REG - GVC Holdings PLC - Half-year Report <Origin Href="QuoteRef">GVC.L</Origin> - Part 4

EntainAnnouncement

20/09/2016 07:07

- Part 4: For the preceding part double click  ID:nRST2604Kc 

contingent consideration    -        -        12.4     12.4   
                                          -        -        39.9     39.9   
 Financial liabilities                                                      
                                          -        -        -        -      
 
 
 At 31 December 2015                 Level 1  Level 2  Level 3  Total   
                                     Em       Em       Em       Em      
 Financial assets                                                       
 Available for sale financial asset  -        -        2.6      2.6     
 Winunited share option asset        -        -        3.8      3.8     
                                     -        -        6.4      6.4     
 Financial liabilities                                                  
 Betit option liability              -        -        (0.7)    (0.7)   
 Forward contract liability          -        (9.9)    -        (9.9)   
                                     -        (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 used for the Cerberus loan early repayment option and the Winunited option asset, classed as level
3, are described in detail in note 8 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. 
 
The valuation technique for the forward contract at 31 December 2015 was to value both the put and call elements at
mid-market rates based on an expected maturity date of 29 March 2016.  The option was exercised in the period. 
 
15.         RELATED PARTIES 
 
15.1      Identity of Related Parties 
 
The Group has a related party relationship with its subsidiaries and with its Directors and executive officers. 
 
15.2      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 period ended 30 June 2016, Fenlex received E66,156 from the Group in relation to Company secretarial
matters arising in Malta (12 months to December 2015: E97,385). 
 
Richard Cooper received no dividends during the period (12 months to December 2015: E934). The wife of Richard Cooper
received no dividends during the period (12 months to December 2015: E184,800) in respect of her interest in the ordinary
share capital of the Group. 
 
Lee Feldman received no dividends during the period (12 months to December 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 period ended 30 June 2016, Twin Lakes Capital received E32,238 (12 months to
December 2015: E68,715) in relation to office services. 
 
Kenneth Alexander received no dividends during the period (12 months to December 2015: E69,264).  The wife of Kenneth
Alexander received no dividends during the period (12 months to December 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 E1.1 million (2015: Enil) from an associate, with amounts owed at 30 June
2016 of
E0.2 million (2015: nil). 
 
The Group purchased certain rights to broadcast licensed media of E3.5 million (2015: Enil) from Conspo, a joint venture,
with no amounts outstanding at 30 June 2016 (2015: Enil).  Certain expenses are paid on behalf of this associate and repaid
to the Group on an ad-hoc basis, resulting in an overpayment by Conspo of E0.1 million (2015: Enil). 
 
16.         CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS 
 
16.1      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 (31 December 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. 
 
16.2      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. 
 
16.3      Capital commitments 
 
The Group has capital commitments contracted but not provided for at 30 June 2016 of E2.3 million (31 December 2015:
Enil). 
 
17.         BUSINESS COMBINATIONS 
 
17.1      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 number of 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 has been
accounted for as a business combination in the period ended 30 June 2016. 
 
The Group issued a prospectus on 13 November 2015 setting out the terms of the offer, which 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 exercised share options and the closing price for GVC Holdings PLC shares at the end of trading on the previous day was
£4.67.  There were 1.6m unexercised share options at the date of Acquisition, which will be settled in cash and shares upon
exercise. 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                                                                18.2      1.3205         24.1      
 Cash and equity settled options not exercised pre Acquisition                       1.9       1.3205         2.5       
 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: 
 
                                                 Provisional fair value Em  
 Assets                                                                     
 Intangible assets                               608.0                      
 Property, plant and equipment                   44.5                       
 Trade and other receivables                     108.2                      
 Investments and available for sale assets       4.5                        
 Deferred tax                                    1.9                        
 Assets held for sale                            12.3                       
 Short term investments                          15.6                       
 Cash                                            116.2                      
 Total assets                                    911.2                      
 Liabilities                                                                
 Trade and other payables                        (82.8)                     
 Client liabilities and progressive prize pools  (118.0)                    
 Provisions                                      (12.4)                     
 Loans                                           (39.4)                     
 Taxation including gaming tax                   (31.9)                     
 Deferred tax                                    (81.4)                     
 Total liabilities                               (365.9)                    
                                                                            
 Non-controlling interest                        1.2                        
                                                                            
 Net assets                                      546.5                      
                                                                            
 Fair value of consideration paid                1,506.6                    
 Goodwill recognised                             960.1                      
                                                                            
 Business combination costs (note 3.1)           54.7                       
 
 
The fair value of Trade and other receivables was E108.2 million and includes trade receivables and balances with payment
processors with a fair value of E78.7 million.  The gross contractual amount for trade receivables and payment processor
balances due was E80.2 million, of which E1.5 million was expected to be irrecoverable. 
 
The figures presented above are provisional due to the timing of the transaction. 
 
The goodwill consists of assembled workforce, future growth and business reputation. 
 
All contingent liabilities have been provided for at fair value at Acquisition date and subsequently measured at the higher
of the amount that would be recognised in accordance with IAS 37, and the amount initially recognised. 
 
The loan was settled post Acquisition. 
 
The total cost recognised in the income statement for the period ended 30 June 2016 was E54.7 million, being the business
combination costs incurred and treated as an exceptional cost. 
 
In the year ended 31 December 2015, bwin.party reported revenue of E576.4 million and loss before tax of E40.2 million.  If
the Acquisition had occurred at the beginning of the period under review, the revenue of the combined entity in the six
months to 30 June 2016 would have been E432.0 million and the loss after tax would have been E96.2 million. 
 
Following the Acquisition, GVC expects to generate significant synergistic savings through integration and restructuring of
operations.  Plans include: 
 
·      The migration of GVC's Sportsbook onto bwin.party's technology platform, after which the GVC platform will cease
operating 
 
·      The termination of all sponsorship programmes 
 
·      Restructuring bwin.party's casino and poker operations including integrating GVC's poker operation onto the
bwin.party platform 
 
·      Operational efficiencies in customer services, IT and marketing functions 
 
·      Integration of some back office functions which may lead to headcount reductions 
 
All plans are subject to consultation with employee representative bodies and other stakeholders. 
 
bwin.party contributed E255.5 million of revenue and a E7.8 million loss to the Group's results for the period between the
date of Acquisition and 30 June 2016. 
 
18.         EVENTS AFTER THE BALANCE SHEET DATE 
 
On 6 July 2016, the Group disposed of its investment in the Sportsman Leisure Industry Solutions GmbH (formerly known as
Conspo Sportcontent GmbH).  The investment was recognised as an asset held for sale at 30 June 2016.  Net profit on
disposal was E11.5 million. Under the terms of the Cerberus loan facility, the Group has an obligation to utilise the cash
proceeds of a business disposal as a mandatory repayment.  Accordingly, the net cash proceeds initially received were used
to repay E13.5 million of the outstanding loan balance, reducing the principal amount of the loan to E386.5 million. 
 
On 2 August 2016 the Group announced it had entered into a commitment with Nomura International plc for a replacement of
GVC's existing financing arrangements.  The E250 million proceeds of the new financing are to be applied towards the
repayment of the Cerberus loan facility, with the balance being repaid from existing cash reserves.  The new facility has
an initial maturity of one year from the signing of the loan agreement, expected to be October 2016, with options to extend
for 6 or 12 months. 
 
This information is provided by RNS
The company news service from the London Stock Exchange