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Annual Report & Accounts 2016 - Notes to the Company Statements
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117 10. SHARE OPTION SCHEMES CONTINUED 10.1 Liability for cash-settled options During 2015, options granted under a previous scheme were surrendered and in light of this surrender, a new retention plan was put in place. The liability under this plan at 31 December 2015 was €11.7m. As a result of the acquisition of bwin.party, these liabilities were settled in the period and the after-tax proceeds were re-invested in new GVC shares. In addition there was a cash-settled option liability in respect of the 2014 scheme of €0.2m which is recognised as payable to Group undertakings. During the year, a new liability was recognised for the cash-settled bonus scheme as set out in note d above, however in the Company accounts this is recognised as payable to Group undertakings, where participants in the scheme are employed. The movements in cash-settled share option liabilities are set out in the table below: €m Balance at 1 January 2016 (11.8) Settled on the acquisition of bwin.party 11.8 Balance at 31 December 2016 - 10.2 Weighted average exercise price of options The number and weighted average exercise prices of share options is as follows: Weighted average exercise price 31 December 2016 Number of options 31 December 2016 Weighted average exercise price 31 December 2015 Number of options 31 December 2015 Outstanding at the beginning of the year 11p 3,481,947 94p 6,806,947 Granted during the year 422p 26,621,149 - - Exercised during the year 126p (834,723) - - Surrendered/bought out in the year 422p (2,450,000) 184p (3,200,000) Forfeited in the year - - 1p (125,000) Outstanding at the end of the year 416p 26,818,373 11p 3,481,947 Exercisable at the end of the year 5,236,844 156,947 The options outstanding at 31 December 2016 have a weighted average contractual life of 9.1 years (31 December 2015: 8.4 years). 10.3 Valuation of options The fair value of services received in return for share options granted were measured by reference to the fair value of share options granted. The Group engaged a third party valuation specialist to provide a fair value for the options. The 2014 options were valued using a Monte Carlo model due to the performance conditions associated with the options. The 2014 cash-settled options were revalued using a Monte Carlo model at 31 December 2015. During the year, the 2014 cash-settled options and some of the 2014 equity-settled options were cashed out at an exercise price of 422p. The excess of the cash settlement over the fair value of the options at the date of the settlement has been recognised in the Consolidated Income Statement as a cost of share-based payments within exceptional items. Fair value of share options and assumptions: Date of grant Share price at date of grant1 £ Exercise price £ Expected volatility% Exercise multiple Expected dividend yield Risk free rate2 % Fair value at measurement date £ 2 February 2016 - equity-settled 30 months 4.67 4.22 22%-30% n/a n/a n/a 0.32-0.47 2 February 2016 - equity-settled 30 months 4.67 4.67 22%-30% n/a n/a n/a 0.22-0.28 2 February 2016 - equity-settled 24 months 4.67 4.22 n/a n/a n/a n/a 0.32-0.47 16 December 2016 - equity-settled 30 months 6.48 4.22 30%-28% n/a n/a n/a 1.43-1.94 1. This is the bid price, not the mid-market price, at market close, as sourced from Bloomberg. 2. The measurement of the risk-free rate was based on rate of UK sovereign debt prevalent at each grant date over the expected term of the option. For the 2016 LTIP scheme, the expected volatilities have been calculated using historical prices for companies that were constituents of the FTSE 250 at the grant date. These options accrue dividend credits and the yield is assumed to be nil for 2016 and 10% thereafter. As the schemes vest on a staggered basis over a period of up to 30 months, the volatilities have been calculated over each relevant time period. The fair value of each phase of the options has been calculated separately, shown as a range in the table above, and the cost of each phase is allocated across the vesting period for that phase.