REG - GVC Holdings PLC - Notification of Transfer to a Premium Listing <Origin Href="QuoteRef">GVC.L</Origin> - Part 8
01/07/2016 07:07
- Part 8: For the preceding part double click ID:nRSA8980Cg
125.2 18.6
British Pounds 143.1 6.6
Swiss Francs 11.7 0.9
US Dollars 7.9 -
Other 20.0 2.1
307.9 28.2
Balances with customers:
- Restricted cash 11.8 6.8
Balances with customers 11.8 6.8
Own funds 296.1 21.4
307.9 28.2
Restricted cash is held by the Group for regulatory purposes but can be directly accessed by the Group without requiring
prior approval from the regulator.
Cash of E17.4 million is held within a disposal group classified as an asset held for sale, as shown in note 15, and is not
included in the cash and cash equivalents balance of E307.9 million shown above.
15. 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 held for sale as at 31 March 2016 and
its net valuation E41.2 million has been 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. Management are actively pursuing a disposal within the next few
months.
Assets Liabilities
held-for-sale 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 (22.9) 32.8
As at 31 March 2016 68.0 (22.9) 45.1
Consisting of:
Kalixa disposal group held for sale 64.1 (22.9) 41.2
Conspo asset held for sale 3.9 - 3.9
The major classes of assets and liabilities held for sale as at 31 March 2016 are:
Assets Liabilities
held-for-sale held-for-sale Total
Em Em Em
Investment in Visa 8.4 - 8.4
Investment in Conspo 3.9 - 3.9
Intangible fixed assets 20.3 - 20.3
Property, Plant and Equipment 2.3 - 2.3
Trade and other receivables 9.9 - 9.9
Short term investments 5.8 - 5.8
Cash and cash equivalents 17.4 - 17.4
Trade and other payables - (15.9) (15.9)
Client liabilities - (5.2) (5.2)
Income tax payable - (0.1) (0.1)
Deferred tax - (1.7) (1.7)
As at 31 March 2016 68.0 (22.9) 45.1
16. TRADE AND OTHER PAYABLES
31 March 31 December
2016 2015
Em Em
Other trade payables 56.5 12.7
Accruals 36.8 19.3
Current liabilities: trade and other payables 93.3 32.0
17. BALANCES WITH CUSTOMERS AND PROGRESSIVE PRIZE POOLS
31 March 31 December
2016 2015
Em Em
Balances with customers 108.9 14.8
Progressive prize pools 16.6 -
125.5 14.8
Balances with customers and progressive prize pools represent amounts due to customers including net deposits received,
undrawn winnings, progressive jackpots and tournament prize pools and certain promotional bonuses.
18. LOANS AND BORROWINGS
18.1 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. As at 31 March 2016, the full amount
of the loan was to be repaid by September 2017; after the end of the reporting period, 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 11.2, there is an option to repay the loan during the loan period which has been treated as an embedded
derivative. This has been valued 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.
Early
Effective repayment
Principal interest option Total
Em Em Em Em
Loan balance at 1 January 2015 and
31 March 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 - (15.2) - (15.2)
Interest instalments paid to
31 March 2016 - (0.6) - (0.6)
Effective interest due to
31 March 2016 - 12.3 - 12.3
Amortisation of early repayment option - - (0.8) (0.8)
Loan balance at 31 March 2016 400.0 (3.7) 6.6 402.9
31 March 31 December
2016 2015
Split between: Em Em
Current liabilities - -
Non-current liabilities 402.9 19.8
18.2 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.
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 loan
was discounted at a rate of 4% and this discount unwound over the period of the loan.
The facility was repayable in three instalments and should GVC declare dividends in excess of 58 Ecents per share, William
Hill was entitled to receive an accelerated repayment equal to the excess of the actual dividend over 58 Ecents per share.
The instalments as well as the impact of the discount are shown below:
2016 2015
Base 2016 Base 2015
Currency Total Currency Total
£m Em £m Em
Loan balance at 1 January 2.3 3.1 4.6 5.8
Repayment during the period (2.3) (3.1) (2.3) (3.2)
Revaluation at period end exchange rate - - - 0.5
Loan balance at 31 March 2016/
31 December 2015 - - 2.3 3.1
Undiscounted payments due within
12 months: - - 2.3 3.1
Loan balance before discount - 3.1
Discount on recognition of the loan (0.8) (0.8)
Unwinding of discount to date 0.8 0.7
Loan balance at 31 March 2016/
31 December 2015 - 3.0
31 March 31 December
2016 2015
Split: Em Em
Current liabilities - 3.0
Non-current liabilities - -
19. DEFERRED AND CONTINGENT CONSIDERATION
2016 2015
Em Em
Betboo deferred consideration 1.0 1.6
WPT contingent consideration 4.8 -
Balance at 31 March 2016 / 31 December 2015 5.8 1.6
Split:
Current liabilities 1.5 1.6
Non-current liabilities 4.3 -
19.1 Betboo deferred consideration
On 2 July 2009, the Group acquired the trade and assets of betboo.com, a leading South American internet gaming operator,
offering bingo, casino, poker and a sports betting product. The terms of the acquisition were an initial payment of US$4
million (E2.9 million) with the sellers able to earn up to a further US$26 million depending on performance.
On 23 February 2011, the Group announced a change in the terms of the earn-out. The costs of the revised earn-out were
estimated using cash flow projections for the 4 years to 31 December 2014, and discounted using the estimated weighted
average cost of capital of 21%.
On 1 October 2013 the Betboo business migrated to the Sportingbet trading platform, the payments terms of the earn-out
changed from this date to the following:
• An earn-out dependent on certain revenue shares with a floor of E0.2 million per month for the 40 months ending 31
January 2017. There are also further earn-out payments that stretch to the earlier of:
(a) the date on which the total earn-outs reach E21.4 million
(b) 40 months after 31 January 2017
• The total earn-out cap remains at E21.4 million, which is now expected to be reached in August 2016.
The intangible assets acquired in the transaction and the impact of the revised earn-out are as follows:
Em
Acquisition price of Betboo
Initial consideration 2.9
Deferred consideration 18.5
Total consideration 21.4
Acquisition costs 0.3
Original cost on acquisition 21.7
The deferred consideration has been discounted to reflect its cost at the date of acquisition. The effect of this discount
will be unwound over the period of the deferral with a charge to the income statement contained within interest expense.
The expected impact of this over the earn-out period is shown below:
Prior 31 December 31 December 31 March 31 December
periods 2014 2015 2016 2016 Total
Em Em Em Em Em Em
Balance at start of period - 7.5 3.9 1.6 1.0 -
Deferred consideration 9.9 - - - - 9.9
Unwinding of discount
charged to income
statement 7.8 0.7 0.1 - - 8.6
Payments made (10.2) (4.3) (2.4) (0.6) - (17.5)
Payments anticipated - - - - (1.0) (1.0)
Balance at end of period 7.5 3.9 1.6 1.0 - -
Total payments to date and anticipated are as follows:
Total
Em
At acquisition 2.9
Up to 31 December 2015 16.9
Up to 31 March 2016 0.6
Anticipated future payments 1.0
Total (Cap = E21,381,227) 21.4
19.2 WPT contingent consideration
Contingent consideration of E4.8 million relates to amount payable for the acquisition of WPT. The non-discounted book
values for these amounts are as follows:
31 March 31 December
2016 2015
Em Em
Within one year 0.6 -
Later than one year but not more than five years 4.9 -
5.5 -
20. PROVISIONS
31 March 31 December
2016 2015
Em Em
Provisions recognised on business combination 10.6 -
10.6 -
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 in note 20.1. There have been no movements in the provisions since the acquisition of
bwin.party.
20.1 Portuguese Casino Association ("APC")
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'), bwin.party digital entertainment plc and bwin.party services
(Gibraltar) Ltd (together 'bwin.party'). In this initial ruling the first instance Court had (i) declared the (meanwhile
already terminated) sponsorship agreement between bwin.party and the Liga as illegal, (ii) declared bwin.party's gaming
offer and advertising measures as illegal in Portugal, (iii) prohibited bwin.party to exploit mutual bets and lottery games
in Portugal and to carry out any form of publicity or promotion of the website bwin.com, (iv) imposed on the defendants
pecuniary sanctions of (A) E50,000 for each day the infraction lasts, payable to the Portuguese Casino Association ('APC')
and (B) E50,000 for each infraction, payable to Santa Casa da Misericórdia de Lisboa, and (v) ordered the publishing of the
ruling and the notification of Portuguese media organisations.
In June 2012, APC initiated enforcement proceedings against the Liga and bwin.party, requesting the payment of pecuniary
sanctions in the total amount of E6.35 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 provision for the legal case of E3.2
million on a fair value basis.
21. OTHER TAXATION PAYABLE
31 March 31 December
2016 2015
Em Em
Social security 1.3 0.7
Betting taxes 34.6 1.3
35.9 2.0
22. COMMITMENTS UNDER OPERATING AND FINANCE LEASES
22.1 Finance Leases
In June 2014 the Group entered into a finance lease for the purchase of computer hardware and software together with
support services for these, in addition to a lease taken out in June 2013. As at 31 March 2016 life outstanding on the 2013
lease was two months and the 2014 lease was six months. In January 2015 the Group entered into an additional finance lease
for the purchase of hardware and software. The life outstanding on this lease at 31 March 2016 was nine months.
Future minimum lease payments under finance leases at 31 March were:
Within 1 year 1 to 5 years Total
31 March 2016 Em Em Em
Lease payments 0.3 - 0.3
Finance charges - - -
Net present values 0.3 - 0.3
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
Amount offinance provided Balance at
31 March
2016 Borrowing
Date lease taken out Em Em Expiry date rate
June 2013 2.1 - June 2016 8.5%
June 2014 0.6 - September 2016 5.5%
January 2015 0.7 0.3 December 2016 8.9%
3.4 0.3
22.2 Operating Leases
The Group leases various offices under non-cancellable operating leases. The leases have varying terms, escalation clauses
and renewal rights. All operating lease commitments relate to land and buildings.
The future minimum lease payments under non-cancellable leases are as follows:
31 March 31 December
2016 2015
Em Em
No later than one year 7.8 1.2
Later than one year and no later than five years 18.3 0.6
More than five years 6.7 -
32.8 1.8
23. SHARE CAPITAL AND RESERVES
23.1 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 E1,504.1 million as set out in note 32. 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.
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 purchase 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:
31 March 31 December
2016 2015
Em Em
Authorised
Ordinary shares of E0.01 each
At 31 March 2016 - 350,000,000 shares
(31 December 2015: 350,000,000 shares) 3.5 3.5
Issued, Called Up and Fully Paid
At 31 March 2016 - 291.8 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
Balance at end of period 61,276,480 61,276,480 291,819,949
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.
23.2 Reserves
Share Share Merger Translation Retained Total
Capital Premium Reserve Reserve Earnings NCI* equity
Em Em Em Em Em Em Em Em
At 1 January 2015 0.6 85.4 40.4 0.3 22.7 149.4 - 149.4
Result for the year - - - - 24.7 24.7 - 24.7
Dividends paid - - - - (34.3) (34.3) - (34.3)
Share option charge - - - - 0.5 0.5 - 0.5
Share options surrendered - - - - (12.2) (12.2) - (12.2)
At 31 December 2015 0.6 85.4 40.4 0.3 1.4 128.1 - 128.1
Result for the period - - - 0.3 (73.7) (73.4) (0.1) (73.5)
Acquisition of bwin.party 2.3 1,390.9 - - - 1,393.2 (1.2) 1,392.0
Share option charge - - - - 2.6 2.6 - 2.6
Share options surrendered - - - - (0.8) (0.8) - (0.8)
Share options exercised - 0.3 - - - 0.3 - 0.3
At 31 March 2016 2.9 1,476.6 40.4 0.6 (70.5) 1,450.0 (1.3) 1,448.7
* Non-controlling interest
The 'Merger reserve' arose on the re-domiciliation of the Group from Luxembourg to the Isle of Man. It consists of the
pre-redomiciliation reserves of the Luxembourg company plus the difference in the issued share capital (31,135,762 shares
at E0.01 versus 31,135,762 shares at E1.24).
Capital comprises total equity. The Group's capital management objectives are to ensure its ability to continue as a going
concern and to provide an adequate return to shareholders and benefits to other stakeholders by pricing services
commensurately with the level of risk, and maintaining an optimal capital structure to reduce the cost of capital. The
Group's objective is to pay around 75% of its net operating cashflows to shareholders by way of dividends (see note 24).
In order to maintain or adjust the capital structure, the Company may issue new shares, return capital to shareholders,
limit the amount of dividends paid, or sell assets.
Total equity employed at 31 March 2016 was E1,448.7 million (31 December 2015: E128.1 million).
24. DIVIDENDS
The dividend history for 2015 is shown below:
Per share Per share Shares in Amount Amount
Date declared Ec £p issue m Em £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.
25. SHARE OPTION SCHEMES
At 31 March 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 31 March 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 plans 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:
Existing at Granted Cancelled Existing at Exercisable
Exercise 1 January in the in the Exercised in 31 March at 31 March Vesting
Date of Grant Price 2016 period period the Period 2016 2016 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 31 March 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 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 E3.0
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, E2.6 million related to equity settled options (2015: E0.1 million) and E0.4 million
to cash settled options (2015: E0.1 million credit).
25.1 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:
31 March
2016
Em
Balance at 1 January 2016 (11.8)
Settled on the acquisition of bwin.party 11.8
Charged under the 2 February 2016 scheme (note d above) (0.2)
Balance at 31 March 2016 (0.2)
25.2 Weighted Average Exercise Price of Options
The number and weighted average exercise prices of share options is as follows:
Weighted Weighted
average average
exercise Number of exercise Number of
price options price options
31 March 31 March 31 December 31 December
2016 2016 2015 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 31 March 2016 have a weighted average contractual life of 9.8 years (31 December 2015: 8.4
years).
25.3 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:
Share price Fair value
at date Exercise Expected Risk at
of grant* price Expected Exercise dividend free measurement
Date of grant (in £) (in £) volatility multiple yield rate** 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.
26. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Group's principal financial instruments as at 31 March 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 three months to 31 March 2016, the Group did not hold or issue derivative financial
instruments for trading purposes.
26.1 Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates which will affect
the Group's income or value of its holdings of financial instruments. Exposure to market risk arises in the normal course
of the Group's business.
26.2 Foreign Exchange Risk
Foreign exchange risk arises from transactions, recognised assets and liabilities and net investments in foreign
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 does not use foreign exchange contracts to hedge its currency risk. The Group dividend is declared in
the Euro. Shortly before the dividend is due to be paid, the Company sells Euros and buys British Pounds for an amount
equal to the dividend.
The Group has investments in foreign operations which are largely denominated in Euros, minimising the Group's exposure to
currency translation risk.
26.2.1 Analysis of the Statement of Financial Position by Currency
Euro GBP Other Total
At 31 March 2016 Em Em Em Em
Non-current assets 1,695.6 30.6 8.6 1,734.8
Receivables and prepayments 55.8 30.7 31.8 118.3
Tax reclaimable 0.3 5.7 - 6.0
Assets held for sale 68.0 - - 68.0
Short term investments 4.5 - 0.9 5.4
Cash and cash equivalents 125.2 143.1 39.6 307.9
Total current assets 253.8 179.5 72.3 505.6
Trade and other payables (53.6) - (39.7) (93.3)
Balances with customers and
progressive prize pools (66.0) (16.0) (43.5) (125.5)
Finance leases - (0.3) - (0.3)
Deferred and contingent consideration (1.0) - (0.5) (1.5)
Share option liability - (0.2) - (0.2)
Forward contract liability (1.2) - - (1.2)
Liabilities held for sale (22.9) - - (22.9)
Provisions (5.9) - (4.7) (10.6)
Taxation payable (11.0) (3.3) - (14.3)
Other taxation liabilities (35.9) - - (35.9)
Total current liabilities (197.5) (19.8) (88.4) (305.7)
Net current assets/(liabilities) 56.3 159.7 (16.1) 199.9
Non-current liabilities
- Deferred and contingent
consideration - - (4.3) (4.3)
- Betit option - (1.9) - (1.9)
- Interest bearing loan and borrowings (402.9) - - (402.9)
- Deferred tax (76.9) - - (76.9)
Total non-current liabilities (479.8) (1.9) (4.3) (486.0)
Total assets less total liabilities 1,272.1 188.4 (11.8) 1,448.7
Euro GBP Other Total
At 31 December 2015 Em Em Em Em
Non-current assets 149.3 9.5 0.3 159.1
Receivables and prepayments 11.7 10.0 12.9 34.6
Winunited option 3.8 - - 3.8
Tax reclaimable 0.3 5.7 - 6.0
Other taxes reclaimable - - - -
Cash and cash equivalents 18.6 6.6 3.0 28.2
Total current assets 34.4 22.3 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 - (3.7) - (3.7)
Deferred consideration (1.6) - - (1.6)
Share option liability - (9.7) - (9.7)
Forward contract liability (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) 2.3 (16.5) 5.8 (8.4)
Non-current liabilities
- Betit option - (0.7) - (0.7)
- Interest bearing loan and borrowings (19.8) - - (19.8)
- Share option liability - (2.1) - (2.1)
Total non-current liabilities (19.8) (2.8) - (22.6)
Total assets less total liabilities 131.8 (9.8) 6.1 128.1
A significant proportion of the Group's financial assets and liabilities are denominated in Euros, which minimises the
Group's exposure to foreign exchange risk. Management do not consider the impact of possible exchange rate movements based
on current market conditions to be material to the net result for the period.
26.3 Interest Rate Risk
The Group earns interest from bank deposits. During the period, 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 18.2) which did not carry any interest rate
risk. 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 March 2016, the Group had E400 million of
committed and drawn-down borrowing facilities under this loan arrangement (31 December 2015: E19.8 million), with a further
Enil of committed un-drawn facilities (31 December 2015: E380 million). The interest on these loans is based on EURIBOR
with a floor of 1%, plus a margin of 11.5%.
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 period or the equity position at the period end for either the year ended 31 December 2015 or the
period ended 31 March 2016.
26.4 Credit Risk
The Group seldom has any significant concentrations of credit risk, with exposure spread over a large number of customers.
Under certain circumstances, the Group grants credit facilities to some of 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 E53.3 million (31 December 2015: E21.7 million) and cash balances held with banking institutions of E307.9 million (31
December 2015: E28.2 million). The Group considers the credit risk associated with these balances to be low, having
assessed the credit ratings and financial strength of the counter-parties involved. The Group is seeking to diversify its
banking deposits to further reduce credit risk.
No provision for impairment has been made at 31 March 2016 (31 December 2015: Enil). No receivable amounts were past due
date at 31 March 2016 (31 December 2015: Enil).
26.5 Liquidity Risk
At 31 March 2016, the Group had cash and cash equivalents of E307.9 million (31 December 2015: E28.2 million) and current
assets are E199.9 million more than current liabilities. Accordingly, the liquidity risk for the Group is low. Within
non-current liabilities, the Interest bearing loan balance is due to be settled within two years, which may increase the
liquidity risk in that time frame.
26.6 Maturity analysis
The following table sets out the maturities of financial liabilities:
12 months
or less 1 - 2 years
Em Em
Trade payables and customer balances 218.8 -
Interest-bearing loans - 402.9
Deferred and contingent consideration 1.5 4.3
Forward contract liability 1.2 -
Share option liability 0.2 -
Betit option liability - 1.9
Finance leases 0.3 -
Liabilities held for sale 22.9 -
244.9 409.1
26.7 Fair Values
The carrying amounts of the financial assets and liabilities, including deferred consideration in the Statement of
Financial Position at 31 March 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 31 March 2016 and 31 December 2015.
Level 1 Level 2 Level 3 Total
At 31 March 2016 Em Em Em Em
Financial assets
Available for sale financial assets - - 11.5 11.5
Cerberus loan embedded derivative asset - - 7.4 7.4
Winunited share option asset - - 3.4 3.4
Deferred and contingent consideration - - 12.0 12.0
- - 34.3 34.3
Financial liabilities
Betit option liability - - (1.9) (1.9)
Contingent consideration - - (0.2) (0.2)
Forward contract liability - (1.2) - (1.2)
- (1.2) (2.1) (3.3)
Level 1 Level 2 Level 3 Total
At 31 December 2015 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 available for sale financial asset, the Cerberus loan early repayment option, the
Betit option liability and the Winunited option asset, classed as level 3, are described in detail in notes 10 and 11.
The valuation technique for 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.
26.8 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:
31 March 31 December
2016 2015
Em Em
Non-current assets:
Available for Sale Financial Asset 3.1 2.6
Financial assets measured at fair value through profit or loss:
- Trade and Other receivables 6.5 -
Non-current assets 9.6 2.6
Current assets:
Available for Sale Financial Asset 8.4 -
Financial assets measured as loans and receivables:
- Trade and Other receivables 92.8 23.1
- Short term investments 11.2 -
- Cash and cash equivalents 325.3 28.2
Financial assets measured at fair value through profit or loss:
- Trade and Other receivables 5.5 -
- Winunited option asset 3.4 3.8
- Cerberus derivative asset 7.4 -
Current assets 454.0 55.1
Current liabilities:
Financial liabilities measured at amortised cost:
- Trade and other payables (197.9) (38.0)
- Non-interest bearing loans and borrowings - (3.0)
- Deferred consideration (1.5) (1.6)
Financial liabilities measured at fair value through profit or loss:
- Forward contract liability (1.2) (9.9)
- Deferred consideration (0.2) -
Current liabilities (200.8) (52.5)
Non-current liabilities
Financial liabilities measured at amortised cost:
- Interest-bearing loans and borrowings (402.9) (19.8)
- Non-interest loans and borrowings - -
- Share option liability - (2.1)
- Deferred consideration (4.3) -
Financial liabilities measured at fair value through profit or loss:
- Betit option liability (level 3) (1.9) (0.7)
Non-current liabilities (409.1) (22.6)
27
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