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Annual Report & Accounts 2016 - Notes
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78 Financial statements continued GVC Holdings PLC Annual Report 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2016 1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED 1.9 Employee benefits continued 1.9.2 Share-based payments continued Annual share bonus plan The Group operates an annual share bonus plan and this gives the Company the option of rewarding employees and contractors in either cash or shares or a combination of both upon them achieving performance targets. The type of reward will be at the discretion of the Remuneration Committee, where a share award is granted the fair value of the award is recognised as a cash-settled share-based payment expense in the period that the employee or contractor earned the reward, with a corresponding liability recognised in the statement of financial position. Cash cancelled options On occasion, at the Remuneration Committee's discretion, vested share options may be settled in cash, as opposed to issuing new shares. Payments made to repurchase or cancel vested awards are accounted for with the fair value of the options cancelled, measured at the date of cancellation being taken to retained earnings. Also on cancellation an accelerated charge would be recognised immediately. Employers social security costs Employers social security costs due on the cash cancellation of options and the employee gain on exercised options will be paid by the Company and shown within share-based payments. See note 24 for further details of the schemes. 1.10 Provisions A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cashflows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. 1.11 Revenue recognition Revenue is measured at the fair value of consideration received or receivable and comprises the following elements: Casino: net win in respect of bets placed on casino games that have concluded in the year, stated net of promotional bonuses and amounts accrued or progressive prize pools. Sportsbook: gains and losses in respect of bets placed on sporting events in the year, stated net of promotional bonuses. Open positions are carried at fair market value and gains and losses arising on this valuation are recognised in revenue, as well as gains and losses realised on positions that have closed. Poker: net win in respect of rake for poker games that have concluded in the year, stated net of promotional bonuses. Bingo: net win in respect of bets placed on bingo games that have concluded in the year, stated net of promotional bonuses. Where promotional bonuses apply to customers playing a variety of products through the same wallet, bonuses are allocated pro-rata to the net win. Revenue is also generated from foreign exchange commissions on customer deposits and withdrawals and account fees. B2B income comprises the amounts receivable for services to other online gaming operators. Other revenue consists primarily of revenue from third-party payment services and financial markets. Revenue in respect of network service arrangements where the third party owns the relationship with the customer is the net commission invoiced. Income is recognised when a right to consideration has been obtained through performance and reflects contract activity during the year. 1.12 Net gaming revenue ("NGR") NGR is the Group's alternate revenue measure and is revenue before the deduction of VAT. 1.13 Clean EBITDA Clean EBITDA is the Group's alternative performance measure and is considered to be a key performance measure by the Directors. It is defined as operating profit adjusted for share-based payments, exceptional items, depreciation, amortisation, impairment of available for sale assets and changes in the fair value of derivative financial instruments. 1.14 Financial expenses Financial expenses comprise interest payable on borrowings, calculated using the effective interest rate method which discounts the expected cashflows over the life of the financial instrument, and foreign exchange differences arising on loans and finance leases. 1.15 Exceptional items Exceptional items are those items the Group considers to be non-recurring or material in nature that may distort an understanding of financial performance or impair comparability. 1.16 Financial income Financial income is interest income recognised in the income statement as it accrues, using the effective interest method. 1.17 Tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases, calculated using the liability method on temporary differences. However, deferred tax is neither provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with investments in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the reporting date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to other comprehensive income or equity in which case the related deferred tax is also charged or credited directly to other comprehensive income or equity as appropriate.