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Annual Report & Accounts 2016 - Notes
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91 12. DERIVATIVE FINANCIAL INSTRUMENTS Winunited option €m Early repayment option €m Betit option €m Total €m BALANCE AT 1 JANUARY 2015 - - (1.7) (1.7) Movement in fair value 3.8 - 1.0 4.8 BALANCE AT 31 DECEMBER 2015 3.8 - (0.7) 3.1 Recognised on loan drawdown - 7.4 - 7.4 Disposal in the year - - 0.7 0.7 Change in fair value of early repayment option (0.1) 15.1 - 15.0 BALANCE AT 31 DECEMBER 2016 3.7 22.5 - 26.2 12.1 Winunited option On 24 March 2015, GVC contracted with Winunited Limited for the day-to-day back office operations of the Winunited business, licensed in Malta. Under the terms of the agreement, GVC obtained a call option to purchase the Winunited assets comprising goodwill, customers, licences, brands and websites. The exercise period for the option is in the three months prior to the five year anniversary of 24 March 2015. No consideration was paid for the call option. At 31 December 2016, the option was valued using a Monte Carlo valuation model and two methodologies: a discounted cashflow and a multiples based calculation. A long-term growth rate of 2% (2015: 2%) was assumed, and a discount rate of 13% (2015: 15%) based on industry peers and observable inputs. Based on this model, the value of the call option at 31 December 2016 was €3.7m (2015: €3.8m). This decrease in the fair value of the option has been recognised in the income statement in accordance with IAS 39. 12.2 Cerberus loan early repayment option On 2 February 2016, a further €380m was drawn down under the Cerberus loan facility. The facility had a repayment date of 4 September 2017 but has been repaid earlier (see note 30). Early repayment changes the profile and size of the cash payments and this feature has been identified as an embedded derivative therefore separated from the host contract. Changes in the Group's credit rating would have an impact on the value of the option for early repayment. The option has been valued by a third party valuation specialist based on the contracted cashflows under the terms of the facility and measuring the cost saving opportunities resulting from an early repayment and obtaining of new financing at a lower rate. Given the refinance agreement disclosed in note 30, there is considered to be minimal sensitivity of the inputs to the valuation. The value of the early repayment at 31 December 2016 was €22.5m. 12.3 Betit option On 14 May 2014, the Group acquired a 15% stake in Betit Holdings Limited ("BHL"). The Group had a call option to acquire the balance of the outstanding shares which could be exercised no earlier than 1 July 2017 and no later than 30 September 2017, and would be subject to further Maltese Gaming Authority clearance and the Stock Exchange Rules. The minimum call option price was €70m, and the actual price would be determined by the mix of revenues between regulated and non-regulated markets and certain multiples attaching thereto. In the year, the Group disposed of its investment in BHL and its call option was also disposed of as part of this arrangement. The net loss on disposal of the investment and the option has been included within changes in value of available for sale assets. 13. SHORT-TERM INVESTMENTS 2016 €m 2015 €m Restricted cash 5.4 - 5.4 - Short-term investments represent cash held as guarantees for regulated markets' licences. These funds cannot be freely accessed by the Group and so are not treated as cash or cash equivalents.