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Annual Report & Accounts 2016 - Chief Financial Officer's review
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28 GVC Holdings PLC Annual Report 2016 Exceptional items The bulk of the exceptional items have arisen on the acquisition of bwin.party itself and subsequent restructuring. 2016 €m 2015 €m EXCEPTIONAL ITEMS Professional fees 18.8 13.5 Currency option 10.8 9.5 Bonuses and share options 21.9 - ACQUISITION COSTS 51.5 23.0 Premium listing application costs 4.4 - Reorganisation costs 14.4 - Contract termination costs 11.7 - Accelerated depreciation 12.5 - Progressive jackpots 7.6 - Release of contingent consideration 8.1 - Foreign exchange on deposit 16.4 - Profit on disposal of joint venture (11.7) - Other 2.9 1.5 117.8 24.5 A currency option was taken out in 2015 in order to meet the cash confirmation requirements for the offer for bwin.party by the Company. Under the terms of the contract the Group would sell €365.0m and buy £260.7m. The movement in the sterling/euro exchange rate between 31 December 2015 and 2 February 2016 created an additional €10.8m fair value loss on the option which has been recognised within exceptional items. The 2014 LTIP was cash settled as part of the acquisition and the after tax proceeds were rolled into the related share placing, the cost of the settlement including employer's taxes of €18.4m was taken as an exceptional cost. In addition Transaction bonuses of approximately €3.0m were paid to the Directors and the vast majority of the after tax proceeds were also rolled into the share placing and €0.5m was paid to other employees in the Group. Both the legacy GVC business and the acquired bwin.party business have progressive prize pools on casino games. Following the acquisition GVC evaluated that a change in accounting judgement was required and recognised a charge of €7.6m as an exceptional item with the liability being recorded in the balance sheet. The contract termination costs of €11.7m relate to a legacy affiliate agreement on non-commercial terms that the Group bought out following the acquisition of bwin.party. Foreign exchange on deposit relates to foreign exchange movements on GBP funds raised through the share placing and held on deposit for the restructuring of bwin.party. Operating profit The Group reported an operating loss of €81.1m for the year, compared to a profit of €27.8m the previous year. Exceptional items and amortisation associated with the Acquisition were responsible for the reported loss in 2016. Excluding exceptional items and amortisation associated with the Acquisition, the Group's operating profit was €146.2m compared to €52.3m in 2015. 2016 €m 2015 €m Clean EBITDA 193.5 54.1 Share based payments (31.1) (0.4) Exceptional items (117.8) (24.5) Depreciation & amortisation (136.5) (5.0) Impairment of available for sale asset (4.2) (1.2) Changes in the fair value of derivative financial instruments 15.0 4.8 Operating loss/(profit) (81.1) 27.8 The share based payment charge of €31.1m comprises €25.1m for the Group's LTIP and MIP share option schemes and a €6.1m charge for share awards for employee incentive plans. Financing charges These comprise: interest on indebtedness (principally loans), an accounting charge for debt free amortisation, other debt administration fees and foreign exchange movements. Financial charges totalled €65.3m for the year compared to €2.3m for 2015. 2016 €m 2015 €m Interest on Cerberus loan 46.0 1.2 Amortisation of loan fees and early repayment option 19.0 - Finance lease interest 0.1 0.1 Unwinding of interest on non-interest bearing loan - 0.2 Unwinding of discount on deferred consideration - 0.1 Foreign exchange revaluation - 0.7 Other interest 0.2 - 65.3 2.3 REPORT OF THE CHIEF FINANCIAL OFFICER CONTINUED Chief Financial Officer's review continued