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Annual Report & Accounts 2016 - Chief Financial Officer's review
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30 GVC Holdings PLC Annual Report 2016 Acquisition of bwin.party The acquisition of bwin.party completed on 1 February 2016 and offer consideration was made up of 25p in cash plus 0.231 GVC shares in exchange for each bwin.party share, and accounted for at a currency rate of £1:€1.3205. €m Amount paid by GVC: - value of stock issued 1,201.5 - value of cash component 278.5 - options settled post Acquisition 26.6 Value of offer 1,506.6 Assets at fair value 542.7 Goodwill recognised 963.9 Net debt and liquidity 2016 €m 2015 €m Loans due <1 year (386.5) - Loans due >1 year - (23.0) Gross debt (386.5) (23.0) Cash and cash equivalents 367.0 28.2 Less client liabilities (112.0) (14.8) Net debt (131.5) (9.6) Balances with payment processors 60.0 21.7 Net debt adjusted for payment processors (71.5) 12.1 Reconciliation to note 25.5.2: Net debt (131.5) (9.6) Accrued loan interest and fees (17.0) 0.2 Progressive prize pools (22.8) - Cash within assets held for sale (12.2) - Non-interest bearing loan - 3.0 (183.5) (6.4) In October 2016, the Group secured a one year (with options to extend for an additional 6 or 12 months) €250m loan facility from Nomura International plc (the "Nomura Loan"), which was used (fully drawn down in January 2017) to repay part of the €400m loan provided by Cerberus Business Finance LLP (the "Cerberus Loan") associated with the acquisition of bwin.party digital entertainment plc. The Nomura Loan provided a short term facility at a significantly reduced overall cost from that associated with the Cerberus Loan. In March 2017, the Group signed a €320m Senior Secured Term and Revolving Facility ("the Facility") comprising a six-year €250m term loan (the "Term Loan") and a five-year €70m revolving credit facility ("RCF"). The Term Loan was used to fully repay the Nomura Loan. In the normal course of business the Group's long-term strategy is to maintain leverage (net debt to Clean EBITDA) below 2x. Chief Financial Officer's review continued REPORT OF THE CHIEF FINANCIAL OFFICER CONTINUED Loan and borrowings The year end loan balance of €403.5m comprised €386.5m of debt principal and €17.0m of fees and interest due to Cerberus. Assets and liabilities held for sale The Group has classified "Kalixa", its payments processing business, as held for sale, the sale was announced in December 2016 for a total cash consideration of €29.0m with potential adjustments of up to €35.5m. It is expected to complete in H1 2017. The balance sheet value comprises assets held for sale totalling €59.7m including €12.2m of cash, and liabilities held for sale of €22.7m. Derivative financial assets This consists of two main components, the WinUnited option (€3.7m) and the early repayment option associated with the Cerberus Loan (€22.5m). The Group entered into an agreement in 2015 with WinUnited to provide day-to-day back office operations for the WinUnited business and as part of this agreement obtained a call option to purchase the WinUnited assets. In the year the value of the option reduced from €3.8m to €3.7m. As part of the financing agreement with Cerberus, the Group had the option of terminating the loan early by 1 February 2017. The option was initially recognised at €7.4m but during the year it became clear that the Group could re-finance at more advantageous rates. This led to the fair value of the option being increased to €22.5m. A credit has been taken to the income statement for this in the year. Progressive prize pools Both GVC and bwin.party 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. The combined Group liability at the end of 2016 was €22.8m. Deferred taxation Deferred taxation has arisen on the intangible assets recognised on the Acquisition of bwin.party. The liability recognised within non-current liabilities at 31 December was €65.6m.