
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 12.0
Charged under the 2 February 2016 scheme (note d above) (0.4)
Balance at 30 June 2016 (0.4)
13.2 Weighted Average Exercise Price of Options
The number and weighted average exercise prices of share options is as follows:
Weighted average exercise price Number of options Weighted average exercise price Number of options
30 June 2016 30 June 2016 31 December 2015 31 December 2015
Outstanding at the beginning of the period 11p 3,481,947 94p 6,806,947
Granted during the period 433p 17,796,149 - -
Exercised during the period 126p (156,947) - -
Surrendered/bought out in the period 422p (2,450,000) 184p (3,200,000)
Forfeited in the period - - 1p (125,000)
Outstanding at the end of the period 413p 18,671,149 11p 3,481,947
Exercisable at the end of the period - 156,947
The options outstanding at 30 June 2016 have a weighted average contractual life of 9.6 years (31 December 2015: 8.4
years).
13.3 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 Carol model at 31 December 2015. During the period, 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.
The aggregated fair value of the options issued on 2 February 2016 was E15.8 million. These have been calculated based on
a correlated simulation comparing the Group and the peer group of companies, being those that were constituents of the FTSE
250 at the grant date, on a risk neutral basis. For simulations that meet the vesting condition, the share price at the
test date is discounted from the test date back to the present.
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 Jun 14 - equity settled 4.49 0.01 24% n/a 10.00% 1.425% 0.41
02 Jun 14 - cash settled 4.49 0.01 21% n/a 9.40% 0.52% 0.28
02 Feb 16 - equity settled 30 months 4.67 4.22 22%-30% n/a 10% n/a 0.57-0.84
02 Feb 16 - equity settled 30 months 4.67 4.67 22%-30% n/a 10% n/a 0.37-0.64
02 Feb 16 - equity settled 24 months 4.67 4.22 n/a n/a 10% n/a 0.65-0.83
* 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 2014 schemes, the expected volatility is based on the historic volatility (calculated based on the weighted average
remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available
information.
For the 2016 schemes, 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.
14. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Group's principal financial instruments as at 30 June 2016 comprise cash and cash equivalents. The main purpose of
these financial instruments is to finance the Group's operations. The Group has other financial instruments which mainly
comprise receivables and payables, which arise directly from its operations. During the period, the Group entered into a
forward exchange contract to hedge its exposure to the potential GBP funding requirement for the Acquisition of bwin.party,
which was to be part-funded by a Euro-denominated loan. Other than that, the Group did not use derivative financial
instruments to hedge its exposure to foreign exchange or interest rate risks arising from operational, financing and
investment activities. During the six months to 30 June 2016, the Group did not hold or issue derivative financial
instruments for trading purposes.
14.1 Fair Values
The carrying amounts of the financial assets and liabilities, including deferred consideration in the Statement of
Financial Position at 30 June 2016 and 31 December 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 30 June 2016 and 31 December 2015.
At 30 June 2016 Level 1 Level 2 Level 3 Total
Em Em Em Em
Financial assets
Available for sale financial assets - - 2.2 2.2
Cerberus loan embedded derivative asset - - 22.5 22.5
Winunited share option asset - - 2.8 2.8
Deferred and
- More to follow, for following part double click ID:nRST2604KdRecent news on Entain
See all newsREG - Entain PLC - BetMGM - Upgraded FY 2025 Guidance
AnnouncementREG - Entain PLC - Director/PDMR Shareholding
AnnouncementREG - Entain PLC - Total Voting Rights
AnnouncementREG - Entain PLC - Board Appointments
AnnouncementREG - Entain PLC - Director/PDMR Shareholding
Announcement