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Annual Report & Accounts 2015 - REPORT OF THE GROUP FINANCE DIRECTOR
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Finance charges increased by €0.6m this year, driven by €1.2m effective interest on the €20.0 million loan drawn down in september 2015 from Cerberus. other finance charges included an imputed cost (as per ias 39) on the interest free loan from william hill of €0.2 million (2014: €0.2m); €0.1 million (2014: €0.7 million) on the unwinding of the discount on the deferred consideration arising from the 2009 acquisition of Betboo; €0.6 million on the retranslation of the GBp denominated william hill loan and leased software assets (2014: €0.6 million) and €0.1 million (2014: €0.1 million) in respect of finance charges on leased software assets. Share option charges amounted to €0.5 million (2014: €0.8 million). the charge for 2015 represented the ongoing charges arising from the share options awarded and announced on 2 June 2014, net of adjustments for movements in the fair value of cash settled options and share options forfeited by an employee leaving. at the year end, the Group had 3.3 million share options granted to directors and officers (5.4% of the existing issued share capital although its permitted allocation was 16.8% of the issued share capital (page 354 of the January 2013 prospectus)). During the year, directors surrendered 3,200,000 fully vested share options and were awarded associated cash settlements of €12.2 million, which has been recognised as a deduction from equity. these cash payments were to be made over a two year period, but were subsequently put on hold pending the outcome of the bwin.party acquisition. these were fully settled on 1 february 2016, and reinvested into new shares as part of the placing of shares on completion of the bwin.party deal. Betit and other revaluations: in accordance with ias 39 'financial instruments: recognition and measurement', the Group recognises the option to acquire further shares in both Betit and winunited (a B2B contract entered into in march 2015) at their fair value, and also revalues the investment in Betit which is recognised as an available-for-sale (afs) asset. Betit underperformed against its previous forecast provided by the Betit management, which decreases the expected value of the asset but also decreases the expected cost of the options. the call/put options with Betit now have a net liability of €0.7 million (2014: €1.7 million), and the afs asset has decreased in value by €1.2 million, from a value of €3.8 million in 2014. the movement on Betit is therefore a net cost of €0.2 million. the winunited option was valued at €3.8 million, which represents a gain of €3.8 million. overall, the revaluations result in a net credit to the income statement of €3.6 million. eXcePtionAL iteMs During 2015, the Group incurred €24.5 million of exceptional costs. of this, €23.0 million related to deal costs on the acquisition of bwin.party and consisted mainly of legal and professional fees and the cost of taking out a euro/GBp hedge. as part of the requirements for the acquisition of bwin.party, GvC had to "cash-confirm" that it had sufficient GBp funds to meet the obligations of the acquisition; namely 25p in cash per bwin.party share. as the loan facility from Cerberus was denominated in euro, an american style call option was purchased for €5.3 million on 4 september 2015 to sell €365,000,000 and purchase £256,138,750 (a rate of £1:€1.4250). the counterparty to this trade was nomura. on 18 December 2015, it was decided to terminate this option and replace its cash-confirmation obligations with a "flexible-forward", a forward contract with option components. entering into this transaction resulted in a refund of €5.6 million and a new sale of €365,000,000 and purchase of £260,719,500 (a rate of £1:€1.400). By 31 December, foreign exchange rates had moved and the rate used by GvC for the translation of its GBp current assets and current liabilities was £1:€1.36249, whilst the effective rate behind the valuation of the GBp obligation under the flexible forward was €1.3621. this resulted in a revaluation charge of €9.9 million shown as a forward contract liability. this is shown in more detail in the tables below: Table 4: forward contract movements Balance at paid received p&L 31.12.15 Details €000s €000s €000s €000s arrangement cashflows (5,329) 5,675 346 - arrangement valuations - - (9,877) (9,877) (5,329) 5,675 (9,531) (9,877) euro sale under flexible forward €365,000,000 rate €1.4000 GBp purchase under flexible forward £260,719,500 implicit rate in valuation €1.3621 revaluation €355,123,000 valuation expense €9,877,000 16 RePoRt oF the GRoUP FinAnce DiRectoR continued GVC HOLDINGS PLC ANNUAL REPORT 2015