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Annual Report & Accounts 2012 - NOTES
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GVC HOLDINGS PLC NOTES TO THE FINANCIAL STATEMENTS 19.2 Valuation of Options The fair value of services received in return for share options granted in 2012, 2010, 2008 and 2007 were measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured on a Binomial valuation model. The contractual life of the option (10 years) is used as an input into this model. Expectations of early exercise are incorporated into the Binomial model. The option exercise price for all individuals was the average market price on grant date, or a premium thereto apart from K Alexander whose options were priced at a premium to the market price on the date of the announcement of his appointment. Fair value of share options and assumptions: Share price Exercise Expected Fair value at at date of grant* price Expected Exercise dividend Risk free measurement Date of grant (in £) (in £) volatility multiple yield rate** date 1 Mar 07 1.08 1.00 65% 2 8% 5.02% 0.46 15 May 07 1.22 1.29 50% 2 8% 5.33% 0.40 13 Jul 07 1.42 2.98 60% 2 8% 5.63% 0.53 13 Jul 07 1.42 1.60 60% 2 8% 5.63% 0.53 21 Aug 07 1.25 1.29 60% 2 8% 5.07% 0.48 21 Sep 07 1.32 1.345 55% 2 8% 5.08% 0.48 27 Nov 07 1.33 1.33 50% 2 8% 4.80% 0.44 26 Feb 08 1.35 1.3816 50% 2 12% 4.53% 0.35 12 Dec 08 1.05 1.26 50% 2 12% 3.02% 0.17 21 May 10 1.85 2.13 60% 2 17% 2.75% 0.39 21 May 10 1.85 0.01 60% 2 17% 2.75% 0.05 21 May 10 1.85 1.50 60% 2 17% 2.75% 0.59 28 Jan 12 1.67 1.5479 58% 2 20% 2.19% 0.33 * 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. 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. There are no market conditions associated with the share option grants. 20. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Group's principal financial instruments as at 31 December 2012 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. Cash and cash equivalents and trade and other receivables have been classified as loans and receivables and trade and other payables, and deferred consideration as financial liabilities measured at amortised cost. During the year, 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. The Group does not hold or issue derivative financial instruments for trading purposes. 20.1 Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group's income or value of its holdings of financial instruments. Exposure to market risk (which includes currency and interest rate risk) arises in the normal course of the Group's business. 20.2 Foreign Exchange Risk Foreign exchange risk arises from transactions, recognised assets and liabilities and net investments in foreign operations. The Group does not use foreign exchange contracts to hedge its currency risk. The Group dividend is declared in the Euro. Two weeks before the dividend is due to be paid, the Company sells Euro and buys British Pounds for an amount equal to the dividend. 49