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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. LR,13.3.1(4) If you are in any doubt about the contents of this document or as to what action you should take, you are recommended to seek your own financial advice immediately from your stockbroker, bank manager, solicitor, accountant, fund manager or other appropriate independent financial adviser duly authorised under the Financial Services and Markets Act 2000 (as amended) (“FSMA”) if you are resident in the United Kingdom, or, if not, from another appropriately authorised independent financial adviser. This document, which comprises (i) a circular prepared in accordance with the Listing Rules of the UK Financial Conduct Authority (the “FCA”) made under section 73A of FSMA and (ii) a prospectus for the purposes of Article 3 of the European Union Directive 2003/71/EC (as amended) (the “Prospectus Directive”) prepared in accordance with the Prospectus Rules of the FCA made under section 73A of FSMA, is being sent to the shareholders of GVC Holdings PLC (“GVC” or the “Company”). If you have sold or otherwise transferred all of your GVC Shares or Ladbrokes Coral Shares you should send this document and, if relevant, the enclosed Form of Proxy (and reply-paid envelope) at once to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee. If you have sold or transferred any part of your registered holding of GVC Shares or Ladbrokes Coral Shares, please contact your bank, stockbroker or other agent through whom the sale or transfer was effected immediately. LR,13.3.1(6) The distribution of this document and the accompanying documents in or into jurisdictions other than the UK, including in or into any Restricted Jurisdictions, may be restricted by law and may constitute a violation of local securities laws. Please refer to the section entitled “Important Information” on pages 78 to 83 of this document if you propose to send this document and the accompanying documents into jurisdictions other than the United Kingdom. Persons into whose possession this document and any accompanying documents come should inform themselves about, and observe, any such restrictions. This document and the accompanying documents should not be treated as an offer or invitation to subscribe for any GVC Shares by any person resident or located in a Restricted Jurisdiction. This document has been approved by the FCA in accordance with section 87A of FSMA and will be made available to the public free of charge and during normal business hours on any day (Saturdays, Sundays and public holidays excepted) at the Company’s registered office, on the Company’s website, www.GVC-plc.com, on Ladbrokes Coral’s website, www.ladbrokescoralplc.com, and at the offices of Addleshaw Goddard LLP, details of which are set out on page 73 of this document, in accordance with paragraph 3.2.2 of the Prospectus Rules. A copy of this document has been filed with the FCA in accordance with paragraph 3.2.1 of the Prospectus Rules. No regulatory authority in the Isle of Man has passed comment upon or approved the accuracy of this document. Investors are advised to examine all the risks that might be relevant in connection with the value of an investment in GVC Shares. This document should be read as a whole. In particular, your attention is drawn to the sections entitled “Risk Factors” on pages 26 to 72 of this document and the “Letter from the Chairman of GVC Holdings PLC” on pages 84 to 100 of this document which recommends that, if you are a GVC Shareholder, you vote in favour of the GVC Shareholder Resolutions to be proposed at the GVC General Meeting.
I,5.1.1 GVC HOLDINGS PLC I,5.1.2 (incorporated and registered in the Isle of Man under the Isle of Man Companies Act 2006 with registered number 4685V)
Proposed issue of up to 273,000,000 Consideration Shares of €0.01 cents nominal value to Ladbrokes Coral Shareholders in connection with the proposed acquisition by GVC Holdings PLC of the entire issued and to be issued share capital of Ladbrokes Coral Group plc, to be implemented by means of a scheme of arrangement under Part 26 of the UK Companies Act 2006
Admission of the Consideration Shares to the premium segment of the Official List and to trading on the London Stock Exchange’s Main Market for listed securities
and
Circular to GVC Shareholders and Notice of Extraordinary General Meeting
Financial Adviser Sole Sponsor and Broker HOULIHAN LOKEY EMEA, LLP INVESTEC BANK PLC
The existing GVC Shares are currently admitted to trading on the premium segment of the Official List of the FCA (the “Official List”) and III,6.1 to trading on the Main Market for listed securities (the “Main Market”) of the London Stock Exchange plc (the “London Stock Exchange”). Applications will be made (i) to the FCA for the Consideration Shares to be admitted to the premium segment of the Official List, (ii) to the London Stock Exchange for the Consideration Shares to be admitted to trading on the Main Market (together, “Admission”). It is expected that Admission will become effective on 29 March 2018 and that dealings in the Consideration Shares on the Main Market will commence on that date. None of the Consideration Shares are being made generally available to the public in conjunction with the proposed acquisition of Ladbrokes Coral by GVC (the “Acquisition”). Notice of the GVC General Meeting, to be held at 9.30 a.m. (Gibraltar time) on 8 March 2018 at the Sunborn Hotel, 35 Ocean Village, GX11 1AA Gibraltar, is set out at the end of this document. A Form of Proxy is enclosed for use by GVC Shareholders in connection with the GVC General Meeting. To be valid, GVC Forms of Proxy, completed in accordance with the instructions thereon, must be received by GVC’s registrars, Link Asset Services at PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF as soon as possible but in any event by no later than 8.30 a.m. (London time) on 6 March 2018. Completion and return of a Form of Proxy will not preclude GVC Shareholders from attending and voting at the GVC General Meeting should they so wish. Houlihan Lokey is authorised and regulated by the FCA and is acting for GVC and no one else in connection with the Acquisition. In connection with such matters, Houlihan Lokey, its affiliates and their respective partners, directors, officers, employees and agents will not regard any person other than GVC as their client, nor will they be responsible to anyone other than GVC for providing the protections afforded to their clients or for providing advice in relation to the Acquisition, the contents of this document or any other matter referred to in this document. Investec Bank plc (“Investec”), which is authorised by the PRA and regulated by the FCA and the PRA, is acting for GVC and no one else in connection with the Acquisition and Admission. In connection with such matters, Investec will not regard any person other than GVC as its client, nor will it be responsible to anyone other than GVC for providing the protections afforded to its clients or for providing advice in relation to the Acquisition, the Admission or any other matter referred to in this document. Investec and its affiliates may have engaged in 170384 Proof 5 Friday, February 9, 2018 07:48
transactions with and provided various investment banking, financial advisory and other services for, GVC for which they would have received customary fees. Apart from the responsibilities and liabilities, if any, which may be imposed on Investec by the FSMA or the regulatory regime established thereunder, or under the regulatory regime of any jurisdiction where the exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, Investec does not accept any responsibility or liability whatsoever for the contents of this document, and makes no representation or warranty, express or implied, as to the contents of this document or for any other statement made or purported to be made or purported to be made by it, or on its behalf, in connection with the GVC Group, the Ladbrokes Coral Group, the GVC Shares, the Consideration Shares, the CVRs, the Acquisition or Admission and nothing in this document will be relied upon as a promise or representation in this respect, whether or not to the past or future. Investec and each of its subsidiaries, branches and affiliates accordingly disclaim to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this document or any such statement. In acting for GVC, Houlihan Lokey’s role has been limited to acting solely as financial adviser to GVC in connection with the Acquisition for the purposes of the City Code on Takeovers and Mergers (the “City Code”) and no other purpose. Accordingly, apart from any responsibilities and liabilities which it has pursuant to the City Code or other applicable law, regulation or regulatory regime in any jurisdiction where the exclusion of liability would be illegal, void or unenforceable, Houlihan Lokey, its affiliates and their respective partners, directors, officers, employees and agents: (i) accept no responsibility or liability whatsoever for the contents of this document, including any information or documents incorporated into it by reference; (ii) make no representation or warranty, express or implied, as to the contents of this document or any such information or documents; and (iii) disclaim to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this document, including any information or documents incorporated into it by reference. NONE OF THE COMPANY, HOULIHAN LOKEY OR INVESTEC OR ANY OF THEIR RESPECTIVE REPRESENTATIVES, IS MAKING ANY REPRESENTATION TO ANY PROSPECTIVE INVESTOR IN THE GVC SHARES REGARDING THE LEGALITY OF ANY INVESTMENT BY A PROSPECTIVE INVESTOR UNDER THE LAWS APPLICABLE TO SUCH PROSPECTIVE INVESTOR. Recipients of this document are authorised to use it solely for the purpose of considering the terms of the Acquisition or an investment in the GVC Shares, and may not reproduce or distribute this document, in whole or in part, and may not disclose any of the contents of this document or use any information herein for any purpose other than considering the terms of the Acquisition or an investment in the GVC Shares. Such recipients of this document agree to the foregoing by accepting delivery of this document.
NOTICE TO INVESTORS IN THE UNITED STATES AND OTHER OVERSEAS SHAREHOLDERS None of the existing GVC Shares or the Consideration Shares have been, nor will be registered under the US Securities Act of 1933, as amended (“US Securities Act”), or with any securities regulatory authority or under any securities laws of any state or other jurisdiction of the United States. Accordingly, the Consideration Shares may not be subscribed, offered or sold in the United States except pursuant to an exemption from the registration requirements of the US Securities Act. The Consideration Shares and the CVRs are being offered in reliance upon the exemption from the registration requirements of the US Securities Act provided by section 3(a)(10) of the US Securities Act and exemptions from registration and qualification under applicable state securities laws. Any Loan Notes issued to Ladbrokes Coral Shareholders in exchange for the CVRs issued pursuant to the Scheme will be issued in reliance upon the exemption from the registration requirements of the US Securities Act provided by Section 3(a)(9) thereof. Under the US Securities Act, persons (whether or not US persons) who are or will be “affiliates” (within the meaning of the US Securities Act) of GVC will be subject to certain transfer restrictions relating to GVC Shares, CVRs and Loan Notes. GVC urges investors resident in the United States to read the “Notice to Scheme Shareholders and potential investors,” under subheading “United States” in the section entitled “Important Information” on pages 78 to 83 of this document. Neither the SEC nor any other US federal or state securities commission or regulatory authority has approved or disapproved the existing GVC Shares, the Consideration Shares, the CVRs or the Loan Notes or passed upon the fairness or merits of such securities or upon the accuracy or adequacy of the information contained in this document. Any representation to the contrary is a criminal offence in the United States. None of the existing GVC Shares or the Consideration Shares have been, nor will they be, registered under the applicable securities laws of any Restricted Jurisdiction, and this document is not being made available to Ladbrokes Coral Shareholders with registered addresses in a Restricted Jurisdiction and may not be treated as an offer or invitation to subscribe for any GVC Shares by any person resident or located in any such jurisdiction. None of the existing GVC Shares, the Consideration Shares, the CVRs or the Loan Notes may be offered in or into any Restricted Jurisdiction or to or for the account or benefit of any national, resident or citizen of a Restricted Jurisdiction. Any persons (including, without limitation, custodians, nominees and trustees) who have a contractual or other legal obligation to forward this document or any accompanying document into a Restricted Jurisdiction should seek appropriate advice before taking any such action. Accordingly, neither this document nor any advertisem*nt nor any other offering material may be distributed or published in any Restricted Jurisdiction except under circ*mstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this document comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. To the fullest extent permitted by applicable law, the companies and persons involved in the Acquisition disclaim any responsibility or liability for the violation of such requirements by any person. Investors should only rely on the information contained in this document and the documents (or parts thereof) incorporated herein by reference. No person has been authorised to give any information or make any representations other than those contained in this document and the documents (or parts thereof) incorporated herein by reference, and if given or made, such information or representations must not be relied on as having been so authorised by or on behalf of GVC, the GVC Directors, the Proposed Director, Houlihan Lokey, or Investec. None of the above persons take any responsibility or liability for, and can provide no assurance as to the reliability of, other information that investors may have been given. In particular, the contents of GVC’s and Ladbrokes Coral’s websites do not form part of this document, and investors should not rely on them. Without prejudice to any legal or regulatory obligation on the Company to publish a supplementary prospectus pursuant to section 87G of FSMA and Prospectus Rule 3.4, neither the delivery of this document nor Admission shall, under any circ*mstances, create any implication that there has been no change in the business or affairs of the Company, the GVC Group, the Ladbrokes Coral Group or the Combined Group since the date of this document, or that the information in it is correct as of any time subsequent to its date. The Company will comply with its obligation to publish a supplementary prospectus containing further updated information if so required by law or by any regulatory authority but assumes no further obligation to publish additional information. THE CONTENTS OF THIS DOCUMENT ARE NOT TO BE CONSTRUED AS LEGAL, FINANCIAL, BUSINESS OR TAX ADVICE. EACH SHAREHOLDER OR POTENTIAL INVESTOR SHOULD CONSULT HIS, HER OR ITS OWN LEGAL ADVISER, FINANCIAL ADVISER OR TAX ADVISER FOR LEGAL, FINANCIAL OR TAX ADVICE. The date of this document is 9 February 2018.
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TABLE OF CONTENTS
Page SUMMARY 4
RISK FACTORS 26
DIRECTORS, PROPOSED DIRECTOR, REGISTERED OFFICE AND ADVISERS 73
EXPECTED TIMETABLE OF PRINCIPAL EVENTS 75
ACQUISITION STATISTICS 77
IMPORTANT INFORMATION 78
PART 1 LETTER FROM THE CHAIRMAN OF GVC HOLDINGS PLC 84
PART 2 INFORMATION RELATING TO GVC, LADBROKES AND THE BETTING AND GAMING INDUSTRY 101
PART 3 TERMS AND CONDITIONS OF THE CVRS 121
PART 4 HISTORICAL FINANCIAL INFORMATION OF THE GVC GROUP 133
PART 5 OPERATING AND FINANCIAL REVIEW OF THE GVC GROUP 136
PART 6 HISTORICAL FINANCIAL INFORMATION OF THE LADBROKES CORAL GROUP 140
PART 7 UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE COMBINED GROUP 185
PART 8 REGULATORY OVERVIEW 194
PART 9 TAXATION 212
PART 10 DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE 217
PART 11 ADDITIONAL INFORMATION 246
DEFINITIONS 298
INFORMATION INCORPORATED BY REFERENCE 317
NOTICE OF EXTRAORDINARY GENERAL MEETING 321
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SUMMARY Summaries are made up of disclosure requirements known as “Elements”. These elements are numbered in Sections A-E (A.1—E.7). This summary contains all the Elements required to be included in a summary for this type of security and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements. Even though an Element may be required to be inserted in the summary because of the type of security and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of “not applicable”.
Section A – Introduction and warnings
A.1 Introduction and Warning This summary should be read as an introduction to this document. Any decision to invest in GVC Shares should be based on consideration of the prospectus as a whole by the investor. Where a claim relating to the information contained in this document is brought before a court, the plaintiff investor might, under the national legislation of the Member States, have to bear the costs of translating this document before the legal proceedings are initiated. Civil liability attaches only to those persons who have tabled the summary, including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of the prospectus or if it does not provide, when read together with the other parts of the prospectus, key information in order to aid investors when considering whether to invest in such securities.
A.2Subsequent resale of securities or Not applicable. GVC has not given consent to the use of this document final placement of securities for subsequent resale or any final placement of securities by financial through financial intermediaries intermediaries.
Section B – Issuer and any guarantor
B.1Legal and commercial name GVC Holdings PLC of issuer
B.2Domicile/Legal Form/ GVC was incorporated and registered in the Isle of Man on 5 January Legislation/Country of 2010 as a company limited by shares and with registered number 4685V. incorporation GVC operates under the Isle of Man Companies Act 2006.
B.3Current operations and GVC is a leading provider of B2C and B2B services to the online gaming principal activities and and sports betting markets. GVC’s B2C offerings target a number of markets European and Latin American markets and include: certain of the businesses of Sportingbet, which it acquired in March 2013 and the bwin.party Group, which it acquired pursuant to a scheme of arrangement which became effective on 1 February 2016. The GVC Group’s B2C operations comprise two main business lines: • Sports Brands: including bwin Sportingbet, Betboo and Gamebookers (which run on the Group’s proprietary technology platform). While the primary product of each of these brands is sports betting, they also offer online casino and poker via desktop and mobile channels in many but not all markets they serve; and • Games Brands – including partypoker, PartyCasino, CasinoClub and Gioco Digitale, which all run on the GVC Group’s proprietary technology. Foxy Bingo, the GVC Group’s popular UK bingo brand, utilises a third-party technology platform. B2B – GVC provides B2B services to a number of leading gaming operators including Danske Spil, Fortuna, MGM and PMU.
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The GVC Group operates via a central function, broadly comprising the Chief Executive Officer, Chief Financial Officer, Chief Marketing Officer, Chief Operating Officer and Group Head of Legal, Compliance and Secretariat. Beneath this level there is an operational executive team responsible for product, brands, technology and trading. Although there is significant centralisation, local delivery and execution are key to the success of the business.
B.4a Significant recent trends Average daily revenue of the GVC Group has increased from €616,000 in the twelve months ended 31 December 2014 to €679,000 in the 12 months ended 31 December 2015 and €2.3 million in the 12 months ended 31 December 2016. The increase experienced in 2016 is attributable to the acquisition of bwin.party. In the six months to 30 June 2017, average daily revenue increased to €2.7 million from the €2.1 million average in the six months to 30 June 2016, which included the revenues from the UEFA 2016 European Championship. Contribution Margin decreased slightly from approximately 55 per cent. for the year ended 31 December 2014 to 52 per cent. for the year ended 31 December 2016. GVC has experienced strong trading for the six months to 30 June 2017. Sports wagers decreased slightly to €12.5 million per day (H1-2016: €12.7 million per day) but aggregate sports margin was 9.8 per cent. (H1-2016: 9.1 per cent.). Net Gaming Revenue performed strongly, reaching €486.2 million in the period, up 10 per cent. on the same period last year despite the benefit, in June 2016, of the UEFA 2016 European Championship. For the six months ended 30 June 2017 the Contribution Margin was 50 per cent. Clean EBITDA for the same period increased from €91.2 million (Clean EBITDA margin of 24 per cent.) in 2016 to €133.9 million (Clean EBITDA margin of 28 per cent.) in the six months to 30 June 2017. The GVC Board has recently announced a trading update for the three months to 31 December 2017. Sports Brands daily Net Gaming Revenue grew 24 per cent. and on an underlying basis increased by 37 per cent. for the three month period to 31 December 2017 compared to the same period in 2016. The gross win margin in the three month period to 31 December 2017 was 13.1 per cent. ahead of the expected long-term average of 10 per cent, with daily sports Net Gaming Revenue up 35 per cent. (54 per cent. on an underlying basis) to the comparable period on 2016. The above average gross win margin predictably reduced recycling, with wagers down 11 per cent. compared to the three month period ended 31 December 2016. Wagers on an underlying basis were 1 per cent. lower for the period. Despite the high gross win margin, Sports Brands gaming revenues rose 14 per cent. (21 per cent. on an underlying basis) to an average of €1.1 million per day (2016: €949,000), with the benefits of improved product and cross-sell continuing to be important factors. There are a number of factors impacting the markets in which the GVC Group and the Ladbrokes Coral Group operate including: • increased penetration of high-speed internet, proliferation of smart phones and mobile gambling and the increasing popularity of e-commerce;
• strong growth in penetration of increasingly sophisticated mobile devices with increased speed and capacity to process data has had a significant impact on the volume of mobile commerce; • investment in product development to improve mobile product offerings;
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• gaming and betting have become culturally more acceptable leisure activities; • increased advertising has been attributed to the growing popularity of online gaming and betting and social media has allowed operators to perform more targeted marketing; and • several governments have adopted internet-specific gaming regulatory frameworks with the aim of protecting customers, promoting choice and raising taxes. Such changes provide operators with opportunities for expansion; although increased product complexity, costs of compliance and gaming taxes can also make it more difficult for new entrants.
B.5Description of the issuer’s GVC is the ultimate holding company of the GVC Group, a multinational group sports betting and gaming group. Ladbrokes Coral is the ultimate holding company of the Ladbrokes Coral Group, an international bookmaker providing betting and gaming services primarily in the UK, Australia, Belgium, Ireland, Italy and Spain. On the Scheme becoming Effective, GVC will become the ultimate holding company of the Combined Group. B.6Notifiable interests in the As at the Last Practicable Date, in so far as is known to GVC, the Company and voting rights following persons are interested, directly or indirectly, in three per cent. or more of the voting rights in respect of the issued share capital of GVC: Percentage of Percentage GVC Shares No. of GVC of GVC No. of GVC anticipated Shares held Shares held Shares held to be held as at the Last as at the Last immediately immediately Practicable Practicable following following Name Date Date Admission* Admission* Standard Life Aberdeen plc 40,862,896 13.45 70,529,312 12.23 The Capital Group of Companies, Inc. 22,175,560 7.30 30,736,369 5.33 Old Mutual plc 20,923,106 6.89 29,840,577 5.17 Janus Henderson Group plc 18,217,102 6.00 18,776,286 3.26 Goldman Sachs International 13,127,425 4.32 13,127,425 2.28 Blackrock, Inc 12,570,348 4.14 21,450,208 3.72 Legal And General Investment Management Ltd. 9,667,073 3.18 17,280,761 3.00 Marathon Asset Management LLP 9,402,937 3.10 9,402,937 1.63 *Assuming standard terms of the offer with no specific mix and match elections. None of the Company’s major shareholders has different voting rights attached to the shares they hold in the Company. As at the Last Practicable Date, the Company was not aware of any person or persons who, directly or indirectly, jointly or severally, exercise(s) or could exercise, control over the Company.
B.7 Selected historical key THE GVC GROUP financial information The tables below set out the GVC Group’s selected historical key financial information for the periods indicated. The key financial information for GVC Group has been extracted without material adjustment from the audited consolidated financial statements of the Prior GVC Group (pre its acquisition of the bwin.party Group) for the two financial years ended 31 December 2014 and 2015 and post its acquisition of the bwin.party Group for the GVC Group for the year ended 31 December 2016 and the unaudited interim results of GVC for the six months ended 30 June 2017 and 30 June 2016. The financial information has been prepared in accordance with IFRS.
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Consolidated Income Statement of the GVC Group (€millions 31-Dec-16 31-Dec-15 31-Dec-14 30-Jun-17 30-Jun-16 unless stated) (audited) (audited) (audited) (unaudited) (unaudited) Net Gaming Revenue 843.4 247.7 224.8 486.2 390.6 Clean EBITDA 193.5 54.1 49.2 133.9 91.2 (Loss)/Profit from operating activities (81.1) 27.7 42.9 9.5 (60.8) (Loss)/Profit before tax (138.6) 25.5 41.3 (6.6) (86.1) (Loss)/Profit after tax (138.6) 24.7 40.6 (7.5) (84.2) Other comprehensive (expense)/income (2.3) – – (2.5) (3.1) Total comprehensive (expense)/income (140.9) 24.7 40.6 (10.0) (87.3) Non-controlling interests (0.3) – – (0.2) (0.2) TCI attributable to equity holders of the parent (140.6) 24.7 40.6 (9.8) (87.1) Consolidated Balance Sheet of the GVC Group
(€millions 31-Dec-16 31-Dec-15 31-Dec-14 30-Jun-17 30-Jun-16 unless stated) (audited) (audited) (audited) (unaudited) (unaudited) Non-current assets 1,637.7 159.2 159.2 1,584.6 1,683.0 Current assets 558.0 72.6 49.5 340.4 533.7 Total assets 2,195.7 231.7 208.7 1,925.0 2,216.7 Current liabilities (721.5) (81.0) (50.4) (273.3) (296.7) Non-current liabilities (76.9) (22.6) (8.8) (316.6) (480.8) Total Liabilities (798.4) (103.6) (59.2) (589.9) (777.5) Total net assets 1,397.3 128.1 149.5 1,335.1 1,439.2 Equity attributable to equity holders of the parent 1,398.8 128.1 149.5 1,336.8 1,440.6 NCI (1.5) – – (1.7) (1.4) Total equity 1,397.3 128.1 149.5 1,335.1 1,439.2
Consolidated Statement of Cash Flows of the GVC Group (€millions 31-Dec-16 31-Dec-15 31-Dec-14 30-Jun-17 30-Jun-16 unless stated) (audited) (audited) (audited) (unaudited) (unaudited) Net cash generated from operating activities 14.0 39.0 47.9 35.5 (35.3) Net cash generated by investing activities (192.8) (8.6) (12.1) 8.8 (186.4) Net cash used in financing activities 518.3 (20.0) (36.8) (199.7) 530.0 Net increase/ (decrease) in cash and cash equivalents 339.5 10.5 (1.0) (155.4) 308.3 Net foreign exchange differences (0.7) (0.1) – – 1.0 Cash and cash equivalents at the beginning of the period 28.2 17.8 18.8 367.0 28.2 Cash and cash equivalents at the end of the period 367.0 28.2 17.8 211.6 337.5
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Consolidated Income Statement of Bwin.party (€millions 31-Mar-16 31-Dec-15 31-Dec-14 unless stated) (audited) (audited) (audited) Net Gaming Revenue 153.2 576.4 611.9 Clean EBITDA 37.0 108.5 101.2 (Loss)/Profit from operating activities 7.4 (41.6) (97.9) (Loss)/Profit before tax 10.2 (40.2) (97.9) (Loss)/Profit after tax 7.5 (44.4) (94.3) Other comprehensive (expense)/income (12.2) 4.1 10.5 Total comprehensive (expense)/income (4.7) (40.3) (83.8) Non-controlling interests (0.1) (0.8) (2.2) TCI attributable to equity holders of the parent (4.6) (39.5) (81.6) Consolidated Balance Sheet of Bwin.party (€millions 31-Mar-16 31-Dec-15 31-Dec-14 unless stated) (audited) (audited) (audited) Non-current assets 524.3 574.1 622.6 Current assets 286.1 281.2 291.4 Total assets 810.4 855.3 914.0 Current liabilities (270.3) (275.5) (279.3) Non-current liabilities (25.6) (80.2) (69.7) Total Liabilities (295.9) (355.7) (349.0) Total net assets 514.5 499.6 565.0 Equity attributable to equity holders of the parent 515.9 500.9 572.0 NCI (1.4) (1.3) (7.0) Total equity 514.5 499.6 565.0
Consolidated Statement of Cash Flows of Bwin.party (€millions 31-Mar-16 31-Dec-15 31-Dec-14 unless stated) (audited) (audited) (audited) Net cash generated from operating activities 10.3 69.2 92.8 Net cash generated by investing activities (1.3) (17.8) (69.0) Net cash used in financing activities 2.1 (60.3) (34.2) Net increase/(decrease) in cash and cash equivalents 11.1 (8.9) (10.4) Net foreign exchange differences (3.2) (5.2) 1.5 Cash and cash equivalents at the beginning of the period 150.3 164.4 173.3 Cash and cash equivalents at the end of the period 158.2 150.3 164.4
KEY EVENTS AFFECTING THE ACCOUNTING INFORMATION OF THE GVC GROUP During 2015, increased and effective marketing in all territories led to a growth in Net Gaming Revenue and profitability. In addition, GVC’s shareholders voted overwhelmingly for the acquisition of the bwin.party Group on 15 December 2015 which completed on 1 February 2016. During the period both GVC and the bwin.party Group were impacted by the full year of point of consumption tax on UK gaming revenues and by EU VAT imposed by certain jurisdictions on gaming revenues. The combined impact of that during 2015 when compared to 2014 was around €12.4 million. On 4 September 2015, the Group drew down €20.0 million of its €400.0 million facility with Cerberus to pay for professional fees and upfront loan costs, including a foreign currency option for converting the loan receipts into pounds sterling in order to settle the acquisition price for the bwin.party Group and associated costs.
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During 2016 the GVC Group delivered a strong financial performance as well as completing the bwin.party Group acquisition on 1 February 2016. The year benefited from the UEFA Euro 2016 tournament, during which GVC took €162 million of wagers and achieved a gross win margin of 18.3 per cent., with an increasing proportion of revenue deriving from either regulated (including those in the process of regulating) and/or locally taxed markets. Clean EBITDA margins improved to 23 per cent. from 20 per cent., with acquisition synergies and organic revenue growth helping to mitigate increased regulatory costs. A statutory loss before tax of €138.6 million reflects one-off costs in the year of €117.8 million, largely related to the acquisition of the bwin.party Group, finance expense of €65.3 million and depreciation and amortisation charges of €136.5 million. The consideration for the acquisition of the bwin.party Group was made up of 25p in cash plus 0.231 GVC shares in exchange for each bwin.party Group share. In October 2016, the GVC Group secured a one year €250.0 million loan facility from Nomura International plc, which was used to repay part of the €400.0 million loan provided by Cerberus associated with the acquisition of bwin.party Group. 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 GVC Group signed a €320.0 million senior secured term loan and revolving credit facility comprising a six-year €250.0 million term loan and a five-year €70.0 million revolving credit facility. This was used to fully repay the Nomura Loan. On 20 December 2017, GVC announced that it had completed the sale of the entire issued share capital of Headlong, comprising of its Turkish facing business to Ropso Malta Limited (“Disposal”). The consideration for the sale took the form of a performance related earn-out payable monthly over a five year period up to a maximum of €150.0 million (“Deferred Consideration”). Subsequently, on 21 December 2017 GVC announced that it had served a clean break notice on the buyer notifying the buyer that on the date that is one month following service of such notice, that the buyer’s obligation to pay the Deferred Consideration shall terminate. Given that the date of termination fell before the date on which the first payment of Deferred Consideration was due, no Deferred Consideration has been paid nor will any Deferred Consideration be payable by the buyer. On 25 January 2018, GVC announced that one of its subsidiaries, Sporting Odds Limited (“SPODDS”), had received a tax audit assessment notice from the Greek Audit Centre for Large Enterprises in which the Greek tax authorities set out their view of the application of certain Greek Gambling Duties. As a result of this interpretation, the GVC Group was assessed to owe €186.77 million of additional Gambling Duties in Greece in respect of the 2010 and 2011 tax years (the “Greek Tax Assessment”). During this period SPODDS was owned by Sportingbet, prior to the acquisition of SPODDS by GVC in 2013. An appeal was filed by SPODDS with the Greek Audit Centre for Large Enterprises on 29 January 2018. Save in respect of the Disposal and the Greek Tax Assessment, there has been no significant change in the financial or trading position of the GVC Group since 30 June 2017, the most recent date to which financial information has been prepared and published.
THE LADBROKES CORAL GROUP The tables below set out the Ladbrokes Coral Group’s selected historical key financial information for the periods indicated. The key financial information for Ladbrokes Coral Group has been extracted without material adjustment from the audited consolidated financial statements of the Historic Ladbrokes Group for the two financial years ended
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31 December 2014 and 2015, the audited combined financial statements of the Historic Coral Group for the 52 weeks ended 27 September 2014, 52 weeks ended 26 September 2015, the audited consolidated financial statements of the Ladbrokes Coral Group (post its acquisition of Coral) for the financial year ended 31 December 2016 and the unaudited interim results of the Ladbrokes Coral Group for the six months ended 30 June 2017. The financial information has been prepared in accordance with IFRS.
Historic Ladbrokes Group Consolidated Income Statement For the year ended For the year ended 31 December 2015 31 December 2014 Before Excep- Before Excep- exceptional tional exceptional tional items items Total items items Total £m £m £m £m £m £m Revenue 1,199.5 – 1,199.5 1,174.6 – 1,174.6 Operating expenses before depreciation and amortisation (1,042.2) (27.9) (1,070.1) (957.1) (16.2) (973.3) Share of results from joint venture and associates 4.0 – 4.0 (0.2) – (0.2) Depreciation, amortisation and amounts written off non-current assets (77.4) (71.4) (148.8) (77.7) (57.2) (134.9) Profit/(loss) before tax and finance expense 83.9 (99.3) (15.4) 139.6 (73.4) 66.2 Finance expense (28.2) (0.1) (28.3) (27.5) (1.1) (28.6) Finance income 0.1 0.4 0.5 0.1 – 0.1 Profit/(loss) before tax 55.8 (99.0) (43.2) 112.2 (74.5) 37.7 Income tax credit/(expense) 35.0 13.3 48.3 (5.6) 8.9 3.3 Profit for the year 90.8 (85.7) 5.1 106.6 (65.6) 41.0
Consolidated Balance Sheet 2015 2014 At 31 December £m £m Assets Non-current assets Goodwill and intangible assets 674.3 742.0 Property, plant and equipment 177.9 187.4 Interest in joint venture 11.5 9.1 Interest in associates and other investments 21.3 18.0 Other financial assets 11.4 7.2 Deferred tax assets 0.7 – Retirement benefit asset 76.3 69.5 973.4 1,033.2 Current assets Trade and other receivables 53.5 57.2 Corporation tax recoverable 47.1 12.0 Derivative financial instruments 0.2 – Cash and short-term deposits 68.4 62.0 169.2 131.2 Total assets 1,142.6 1,164.4
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2015 2014 At 31 December £m £m
Liabilities Current liabilities Bank overdraft – (1.0) Trade and other payables (242.4) (205.9) Corporation tax liabilities (4.2) (7.4) Other financial liabilities – (1.1) Lease liabilities (4.9) – Provisions (9.2) (6.4) (260.7) (221.8) Non-current liabilities Interest bearing loans and borrowings (323.1) (439.3) Other financial liabilities (35.6) (42.5) Deferred tax liabilities (52.7) (64.1) Lease liabilities (4.4) – Provisions (9.6) (5.0) (425.4) (550.9) Total liabilities (686.1) (772.7) Net assets 456.5 391.7
Shareholders’ equity Issued share capital 297.5 270.5 Share premium 302.9 214.9 Treasury and own shares (112.3) (116.1) (Accumulated losses)/retained earnings (28.1) 20.1 Foreign currency translation reserve (3.6) 2.2 Equity attributable to owners of the Parent 456.4 391.6 Non-controlling interests 0.1 0.1 Total equity 456.5 391.7 Consolidated Statement of Cash Flows 2015 2014 For the year ended 31 December £m £m Net cash flows from operating activities 136.2 130.5 Cash flows from investing activities: Interest received 0.1 0.1 Dividends received from associates – 1.2 Purchase of intangible assets (37.9) (39.8) Purchase of property, plant and equipment (28.2) (20.1) Proceeds from the sale of property, plant and equipment – 5.2 Acquisition of businesses, net of cash acquired – (10.4) Purchase of interest in joint venture (2.8) (4.1) Net cash used in investing activities (68.8) (67.9) Cash flows from financing activities: Proceeds from issue of ordinary shares 113.4 0.8 Purchase of ESOP shares (0.6) (0.6) Proceeds from borrowings, net of issue costs – 98.7 Finance lease payments (3.1) – Repayment of borrowings (117.0) (82.0) Dividends paid (52.3) (81.4) Net cash used in financing activities (59.6) (64.5) Net increase/(decrease) in cash and cash equivalents 7.8 (1.9) Effect of changes in foreign exchange rates (0.4) 0.2 Cash and cash equivalents at beginning of the year 61.0 62.7 Cash and cash equivalents at end of the year 68.4 61.0 Cash and cash equivalents comprise: Cash and short-term deposits 28.3 21.1 Customer funds 40.1 40.9 Bank overdraft – (1.0) 68.4 61.0
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Historic Coral Group Combined Income Statement 13 months ended 52 weeks ended 52 weeks ended 31 October 2016 26 September 2015 27 September 2014 Before Before Before excep- Excep- excep- Excep- excep- Excep- tional tional tional tional tional tional items items Total items items Total items items Total £m £m £m £m £m £m £m £m £m Revenue 1,244.4 – 1,244.4 1,006.6 – 1,006.6 948.1 – 948.1 Operating expenses (1,054.8) (69.2) (1,124.0) (857.8) (14.7) (872.5) (800.0) (117.9) (917.9) EBITDA 243.6 (49.0) 194.6 204.0 (4.8) 199.2 200.3 (13.8) 186.5 Depreciation, amortisation and impairment (54.0) (20.2) (74.2) (55.2) (9.9) (65.1) (52.2) (104.1) (156.3) Group operating profit/(loss) 189.6 (69.2) 120.4 148.8 (14.7) 134.1 148.1 (117.9) 30.2 Financing costs (90.0) – (90.0) (85.0) – (85.0) (87.5) – (87.5) Financing income 1.6 – 1.6 0.9 – 0.9 0.8 – 0.8 Profit/(loss) before tax 101.2 (69.2) 32.0 64.7 (14.7) 50.0 61.4 (117.9) (56.5) Income tax 4.4 3.0 7.4 (18.7) 2.7 (16.0) (13.1) 22.3 9.2 Profit/(loss) for the period from continuing operations 105.6 (66.2) 39.4 46.0 (12.0) 34.0 48.3 (95.6) (47.3) Discontinued activities Loss for the period from discontinued activities – – – – (6.8) (6.8) – – – Profit/(loss) for the period 105.6 (66.2) 39.4 46.0 (18.8) 27.2 48.3 (95.6) (47.3) Combined Balance Sheet 13 months 52 weeks 52 weeks ended ended ended 31 October 26 September 27 September 2016 2015 2014 £m £m £m Assets Non-current assets Goodwill and intangible assets 1,452.1 1,467.7 1,487.3 Property, plant and equipment 95.9 95.0 87.9 Interest in associates and other investments 4.1 23.3 30.5 Deferred tax assets 15.7 – – Retirement benefit asset 52.3 35.7 20.7 1,620.1 1,621.7 1,626.4 Current assets Inventories 0.4 0.5 0.7 Trade and other receivables 70.7 33.6 30.4 Cash and cash equivalents 90.8 37.1 42.7 161.9 71.2 73.8 Total assets 1,782.0 1,692.9 1,700.2 Liabilities Current liabilities Trade and other payables (191.1) (161.9) (137.0) Current income taxation (7.6) (0.5) (2.9) Other financial liabilities (9.3) (5.7) (4.5) Interest bearing loans and borrowings with other Coral Group companies (985.0) (831.1) (895.3) Provisions (6.8) (2.4) (2.7) (1,199.8) (1,001.6) (1,042.4) Non-current liabilities Other payables (4.6) (7.2) (6.7) Deferred tax liabilities (178.4) (205.9) (203.0) Provisions (11.0) (14.7) (18.4) (194.0) (227.8) (228.1) Total liabilities (1,393.8) (1,229.4) (1,270.5) Net assets 388.2 463.5 429.7 Equity attributable to owners Invested capital attributable to equity holders 388.2 463.5 429.7 Total capital 388.2 463.5 429.7
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Combined Statement of Cash Flows 13 months 52 weeks 52 weeks ended ended ended 31 October 26 September 27 September 2016 2015 2014 £m £m £m Cash generated from operations 185.6 209.0 222.3 Income tax paid (2.0) (5.3) (3.5) Net cash inflow from operations 183.6 203.7 218.8 Cash outflow from investing activities Acquisitions (net of cash acquired) (0.5) (1.3) (6.5) Purchase of intangible assets (24.0) (16.3) (14.8) Purchase of property, plant and equipment (36.6) (35.4) (36.1) Purchase of investments (4.1) – – Net cash outflow from investing activities (65.2) (53.0) (57.4) Cash (outflow)/inflow from financing activities Dividends paid (25.9) Interest paid (6.9) (0.9) (0.4) Interest charged on balances with other Coral Group companies (85.6) (83.4) (86.8) Net cash funding (payments to)/repayments from Gala Coral Group Equity dividends paid 50.3 (71.1) (55.5) Net cash outflow from financing activities (68.1) (155.4) (142.7) Net increase/(decrease) in cash and cash equivalents 50.3 (4.7) 18.7 Cash and cash equivalents at beginning of period 37.1 42.7 24.7 Exchange gains/(losses) 3.4 (0.9) (0.7) Cash and cash equivalents at end of period 90.8 37.1 42.7
Ladbrokes Coral Group Consolidated Statement of Comprehensive Income Year ended Half year ended Half year ended 31 December 2016 30 June 2017 30 June 2016 (Restated) Non- Non- Non- Trading trading Trading trading Trading trading items items Total Items items Total items items Total £m £m £m £m £m £m £m £m £m Continuing operations Revenue 1,507.9 – 1,507.9 1,204.2 – 1,204.2 661.8 – 661.8 Cost of sales (431.6) – (431.6) (361.8) – (361.8) (185.7) – (185.7) Gross profit 1,076.3 – 1,076.3 842.4 – 842.4 476.1 – 476.1 Operating expenses, depreciation and amortisation (961.2) (323.6) (1,284.8) (686.0) (106.6) (792.6) (424.4) (16.1) (440.5) Group operating profit/(loss) before share of results from joint venture and associates 115.1 (323.6) (208.5) 156.4 (106.6) 49.8 51.7 (16.1) 35.6 Share of results from joint venture and associates 6.1 – 6.1 1.9 – 1.9 2.1 – 2.1 Group operating profit/(loss) 121.2 (323.6) (202.4) 158.3 (106.6) 51.7 53.8 (16.1) 37.7 Finance expense (33.6) (5.9) (39.5) (29.8) – (29.8) (13.3) – (13.3) Finance income 1.1 27.5 28.6 1.2 – 1.2 0.8 – 0.8 Profit/(loss) before tax 88.7 (302.0) (213.3) 129.7 (106.6) 23.1 41.3 (16.1) 25.2 Income tax (expense)/ credit (11.6) 20.6 9.0 (19.8) 16.1 (3.7) (5.1) 0.6 (4.5) Profit/(loss) for the period from continuing operations 77.1 (281.4) (204.3) 109.9 (90.5) 19.4 36.2 (15.5) 20.7 Discontinued operations Profit for the period from discontinued operations after tax – – – – – – – – – Profit/(loss) for the period 77.1 (281.4) (204.3) 109.9 (90.5) 19.4 36.2 (15.5) 20.7
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Consolidated Balance Sheet 30 June 2016 31 December 30 June (Repre- 2016 2017 sented) £m £m £m Assets Non-current assets Goodwill 1,070.4 1,077.5 162.5 Intangible assets 1,592.9 1,556.6 520.0 Property, plant and equipment 228.3 224.1 173.6 Interest in joint venture 15.3 17.8 13.9 Interest in associates and other investments 26.1 27.5 24.1 Other financial assets 1.6 1.6 8.0 Deferred tax assets 8.4 8.6 8.0 Retirement benefit asset 131.7 128.5 93.5 3,074.7 3,042.2 1,003.6 Current assets Trade and other receivables 126.5 93.5 61.2 Inventory 1.6 1.5 0.7 Corporation tax recoverable 8.7 12.4 4.8 Derivative financial instruments 0.1 – – Cash and short-term deposits 146.2 136.8 149.5 283.1 244.2 216.2 Assets of disposal group classified as assets held for sale 34.6 – – Total assets 3,392.4 3,286.4 1,219.8 Liabilities Current liabilities Bank overdraft (1.7) (1.0) – Interest bearing loans and borrowings (399.4) (173.4) (224.6) Trade and other payables (503.8) (452.0) (284.5) Corporation tax liabilities (12.1) (12.0) (4.8) Other financial liabilities (14.1) (10.7) (9.0) Lease liabilities (2.6) (2.0) (1.5) Provisions (36.1) (30.2) (11.1) (969.8) (681.3) (535.5) Non-current liabilities Interest bearing loans and borrowings (749.6) (942.3) (99.0) Other financial liabilities (38.2) (38.0) (35.4) Deferred tax liabilities (184.2) (174.8) (59.6) Lease liabilities (2.0) (0.7) (3.1) Provisions (13.4) (27.9) (3.5) (987.4) (1,183.7) (200.6) Total liabilities (1,957.2) (1,865.0) (736.1) Net assets 1,435.2 1,421.4 483.7 Shareholders’ equity Issued share capital 551.4 551.4 297.6 Share premium 335.1 335.1 303.1 Merger reserve 921.7 921.7 – Treasury and own shares (110.6) (107.5) (111.3) Accumulated losses (262.3) (285.3) (13.6) Foreign currency translation reserve (0.2) 5.9 7.8 Equity attributable to owners of the Parent 1,435.1 1,421.3 483.6 Non-controlling interests 0.1 0.1 0.1 Total equity 1,435.2 1,421.4 483.7
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Consolidated Statement of Cash Flows Half year ended Half year 30 June Year ended ended 2016 31 December 30 June (Repre- 2016 2017 sented) £m £m £m Net cash flows from operating activities 194.2 136.2 137.5 Cash flows from investing activities: Interest received 0.9 – – Dividends received from associates 4.7 – – Purchase of intangible assets (41.9) (40.9) (16.9) Purchase of property, plant and equipment (37.8) (25.4) (14.9) Proceeds from the sale of property, plant and equipment including disposal of shops 51.5 1.9 – Cash acquired on acquisition of businesses 90.8 (3.4) – Purchase of interest in joint venture and other investments (1.5) (1.3) (0.4) Net cash used in investing activities 66.7 (69.1) 32.2 Cash flows from financing activities: Proceeds from issue of ordinary shares 0.6 – 0.3 Purchase of ESOP shares (0.7) – (0.6) Proceeds from borrowings, net of issue costs 834.0 189.0 – Finance lease payments (4.9) (1.9) (4.8) Repayment of borrowings of Coral Group on acquisition (985.0) – – Repayment of other borrowings (30.4) (225.0) – Dividends paid – (38.4) (20.3) Net cash used in financing activities (186.4) (76.3) (25.4) Net increase in cash and cash equivalents 74.5 (9.2) 79.9 Effect of changes in foreign exchange rates 1.6 0.5 1.2 Cash and cash equivalents at beginning of the period 68.4 144.5 68.4 Cash and cash equivalents at end of the period 144.5 135.8 149.5
KEY EVENTS AFFECTING THE ACCOUNTING INFORMATION The Historic Coral Group In the year ended 27 September 2014, the Historic Coral Group experienced significant growth, in which the FIFA World Cup and the maturing of the re-launched online websites were significant factors. The new online websites drove increased customer volumes through improved product and functionality with the FIFA World Cup also being a significant event in which to further improve customer acquisition. Improvements in customer retention also set the back drop for further growth in 2015. The online business’ EBITDA in the year ended 27 September 2014 increased by 147 per cent. on the previous year with Historic Coral Group EBITDA 14 per cent. ahead. Whilst the Historic Coral Group continued to grow during the year ended 26 September 2015 with underlying trading in the online business remaining strong, the absence of a major football tournament and the introduction of both point of consumption tax in the online business and an increase in Machine Games Duty (“MGD”) to 25 per cent. in the retail business meant that headline EBITDA was only slightly ahead year on
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year. The combined impact of the regulatory changes and the absence of a major football tournament impacted the business by approximately £45.0 million during 2015 leaving EBITDA £4.0 million ahead of the year ended 27 September 2014.
The Historic Ladbrokes Group In the year ended 31 December 2014, the Historic Ladbrokes Group operating profit before exceptional items was in line with the prior year with the benefits of the FIFA World Cup (which generated £26 million of net revenue) and growth in the online business (71 per cent.) more than offset by underlying cost inflation in UK retail estate where operating profit before exceptional items was 11 per cent. down year on year. During the year ended 31 December 2015 the Historic Ladbrokes Group operating profit before exceptional items declined by £55.7 million or 40 per cent. with the impact of the introduction of point of consumption tax in the online business and MGD increasing to 25 per cent. in the retail business (approximately £40-£45 million total impact) as well as the absence of a major football tournament contributing significantly to the reduction in profit. During 2015 the business also invested heavily in marketing of the online business (approximately 30 per cent. increase on 2014) in order to drive an increase in volume in the recreational customer base with growth in 2016 in mind. On 24 July 2015, the Historic Ladbrokes Group announced the merger with the Historic Coral Group subject to CMA approval. On 9 October 2015, and in anticipation of the merger completing, the Historic Ladbrokes Group announced that it had obtained committed funding for a £1.35 billion facility post the merger with the Historic Coral Group. The facilities included a £600 million term facility maturing in October 2016 with the option to extend to January 2018, a £400 million revolving credit facility maturing October 2020 and further £350 million revolving credit facility maturing June 2019.
The Ladbrokes Coral Group On 1 November 2016, the Ladbrokes Coral merger completed resulting in a drawdown of £962 million on the facilities raised in 2015. The consideration for Coral was made up of 866.5 million shares in Ladbrokes Coral, in addition to the settlement of the £894 million of net debt contained within the Coral Group. Shortly following completion the Ladbrokes Coral Group refinanced £400 million of its facility and replaced it with a £400 million bond maturing in 2023.
During the year ending December 2016, pro forma EBITDA increased by 14 per cent. with strong growth in the European retail business and the online business, partly assisted by a favourable Euro 2016, more than offsetting the underlying decline in the UK retail business and the annualisation of the increase in MGD to 25 per cent. in early 2015. The growth in the online business reflected the return on investment of 2015 marketing spend, particularly in Ladbrokes.com, as well as a return to more normal margins in the European retail business. Pro forma operating profit before exceptional items increased by 22 per cent. over 2015. On a reported basis (only contains two months of Coral trading), the Ladbrokes Coral Group reported a loss after tax of £204.3 million primarily due to one-off costs of £281.4 million resulting from costs associated with the merger and a non-cash impairment charge on retail shop assets and assets rendered redundant following the merger.
There has been no significant change in the financial or trading position of the Ladbrokes Coral Group since 30 June 2017, the most recent date to which financial information has been prepared and published.
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B.8Selected pro forma financial The following unaudited pro forma income statement for the twelve information months ended 31 December 2016 and pro forma statement of net assets as at 30 June 2017 have been prepared to illustrate the effect of the acquisition of bwin.party and the Acquisition and the related financing on the income statement of the GVC Group, as if they had taken place on 1 January 2016, and on the net assets of the GVC Group as if the Acquisition and the related financing had taken place on 30 June 2017 in accordance with Annex II of the Prospectus Directive. This information is prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and does not represent the actual financial position or results of GVC, Ladbrokes Coral or the Combined Group, nor does it purport to represent the results of operations for any future period or financial position at any future date. Unaudited pro forma income statement for the Combined Group for the year ended 31 December 2016 (€millions Ladbrokes Other unless stated) GVC Bwin.party Coral Adjustments Pro forma Net Gaming Revenue 843.4 51.2 2,880.8 – 3,775.4 Revenue 823.3 49.9 2,870.0 – 3,743.2 Contribution 437.5 26.5 1,745.8 – 2,210.4 Clean EBITDA 193.5 12.2 471.6 – 677.3 Operating Loss (81.1) (4.9) (256.3) (98.9) (448.0) Loss Before Tax (138.6) (5.8) (340.0) (144.9) (636.1) Loss After Tax (138.6) (6.9) (316.5) (144.9) (612.5) Unaudited pro forma net assets for the Combined Group as at 30 June 2017 (€millions Ladbrokes unless stated) GVC Coral Adjustments Pro forma Non-current Assets 1,584.6 3,459.8 1,777.9 6,822.3 Current Assets 340.4 277.7 – 618.1 Total Assets 1,925.0 3,737.5 1,777.9 7,440.4 Current Liabilities (273.3) (774.7) – (1,048.0) Current Assets Less Current Liabilities 67.1 (497.0) – (429.9) Non-current Liabilities (316.6) (1,346.1) (819.2) (2,481.9) Total Net Assets 1,335.1 1,616.7 958.7 3,910.5
B.9 Profit forecast/estimate Not applicable. No profit forecast or estimate is included in this document.
B.10 Audit report – qualifications Not applicable. No qualifications are included in any audit report on the historical financial information included in this document.
B.11Explanation in respect of Not applicable. insufficient working capital The Company is of the opinion that the working capital available to the GVC Group (including, following Completion, the Ladbrokes Coral Group) is sufficient for its present requirements, that is, for at least 12 months from the date of this document.
Section C – Securities
C.1Type and class of the The Company will issue up to 273,000,000 new GVC Shares of €0.01 securities being admitted to nominal value in the capital of the Company (being the Consideration trading, including any Shares) as consideration under the Scheme and pursuant to the terms of security identification number the Acquisition. The existing GVC Shares have, and the Consideration Shares will upon Admission have, the ISIN number IM00B5VQMV65 and SEDOL number B5VQMV6 and will be traded on the London Stock Exchange under the ticker symbol “GVC”.
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C.2Currency of the securities Euros. issue
C.3Number of issued and fully The issued and fully paid up share capital of GVC as at the Last Practicable paid securities Date was €3,037,348 divided into 303,734,808 shares of €0.01 each.
C.4Rights attached to the GVC Shares rank pari passu in all respects with each other and rank in full securities for all dividends and other distributions thereafter declared, made or paid in respect of the GVC Shares. All GVC Shares rank equally for voting purposes. On a show of hands each GVC Shareholder shall have one vote and on a poll each GVC Shareholder shall have one vote for each GVC Share of which he is the holder. GVC Shares rank equally in the distribution of surplus assets of GVC remaining after the payment of all creditors in the winding up of GVC.
C.5Restrictions on free GVC Shares are freely transferable with no restrictions on transfer. transferability of securities However, the receipt of the GVC Shares by persons located or resident in, or who are citizens of, or who have a registered office in countries other than the UK, may be affected by the law or regulatory requirements of the relevant jurisdiction, which may include restrictions on the free transferability of such GVC Shares.
C.6Admission to trading on a Application will be made (i) to the FCA for the Consideration Shares to be regulated market admitted to the premium segment of the Official List; and (ii) to the London Stock Exchange for the Consideration Shares to be admitted to trading on the Main Market. No application has been made or is currently intended to be made for the GVC Shares to be admitted to listing or trading on any other exchange.
C.7 Dividend policy Following the Effective Date and subject to the approval of the GVC Board, GVC intends to continue with a progressive dividend policy. It is expected that payments will be biannual, with an approximate split of 40 per cent: 60 per cent. between the interim and final payment. Furthermore, the GVC Directors will also consider returning any future excess cash to shareholders in the form of special dividends and/or share buybacks. Excess cash will be determined by the capital requirements of the business, together with the trading outlook at the appropriate time. This approach is consistent with GVC’s post-Acquisition growth strategy, which balances returns to shareholders with the need to retain sufficient funds to drive growth and reduce leverage.
Section D – Risks
D.1 Key risks that are specific to Risks relating to the Acquisition the Company or its industry • Completion is conditional upon the satisfaction or, where applicable, waiver of a number of conditions on or before the Long Stop Date including, among other things, the approval of the Scheme at the Ladbrokes Coral Shareholder Court Meeting by a majority in number of Scheme Shareholders present and voting, either in person or by proxy, representing three-quarters or more in value of the Scheme Shares held by those Scheme Shareholders; the approval at the Ladbrokes Coral General Meeting of the Ladbrokes Coral Shareholder Resolutions by the requisite majority of the Ladbrokes Coral Shareholders; and the approval at the GVC Meeting of the GVC Shareholder Resolutions by the requisite majorities of the GVC Shareholders. If the Conditions are not satisfied or, where applicable, not waived, on or before the Long Stop Date, neither the Acquisition nor Admission will proceed, the benefits expected to result from the Acquisition will not be achieved, none of the Consideration Shares will be issued and the market price of GVC Shares and the Ladbrokes Coral Shares may be adversely affected.
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• The Conditions to the Acquisition include conditions that there is no material adverse change affecting the GVC Group or the Ladbrokes Coral Group before the Scheme is sanctioned by the Court. However, save in relation to certain anti-trust, regulatory and Scheme-related Conditions, the GVC Group may be unable to invoke a Condition to the Acquisition to cause the Acquisition not to proceed, unless permitted by the City Code (which would require the Panel to conclude that the circ*mstances giving rise to that Condition not being satisfied are of material significance to the GVC Group in the context of the Acquisition, noting that the “material significance” test is generally acknowledged to be a very high threshold). If a material adverse change affecting the GVC Group or the Ladbrokes Coral Group were to occur, and the Panel did not allow the GVC Group to invoke the relevant Condition to cause the Acquisition not to proceed, the market price of GVC Shares (or following the Effective Date, the Combined Company’s shares) may decline or the GVC Group’s business or financial condition (or following the Effective Date, the Combined Group’s business or financial condition) may be materially adversely affected. • The GVC Directors believe that the Acquisition is in the best interests of GVC Shareholders, and that it currently provides the opportunity to deliver significant value to GVC Shareholders. If the Acquisition does not complete, the GVC Group’s ability to deliver value for GVC Shareholders, or to implement the GVC Group’s stated strategy, may be prejudiced, and the value of the GVC Shares may be reduced. • The GVC Group recently acquired the bwin.party Group, and the Ladbrokes Coral Group was recently created by a merger of the Historic Ladbrokes Group and the Historic Coral Group. Consequentially, the groups are still in the process of realising in full the benefits of these mergers. Furthermore, GVC intends to integrate its own operations with those of the Ladbrokes Coral Group, as set out in Part 1 of this document. To the extent that the Combined Group is unable efficiently to integrate the operations, realise cost reductions and avoid unforeseen costs or delays in the integration process (including, for example and without limitation, owing to the benefits of the previous integration of the groups not yet fully being realised as mentioned above), it may have a material adverse effect on the business, results of operations, financial condition and prospects of the Combined Group. • The GVC Directors expect that, as a result of the Acquisition, the Combined Group will be able to realise cost synergies and saving realisations of £100 million by 2021. The estimate regarding the quantum and timing of potential cost synergies and saving realisations resulting from the Acquisition included in this document are based on the GVC Directors’ assessment of information available to them as at the date of this document, and may prove to be incorrect. The Combined Group may not realise the anticipated cost synergies and saving realisations of the Acquisition, and may not be successful in integrating the business and operations of the GVC Group and the Ladbrokes Coral Group. A failure to deliver all, or substantially all, of the expected cost synergies and saving realisations or realise such benefits in a timely manner, or at all, could have a material adverse effect on the business, results of operations, financial condition and prospects of the Combined Group.
• GVC expects to incur non-recurring restructuring costs of at least £100 million in delivering the identified cost synergies of combining the operations of the two groups in the four years post Completion. The phasing of these costs is expected to be £17 million in the financial year ending 31 December 2018, £30 million in 2019, £31 million in 2020 and £22 million in 2021. In addition to restructuring costs, GVC
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will also incur legal, accounting and transaction fees and other costs related to the Acquisition and should the Scheme become Effective, the Combined Group will be responsible for Ladbrokes Coral’s obligation to pay its expenses relating to the Acquisition. Some of these costs incurred by GVC are payable regardless of whether the Acquisition is completed, and such costs may be higher than anticipated. If costs are higher than GVC anticipates, it may reduce the net benefits of the Acquisition and have a material adverse effect on the operational and financial performance of the Combined Group. • The CVR Instrument provides for agreed consultation and determination procedures which have the purpose of assessing the principal value of the Loan Notes to be issued to Ladbrokes Coral Shareholders. The aim of these procedures is to seek to ensure that any additional amount payable by the Company to the Ladbrokes Coral Shareholders under the terms of the Loan Notes accurately takes into account the impact of certain measures arising from the Triennial Review on the profitability of the Ladbrokes Coral Group’s business. However, there may be circ*mstances where (i) the Triennial Review implements additional changes to the regulation of FOBTs which are not taken into account in the agreed consultation and determination procedures, and such changes additionally adversely affect the profitability of the Ladbrokes Coral Group’s business and/or (ii) the actual impact of the measures emanating from the Triennial Review on the profitability of the Ladbrokes Coral Group’s business is more adverse than that assessed through the procedures provided for in the CVR Instrument. In these circ*mstances, the principal value of the Loan Notes and, therefore, the amount paid by GVC to the Ladbrokes Coral Shareholders under the terms of the Loan Notes, may not be reflective of the actual impact of the Triennial Review on the profitability of the Ladbrokes Coral Group’s business. The Combined Group’s business, financial condition and results of operations could be materially adversely affected in such circ*mstances. • Any Loan Notes which are issued by GVC under the terms of the CVR Instrument will (save in the case of a change of control or winding up) be issued with a term which ends on the later to occur of (i) the date falling 6 months and one day from the date of issue of the Loan Notes and (ii) the date falling 18 months from the Effective Date. At the end of such term, the Loan Notes will be redeemed by GVC and the principal value of the Loan Notes, plus interest thereon, will be payable in cash by GVC to the Loan Note Holders. For the purposes of the City Code, neither GVC nor any of its advisers has been required to confirm, and none of them have confirmed, that resources are available to GVC to satisfy any such payments under the Loan Notes. Whilst, in the opinion of the GVC Directors, the working capital available to the GVC Group (including, following Completion, the Ladbrokes Coral Group) is sufficient for its current operations and operational strategies, that is for at least the next 12 months following the date of this document, GVC has not currently arranged financing to cover all possible payments under the terms of the Loan Notes resulting from the outcome of the Triennial Review. Therefore, GVC may be required to arrange financing (equity or debt) to fund the redemption of the Loan Notes. The GVC Directors can give no assurance that such financing will be available on terms favourable to the Combined Group, or at all, in order to satisfy such payments. In such circ*mstances, GVC may not be able to satisfy payments under the terms of the Loan Notes, resulting in the potential for claims against GVC from the Loan Note Holders, which could have a material adverse effect on the Combined Group’s business, financial condition and results of operations. • The Existing Facilities Agreement which will be used to finance the cash consideration payable to Ladbrokes Coral Shareholders pursuant
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to the Acquisition and to pay related costs. Although, in the GVC Directors’ opinion, the working capital available to the Combined Group is sufficient for its present requirements, that is for at least the next 12 months following the date of this document, like any company with borrowings, the Company is subject to the risk that, in the longer term, the Combined Group may be unable to generate sufficient cashflow, or obtain sufficient funding, to satisfy its obligations to service or refinance the indebtedness incurred in connection with the Acquisition.
Legislative and Regulatory Risks • Current or future legislation or regulation may prohibit or restrict (or may be interpreted or amended in such a way as to prohibit or restrict) certain activities of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group and this may present a higher risk in certain Material Territories. In addition, legislation or regulation affecting online gambling activity may be implemented at a state/regional, national and/or supranational level which has commercially undesirable consequences such as onerous compliance requirements, punitive tax regimes, large bonds or other requirements to provide financial guarantees, limited product offerings, ring-fenced liquidity, caps on the number of licensees or restrictions on third party service providers to online gambling operators such that it is not commercially desirable or practicable for the Combined Group to obtain and/or maintain a licence in a particular jurisdiction or jurisdictions, with the consequential financial loss arising from the need to block access by customers from the relevant jurisdictions. • Prior to the Disposal, the GVC Group did not hold a licence for the provision of online gambling products in Turkey but derived revenues from customers located there under its Malta licences on a point of supply basis, maintaining no physical presence in the jurisdiction. With the exception of a sports betting monopoly in Turkey, the provision of facilities for gambling online in Turkey is illegal. Whilst the cessation of GVC’s Turkish business has reduced the risk, the potential risk of proceedings ever being brought in connection with the historic provision of online gambling facilities into Turkey cannot be eliminated entirely and were any such risks to crystallise, it may have a material adverse effect on the financial position on the GVC Group following the Effective Date, the Combined Group. • The GVC Group and the Ladbrokes Coral Group have (or have acquired businesses or brands which have), in the past, accepted gambling business from customers located in jurisdictions in which they did not hold a licence or from jurisdictions where a licence was unavailable. There is a risk that such legacy activities could, in the future, harm the ability of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group to obtain licences in such jurisdictions to the extent they ever become available.
Risks relating to the Gambling Industry • The UK’s Department for Culture, Media and Sport announced a review of gaming machines and social responsibility measures on 24 October 2017 which was supplemented by a further consultation procedure which was announced on 31 October 2017 (the “Triennial Review”). The UK Government’s stated objective of the Triennial Review is to look across the industry to determine what, if any, changes are needed to strike the right balance between socially responsible growth and the protection of consumers and wider communities. Depending on the findings of the Triennial Review, the UK Government may decide to make changes to the laws or regulations applicable to the business of the Ladbrokes Coral Group
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and, following the Effective Date, the Combined Group, including the laws and regulations applicable to FOBTs or the advertisem*nt of betting and gaming activities, and any such changes could have a material adverse effect on the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s business, financial condition and results of operations. Whilst the consideration structure for the Acquisition (specifically, the CVRs) takes into account a range of outcomes under the Triennial Review, with the purpose of mitigating GVC Shareholders’ exposure to this risk in the context of the Acquisition, any such changes could have a material adverse effect on the Combined Group’s business, financial condition and results of operations. In particular, and without limiting the generality of the foregoing, the GVC Directors anticipate that a reduction to the maximum stake which may be wagered on a particular game cycle on a FOBT will result in a general loss of revenues within LBOs, and therefore a general reduction in the profitability of LBOs. • The GVC Group and the Ladbrokes Coral Group currently operate and, following the Effective Date, the Combined Group will operate in many jurisdictions. Profits of the Combined Group will be taxed according to the tax laws of such jurisdictions as well as the jurisdictions in which members of the Combined Group are resident for tax purposes. The Combined Group’s effective tax rate may be affected by changes in, or changes in the interpretations of, tax laws in any given jurisdiction, and changes in the geographical allocation of income and expense. In addition to the direct and indirect taxes that apply to businesses operating in a number of sectors, the GVC Group and the Ladbrokes Coral Group are currently, and following the Effective Date the Combined Group will be, subject to special gambling taxes, duties and levies (“Gambling Duties”) in many of the jurisdictions in which they operate. If the rates of such Gambling Duties were to be increased, or if the “tax base” of such Gambling Duties were to be widened, if there was a change in the interpretation or application of existing Gambling Duties by tax authorities in any of the jurisdictions in which the Combined Group operates, or if new Gambling Duties are enacted, then this may have a material adverse effect on the overall tax burden borne by the Combined Group. • The operations of the GVC Group and the Ladbrokes Coral Group are highly dependent on technology, and there is a risk that such technology could fail or be subject to damage or interruption caused by human error, unauthorised access, increase in volume of usage of online services or other similarly disruptive events. Any such failure or disruption of, or damage to, the technology or systems used by the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group in its businesses could have a material adverse effect on those businesses and their financial conditions or results of operations; in particular, any damage to, or failure of, their online systems could result in interruptions to their financial controls and customer service systems, which could in turn result in adverse effects on the business, financial position and results of operations of the Combined Group.
Operational Risks • The GVC Group and, following the Effective Date, the Combined Group’s reporting currency will be in euros, but, following the Effective Dare, a significant proportion of its income deposits will be generated in other currencies, notably pounds sterling and Australian dollars. To the extent that there are fluctuations in exchange rates outside hedged positions, this may have a material impact on the GVC Group and, following the Effective Date, the Combined Group’s financial position or results of operations. Exchange rate fluctuations
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may also adversely affect results of operations through the translation into euros of amounts denominated in another currency.
D.3Key risks that are specific to • Any fluctuation in the market price of the GVC Shares between the date the securities of publication of this document and the Effective Date will increase or decrease the value of the consideration received. In addition, any successful election made under the Mix and Match Facility to receive additional Consideration Shares may have the effect of increasing or decreasing (as the case may be) the impact which any such fluctuation in the value of a Consideration Share may otherwise have on the value of consideration received for each Ladbrokes Coral Share. • The Company’s ability to pay dividends and effect returns of capital in the future is uncertain. • After Completion, GVC Shareholders will own a smaller percentage of the Enlarged Issued Share Capital than they currently own of GVC.
Section E – Offer
E.1 Net proceeds/expenses The Consideration Shares are being issued as part consideration under the Scheme to Ladbrokes Coral Shareholders pursuant to the terms of the Acquisition, and, as such, GVC will not receive any subscription proceeds from the recipients of those Consideration Shares. The expenses of, or incidental to, the Acquisition are payable by GVC, and are estimated to amount to approximately €125.8 million (excluding value added tax). No expenses will be charged to any investor by GVC.
E.2aReasons for the offer, use of The proposed issue of the Consideration Shares by the Company is being proceeds made in connection with the proposed acquisition of Ladbrokes Coral by GVC, to be effected by way of a Court-sanctioned scheme of arrangement of Ladbrokes Coral under Part 26 of the UK Companies Act 2006. The Company intends to issue the Consideration Shares as consideration to Ladbrokes Coral Shareholders. The Acquisition has a compelling strategic and financial rationale: • Revenue and profit growth: the Combined Group will have the opportunity to maximise revenue and profit growth by harnessing the best elements of each of their respective client relationship management tools and skills that have been developed in both businesses to acquire and retain customers as well as driving higher player yield. Ladbrokes Coral’s significant retail presence and multi- channel know-how can assist GVC in driving further online growth in both GVC and Ladbrokes Coral brands; • Significant breadth and scale: the Combined Group will, based on current wagers and revenues of GVC and Ladbrokes Coral, be one of the largest listed sportsbook operators in the world by wagers and the largest listed online-led betting and gaming operator by revenue. It will have top three market positions in three of Europe’s largest online gaming markets – the UK, Germany and Italy – plus a significant business in Australia and exposure to the USA and other growth markets, giving it the size and resources to address the dynamics of the rapidly changing global gaming industry; • Multichannel distribution combined with market-leading technology: with expertise and scale across all distribution channels (online, retail and mobile) and ownership of its market-leading technology, the Combined Group will have the ability to increase further its customer base and continue to build leading positions in existing and new markets; • Leading brands: the Combined Group will have some of the strongest retail and online industry brands, including Ladbrokes, Coral, Gala,
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bwin.party, Party Poker and Sportingbet. It will be able to respond to evolving consumer product preferences based on data collected from its extensive existing customer base, and will be well-placed to capitalise on the opportunity for further customer wins; • Deep pool of industry talent: both GVC and Ladbrokes Coral have a strong track record in selecting talented people from businesses that have been combined with (as demonstrated in GVC’s acquisitions of bwin.party and Sportingbet and in the Ladbrokes Coral merger) to exploit the full potential of both businesses. The Acquisition will allow the Combined Group to bring together some of the industry’s leading talent across all key aspects of the gaming business, including product verticals, distribution platforms, technology and marketing; • Industry consolidation: the Combined Group will continue to be well-positioned as one of the principal consolidators in the gaming sector, with a proven management team experienced in integrating acquired businesses; • Taking the initiative now: the Acquisition allows GVC and Ladbrokes Coral shareholders to benefit from the business combination in the near term, with a flexible consideration structure which takes into account a range of outcomes under the Triennial Review and at a time when financing conditions are favourable; and • Opportunities for cost and revenue synergies: cost and revenue synergies have been identified which support the significant shareholder value creation opportunity of the Acquisition. The Board of GVC believes that the Combined Group will be able to achieve recurring annual pre-tax cost synergies of not less than £100 million as a result of the Acquisition. This synergy and saving realisation will take place progressively, whereby approximately £7 million of the total cost synergies will be achieved in the first calendar year following Completion, rising to approximately £33 million by year two and approximately £56 million by year three following Completion. It is expected that a benefit of £100 million of identified cost synergies will be achieved by 2021. The Board of GVC also expects that the Acquisition will generate annual capital expenditure savings arising from technology and procurement synergies and revenue synergies.
E.3Terms and conditions of the It is intended that the Acquisition will be effected by way of a Court- offer sanctioned Scheme under Part 26 of the UK Companies Act 2006. The purpose of the Scheme is to provide for GVC to become the holder of the entire issued and to be issued share capital of Ladbrokes Coral. Pursuant to the terms of the Acquisition, if the Scheme becomes Effective, Scheme Shareholders will be entitled to receive: for each Scheme Share: 32.7 pence in cash, plus 0.141 Consideration Shares, plus a contingent entitlement of up to a further 42.8 pence in principal value of Loan Notes plus an upward adjustment to take account of the time value of money by way of a Contingent Value Right (“CVRs”) linked to the outcome of the current Triennial Review The Acquisition will include a Mix and Match Facility so that eligible Ladbrokes Coral Shareholders will be able to elect to vary the proportion of cash and Consideration Shares they receive, subject to equal and opposite offsetting elections made by other Ladbrokes Coral Shareholders. Certain Overseas Holders may not be eligible to participate in the Mix and Match Facility. The Mix and Match Facility will not change the total number of Consideration Shares to be issued by GVC or the total cash
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consideration to be paid pursuant to the Acquisition. A Mix and Match Facility will not be offered in respect of the CVRs; each Ladbrokes Coral Shareholder will in all circ*mstances receive one CVR for each Ladbrokes Coral Share held at the Scheme Record Time. If the Scheme becomes Effective, it will result in the allotment and issue of approximately 273,000,000 Consideration Shares to Ladbrokes Coral Shareholders, which will result in Ladbrokes Coral Shareholders holding approximately 46.5 per cent, and GVC Shareholders holding approximately 53.5 per cent, of the Enlarged Issued Share Capital of the Combined Group. The Acquisition will be made on the terms and subject to the Conditions set out in the Scheme Document, and will only become effective if, among other things, the following conditions are satisfied or, where applicable, waived on or before the Long Stop Date: • a resolution to approve the Scheme is passed at the Ladbrokes Coral Shareholder Court Meeting by a majority in number representing not less than 75 per cent. in value of the Scheme Shareholders who are on the register of members of Ladbrokes Coral at the Scheme Voting Record Time present and voting, whether in person or by proxy, at the Ladbrokes Coral Shareholder Court Meeting; • the Ladbrokes Coral Shareholder Resolutions necessary to implement the Scheme are passed by the requisite majority of Ladbrokes Coral Shareholders at the Ladbrokes Coral General Meeting; • each of the GVC Shareholder Resolutions is passed by the requisite majorities of GVC Shareholders at the GVC General Meeting; • approval of Admission; • the Scheme is sanctioned by the Court; and • a copy of the Scheme Court Order is delivered to the Registrar of Companies. The Scheme is also conditional on the making of a determination by the UKGC pursuant to section 102(4)(a) of the Gambling Act and made in respect of all operating licences (as such term is defined in the Gambling Act) held by members of the Ladbrokes Coral Group that all such operating licences shall continue to have effect following the acquisition by GVC of the Scheme Shares and the anti-trust and all other regulatory approvals in relation to the Acquisition being obtained or the relevant Conditions being waived.
E.4Interests material to the offer Not applicable. There is no interest, including any conflicting interest that including conflicting interests is material to the issue/offer.
E.5Selling shareholder/lock-up Not applicable. There is no security being sold by any existing GVC arrangements Shareholders and no lock-up arrangements in place.
E.6 Dilution If the Scheme becomes Effective, it will result in the issue to Ladbrokes Coral Shareholders of approximately 273,000,000 Consideration Shares, being the maximum number of Consideration Shares to be issued to Ladbrokes Coral Shareholders pursuant to the Acquisition and the related Mix and Match Facility.
In aggregate, therefore, the Consideration Shares will represent approximately 46.5 per cent. of the Enlarged Issued Share Capital. Accordingly, the existing GVC Shares will represent approximately 53.5 per cent. of the Enlarged Issued Share Capital.
E.7Estimated expenses charged Not applicable. No expenses will be charged to any investor by GVC in to the investor respect of the Acquisition.
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RISK FACTORS
Any investment in ordinary shares carries a number of risks. Prospective investors should review this I,4 document carefully and in its entirety and consult with their professional advisers before acquiring any GVC III,2 Shares. Prospective investors should also consider the risks and uncertainties described below, together with all other information in this document, before making any investment decision.
A number of factors can or will affect the operating results, financial condition and prospects of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. This section describes risk factors considered by the GVC Directors to be material in relation to the GVC Group and the Ladbrokes Coral Group as discrete groups. These risks will, following the Effective Date, be equally relevant to the Combined Group.
Prospective investors should note that the risks relating to the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, their industry and the ordinary shares summarised in the section of this document headed “Summary” are the risks that the GVC Directors believe to be the most essential to an assessment by a prospective investor of whether to consider an investment in the GVC Shares. However, as the risks which the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, face relate to events and depend on circ*mstances that may or may not occur in the future, prospective investors should consider not only the information on the key risks summarised in the section of this document headed “Summary” but also, among other things, the risks and uncertainties described below.
However, the risk factors described below should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties, and should be used as guidance only. Additional risks and uncertainties that are not presently known to the GVC Directors, or which they currently deem immaterial, may also have an adverse effect on the operating results, financial condition or prospects of the GVC Group and/or the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. If any such risks were to materialise the price of GVC Shares could decline as a consequence, and investors could lose all or part of their investment.
1. RISKS RELATING TO THE ACQUISITION 1.1 Completion is subject to certain conditions which may not be satisfied or waived Completion is conditional upon the satisfaction or, where applicable, waiver of a number of conditions on or before the Long Stop Date including, among other things:
(a) the approval of the Scheme at the Ladbrokes Coral Shareholder Court Meeting by a majority in number of the Scheme Shareholders present and voting, either in person or by proxy, representing three-quarters or more in value of the Scheme Shares held by those Scheme Shareholders;
(b) the approval at the Ladbrokes Coral General Meeting of the Ladbrokes Coral Shareholder Resolutions by the requisite majority of the Ladbrokes Coral Shareholders; and
(c) the approval at the GVC General Meeting of the GVC Shareholder Resolutions by the requisite majorities of the GVC Shareholders.
These Conditions are summarised in more detail in paragraph 5 of Part 1 of this document and in the Scheme Document.
The Acquisition is also subject to approvals (or, where applicable, waiver) from (i) the CMA, (ii) the German Federal Cartel Office, (iii) the Austrian Merger Control authorities and (iv) the European Commission (to the extent it decides to examine the Acquisition or any matters arising therefrom pursuant to Article 22(3) of the EU Merger Regulation, as well as from various gaming authorities and financial services authorities including Malta, Gibraltar and the United Kingdom. Although the GVC Directors believe that the required clearances from such authorities should be forthcoming, it is
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possible that GVC or Ladbrokes Coral may not obtain these clearances, or that they may not be obtainable within a timescale acceptable to GVC or Ladbrokes Coral, or that they may only be obtained subject to certain conditions or undertakings, such as the disposal of parts of the GVC or Ladbrokes Coral businesses, which may not be acceptable to GVC or Ladbrokes Coral. In the event that any required clearance is not obtained or if any other condition is not fulfilled or waived by the Long Stop Date, the Acquisition may not be completed. Furthermore, it is possible that the relevant authorities may attach conditions to their approval of the Acquisition, which might delay or prevent the realisation of certain synergies identified by GVC or Ladbrokes Coral.
In addition, in some jurisdictions, notifications of the change of control of Ladbrokes Coral to gambling and/or antitrust authorities are voluntary and GVC or Ladbrokes Coral may decide not to notify, bearing the risk that the authorities may later open an investigation on their own initiative. Authorities in such jurisdictions may request that a notification be filed and may require the Combined Group to give certain undertakings, such as disposing parts of its business, to satisfy regulatory or competition concerns. If this were to happen, it could have a material adverse effect on the business, results of operations, financial condition and prospects of the Combined Group.
If the Conditions are not satisfied or, where applicable, not waived on or before the Long Stop Date, neither the Acquisition nor Admission will proceed, the benefits expected to result from the Acquisition will not be achieved, none of the Consideration Shares will be issued and the market price of the GVC Shares and the Ladbrokes Coral Shares may be adversely affected.
1.2 Even if a material adverse change to the GVC Group or the Ladbrokes Coral Group’s business or prospects were to occur, in certain circ*mstances, the GVC Group may be unable to invoke the Conditions and terminate the Acquisition, which could reduce the value of the Enlarged Issued Share Capital The Conditions to the Acquisition include conditions that there is no material adverse change affecting the GVC Group or the Ladbrokes Coral Group before the Scheme is sanctioned by the Court. However, save in relation to certain anti-trust, regulatory and Scheme-related Conditions, the GVC Group may be unable to invoke a Condition to the Acquisition to cause the Acquisition not to proceed, unless permitted by the City Code (which would require the Panel to conclude that the circ*mstances giving rise to that Condition not being satisfied are of material significance to the GVC Group in the context of the Acquisition, noting that the “material significance” test is generally acknowledged to be a very high threshold). If a material adverse change affecting the GVC Group or the Ladbrokes Coral Group were to occur, and the Panel did not allow the GVC Group to invoke the relevant Condition to cause the Acquisition not to proceed, the market price of GVC Shares may decline or the GVC Group’s business or financial condition (or following the Effective Date, the Combined Group’s business or financial condition) may be materially adversely affected. As a result, the value of GVC Shares may be reduced.
1.3 In the event that the Acquisition does not proceed, GVC may not be able to realise shareholder value The GVC Directors believe that the Acquisition is in the best interests of GVC Shareholders, and that it currently provides the opportunity to deliver significant value to GVC Shareholders. If the Acquisition does not complete, the GVC Group’s ability to deliver value for GVC Shareholders, or to implement the GVC Group’s stated strategy, may be prejudiced, and the value of the GVC Shares may be reduced.
1.4 If there are significant, unforeseen difficulties integrating certain of the business operations of the GVC Group and the Ladbrokes Coral Group they could adversely affect the business of the Combined Group The GVC Group recently acquired the bwin.party Group, and the Ladbrokes Coral Group was recently created by a merger of the Historic Ladbrokes Group and the Historic Coral Group. Consequentially, the groups are still in the process of realising in full the benefits of these mergers.
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Furthermore, GVC intends to integrate its own operations with those of the Ladbrokes Coral Group, as set out in Part 1 of this document. GVC’s goal in integrating these operations is to increase revenues and cashflows through enhanced growth opportunities, and the delivery of significant financial synergies as a result of integrating both businesses. To the extent that the Combined Group is unable efficiently to integrate the operations, realise cost reductions and avoid unforeseen costs or delays in the integration process (including, for example and without limitation, owing to the benefits of the previous integration of the groups not yet fully being realised as mentioned above), it may have a material adverse effect on the business, results of operations, financial condition and prospects of the Combined Group.
The integration of the GVC Group and the Ladbrokes Coral Group will be supported by a strong management team; however, no assurance can be given that the integration process will deliver all, or substantially all, of the expected benefits or realise such benefits in a timely manner or at all. GVC may also encounter difficulties integrating its operations with those of the Ladbrokes Coral Group, resulting in a delay in achieving, or the failure to achieve, the anticipated synergies and cost savings. Some of the key potential difficulties relating to the integration of the businesses of the two groups include:
(a) the unexpected loss of key personnel and customers;
(b) difficulties in integrating the financial, regulatory, technological and management standards, technical platforms, processes, procedures and controls of the two groups (which may be further exacerbated by the ongoing integration of the GVC Group and the bwin.party Group, and the Historic Ladbrokes Group and the Historic Coral Group);
(c) challenges in managing the increased scope, geographic diversity and complexity of the Combined Group’s operations;
(d) attempts by third parties to terminate or alter their existing contracts with the GVC Group or the Ladbrokes Coral Group; and
(e) failure to mitigate contingent and/or assumed liabilities.
Any such difficulties could lead to higher than anticipated integration costs and may divert management time when seeking to deal with such issues, and may affect the GVC Group’s ability to achieve the anticipated benefits of integration. If such difficulties are significant, this could have a material adverse effect on the operational and financial performance of the Combined Group.
1.5 The GVC Group may not realise the targeted level of synergies and cost savings in full or in the expected timeframe The GVC Directors expect that, as a result of the Acquisition, the Combined Group will be able to realise cost synergies and saving realisations of £100 million by 2021. The estimate regarding the quantum and timing of potential cost synergies and saving realisations resulting from the Acquisition included in this document are based on the GVC Directors’ assessment of information available to them as at the date of this document, and may prove to be incorrect. The Combined Group may not realise the anticipated cost synergies and saving realisations of the Acquisition, and may not be successful in integrating the business and operations of the GVC Group and the Ladbrokes Coral Group. A failure to deliver all, or substantially all, of the expected cost synergies and saving realisations or realise such benefits in a timely manner, or at all, could have a material adverse effect on the business, results of operations, financial condition and prospects of the Combined Group.
Whilst the GVC Directors also expect the Acquisition to generate revenue synergies, capital expenditure savings and procurement synergies none of these synergies or savings have been quantified and the Combined Group may not be able to realise any of these benefits.
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1.6 The GVC Group may incur higher than expected integration and Acquisition-related costs GVC expects to incur non-recurring restructuring costs of at least £100 million in delivering the identified cost synergies of combining the operations of the two groups in the four years post Completion. The phasing of these costs is expected to be £17 million in the financial year ending 31 December 2018, £30 million in 2019, £31 million in 2020 and £22 million in 2021. In addition to restructuring costs, GVC will also incur legal, accounting and transaction fees and other costs related to the Acquisition of approximately €94.8 million (excluding value added tax). Some of these costs are payable regardless of whether the Acquisition is completed, and such costs may be higher than anticipated. Should the Scheme become Effective, the Combined Group will also be responsible for Ladbrokes Coral’s obligations to pay (i) transaction expenses totalling approximately £24.3 million (excluding value added tax), and (ii) payment obligations associated with the cash out of share options under the Ladbrokes Coral Share Plans totalling approximately £1.8 million1 excluding employer national insurance contributions. Although the GVC Directors believe that the elimination of certain costs, as well as the realisation of other efficiencies related to the integration of the businesses, will offset these implementation and acquisition costs over time, this net benefit may not be achieved within the expected timetable. In addition, if costs are higher than GVC anticipates, it may reduce the net benefits of the Acquisition and have a material adverse effect on the operational and financial performance of the Combined Group.
1.7 Potentially disruptive effect of the Acquisition on the GVC Group and the Ladbrokes Coral Group Whether or not Completion occurs, the prospect of the Acquisition completing could cause disruption in the businesses of the GVC Group and/or the Ladbrokes Coral Group. If Completion were to occur, the process of integrating the businesses of the Combined Group could potentially lead to the interruption of operations of the businesses, system integration issues, the diversion of management time away from their usual roles and or a loss of customers or key personnel, which could have an adverse effect on the business, results of operations or financial condition of the Combined Group.
However, management and key personnel of the Combined Group have significant experience of successfully integrating businesses, such as GVC’s acquisition of bwin.party and the merger of Historic Ladbrokes Group and the Historic Coral Group. As part of the GVC Board’s assessment of the Acquisition GVC’s management team have prepared an integration memorandum to assist in the management and oversight of the Acquisition in order to minimise any potential disruption that it may cause to the businesses.
Additionally, some current and prospective employees may experience uncertainty about their future roles within the Combined Group, which may adversely affect the GVC Group’s and the Ladbrokes Coral Group’s respective abilities and, following the Effective Date, the Combined Group’s ability, to retain or recruit key managers and other employees. If the GVC Group and the Ladbrokes Coral Group or, following the Effective Date, the Combined Group fails to manage these risks effectively, the business and financial results of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group could be adversely affected.
1.8 The Acquisition will materially increase the net indebtedness of the Combined Group and may restrict its operational flexibility GVC has entered into the Existing Facilities Agreement which will be used to finance the cash consideration payable to Ladbrokes Coral Shareholders pursuant to the Acquisition and to pay related costs. As a result, the Combined Group will be subject to restrictive covenants (which are normal for a debt facility of this nature). Where the Combined Group wishes to enter into a transaction or undertake corporate action which is not permitted under such covenants, it will need to obtain the prior consent of the entities to which the Existing Facilities Agreement is syndicated (or a certain subset of such entities, depending on the nature and scope of the transaction or corporate action
1 This figure is based on the Court Sanction Date being 30 June 2018 and the Ladbrokes Coral share price on the Court Sanction Date being 172 pence per share. 29 170384 Proof 5 Friday, February 9, 2018 07:12
envisaged), and there can be no guarantee that such consent would be obtained. This may restrict the operational and financial flexibility of the Combined Group with respect to, among other things, making minority or joint venture investments, granting security, making acquisitions, entering into mergers, making disposals or incurring financial indebtedness, in each case unless such matter is expressly carved-out from the relevant restrictive covenant or can be accommodated within the customary baskets, materiality thresholds and, where applicable, debt incurrence ratios provided for in the Existing Facilities Agreement and associated finance documents.
Although, in the GVC Directors’ opinion, the working capital available to the Combined Group is sufficient for its present requirements, that is for at least the next 12 months following the date of this document, like any company with borrowings, the Company is subject to the risk that, in the longer term, the Combined Group may be unable to generate sufficient cashflow, or obtain sufficient funding, to satisfy its obligations to service or refinance the indebtedness incurred in connection with the Acquisition. The GVC Directors believe that the GVC Group’s current financial condition, cash generation and capital reserves, coupled with that of the Ladbrokes Coral Group, are sufficient to enable the Combined Group to comply with the financial covenants under its loan facilities for at least the next 12 months from the date of this document. However, any deterioration in the GVC Group’s, the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s business operations, particularly in the Material Territories, may have a material adverse effect on their respective earnings, which, in the longer run, could affect the Combined Group’s ability to comply with certain of the financial covenants under its loan facilities. There can be no assurance that GVC can continue to comply with its financial covenants in the longer term, which if it fails to do may result in the acceleration of the repayment of the loan facilities or the lenders refusing to make further advances under such loans or to rollover the revolving facilities, all of which would have a material adverse effect on the financial condition of the GVC Group, and following the Effective Date, the Combined Group.
1.9 If a Ladbrokes Coral Shareholder makes an election under the Mix and Match Facility, such holder may not receive the consideration in the proportion of Consideration Shares and cash requested There is a Mix and Match Facility available to eligible Ladbrokes Coral Shareholders. Under the Mix and Match Facility, eligible Ladbrokes Coral Shareholders may elect to vary the proportions in which they receive Consideration Shares and cash consideration, subject to equal and opposite offsetting elections made by other Ladbrokes Coral Shareholders. To the extent that elections cannot be satisfied in full, they will be scaled down on a pro rata basis. As a result, Ladbrokes Coral Shareholders who make an election under the Mix and Match Facility may not have their election under the Mix and Match Facility satisfied in full or at all, and they will not know the exact number of Consideration Shares or the amount of cash that they will receive until the settlement of consideration under the terms of the Acquisition following the Effective Date.
1.10 Market fluctuations may reduce the overall value of the consideration in the Acquisition Unless a successful Mix and Match Facility election is made, each Ladbrokes Coral Share will be exchanged for 32.7 pence in cash, 0.141 Consideration Shares and one CVR. Any fluctuation in the market price of the GVC Shares between the date of publication of this document and the Effective Date will increase or decrease the value of the Consideration Shares consideration received. In addition, any successful election made under the Mix and Match Facility to receive additional Consideration Shares may have the effect of increasing or decreasing (as the case may be) the impact which any such fluctuation in the value of a Consideration Share may otherwise have on the value of consideration received for each Ladbrokes Coral Share.
1.11 Risk that the amounts paid to Ladbrokes Coral Shareholders under the terms of the CVR Instrument will not be reflective of the actual impact of the Triennial Review on the profitability of the Ladbrokes Coral Group’s business The CVR Instrument provides for agreed consultation and determination procedures which have the purpose of assessing the principal value of the Loan Notes to be issued to Ladbrokes Coral
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Shareholders. The aim of these procedures is to seek to ensure that any additional amount payable by the Company to the Ladbrokes Coral Shareholders under the terms of the Loan Notes accurately takes into account the impact of certain measures arising from the Triennial Review on the profitability of the Ladbrokes Coral Group’s business. However, there may be circ*mstances where (i) the Triennial Review implements additional changes to the regulation of FOBTs which are not taken into account in the agreed consultation and determination procedures, and such changes additionally adversely affect the profitability of the Ladbrokes Coral Group’s business and/or (ii) the actual impact of the measures emanating from the Triennial Review on the profitability of the Ladbrokes Coral Group’s business is more adverse than that assessed through the procedures provided for in the CVR Instrument. In addition, under the terms of the CVR Instrument, Loan Notes with a principal value of 35 pence will be issued to the CVR Holders each if no Maximum Stakes Measures are Enacted by the CVR Long Stop Date. In these circ*mstances the UK Government may nonetheless Enact law or regulation following the CVR Long Stop Date which adversely affects the profitability of the Ladbrokes Coral UK Business and which, if such law or regulation had been Enacted before the CVR Long Stop Date, would have resulted in Loan Notes being issued with a principal value of less than 35 pence.
In any or all of these circ*mstances, the principal value of the Loan Notes and, therefore, the amount paid by GVC to the Ladbrokes Coral Shareholders under the terms of the Loan Notes, may not be reflective of the actual impact of the Triennial Review on the profitability of the Ladbrokes Coral Group’s business. The Combined Group’s business, financial condition and results of operations could be materially adversely affected in such circ*mstances.
1.12 Risk that GVC is not able to arrange financing for the maximum amount payable to Ladbrokes Coral Shareholders under the terms of the CVR Instrument Any Loan Notes which are issued by GVC under the terms of the CVR Instrument will (save in the case of a change of control or winding up) be issued with a term which ends on the later to occur of (i) the date falling 6 months and one day from the date of issue of the Loan Notes and (ii) the date falling 18 months from the Effective Date. At the end of such term, the Loan Notes will be redeemed by GVC and the principal value of the Loan Notes, plus interest thereon, will be payable in cash by GVC to the Loan Note Holders. For the purposes of the City Code, neither GVC nor any of its advisers has been required to confirm, and none of them have confirmed, that resources are available to GVC to satisfy any such payments under the Loan Notes. Whilst, in the opinion of the GVC Directors, the working capital available to the GVC Group (including, following Completion, the Ladbrokes Coral Group) is sufficient for its current operations and operational strategies, that is for at least the next 12 months following the date of this document, GVC has not currently arranged financing to cover all possible payments under the terms of the Loan Notes resulting from the outcome of the Triennial Review. Therefore, GVC may be required to arrange financing (equity or debt) to fund the redemption of the Loan Notes. The GVC Directors can give no assurance that such financing will be available on terms favourable to the Combined Group, or at all, in order to satisfy such payments. In such circ*mstances, GVC may not be able to satisfy payments under the terms of the Loan Notes, resulting in the potential for claims against GVC from the Loan Note Holders, which could have a material adverse effect on the Combined Group’s business, financial condition and results of operations.
1.13 GVC Shareholders will experience dilution as a result of the Acquisition If the Scheme becomes Effective, it will result (without taking into account any exercise of options or awards under the Ladbrokes Coral Share Plans), in the issue to Ladbrokes Coral Shareholders of approximately 273,000,000 Consideration Shares, being the maximum number of Consideration Shares to be issued to Ladbrokes Coral Shareholders pursuant to the Acquisition and the related Mix and Match Facility. Holders of GVC Shares will therefore experience dilution in their ownership and voting interests in the Enlarged Issued Share Capital at Admission.
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In aggregate, therefore, the Consideration Shares will represent approximately 46.5 per cent. of the Enlarged Issued Share Capital. Accordingly, the existing GVC Shares will represent approximately 53.5 per cent. of the Enlarged Issued Share Capital. These figures are based on the number of Ladbrokes Coral Shares in issue as at the Last Practicable Date without taking into account other issues of GVC Shares or Ladbrokes Coral Shares (including under the GVC Share Incentive Schemes or Ladbrokes Coral Share Plans) between Last Practicable Date and the date of Admission, and that 273,000,000 Consideration Shares are issued in connection with the Acquisition.
As a consequence, the number of voting rights which can be exercised and the influence that may be exerted by existing GVC Shareholders in respect of the Combined Group following Completion will be reduced.
1.14 Breach of change of control provisions in Ladbrokes Coral Group contracts triggered by the Acquisition The Ladbrokes Coral Group has a number of contracts and joint venture agreements that contain change of control termination provisions which may be triggered by the Acquisition. Whilst Ladbrokes Coral intends to seek consents and/or waivers (if required) in respect of two agreements which have been determined to be significant to its business, there can be no assurance that such consents and/or waivers will be obtained prior to Completion, or that the Ladbrokes Coral Group has identified all contracts with change of control clauses that are material to its business. If the Acquisition breaches a change of control clause in any of the Ladbrokes Coral Group’s significant contracts or in a number of contracts which cumulatively become material to the business of the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, and the relevant counterparty consent or waiver is not obtained, such counterparty may terminate, or threaten to terminate the contract, which could have a material adverse effect on the business, results of operations, financial condition and prospects of the Combined Group.
2. LEGISLATIVE AND REGULATORY RISKS 2.1 Current or future legislation or regulation may prohibit, restrict or regulate online gambling Current or future legislation or regulation may prohibit or restrict (or may be interpreted or amended in such a way as to prohibit or restrict) certain activities of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. The effect of any prohibition or restriction of such activities may have a material adverse effect on the Combined Group particularly because it is anticipated that more than 90 per cent of its Net Revenue will be generated from locally/regulated/taxed markets. This may present a higher risk in certain Material Territories. In addition, legislation or regulation affecting online gambling activity may be implemented at a state/regional, national and/or supranational level which has commercially undesirable consequences such as onerous compliance requirements, punitive tax regimes, large bonds or other requirements to provide financial guarantees, limited product offerings, ring-fenced liquidity, caps on the number of licensees or restrictions on third party service providers to online gambling operators such that it is not commercially desirable or practicable for the Combined Group to obtain and/or maintain a licence in a particular jurisdiction or jurisdictions, with the consequential financial loss arising from the need to block access by customers from the relevant jurisdictions.
The supply of online gambling is not unequivocally legal in all jurisdictions in which customers of the GVC Group and, therefore following the Effective Date, the Combined Group, may elect to play. However, the GVC Group considers that it is and, following the Effective Date, the Combined Group will be legitimately supplying gambling services from jurisdictions where its servers are (and will be) based but does not (and will not) hold a local license in every jurisdiction where a customer is located.
There is a risk that regulators or prosecutors in jurisdictions where the GVC Group and, following the Effective Date, the Combined Group, makes its online gambling products available to customers without a local licence may take legal action, and any defence raised by the GVC Group, and following the Effective Date, the Combined Group may not be successful. Actions that may be taken include the arrest and imprisonment of key directors, executives or employees (in some cases even if
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not present in the relevant jurisdictions), criminal sanctions and penalties, as well as civil and administrative enforcement actions, fines, funds and asset seizures, authorities seeking to seize funds generated from the allegedly illegal activity as well as payment blocks and ISP blacklisting, some of which may be more readily enforceable within an economic area such as the EEA. Even if any and all claims could be successfully defended, there would be a resultant loss of reputation, potential loss of revenue and diversion of management time. This risk cannot be eradicated in all relevant jurisdictions, particularly where no open and freely competitive local licensing regime exists or where the GVC Group and, following the Effective Date, the Combined Group has such a small proportion of business that it may not be aware of a change in enforcement appetite or attitude.
Furthermore, to the extent any such jurisdictions in future seek to regulate online gambling in such a way that would require the GVC Group and, following the Effective Date, the Combined Group to obtain a licence in that jurisdiction, the relevant licensing authority may consider the past conduct of deriving revenue from that jurisdiction without a local license as grounds for a finding of unsuitability at application stage, with the corresponding rejection of such an application.
Where a jurisdiction decides to regulate online gambling, it may not be commercially desirable or practicable to secure a licence in such a jurisdiction. It is a requirement of licences granted by the UKGC for licensed operators to ensure that they only offer gambling services into territories where there is a legal justification to do so and that they can demonstrate appropriate due diligence to support this in any territory where gambling regulation is unclear. Where a licence has not been secured and there is no demonstrable legal justification, it would be necessary to block access by customers in that jurisdiction, with the consequential financial loss arising from that requirement.
Moreover, as the Ladbrokes Coral Group holds licences and operates in jurisdictions where the GVC Group does not (for example, Australia), the Combined Group will be subject to legal and compliance risks in more jurisdictions than the GVC Group alone. Furthermore, the increased visibility of the Combined Group, resulting from the increased aggregate size of its operations, and addition of further brands to the portfolio of operations of the Combined Group, could draw additional scrutiny from governmental and enforcement authorities.
All of the above may ultimately result in the GVC Group’s and, following the Effective Date, the access to the Combined Group’s products and Combined Group’s business being compromised or even shut down in the affected jurisdictions or such jurisdictions having to be blocked. This carries with it the consequent risk to the ongoing profitability of the GVC Group and, after the Effective Date, the Combined Group, the impact of which would depend on how material the relevant jurisdiction is to the Combined Group.
There is also a risk that the GVC Group and, following the Effective Date, the Combined Group, has or may continue to take business from jurisdictions where the full extent of the enforcement risk is unknown, applied in an inconsistent manner or not judged correctly.
Great Britain, Germany, Australia, Italy, Austria and Greece are among the key markets from which the Combined Group will derive revenues. Each of these markets has risks associated with it and specific attention is therefore drawn to them below.
(a) Great Britain Each of the GVC Group and the Ladbrokes Coral Group holds and, therefore, following the Effective Date, the Combined Group will hold, operating licences issued by the UKGC for supplying retail and/or online facilities for gambling for use by players located in Great Britain. Such licences have general Licence Conditions and Codes of Practice (the “LCCP”) attached to them. If the GVC Group and/or the Ladbrokes Coral Group and, following the Effective Date, the Combined Group were found to be in breach of its obligation to comply with the LCCP, then the UKGC may impose a financial penalty on them or it or impose other penalties, including removing or imposing conditions on the relevant gambling licences. Such action could have a material adverse effect on the GVC Group’s and/or the Ladbrokes Coral Group’s
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and, following the Effective Date, the Combined Group’s business, financial condition and results of operations.
On 21 October 2016, the CMA announced an investigation into online betting and gaming, focusing on potential unfair treatment of customers. This investigation is being undertaken as part of a joint programme of work with the UKGC on fairness and transparency in the betting and gaming industry. As part of the preliminary stages of the investigation, the Ladbrokes Coral Group received information notices from the CMA asking it to submit evidence. The investigation resulted in the CMA requesting certain gambling operators (including the Ladbrokes Coral Group) to agree to certain undertakings with regard to certain promotional business practices in the United Kingdom. All UKGC-licensed operators (including the GVC Group and, following the Effective Date, the Combined Group) will be required to adhere to the same. Compliance with such undertakings could have a material adverse effect on the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s business, financial condition and results of operations.
(b) Germany There is a lack of legal certainty regarding German law relating to online gambling due to the German Interstate Treaty on Gambling which came into force on 1 July 2012 (the “Interstate Treaty”), which has since been subject to ongoing legal challenge before German and European courts. An overview of the relevant German law and the issues raised by it is set out in Part 8 of this document.
Whilst the GVC Group offers online sports betting and online casino and poker to players situated in Schleswig-Holstein on the basis of local licences, it remains uncertain if and when the GVC Group or, following the Effective Date, the Combined Group will be able to secure licenses for sports betting in order to offer their sports betting products in the overall territory of Germany following the GVC Group and the Ladbrokes Coral Group each having successfully completed the sports betting license tender for Germany-wide licensing.
With regard to online casino and online poker, uncertainty remains as to whether the prohibition of these products as stipulated within the Interstate Treaty is compliant with the Treaty of the Functioning on the European Union (“TFEU”) and the Court of Justice of the European Union (“ECJ”) case law. As a result, there is an increased risk of civil, administrative and criminal enforcement against the GVC Group’s and therefore, following the Effective Date, the Combined Group’s online casino and poker offering. Furthermore, certain suppliers to the GVC Group, namely Alliance Gaming Solutions Ltd (Gauselmann Group) and Greentube Internet Entertainment Solutions GmbH (Novomatic Group) have ceased providing online casino software licensed to the GVC Group for access by players located in Germany. It also cannot be excluded that further suppliers to the GVC Group or, following the Effective Date, the Combined Group may be unwilling to support certain types of Germany-facing activity (particularly where suppliers have physical presence themselves and/or wider land- based businesses in Germany). Various subsidiaries of the GVC Group have been issued prohibition orders under the Interstate Treaty and related legislation, as well as under earlier legislation, by certain German federal states. The GVC Group has filed administrative proceedings challenging each of these orders. While some of the cases concerning challenges of prohibition orders have been settled positively for the GVC Group, others are currently dormant. There is a risk that currently dormant cases could be reopened and new fines imposed. Despite the absence of clarity on the German legal framework for gambling, there is a risk of enforcement action against the GVC Group and, following the Effective Date, the Combined Group due to lack of compliance with provisions of the Interstate Treaty, which may include German authorities (i) considering the supply of online casino and poker to its customers located in Germany and/or the supply of certain potentially prohibited types of sports betting to its customers located in Germany as being illegal and thus subject not only to sanctions
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under administrative law but also under criminal law, (ii) seeking to seize funds generated from the allegedly illegal activity or (iii) attempting to initiate payment blocking. Amended legislation is expected in due course and is likely to be proactively enforced. Should any enforcement action be taken, it may not only divert management time but, ultimately, may necessitate a withdrawal from the German market with a consequential material adverse impact on the financial condition of the GVC Group (and, following the Effective Date, the Combined Group).
(c) Australia Australia has one of the most developed regulated gambling markets and this provides gambling operators with a significant degree of legal and regulatory certainty. However, gambling remains subject to political pressures and, in recent times, this has led to regulations that seek to restrict certain activities and limit the way gambling businesses operate. Regulation has increased in Australia in recent years and this may continue. Furthermore, gambling operators have recently been subject to (and may increasingly be subject to) restrictions on how they advertise and promote their services. There is a risk that, as Australian regulators restrict product offerings and advertising by the holders of local gambling licences, unlicensed offshore operators may seek to exploit the corresponding void.
South Australia and West Australia introduced a “point-of-consumption” taxation system which applies a duty of 15 per cent. of net State wagering revenue effective from 1 July 201, and Western Australia has announced that it will introduce a similar “point of consumption” taxation system with effect from 1 January 2019. These point of consumption taxes would ensure gambling operators are required to pay gambling duties in South Australia and Western Australia if transacting with its residents, even if already paying gambling duties on the relevant transaction in another state from where it may be licensed to supply its services, potentially leading to a double-taxation burden.
Gambling operators are also obliged by statute and contractual arrangements to pay fees (also known as ‘product fees’) to racing and sports controlling bodies to enable them to use and/or publish race fields and sports fixture information. These fees are calculated by reference to gross gambling revenue and, in some cases, turnover of the bets placed in relation to the relevant race or sporting event. These fees may increase.
Any further tightening of laws or regulations relating to gambling activities in Australia, and/or any further moves from other states to also introduce a point of consumption duty requirement, could restrict the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s growth opportunities in Australia and have an adverse effect on the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s business, financial condition and results of operations.
(d) Italy Operating licences awarded by the Italian gaming regulator, ADM, both in the Italian retail and online markets, are granted for fixed periods, after which a further bid must be accepted by ADM through a competitive public bidding process in order to assign them. The current licences held by Eurobet Retail, which govern the Ladbrokes Coral Group’s Italian sports and horserace betting operations, as well as the Italian remote gaming and betting licenses of the GVC Group and the Ladbrokes Coral Group were due to expire in June 2016, but ADM has permitted existing operators, such as Eurobet Retail, to continue to operate under their current licences in exchange for them extending the date of the guarantees which underpin these licences.
In the Stability Law of December 2018 the government announced a target date of 30 September 2018 for the publication of the new tender process for retail licences. In the interim the Stability Law also made provision for a licence ‘extension fee’ to be paid by
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existing operators to cover the period from 1 January to 31 December 2018. The extension fee for a ‘shop’ licence was set at €6,000 (six thousand euros) and the fee for a ‘corner’ at €3,500 (three thousand, five hundred euros). A further requirement of the extension fee is the extension of the expiry of the guarantees associated with the licences to 31 December 2018 (with the guarantees to also cover a period of a further 12 months following expiry through to 31 December 2019). Eurobet has submitted its intention to ADM to extend all its existing retail licences.
The tender for online licences, first foreseen in the Stability Law of December 2015, has now been published. Applicants are required to submit all required documentation by 19 March 2018, with the review process of applications commencing in April 2018. The granting of the licences is anticipated to take place during summer 2018. Online licences will be valid until 31 December 2022.
A significant part of the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s online business in Italy is derived from “netpoint” customers. These customers are originally recruited in retail and typically remain loyal through the online business. If these licences are not renewed, or are made subject to onerous or unacceptable terms and conditions or to inflated costs, or are renewed in a smaller number, the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s ability to operate in the Italian retail market could be materially adversely affected. In addition, an inability to operate in the Italian retail market would prevent the Ladbrokes Coral Group and, following the Effective Date, the Combined Group from attracting further “netpoint” customers and may result in the loss of the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s existing “netpoint” customers, which could have a material adverse effect on the growth of the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s online business in Italy. In addition, the franchise system under which the Ladbrokes Coral Group operates its business in Italy (see paragraph 3.19, “The franchise model operated by the Ladbrokes Coral Group and, following the Effective Date, the Combined Group in Italy, Belgium and Spain may give rise to business risk and unforeseen difficulties may arise”, below) (and under which the Combined Group will continue to operate, following the Effective Date) could be damaged by a reduction in the number of operating licences that the Ladbrokes Coral Group and, following the Effective Date, the Combined Group successfully secures, as franchisees may migrate to competitors, with an enhanced risk that these franchisees may attempt to migrate the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s existing customers with them, all of which could have a material adverse effect on the business, financial condition and result of operations of the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
(e) Austria Austrian law subjects sports betting, which is not considered a game of chance, to provincial licensing, which generally covers land-based sports betting and, in a number of provinces, also remote sports betting operated through servers located in the respective territory. The provision of online gambling is, however, subject to a de facto monopoly (single concession awarded to the lottery monopoly operator). The compliance of Austrian gambling legislation with EU law and Austrian constitutional law has been and remains subject to ongoing litigation. Since 2016, the three Austrian high courts (being the Supreme Court, the Supreme Administrative Court and the Constitutional Court) have issued decisions holding that the Austrian Gambling Act and the Austrian de facto monopoly, including online gambling, are in line with EU law and Austrian constitutional law.
Although the three Austrian high courts appear to take a similar approach as regards the compatibility of Austrian gambling law with EU law, the Regional Administrative Court of
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Upper Austria has issued several contrary decisions and recently submitted three cases regarding the compatibility of the Austrian gambling regime for preliminary ruling to the ECJ.
Should Austrian authorities take the view that the offering of online casino and poker games by any entities other than the monopoly operators is prohibited, in particular on the basis of the abovementioned rulings by the three highest courts, there is a risk of civil, administrative and criminal enforcement to be commenced against the GVC Group, the Ladbrokes Coral Group and following the Effective Date, the Combined Group, including the risk of enforcement against the funds and assets currently held by the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, to be held by the Combined Group. The abovementioned rulings by the three highest courts have also increased the risk of customers claiming their money back on the basis that online games of chance were allegedly offered illegally in Austria. Such litigation initiated by (former) customers of the GVC Group and/or the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, may significantly impact the financial condition of the GVC Group and/or the Ladbrokes Coral Group and, following the Effective Date, the Combined Group and the ability to maintain business in the respective jurisdiction where such claims are decided against operators.
On 18 December 2017, a new Austrian government was inaugurated. The new government has stated that it intends to subject sports betting to the Austrian Gambling Act and thus, potentially, to a monopoly regime (or de facto monopoly regime) as currently in place for lotteries, casinos and online gambling. Subjecting sports betting to a new regulatory framework may have adverse effects on the Austrian sports betting business of the GVC Group and the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, and may ultimately force the GVC Group and the Ladbrokes Coral Group and, following the Effective Date, the Combined Group to adapt or cease the offering of sports betting to customers located in Austria.
(f) Greece Greek law relating to online gambling is in a state of flux. Greece is in the process of considering implementing a new online gambling licensing regime. However, as the legislative process is at the beginning, there is uncertainty around which licences will be available for which online gambling products. Whilst the GVC Group has secured an interim licence for an element of its Greek business, it is uncertain whether this authorisation would continue to exist or need to be renewed or transferred into a permanent license respectively under any new online gambling licensing regime. Therefore, there is a risk that at some stage in the near future the GVC Group or, following the Effective Date, the Combined Group will be required to reapply for Greek licenses or even exit or partially exit the Greek market with a consequential adverse impact on the financial condition of the GVC Group (and, following the Effective Date, the Combined Group).
2.2 Legacy risk related to the historic provision of online gambling products into Turkey by the GVC Group Prior to the Disposal, the GVC Group did not hold a licence for the provision of online gambling products in Turkey but derived revenues from customers located there under its Malta licences on a point of supply basis, maintaining no physical presence in the jurisdiction. With the exception of a sports betting monopoly in Turkey, the provision of facilities for gambling online in Turkey is illegal. Overseas operators are subject to Turkish law and there is a risk of prosecution where individuals involved in operations are present in the jurisdiction. While there is a high risk that providers of illegal facilities will be subject to criminal prosecution and trial in Turkey, the risk is lower where the relevant activities take place outside Turkey and there is no physical presence in Turkey.
As a consequence of the Disposal, the GVC Group ceased to derive any revenues from the Turkish market. Whilst the cessation of that business has reduced the risk, the potential risk of proceedings ever being brought in connection with the historic provision of online gambling facilities into Turkey
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cannot be eliminated entirely and were any such risks to crystallise, it may have a material adverse effect on the financial position on the GVC Group and, following the Effective Date, the Combined Group.
2.3 The regulatory risks to the Combined Group may be greater where it has a physical presence The Combined Group will have a physical presence in over 35 jurisdictions, including Austria, Bulgaria, France, Gibraltar, Great Britain, India, Ireland, Israel, Italy, Malta, the Philippines, Slovakia, Spain, Uruguay, the USA and Belgium. Local authorities are more likely to focus on businesses that have a physical presence in their jurisdiction, since it is easier for such authorities to bring or enforce actions against such businesses and freeze their assets if local laws are violated. Any breach of local laws by the Combined Group in a jurisdiction in which it will have a physical presence is more likely to result in enforcement action being taken against it, when compared to jurisdictions where it does not have a physical presence. In particular, if the Combined Group is unable to utilise its infrastructure to run the gaming and betting operations as a result of successful enforcement action taken by authorities in any jurisdiction, this could have a material adverse effect on the business, results of operations, financial condition and prospects of the Combined Group.
2.4 Enforcement action against individuals There are a number of markets in which the GVC Group and the Ladbrokes Coral Group have, and in which, following the Effective Date, the Combined Group will have, customers where it may be illegal or may become illegal under domestic laws for individuals to engage in online gambling (either entirely or, when playing with operators who do not possess a local licence, if one is available). To date, law enforcement or regulatory authorities have been generally reluctant to enforce these laws against private individuals although there have been instances of this happening. Any attempt in the future to enforce such provisions against private individuals could significantly affect demand for the services provided by the Combined Group and thereby have a material adverse effect on the business, results of operations, financial condition and prospects of the Combined Group.
2.5 Dependence on regulatory licences and approvals for gambling activities Various GVC Group members and Ladbrokes Coral Group members currently hold, and remain dependent upon, licences in relation to their respective gambling-related activities. Under certain of these licences, approval from the relevant regulator is required as a consequence of the Acquisition. In certain cases, receipt of such approval is a Condition to Completion. There is no guarantee that any licences or approvals will be provided or renewed and, even where provided or renewed, that this will occur on favourable terms. Where jurisdictions regulate gambling, the application process and ongoing compliance obligations are likely to require applicants and, upon grant, will require licence holders to demonstrate the suitability, responsibility character and financial stability of gambling operators, in addition to that of their officers, directors, major shareholders and other key personnel. Regulated jurisdictions can have different regulations and regulatory processes and a gambling regulatory body may refuse to issue or renew a licence for a number of reasons. There can be no assurances that the GVC Group, the Ladbrokes Coral Group and, after Effective Date, the Combined Group will satisfy all such requirements either on application or on an ongoing basis with a corresponding detriment to their business, financial condition and results of operations where such licences are either not issued or not renewed. Similarly, there is no guarantee that licences will not be terminated early, or that any current tax payable on online gambling activities from the relevant jurisdiction will not increase or onerous obligations be introduced. Furthermore, a failure by the GVC Group or, following the Effective Date, the Combined Group to maintain previously existing licences could increase the possibility of contractual claims being brought against the GVC Group or, following the Effective Date, the Combined Group by its B2B or other partners that may have been adversely affected by such failure. Any of the above events could materially affect the GVC Group’s and, following the Effective Date, the Combined Group’s, business and profitability, as well as cause business disruption if there was a requirement to relocate technical infrastructure and operations to another licensing jurisdiction or respond to contractual claims.
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If any licences or approvals were terminated or not renewed or any such renewals were on less favourable terms, the GVC Directors would need to consider withdrawing from the relevant markets and pursuing alternative revenue streams by seeking licences from other jurisdictions. However, there can be no guarantee that the GVC Group or, following the Effective Date, the Combined Group, would be able to obtain licences or approvals in other jurisdictions or that any such licences or approvals would allow the GVC Group or, following the Effective Date, the Combined Group to offer their services in the jurisdictions currently serviced or be on more favourable terms or that the regulation provided by any such licences or approvals would be as appealing to the GVC Group’s or, following the Effective Date, the Combined Group’s, customers. There can also be no guarantee that any alternative revenue streams will be sufficient to replace lost revenue or will be obtained at all. The business and profitability of the GVC Group, and consequently that of the Combined Group, could be adversely affected by any failure to obtain a renewal of any of these licences or by their early termination or by their renewal on less favourable terms.
Certain activities of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, could be construed as infringing national law prohibitions, whether administrative or criminal in nature, by domestic regulatory and/or prosecutorial authorities where the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group have operations, hold licences or within jurisdictions into which they provide services to customers. In the event that this results in successful prosecutions, these activities could cause licensing authorities in jurisdictions in which the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, holds licences to question the suitability, responsibility and character of officers, directors, and other key personnel. Consequently, such licensing authorities may ultimately revoke the licences issued by such authority in the relevant jurisdiction. Furthermore, a successful prosecution of any entity within the Combined Group in a particular jurisdiction could be grounds for suspension or revocation of licences held by other entities within the Combined Group in that jurisdiction or of licences held in other jurisdictions.
Moreover, where jurisdictions decide to implement changes to open their markets through the adoption of competitive licensing and regulatory frameworks, they may do so in an inconsistent way. Regulatory regimes could evolve in such a way that may impose onerous conditions such as a requirement to locate significant technical infrastructure within the relevant territory or establish and maintain real-time data interfaces with the regulator. Furthermore, the gambling industry remains vulnerable to the adverse cost and operational consequences of inconsistencies between various licensing authorities’ interpretations of legal and regulatory requirements, that flow from different jurisdictions’ general differences in interpreting how to manage risks deriving from matters such as money laundering, fraud, privacy and consumer rights.
In addition, the GVC Group and/or the Ladbrokes Coral Group may be required, as a result of the Acquisition, to seek approval from certain regulators in jurisdictions where it holds licences, either prior to or following Completion and, in the case of the former, in certain jurisdictions, such approvals are not Conditions to Completion. Any failure to obtain such approvals may result in revocation of the relevant licences. Whilst the risks of this exercise not being completed successfully are low, there nonetheless remains a risk that a licence is not maintained or may only be maintained under certain conditions or on more onerous terms, the consequence of which could have a material adverse effect on the business, financial conditions and the profitability of the GVC Group, the Ladbrokes Coral Group or, following the Effective Date, the Combined Group.
2.6 Legacy activities may prejudice the Combined Group’s future suitability for licences The GVC Group and the Ladbrokes Coral Group have (or have acquired businesses or brands which have), in the past, accepted gambling business from customers located in jurisdictions in which they did not hold a licence or from jurisdictions where a licence was unavailable. There is a risk that such legacy activities could, in the future, harm the ability of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group to obtain licences in such jurisdictions to the extent they ever become available. Such jurisdictions could consider such historical activities to
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be illegal or, at best, uncertain as to their legality and, as a consequence, were the GVC Group, the Ladbrokes Coral Group or, following the Effective Date, the Combined Group to seek to obtain a licence or authorisation from the relevant jurisdiction in the future, issues regarding suitability could be raised and “bad-actor” provisions in the relevant legislation and regulations could result in an application being refused. The inability of the GVC Group, the Ladbrokes Coral Group, and following the Effective Date, the Combined Group to obtain licences in any jurisdiction where there is a commercially viable opportunity due to its past activities could have a material adverse effect on the business, financial conditions and the future of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
2.7 The GVC Group and the Ladbrokes Coral Group operate and, following the Effective Date, the Combined Group will operate in a heavily regulated environment and are and will be subject to constantly developing regulatory requirements, failure to adhere to which can lead to enforcement action by relevant regulators The GVC Group and the Ladbrokes Coral Group supply and, following the Effective Date, the Combined Group will supply services subject to a number of licences and authorisations obtained from various regulators and/or licensing authorities around the world. Each such licence is subject to numerous compliance requirements, relating to matters such as anti-money laundering, responsible gambling, data protection, advertising and consumer rights issues. Compliance with such requirements can be incorporated into the relevant licence authorisation as a licensing condition (or similar) with a corresponding requirement for the GVC Group and the Ladbrokes Coral Group and, following the Effective Date, the Combined Group to comply with such requirements.
In the event that such compliance obligations are not met, the relevant regulator may commence enforcement action against the relevant entity with potential adverse consequences. Such enforcement action has, in the United Kingdom particularly, led to significant fines being levied by the UKGC and it is likely that such enforcement initiatives will not only continue but could potentially increase in frequency. To the extent that the GVC Group and the Ladbrokes Coral Group and, following the Effective Date, the Combined Group is affected by such enforcement action in the future, this would have a material adverse effect on its business, financial condition and results of operations. The consequences of such enforcement action could ultimately lead to a revocation of the relevant entity’s licence, or a suspension of that licence and/or the imposition of certain adverse licensing conditions and/or financial penalties.
Furthermore, certain jurisdictions license key management on an individual basis and, to the extent that any compliance shortcomings are evident and ultimately pursued through enforcement actions, there is a risk that certain regulatory sanctions can be imposed against key management of the GVC Group and the Ladbrokes Coral Group and, following the Effective Date, the Combined Group with a corresponding detriment to the operation and, ultimately, the financial performance of the GVC Group and the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
2.8 The gambling industry may become increasingly vulnerable to customer claims As the gambling industry becomes subject to increasing levels of regulatory intervention and such regulatory intervention is broadly discussed in the media, there is an increasing risk that players may seek redress from the GVC Group and the Ladbrokes Coral Group and, following the Effective Date, the Combined Group in relation to their own interactions with the relevant licensed entity, particularly to the extent that entity has been publicly admonished by a regulator for compliance failings or national courts of a certain jurisdiction find the provision of facilities for online gaming and/or betting without a license held in such jurisdiction to be illegal and, as a result of that, online gambling contracts are deemed either null and void or unenforceable.
Through various enforcement initiatives, gambling regulators have sought and continue to seek to ensure that the industry complies with its various regulatory requirements. In doing so, certain regulators, notably the UKGC, have sought to publicise the findings of regulatory investigations to
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assist the wider industry in learning from investigated operators’ shortcomings to assist in the general improvement of the regulatory compliance of the industry as a whole.
To the extent the GVC Group or the Ladbrokes Coral Group or, following the Effective Date, the Combined Group is subject to any such publicity following any regulatory enforcement or court rulings finding the provision of facilities for online gaming and/or betting without a local license to be illegal, then it may become more vulnerable to customers seeking to bring legal actions for purported breaches of a duty of care or on the basis of contracts with customers being considered null and void or unenforceable that caused corresponding detriment to the affected player. The industry as a whole and therefore the GVC Group and the Ladbrokes Coral Group and, following the Effective Date, the Combined Group may be subject to claims as players and their legal advisers seek to make connections between compliance shortcomings or the findings of national courts with regard to the legality of making available facilities for online gaming and/or betting without a local license and the impact on individual customers or groups of customers. Such claims, if brought against the GVC Group, the Ladbrokes Coral Group or, following the Effective Date, the Combined Group, could have a material adverse effect on the business, results of operations, financial condition and prospects of the GVC Group, the Ladbrokes Coral Group or, following the Effective Date, the Combined Group.
2.9 Possibility of a requirement by suppliers to exit or withdraw products from certain markets It is possible that suppliers such as payment processors, banks or software suppliers (or a regulator, as a condition of a licence) could determine that a condition of the continuing use of their products and services (or the continuation of the licence) is that customers from certain territories should be restricted or blocked, such as in the case of the Alliance Gaming Solutions Ltd (Gauselmann Group) and Greentube Internet Entertainment Solutions GmbH (Novomatic Group) in the case of Germany (see also paragraph 2.1(b) above).
The GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group’s business could be adversely affected by third party suppliers taking decisions to restrict or prevent the usage of the supplied software or services in certain jurisdictions, and the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group may experience difficulty finding adequate replacement services on a timely basis and/or at a reasonable price or at all.
This may cause business disruption and loss should the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group either need to switch suppliers at short notice, provide a reduced and thus less attractive offering to its end customers in certain territories or, less likely, discontinue business in certain territories, either permanently or until such time as alternative suppliers have been sourced.
2.10 Dependency of suppliers on the application for, and maintenance of, third party regulatory approvals The GVC Group and the Ladbrokes Coral Group currently use third party software products as the foundation of some of their respective online gambling services. In certain territories, such suppliers are dependent themselves upon local licences or future regulatory changes may require them to obtain licences. The GVC Group and the Ladbrokes Coral Group are reliant on the relevant third party supplier to do all that is necessary to maintain or, where relevant, obtain such licences. Insofar as any of these licences are withdrawn or not maintained on favourable terms or where a supplier fails to apply for or obtain a licence in the future, it could have an adverse effect upon such third party supplier and hence on the continuity of supply to the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group which, in turn, could have a material adverse effect on the financial position of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
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2.11 Dependence on the ongoing support of payment processors, international multi-currency transfers, the quality and cost of which may be variable in certain jurisdictions The GVC Group is currently reliant on payment and multi-currency processing systems to facilitate the movement of funds between each of them and their customer base. Anything that could interfere with its respective relationships with payment service providers would have a material adverse effect on their businesses and, consequently, that of the Combined Group. Any introduction of legislation or regulations restricting financial transactions with online gambling operators or prohibiting the use of credit cards and other banking instruments for online gambling transactions, or any other increase in the stringency of regulation of financial transactions, whether in general or in relation to the online gambling industry in particular, may restrict the ability of the GVC Group and, following the Effective Date, the Combined Group to accept payment from its customers or facilitate withdrawals by them.
Certain governments may seek to impede the online gambling industry by introducing legislation or through enforcement measures designed to prevent customers or financial institutions based in their jurisdictions from transferring money to online gambling operations. They may seek to impose embargoes on currency use, wherever transactions are taking place. This may result in the providers of payment systems for a particular market deciding to cease providing their services for such market. This in turn would lead to an increased risk of payments due to the GVC Group and, following the Effective Date, the Combined Group, being misappropriated, frozen or diverted by banks and credit card companies. There may be a limited availability of alternative systems. As a result, payment systems providers may increase their charges to the GVC Group and, following the Effective Date, the Combined Group or their customers, and/or the GVC Group and, following the Effective Date, the Combined Group may be required to source new payment systems providers of lesser quality and reliability than those providers previously used to service a particular market, which would also enhance the risk of default or delayed payments in circ*mstances where it would be too time consuming and challenging to sue for recovery. The likelihood of any such legislation or enforcement measures is greater in certain markets that seek to protect their state gambling monopolies and/or that have foreign currency or exchange control restrictions. The tightening of money laundering regulations may also affect the speed and convenience of payment processing systems, resulting in added inconvenience to customers. Card issuers and acquirers may dictate how transactions and products need to be coded and treated which also may impact on acceptance rates. Certain card issuers, acquirers, payment processors and banks may also cease to process transactions relating to the (online) gambling industry as a whole or certain operators, such as the GVC Group and, following the Effective Date, the Combined Group, for reputational and/or regulatory reasons or in light of increased compliance standards of such third parties that seek to limit their business relationships with certain industry sectors considered as “high risk” sectors. It may also result in customers being dissuaded from accessing the services of the GVC Group (and, following the Effective Date, of the Combined Group) if they cannot use a preferred payment option or the quality or the speed of the supply is not satisfactory. Any such developments in these or other markets may have a material and adverse effect on the GVC Group’s and, following the Effective Date, the Combined Group’s future financial position.
2.12 Risk that contracted payment processors may service the GVC Group and, following the Effective Date, the Combined Group in a way that increases their legal and regulatory risk Certain providers with whom the GVC Group and, following the Effective Date, the Combined Group contracts for the provision of payment processing may utilise the services of agents and sub-agents, who may operate within certain jurisdictions from where the GVC Group and, following the Effective Date, the Combined Group derive revenues. In circ*mstances where the GVC Group and, following the Effective Date, the Combined Group do not hold local licences in such jurisdictions, there is a risk that the payment processing activities taking place within such jurisdictions contravenes local laws. Given that the GVC Group and, following the Effective Date, the Combined Group is significantly removed from such on-the-ground activities, it does not necessarily have any visibility of how such agents or sub-agents conduct their businesses and, accordingly, whether they do so in a lawful way.
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Whilst the GVC Group and, following the Effective Date, the Combined Group obtain contractual protections as to the legality of all such payment processing activity, where any payment providers do conduct activities that could be construed as illegal in the relevant jurisdiction, this could create a foundation for the GVC Group and, following the Effective Date, the Combined Group ultimately committing a money laundering offence following receipt of the relevant funds (being the funds remitted by the payment processor from the relevant jurisdiction). The risk of any such offence crystallising is remote, not least due to the complexity of any enforcement action that would be required to bring a successful prosecution, which would need to demonstrate the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group had the requisite knowledge or suspicions that the conduct of the relevant payment processor’s agents or sub-agents would also constitute a qualifying criminal offence in the United Kingdom. Nevertheless, in such an unlikely event, the GVC Group and, following the Effective Date, the Combined Group would suffer commercial upheaval and related costs, which would have a material adverse effect on its reputation and/or financial performance.
2.13 The receipt and holding of customer funds could be regarded as a deposit-taking activity, requiring various financial services licences/authorisations Customers of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group are usually required to deposit sums in advance of their participation in the GVC Group’s and, following the Effective Date, the Combined Group’s products and services. In certain jurisdictions, the receipt and holding by the company in question of such funds may amount to “deposit taking”, which requires the recipient of such funds to seek the appropriate financial services authorisation. Moreover, even if it was not regarded as “deposit taking”, an integrated wallet system such as that currently used by the GVC Group and the Ladbrokes Coral Group may require each of them to obtain an e-money issuer’s licence for customer supplies within the EEA, which again would require a form of financial services approval depending on whether the particular offering falls within the limited exemptions of the applicable e-money directives (impacting upon intra-EEA supplies). In order to ensure compliance with any such regulations or to relocate the funds to a different jurisdiction that has not adopted equivalent financial services legislation, the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group would suffer commercial upheaval and related costs, which would have an adverse impact on financial performance.
2.14 Risks may arise in the US due to Sportingbet’s and bwin.party’s historic acceptance of wagers from US resident customers or due to the ongoing technical challenges of blocking US customers, and the US authorities may seek to curb dollar usage Prior to their acquisition by GVC, the Sportingbet Group accepted wagers and operated gambling websites accepting US resident customers, in common with a number of other operators (including PartyGaming Plc and bwin.party Interactive Entertainment AG), until the implementation of the Unlawful Internet Gambling Enforcement Act (“UIGEA”) in 2006. Whilst, according to the US authorities, such supplies were unlawful, this proposition has never been tested at law.
In respect of its historic US business, the Sportingbet Group was able to enter into a non-prosecution agreement with the office of the United States Attorney for the Southern District of New York (“USAO”) in September 2010. The final tranche of a settlement sum of US$33 million was paid in March 2012. Similarly, in April 2009, PartyGaming Plc entered into a non-prosecution agreement with the USAO. As part of that agreement, PartyGaming Plc agreed to pay US$105 million, the final instalment of which was paid in September 2012.
Notwithstanding the non-prosecution agreements, there can be no absolute guarantee that the US federal and state authorities will not seek to revisit the issue through further investigations or prosecutions in the US, given the breadth of their powers and discretion. After the Effective Date, to the extent the Combined Group holds or obtains appropriate US licences, the Combined Group may maintain certain assets in the US, which may increase the risk that US authorities elect to revisit the issue, although the GVC Directors have no reason to believe that the US authorities will do so. Were
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they to do so, this would result in a loss of reputation for the Combined Group, potential loss of revenue and the diversion of management time.
The GVC Group and the Ladbrokes Coral Group block, and will ensure that the Combined Group continues to block, US wagers (save to the extent appropriate licences are held, such as in the State of New Jersey). However, blocking is a fallible process; US resident customers may seek to employ technological workarounds to avoid detection of their US residency. If wagers are inadvertently taken from US residents (for example due to an undetected fraud by a US resident), then they are more likely to lead to enforcement initiatives in the US, as opposed to any other jurisdiction where reasonable attempts to block are not measured in such absolute terms.
In addition, there is a risk that the US authorities might seek to curb any participation by individuals in online gambling in any jurisdiction even if US residents are not participating insofar as there is US dollar usage. Currently, US dollar usage is permitted on the GVC websites, and it is intended to be offered by the Combined Group going forward.
2.15 Compliance with wider laws and regulations In addition to the laws and regulations relating to gambling, the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group may be subject to a wide variety of laws and regulatory requirements as a consequence of its business being multi-national. Non-compliance or deemed non-compliance with any such laws or regulatory requirements could result in serious financial and/or other penalties for the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. Furthermore, gambling operators’ compliance with various laws and regulations can be an obligation also imposed through licensing conditions or similar requirements that are attached to gambling licences they may hold. Compliance with all such laws and regulations (and associated licensing conditions) creates complex regulatory obligations which involves a risk (in not being fully compliant) and additional potential burdens (in being fully compliant).
2.16 Compliance with anti-money laundering legislation The GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group are exposed to risks arising from anti-money laundering and counter-terrorist financing. Each are subject to the requirements of applicable legislation, including, within the EU, the Fourth Money Laundering Directive ((EU) 2015/849) (“MLD4”) which entered into force on 25 June 2015 and was to be implemented by the Member States by 26 June 2017. The GVC Group’s and the Ladbrokes Coral Group each have businesses which fall, and, following the Effective Date, the Combined Group will have businesses which will fall, within the scope of MLD4 (and the proposed amendments to MLD4) and businesses within the Combined Group may be required to comply with the provisions of the relevant implementing legislation in the respective Member States.
The GVC Group and the Ladbrokes Coral Group currently receive deposits and other payments from customers in the normal course of their business. The receipt of monies from customers imposes anti-money laundering and other obligations and potential liabilities on the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. Certain of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Groups’ customers may seek to launder money through their businesses or use stolen funds to gamble. Whilst the GVC Group and the Ladbrokes Coral Group have processes in place regarding customer profiling and the identification of customers’ source of funds, such processes may fail or prove to be inadequate, whether in respect of the source of customers’ funds or otherwise. If the GVC Group, the Ladbrokes Coral Group and/or, following the Effective Date, the Combined Group are unsuccessful in detecting money laundering and/or fraudulent activities, they could suffer loss directly, be subject to civil or criminal sanctions and/or lose the confidence of their customers, which could have a material adverse effect the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group’s business, financial condition and results of operations. Furthermore, the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group
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could also be subject to regulatory enforcement leading to fines or other sanctions which, again, could have a material adverse effect on the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
In addition, in common with other gambling operators, payment of funds back to credit or other cards used (pursuant to applicable card scheme rules) may not be permitted pursuant to the current or future regulations in specific regimes, which also gives rise to the potential for fraud if, for example the card has been stolen or a customer fraudulently claims it has been stolen. Any such failure or inadequacy could have a material adverse effect on the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group’s financial position and impact upon its licensing obligations.
Handling, or any form of facilitating the use of criminal property, is a crime in all jurisdictions in which the GVC Group and the Ladbrokes Coral Group (and, following the Effective Date, the Combined Group) will take material custom. In instances where no local licensing regime is in place, and there is doubt in connection with the legality of the remote supply of gambling services, there is a risk that the authorities will claim that money movements in connection with gambling amounts to money laundering, irrespective of whether the intention is actually to launder money (i.e. to disguise or conceal its provenance), or such funds being considered as proceeds of crime in circ*mstances where the allegedly illegal provision of remote gambling services is prosecuted under criminal law. This gives rise to a risk that when monies are held in (or moved into) certain territories, authorities may seek to freeze their onward payment, trace money movements into different jurisdictions and/or recover the relevant sums. Again, this could give rise to conflicts of law issues (since not all the definitions of what comprises criminal property are identical in all jurisdictions) as what may not amount to money laundering in the UK may nevertheless be treated as money laundering in another territory. There is a risk that should any such claim be brought and be successful, significant funds may have to be repatriated to the jurisdiction bringing a claim, which would have a significant impact on the profitability of the GVC Group or the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. The GVC Directors are not, however, aware of any such action being brought in the UK or in any of the jurisdictions where the GVC Group or the Ladbrokes Coral Group holds any gambling related funds.
Further, in order to comply with legislation implementing MLD4 (as well as with the proposed amendments to MLD4), certain businesses within the GVC Group and the Ladbrokes Coral Group and, following the Effective Date, the Combined Group may be required to expend significant capital or other resources and/or may require certain businesses within the GVC Group and the Ladbrokes Coral Group and, following the Effective Date, the Combined Group to modify internal standards and procedures, their product offering or operations, any or a combination of which could have a material adverse effect on the GVC Group’s, the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s business, financial condition and results of operations.
2.17 The Combined Group’s growth may be hindered by the application of competition regulations The Combined Group will be subject to competition regulation in the UK, which could delay or prevent potential mergers or acquisitions. If future acquisitions are blocked due to competition concerns there could be a material adverse effect to the Combined Group’s business, financial condition and prospects.
Similarly, competition regulation in the UK could hinder its commercial activities in general in the UK. For example, on 21 October 2016, the CMA announced an investigation into online betting and gaming, focusing on potential unfair treatment of customers. If the Combined Group is subject to any investigation by, or sanctions from, the competition authorities in the UK under any current or future competition legislation, there could be a material adverse effect to the Combined Group’s business, financial condition and prospects.
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2.18 Regulation regarding the use of personal customer data The GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group will process personal customer data (including name, address, age, bank details and betting and gaming history) as part of their businesses and, therefore, will be required to comply with strict data protection and privacy laws in all jurisdictions in which they operate. Such laws will restrict the ability of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group to collect and use personal information relating to players and potential players including the marketing use of that information. The GVC Group and the Ladbrokes Coral Group rely (and, following the Effective Date, the Combined Group will rely) on third party contractors and employees to maintain their databases and seek to ensure that procedures are in place to comply with applicable data protection regulations. Notwithstanding such efforts, the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group are exposed to the risk that such data could be wrongfully appropriated, lost or disclosed, or processed in breach of data protection regulations, by or on behalf of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. If the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group or any of the third party service providers on which they rely fail to transmit customer information and payment details online in a secure manner, or if any such loss of personal customer data were otherwise to occur, the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group could face liability under data protection laws. This could also result in the loss of the goodwill of their customers and deter new customers from playing on their sites which could have a material adverse effect on their businesses, financial condition and results of operations. Furthermore, it is possible that laws in various jurisdictions may be introduced or interpreted in a manner which is inconsistent with the existing data processing practices of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, and which could, therefore, have a material adverse effect on them.
2.19 Application and implementation of the GDPR A current example of the regulatory evolution in this area is the General Data Protection Regulation ((EU) 2016/679) (“GDPR”) which entered into force on 24 May 2016 and will apply in all EU Member States from 25 May 2018. The GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group will need to complete organisation-wide reviews (which are underway) to ensure that customer personal data is processed in compliance with the GDPR’s requirements, to the extent that they are applicable, and it may be necessary to expend significant capital or other resources and/or modify operations to meet such requirements, any or a combination of which could have a material adverse effect on the Combined Group’s business, financial condition and results of operations.
The GDPR will increase the territorial scope of the existing EU data protection framework and impose stronger sanctions on those who breach it, amongst other things. It will also change the ways in which personal data is collected and used, requiring data subjects to give unambiguous or explicit consent in some cases and introduce increased enforcement powers, empowering national data protection authorities to impose fines of up to 4 per cent. of annual turnover, or €20 million, whichever is greater. Companies have two years from the date of adoption of the GDPR in April 2016 to implement all necessary changes to their systems and operations in order to meet the new compliance requirements. The GDPR is likely to increase the regulatory burden on the GVC Group, the Ladbrokes Coral Group, and following the Effective Date, the Combined Group in processing personal customer, employee and other data in the conduct of its business and its implementation could give rise to unforeseen compliance costs for the GVC Group, the Ladbrokes Coral Group, and following the Effective Date, the Combined Group. There is also a risk of there being divergence between the procedures that the GVC Group and the Ladbrokes Coral Group have already put in place in response to the GDPR which may result in the businesses within the Combined Group not being fully aligned in their approach to the GDPR by 25 May 2018. Failure by the GVC Group, the Ladbrokes Coral Group, and following the Effective Date, the Combined Group to implement those rules accurately or in time could lead to enforcement action against the GVC Group, the Ladbrokes
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Coral Group, and following the Effective Date, the Combined Group which could result in unexpected costs or losses.
2.20 Enforcement action against B2B customers or partners If regulatory or law enforcement authorities take enforcement or any legal action against the GVC Group’s and, following the Effective Date, the Combined Group’s B2B customers or partners, such as market access partners, software licensees etc, the GVC Group and, following the Effective Date, the Combined Group may be exposed to issues, such as reputational damage, supply issues with regard to its own B2C offering, contractual liability or claims of aiding and abetting. In addition, such enforcement action could reduce demand for B2B product offerings.
2.21 A Shareholder owning 10 per cent. or more of the Ladbrokes Coral Shares and, following the Effective Date, GVC Shares who is found by the Nevada Commission or Nevada Board to be unsuitable could be guilty of a criminal offence if they continue to hold Ladbrokes Coral Shares and, following the Effective Date, GVC Shares and GVC could be subject to disciplinary action if it continues to interact with that shareholder Due to the indirect controlling ownership interest held by Ladbrokes Coral in Stadium Technology Group, LLC, Ladbrokes Coral is, and therefore, following the Effective Date, the Combined Group will be, subject to the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, the “Nevada Act”) and various local regulations. As a company registered with the Nevada Gaming Commission (the “Nevada Commission”), Ladbrokes Coral is subject to the licensing and regulatory control of the Nevada Commission, the Nevada State Gaming Control Board (the “Nevada Board”) and various county and city licensing agencies.
Stadium Technology Group, LLC, creates and supports software and technology for race books and sports pools and is licensed by the Nevada Commission as a gaming manufacturer, distributor and information service provider. Ladbrokes Coral has been licensed or found suitable as an indirect controlling owner of the gaming licensee and has also been separately approved by the Nevada Commission as an information service provider.
Under the Nevada Act, any beneficial holder of Ladbrokes Coral Shares and, following the Effective Date, GVC Shares, regardless of the number of such shares owned, may be required to file an application, be investigated, and have his or her suitability as a beneficial holder of the Ladbrokes Coral Shares and, following the Effective Date, GVC Shares determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. The Nevada Act also requires any person who acquires more than 5 per cent. of the Ladbrokes Coral Shares and, following the Effective Date, GVC Shares to report the acquisition to the Nevada Commission. Furthermore, under the Nevada Act, beneficial owners of more than 10 per cent. of the Ladbrokes Coral Shares and, following the Effective Date, GVC Shares are required to apply to the Nevada Commission for a finding of suitability within 30 days after the chairman of the Nevada Board posts a written notice requiring such filing.
Any person who fails or refuses to apply for a finding of suitability or a licence within 30 days after being ordered to do so by the Nevada Commission or the chairman of the Nevada Board may be found to be unsuitable. Any Ladbrokes Coral Shareholder and, following the Effective Date, any GVC Shareholder found to be unsuitable, either due to a failure to apply for a finding of suitability or otherwise, and who holds, directly or indirectly, any beneficial ownership of Ladbrokes Coral Shares or, following the Effective Date, any GVC Shares beyond such period of time as may be prescribed by the Nevada Commission, may be guilty of a criminal offence. In addition, Ladbrokes Coral, or, following the Effective Date, GVC, may be subject to disciplinary action if, after it receives notice that a person is unsuitable to be a Ladbrokes Coral Shareholder or a GVC Shareholder or to have any other relationship with Ladbrokes Coral or, following the Effective Date, the Combined Group, or Stadium Technology Group, LLC, it or Stadium Technology Group, LLC: (i) pays that person any dividend or interest upon any Ladbrokes Coral Shares or, following the Effective Date, any GVC Shares; (ii) allows that person to exercise, directly or indirectly, any voting right conferred through
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securities held by that person; (iii) pays remuneration in any form to that person for services rendered or otherwise; or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his or her Ladbrokes Coral Shares and, following the Effective Date, GVC Shares including, if necessary, the immediate purchase of the voting securities for cash at fair market value. Such disciplinary action could include fines or suspension of Ladbrokes Coral’s and, following the Effective Date, GVC’ and/or Stadium Technology Group, LLC’s licences. The occurrence of any of the foregoing could have a material adverse effect on the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s business, financial condition and results of operations.
2.22 Any incident that raises concerns over the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s health and safety regime could have a material adverse reputational and financial impact on the Ladbrokes Coral Group and, following the Effective Date, the Combined Group The Ladbrokes Coral Group is subject to, and, following the Effective Date, the Combined Group will be subject to, the health and safety requirements that are in place in the countries in which they operate. As a result, the Ladbrokes Coral Group operates a health and safety programme (which the Combined Group will maintain and develop following the Effective Date) which aims to, among other things, safeguard employee wellbeing and ensure that employees interact safely with customers. Any failure in health and safety performance which results in a major or significant health and safety incident is likely to be costly in terms of potential liabilities incurred as a result of that incident including any potential civil or criminal claims against the Ladbrokes Coral Group, the Combined Group, the GVC Directors and/or the Proposed Director, as applicable. Such a failure could generate significant adverse publicity and have a material adverse impact on the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s reputation, which in turn could materially adversely affect the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s business, prospects, financial condition and results of operations.
3. RISKS RELATING TO THE GAMBLING INDUSTRY 3.1 Uncertainty regarding the Triennial Review The UK’s Department for Culture, Media and Sport announced a review of gaming machines and social responsibility measures on 24 October 2016, which has been supplemented by a further consultation procedure which was announced on 31 October 2017 (the “Triennial Review”). The UK Government’s stated objective of the Triennial Review is to look across the industry to determine what, if any, regulatory changes are needed to strike the right balance between socially responsible growth in the gaming industry and the protection of consumers and wider communities. As part of the Triennial Review, the UK Government has asked parties with an interest in the way in which gambling is regulated in Great Britain to provide their views on: (i) maximum stakes and prizes for all categories of gaming machines permitted under the Gambling Act; (ii) the appropriate allocations of gaming machines permitted in LBOs; and (iii) social responsibility measures to minimise the risk of gambling related harm across the industry as a whole, including gaming machines. The consultation closed at midday on 23 January 2018 (as at the Last Practicable Date its outcome is unknown). The UK Government has indicated it will also specifically review, and consider views on, gambling advertising to understand whether the existing measures ensure that the young and vulnerable are protected. As at the date of this document, the GVC Group does not operate any LBOs, but the Ladbrokes Coral Group operates approximately 3,500 LBOs across England, Scotland and Wales.
Depending on the findings of the Triennial Review, the UK Government may decide to make changes to the laws or regulations applicable to the business of the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, including the laws and regulations applicable to FOBTs, in particular lowering the maximum stake from the current £100 to between £50 and £2; the maximum number of FOBTs per LBO; the minimum time period for completion of a particular game cycle on a FOBT; and/or the advertisem*nt of betting and gaming activities and/or other social responsibility measures. Whilst the consideration structure for the Acquisition (specifically, the CVRs) takes into
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account a range of outcomes under the Triennial Review, with the purpose of mitigating GVC Shareholders’ exposure to this risk in the context of the Acquisition, any such changes could have a material adverse effect on the Combined Group’s business, financial condition and results of operations. In particular, and without limiting the generality of the foregoing, the GVC Directors anticipate that a reduction to the maximum stake which may be wagered on a particular game cycle on a FOBT will result in a general loss of revenues within LBOs, and therefore a general reduction in the profitability of LBOs. It is anticipated that this loss of revenues and reduction in profitability will result in a number of LBOs across the gaming industry being forced to close (with such number of closures being correlated to the reduction in maximum stake, with a lower maximum stake likely to result in a higher number of LBO closures). Whilst the impact of such reduction in maximum stakes may be mitigated in certain respects (including, for example, customers who stop using, or increase their use of, online gaming products offered by the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, the GVC Directors anticipate that it will not be possible for the UK retail gaming industry (including the Ladbrokes Coral Group) to mitigate the impact of such reduction in maximum stakes so as to avoid LBO closures. It is therefore anticipated that a reduction in maximum stakes will result in a number of LBO closures (with the number of such closures not being ascertainable until the point at which the outcome of the Triennial Review is known). Therefore, any such reduction in maximum stake is likely to result in a number of LBO closures, which may have a material adverse effect on the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s business, financial condition and results of operations.
3.2 Risks in respect of gaming machines in Scottish premises The Scotland Act 2016 has given the Scottish Parliament the power to regulate the number of gaming machines that a betting premise licence (issued on or after (24 May 2016) authorises the licence holder to make available on the site to which that licence relates. These powers only apply to licences issued from (24 May 2016) onwards and only apply to gaming machines for which it is possible to stake more than £10 in respect of a single game (presently only gaming machines offering B2 content (for more detail, see section B of Part 2 of this document) and do not apply to betting premise licences that were issued before 24 May 2016. However, this change could impact the number of gaming machines permitted on new betting premises in Scotland.
3.3 The business of the Combined Group will be subject to competitive pressures The Combined Group’s activities will be subject to competition in the geographic areas in which it operates. Competitors may be international, national, regional or independent operators. The Combined Group may also face increased competition from others in the leisure market with greater financial resources or which undertake an aggressive pricing policy. To this end, there can be no assurance that the Combined Group will be able to compete successfully in the market in which it operates. If the Combined Group is unable to compete effectively with its competitors that could have a material adverse effect on the Combined Group’s business, financial condition and prospects.
3.4 Uncertainty regarding the compatibility of EU Member State regulatory regimes with EU law and the risk that the legal arguments that the GVC Group and the Ladbrokes Coral Group currently use and, following the Effective Date, the Combined Group will use to supply services into certain EU Member States may fail if tested or, at least, be challenged The GVC Group and the Ladbrokes Coral Group permit, and following the Effective Date, the Combined Group will permit, customers in many EU Member States to access various gambling products provided by the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, through their entities licensed in Gibraltar and Malta.
EU Member States retain the right to impose restrictions deemed necessary to address illegal online gambling and protect their consumers. However, gambling legislation of Member States needs to comply with the basic rules and freedoms provided by the TFEU, including the EU market freedoms stipulated by the TFEU and in particular the freedom to provide services pursuant to Article 56 of the TFEU. The compliance of national legislation with the principles set out in the TFEU is (at least in
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part) ensured by the European Commission, which can initiate infringement proceedings against incompliant Member States and eventually refer such Member States to the ECJ. The infringement proceedings are the principal measure through which the European Commission can apply pressure on Member States to amend national legislation that is not compliant with EU law.
Since 2006, the European Commission has initiated infringement proceedings against a substantial number of Member States for imposing restrictions in their gambling markets in violation of the TFEU and ECJ settled case law.
As a general rule, the launch of formal infringement proceedings by the European Commission against an EU Member State and/or the enactment or maintenance by a Member State of laws that purport to conflict with established tests and principles laid down in ECJ case law provides remote gambling operators with a legal justification to supply their services in that Member State in reliance on their licence(s) issued by another Member State (e.g. Malta and Gibraltar, the principles of the EU market freedoms applying to the latter by virtue of Article 355(3) TFEU). This is on the basis that, where a Member State’s national legislation violates EU law, operators of gambling services (appropriately licensed elsewhere in the EU) may legitimately rely on the freedom to provide services to do so. Further and in accordance with consistent ECJ case law, in such cases, national legislation is not applicable to the cross-border supplies being made (and, as a consequence, must, in principle, not be enforced against an operator licensed in another EU Member State). Instead, the EU market freedoms directly apply to the cross-border supply due to the supremacy of EU law.
On 7 December 2017, the European Commission formally announced its “closure of all infringement proceedings and complaints in the gambling sector”, calling into question remote gambling operators’ reliance on the Commission’s enforcement action to underpin their rationale for continued supply. The Commission’s press release suggested the decision was politically driven, being “in line with its political commitment to be more strategic in enforcing EU law, the European Commission has today decided to close its infringement procedures and the treatment of complaints in the area of gambling”.
The closure of the infringement proceedings does not necessarily undermine the position at law. In territories where doubts with regard to the compatibility of national legislation with EU law exists, an operator’s legal justification to supply remains valid in reliance on ECJ settled case law and Article 56 TFEU itself, irrespective of the Commission’s decision to prioritise its enforcement efforts in other sectors.
Moreover, the jurisprudence of the ECJ continues increasingly to recognise that EU Member States may, subject to certain conditions, restrict the provision of online gambling products by operators licensed in other EU Member States, and if EU Member States take corresponding action to implement such restrictions within their own territory, this may adversely affect the ability of the Combined Group to permit customers in a given EU Member State to access one or more of the products of the Combined Group and to engage in certain types of marketing activity and customer contact in case the Combined Group does not hold local licenses in such EU Member State.
The impact of Brexit and the potential loss of availability of EU incompatibility arguments by Gibraltar-licensed operators is detailed further in paragraph 5 below.
3.5 Changes to tax legislation and its interpretation and application The GVC Group and the Ladbrokes Coral Group currently operate and, following the Effective Date, the Combined Group will operate in many jurisdictions. Profits of the Combined Group will be taxed according to the tax laws of such jurisdictions as well as the jurisdictions in which members of the Combined Group are resident for tax purposes. The Combined Group’s effective tax rate may be affected by changes in, or changes in the interpretations of, tax laws in any given jurisdiction, and changes in the geographical allocation of income and expense. The Combined Group’s effective income tax rates will not necessarily be the same as the effective income tax rates of the GVC Group or the Ladbrokes Coral Group.
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In addition to the direct and indirect taxes that apply to businesses operating in a number of sectors, the GVC Group and the Ladbrokes Coral Group are currently, and following the Effective Date the Combined Group will be, subject to special gambling taxes, duties and levies (“Gambling Duties”) in many of the jurisdictions in which they operate. If the rates of such Gambling Duties were to be increased, or if the “tax base” of such Gambling Duties were to be widened (for example, as a result of changes to the duty treatment of “free bets”, “free plays”, “bonus credits” or non-stake amounts received by operators such as account management fees; or as a result of a move from a “gross profits” basis of taxation to a turnover basis, or from a “place of supply” basis to a “place of consumption” basis), if there was a change in the interpretation or application of existing Gambling Duties by tax authorities in any of the jurisdictions in which the Combined Group operates, or if new Gambling Duties are enacted, then this may have a material adverse effect on the overall tax burden borne by the Combined Group.
As described in paragraph 3.6 below, on 25 January 2018, GVC announced that one of its subsidiaries had received a tax assessment notice in which the Greek tax authorities stated that the GVC Group was assessed to owe €186.77 million of additional Gambling Duties in Greece in respect of the 2010 and 2011 tax years. Although the GVC Group is appealing this assessment, if similar changes to the interpretation or application of Greek Gambling Duties were to occur in respect of other periods, this may have a material adverse effect on the overall tax burden borne by the Combined Group.
Most supplies of gambling services are exempt from VAT in countries which are members of the EU pursuant to certain provisions of the Directive 2006/112/EC (the “Principal VAT Directive”), but EU Member States may impose conditions and limitations on the exemption. In addition, different EU Member States interpret the scope of these exempting provisions differently. As such, the VAT treatment of supplies of gambling services to customers in EU Member States is liable to change. Any such changes may increase the cost of gambling for customers of the GVC Group, which may reduce the attractiveness of online gambling for those customers, or may increase the overall tax burden borne by the Combined Group.
If jurisdictions where gambling winnings are currently not subject to tax, or are taxed at low rates, were to begin to impose taxes, or increase the applicable rates of tax, on winnings, or impose a tax withholding or reporting obligation on operators in respect of winnings paid out to customers in the relevant jurisdictions, online gambling might become less attractive for customers in those jurisdictions, which in turn might have a material adverse effect on the Combined Group’s business.
If any company within the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group is found to be, or have been, tax resident in any jurisdiction other than the jurisdiction(s) in which that company is currently thought to be (or, as relevant, to have been) tax resident, or is found to have, or to have had a permanent establishment in any jurisdiction other than the jurisdiction(s) (if any) in which that company is currently thought to have (or, as relevant, to have had) permanent establishment (whether on the basis of existing law or the current practice of any tax authority or by reason of a change in law or practice), this may have a material adverse effect on the amount of tax (including VAT) payable by the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
3.6 Greek tax assessment On 25 January 2018 GVC announced that one if its subsidiaries, Sportingodds Limited (“SPODDS”), had received a tax audit assessment notice (the “Assessment”) from the Greek Audit Centre for Large Enterprises (the “Authority”) in respect of fiscal year 2010 and 2011 (the “Period”). During the Period SPODDS was owned by Sportingbet, prior to the acquisition of Sportingbet by GVC in 2013.
The total amount of the Assessment is €186.77 million. The Assessment claims that Greek corporate income tax, Greek gaming tax and withheld player winnings tax plus significant surcharges are owed by SPODDS to the Authority. The total Assessment amount is substantially higher (by a number of multiples) than the total Greek revenues generated by SPODDS during the Period.
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Based on the advice received by SPODDS from its Greek tax advisers, the GVC Board believes that SPODDS has strong grounds to appeal the Assessment. An appeal was filed by SPODDS with the Authority on 29 January 2018 (the “Lodged Appeal”).
The basis of the Lodged Appeal centred on Greece’s lack of taxing rights, the method of calculation of the corporate income tax, gaming tax and customer winning withholding tax liability of SPODDS, the obligation to report and pay customer winnings withholding tax and whether the Greek rules respect the EU legal framework.
The appeal process is expected to be conducted through the Greek courts and may take several years to complete if the appeal process has to be exhausted.
SPODDS is currently in discussions with the Authority to enter into a payment scheme, whereby funds are paid to the Authority and held on account of the Assessment. Under the scheme SPODDS would pay to the Authority approximately €7.8 million a month over a 24 month period (the “Payment Scheme”). Entering into the Payment Scheme is not an admission that the Assessment is correct. SPODDS will seek to recover such payments from the Authority. The benefits of the Payment Scheme are that it ensures that the Greek authorities cannot seize the assets of SPODDS situated in Greece preventing it from operating and reduces the risk of any criminal proceedings in Greece in connection with the Assessment being successful against the current and former directors and Greek representatives of SPODDS. SPODDS is seeking to agree the terms of the Payment Scheme within the three week period following the date of this document.
If SPODDS cannot or does not enter into the Payment Scheme which it is seeking to agree with the Authority (or another form of payment scheme, for example the payment to the Authority of approximately £15.6 million a month over a 12 month period, a payment scheme which is currently available to SPODDS) and does not pay the amount of the Assessment pending completion of the Lodged Appeal, SPODDS will be exposed to the risks of criminal proceedings and asset seizure referred to above.
The GVC Board strongly disputes the basis of the Assessment calculation, believing the assessed quantum to be inaccurate and is confident in the grounds of appeal. However, considering that SPODDS has now implemented a potentially lengthy appeal process, the GVC Board is considering either including a provision of up to approximately €200 million in GVC’s 2017 financial accounts to cover the Period and up to the end of 2017 (the “Provision”) or treating it as a contingent liability with appropriate disclosure.
In the event that SPODDS is wholly or partially unsuccessful with its Lodged Appeal, it is likely that SPODDS will need to pay all or part of the Assessment (which includes surcharges), less any amounts already paid under the Payment Scheme. To the extent that such payment is material, this may have a material adverse effect on the financial condition or results of operations of the GVC Group’s and, following the Effective Date, the Combined Group’s business. If such Assessment is not paid, then SPODDS may have its Greek (and potentially any EU) assets seized by the Greek authorities, which would result in it having to cease operations and wind up its business. The former and present directors and Greek representatives of SPODDS may also have their Greek (and potentially any EU) assets seized by the Greek authorities, and may also be subject to criminal proceedings in Greece.
3.7 Historic VAT risk The Combined Group may face potential exposure to historic VAT liabilities resulting from uncertainties about whether VAT is due in respect of historic supplies of gambling products by members of the GVC Group and the Ladbrokes Coral Group to customers in certain EU Member States and, if so, the tax base to be applied in determining the amount of VAT that is due on the relevant supplies (as noted in paragraph 3.5 above, the article in the Principal VAT Directive which exempts gambling services for VAT purposes permits EU Member States to impose conditions and limitations with regard to the availability of the exemption, such that VAT is, or may become, chargeable in respect of certain supplies of gambling services in certain EU Member States).
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Since the place of supply of, and therefore the applicable VAT regime in respect of supplies of remote gambling (to the extent that they fall within the definition of “electronically supplied services”) by the GVC Group and the Ladbrokes Coral Group to EU resident consumers is the EU Member State in which such consumers belong, the applicable VAT regime in relation to any particular supply can be uncertain.
There is also uncertainty regarding the tax base on which VAT should be calculated on betting and gambling products which are not VAT exempt. Article 73 of the Principal VAT Directive provides that VAT is chargeable on the consideration obtained by the supplier in return for the supply. In the context of gambling transactions, determining what constitutes the consideration obtained by the supplier in return for the supply presents significant difficulties. Guidance issued by the tax authorities and jurisprudence emanating from the courts of different EU Member States on this question is varied but the current position taken by certain tax authorities is that VAT may, indeed, be payable by online gambling operators in relation to their historical activities. Were such tax authority of an EU Member State ultimately to be successful in any future pursuit of the Combined Group for VAT (or other duties or taxes) arising from remote gambling services, this could have a material adverse effect on the financial position and results of the Combined Group.
Certain EU Member States have published guidance stating that the VAT liability of non-exempt gambling services is calculated based on Net Gaming Revenue. If, for example, the tax authority of an EU Member State which currently levies VAT based on net gaming revenue arising from remote gaming services were to indicate that VAT should be calculated based on gross stakes, with retrospective effect, the Combined Group could potentially be the subject of an assessment for a substantial amount of historic VAT.
3.8 Vulnerability to player fraud The online gambling industry can be vulnerable to customer collusion and fraud. For example, collusion can be effected between online poker players adopting sophisticated computer programmes to play games automatically or by “chip dumping” (depositing and losing money against another colluding customer in an attempt to launder money). The GVC Group and the Ladbrokes Coral Group have implemented a variety of detection and prevention controls to try to remove any opportunities for fraudulent play, but are aware of the need to monitor continually and develop such protections. If the GVC Group, the Ladbrokes Coral Group or, following the Effective Date, the Combined Group, fail to detect instances of collusion and other fraud, affected customers may experience increased losses and the GVC Group the Ladbrokes Coral Group, or, following the Effective Date, the Combined Group, could directly suffer loss or lose the confidence of its customer base, which could have a material adverse effect on their or its business, financial position and results of operations.
3.9 Risk of significant losses with respect to individual events or betting outcomes The fixed-odds betting products of the GVC Group and the Ladbrokes Coral Group involve betting where winnings are paid on the basis of the stake placed and the odds quoted, rather than derived from a pool of stake money received from all customers. A bookmaker’s odds are determined with the objective of providing an average return to the bookmaker over a large number of events and therefore, over the long term, the gross win percentage for the GVC Group and the Ladbrokes Coral Group has remained fairly constant. However, there can be a high level of variation in gross win percentage event-by-event and day-by-day. Both the GVC Group and the Ladbrokes Coral Group have systems and controls in place which seek to reduce the risk of daily losses occurring on a gross-win basis, but there can be no assurance that these will be effective in reducing their exposure, and consequently the exposure of the Combined Group to this risk following the Effective Date. As a result, in the short term, there is less certainty of generating a positive gross-win and the Combined Group may experience (and the GVC Group and the Ladbrokes Coral Group have from time to time experienced) significant losses with respect to individual events or betting outcomes, in particular if large individual bets are placed on an individual event or betting outcome or series of events or betting outcomes. In circ*mstances where odds compilers and risk managers are capable of human error, then even allowing for the fact that a number of sports betting products are subject to capped pay-outs,
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significant volatility can occur. Also, there may be such a volume of trading at any particular period of time that even automated systems would not be able to address and eradicate all risks. Any significant losses on a gross-win basis could have a material adverse effect on the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group’s cashflows and therefore a material adverse effect on their or its business, financial condition and results of operations. In addition, if a jurisdiction where it holds or wishes to apply for a licence imposes a high turnover tax for betting (as opposed to a gross-win tax), this too would impact profitability, particularly with high value/low margin bets and likewise have a material adverse effect on the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group’s business.
In online casino, operator losses are limited per stake to a maximum return. When looking at bets across a period of time, operator losses can potentially be larger in the short term, although in practice, this does not happen quickly and thus mitigating action can be taken by the Combined Group. Given the high volume of the business and the statistical gross win margin embedded within all casino games, major operator losses are infrequent over long periods.
While systems and controls are implemented by the GVC Group and the Ladbrokes Coral Group and, following the Effective Date, will be implemented by the Combined Group, to monitor and manage such risk, there can be no assurance that these systems and controls will be effective in reducing the exposure to this risk. The effect of future fluctuations and single event losses could have a material adverse effect on the cashflows and therefore a material adverse effect on the business, results of operations, financial condition and prospects of the Combined Group.
3.10 Progressive jackpot wins may reduce income and profitability GVC’s CasinoClub business does not participate in a network progressive jackpot scheme. Instead, it offers an equivalent system in which only its own customers participate. This means that CasinoClub makes no contributions to the central fund as it builds up (since it is the only operator in the scheme, this would serve no purpose), and that if a CasinoClub customer wins the progressive jackpot there is no central fund to cover the pay-out. Accordingly, the cost of this would be taken directly to the income statement in the period in which it would be won with a consequential adverse effect on the financial condition of the GVC Group and, following the Effective Date, the Combined Group. Statistically, the likelihood of jackpot wins above €500,000 is extremely low, as is borne out by the fact that there were no jackpot wins above €499,000 for the twelve months preceding 31 December 2018. A jackpot on any slot game is a sum of €100,000 or above and in the period 1 January 2017 to 31 January 2018 only 5 winners won over €100,000. Therefore, the algorithms of the slots games are such that the number of high winners overall is low, but since the winning is underpinned by a random mechanism, one cannot predict with absolute certainty when a jackpot will be won.
3.11 Sports betting operations are subject to sports schedules The sports betting operations of the GVC Group and the Ladbrokes Coral Group are subject to the seasonal variations dictated by the sporting calendar, which will have an effect on their businesses’ financial performance and, following the Effective Date, the financial performance of the Combined Group. A significant proportion of the GVC Group and the Ladbrokes Coral Group’s current sports betting revenue is generated from bets placed on European football, which has an off-season in the summer that can cause a corresponding temporary decrease in their respective revenues. The GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group’s ability to generate revenues is also affected by the scheduling of major football events that do not occur annually, notably the FIFA World Cup and UEFA European Championships. In addition, the ability to generate revenue will be dependent on the progression and results of certain teams within specific tournaments and the failure of such team to progress, or adverse results of such teams, may have adverse consequences on the financial performance of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
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Cancellation or curtailment of significant sporting events, for example due to adverse weather, traffic or transport disruption or civil disturbances, terrorist attacks or the outbreak of infectious diseases, or the failure of certain sporting teams to qualify for sporting events, may adversely impact the business, financial condition and results of operations of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group for the relevant period.
3.12 Payments to sporting bodies or event rights holders The GVC Group and the Ladbrokes Coral Group are, and following the Effective Date, the Combined Group will be, subject to certain financing arrangements intended to support industries from which they profit, including the statutorily imposed Horserace Betting Levy in the UK, which is intended to support the British horse racing industry.
The GVC Group and the Ladbrokes Coral Group are, and following the Effective Date, the Combined Group will be vulnerable to the ongoing development of intellectual property laws and/or political/legislative/regulatory developments that may see further liability to pay royalties or other types of levy to the organisers of sporting events or data right owners which arise from the concept of the so-called “right-to-bet”, where the organisers of sporting events and competitions and those claiming to have data rights in relation to such events seek to obtain a share of the revenue gambling operators generate on such events and competitions. In all such cases, the level of any such levy, fee or royalty will be outside the control of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. Neither the GVC Group nor the Ladbrokes Coral Group nor, following the Effective Date, the Combined Group can predict with any certainty what further payments may be required in the future and what other additional resources may need to be made available to address the conditions on which fees, royalties or other levies may be imposed, as well as sports integrity issues.
3.13 Reliance on third party software suppliers and other technology suppliers The GVC Group’s and the Ladbrokes Coral Group’s business and technology systems and platforms currently depend on a variety of software and payment processing services from third parties. If there is any interruption to the products or services provided by these software and payment providers or their products or services are not as scalable as anticipated or at all, or if there are problems in upgrading such products or services, the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group’s business could be adversely affected, and the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group may be unable to find adequate replacement services on a timely basis or at all and/or at a reasonable price. Moreover, customers are discriminating about the nature of the products offered and, if any of the third parties referred to above, or any other third party service provider of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group do not provide new and improved products on a regular basis, the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group may lose market share.
There is a risk that if the contracts with such third parties are terminated and not renewed, or not renewed on favourable terms, or if such third parties do not provide the level of support (in terms of updates and technical assistance) they require as they grow, this will have a materially adverse effect upon the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group’s financial condition and performance.
The GVC Group and the Ladbrokes Coral Group are dependent upon such software suppliers defending any challenges to their intellectual property. Any litigation that arises as a result of such a challenge could have a material impact upon the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group’s business and, even if legal actions were successfully defended, disrupt their business in the interim, divert management attention and result in significant cost and expense for the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
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The GVC Group and the Ladbrokes Coral Group rely on broadband providers, communications carriers, data centres and other third parties for key aspects of the process of providing products and services to their customers. Some of these service providers operate from countries where the relevant service provision is not well developed. Any failure or interruption in the services and products provided by these third parties could restrict the ability of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group to operate certain of their or its businesses, which could in turn have a material adverse effect on their or its financial position. In addition, a number of the existing contracts of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group with third party suppliers are of a long-term nature. There may be circ*mstances in which the Combined Group wishes to terminate its arrangements with such suppliers due to poor performance or other reasons but is unable to do so. Any such circ*mstance may have a material adverse effect on the reputation, business, financial condition and results of operations of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
The provision of convenient, trusted, fast and effective payment processing services to customers and potential customers of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group is critical to its business. If there is any deterioration in the quality of the payment processing services provided to its customers or any interruption to those services, or if such services are only available at an increased cost to the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group or its customers, or if such services are terminated and no timely and comparable replacement services are found, customers and potential customers of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group may be deterred from using its products. Whilst the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group employs the services of a broad range of payments suppliers, the failure of any one or more of these third parties to fulfil its or their obligations to the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group may cause significant disruptions to the operations of the business and have a material adverse effect on the business, results of operations, financial condition and prospects of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
3.14 Negative publicity surrounding the gambling industry The gambling industry is at times exposed to negative publicity, including in relation to the use of gaming machines in LBOs, problem gambling, gambling by minors and gambling online. Publicity regarding problem gambling and other concerns with the gambling industry, even if not directly connected to the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group could have a material adverse effect on their business, financial condition and results of operations. If the perception develops that the gambling industry is failing to address such concerns adequately, the industry may be subject to increased regulation, imposition of compulsory levies to fund research into and assistance for compulsive gamblers and/or taxation.
3.15 Activities of marketing affiliates could damage the Combined Group’s brands or give rise to legal or regulatory issues In common with other operators within the online gambling industry, the GVC Group and the Ladbrokes Coral Group seek and, following the Effective Date, the Combined Group will seek, to benefit from the marketing capabilities of a large number of website owners and other persons by entering into arrangements for marketing services with such persons.
Gambling operators are under increasing scrutiny from certain authorities (including the UKGC) in relation to their relationships with, and oversight of, marketing affiliates. Whilst the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group seek to ensure that all suppliers adhere to a series of contractual obligations, it is difficult to ensure that affiliate marketers ethically source data and comply with other controls placed on them. It is also difficult to ensure that advertising codes are adhered to as well as ensuring that only appropriate age groups or demographics are targeted, even if there is no scope to open accounts (where someone underage or excluded could
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not proceed to play for real money). Failures by marketing affiliates may be cause a breach of the licences held by the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. Marketing affiliates may also use intellectual property such as brand names and copyright materials improperly and this cannot always be prevented by the GVC Group, the Ladbrokes Coral Group and from the Effective Date, the Combined Group.
Notwithstanding that the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group will continue to exercise caution in the marketing affiliates with which they will work, maintain appropriate guidelines and undertake certain monitoring activity, there remains a risk that the actions of such marketing affiliates could give rise to reputational, legal or regulatory issues which could impact negatively on the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, as well as lead to increased scrutiny from regulators, particularly in relation to licences held by the Combined Group.
3.16 Dependence on the continued popularity of online gambling Online gambling has become a popular phenomenon and the success of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group is and will be dependent on its continued popularity. The online gambling industry is highly competitive and the Combined Group will need to develop other online gambling products and services that will continue to attract and retain a broad range of customers. As a result, the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group must continue to invest significant resources in research and development in order to enhance their website, technology and existing products and services and introduce new high-quality products and services that will appeal to customers across a wide range of platforms, including mobile phones and tablets, and to appeal to a broader demographic. If the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group are unable to predict user preferences or industry changes, or if they are unable to modify products and services on a timely basis, they may lose customers and marketing affiliates; their operating results would also suffer if their innovations are not responsive to the needs of customers or are not appropriately timed with market opportunity or are not effectively brought to market. As technology continues to develop, the competitors of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group may be able to offer products that are, or that are perceived to be, substantially similar to or better than those of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group resulting in a loss of customers to those competitors with a corresponding impact on their financial condition and results of operations.
3.17 Payment default by customers The GVC Group and the Ladbrokes Coral Group are subject to risks of payment default by customers. Chargebacks on credit cards occur when the cardholder seeks to reverse a card transaction due to a challenge to the validity of a transaction. Typical reasons for such action include: (i) the unauthorised use of a cardholder’s details; or (ii) a cardholder’s claim that a merchant failed to perform. In the business of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, there is and will be the possibility of customers seeking to reverse a losing stake by falsely claiming that they did not authorise the use of their credit card. The risk of such chargeback transactions is greater in respect of certain markets and certain payment methods. Investors should be aware that if the chargeback rates of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group become excessive, credit card associations could levy additional costs and fines or withdraw their service. The GVC Directors place great emphasis on proper procedures to control chargebacks. Whilst both GVC and Ladbrokes Coral have good track records in managing these risks, the rate of chargebacks experienced is difficult to predict and will, to some extent, be out of the control of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
In addition, the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group are also exposed to the risk that receipt of deposits through automated clearing
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houses is sometimes rejected, resulting in default of payment by customers. Typical reasons for rejection of the transactions are: (i) that the account from which the payment instruction is made has insufficient funds to make the payment (this could arise where the customer is unaware that they have insufficient funds or it could be a fraudulent attempt to abuse the deposit clearing period by attempting to use the deposit to win sufficient money to pay up the account before the clearing period ends); (ii) the unauthorised use of an account holder’s details; or (iii) a false claim of unauthorised use by a customer seeking to reverse a losing stake. The GVC Group and the Ladbrokes Coral Group currently have measures in place to monitor and prevent such instances of default of payment by customers arising. However, there can be no assurance that these efforts will be successful for them or, following the Effective Date, for the Combined Group, and as a result their business and profitability may be adversely affected by customers’ payment defaults.
3.18 Significant adverse effect of falls in revenue on the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s profitability owing to relatively high fixed cost base as a proportion of its total costs The Ladbrokes Coral Group has, and, following the Effective Date, the Combined Group will have, a relatively high fixed cost base as a proportion of its total costs, consisting primarily of staff and rental costs associated with its betting shop estate, despite the significant opportunities for cost and revenue synergies created by the Acquisition. Such costs have recently been increased by the introduction of the UK national living wage and by the commitment of the Ladbrokes Coral Group to move to single person operation of an LBO as a voluntary only policy in the evenings. This relatively high fixed cost base means that the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s profitability is exposed to any decrease in revenue if the Ladbrokes Coral Group and, following the Effective Date, the Combined Group is unable, in the short to medium term, to reduce its costs substantially to mitigate the effect of any significant falls in revenue or profit. Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s profitability therefore is likely to be more significantly and negatively affected by decreases in revenue than would be the case for a business with a more flexible cost base. Any decrease in profitability could have a material adverse effect on the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s business, financial condition and results of operations.
3.19 The franchise model operated by the Ladbrokes Coral Group and, following the Effective Date, the Combined Group in Italy, Belgium and Spain may give rise to business risk and unforeseen difficulties may arise The Ladbrokes Coral Group is, and, following the Effective Date, the Combined Group will be, licensed to conduct betting and gaming operations in Italy through Eurobet Retail and in Belgium through Tierce Ladbrokes S.A. In addition, Spanish gambling licences are held by the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s joint venture with Cirsa Gaming Corporation, Sportium Apuestas Deportivas S.A. Eurobet Retail conducts its operations using a franchise model, whereby Eurobet Retail enters into a franchise agreement with a franchisee operator, who then establishes a betting office using the Eurobet Retail licence, products and systems infrastructure. Tierce Ladbrokes S.A. also makes use of franchise operators to conduct a majority of its business and a small element of Sportium’s business is conducted using a franchise model.
If the franchisee operators are ineffective, or the Ladbrokes Coral Group and, following the Effective Date, the Combined Group is unable to attract and retain experienced franchisee operators, or if any unforeseen circ*mstances arise in the operation of the franchise model, the performance of Eurobet Retail, Tierce Ladbrokes S.A. and Sportium is likely to be negatively impacted and this could have a material adverse effect on the business, financial condition and results of operations of the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. Furthermore, the activities of franchisee operators that are not fully under the control of the Ladbrokes Coral Group and, following the Effective Date, the Combined Group may give rise to compliance issues. For example, such compliance issues could include franchisee operators failing to adhere to the terms of their respective franchise arrangements entered into with the Ladbrokes Coral Group and, following the Effective
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Date, the Combined Group and the internal policies related to such arrangements, as well as local legislation and compliance requirements despite internal compliance policies being in place. Such potential non-compliance on the part of the franchisee operators may have an adverse effect on the business, results of operations, financial condition, regulatory compliance and the licenses of the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
3.20 The Ladbrokes Coral Group has two defined benefit pension schemes to which it and, after Completion, the Combined Group may be required to make increased contributions to fund any funding shortfalls The Ladbrokes Coral Group provides retirement benefits for its former and current employees through a number of pension schemes, including two defined benefit pension schemes.
Historic Ladbrokes Group’s Plan The Historic Ladbrokes Group’s defined benefit pension scheme (the “Ladbrokes Plan”) was closed to new entrants from 1 August 2007 and closed to future benefit build-up from 31 August 2015. The Ladbrokes Plan’s assets must be held separately from those of the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. As at 30 June 2017, the estimated present value of the Ladbrokes Plan’s funded obligations (on an IAS 19 accounting basis) was £383.2 million and the fair value of the Ladbrokes Plan’s assets was £439.7 million, giving a funded status of £57.5 million surplus.
Coral Plan The Coral defined benefit pension scheme (the “Coral Plan”) was closed to new entrants from 1 July 2008 and closed to future benefit build-up from 28 September 2013. The Coral Plan’s assets must be held separately from those of the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. As at 30 June 2017, the estimated present value of the Coral Plan’s funded obligations (on an IAS 19 accounting basis) was £416.8 million and the fair value of the Coral Plan assets was £439.7 million, giving a funded status of £23.1 million surplus.
The triennial valuation and funding plan in respect of the Ladbrokes Plan and the Coral Plan was finalised in 2017 with the trustees of each scheme and Ladbrokes Coral. Based on the Scheme Specific Funding bases agreed with the trustees for each of the two schemes, no contributions are required to be made by the Ladbrokes Coral Group in respect of either scheme, other than the payment of expenses of operating the schemes and Pension Protection Fund levy payments. The next triennial valuation for each scheme is due as at 30 June 2019; unless there are significant changes in the trustees’ assessment of the covenant provided to each of the schemes, which would justify an early review, the GVC Directors believe that these contribution agreements are likely to remain in place until the outcome of the next triennial valuation has been determined. However, as the value of the assets and liabilities of the Ladbrokes Plan and the Coral Plan can change over time, including as a result of fluctuations in financial markets (along with changes in legislative requirements and trustees’ covenant assessments), there is a risk that further contributions over and above those currently agreed could be requested from the Ladbrokes Coral Group and, following the Effective Date, the Combined Group in the future. Such additional contributions could have an adverse impact on the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s business, financial condition and results of operations.
3.21 The Ladbrokes Coral Group has, and, following the Effective Date, the Combined Group will have, certain liabilities under guarantees in connection with hotel leases relating to the Ladbrokes Coral Group’s former hotels division The Historic Ladbrokes Group formerly operated an international chain of full service hotels and resorts through its hotels division. For the purposes of this business, the Historic Ladbrokes Group provided guarantees to third parties in respect of liabilities of subsidiaries under hotel leases. The Historic Ladbrokes Group sold its hotels division to Hilton Hotels Corporation on 23 February 2006 but, since the release of each of these guarantees requires the consent of the beneficiary of that
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guarantee, not all liabilities under the guarantees could be discharged at that time. Therefore, the Ladbrokes Coral Group is, and, following the Effective Date, the Combined Group will be, exposed to a contingent liability should any of the disposed subsidiaries default on their obligations under the relevant leases. Ladbrokes Coral is committed to seeking, and has received an undertaking from Hilton Hotels Corporation that efforts will be made to obtain, releases of these guarantees, which expire between 2017 and 2042.
Ladbrokes Coral has the benefit of an indemnity from Hilton Hotels Corporation in relation to any loss it may incur under these guarantees. The net financial liability recognised in the Ladbrokes Coral Group’s balance sheet at 30 June 2017 in respect of these guarantees was £2.9 million.
However, there can be no assurance that Hilton Hotels Corporation will not default on its obligations under the indemnity. Overall, the maximum exposure was assessed at £539.5 million as at 30 June 2017. While the GVC Directors believe it to be extremely unlikely that claims of such magnitude will be made, if any significant claims are made under any of the guarantees and Hilton Hotels Corporation fails to meet its obligations under the indemnity, this could have a material adverse effect on the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s business, financial condition and results of operations.
4. OPERATIONAL RISKS 4.1 Dependence on key executives and personnel The GVC Group and the Ladbrokes Coral Group currently depend upon the expertise and continued service of certain key executives and other personnel. The GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group’s future performance is heavily dependent on its ability to retain the expertise of the GVC’s Directors and a number of senior managers working both for the GVC Group and the Ladbrokes Coral Group, and to attract the services of, retain and motivate suitable personnel at a time when there is uncertainty around the timing of completion of the Acquisition and personnel decisions have not been finalised. Although GVC has in place service agreements with the Executive Directors and its senior managers, and Ladbrokes Coral has in place service agreements with its senior managers, the Combined Group’s performance would be adversely affected if they were to resign or become unavailable due to illness or incapacity. GVC does not currently carry key man insurance in the event of unavailability of key personnel due to illness or incapacity.
While the Executive Directors have entered into service agreements that are generally subject to notice periods of up to 12 months before termination, some senior managers may have shorter notice periods and this is also the case for senior managers at Ladbrokes Coral. The loss of the services of certain executive officers or other key employees, particularly to competitors, could have a material adverse effect on the business, results of operations, financial condition and prospects of the Combined Group.
Furthermore, the Combined Group’s ability to expand its operations to accommodate its anticipated growth will also depend upon its ability to attract and retain additional qualified industry experts and other personnel in the finance, management, marketing and technical areas. If the Combined Group fails to attract and retain such personnel it may be difficult for the Combined Group to manage its business and meet its objectives and its operational and/or financial results may be adversely affected.
4.2 Dependence on key sites The GVC Group and the Ladbrokes Coral Group have, and, following the Effective Date, the Combined Group will have, a number of key sites, which the Combined Group will be dependent upon. The unplanned unavailability of any of the GVC Group’s and Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s key sites, whether partial or complete, and for whatever reason, including natural disasters, terrorist acts, political instability, other acts of war or hostility or outbreak of infectious diseases might have a material adverse effect on the Ladbrokes
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Coral Group’s and, following the Effective Date, the Combined Group’s business, financial condition and results of operations.
Following the Effective Date, the Combined Group may not require all the properties currently held in the respective property portfolios of GVC and Ladbrokes Coral, which may leave the Combined Group exposed to pay the outstanding rents on sites which the Group no longer requires. Furthermore, as part of the integration process following completion of the Acquisition, the use of properties within the property portfolio of the GVC Group and the Ladbrokes Coral Group will need to be combined and this will require significant management time and resources and may require the diversion of resources from other activities.
4.3 The Combined Group will be exposed to foreign exchange rate fluctuations The GVC Group and, following the Effective Date, the Combined Group’s reporting currency will be in Euros, but, following the Effective Date, a significant proportion of its income deposits will be generated in other currencies, notably pounds sterling and Australian dollars. As a result, revenues and costs are affected by foreign exchange rate fluctuations, particularly changes in the euro:pound sterling and euro:Australian dollar exchange rates.
Exchange rate fluctuations may affect the Combined Group’s consolidated statement of financial position, particularly individual assets and liabilities, but the Combined Group will seek to minimise the effect on net assets where in the opinion of the GVC Directors it makes economic sense to do so.
The Combined Group may, from time to time, hedge a portion of its currency exposures and requirements to limit any adverse effect of exchange rate fluctuations on its operations, financial performance and prospects, but there can be no assurance that such hedging will eliminate the potentially material adverse effect of such fluctuations.
To the extent that there are fluctuations in exchange rates outside of hedged positions, this may have a material impact on the GVC Group and, following the Effective Date, the Combined Group’s financial position or results of operations. Exchange rate fluctuations may also adversely affect results of operations through the translation into euros or pounds sterling of amounts denominated in another currency.
4.4 Potential litigation may adversely affect the GVC Group’s, the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s activities The GVC Group and the Ladbrokes Coral Group face, and, following the Effective Date, the Combined Group will face, the general risk of potential litigation in connection with their business, their customers, their employees and their external service providers, suppliers and partners (including the effects of changes in the laws, regulations or policies or their respective interpretations). Such actions may result in: (i) the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group incurring considerable legal and other costs (including fines and penalties); (ii) diversion of management attention; (iii) disruption in the provision of services; and/or (iv) damage to the GVC Group’s, the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s reputation and brand image any or all of which could have material adverse effect on the GVC Group’s, the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s business, results of operations and financial condition (in each case, whether or not the relevant actions are successful).
4.5 Availability of additional capital Although, in the opinion of the GVC Directors, the working capital available to the GVC Group (including, following Completion, the Ladbrokes Coral Group) is sufficient for its current operations, that is for at least the next 12 months following the date of this document, the Combined Group may require more capital in the longer term to fund its operations, enhance and expand the range of products it offers and respond to potential strategic opportunities, such as investments, acquisitions and international expansion.
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There is currently a limited pool of lending banks willing to provide credit to gambling companies, in particular to those involved in online gambling, due to the perceived regulatory risks that surround the sector.
The GVC Directors can give no assurance that, in the longer term, such financing will be available on terms favourable to the Combined Group, or at all. The terms of available financing may place limits on the Combined Group’s financial and operational flexibility. If adequate funds are not available on acceptable terms in these circ*mstances, the Combined Group may be forced to reduce its operations or delay, limit or abandon expansion opportunities. Moreover, even if the Combined Group is able to continue its operations, the failure to obtain additional financing in the longer term could reduce its competitiveness.
5. RISKS RELATING TO BREXIT AND THE WIDER GLOBAL POLITICAL CLIMATE In June 2016, the British public voted for the United Kingdom to exit the European Union (“Brexit”). Article 50 of the Treaty on the European Union was triggered on 29 March 2017, thereby initiating the formal process for the United Kingdom to leave the European Union. The prospect of Brexit has resulted in significant economic, political and social instability, not only in the United Kingdom and Europe, but across the globe generally. In particular, this has led to a fall in the value of pound sterling, which may affect the profitability of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, for example but without limitation, due to customers deciding to spend less money on the products and services offered by the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
Furthermore, Brexit has adversely affected the global markets, including the Main Market, on which the GVC Shares and Ladbrokes Coral Shares are currently admitted to trading and, following the Effective Date, on which the GVC Shares (including the Consideration Shares) will be admitted to trading. Brexit, and the final departure of the United Kingdom from the European Union could further lead to volatility in the value of securities listed on the Main Market, including the GVC Shares.
In addition, the operations and ongoing profitability of the Combined Group may be adversely affected. This may include, among other things, as a result of losing the current benefit of, and/or becoming subject to additional and more onerous rights and obligations relating to legal, regulatory, trade and taxation matters, owing to the United Kingdom losing its European Union and/or EEA membership rights. Any negative change in barrier-free access between the UK and the European Union (for instance, as a result of the UK and the European Union failing to agree the terms of the UK’s withdrawal from the European Union, or as a result of any other member state leaving the European Union) may also affect the licensing status allowing the Combined Group to rely on the EU market freedoms, in particular the free movement of services pursuant to Art. 56 TFEU, and thus the operations and ongoing profitability of the Combined Group.
The operations and ongoing profitability of the Combined Group might also be affected by Gibraltar’s status as a British overseas territory of the UK following Brexit (and the fact that Gibraltar is bound by the result of the UK referendum to leave the EU and will therefore leave the EU at the same time as the UK and thus the Combined Group’s licensing status allowing the Combined Group to rely on the EU market freedoms, will depend in particular on the further application of the free movement of services pursuant to Art. 56 TFEU to Gibraltar, or the failure thereof, following Brexit), and/or uncertainty arising from tensions between Spain and the UK in respect of Gibraltar, either or both of which may have an impact on the operations and ongoing profitability of the Combined Group’s business and licenses held in Gibraltar.
Further economic, political and social instability may also result from the Scottish public voting for Scotland to leave the United Kingdom in any future referendum. Whilst Scotland’s First Minister has postponed any such referendum following the Scottish Parliament’s vote to approve a motion calling for a second independence referendum, such a referendum could still take place (subject to UK Government approval) during the lifetime of the current Scottish Parliament which is due to last until 2021. The implications of any vote in favour of independence are uncertain, but could still be wide-ranging (for instance, in affecting the value of pound sterling, global markets and the ongoing relationship between Scotland and the rest of the
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United Kingdom). Any potential changes in US policy following the most recent presidential election might also have significant impact on a global scale.
All of the other risk factors in this section of this document should be considered with all of these risks in mind.
6. MARKET RISK 6.1 The illegal betting market in regulated jurisdictions in which the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group holds licenses is of a significant size, and this limits the potential profitability of legitimate and regulated betting operations The GVC Group and the Ladbrokes Coral Group each operate, and, following the Effective Date, the Combined Group will operate in licensed territories, such as in Italy, where the illegal or unregulated betting market is of a significant size, both online and offline. Illegal or unregulated betting operations do not pay tax to the respective regulator, and hence they have a competitive advantage over the GVC Group’s, the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s locally regulated and taxed businesses, and may be able to offer more attractive odds and other products that are not available to licensed operators, such as the Eurobet Retail businesses, as regulated and licensed tax-paying entities. The continued existence and potential growth of the illegal or unregulated betting market in such jurisdictions and failure of the authorities in such jurisdictions effectively to block access and business of unlicensed operators may therefore reduce the growth prospects of the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s operations, and may have a material adverse effect on the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s business, financial condition and results of operations.
6.2 New entrants to the market The online gambling industry is increasingly competitive and so the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group will always be at risk that new entrants to the market are able to procure, by way of acquisition or licence, the benefit of the underlying technology required to operate a gambling business that can compete with them. New entrants may take the form of existing gambling operators who have as yet not sought to develop their business in the key markets of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, or companies which have not to date had any involvement in the gambling industry. As such technology is generally available, the technical barriers to enter one or more markets may be perceived as relatively low. However, a successful entry into the market would require significant investment in marketing, establishing the necessary contractual relationships to facilitate payments as well as industry knowledge. Therefore, while theoretically possible to overcome technological barriers relatively quickly, the GVC Directors believe that there would be significant cost and other material barriers to overcome for any new entrant to become a serious competitive threat. If any new entrant was able to establish a foothold in the market and was able to secure a meaningful market share, this could have a corresponding negative effect on the financial prospects of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
Whilst the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group will continue to invest in the development of its products and services, the Combined Group may be unable to respond quickly or adequately to changes in the industry brought on by the introduction of new products and technologies, the availability of products on other technology platforms and marketing channels, the introduction of new website features and functionality, new technology or new marketing and promotional efforts by its competitors. There can also be no certainty that existing, proposed or as yet undeveloped technologies will not become dominant in the future or otherwise displace the services of the Combined Group or render them obsolete which would also have a negative effect on the financial prospects of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
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6.3 Ability to expand into new markets The future growth of the business of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group will depend partly on their ability to develop revenue streams from new markets throughout the world. Whilst the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group take and will take appropriate precautions when developing new markets, this may involve greater legal, regulatory and commercial risks than those associated with their current operations. In addition, any growth through acquisition may be hampered by relevant competition laws which may have an adverse impact on the financial prospects of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
6.4 Further expansion cannot be assured The GVC Directors can give no assurance that the future marketing efforts will be successful and that the online gaming and sports betting services will maintain current levels of revenue or generate significant additional revenues. In order to achieve widespread acceptance in each country targeted by the GVC Group, the GVC Directors believe that the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group may need to tailor its gaming and sports betting services to the unique customs and cultures of that country. Learning the customs and cultures of various countries, particularly with respect to gaming and sports betting practices, is difficult and the failure adequately to do so could slow the growth in and/or ability to maintain revenues in those countries for the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. For example, the provision of sports betting services to local markets will involve the compilation of odds on local sporting events, which will require local expertise to provide this service effectively. The failure of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group to obtain such expertise could impair its growth and/or ability to maintain revenues in such local markets. There are also other risks related to international expansion, including delays in the acceptance of the internet as a medium of commerce and gaming and sports betting in international markets and difficulties in managing international operations due to distance, language and cultural differences facing the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. This could impair the Combined Group’s ability to expand into further local markets and could harm international expansion efforts, which would in turn have a material adverse effect on the Combined Group’s business, revenue and financial position.
In addition, international expansion may expose the Combined Group to additional risks associated with tariffs and trade barriers and limitations on fund transfers; exchange rate fluctuations; potential adverse tax consequences; challenges of developing, maintaining and supporting local language and currency capabilities; greater risk of chargebacks and higher levels of fraud in some countries; legal and regulatory restrictions; foreign exchange controls that might prevent the repatriation of cash; political and economic instability; export restrictions; and higher costs associated with doing business internationally. Any of these risks could harm the Combined Group’s efforts to grow revenues, which would in turn have a material adverse effect on its business, revenue and financial position.
The Combined Group may seek to acquire or invest in other businesses if appropriate opportunities become available. Any future acquisition may pose regulatory, antitrust, integration and other risks. Any of these factors may significantly affect the benefits or anticipated benefits of such acquisitions or investments and consequently the results or operations of the Combined Group. Furthermore, any new acquisitions will require significant management time and resources and may require the diversion of resources from other activities. The Combined Group may be unable to manage future acquisitions profitably or to integrate such acquisitions successfully without incurring substantial costs, delays or other problems. In addition, any companies or businesses acquired or invested in may not achieve levels of profitability or revenue that justify the original investment made by the Combined Group. The occurrence of any such events could have a material adverse effect on the business, results of operations, financial condition and prospects of the Combined Group.
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6.5 Dependence on strong brand identities The success of the GVC Group and the Ladbrokes Coral Group depends on their strong brands and if, following the Acquisition, the Combined Group is not able to maintain and enhance those brands, its ability to expand its base of customers, advertisers and affiliates may be impaired, and its business and operating results could be harmed. The GVC Directors believe that the brand identities that the GVC Group and the Ladbrokes Coral Group have developed have significantly contributed to the success of their respective businesses. The GVC Directors also believe that maintaining and enhancing these brands is important to expanding the Combined Group’s base of customers and affiliates. Maintaining and enhancing these brands may require substantial investments by the Combined Group and these investments may not be successful. If the Combined Group fails to promote and maintain the GVC Group’s brands and the Ladbrokes Coral Group’s brands, or if it incurs excessive expenses in this effort, its business, revenue and financial position may be materially and adversely affected. The GVC Directors anticipate that, as the market becomes increasingly competitive, maintaining and enhancing the brands may become increasingly difficult.
7. ISSUES RELATING TO TECHNOLOGY 7.1 Dependence on the internet and telecommunications The business of the GVC Group and the online business of the Ladbrokes Coral Group are dependent on the internet and on the continued growth and maintenance of the internet infrastructure and the penetration of mobile and tablet devices in certain jurisdictions. There can be no assurance that the internet infrastructure will continue to be able to support the demands placed on it by continued growth in the number of users of and amount of traffic on the internet. The rate at which internet use and traffic is able to increase will depend, inter alia, on the speed at which technological improvements can: (i) expand the means and reduce the costs of access to the internet; (ii) enhance the ease and speed of internet use; (iii) increase the capacity and reliability of the internet infrastructure; and (iv) increase the level of consumer and business confidence in the security and reliability of internet transactions. Internet infrastructure may be unable to support the demands placed on it and could suffer due to delays in the development or adoption of new standards and protocols to handle increased levels of internet activity. Any failure of the internet infrastructure to support these demands may have a material adverse impact on the businesses of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
7.2 The GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group may be adversely affected by any failure of the technological solutions put in place to block the access to their respective services by players in certain jurisdictions The GVC Group and the Ladbrokes Coral Group each block and, following the Effective Date, the Combined Group will block wagers from customers located in certain jurisdictions. They do so on the basis either of specific requirements imposed on them as a result of holding certain licences or they do so on the basis of a lack of coherent justification that deriving such revenue would infringe the law of the jurisdiction in which the relevant player resides. There is no guarantee that any of regulators who grant licences to GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group will not elect to require the blocking of specific, additional jurisdictions from which their respective licensees will be required to block wagers. Such an act would have an adverse effect on the financial position of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
Moreover, there is no guarantee that the technical systems and controls the GVC Group and the Ladbrokes Coral Group each currently have and, following the Effective Date, the Combined Group will have in place to comply with its blocking policy will be effective. If these systems and controls were to fail, the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group could be in breach of certain licences currently held or could place it in breach of the relevant laws and regulations, which would also have a material adverse effect on the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group’s business, financial condition and results of operations.
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7.3 Dependence on technology and advanced information systems The GVC Group’s and the Ladbrokes Coral Group’s operations are, and following the Effective Date, the Combined Group’s operations will be, highly dependent on technology and advanced information systems, and there is a risk that such technology or systems could fail. There can be no assurance that such technology or systems will not be subject to damage or interruption caused by human error, unauthorised access, increase in volume of usage of online services, natural hazards or disasters or other similarly disruptive events, or will be able to support a significant increase in online traffic or increased customer numbers. Any failure or disruption of, or damage to, the technology or systems used by the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group in its own businesses could have a material adverse effect on those businesses and their financial conditions or results of operations; in particular any damage to, or failure of, their online systems could result in interruptions to their financial controls and customer service systems, cause a loss of business and expose them to liability.
In addition, with information and security arrangements shared across a supply chain, the cyber security of any one organisation within the chain is potentially exposed to the vulnerabilities of the weakest member of the supply chain. Therefore, third party software providers, website builders, data aggregators and B2B partners that are connected to databases of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group potentially constitute a cyber-risk to the Combined Group. While the GVC Group and the Ladbrokes Coral Group use, and following the Effective Date, the Combined Group will use, multiple technical solutions and common standards to help to mitigate these risks (for example, Payment Card Industry Data Security Standard), the possible risk of cyber security vulnerability in the supply chain remains.
Any business continuity and disaster recovery procedures and security measures implemented by the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group in the event of failure or disruption of, or damage to, their technology or systems may not anticipate, prevent or mitigate any material adverse effect of such failure, disruption or damage on the business, financial condition and results of operations of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
Should the IT systems of the Combined Group fail or be subject to disruption, and the Combined Group is unable to carry on its businesses in the ordinary course, there could be a material adverse effect on the business, results of operations, financial condition and prospects of the Combined Group.
7.4 Vulnerability to hacker intrusion, DDoS, malicious viruses and other cybercrime attacks As with all gambling companies having an online business, the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group will be vulnerable to cybercrime attacks which could adversely affect their business. Examples include distributed denial of service (“DDoS”) attacks, ransomware attacks, malware attacks (such as the WannaCry ransomware attack and the Petya malware attack suffered by companies globally in May 2017 and June 2017 respectively) and other forms of cybercrime, such as attempts by computer hackers to gain access to the systems and databases of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group for the purpose of manipulating results which may cause systems failure, business disruption and have a materially adverse effect on the financial condition of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
The GVC Group and the Ladbrokes Coral Group employ intrusion detection and prevention measures, but nevertheless such attacks are, by their nature, technologically sophisticated and therefore may be difficult or impossible to detect and/or defend against. If the protection and prevention devices were to fail or be circumvented, the reputation of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group may be harmed, which could in turn have a material adverse effect on their financial condition and prospects.
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7.5 Vulnerability to hackers stealing customers’ details for the purposes of identity theft The GVC Group and the Ladbrokes Coral Group hold data pertaining to card holders including credit card numbers, names and addresses. The operations of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group could be materially and adversely impacted by breaches of security and systems intrusions conducted for the purpose of stealing such personal information of customers, including via ransomware attacks. Any such activity could harm the reputation of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, expose it to penalties, fines and legal claims and deter current or potential customers from using their services, thereby resulting in a material adverse effect on their financial condition.
7.6 System failures and breaches of security The successful operation of the business of the Combined Group will depend upon maintaining the integrity and operation of the computer and communication systems supplied and maintained by third parties. However, these systems and operations are vulnerable to damage or interruption from events which are beyond the control of the third party suppliers, such as:
(a) fire, flood and other natural disasters;
(b) power loss or telecommunications or data network failure;
(c) improper or negligent operation of systems by employees of the third party and unauthorised physical or electronic access; and
(d) interruptions to internet system integrity generally as the result of attacks by computer hackers, computer viruses (including ransomware attacks), DDoS, increase in volume in usage of online services, or other types of security breaches.
Any such damage or interruptions could impair the ability of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group to provide its services to customers, and could result in significant disruption to the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group and their customers. This could be harmful to the reputation of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group and deter current or potential customers from using their services. There can be no guarantee that the security measures in place at the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group will protect it from all breaches of security, and any such breach of security could have an adverse effect on the business, results of operations or financial condition of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
There can be no assurance that the current systems of the GVC Group and the Ladbrokes Coral Group will be able to support a significant increase in online traffic or increased customer numbers. The GVC Group and the Ladbrokes Coral Group have in place business continuity procedures and security measures in the event of network failure or disruption, but such procedures and measures may not anticipate, prevent or mitigate any material adverse effect of such failure or disruption on the business, financial condition and results of operations of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
Furthermore, the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group may at any time be required to expend significant capital or other resources to protect against network failure and disruption, including the replacement or upgrading of existing business continuity systems, procedures and security measures. If replacements, expansions, upgrades and other maintenance are not completed efficiently or there are operational failures, the quality of products and services experienced by the customer could decline. If, as a result, customers were to reduce or stop their use of the products and services of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, of the Combined Group, this could have a material adverse effect
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on the business, financial condition and results of operations of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
8. INTELLECTUAL PROPERTY 8.1 Protection of intellectual property The GVC Group and the Ladbrokes Coral Group take appropriate measures including, where appropriate, legal action, to protect their intellectual property rights, including in relation to their proprietary technology and website content and trade marks. However, any failure to adequately protect their intellectual property may result in: (i) a person copying or otherwise obtaining and using the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group’s, proprietary content and technology without authorisation, (ii) the misappropriation of their or its proprietary information or other intellectual property rights, and (iii) the absence of a registered trade mark in key jurisdictions that may make it more difficult for the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, to prevent others from using the same or similar names, brands and/or trade marks used by the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. In addition, policing unauthorised use of proprietary information or other intellectual property rights, particularly on the internet, is difficult and expensive. Notwithstanding the measures set out above, from time to time, the GVC Directors become aware of registered trade marks, or pending applications to register trade marks, for sports betting and gaming services in key jurisdictions that include words, which may be considered to be similar to “GVC”, “Sportingbet”, “Betboo”, “CasinoClub”, “bwin”, “partypoker”, “PartyCasino”, “FoxyBingo”, “Gioco Digitale”, “Gamebookers”, “Ladbrokes”, “Coral” , “Gala”, “Gala Bingo”, “Gala Casino”, “Eurobet”, “Connect” and “Grid” and certain other brands used by the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group. The pending applications may not be capable of registration, and may not proceed to registration. In addition, any misappropriation or other unauthorised use of any intellectual property rights of the GVC Group, the Ladbrokes Coral Group or following the Effective Date, the Combined Group, could have a negative effect on their businesses, operating results and the value of their respective brands and consequently on the Combined Group. Furthermore, there are several ongoing trade mark disputes relating to marks registered by the GVC Group including, without limitation, “PARTY.COM” (device) whereby the GVC Group is in negotiation with a third party regarding entry into a co-existence agreement over its use and the opposition by the GVC Group to a “bwin” (device) trade mark in China and there are several ongoing trade mark disputes relating to marks registered by the Ladbrokes Coral Group including, without limitation, various iterations of the Gala trade marks (including Gala Bingo) whereby a third party has opposed the Ladbrokes Coral Group’s application to register certain Gala trade marks in the UK and EU and the Ladbrokes Coral Group is making attempts to reach a settlement with the third party and enter into a co-existence agreement over its use. These disputes suggest that third parties are using, or intend to use, trade marks that could be confused with trade marks used by (or otherwise owned by) the GVC Group and the Ladbrokes Coral Group in respect of classes of goods and/or services that the GVC Group and the Ladbrokes Coral Group provide under those trade marks. Furthermore, in future, the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, may need to go to court to enforce their intellectual property rights, to protect trade secrets or to determine the validity or scope of the proprietary rights of others. Litigation relating to the GVC Group’s, the Ladbrokes Coral Group’s or, following the Effective Date, the Combined Group’s intellectual property, whether instigated by the GVC Group, the Ladbrokes Coral Group or, following the Effective Date, the Combined Group, to protect their rights or arising out of alleged infringement of third party rights, might result in substantial costs and the diversion of resources and management attention. Any such steps to enforce their intellectual property rights may not be successful.
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8.2 Infringement of intellectual property rights held by others The business activities, products and systems of the GVC Group, the Ladbrokes Coral Group, and following the Effective Date, the Combined Group may infringe the proprietary rights of others, and other parties may assert infringement claims against any of them. Parties making claims against the GVC Group, the Ladbrokes Coral Group, and following the Effective Date, the Combined Group may be able to obtain injunctive or other equitable relief which could effectively block their or its ability to utilise those rights. Any such claim and any resulting litigation could, should it occur and succeed, subject the GVC Group, the Ladbrokes Coral Group, and following the Effective Date, the Combined Group to significant liability for damages (or an account of profits) and legal costs (which would be incurred regardless of whether the claim is successful or not) and could result in invalidation of their proprietary rights, loss of rights to use software or other intellectual property or technology that are material to their or its business and/or require them or it to enter into costly and onerous royalty and licensing agreements. Such royalty and licensing agreements, if required, may not be available on terms acceptable to the GVC Group, the Ladbrokes Coral Group, and following the Effective Date, the Combined Group, or may not be available at all. In addition, the GVC Group, the Ladbrokes Coral Group, and following the Effective Date, the Combined Group may also need to file legal proceedings to defend their or its trade secrets and the validity of their or its intellectual property rights, or to determine the validity and scope of the proprietary rights of others. Such litigation, whether successful or unsuccessful, could result in substantial costs and diversion of resources, including management time and resources, as well as potential negative publicity. The occurrence of any of these events could have a material adverse effect on the business, results of operations, financial condition and prospects of the GVC Group, the Ladbrokes Coral Group, and following the Effective Date, the Combined Group.
8.3 Registration of domain names The GVC Group and the Ladbrokes Coral Group have acquired many domain names around the world. However, if any of the GVC Group or the Ladbrokes Coral Group, or following the Effective Date, the Combined Group are unable to acquire or use important domain names in all countries in which they operate, or into which they may seek to expand their operations, their ability to trade or compete effectively may be impaired. Notwithstanding any recovery efforts through the courts or domain name dispute bodies, and whilst it is relatively easy to register a domain name, it does not follow that the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group will be free to use their domain names in all jurisdictions in which they operate. It is possible that domain names of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group could infringe a prior third party trade mark registration in certain jurisdictions or someone may have common law or other related rights (based on reputation in the name) which may prevent the GVC Group and, following the Effective Date, the Combined Group from using such domain name. The global nature of the internet means competing or conflicting intellectual property rights can exist anywhere and are very difficult to monitor.
Litigation alleging the infringement by the GVC Group, the Ladbrokes Coral Group or, following the Effective Date, the Combined Group, of any third party rights in relation to domain names might result in substantial costs and the diversion of resources and management attention.
The GVC Directors intend that the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, will continue to acquire domain names as suitable opportunities arise. The acquisition and maintenance of domain names generally is regulated by applicable laws, as they are applied by the courts, government agencies and their designees and internet domain name regulatory bodies, and is subject to change. Internet domain name regulatory bodies may establish additional top level domains, appoint additional domain name registrars or modify the requirements for holding domain names. Depending on the laws of the particular jurisdiction, following the Effective Date, the Combined Group might not be able to offer products and services under certain important domain names.
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Any restriction or prohibition on the GVC Group, the Ladbrokes Coral Group or, following the Effective Date, the Combined Group, in offering products and services under certain important domain names in any jurisdiction could have a negative effect on their businesses, operating results and the value of the brands of the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group.
9. GENERAL INVESTMENT RISKS 9.1 Market price of GVC Shares could be subject to significant fluctuations The market price of GVC Shares could be subject to significant fluctuations due to a variety of factors, including changes in sentiment in the market regarding the GVC Shares or in response to various factors and events. The fluctuations could result from national and global political, economic and financial conditions (including, without limitation, Brexit, the impact of any future Scottish independence referendum and changes in US foreign or domestic policy following the US presidential election in November 2016), the market’s response to the Acquisition, market perceptions of GVC, legal or regulatory changes affecting the Combined Group’s operations or interests and various other factors and events which are referred to elsewhere in these Risk Factors. In addition, the market price of the GVC Shares may be affected by many variables that are not directly related to the success of the GVC Group or, following the Effective Date, the Combined Group, and which are not within its control, including, without limitation, the attractiveness of alternative investments and/or any or all of the other factors described above).
In addition, the market price of the GVC Shares may not reflect the underlying value of the assets of the GVC Group or, following the Effective Date, those of the Combined Group. The market in the GVC Shares or the Enlarged Issued Share Capital may be illiquid or subject to sudden or large fluctuations and it may be difficult for GVC Shareholders to sell their GVC Shares at an acceptable price, or at all.
A number of other factors, many of which are outside GVC’s control, may cause the price of the GVC Shares and the income derived from the GVC Shares to fluctuate significantly in the future. These factors may include, but are not limited to:
(a) the ability of the GVC Group and, following the Effective Date, the Combined Group to attract new customers and retain existing customers in the face of strong competition in the provision of online gaming and sports betting services;
(b) period-to-period variations in operating results or change in revenue or profit estimates by the GVC Group and, following the Effective Date, the Combined Group, industry participants or financial analysts;
(c) whether the strong relationship which currently exists between major sporting events and increased betting activity continues in the future;
(d) the rate at which the public increases its use of the internet and mobile devices to conduct online gambling;
(e) fluctuations in foreign exchange rates, which could affect the euro equivalent revenue obtained from the various jurisdictions in which the GVC Group and, following the Effective Date, the Combined Group, has customers. Such fluctuations may also impact the euro equivalent costs payable by the GVC Group and, following the Effective Date, the Combined Group, that may impact reported financial performance;
(f) the operating and share price performance of other companies that investors may consider comparable to the Company; and
(g) the fact that publicly traded securities can experience significant price and trading volume fluctuations that are unrelated to the operating and financial performance of the companies that have issued them.
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9.2 Shareholders may earn a negative or no return on their investment in the Company Stock markets have, in the last few years, experienced significant price and volume fluctuations that have affected the market price of the GVC Shares. Furthermore, the GVC Group’s and, following the Effective Date, the Combined Group’s operating results and prospects from time to time may be below the expectations of market analysts and investors. Any of these events could result in a decline in the market price of the GVC Shares and, following the Effective Date, the Enlarged Issued Share Capital, and consequently holders of GVC Shares may get back less than their original investment or may lose the whole of their investment.
9.3 Potential future offers of GVC Shares Other than pursuant to the Acquisition, the GVC Directors have no current plans for further offers of GVC Shares. However, it is possible that the GVC Directors may decide to offer GVC Shares in the future in order to raise financing to fund future acquisitions and/or for other growth opportunities. GVC may, therefore, for these and other purposes, such as in connection with share incentive plans, issue additional equity or convertible equity securities. If holders of the Enlarged Issued Share Capital did not participate in such offer of equity securities, or were not eligible to participate in such offering, their proportionate ownership and voting interests in the Combined Company would be diluted, and their GVC Shares would represent a reduced percentage of the issued share capital of GVC following such issue(s) of GVC Shares. In addition, any such offering could adversely affect the prevailing market price of the GVC Shares, and could impair the Combined Company’s ability to raise capital through future sales of equity securities.
9.4 Significant sale of GVC Shares could adversely affect the market price of outstanding GVC Shares An offering or significant sale of GVC Shares by any of the Combined Company’s major shareholders, or the perception that such sales might occur, could have an adverse effect on the market price of the GVC Shares. This may make it more difficult for holders of the Enlarged Issued Share Capital to sell their GVC Shares at a time and price that they deem appropriate, and could also impede the Combined Company’s ability to issue equity securities in the future.
Further issues of GVC Shares may also be dilutive to holders of the Enlarged Issued Share Capital or may result in the issuance of shares where rights, preferences and privileges are senior to those attaching to the Enlarged Issued Share Capital.
9.5 Risks of executing the Acquisition could cause the market price of GVC Shares to decline The market price of the GVC Shares may decline for many reasons as a result of the Acquisition including, if:
(a) the integration of the Ladbrokes Coral Group and the GVC Group is unsuccessful;
(b) GVC does not achieve the expected benefits of its acquisition of the Ladbrokes Coral Group as rapidly or to the extent anticipated by GVC’s financial analysts or investors or at all;
(c) the effect of GVC’s acquisition of the Ladbrokes Coral Group on its financial results is not consistent with the expectations of financial analysts or investors; or
(d) former Ladbrokes Coral Shareholders sell a significant number of their GVC Shares after the Effective Date.
The number of Consideration Shares that will be issued to Ladbrokes Coral Shareholders pursuant to the Acquisition (assuming that no options or awards under the Ladbrokes Coral Share Schemes are exercised prior to the Court’s sanction of the Scheme) will be approximately 273,000,000, representing approximately 46.5 per cent. of the Enlarged Issued Share Capital. If a significant proportion of Ladbrokes Coral Shareholders who receive Consideration Shares in the Acquisition seek to sell those Consideration Shares within a short period after the Effective Date, this could create selling pressure in the market for GVC Shares or a perception that such selling pressure may develop, either of which may adversely affect the market for, and the market price of, GVC Shares.
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9.6 The market price of GVC Shares may be affected by factors different from those affecting the price of Ladbrokes Coral Shares If the Acquisition is successfully completed, Ladbrokes Coral Shareholders will become holders of shares in the Combined Company. The Combined Group’s business will differ from that of the Ladbrokes Coral Group, and the GVC Group’s results of operations, as well as the price of GVC Shares, may be affected by factors different from those affecting the Ladbrokes Coral Group’s results of operations and the price of Ladbrokes Coral Shares.
9.7 The level of any dividend paid in respect of the GVC Shares is subject to a number of factors In addition, the level of any dividend paid in respect of the GVC Shares will, following the Effective Date, be within the discretion of the GVC Directors and is subject to a number of factors, including the business and financial condition, earnings and cashflow of, and other factors affecting, the Combined Group, as well as the availability of funds from which dividends can be legally paid. The level of any dividend in respect of the GVC Shares is also subject to the extent to which the Combined Company receives funds, directly or indirectly, from its operating subsidiaries and divisions in a manner which creates funds from which dividends can be legally paid. Any reduction in dividends paid on GVC Shares from those historically paid on GVC Shares, or the failure to pay dividends in any financial year, could adversely affect the market price of GVC Shares.
The interpretation of tax legislation or any change thereto could affect the GVC Directors’ ability to provide returns to holders of the Enlarged Issued Share Capital. Statements in this document concerning the taxation of investors in the GVC Shares are based on current tax law and practice in the UK and the Isle of Man, which is subject to change. The taxation of an investment in the Combined Company depends on the individual circ*mstances of the relevant investor.
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DIRECTORS, PROPOSED DIRECTOR, REGISTERED I,1.1 III,1.1 OFFICE AND ADVISERS III,10.1 III,10.3 Directors Lee Feldman (Non-executive Chairman) Kenneth Alexander (Chief Executive) Paul Miles (Group Finance Director) Karl Diacono (Non-executive Director) Stephen Morana (Non-executive Director) Peter Isola (Non-executive Director) Will Whitehorn (Senior Independent Director) Jane Anscombe (Non-executive Director)
Proposed Director Paul Bowtell (Chief Financial Officer) I,1.1 III,1.1 Registered office GVC Holdings Plc 32 Athol Street Douglas Isle of Man IM1 1JB
Website www.GVC-plc.com
Financial Adviser to GVC in Houlihan Lokey EMEA, LLP connection with the Acquisition 83 Pall Mall London SW1Y 5ES United Kingdom
Sole Sponsor and Broker to GVC Investec Bank plc III,5.1.4 2 Gresham Street London EC2V 7QP United Kingdom
Auditors to GVC Grant Thornton UK LLP I,2.1 Grant Thornton House 30 Finsbury Square London EC2P 2YU United Kingdom
Reporting Accountants Grant Thornton UK LLP Grant Thornton House 30 Finsbury Square London EC2P 2YU United Kingdom
English legal advisers to GVC Addleshaw Goddard LLP Milton Gate 60 Chiswell Street London EC1Y 4AG United Kingdom
Regulatory legal advisers to GVC Brandl & Talos Rechtsanwälte GmbH Mariahilfer Straße 116 1070 Vienna Austria
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Isle of Man legal advisers to GVC Dougherty Quinn Limited The Chambers 5 Mount Pleasant Douglas IM1 2PU Isle of Man
English legal adviser to the Jones Day LLP Financial Adviser 21 Tudor Street London EC4Y 0DJ United Kingdom
English legal adviser to the Mayer Brown International LLP Sole Sponsor and Broker 201 Bishopsgate London EC2M 3AF United Kingdom
English legal advisers to Ashurst LLP Ladbrokes Coral Broadwalk House 5 Appold Street London EC2A 2HA United Kingdom
Registrars Link Market Services (Isle of Man) Limited Clinch’s House Lord Street Douglas IM99 1RZ Isle of Man
UK Transfer Agent Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU United Kingdom
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EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Event Time and/or date1 Announcement of the Acquisition 22 December 2017
Despatch of this document and the Scheme Document 9 February 2018
Latest time and date for lodging BLUE Ladbrokes Coral Form of 11.30 a.m. on 6 March 20182 Proxy or submitting proxy instructions for the Ladbrokes Coral Shareholder Court Meeting
Latest time and date for lodging WHITE Ladbrokes Coral Form of 11.45 a.m. on 6 March 20183 Proxy or submitting proxy instructions for the Ladbrokes Coral General Meeting
Latest time and date for lodging GVC Form of Proxy for the GVC 8.30 a.m. on 6 March 2018 General Meeting
Record time for voting at the Ladbrokes Coral Shareholder 10.00 p.m. on 6 March 20184 Court Meeting
Record time for voting at the Ladbrokes Coral General Meeting 10.00 p.m. on 6 March 20185
Record time for voting at the GVC General Meeting 10.00 p.m. on 6 March 2018
GVC General Meeting 9.30 a.m. (Gibraltar time) on 8 March 20186
Ladbrokes Coral Shareholder Court Meeting 11.30 a.m. on 8 March 2018
Ladbrokes Coral General Meeting 11.45 a.m. on 8 March 20187
The following dates are subject to change
Latest time for receipt of GREEN Forms of Election or 1.00 p.m. on 26 March 2018 Electronic Elections in respect of the Mix and Match Facility from CREST holders
Scheme Court Hearing to sanction the Scheme 26 March 2018 (the “Court Sanction Date”)
Last day of dealings in, and for registration of transfers of, 27 March 2018 (being one and disablement in CREST of, Ladbrokes Coral Shares Business Day after the Court Sanction Date)
Scheme Record Time 6.00 p.m. on 27 March 2018
Suspension of listing of, and dealings in, Ladbrokes Coral Shares 7.30 a.m. on 28 March 2018
Effective Date of the Scheme 28 March 2018 (being two Business Days after the Court Sanction Date)
Cancellation of listing of, and trading in, Ladbrokes Coral Shares by no later than 8.00 a.m. on 29 March 2018
Consideration Shares issued 8.00 a.m. on 29 March 2018
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Event Time and/or date1 Admission of the Consideration Shares to the premium on or around 8.00 a.m. III,4.7 segment of the Official List and commencement of dealings on 29 March 2018 III,5.3 in Consideration Shares on the Main Market LR,13.3.1(9)(a)
Crediting of Consideration Shares to CREST accounts (in as soon as possible after LR,13.3(9)(e) respect of Scheme Shares held in uncertificated form) 8.00 a.m. on 29 March 2018 and, in any event within, 14 days of the Effective Date
Despatch of share certificates in respect of Consideration within 14 days of the Effective Date Shares (in respect of Scheme Shares held in certificated form)
Settlement of cash consideration due to Scheme Shareholders within 14 days of the Effective Date
Despatch of certificates in respect of the CVRs to each CVR Holder within 14 days of the Effective Date
Payments in respect of fractional entitlements (where applicable) within 14 days of the Effective Date
Long Stop Date (being the latest date by which the Scheme 30 June 2018 may become effective in accordance with its terms)
Notes: 1 All times shown in this document are London times unless otherwise stated. The dates and times given are indicative only and may be subject to change (including as a result of changes to Court times and the regulatory timetable). If any of the times and/or dates above change, the revised times and/or dates will be notified to shareholders by announcement through a Regulatory Information Service and by publishing such changes on GVC’s website at www.gvc-plc.com/html/investor/welcome.asp. 2 If the BLUE Ladbrokes Coral Form of Proxy for the Ladbrokes Coral Shareholder Court Meeting is not lodged by 11.30 a.m. on 6 March 2018 or, if the Ladbrokes Coral Shareholder Court Meeting is adjourned, not later than 48 hours before the time appointed for the holding of the adjourned meeting. BLUE Ladbrokes Coral Forms of Proxy may be handed to Computershare, on behalf of the Chairman of the Ladbrokes Coral Shareholder Court Meeting, or the Chairman at the Ladbrokes Coral Shareholder Court Meeting before the taking of the poll. 3 The WHITE Ladbrokes Coral Form of Proxy for the Ladbrokes Coral General Meeting must be returned by no later than 11.45 a.m. on 6 March 2018 or, if the Ladbrokes Coral General Meeting is adjourned, not later than 48 hours before the time appointed for the holding of the adjourned meeting to be valid. 4 If the Ladbrokes Coral Shareholder Court Meeting is adjourned, the voting record time for the meeting will be 10.00 p.m. on the date two calendar days before the date set for such adjourned meeting. 5 If the Ladbrokes Coral General Meeting is adjourned, the voting record time for the meeting will be 10.00 p.m. on the date two calendar days before the date set for such adjourned meeting. 6 If the GVC General Meeting is adjourned, the voting record time for the relevant adjourned meeting will be 10.00 p.m. on the date two calendar days before the date fixed for such adjourned meeting. 7 Or as soon thereafter as the Ladbrokes Coral Shareholder Court Meeting has been concluded or adjourned if later.
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ACQUISITION STATISTICS
Number of GVC Shares in issue as at the Last Practicable Date 303,734,808
Maximum number of Consideration Shares to be issued in connection with the Scheme 273,000,000*
Number of GVC Shares expected to be in issue immediately upon 576,734,808** Completion of the Acquisition
Expected number of Consideration Shares as a percentage of the Enlarged approximately Issued Share Capital 46.5 per cent.
ISIN of the Consideration Shares IM00B5VQMV65 III,4.1
SEDOL B5VQMV6
Notes: * Takes into account all options or awards which may be exercised under the Ladbrokes Coral Share Plans on or before the Long Stop Date. This is calculated by the multiplication of the expected total number of fully diluted Ladrokes Coral Shares by the exchange ratio (with an added allowance for headroom). ** Does not take into account new GVC Shares which may be issued as a result of (i) the exercise of any options or (ii) awards vesting under the GVC Share Incentive Schemes between the Last Practicable Date and Admission.
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IMPORTANT INFORMATION
Notice to Scheme Shareholders and other investors United States The Acquisition relates to the shares of an English company, and is being implemented by means of a scheme of arrangement provided for under English company law. The Scheme is subject to the disclosure requirements and practices applicable in England to schemes of arrangement, which differ from the disclosure and other requirements that would be applicable under US securities laws to domestic companies, including the requirements of the US proxy solicitation rules.
The financial information included in this document has been prepared in accordance with International Financial Reporting Standards (“IFRS”). US GAAP differs in certain significant respects from IFRS. None of the financial information in this document has been audited in accordance with auditing standards generally accepted in the United States or the auditing standards of the Public Company Accounting Oversight Board (United States).
GVC is a corporation incorporated under the laws of the Isle of Man. Most of the GVC Directors and the officers of GVC are citizens and residents of countries other than the United States. Substantially all of the assets of such persons and the GVC Group are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or GVC, or to enforce against them judgments of US courts, including judgments predicated upon civil liabilities under the securities laws of the United States or any state or territory within the United States. There is substantial doubt as to the enforceability in the United Kingdom or the Isle of Man in original actions or in actions for enforcement of judgments of US courts, based on the civil liability provisions of US federal securities laws.
Consideration Shares and CVRs The Consideration Shares and the CVRs to be issued under the Scheme have not been, and will not be, registered under the US Securities Act and are being offered in reliance upon the exemption from the registration requirements of the US Securities Act provided by section 3(a)(10) of the US Securities Act. Section 3(a)(10) of the US Securities Act exempts from the registration requirements of the US Securities Act securities issued in exchange for one or more bona fide outstanding securities where the terms and conditions of the issuance and exchange of the securities have been approved by a court of competent jurisdiction, after a hearing upon the fairness of the terms and conditions of the issuance and exchange at which all persons to whom the securities will be issued have the right to appear. For the purpose of qualifying for this exemption from the registration requirements of the US Securities Act, Ladbrokes Coral will advise the Court that for the purposes of qualifying for the section 3(a)(10) exemption, GVC will rely upon the Court’s sanctioning of the Scheme, as an approval of the Scheme following a hearing upon the fairness of the terms and conditions of the Scheme to Scheme Shareholders, at which hearing all such shareholders are entitled to attend in person or through counsel to support or oppose the sanctioning of the Scheme and with respect to which notification has been given to all such shareholders.
Loan Notes Any Loan Notes issued to Ladbrokes Coral Shareholders in exchange for the CVRs issued pursuant to the Scheme will be issued in reliance upon the exemption from the registration requirements of the US Securities Act provided by Section 3(a)(9) thereof.
In certain circ*mstances, the US Securities Act imposes restrictions on the resale in the United States of Consideration Shares or CVRs received pursuant to the Scheme. The restrictions on resale imposed by the US Securities Act will depend on whether the recipients of Consideration Shares or CVRs are “affiliates” of GVC. For the purposes of the US Securities Act, an “affiliate” of GVC is a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, GVC. “Control” means the possession, direct or indirect, of the power to direct or cause direction of the management and policies of an issuer, whether through the ownership of voting securities, by contract or otherwise. Whether a person is an affiliate of a company for the purposes of the US Securities Act depends
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on the circ*mstances. Scheme Shareholders who are not affiliates of GVC after completion of the Scheme and were not affiliates of GVC during the 90 days prior to the completion of the Scheme may freely resell Consideration Shares or CVRs received pursuant to the Scheme in the United States. Any Scheme Shareholder who is or becomes an affiliate of GVC may not resell Consideration Shares or CVRs received pursuant to the Scheme in the United States except in transactions permitted by the resale provisions of Rule 144 promulgated under the US Securities Act.
In addition, the Consideration Shares or CVRs have not been, and will not be, registered under the securities laws of any state or other jurisdiction of the United States and, accordingly, will only be issued to the extent that exemptions from the registration or qualification requirements of state “blue sky” securities laws are available.
The GVC Shares have not been, and will not be, listed on a US securities exchange or quoted on any inter-dealer quotation system in the United States. GVC does not intend to take any action to facilitate a market in GVC Shares in the United States. Consequently, GVC believes that it is unlikely that an active trading market in the United States will develop for the GVC Shares.
The Acquisition will be implemented by way of the Scheme, and will be made in satisfaction of the procedural and filing requirements of the US securities laws, including, without limitation, Regulation 14E of the Exchange Act and subject, in the case of participation by Ladbrokes Coral Shareholders resident in the United States, to the availability of an exemption (if any) from the registration requirements of the US Securities Act.
This document does not address any US federal income tax consequences of the Scheme for Scheme Shareholders who are citizens of or resident in the United States. Ladbrokes Coral Shareholders who are citizens of or resident in the United States should consult their own legal and tax advisers with respect to the legal and tax consequences of the Scheme, which will be implemented by way of a Scheme, in their particular circ*mstances.
Other Jurisdictions This document and any accompanying documents may not be treated as an invitation to acquire or subscribe for any GVC Shares, CVRs or Loan Notes by any person resident or located in any Restricted Jurisdiction.
The GVC Shares, CVRs and Loan Notes have not been, and will not be, registered under the applicable securities laws of any Restricted Jurisdiction. Accordingly, the GVC Shares, CVRs and Loan Notes may not be offered, sold, delivered or transferred, directly or indirectly, in or into any Restricted Jurisdiction to or for the account or benefit of any national, resident or citizen of any Restricted Jurisdiction.
The implications of the Scheme (including the right to make an election under the Mix and Match Facility) for Overseas Holders may be affected by the laws of relevant jurisdictions. Such Overseas Holders should inform themselves about, and observe, any applicable legal requirements. It is the responsibility of all Overseas Holders to satisfy themselves as to the full compliance with the laws of the relevant jurisdiction in connection therewith, including the obtaining of any governmental, exchange control or other consents which may be required, or the compliance with other necessary formalities which are required to be observed and the payment of any issue, transfer or other taxes due in such jurisdiction.
In any case where an Overseas Holder is resident, located or has a registered address in a Restricted Jurisdiction or where GVC is advised that the granting of the right to make an election under the Mix and Match Facility or the issue of Consideration Shares, CVRs and Loan Notes to an Overseas Holder would or may infringe the laws of any jurisdiction outside the United Kingdom or would or may require GVC or Ladbrokes Coral to obtain or observe any governmental or other consent or any registration, filing or other formality (including ongoing requirements) with which GVC or Ladbrokes Coral is unable to comply, or which GVC or Ladbrokes Coral regards as unduly onerous, GVC may, in its sole discretion determine that:
(i) no election under the Mix and Match Facility shall be valid or accepted in respect of such Overseas Holder;
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(ii) in respect of the Consideration Shares, the Consideration Shares shall be issued to and sold on behalf of such shareholder with the net proceeds of such sale being remitted to such shareholder;
(iii) in respect of the Consideration Shares, the Consideration Shares shall instead be issued to a nominee appointed by GVC on behalf of such holder on terms that the nominee shall, as soon as reasonably practicable following the Effective Date, sell the Consideration Shares so issued with the net proceeds of such sale being remitted to such Overseas Holder; or
(iv) in respect of the CVRs and/or the Loan Notes, determine that such person shall not have issued to him such CVRs and/or Loan Notes and that the CVRs and/or Loan Notes which would otherwise have been attributable to such person under the terms of the Acquisition shall be held by a nominee on behalf of such person, and the cash proceeds (if any) following the redemption of any Loan Notes be forwarded to such person following redemption of the Loan Notes (after deduction of fees and other costs and expenses).
This document has been prepared for the purposes of complying with English law and the Prospectus Rules and the information disclosed may not be the same as that which would have been disclosed if this document had been prepared in accordance with the law of a jurisdiction outside of England and Wales.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY GVC SHARES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. IT IS THE RESPONSIBILITY OF ANY PERSON RECEIVING A COPY OF THIS DOCUMENT OUTSIDE OF THE UK TO SATISFY HIMSELF AS TO THE FULL OBSERVANCE OF LAWS AND REGULATORY REQUIREMENTS OF THE RELEVANT JURISDICTION IN CONNECTION THEREWITH, INCLUDING OBTAINING ANY GOVERNMENTAL OR OTHER CONSENTS WHICH MAY BE REQUIRED OR OBSERVING ANY OTHER FORMALITIES REQUIRED TO BE OBSERVED IN SUCH JURISDICTION AND PAYING ALL OTHER ISSUE, TRANSFER OR OTHER TAXES DUE IN SUCH JURISDICTION. PERSONS RECEIVING THIS DOCUMENT (INCLUDING, WITHOUT LIMITATION, NOMINEES AND TRUSTEES) SHOULD NOT DISTRIBUTE IT INTO ANY JURISDICTION WHEN TO DO SO WOULD, OR MIGHT, CONTRAVENE LOCAL SECURITIES LAWS AND REGULATIONS.
Overseas Holders should consult their own legal and tax advisers with respect to the legal and tax consequences of the Scheme, in their particular circ*mstances.
Presentation of information Investors should only rely on the information in this document and the documents (or parts thereof) incorporated by reference herein. No person has been authorised to give any information or to make any representations other than the information and representations contained in this document and the documents (or parts thereof) incorporated by reference, and, if any other information or representations is or are given or made, such information or representations must not be relied upon as having been authorised by or on behalf of the Company, the Directors, the Proposed Director, Houlihan Lokey or Investec. In particular, the contents of the Company’s and Ladbrokes Coral’s websites do not form part of this document, and investors should not rely on them.
Without prejudice to any obligation of the Company to publish a supplementary prospectus pursuant to section 87G of FSMA and paragraph 3.4.1 of the Prospectus Rules, neither the delivery of this document nor Admission shall, under any circ*mstances, create any implication that there has been no change in the business or affairs of the Company or of the GVC Group, the Ladbrokes Coral Group or the Combined Group since the date of this document or that the information contained herein is correct as of any time subsequent to its date.
The Company does not accept any responsibility for the accuracy or completeness of any information reported by the press or other media, nor the fairness or appropriateness of any forecasts, views or opinions expressed by the press or other media regarding the Acquisition, the GVC Group, the
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Ladbrokes Coral Group or the Combined Group. The Company makes no representation as to the appropriateness, accuracy, completeness or reliability of any such information or publication.
The Company will update the information provided in this document by means of a supplement hereto if a significant new factor that may affect the evaluation by prospective investors of the terms of the Acquisition or the Scheme occurs prior to Admission or if this document contains any material mistake or inaccuracy. Any supplement to this document will be subject to approval by the FCA and will be made public in accordance with the Prospectus Rules. The contents of this document are not to be construed as legal, financial or tax advice. Each prospective investor should consult his or her own lawyer, financial adviser or tax adviser for legal, financial or tax advice in relation to any investment in or holding of GVC Shares or any acquisition of Consideration Shares in accordance with the Scheme.
This document is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by any of the Company, the GVC Directors, the Proposed Director, Houlihan Lokey or Investec or any of their respective affiliates or representatives that any recipient of this document should agree to acquire the Consideration Shares in accordance with the Scheme.
Prior to making any voting decision in respect of the Scheme or making any decision in respect of the Mix and Match Facility, persons acquiring the Consideration Shares should read this document in its entirety and should not just rely on key information or information summarised within it. In making a voting decision or any decision in respect of the Mix and Match Facility, each person acquiring Consideration Shares must rely upon his or her own examination, analysis and enquiry of the Company and this document, including the merits and risks involved.
Persons receiving Consideration Shares in connection with the Acquisition may not rely on Houlihan Lokey or Investec, or any person affiliated with them, in connection with any investigation of the accuracy of any information contained in this document or their investment decision and they may only rely on the information contained in this document and the documents (or parts thereof) incorporated herein by reference.
Persons who receive Consideration Shares in accordance with the Scheme will be deemed to have acknowledged that they have relied solely on the information contained in this document, and that no person has been authorised to give any information or to make any representation, warranty or statement concerning the GVC Group, the Ladbrokes Coral Group or the Consideration Shares and, if given or made, any such other information, representation, warranty or statement should not be relied upon as having been authorised by the Company, the GVC Directors, the Proposed Director, Houlihan Lokey or Investec.
None of the Company, the GVC Directors, the Proposed Director, Houlihan Lokey or Investec any of their respective affiliates or representatives is making any representation to any person regarding the legality of an investment in the Company.
Definitions and certain other references Certain terms used in this document, including all capitalised terms and certain technical and other terms, are defined and explained in the section of this document entitled “Definitions”. All times referred to in this document are, unless otherwise stated, references to London time. All references to legislation in this document are to the legislation of England and Wales unless the contrary is indicated. Any reference to any provision of any legislation or regulation shall include any amendment, modification, re-enactment or extension thereof. Words importing the singular shall include the plural and vice versa, and words importing the masculine gender shall include the feminine or neutral gender.
Cautionary note regarding forward-looking statements This document contains certain “forward-looking statements” with respect to the business, strategy and of the GVC Group and, following the Effective Date, the Combined Group and its goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about GVC’s or the GVC Directors’ beliefs and expectations are forward-looking statements. Words such as “believes”, “anticipates”, “estimates”, “expects”, “intends”, “aims”, “potential”, “will”,
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“would”, “could”, “considered”, “likely”, “estimate” and variations of these words and similar future or conditional expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
These forward-looking statements are not guarantees of future performance, and there can be no guarantee that the expectations reflected in such forward-looking statements will prove to be correct. Rather, they are based on current beliefs, expectations and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside the control of the Company and are difficult to predict, that may cause actual results, performance, plans, objectives, achievements or events to differ materially from those expressed or implied in such forward looking statements. Undue reliance should, therefore, not be placed on such forward-looking statements. Any forward-looking statements contained in this document are subject to (among other things) the risk factors described in the “Risk Factors” section of this document.
New factors will emerge in the future, and it is not possible to predict which factors they will be. In addition, the impact of each factor on the GVC Group’s, Ladbrokes Coral Group’s or the Combined Group’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those described in any forward-looking statement or statements cannot be assessed, and no assurance can, therefore, be provided that assumptions will prove correct or that expectations and beliefs will be achieved.
Any forward-looking statement contained in this document based on past or current trends and/or activities of the GVC Group should not be taken as a representation that such trends or activities will continue in the future.
Each forward-looking statement speaks only as at the date of this document. GVC and the GVC Directors expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein as a result of new information, future events or other information, except to the extent required by the Listing Rules, the Disclosure Guidance and Transparency Rules, the Prospectus Rules, the rules of the London Stock Exchange or by any other applicable law or regulation.
Forward-looking statements contained in this document do not in any way seek to qualify the working capital statement contained in paragraph 10 of Part 11 of this document.
Currency exchange rate information Unless otherwise indicated, all references in this document to:
• “sterling”, “pounds sterling”, “£”, “pence”, “penny” or “p” are to the lawful currency of the UK; and
• all references to “euro”, “Euro”, “€” or “Cents” are to the lawful currency of the member states of the European Union who adopted the Euro in Stage Three of the Treaty establishing Economic and Monetary Union on 1 January 1999.
Unless otherwise stated, all amounts converted from pound sterling to euro and vice versa are converted based on the exchange rate of £1 = €1.13.
No incorporation of website information Neither the contents of websites of any member of the GVC Group or the Ladbrokes Coral Group, nor the content of any website accessible from hyperlinks on any such websites, is incorporated into, or forms part of, this document.
No profit forecast No statement in this document is intended as a profit forecast and no statement in this document should be interpreted to mean that earnings per GVC Share for the current or future financial years would necessarily match or exceed the historical published earnings per GVC Share.
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Financial information Unless otherwise indicated, financial information for GVC in this document has been prepared in accordance LR,13.5.4(1) with IFRS and is presented in Euros. Unless otherwise indicated, financial information for Ladbrokes Coral in this document has been prepared in accordance with IFRS and is presented in pounds sterling. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies of GVC or Ladbrokes Coral (as applicable). The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in the applicable financial statements.
In addition, and unless stated otherwise, all trading information included in this document not extracted from the documents incorporated by reference is derived from the unaudited management accounts or internal financial reporting systems supporting the preparation of financial statements for the relevant periods. These management accounts and internal financial reporting systems are prepared using information derived from accounting records used in the preparation of the financial statements of GVC or Ladbrokes Coral (as applicable), but may also include certain other management assumptions and analyses.
Certain numerical figures set out in this document, including financial data, prices, amounts, proceeds and statistics relating to the Acquisition presented in millions or thousands, have been subject to rounding adjustments and, as a result, the totals of the data in this document may vary slightly from the actual arithmetic totals of such information.
Investors should read the whole of this document and the information incorporated by reference to it and LR,13.5.11 should not base any investment decision on the financial information summarised herein.
Non-IFRS financial measures This document includes non-IFRS measures and ratios, including, amongst others, EBITDA, which are not measures of financial performance under IFRS. GVC defines EBITDA as operating profit before depreciation and amortisation. EBITDA-based measures and the related ratios are used by management as indicators of GVC’s operating performance. GVC is not presenting EBITDA-based measures as measures of GVC’s results of operations. EBITDA based measures have important limitations as an analytical tool, and should not be considered in isolation or as substitutes for analysis of GVC’s results of operations.
Market, economic and industry data This document contains information regarding the GVC Group’s, the Ladbrokes Coral Group’s and, following the Effective Date, the Combined Group’s, businesses and the industries in which they operate and compete, which the Company has obtained from various third party sources. Where information contained in this document originates from a third party source, it is identified where it appears in this document together with the name of its source. Where information has been sourced from a third party it has been accurately reproduced and, as far as the Company is aware and is able to ascertain from information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading.
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PART 1
LETTER FROM THE CHAIRMAN OF GVC HOLDINGS PLC
GVC HOLDINGS PLC (incorporated and registered in the Isle of Man with registered number 4685V) LR,13.3.1(1)
Directors Registered Office Lee Feldman, Chairman and Non-executive Director 32 Athol Street Kenneth Alexander, Chief Executive Officer Douglas Paul Miles, Group Finance Director Isle of Man Karl Diacono, Non-executive Director IM1 1JB Stephen Morana, Non-executive Director Peter Isola, Non-executive Director Will Whitehorn, Senior Independent Director Jane Anscombe, Non-executive Director
9 February 2018
Dear Shareholder,
1. INTRODUCTION The Acquisition On 22 December 2017, the GVC Board and the Ladbrokes Coral Board announced that they had reached agreement on the terms of a recommended offer by GVC to acquire the entire issued and to be issued share LR,10.4.1(2)(a) capital of Ladbrokes Coral, such offer to be effected by means of a scheme of arrangement of Ladbrokes under Part 26 of the UK Companies Act 2006 (the “Acquisition”).
Shareholder approval III,3.4 The Acquisition requires the approval of both the GVC Shareholders and the Ladbrokes Coral Shareholders. If the GVC Shareholder Resolutions and the Ladbrokes Coral Shareholder Resolutions are not passed, neither the Acquisition nor Admission will proceed.
Purpose of this letter LR,13.3.1(2) This letter is intended to explain:
• the background to and reasons for the Acquisition;
• the key terms of the Acquisition; and
• why the GVC Board believes the Acquisition is in the interests of the Company and GVC Shareholders as a whole.
You are recommended to read the whole of this document and not rely on the summarised information set out in this letter. In particular, you are advised to consult the section entitled “Risk Factors” on pages 26 to 72 of this document.
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2. TERMS OF THE ACQUISITION LR,13.3.1(3) Under the terms of the Acquisition, which will be subject to the Conditions and further terms set out in the Scheme Document, the Ladbrokes Coral Forms of Proxy and the Ladbrokes Coral Form of Election, Ladbrokes Coral Shareholders will be entitled to receive: for each Ladbrokes Coral Share LR,10.4.1(2)(c) held at the Scheme Record Time: 0.141 Consideration Shares, plus
32.7 pence in cash, plus
a contingent entitlement of up to a further 42.8 pence in principal value of Loan Note plus an upward adjustment to reflect the time value of money by way of a CVR linked to the outcome of the Triennial Review
(together the “Offer Price”).
Under some circ*mstances the CVR will have zero value.
Following Completion, Ladbrokes Coral Shareholders will own approximately 46.5 per cent. and GVC III,9.1 Shareholders will own approximately 53.5 per cent. of the Enlarged Issued Share Capital of the Combined Group. They will participate together in the synergy benefits and future growth potential of the Combined Group.
The Offer Price, assuming each CVR has zero value and no Loan Notes are issued, values the entire issued and to be issued ordinary share capital of Ladbrokes Coral on a fully diluted basis at approximately £3.0 billion based on the Closing Price per GVC Share on the Last Practicable Date of 873.0 pence per GVC Share and represents a potential value of up to approximately 155.8 pence per Ladbrokes Coral Share at a premium of approximately:
• 14.8 per cent. to the Closing Price of 135.7 pence per Ladbrokes Coral Share on 6 December 2017 (being the last Business Day prior to the commencement of the Offer Period); and
• 21.9 per cent. to the volume weighted average Closing Price per Ladbrokes Coral Share of 127.8 pence in the three months prior to and including 6 December 2017 (being the last Business Day prior to the commencement of the Offer Period).
The Offer Price, assuming each CVR delivers its maximum value of 42.8 pence in principal value of Loan Note, values the entire issued and to be issued ordinary share capital of Ladbrokes Coral on a fully diluted basis at approximately £3.8 billion based on the Closing Price per GVC Share on the Last Practicable Date of 873.0 pence per GVC Share and represents a potential value of up to approximately 198.6 pence per Ladbrokes Coral Share at a premium of approximately:
• 14.1 per cent. to the Closing Price per Ladbrokes Coral Share of 174 pence on 21 December 2017 (being the last Business Day prior to the date of the Announcement);
• 46.3 per cent. to the Closing Price of 135.7 pence per Ladbrokes Coral Share on 6 December 2017 (being the last Business Day prior to the commencement of the Offer Period); and
• 55.4 per cent. to the volume weighted average Closing Price per Ladbrokes Coral Share of 127.8 pence in the three months prior to and including 6 December 2017 (being the last Business Day prior to the commencement of the Offer Period).
The Acquisition will include a Mix and Match Facility so that eligible Ladbrokes Coral Shareholders will be able to elect to vary the proportion of cash and Consideration Shares they receive, subject to equal and opposite offsetting elections made by other Ladbrokes Coral Shareholders. Certain Overseas Holders may not be eligible to participate in the Mix and Match Facility. The Mix and Match Facility will not change the total number of Consideration Shares to be issued by GVC or the total cash consideration to be paid pursuant to the Acquisition. A Mix and Match Facility will not be offered in respect of the CVRs; each Ladbrokes
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Coral Shareholder will receive, following completion of the Acquisition, one CVR for each Ladbrokes Coral Share held at the Scheme Record Time in all circ*mstances. Further details of the Mix and Match Facility are set out in paragraph 5 of this Part 1.
CVR Under the terms of the Acquisition, for each Ladbrokes Coral Share that they hold, Ladbrokes Coral Shareholders will be entitled to receive (in addition to the cash and GVC Shares offered) a contingent entitlement of up to 42.8 pence in principal value of Loan Note plus an upward adjustment for the time value of money by way of a contingent value right.
The CVRs have been constituted by a deed poll entered into by GVC on 22 December 2017 (the “CVR Instrument”). Under the terms of the CVR Instrument, the principal value of each Loan Note that the CVR Holder is entitled to (“Loan Note Principal Value”), and therefore the amount of cash ultimately payable to a Loan Note Holder upon redemption of their Loan Notes, will be (i) if Triennial Measures are Enacted, determined by means of an assessment process set out in the CVR Instrument and summarised below or (ii) if no Maximum Stakes Measures are Enacted by the CVR Long Stop Date, 35 pence for each CVR held by such CVR Holder. The assessment process referred to in (i) will evaluate the potential impact (if any) of certain measures arising from the Triennial Review on the profitability of the Ladbrokes Coral UK Business taking into account the estimated effect of any mitigating circ*mstances in the UK businesses carried on by the Wider Ladbrokes Coral Group. The Loan Note Principal Value is capped at a maximum of 42.8 pence plus an upward adjustment for the time value of money. If the results of the assessment process are such that the Loan Note Principal Value is agreed or determined to be zero, no Loan Notes will be issued, and in these circ*mstances the Ladbrokes Coral Shareholders will not receive any additional consideration under the terms of the CVR Instrument. In these circ*mstances, the value of each CVR would be zero. There will be no interest conferred by a CVR on the economic activities of Ladbrokes Coral, GVC or the Combined Group generally.
Ladbrokes Coral Shareholders should obtain their own independent advice from an appropriate professional adviser in relation to the acquisition, holding, transfer and disposal of CVRs and/or Loan Notes in the light of their own particular circ*mstances.
Further details of CVR including its terms and conditions are set out in Part 3 of this document.
3. GVC’S REASONS FOR THE ACQUISITION LR,10.4.1(2)(f) GVC and Ladbrokes have both created leading and distinctive brands and products, delivered via market- leading technology platforms. The GVC Board believes that the Acquisition will further GVC’s strategic objectives and create significant shareholder value through combining and integrating these businesses.
GVC’s track record in driving growth and creating value through acquisitions GVC has delivered superior shareholder returns through the growth of its share price and through cash dividends, supported by strong cash generation from operations. In the five years to the Last Practicable Date, GVC delivered a total shareholder return exceeding 380 per cent. GVC’s vision is to build, further scale and diversify internationally in order to be a top three player in all the markets in which it operates.
GVC has achieved its strong results with a combination of organic growth and the acquisitions of bwin.party, Sportingbet and betboo, where the acquired businesses showed stronger revenue growth after their acquisition by GVC and enabled substantial cost savings to be made through platform consolidation and implementation of best practices. In light of the successful integration of the Sportingbet and bwin.party businesses, the GVC Board believes that GVC’s experienced management team will successfully integrate the business of Ladbrokes Coral into the Combined Group, to the benefit of its customers, shareholders, employees and other stakeholders.
Leading positions in key global markets The Combined Group will, based on current wagers and revenues of GVC and Ladbrokes Coral, be one of the largest listed sportsbook operators in the world by wagers and the largest listed online-led betting and
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gaming operator by revenue. The Combined Group will have top three market positions in three of Europe’s largest online gaming markets – the UK, Germany and Italy – plus a significant business in Australia and exposure to the USA and other growth markets. Over 90 per cent. of its Net Gaming Revenue are anticipated to come from locally regulated/taxed markets.
GVC believes that the Combined Group will have the size and resources to better address the dynamics of the rapidly changing global gaming industry, and also be better able to leverage its brands in markets where it currently has low penetration but where there is high scope for growth.
Industry leading online and retail brands GVC believes that the Combined Group’s portfolio of market-leading and complementary brands (including Ladbrokes, Coral and Gala, as well as international brands such as Sportingbet, bwin.party and partypoker) enhances the Combined Group’s opportunity to maximise revenue and profit growth by harnessing the best elements of each of their respective client relationship management tools and skills that have been developed in both businesses. This in turn should lead to an improved ability to cross-sell within and across the Combined Group’s brands, and ultimately create cost efficiencies through improved customer acquisition and retention. Ladbrokes Coral’s significant retail presence and multi-channel know-how can assist GVC in driving further online growth in both GVC and Ladbrokes Coral brands.
The Combined Group will have customers from over 35 countries providing a base for further international expansion by utilising the combined scale and complementary strengths of GVC and Ladbrokes Coral. As it expands into new international markets (including new markets that may regulate sports-betting in the future), GVC believes that the scale and diversity of the Combined Group’s portfolio of brands, including Ladbrokes Coral’s retail presence, will deliver improved buying power across key marketing channels.
Highly regarded and complementary senior management and personnel GVC has a strong track record in selecting talented people from acquired businesses (as demonstrated in GVC’s acquisitions of bwin.party and Sportingbet). The acquisition of Ladbrokes Coral will further deepen and broaden the talent pool at GVC, presenting the Combined Group with one of the most experienced teams in the industry. In addition to exploiting the full potential of the existing operations, the breadth of experience across the Combined Group’s personnel base should also open up new opportunities in terms of markets and non-organic growth.
Market-leading proprietary technology The GVC Board believes that ownership of its market-leading technology and products will enable the Combined Group to be proactive and adapt quickly to differentiate itself in a highly competitive market. Applying GVC’s proprietary platform across a multi-product multi-brand platform will eliminate duplication of technology and create operational efficiency, while reducing the cost of third-party service and content provision.
When combined with scale, an efficient proprietary technology platform presents significant operational advantage. It also allows the Combined Group to offer a superior customer experience by creating new products and brands across online, retail and mobile on the same platform, and enhancing the opportunities for cross-selling between brands and verticals.
Taking the initiative now The Acquisition allows GVC and Ladbrokes Coral shareholders to benefit from the business combination in the near term, with a flexible consideration structure which takes into account a range of outcomes under the Triennial Review and at a time when financing conditions are favourable. The GVC Board also believes that the Acquisition will be double digit EPS accretive from the first full year post-Completion and following all reasonably expected outcomes of the Triennial Review, including the FOBT maximum stake being set at £2.001. The GVC Board also believes that the Combined Group’s leverage will not exceed 3.0x Net Debt/EBITDA (where Net Debt is interest bearing loans and borrowings and customer liabilities less cash and cash equivalents and EBITDA is Clean EBITDA) by the end of the first full financial year post- Completion, following all reasonably expected outcomes of the Triennial Review.
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Synergies from the Acquisition Following analysis undertaken by GVC and discussions with Ladbrokes Coral, the GVC Directors have LR,13.5.9A(2) identified significant opportunities for cost and revenue synergies as a result of the Acquisition which are expected to create shareholder value.
The GVC Board believes that the Combined Group will be able to achieve recurring annual pre-tax cost synergies of not less than £100 million. GVC expects that these cost synergies are split between and would be realised principally from:
(a) Technology and data enabled efficiencies, accounting for approximately 44 per cent. of the identified cost synergies:
• consolidating the Combined Group’s sportsbetting and gaming operations and other business operations onto common platforms, where possible;
• deploying and promoting the Combined Group’s own gaming content rather than that of a third party, where possible; and
• using the increased bargaining power of the Combined Group to negotiate better contracted rates with common suppliers for data content and streaming.
(b) Corporate and administrative efficiencies, accounting for approximately 30 per cent. of the identified cost synergies:
• consolidating the trading and customer service teams to service all brands across the Combined Group and consolidating technology costs to the GVC technology platform;
• utilising technology and lower cost locations to drive greater staff productivity; and
• moving common operational marketing and central functions to a central service group.
(c) Marketing efficiencies, accounting for approximately 14 per cent. of the identified cost synergies:
• applying Ladbrokes Coral’s business intelligence to GVC brands to achieve savings from reduced marketing and bonus spend.
(d) Other efficiencies, accounting for approximately 12 per cent. of the identified cost synergies:
• consolidating some international businesses by combining platforms and harmonising teams;
• reducing external costs including payment processing and professional services fees; and
• reducing other expenditure such as office and travel costs.
The GVC Board expects that synergy and saving realisation of £100 million will take place progressively, LR,10.4.1(2)(f) whereby approximately £7 million of the total cost synergies will be achieved in the first calendar year following Completion, rising to approximately £33 million by year two and approximately £56 million by year three following Completion. It is expected that a benefit of £100 million of identified cost synergies will be achieved by 2021. These anticipated cost synergies which are reported on under the City Code as set out in Parts B and C of Appendix IV of the Announcement reflect both the beneficial elements and costs which accrue as a result of the Acquisition. The synergies programme is expected to continue after 2021, but the scale of further synergies has not been fully quantified, and so are not being reported on for the purposes of LR,13.5.9A(5) the City Code. The expected synergies will accrue as a direct result of the Acquisition and would not be LR,13.5.9A(4) achieved on a standalone basis.
1 Adjusted EPS is calculated on a clean basis, after net synergies and impact of the Triennial Review, and before transaction costs and one-time restructuring charges. This statement is not intended as a profit forecast or estimate for any period and should not be interpreted to mean that earnings per share for GVC or Ladbrokes Coral, as appropriate, for the current or future financial years would necessarily match or exceed the historical published earnings or earnings per share for GVC or Ladbrokes Coral, as appropriate.
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The Acquisition is also expected to generate annual capital expenditure savings arising from technology and procurement synergies in the Combined Group. These have not been quantified, and so are not being reported on for the purposes of the City Code.
In addition to the quantified cost synergies, the GVC Board also believes that the Acquisition will generate revenue synergies through the actions outlined below:
• cross-selling leading products between customer bases;
• leveraging brands and driving incremental revenues for the Combined Group by implementing best in class client relationship management and back office systems;
• applying sophisticated marketing techniques to an expanded customer base across a broader product offering; and
• differentiating the Combined Group’s offering more effectively in competitive markets.
The financial effects of the revenue synergies outlined above have not been quantified, and so are not being reported on for the purposes of the City Code.
Non-recurring restructuring costs of at least £100 million are expected to be incurred in delivering the identified cost synergies in the four years post completion. The phasing of these costs will be £17 million in the financial year ending 31 December 2018, £30 million in 2019, £31 million in 2020 and £22 million in 2021. No recurring restructuring costs have been identified as a consequence of the Acquisition.
Other than these identified restructuring costs and the waiver by GVC of its rights to earn-out consideration following the sale of its Turkish facing business which was payable over a five-year period up to a maximum of €150 million (summarised in paragraph 7 below), the GVC Board does not expect any dis-synergies to arise as a result of the Acquisition.
The synergies set out in this paragraph 3 should be read in conjunction with paragraph 19 of Part 11 of this document.
None of the statements contained in this paragraph 3 are intended as a profit forecast and should not be interpreted as such.
4. UNAUDITED PRO FORMA FINANCIAL INFORMATION On a pro forma basis, and assuming the Acquisition becomes Effective, on 30 June 2017, the Combined Group would have had net assets of approximately €3,910.5 million based on the net assets of the GVC Group, as reflected in its balance sheet at 30 June 2017, together with the net assets of the Ladbrokes Coral Group, as taken from Ladbrokes Coral balance sheet as at 30 June 2017. The calculation of this pro forma net asset figure is more fully described in Part 7 of this document.
The pro forma information included in Part 7 has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and does not represent the actual financial position or results of either the GVC Group or the Ladbrokes Coral Group or the Combined Group.
5. FURTHER DETAILS OF THE ACQUISITION Scheme It is intended that the Acquisition will be implemented by means of a Court-sanctioned scheme of arrangement of Ladbrokes Coral under Part 26 of the UK Companies Act 2006. The Scheme is an arrangement between Ladbrokes Coral and the Scheme Shareholders, to which GVC will adhere, and is subject to the approval of the Court.
The purpose of the Scheme is to enable GVC to become the holder of the entire issued ordinary share capital of Ladbrokes Coral at the Scheme Record Time. This is to be achieved by the transfer by Scheme Shareholders of the Scheme Shares to GVC in consideration for which the Scheme Shareholders on the
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register of members at the Scheme Record Time will receive the consideration on the basis set out in paragraph 2 of this Part 1.
Conditions to the Acquisition III,5.1.1 The Acquisition is also subject to the Conditions and further terms set out in the Scheme Document, the Ladbrokes Coral Forms of Proxy and the Ladbrokes Coral Form of Election and will only become Effective if, among other things, the following conditions are satisfied or, where applicable, waived on or before 30 June 2018 (the “Long Stop Date”):
• a resolution to approve the Scheme is passed at the Ladbrokes Coral Shareholder Court Meeting by a majority in number representing not less than 75 per cent. in value of the Scheme Shareholders who are on the register of members of Ladbrokes Coral at the Scheme Voting Record Time, present and voting, whether in person or by proxy, at the Ladbrokes Coral Shareholder Court Meeting;
• the Ladbrokes Coral Shareholder Resolutions necessary to implement the Scheme are passed by the requisite majority of Ladbrokes Coral Shareholders at the Ladbrokes Coral General Meeting;
• each of the GVC Shareholder Resolutions is passed by the requisite majorities of GVC Shareholders at the GVC General Meeting;
• the Consideration Shares to be issued pursuant to the Acquisition are admitted to the premium listing LR,13.3.1(9)(h) segment of the Official List and to trading on the main market for listed securities of the London Stock Exchange on Completion;
• approval of Admission;
• the Scheme is sanctioned by the Court; and
• a copy of the Scheme Court Order is delivered to the Registrar of Companies.
The Scheme is also conditional on the making of a determination by the UKGC pursuant to section 102(4)(a) of the Gambling Act and made in respect of all operating licences (as such term is defined in the Gambling Act) held by members of the Ladbrokes Coral Group that all such operating licences shall continue to have effect following the acquisition by GVC of the Scheme Shares and the anti-trust and other regulatory approvals in relation to the Acquisition being obtained or the relevant Conditions being waived (as further described in the Scheme Document).
Scheme becoming Effective Upon the Scheme becoming Effective (i) it will be binding on all Ladbrokes Coral Shareholders, irrespective LR,13.3.1(9) of whether or not they attended or voted at the Ladbrokes Coral Shareholder Court Meeting or the Ladbrokes Coral General Meeting (and if they attended and voted, whether or not they voted in favour); and (ii) share certificates in respect of Ladbrokes Coral Shares will cease to be valid and entitlements to Ladbrokes Coral Shares within the CREST system will be cancelled.
Any Ladbrokes Coral Shares issued on or before the Scheme Record Time will be subject to the terms of the Scheme. Such Scheme Shares will be acquired by GVC pursuant to the Scheme fully paid and free from all liens, charges, equitable interests, encumbrances, rights of pre-emption and any other interests of any nature whatsoever and together with all rights attaching thereto, including voting rights and the rights to receive and retain in full all dividends and other distributions declared, made or paid on or after the date of the Announcement.
The Consideration Shares issued to Scheme Shareholders pursuant to the Scheme will be issued credited as LR,13.3.1(9)(6) fully paid and will rank pari passu in all respects with existing GVC Shares, including the right to receive LR,13.3.1(9)(c) dividends and other distributions declared, made or paid on GVC Shares by reference to a record date falling LR,13.3.1(9)(d) after the Effective Date. The Consideration Shares will be issued in registered form and will trade under the same ISIN number as the existing GVC Shares.
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If the Scheme does not become Effective on or before the Long Stop Date (or such later date as GVC and Ladbrokes Coral may agree with the consent of the Panel and/or the Court, if such consent is required), it will lapse and the Acquisition will not proceed (unless the Panel otherwise consents).
If the Scheme becomes Effective, it will result in the allotment and issue of approximately 273,000,000 III,5.1.2 Consideration Shares to Ladbrokes Coral Shareholders, which will result in Ladbrokes Coral Shareholders holding approximately 46.5 per cent. and GVC Shareholders holding approximately 53.5 per cent. of the Enlarged Issued Share Capital of the Combined Group.
While it is intended that the Acquisition will be effected by means of a Court-sanctioned scheme of arrangement under Part 26 of the UK Companies Act 2006, GVC has reserved the right to elect, with the consent of the Panel, and in certain circ*mstances in accordance with the Co-operation Agreement and the consent of Ladbrokes Coral, to implement the acquisition of the Ladbrokes Coral Shares by way of a Takeover Offer as an alternative to the Scheme. In such event, the Acquisition will be implemented by GVC and/or one or more wholly-owned subsidiaries of GVC on substantially the same terms as those which would apply to the Scheme (subject to such amendments as are appropriate for an acquisition being made by way of takeover offer under Part 28 of the UK Companies Act 2006, including, if the Panel so agrees, an acceptance condition set at up to 90 per cent. of the shares to which such Takeover Offer relates or at such other lower percentage as the Panel may agree, provided that if it became or was declared unconditional in all respects, the Acquisition would result in GVC holding Ladbrokes Coral Shares carrying greater than 50 per cent. of the voting rights in Ladbrokes Coral).
Further details of the Scheme, including an indicative timetable for its implementation, together with notices of the Ladbrokes Coral Shareholder Court Meeting and the Ladbrokes Coral General Meeting, have been set out in the Scheme Document, which has been despatched to Ladbrokes Coral Shareholders on the same date as the date of this document.
Mix and Match Facility Ladbrokes Coral Shareholders (other than Ladbrokes Coral ADR Holders, Restricted Overseas Holders and certain Overseas Holders) will be entitled to elect, subject to availability, to vary the proportions of cash and Consideration Shares they receive in respect of their holdings of Scheme Shares, subject to equal and opposite offsetting elections made by other Scheme Shareholders on the basis of:
for every 32.7 pence in cash, 0.037 GVC Shares*
or
for every 0.141 of GVC Shares, 123.093 pence in cash
*Calculated as 32.7 pence divided by 873 (being the Closing Price of a GVC Share on the Last Practicable Date), which equates to 0.037 GVC Shares. Mix and Match elections may only be made in respect of whole numbers of Ladbrokes Coral Shares. The Mix and Match Facility will not change the total number of Consideration Shares to be issued by GVC or the total cash consideration to be paid by GVC pursuant to the Acquisition. Accordingly, elections made by eligible Ladbrokes Coral Shareholders under the Mix and Match Facility for Consideration Shares will only be satisfied to the extent that other eligible Ladbrokes Coral Shareholders make equal and opposite offsetting elections under the Mix and Match Facility. It is therefore possible that Mix and Match Elections will not be satisfied in full or at all.
To the extent that elections cannot be satisfied in full, they will be scaled down on a pro rata basis. As a result, Ladbrokes Coral Shareholders who make an election under the Mix and Match Facility will not know the exact number of Consideration Shares or amount of cash they will receive until settlement of the consideration following completion of the Acquisition. Elections under the Mix and Match Facility will not affect the entitlements of those Ladbrokes Coral Shareholders who do not make any such elections.
The Mix and Match Facility will be conditional on the Acquisition becoming Effective and further details of the Mix and Match Facility and which Ladbrokes Coral Shareholders are ineligible to participate are
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included in the Scheme Document. A Mix and Match Facility will not be offered in respect of the CVRs; each Ladbrokes Coral Shareholder will receive, following completion of the Acquisition, one CVR for each Ladbrokes Coral Share they hold at the Scheme Record Time in all circ*mstances.
Restricted Overseas Holders If the issue of Consideration Shares, CVRs or Loan Notes to any Restricted Overseas Holder, or to any person who is reasonably believed to be an Restricted Overseas Holder, would or may infringe the laws of a jurisdiction outside England and Wales or would or may require any governmental or other consent or any registration, filing or other formality which cannot be complied with, or compliance with which would be unduly onerous, GVC may at its discretion determine that such Restricted Overseas Holder shall either (i) not have allotted or issued to him Consideration Shares and that the Consideration Shares which would otherwise have been attributable to such Restricted Overseas Holder under the terms of the Acquisition shall be sold in the market and the cash proceeds of such sale be forwarded to such Restricted Overseas Holder or (ii) that the Consideration Shares shall be issued to such Restricted Overseas Holder but shall be sold in the market on his behalf and the cash proceeds of such sale forwarded to the relevant Restricted Overseas Holder (in each case after deduction of broking fees and other sale costs and expenses) or (iii) in respect of the CVRs and/or the Loan Notes, determine that such person shall not have issued to him such CVRs and/or Loan Notes and that the CVRs and/or Loan Notes which would otherwise have been attributable to such person under the terms of the Acquisition shall be held by a nominee on behalf of such person, and the cash proceeds (if any) following the redemption of any Loan Notes be forwarded to such person following redemption of the Loan Notes (after deduction of fees and other costs and expenses).
Fractional entitlements Fractions of pence will not be paid to Scheme Shareholders and cash entitlements will be rounded down to LR,13.3.1(9)(f) the nearest penny. Fractions of Consideration Shares will not be allotted or issued to Scheme Shareholders and entitlements will be rounded down to the nearest whole number of GVC Shares and all fractions of Consideration Shares will be aggregated and sold in the market as soon as practicable after the Effective Date. The net proceeds of such sale (after deduction of all expenses and commissions incurred in connection with the sale) will be distributed by GVC in due proportions to Scheme Shareholders who would otherwise have been entitled to such fractions, save that individual entitlements to amounts of less than £5 will be retained for the benefit of the Combined Group.
6. FINANCING OF THE ACQUISITION On 22 December 2017, GVC has entered into incremental facility tranches under its existing senior term and revolving facilities agreement (the “Existing Facilities Agreement”), pursuant to which each of Banco Santander, S.A., London Branch, Barclays Bank PLC, Credit Suisse International, Deutsche Bank AG, London Branch, Mediobanca – Banca di Credito Finanziario S.p.A., Nomura International Plc, Santander UK Plc and The Royal Bank of Scotland plc (trading as NatWest Markets) (as mandated lead arrangers and underwriters) (“Lenders”) have severally and not jointly provided to GVC additional term loan B2 commitments of £1.4 billion in aggregate (available to be drawn in a combination of currencies), a bond backstop term loan B3 commitment of £400 million (which may be redenominated in agreed circ*mstances into other currencies) and a £550 million multicurrency revolving credit facility (replacing the existing €70 million revolving credit facility under the Existing Facilities Agreement) in connection with the financing of the cash consideration payable to Ladbrokes Coral Shareholders, to refinance certain existing indebtedness of the Ladbrokes Coral Group, to pay certain costs and expenses and, in the case of the multicurrency revolving credit facility, for general corporate purposes. Up to £100 million of the multicurrency revolving credit facility will be cancelled if not used within one year of closing to refinance certain Ladbrokes Coral Group bonds and/or amounts due in respect of the CVR. In addition, the existing €300 million term loan to GVC under the Existing Facilities Agreement will remain outstanding, and no consents are required from the providers of that existing term loan for the commitments and financings described in this paragraph.
Further details of the Existing Facilities Agreement are set out in paragraph 13.4 of Part 11 of this document.
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7. DISPOSAL OF TURKISH FACING BUSINESS The Disposal On 2 November 2017, GVC announced the sale of the entire issued share capital of Headlong, being the holding company of its Turkish facing business, to Ropso Malta Limited (the “Ropso”) (the “Disposal”) pursuant to a sale and purchase agreement entered into between the Buyer, GVC Investments Limited (“GVC Investments”) and GVC, dated 2 November 2017 (the “Turkey Sale Agreement”). The Disposal completed on 19 December 2017.
In the year ended 31 December 2016, Headlong and associated businesses generated approximately €35 million of Clean EBITDA. Headlong and associated businesses had gross assets of approximately €21 million as at 31 December 2016.
The consideration for the Disposal took the form of a performance related earn-out payable monthly over a five-year period up to a maximum of €150 million (the “Deferred Consideration”). The first payment was to fall due five days after the end of the second month following completion of the Disposal.
The Turkey Sale Agreement provides that following completion of the Disposal, GVC Investments has the right to serve a ‘clean break’ notice on Ropso (the “Clean Break Notice”), notifying Ropso that on the date that is one month following service of the Clean Break Notice (the “Clean Break Date”), Ropso’s obligations to pay the Deferred Consideration shall terminate.
On 21 December 2017, GVC Investments served a Clean Break Notice on Ropso. Accordingly, the Clean Break Date was 21 January 2018. Under the Sale Agreement the Clean Break Notice is revocable. In the Co-operation Agreement GVC has undertaken not to revoke the Clean Break Notice unless the Acquisition fails to become Effective. Given that the Clean Break Date fell before the date on which the first payment of Deferred Consideration was due, no Deferred Consideration has been paid nor will any Deferred Consideration be payable by Ropso.
Rationale for the Disposal On 2 November 2017, the GVC Board announced that it had concluded that it was appropriate for GVC to further increase its focus on regulated markets. The disposal of its Turkish assets would materially increase the percentage/share of regulated earnings in the GVC Group.
Key to the Acquisition was GVC’s ability to access more competitively priced debt capital, as well as access to UK clearing banks for the purpose of running the Ladbrokes Coral retail estate. GVC severed all ties with its unregulated business in Turkey through the waiver of the deferred consideration and was subsequently able to access this debt funding.
Impact of the Disposal In the year ended 31 December 2016, Headlong and associated businesses generated approximately €35.0 million of Clean EBITDA for the GVC Group. As a result of the Disposal, the GVC Group and, following the Effective Date, the Combined Group will not benefit from this contribution.
As a result of the Disposal and the waiver of the Deferred Consideration the GVC Group will record a net loss on disposal of approximately €46 million.
8. IRREVOCABLE UNDERTAKINGS AND LETTER OF INTENT Scheme irrevocable undertakings GVC has received irrevocable undertakings from the Ladbrokes Coral Directors to vote their own beneficial holdings of Ladbrokes Coral Shares in favour of the Scheme at the Ladbrokes Coral Shareholder Court Meeting and the Ladbrokes Coral Shareholder Resolutions at the Ladbrokes Coral General Meeting, in respect of an aggregate of 9,612,740 Ladbrokes Coral Shares, representing, in aggregate, approximately 0.5 per cent. of the ordinary share capital of Ladbrokes Coral in issue on the Last Practicable Date.
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In addition to the irrevocable undertakings received from the Ladbrokes Coral Directors, GVC has received irrevocable undertakings and a letter of intent from certain other Ladbrokes Coral Shareholders to vote in favour of the Scheme at the Ladbrokes Coral Shareholder Court Meeting and to vote in favour of the Ladbrokes Coral Shareholder Resolutions at the Ladbrokes Coral General Meeting, in respect of an aggregate of 231,454,2632 Ladbrokes Coral Shares representing, in aggregate, approximately 12.1 per cent. of the ordinary share capital of Ladbrokes Coral in issue on the Last Practicable Date.
In total, therefore, GVC has received irrevocable undertakings and a letter of intent to vote in favour of the Scheme at the Ladbrokes Coral Shareholder Court Meeting and the Ladbrokes Coral Shareholder Resolutions at the Ladbrokes Coral General Meeting in respect of an aggregate of 241,067,003 Ladbrokes Coral Shares representing, in aggregate, approximately 12.6 per cent. of the ordinary share capital of Ladbrokes Coral in issue on the Last Practicable Date.
Irrevocable Undertakings in respect of GVC Shareholder Resolutions GVC has received irrevocable undertakings from GVC Directors and Norbert Teufelberger (who retired from the GVC Board on 2 February 2018) who beneficially interested in (or whose family members hold, or are beneficially interested in) GVC Shares, have irrevocably undertaken to vote (or procure that the registered holder votes) in favour of the GVC Shareholder Resolutions to be proposed at the GVC General Meeting in respect of an aggregate of 3,389,611 GVC Shares representing, in approximately 1.1 per cent. of the ordinary share capital of GVC in issue on the Last Practicable Date.
9. BOARD OF GVC The current GVC Board comprises of Lee Feldman (Chairman and Non-executive Director, Kenneth Alexander (Chief Executive Officer), Paul Miles (Group Finance Director), Karl Diacono (Non-executive Director), Jane Anscombe (Non-executive Director), Stephen Morana (Non-executive Director), Peter Isola (Non-executive Director) and Will Whitehorn (Senior Independent Director).
Norbert Teufelberger retired as a Non-executive Director of GVC on 2 February 2018.
Paul Bowtell, current Chief Financial Officer of Ladbrokes Coral, has entered into a service agreement (conditional on Completion) to join the GVC Board, replacing Paul Miles as its Chief Financial Officer, ensuring that the Combined Group has direct access to, and can benefit from, his knowledge of the activities and business of the Ladbrokes Coral business. The principal terms of Paul Bowtell’s service agreement are set out in paragraph 6.2 of Part 10 of this document.
Whilst the GVC Board to date has proven highly effective, in the coming months it is intended that a review of the balance of skills and experience of the board of the Combined Group will be undertaken to ensure it has the optimal blend of capability and expertise. If appropriate, the Combined Group will actively pursue further appointments to enhance board effectiveness for the medium term. In light of the Combined Group’s size, the range of its activities and the geographic spread of its business following the Acquisition, the GVC Board intends, following Completion, to commission a review of GVC’s governance and compliance procedures to ensure that they remain appropriate for the Combined Group.
10. MANAGEMENT, EMPLOYEES AND LOCATIONS OF THE COMBINED GROUP GVC believes that the Acquisition will result in employees benefiting in the future from the greater opportunities created by the Acquisition for the Combined Group. GVC also recognises that in order to achieve the planned benefits of the Acquisition, including deriving any available cost synergies, operational restructuring of both GVC and Ladbrokes Coral is likely to be required. Following the Effective Date, GVC intends to seek to integrate the operations of GVC and Ladbrokes Coral as far as reasonably practicable.
2 On 23 January 2018, Majedie Asset Management Limited (“Majedie”) sold 20,567 Ladbrokes Coral Shares, on 26 January 2018, Majedie transferred out in specie 65,898 Ladbrokes Coral Shares, on 29 January 2018, Majedie sold 4,437 Ladbrokes Coral Shares and on 2 February 2018, Majedie sold 7,164 Ladbrokes Coral Shares, in each case in accordance with the terms of its irrecovable undertaking. Following such transactions, as at the Last Practicable Date, Majedie holds 33,835,655 Ladbrokes Coral Shares. Of this holding Majedie was entitled, as at the Last Practicable Date, to instruct voting rights over, and its irrevocable undertaking to vote in favour of the offer was at such time in respect of, 32,125,363 Ladbrokes Coral Shares.
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Although integration plans have yet to be finalised, and any final decision will be subject to engagement with appropriate stakeholders, this is likely to lead to redundancies where the businesses have overlapping functions (such as in trading, customer service, marketing and central functions) or where operational efficiencies have been identified (such as consolidating sportsbetting and gaming operations on to common platforms). GVC also intends to utilise technology and lower cost locations to drive greater staff productivity. GVC believes that absent any adverse impact of the Triennial Review on the Ladbrokes Coral UK Business the total headcount reduction will be less than 6 per. cent of the Combined Group’s combined employee base of 26,800.
The GVC Board has confirmed to the Ladbrokes Coral Board that the existing employment rights, including pension rights and incentive arrangements, of all management and employees of the Ladbrokes Coral Group will be fully safeguarded, and there will be no material change in the conditions of employment or the balance of skills and functions of the employees. The Ladbrokes Coral Group has two defined benefit pension schemes – the Ladbrokes Plan and the Coral Plan. Both Schemes are closed to new members and future accrual of benefits for existing members. The triennial valuation and funding plan was finalised in 2017 with the trustees of each scheme and GVC intends to maintain contributions in line with those agreements. The future funding plan in respect of each scheme will be agreed at the next triennial valuation. No additional deficit contributions are currently required in respect of either scheme.
GVC intends to redeploy Ladbrokes Coral personnel and fixed assets currently based in Ladbrokes Coral’s head office at Victoria Street, London across to GVC’s office at One New Change, London. Some GVC personnel may be redeployed to Ladbrokes Coral’s office at Montfichet Road, London. These redeployments are likely to result in some headcount reduction, which is included in the anticipated overall headcount stated above. Save as described in this section, GVC does not intend to make any changes to the locations of the business of the Combined Group to any material extent. Ladbrokes Coral does not operate a research and development function, so GVC is making no statement in this regard under Rule 24.2(a)(i) of the City Code.
It is intended that, after the Scheme has become Effective, the listing of the Ladbrokes Coral Shares on the Official List will be cancelled and the Ladbrokes Coral Shares will cease to be admitted to trading on the Main Market of the London Stock Exchange’s main market for listed securities. The Ladbrokes Coral ADR programme will also be terminated, in accordance with the provisions of the Ladbrokes Coral Deposit Agreement.
While not related to the Acquisition, the outcome of the Triennial Review is uncertain and could potentially have a material impact on the Ladbrokes Coral UK Business. When publishing its Consultation Paper on 31 October 2017, DCMS indicated that it would seek views on introducing a cap on stakes of between £50 and £2 on FOBTs. GVC’s recommended offer for Ladbrokes Coral has been formulated to take account of those stake caps, and stake caps between, by using the CVR. As at the Last Practicable Date, there had been no announcement by DCMS of its proposals following the conclusion of the Triennial Review but there has been speculation in the press in the UK that the Triennial Review could result in a £2 maximum stake on FOBTs. Such an outcome would reduce the profitability of most Ladbrokes Coral LBOs in the UK, and GVC would expect to review the Ladbrokes Coral retail estate with a view to protecting profitability where possible. Such review would include considering whether to close any LBO that was expected to become unprofitable. It is not possible at this time for GVC to estimate the number of Ladbrokes Coral LBOs which might become unprofitable or whether any would have to close. However, previous commentary from Ladbrokes Coral suggests that around 1,000 Ladbrokes Coral LBOs, from its portfolio of around 3,600 LBOs in the UK, could potentially close in a £2 maximum stake on FOBTs scenario.
11. DIVIDENDS AND DIVIDEND POLICY The Boards of GVC and Ladbrokes Coral have agreed that their respective shareholders should each be paid a dividend for the year ended 31 December 2017.
In order to ensure that shareholders receive this benefit: (i) if the Effective Date occurs before the announcement of a final dividend by GVC for the year ended 31 December 2017, GVC intends to declare a special interim dividend prior to the Effective Date in an amount equal to whatever amount the final dividend for the year ended 31 December 2017 would have been; and (ii) Ladbrokes Coral has today declared a
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second interim dividend for the year ended 31 December 2017 of 4.0 pence per Ladbrokes Coral Share, which for the avoidance of doubt shall be a Ladbrokes Coral Permitted Dividend as described below.
Details of this and other matters agreed in relation to dividends are as follows:
Ladbrokes Coral Permitted Dividends Under the terms of the Acquisition and save as set out below, prior to the Effective Date, Ladbrokes Coral Shareholders will be entitled to receive either:
• a final dividend announced, declared or paid by Ladbrokes Coral for the period ended 31 December 2017; or
• a special interim dividend announced, declared or paid by Ladbrokes Coral in an amount equal to the anticipated final dividend for the period ended 31 December 2017, provided that any such dividend shall not exceed 4 pence per Ladbrokes Coral Share.
If (i) Completion has not occurred by the Long Stop Date and (ii) the Long Stop Date is extended beyond the later of Ladbrokes Coral’s and GVC’s respective customary half-year interim dividend record date, Ladbrokes Coral Shareholders will also be entitled to receive any half-year interim dividend announced, declared or paid by Ladbrokes Coral in respect of the half-year period ending 30 June 2018, provided that any such dividend shall not exceed 2.2 pence per Ladbrokes Coral Share.
Any dividend that is permissible under the above criteria is a “Ladbrokes Coral Permitted Dividend”.
For the avoidance of doubt, if Completion occurs after the declaration of a Ladbrokes Coral Permitted Dividend but before its payment date, Ladbrokes Coral Shareholders will be entitled to receive such dividend.
GVC Permitted Dividends Under the terms of the Acquisition and save as set out below, prior to the Effective Date GVC Shareholders will be entitled to receive either:
• a final dividend announced, declared or paid by GVC for the period ended 31 December 2017; or
• a special interim dividend announced, declared or paid by GVC in an amount equal to the anticipated final dividend for the period ended 31 December 2017, provided that any such dividend shall not exceed €0.175 per GVC Share.
If (i) Completion has not occurred by the Long Stop Date and (ii) the Long Stop Date is extended beyond the later of Ladbrokes Coral’s and GVC’s respective customary half-year interim dividend record date, GVC Shareholders will also be entitled to receive any half-year interim dividend announced, declared or paid by GVC in respect of the half-year period ending 30 June 2018, provided that any such dividend shall not exceed €0.18 per GVC Share.
Any dividend that is permissible under the above criteria is a “GVC Permitted Dividend”.
GVC does not intend to declare any dividends other than a GVC Permitted Dividend prior to the Effective Date and, under the Co-operation Agreement, has agreed not to.
For the avoidance of doubt, if Completion occurs after the declaration of a GVC Permitted Dividend but before its payment date, GVC Shareholders will be entitled to receive such dividend.
Impact of payment of dividends other than Permitted Dividends If any dividend or other distribution or return of capital is announced, declared, made or paid in respect of the Ladbrokes Coral Shares after 22 December 2017 and prior to the Effective Date, other than a Ladbrokes Coral Permitted Dividend, or in excess of any Ladbrokes Coral Permitted Dividend, GVC reserves the right to reduce the Offer Price by the amount of all or part of any such excess, in the case of a Ladbrokes Coral
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Permitted Dividend, or otherwise by the amount of all or part of any such dividend or other distribution. The cash element of the Offer Price will be reduced first.
To the extent that such a dividend or distribution has been declared but not paid prior to the Effective Date, and such dividend or distribution is cancelled, then the Offer Price shall not be subject to change in accordance with this paragraph.
Any exercise of rights referred to in this paragraph shall be the subject of an announcement and, for the avoidance of doubt, shall not be regarded as constituting any revision or variation of the terms of the Acquisition.
12. ACQUISITION-RELATED ARRANGEMENTS Confidentiality Agreement GVC and Ladbrokes Coral entered into a confidentiality agreement on 10 November 2016 pursuant to which GVC and Ladbrokes Coral have undertaken to each other to keep information provided to each other in connection with the Acquisition confidential and not to disclose it to third parties (other than to permitted recipients) unless required by law or regulation.
See paragraph 13.1 of Part 11 of this document for a summary of the terms of the Confidentiality Agreement.
Co-operation Agreement GVC and Ladbrokes Coral have entered into the Co-operation Agreement on 22 December 2017, pursuant to which GVC and Ladbrokes Coral have agreed to certain undertakings to co-operate and provide each other with reasonable information, assistance and access in relation to the filings, submissions and notifications to be made in relation to those regulatory clearances and authorisations that are required in connection with the Acquisition. GVC and Ladbrokes Coral have also agreed to provide each other with reasonable information, assistance and access for the preparation of certain parts of the key shareholder documentation.
See paragraph 13.3 of Part 11 of this document for a summary of the terms of the Co-operation Agreement.
CVR Instrument A summary of the terms of the CVR Instrument is set out in section A of Part 3 of this document.
Loan Note A summary of the terms of the Loan Note is set out in section B of Part 3 of this document.
Expert Appointment Letter Deloitte LLP on the one hand, and the Company and Ladbrokes Coral on the other hand, have entered into the Expert Appointment Letter, under which Deloitte LLP has been appointed as the Expert for the purposes of the CVR Instrument. See paragraph 13.8 of Part 11 of this document for a summary of the terms of the Expert Appointment Letter.
CVR Representative Appointment Letter Carl Leaver, on the one hand, and GVC and Ladbrokes Coral on the other hand, have entered into the CVR Representative Appointment Letter, under which Carl Leaver is appointed as the CVR Representative for the purposes of the CVR Instrument. See paragraph 13.9 of Part 11 of this document for a summary of the terms of the Expert Appointment Letter.
Cost Coverage Agreement GVC and Ladbrokes Coral entered into an agreement on 7 December 2017 pursuant to which GVC agreed in certain circ*mstances to pay the reasonable documented costs and expenses of professional advisers properly incurred in connection with the Acquisition by Ladbrokes Coral and any of its subsidiaries or subsidiary undertakings from and including 27 November 2017 to and including the date on which the
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relevant obligation to make such payment was triggered, including any irrecoverable VAT thereon, up to a maximum amount of £5,000,000 (five million pounds sterling).
See paragraph 13.2 of Part 11 of this document for a summary of the terms of the Cost Coverage Agreement.
Clean Break Notice A summary of the terms of the Clean Break Notice is set out in paragraph 7 of this Part 1.
13. GVC GENERAL MEETING III,4.6 In view of the size of the transaction, the Acquisition constitutes a “Class 1” transaction for GVC for the purpose of the Listing Rules. Accordingly, GVC is required to seek the approval of the Acquisition from GVC Shareholders at the GVC General Meeting.
The Scheme is conditional upon, amongst other things, the passing by the requisite majority at the GVC General Meeting of the following resolutions (the “GVC Shareholder Resolutions”):
• Resolution 1 is conditional upon the passing of resolutions 2 and 3, is proposed as an ordinary resolution and seeks approval of the Acquisition.
• Resolution 2 is conditional upon the passing of resolutions 1 and 3, is proposed as an ordinary resolution and seeks authority to allot and issue GVC Shares up to an aggregate nominal value of €2,730,000 pursuant to the Scheme.
• Resolution 3 is conditional upon the passing of resolutions 1 and 2, is proposed as a special resolution and seeks authority to increase the share capital of the Company by 273,000,000 GVC Shares to 773,000,000 GVC Shares of €0.01 each and to amend the Company’s Articles to reflect this increase.
• Resolution 4 is proposed as an ordinary resolution and seeks to approve the entry by the Company into an indemnity in the CVR Instrument to the Representatives from and against any Claims or Losses (each as defined therein).
The Scheme will not be conditional upon any other resolutions which may be proposed at the GVC General Meeting. The result of the GVC General Meeting will be announced on GVC’s website.
The Notice of Extraordinary General Meeting convening the general meeting to be held at the Sunborn Hotel, 35 Ocean Village, GX11 1AA Gibraltar at 9.30 a.m. (Gibraltar time) on 8 March 2018 at which the GVC Shareholder Resolutions will be proposed is set out at the end of this document. The purpose of the GVC General Meeting is to consider and, if thought fit, pass the GVC Shareholder Resolutions, as set out full in the Notice of Extraordinary General Meeting.
As noted above, GVC Shareholders representing 1.1 per cent. of the GVC Shares in issue at the Last Practicable Date have irrevocably undertaken to vote in favour of the GVC Shareholder Resolutions at the GVC General Meeting.
14. LADBROKES CORAL ADRs The offer of Consideration Shares and CVRs will not be extended to Ladbrokes Coral ADR Holders. Therefore, if the Scheme becomes Effective, the Ladbrokes Coral Depositary will sell the Consideration Shares and, to the extent there is a market to do so, the CVRs it receives pursuant to the Acquisition as agent for and of Ladbrokes Coral ADR Holders, will call for the surrender of Ladbrokes Coral ADRs and, upon those surrenders, will deliver the proceeds of those sales, net the applicable fees, expenses, taxes and governmental charges, together with an amount in respect of the cash element of the Offer Price, to the Ladbrokes Coral ADR Holders entitled thereto in accordance with the terms of the Ladbrokes Coral Deposit Agreement. Thereafter, the Ladbrokes Coral ADR programme will be terminated in accordance with the provisions of the Ladbrokes Coral Deposit Agreement. If there exists no market through which the Ladbrokes Coral Depositary is able to sell the CVRs received by it pursuant to the Acquisition as agent for and on behalf of the Ladbrokes Coral ADR Holders, the Ladbrokes Coral Depositary will hold such CVRs
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as agent for and on behalf of the Ladbrokes Coral ADR Holders, will redeem their ultimate value, if any, once determined, and will distribute that value, net of applicable fees, expenses, taxes and governmental charges, to the Ladbrokes Coral ADR Holders entitled thereto.
Ladbrokes Coral ADR Holders will not be entitled to participate in the Mix and Match Facility.
15. DELISTING OF LADBROKES CORAL SHARES Prior to the Scheme becoming Effective, applications will be made to (i) the UK Listing Authority for the cancellation of the premium listing of the Ladbrokes Coral Shares on the Official List and (ii) the London Stock Exchange for cancellation of trading of the Ladbrokes Coral Shares on the Main Market with effect as at 8.00 a.m. on the Business Day following the Effective Date.
The last day of dealings in, and for registration of transfers of, Ladbrokes Coral Shares will be the Business Day immediately following the Scheme Court Hearing to sanction the Scheme. No transfers of Ladbrokes Coral Shares will be registered after 6.00 p.m. on that date.
After the Scheme Record Time but before the Scheme becomes Effective, entitlements to Ladbrokes Coral Shares held within the CREST system will be disabled. On the Effective Date, share certificates in respect of Ladbrokes Coral Shares will cease to be valid documents of title.
16. ADMISSION, DEALINGS AND SETTLEMENT OF CONSIDERATION SHARES Prior to the Effective Date, applications will be made to the UKLA and the London Stock Exchange for the LR,13.3.1(9)(e) Consideration Shares to be admitted to the premium segment of the Official List and to trading on the Main III,6.1 Market. It is expected that Admission will become effective, and that dealings for normal settlement of the Consideration Shares will commence at 8.00 a.m. on the Business Day following the Effective Date.
The Consideration Shares will be issued credited as fully paid and will rank pari passu in all respects with existing GVC Shares, including the right to receive dividends and other distributions declared, made or paid on GVC Shares by reference to a record date falling after the Effective Date. The Consideration Shares will be issued in registered form and will trade under the same ISIN number as the existing GVC Shares.
17. RISK FACTORS Shareholders in both GVC and Ladbrokes Coral should consider fully the risk factors associated with GVC, Ladbrokes Coral, the Combined Group, the GVC Shares, the Acquisition and Admission. Your attention is drawn to the Risk Factors set out on pages 26 to 72 of this document.
18. TAXATION Your attention is drawn to Part 9 of this document which is provided for guidance only and does not constitute tax advice. If you are in any doubt about your tax position, you should consult an appropriate professional adviser without delay.
19. OVERSEAS HOLDERS US Shareholders Please see sub-heading “United States” under the “Notice to Scheme Shareholders and other investors” in the section entitled “Important Information” in this document.
Other Jurisdictions Please see sub-heading “Other Jurisdictions” under the “Notice to Scheme Shareholders and other investors” in the section entitled “Important Information” in this document.
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20. RECOMMENDATION The GVC Board considers the Acquisition and the GVC Shareholder Resolutions to be in the best interests LR,13.3.1(5) of GVC and the GVC Shareholders as a whole and unanimously recommend that GVC Shareholders vote in favour of the GVC Shareholder Resolutions proposed at the GVC General Meeting, as the GVC Directors have irrevocably undertaken to do so in respect of their own beneficial holdings of 2,634,335 GVC Shares representing, in aggregate, approximately 0.9 per cent. of the ordinary share capital of GVC in issue on the Last Practicable Date.
Yours faithfully,
Lee Feldman Chairman
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PART 2
INFORMATION RELATING TO GVC, LADBROKES AND THE BETTING AND GAMING INDUSTRY
SECTION A: INFORMATION RELATING TO GVC HOLDINGS PLC
1. INTRODUCTION I,6.1.1 GVC is the Isle of Man incorporated holding company of the GVC Group. GVC was formed to assume the I,6.1.2 business and operations of GVC Holdings S.A., the GVC Group’s previous Luxembourg-incorporated III,6.1 holding company, as part of a re-domiciliation of the GVC Group of companies from Luxembourg to the Isle of Man in 2010. GVC Holdings S.A. was initially admitted to trading on AIM on 21 December 2004. Subsequently, GVC’s shares were admitted to trading on AIM on 24 May 2010, and subsequently admitted to the standard segment of the Official List and to trading on the Main Market as of February 2016. GVC subsequently transferred the listing of its shares to the premium segment of the Official List as of August 2016. GVC is a constituent member of the FTSE 250.
GVC is a leading provider of B2C and B2B services to the online gaming and sports betting markets. GVC’s B2C offerings target a number of European and Latin American markets, and includes the Sportingbet business, which it acquired in March 2013 pursuant to a joint takeover offer with William Hill, and the bwin.party business, which it acquired pursuant to a scheme of arrangement in February 2016.
B2C The GVC Group’s B2C operations comprise two principal business lines namely, Sports Brands and Games Brands.
Sports brands The GVC Group’s Sports Brands include bwin.party, Sportingbet, Betboo and Gamebookers, all, with the exception of Sportingbet, run on GVC’s proprietary technology platform. While the primary product of each of these brands is sports betting, they also offer online casino gaming and poker via desktop and mobile channels in many but not all markets that they serve.
Games brands The GVC Group’s Games Brands include partypoker, PartyCasino, CasinoClub and Gioco Digitale, which operate on the Group’s proprietary technology platform. Foxy Bingo, the popular UK bingo brand, utilises a third-party technology platform. In August 2017 the GVC Group acquired Innopark Pte. Limited (the operator of the Cozy Games brand), a B2C and leading B2B bingo platform provider, powering over 100 brands, predominantly in the UK.
While the GVC Group’s major brands offer products globally via dotcom domains, they are predominantly focused on European and Latin American regulated and regulating jurisdictions. Within this focus, individual brands have particular strengths in distinct markets. bwin.party is particularly popular in Germany, France, Italy, Spain and Belgium; partypoker and PartyCasino in the UK; CasinoClub in German-speaking countries; Gamebookers in Central and Eastern Europe; and Betboo in Latin America. Foxy Bingo is aimed exclusively at the UK customers and Gioco Digitale at customers based in Italy.
The GVC Group is licensed to operate in 16 countries, including Alderney, Belgium, Bulgaria, Cyprus, Denmark, France, Germany (Schleswig-Holstein), Gibraltar, Greece, Ireland, Italy, Malta, Romania, Spain and the UK.
The GVC Group operates via a central function, broadly comprising the Chief Executive Officer, Chief Financial Officer, Chief Marketing Officer, Chief Operating Officer and Group Head of Legal, Compliance and Secretariat. Beneath this level there is an operational executive team responsible for product, brands,
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technology and trading. Although there is significant centralisation, local delivery and execution are key to the success of the business.
B2B The B2B business unit utilises the GVC Group’s proprietary technology to provide product and services to third-parties. Whilst a small part of the overall business, the GVC Group’s B2B customers include some of the leading gaming companies in the world and their respective markets. Customers include, MGM, Danske Spil (the Danish state-owned operator), Fortuna and PMU (the French horse race betting monopoly operator).
The GVC Group operates from offices in:
• Gibraltar, where the GVC Group’s operational head office is based;
• Malta, where sports-trading, risk management, payment management and anti-fraud operations are conducted;
• Philippines, where ancillary sports trading is operated;
• Uruguay, Israel, Ireland and Bulgaria, from where customer support operations are managed;
• United Kingdom and Austria, where the mobile development team and some central support functions are situated, including German-language support customer support managed from Austria;
• India where some technology, administration and customer support services functions are situated; and
• Denmark, Italy, Slovakia and Spain.
In total, as at 31 January 2018, the GVC Group had 2,736 employees and 276 direct contractors working in offices in various countries.
2. HISTORY AND RECENT DEVELOPMENTS I,5.2.1 GVC Holdings S.A. was incorporated in November 2004. In December 2004, it contemporaneously I.5.2.2 acquired the business of CasinoClub and its shares were admitted to trading on AIM on 21 December 2004. I,5.2.3
Having established licensed online operations in both Italy and Spain in 2008, these activities were subsequently sold as the GVC Group sought to focus on more profitable markets.
In July 2009, the GVC Group acquired Intera N.V., a company incorporated in Curaçao which owns the web domain “Betboo.com”. The Betboo business targets the Brazilian market for bingo, sports, casino and poker products. Intera N.V. was acquired for an upfront consideration of $4,000,000 (€2,850,830) and a maximum consideration of $26,000,000, depending on performance, at a fixed exchange rate of €1=US$1.4031.
As part of a re-domiciliation of the GVC Group to the Isle of Man, GVC was incorporated on 5 January 2010 as a public limited company.
Subsequently, GVC Shares were admitted to trading on AIM on 24 May 2010.
On 21 November 2011, EPC (a company which was not a member of the GVC Group) acquired the Superbahis Business, which is focused on Turkish-speaking betting markets. The GVC Group charged EPC fees for providing support services from the date of EPC’s acquisition of the Superbahis Business to enable it to operate the Superbahis Business.
On 19 March 2013, GVC completed the acquisition of Sportingbet as a result of a joint offer with William Hill PLC. Through a UK court scheme of arrangement, William Hill acquired Sportingbet’s Australian business together with certain other assets, including an option to acquire Miapuesta, Sportingbet’s Spanish brand. This option was subsequently exercised in 2013.
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In 2015, the GVC Group successfully completed the sale of its interests in World Poker Tour, a land-based poker tournament and TV production business; Win, a social gaming business; its investment in Gaming Realms, a listed real money and social gaming business; Winners, a retail betting franchise in Spain; and United Games, a social gaming developer. Total consideration for these disposals was in excess of €37.1 million.
On 1 February 2016, the GVC Group completed the acquisition of bwin.party, an online gaming company whose shares were listed on the standard segment of the Official List and traded on the Main Market, for total consideration of €1,506.6 million. Under the terms of the acquisition, each bwin.party shareholder received 25p plus 0.231 new GVC shares for each bwin.party share. The total bwin.party shareholding was 843.5 million shares; accordingly, the GVC Group issued 194.8 million new shares to the bwin.party shareholders.
On 1 August 2016, GVC transferred the listing of all its ordinary shares from a standard listing on the Official List to a premium listing on the Official List.
On 31 May 2017, the GVC Group completed the sale of its payment processing business operated under the brand name of Kalixa to Senjō Group Pte. Ltd, a global payments operator and investment firm headquartered in Singapore for a total consideration of €29.0 million payable in cash, subject to a completion accounts adjustment.
On 9 August 2017, the GVC Group acquired Innopark Pte. Limited (operator of the Cozy Games brand) for an initial consideration of £26.2 million, with deferred consideration of up to £800,000 if certain conditions are met.
On 2 November 2017, the GVC Group announced the sale of Headlong, the holding company of its Turkish facing business, to Ropso Malta Limited for performance related earn-out consideration of up to a maximum amount of €150.0 million in cash over a five year period. The sale completed on 19 December 2017.
On 22 December 2017, the GVC Group and the Ladbrokes Coral Group announced the terms of a recommended offer by GVC to acquire the entire issued and to be issued ordinary share capital of Ladbrokes Coral with a headline value of 164.4p per Ladbrokes Coral Share, valuing the issued and to be issued shares in the capital of Ladbrokes Coral at approximately £3.2 billion (based on the closing price per Ladbrokes Coral Share on 21 December 2017) plus a contingent value right based on the outcome of the Triennial Review.
3. BUSINESS OVERVIEW GVC’s business is built on the combination of its brands and technology. Unlike some of its major competitors, GVC’s gaming products are delivered almost entirely via its robust and highly scalable proprietary technology platform, which processed approximately 95 per cent. of Group NGR in 2016.
With the migration of the of the majority of GVC’s brands onto the platform it acquired with its acquisition of bwin.party now complete, the GVC Group also benefits from efficiencies of scale resultant from delivering a multi-brand, multi-territory offer via a single platform. Product and feature development can be applied to multiple brands simultaneously, with new content and functionality rolled-out to customers across numerous markets as regulation permits.
In this way, through a portfolio of established B2C gaming brands, the Group offers over 1,400 individual games via PC and mobile, in 21 languages and 19 currencies.
Sports Brands bwin • Bwin was established in 1997 as betandwin before rebranding itself in 2006. The brand derives its revenue primarily from sports betting customers and offers a wide variety of fixed-odds betting opportunities on sports including football, tennis, basketball, motor sports and North American sports. bwin.party also offers a complete casino and poker offering which is cross-sold to sports customers.
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• Internationally experienced bookmakers with core competencies in a wide range of sports prepare odds for up to 80,000 betting markets daily on more than 90 different sports. Bwin offers the opportunity for its customers to bet on over 40,000 live markets per quarter. The main focus is on football, where bets can be placed on over 1,000 football leagues in 140 different countries as well as international competitions ranging from the Champions League, FIFA World Cup and UEFA European Championship down to lower league games in a number of countries.
• The bwin brand is particularly popular in regulated/taxed mainland European markets including Germany, France, Italy, Spain and Belgium, having built the brand with a number of high profile sponsorships and digital partnerships with leading football clubs such as Real Madrid, AC Milan, Juventus, Manchester United and Bayern Munich. Current digital partnerships include Borussia Dortmund, Athletico Madrid and Inter Milan, amongst others.
• The bwin brand, along with the proprietary technology platform that it operates on, was acquired by GVC in February 2016 as part of the bwin.party acquisition.
Sportingbet • Sportingbet is a leading provider of sports betting, casinos, games and poker both online and on mobile. Established in 1998, the business was acquired by GVC in March 2013. Sportingbet’s core markets are the UK, Europe and Latin America.
• Sportingbet customers were migrated onto the bwin.party technology platform on a region-by-region basis throughout 2017, with the Latin America and South Africa migration expected to complete in early 2018.
Betboo • In 2005 the Betboo website was established in the Brazilian market with its own proprietary sports and bingo platform and integrated casino and poker from third party providers. It was acquired by GVC in July 2009. The brand is in the process of being migrated onto the bwin.party platform.
Gamebookers • Gamebookers is a full-service sportsbook which is particularly popular in central and eastern European markets, and operates on the Group’s core technology platform.
• Originally established in 1999, the Gamebookers brand was purchased by PartyGaming PLC in 2006 and was part of the merged bwin.party group which was acquired by GVC in February 2016.
Games Brands PartyCasino • PartyCasino offer a variety of casino games, including roulette, blackjack, slots and progressive jackpot slots. Having traditionally operated as an adjunct to partypoker, PartyCasino was restructured as a standalone label following its acquisition by GVC. The brand was relaunched in the second half of 2017 with a new livery, website front-end and brand proposition focused on affluent 25-40 year olds, backed by a broadcast television advertising campaign in the UK. A greater emphasis has been placed on VIP management and reducing the reliance on partypoker as a customer acquisition channel.
• The PartyCasino product offer has also been significantly enhanced. Historically, PartyCasino focused on in-house developed content with a limited number of gaming titles supplied by third parties. Whilst this provided a key differentiator from competitors, it meant the offer lacked the breadth of choice available elsewhere in the market. Since its acquisition GVC has signed deals with more than 50 third party suppliers, resulting in the addition of approximately 900 games across the GVC Group’s platform. At the same time the Group has continued to invest in bespoke content to maintain its point of difference. A new Pro Series of casino table games was launched in 2017, as was a new dedicated studio for the delivery of live dealer games.
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partypoker • Launched in 2001, partypoker was a pioneer of online poker and quickly grew to become the world’s largest poker site, which continued until its withdrawal from the US market in October 2006 following regulatory change. Today, partypoker is one of the top three global poker sites and remains one of the most recognised names in the industry.
• Having acquired partypoker as part of the bwin.party acquisition, GVC committed significant resources in reinvigorating the brand, investing in product development, increased marketing and in improving the overall player experience. In 2017 the GVC Group launched partypoker LIVE, a new live global tour as a player acquisition tool for the online product. Featuring headline partypoker Million events which have set record prize pool guarantees in the UK, Canada and Russia.
• As a peer-to-peer game, having a large pool of players or ‘liquidity’ is key to an operator’s success, enabling players to quickly find a table at a time and at stakes that suit them. As such, partypoker’s position as one of the three largest online poker rooms in the world is an important contributor to its success and a significant barrier to entry for competitors.
CasinoClub • Originally launched in 2001, CasinoClub is a leading online casino website focused on German-speaking markets. The business was originally built on the established readership of a German language magazine for roulette enthusiasts coupled with extensive marketing. As one of the first online gaming sites targeted at German-speaking players, it swiftly established a significant, loyal and high-spending customer base in German-speaking markets, many of whom remain players today.
• Development of CasinoClub’s games and software was originally outsourced to a third-party, GVC subsequently acquired the platform and certain games from the provider in December 2015.
Gioco Digitale • Gioco Digitale was the first regulated gaming site launching online poker and online bingo on the Italian market in 2009. It is positioned as a gaming portal for casual gamers, with a gaming offer specifically tailored to the domestic Italian market. Its primary product segments focus on bingo and casino games.
Cashcade brands • Bingo is GVC’s smallest vertical, with Foxy Bingo being the lead brand. Part of the Cashcade business which was acquired by bwin.party in 2009, Foxy Bingo is one of the most recognised brands in the UK. Unlike the GVC Group’s other leading brands, Foxy Bingo runs on third-party software provided by 888 Holding’s Dragonfish platform. In 2017 the Group relaunched Foxy Casino as a sister brand to Foxy Bingo, to target a broader demographic and increase cross-sell from existing customers into casino gaming. In addition to Foxy Bingo, the GVC Group operates a number of additional bingo brands, most notably Cheeky Bingo.
Cozy Games • On 9 August 2017, the GVC Group acquired Cozy Games. Cozy is a B2C and leading B2B bingo platform provider, operating on its own proprietary platform. Cozy currently powers over 100 brands, including Mr Green, 8Ball (Stride Gaming), GameVillage and many more.
Non-core brands InterTrader Limited • InterTrader enables customers to access financial markets using contracts for difference and spread bets. InterTrader holds licences issued by the FCA and the Gibraltar Financial Services Commission.
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B2B The Group also leverages its proprietary technology, associated services and industry experience by providing third-party customers with B2B services. Customers include some of the world’s best known gaming companies including MGM, Danske Spil, PMU and Fortuna.
Business disposals (a) Kalixa Kalixa, which was the payment processing arm of the previous bwin.party business and provided end-to-end payment services to third party merchants, consumers and corporate customers across Europe, was sold to Senjō on 31 May 2017 for consideration of €29.0 million (subject to a completion accounts adjustment). Kalixa’s key products are: (i) Kalixa Pay, which is a prepaid e-wallet which had 200,000 users across Europe when it formed part of the bwin.party business; (ii) Kalixa Pro, which is targeted at small businesses and sole traders; (iii) Kalixa Accept, which allowed merchants to accept more than 200 payment methods when it formed part of the bwin.party business; and (iv) the PXP Payment Gateway, which had customers including Urban Outfitters, Intercontinental Hotel Group, Ladbrokes Coral and MasterCard when it formed part of the bwin.party business.
(b) Turkish business including Superbahis On 21 November 2011, EPC (a company which was not a member of the GVC Group) acquired the Superbahis business, which focused on Turkish-speaking betting markets. The GVC Group charged EPC fees for providing support services from the date of EPC’s acquisition of the Superbahis business to enable it to operate the Superbahis business.
On 2 November 2017, GVC announced the sale of the entire issued share capital of Headlong, the holding company of its Turkish facing business, to Ropso pursuant to the Turkey Sale Agreement entered into between Ropso, GVC Investments and GVC. The Disposal completed on 19 December 2017.
In conjunction with the Disposal, EPC sold the Superbahis business to Ropso and the support services which be previously provided by the GVC Group to EPC have been terminated.
The consideration for the Disposal took the form of a performance related earn-out payable monthly over a five-year period up to a maximum of €150.0 million (the “Deferred Consideration”). The first payment was to fall due five days after the end of the second month following completion of the Disposal.
The Sale Agreement provided that following completion of the Disposal, GVC Investments had the right to serve a ‘clean break’ notice on Ropso (the “Clean Break Notice”), notifying Ropso that on the date that is one month following service of the Clean Break Notice (the “Clean Break Date”), Ropso’s obligations to pay the Deferred Consideration shall terminate.
On 21 December 2017, the GVC Investments served the Clean Break Notice on Ropso. Accordingly, the Clean Break Date was 21 January 2018. Under the Turkey Sale Agreement the Clean Break Notice is revocable. In the Co-operation Agreement GVC has undertaken not to revoke the Clean Break Notice unless the Acquisition fails to become Effective. Given that the Clean Break Date fell due before the date on which the first payment of Deferred Consideration was due, no Deferred Consideration was paid nor will any Deferred Consideration be payable by Ropso.
4. STRATEGY GVC’s strategy is to increase shareholder returns through a combination of:
• the redistribution of the high levels of cash generated through organic growth and acquisitions by way of dividends to shareholders;
• increasing the markets in which the GVC Group trades to diversify geographic risk and quality; and
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• improving the quality and mix of the group’s earnings through strategic acquisitions and joint ventures, especially where there are opportunities for high levels of cash generation through synergies.
GVC has a proven ability of generating value through successful integration of significant acquisitions and the Directors are confident this will continue.
5. CURRENT TRADING AND RECENT TRENDS I,12.1 GVC has delivered attractive shareholder returns through the growth of its share price and through cash I,12.2 dividends, supported by strong cash generation from operations. In the five years to 31 December 2017, GVC delivered a total shareholder return exceeding 380.0 per cent. GVC’s vision is to build further scale and to diversify internationally in order to be a top three player in the markets in which it operates. GVC’s management continues to deliver this vision through its strategy built on both organic and acquisitive growth.
Current trading GVC released its trading update on 11 January 2018, for the three month period to 31 December 2017, which included the following information in relation to its current trading and prospects:
“GVC Holdings PLC (LSE: GVC), the multinational sports betting and gaming group, is pleased to announce the GVC Group enjoyed a record quarterly NGR in Q4 2017 and, as a result, NGR for the year to 31 December 2017 is expected to be c€1,009m. On an underlying1 basis this represents growth of 18% on pro forma2 2016. The Board expects Clean EBITDA3 for the same period to be at the top end of management’s internal expectations.
Key highlights (year to 31 December 2017 unless stated) • Total NGR c€1,009m, an increase of 13% on pro forma 2016
• Underlying NGR growth +18% on pro forma 2016
• Clean EBITDA is expected to be at the top end of management’s internal expectations
• Q4 NGR €279.5m – a record since the acquisition of bwin.party in February 2016
• Q4 underlying NGR growth +31% – strongest quarter since bwin.party acquisition
(. . .)
Q44 Trading Daily NGR for the fourth quarter increased by 21% (+25% in constant currency) and on an underlying basis, was 31% higher. At €279.5m, Q4 2017 NGR was the highest achieved by the Group since the acquisition of bwin.party.
Sports Brands daily NGR grew 24% and on an underlying basis increased by 37%. The gross win margin in Q4 2017 was 13.1%, significantly ahead of the expected long-term average of 10%, with daily sports NGR up 35% and +54% on an underlying basis. The well above average gross win margin predictably reduced recycling, with wagers down 11% in the quarter. However, this was predominantly due to Turkey and wagers on an underlying basis were just 1% lower, a very pleasing performance. Despite the high gross win margin, Sports Brands gaming revenues rose 14% (+21% on an underlying basis), with the benefits of improved product and cross-sell continuing to be important factors.
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Gaming Brands daily NGR increased 22% (+24% in constant currency) during the period, and on an underlying basis was +18%. All verticals put in a solid performance, with partypoker maintaining its impressive growth. B2B and non-core revenues grew by an underlying 4%, adjusting for Kalixa which was sold in the first half of 2017.
1 Excludes acquisitions and disposal undertaken in 2017 2 Assumes bwin.party acquired 1 January 2016 3 Clean EBITDA = earnings before interest, tax, depreciation, amortisation, share based payments and exceptional items 4 Figures on a reported basis unless stated.”
Long-term refinancing On 2 March 2017, GVC entered into the Existing Facilities Agreement which was amended on 7 December 2017 to increase its B loan facility by €50.0 million to €300.0 million and to reduce the pricing.
On 22 December 2017, incremental facility tranches were established under the Existing Facilities Agreement for the purpose of, amongst other things, funding the Acquisition as set out in paragraph 6 of Part 1.
Further details of the Existing Facilities Agreement are set out in paragraph 13.4 of Part 11 of this document.
The Board of GVC believes that the Combined Group’s leverage will not exceed 3.0x Net Debt/EBITDA (where Net Debt is interest bearing loans and borrowings and customer liabilities, less cash and cash equivalents, and EBITDA is Clean EBITDA) by the end of the first full financial year post-completion, following all reasonably expected outcomes of the Triennial Review.
6. DIVIDEND POLICY I,20.7 The Boards of GVC and Ladbrokes Coral have agreed to retain their current dividend policies for the period prior to the Effective Date. Accordingly, the GVC Permitted Dividend and the Ladbrokes Coral Permitted Dividend may be paid in accordance with paragraph 11 of Part 1 of this document.
Following the Effective Date and subject to the approval of the GVC Board, GVC intends to continue with a progressive dividend policy. It is expected that payments will be biannual, with an approximate split of 40 per cent.: 60 per cent. between the interim and final payment. Furthermore, the GVC Directors will also consider returning any future excess cash to shareholders in the form of special dividends and/or share buybacks. Excess cash will be determined by the capital requirements of the business, together with the trading outlook at the appropriate time. This approach is consistent with GVC’s post-Acquisition growth strategy, which balances returns to shareholders with the need to retain sufficient funds to drive growth and reduce leverage.
7. REGULATION For an overview of the regulatory obligations to which the GVC Group and, following the Effective Date, the Combined Group is and will be subject, please refer to Part 8 of this document.
The regulation of online gaming presents possible risks to the GVC Group and, consequently, after the Effective Date, to the Combined Group, both from existing regulation and regulation which may be introduced or changed in the future. These possible risks are described separately in the “Risk Factors” section of this document.
8. EMPLOYEES I,17.1 As at 31 December 2014, 31 December 2015 and 31 December 2016, GVC had 2 employees, being its Executive Directors.
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The number of permanent employees of other members of the GVC Group at the end of each of the financial years ended 31 December 2014, 31 December 2015 and 31 December 2016 was as follows:
31 December 31 December 31 December Location of employment 20141 20151 2016 Austria – - 471 Bulgaria – – 232 Channel Islands 2 2 1 France – – 0 Denmark 2 2 2 Gibraltar – – 289 India – – 531 Israel 49 59 72 Italy – – 32 Malta 46 64 73 Philippines 80 92 99 Republic of Ireland 102 60 51 Slovakia 5 7 6 Spain – – 27 Ukraine – – 52 United Kingdom 156 145 308 Uruguay 99 99 87 USA – – 13 Other – – – Contractors 40 71 486 Total 581 601 2832
Notes: 1 Employee numbers for 2014 and 2015 do not include bwin.party as at those times they were not part of the GVC Group.
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SECTION B: INFORMATION RELATING TO LADBROKES CORAL GROUP PLC LR,10.4.1(2)(b) INTRODUCTION Ladbrokes Coral is one of the leading international betting and gaming groups, providing its customers with a wide choice of products across multiple channels.
The Ladbrokes Coral Group was formed as a result of the combination of the Historic Ladbrokes Group and Historic Coral Group (comprising certain businesses of the Gala Coral Group), which completed on 1 November 2016 (the “Ladbrokes Coral Merger”). The Historic Ladbrokes Group was founded in 1886 and was floated on the London Stock Exchange in 1967, while the Historic Coral Group traces its history back to 1926.
The Ladbrokes Coral Group operates an online betting and gaming business as well as land-based betting services, offering innovative products under the Ladbrokes, Coral, Gala and Eurobet brands across a number of regulated territories.
The Ladbrokes Coral Group is the largest operator in the UK retail betting and gaming market (based on LBOs), with approximately 3,500 shops across England, Wales and Scotland. The Ladbrokes Coral Group has a significant presence in Europe through its various brands, both in the retail and online sectors, as well as strong online bookmaking brands in Australia.
1. HISTORY 1.1 Historic Ladbrokes Group The Historic Ladbrokes Group’s experience in wagering and betting extends back to 1886 when Mr Schwind and Mr Pennington went into partnership as commission agents, principally with the objective of backing horses trained by Pennington at Ladbroke Hall in Worcestershire. The Historic Ladbrokes Group gained its name in 1902 when Arthur Bendir joined the partnership and changed the emphasis of the business from backing horses to laying them as a bookmaker.
The Historic Ladbrokes Group has focused in recent years on expanding its traditional core betting business, launching its online betting and gaming business in 2000 and entering the Spanish market through a retail joint venture under the Sportium brand with Cirsa Gaming Corporation, S.A. in 2008. In 2013, this was expanded to include a digital offering under the Sportium brand. Also in 2013, the Historic Ladbrokes Group expanded into Australia with the purchase of Gaming Investments Pty Ltd, accompanied by the launch of Ladbrokes.com.au.
In 2013, the Historic Ladbrokes Group established a product and marketing services partnership with Playtech, designed to drive growth in online products, and a new mobile service was launched on Playtech’s Mobenga platform. By the summer of 2014, the largely complete migration of products to Playtech’s gaming software aided the Historic Ladbrokes Group in generating record net revenue for World Cup betting.
1.2 Historic Coral Group The Historic Coral Group can trace its origins to 1926 when Joe Coral started offering bets to customers from a billiards club in Stoke Newington, opening a betting business trackside at Haringey and White City greyhounds by the following year. Coral retail was formalised in 1960 when the UK legalised and regulated the off-course bookmaking market for the first time, and in 1961 Joe Coral opened one of the first licensed betting shops in the UK. Through its Coral Retail division, the Historic Coral Group continued to be one of the most well established brands on the high street.
From 2007, the Historic Coral Group began the rollout of betting shops in Italy following the acquisition of 358 sports betting licences through a government-led auction. The Italian business, run through the Eurobet retail division, was awarded a further 500 Italian retail licences in 2013, and in the last quarter of 2016, became the second largest operator in the Italian retail market.
From 2012, the Historic Coral Group also established a strong online presence in the UK market through the re-launch of its digital division, which consists of three digital brands targeting diverse
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customer segments: Coral.co.uk, Galabingo.com and Galacasinos.com. The Historic Coral Group also retained a traditional telephone betting business, which operates as a central support division.
1.3 The Ladbrokes Coral Merger The Ladbrokes Coral Merger was completed on 1 November 2016. The Ladbrokes Coral Group now operates a dual-brand strategy in the UK across both its retail and its digital businesses. The Ladbrokes Coral Group has identified five opportunities that are central to its overall strategy: (i) the delivery of faster online growth through a leading product offering, combined with a data-driven approach to marketing and customer retention; (ii) leveraging its position as the UK’s largest LBO estate to grow its multi-channel offering; (iii) pursuing the growth of the Ladbrokes Coral Group’s extensive international portfolio of businesses; (iv) pursuing product and technological development; and (v) delivering synergies identified as part of the Ladbrokes Coral Merger.
Since completion of the Ladbrokes Coral Merger, significant progress has been made on integrating the Historic Ladbrokes Group and the Historic Coral Group. In terms of specific milestones, a single board, leadership and operational teams have been implemented to support the dual brand strategy. In the UK digital division, Ladbrokes Coral now operates on a common version of its sports and gaming platforms and uses a single trading team and trading platform to support the entire UK business. In July 2017, Ladbrokes Coral announced it expected to achieve increased synergies as a result of the combination, raising its guidance to £150 million per annum, more than double the original estimate (at the time of the Ladbrokes Coral Merger).
2. BUSINESS OVERVIEW 2.1 Products The Ladbrokes Coral Group’s business consists of offering a variety of betting and gaming products to retail and online customers. Sports betting is provided through all of the Ladbrokes Coral Group’s business channels. The most popular sport on which the Ladbrokes Coral Group offers odds is horse racing, followed by football. The Ladbrokes Coral Group also offers odds on many other sports including rugby, cricket, tennis, golf, motor racing, greyhound racing, darts, snooker, American football, baseball, basketball and ice hockey. The Ladbrokes Coral Group also accepts bets on non-sporting events through all of the Ladbrokes Coral Group’s business channels, such as bets on the outcome of political elections, television competitions, popular music chart results and high profile novelty bets.
The Ladbrokes Coral Group also offers a number of gaming products such as slots, casino games, bingo, poker and other skill games such as pontoon and blackjack.
2.2 Principal channels of product delivery The Ladbrokes Coral Group delivers its betting and gaming products to customers through retail betting outlets and its online “digital” operations. The Ladbrokes Coral Group has a leading multi- channel offering. Multi-channel enables retail customers to sign-up in-shop to the Ladbrokes Coral Group’s online offering, and subsequently access their online “single” wallet in-shop. The Ladbrokes Coral Group now has over one million sign-ups. The Ladbrokes Coral Group is organised into the following business divisions:
(a) UK Retail The Ladbrokes Coral Group is the largest operator in the UK retail betting and gaming market (“UK Retail”), based on number of LBOs, with a market share of approximately 41 per cent. as at 30 September 2016 (adjusted to exclude the 360 LBOs required to be divested in the context of the Ladbrokes Coral Merger). The UK business had pro forma net revenues of £1,431.1 million and reported net revenues of £971.6 million for the year ended 31 December 2016 and UK Retail accounted for 61 per cent. of the Ladbrokes Coral Group’s pro forma net revenue for the year ended 31 December 2016. A description of the performance of the Ladbrokes Coral Group’s UK Business sector for the year ended 31 December 2016 is given
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on pages 26-27 of the Ladbrokes Coral Group’s 2016 Annual Report and Accounts (which are incorporated by reference into this document). LBOs typically consist of a high street storefront which contains one or more betting positions where customers place their bets and settle their winnings across a range of sporting and non-sporting events, self-servicing betting terminals (“SSBTs”), television screens and seating to follow live sporting events and up to four FOBTs. These gaming machines offer B2 Content (roulette, blackjack and jackpot with a maximum stake of £100 and a maximum jackpot of £500) and B3 Content (jackpot slot content with a maximum stake of £2 and a maximum jackpot of £500). Over 40 per cent. of machines gross win is derived from slot content as at 30 September 2017.
(b) European Retail The Ladbrokes Coral Group’s European Retail division comprises Eurobet Retail (Italy), Ladbrokes Belgium, Ladbrokes Ireland and the Spanish joint venture Sportium. The European Retail business had pro forma net revenues of £212.0 million and reported net revenues of £123.2 million for the year ended 31 December 2016 and accounted for 9 per cent. of the Ladbrokes Coral Group’s pro forma net revenue for the year ended 31 December 2016. A description of the performance of Group’s European Retail sector for the year ended 31 December 2016 is given on pages 28-29 of the Ladbrokes Coral Group’s 2016 Annual Report and Accounts (which are incorporated by reference into this document).
(i) Eurobet Retail Eurobet Retail was created in 2006 and opened its first shop in Italy in June 2007. It was the second largest operator in the market for over the counter sports betting in Italy in the last quarter of the year ended 31 December 2016, which is primarily generated from football betting operations, with a smaller share in the horse race betting market. Eurobet Retail operates in the Italian retail market through a franchise model with 850 outlets open as at 31 December 2017. Franchisees provide the premises and incur running costs, and Eurobet Retail provides the product, trading and brand marketing. Franchisees receive a share of the retail net revenue they generate, plus a commission for the online activity of customers they recruit.
Retail betting licences in Italy are supply-constrained. The last auction for Italian licences took place in 2013, when Eurobet won 500 new licences, which comprised 25 per cent. of those made available in the auction. The current licences were due to expire in June 2016 but ADM, the Italian betting and gaming regulator, has permitted existing operators such as Eurobet Retail to continue to operating under their current licences in exchange for them extending the expiry date of their guarantees to ADM. It is currently uncertain as to when the new tender documentation for Italian sports and horserace betting licences will be issued by ADM.
The Eurobet Retail business had pro forma net revenues of £105.6 million and reported net revenues of £16.8 million for the year ended 31 December 2016.
(ii) Ladbrokes Belgium As at 31 December 2017, the Ladbrokes Coral Group had a total of 541 Belgian outlets, including both Ladbrokes shops and newsagent outlets. The majority of the Ladbrokes Coral Group’s operations in Belgium are conducted using a franchise model, whereby a member of the Ladbrokes Coral Group enters into a franchise agreement with a franchisee operator, who then establishes a betting office using the Ladbrokes Coral Group’s retail licence, product and systems infrastructure. The Ladbrokes Coral Group bears the operating costs for the shops. The Ladbrokes Belgium estate also offers virtual betting products and SSBTs to enhance the quality of offering.
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The Belgian retail business had pro forma and reported net revenues of £67.7 million for the year ended 31 December 2016.
(iii) Ladbrokes Ireland As at 31 December 2017, the Ladbrokes Coral Group had 140 LBOs in the Republic of Ireland. The Irish retail business had pro forma and reported net revenues of £38.7 million for the year ended 31 December 2016.
(iv) Sportium (Spain) The Ladbrokes Coral Group has a significant retail presence in Spain through its Sportium joint venture with Cirsa Gaming Corporation, Sportium. As at 31 December 2017, Sportium services are available from a total of 2,007 outlets. A majority of the outlets in Spain are locations where Sportium has acquired the right to provide its betting and gaming services (for example, in bars through SSBTs or corners, which are areas within arcades or other outlets where Sportium has SSBTs and there is a manned counter), rather than being locations operated directly by Sportium or a Sportium franchisee.
The Sportium retail joint venture’s results, 50 per cent. of which are reported by the Ladbrokes Coral Group at an operating profit level, included pro forma operating profit of £4.1 million and reported operating profit of £4.0 million for the year ended 31 December 2016.
(d) Digital The Digital segment comprises all of the Ladbrokes Coral Group’s online operations including Ladbrokes.com, Coral.co.uk, Galabingo.com, Galacasino.com, Ladbrokes.com.au (Australia), Eurobet.it (Italy), Ladbrokes.be (Belgium) and the Spanish joint venture Sportium.es. The Digital business had pro forma net revenues of £666.2 million and reported net revenues of £383.5 million for the year ended 31 December 2016 and accounted for 28 per cent. of the Ladbrokes Coral Group’s pro forma net revenue for the year ended 31 December 2016. The Ladbrokes Coral Group has an estimated 12 per cent. share of the UK online sports betting and gaming market as at 31 December 2016. A description of the performance of Group’s Digital sector for the year ended 31 December 2016 is given on pages 30-31 of the Ladbrokes Coral Group’s 2016 Annual Report and Accounts (which are incorporated by reference into this Prospectus).
(i) Ladbrokes.com and Coral.co.uk Ladbrokes.com and Coral.co.uk are UK-focussed sportsbook-led online websites. Customers can place bets on the outcome of various sporting events including in play betting or play online slots or casino games.
(ii) Galabingo.com Galabingo.com is the second largest operator as at 31 August 2017 in the online bingo market in the UK. Customers can participate in scheduled bingo sessions or play slots games and roulette (including live roulette). While bingo is the driver of visits, a substantial proportion of turnover is generated from online games.
(iii) Galacasino.com Galacasino.com offers a full range of casino and live casino products including a full suite of proprietary and third party online games.
(iv) Eurobet.it Eurobet.it operates in Italy. It delivers a full range of sports betting, casino and games products, including virtual racing and bet-in-play products. Eurobet.it was the number
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two online sports operator in Italy as at 30 November 2017, with its growth underpinned by multi-channel acquisitions through the retail estate.
(v) Ladbrokes.com.au The Ladbrokes Coral Group’s Australian business operates under the Ladbrokes, Bookmaker and Betstar brands. Since its launch in 2013, Ladbrokes Australia has successfully pursued a challenger strategy building market share through effective use of affiliates and product innovation such as ‘Odds Boost’ and the cash in option via a network of newsagents. Ladbrokes.com.au has delivered market leading revenue growth in 2017.
(vi) Other regulated operations Other regulated operations include the Ladbrokes Coral Group’s Digital activities in Belgium (Ladbrokes.be) and Spain (Sportium.es). The Belgian Digital business was launched in the second quarter of 2014 to capitalise on the Ladbrokes Coral Group’s significant and long-standing retail presence in Belgium.
(e) Other The Ladbrokes Coral Group’s other operations comprise of Stadia (four greyhound stadia), on-course betting, telephone betting, Betdaq, Ladbrokes exchange, the Ladbrokes Coral Group’s investment in SIS, AGT in China and the Stadium subsidiary in the USA. These operations had pro forma net revenues of £42.6 million and reported net revenues of £29.6 million for the year ended 31 December 2016 and accounted for 2 per cent. of the Ladbrokes Coral Group’s pro forma net revenue for the year ended 31 December 2016. A description of the performance of the Ladbrokes Coral Group’s other operations for the year ended 31 December 2016 is given on page 32 of the Ladbrokes Coral Group’s 2016 Annual Report and Accounts (which are incorporated by reference into this document).
3. CURRENT TRADING AND RECENT TRENDS Ladbrokes Coral published the Ladbrokes Coral Group’s 2016 Annual Report and Accounts for the year ended 31 December 2016, on 28 March 2017. Certain sections of the Ladbrokes Coral Group’s 2016 Annual Report and Accounts are incorporated by reference into this document. Please see the section of this document entitled “Information incorporated by reference” for further details. Trading for the period from 31 December 2016 to the date of this document has been and is in line with the expectations of the Directors and there has been no material change to the financial position of the Group since that date.
On the date of this document Ladbrokes Coral released a trading update for the three month period to 31 December 2017, which included the following information in relation to its current trading and prospects:
“Highlights: • The Group is extremely pleased to announce that full year Group Operating Profit was at the top end of management expectations • Full year Group net revenue +4%, with Digital net revenue +17% and European Retail net revenue +14% • Second interim dividend of 4p announced, reflecting the strong end to the financial year
FY17 Trading overview
Quarter 41/2 Total Group net revenue was 12% ahead of last year. Sports gross win margins in Q4 were strong, primarily driven by a 12 week run of favourable football results in both the UK and Italy. The higher levels of sports gross win margins helped drive strong growth in UK Retail Like-For-Like (“LFL”) OTC net revenue (+10%), European Retail net revenue (+40%) and Digital sportsbook net revenue (+50%) but also resulted in reduced levels of customer recycling which dampened stakes growth. LFL UK Retail machines net revenue
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was 1% behind last year, while Digital gaming net revenue, which was 2% behind, was adversely impacted by 3 platform outages that occurred in Q4, and also the reduced levels of cross-sell from sports to gaming as a result of the high sports gross win margins. This resulted in LFL UK Retail total net revenue 3% ahead of last year and Digital total net revenue up 23%.
Full Year Full year Group Operating Profit was at the top end of management expectations, driven by the strong growth in Digital and European Retail and the slightly higher level of merger synergies in 2017 than previously guided.
Current Trading 2018 trading has started well and is in-line with management expectations.
Synergy Guidance Detailed synergy delivery plans now enable provision of a more accurate phasing and divisional split. In 2017 £50m of synergies were delivered, £5m ahead of previous guidance. This £5m increase helped offset the adverse impact of softer volumes in UK Retail machines. The synergy phasing for 2018 is now expected to be £125m (previously guided at £130m), with no change to the 2018 synergy exit rate, which will deliver £150m of synergy benefits in 2019. The divisional split of synergy delivery is now: 55% UK Retail, 40% Digital and 5% Corporate.
Notes: (1) 2017 results are unaudited and include results for Ladbrokes Coral Group plc for the period 1/10/17 – 31/12/17. 2016 proforma results include results for both Ladbrokes PLC and the Coral Group for the period 1/10/16 – 31/10/16 and for Ladbrokes Coral Group plc for the period 1/11/16 – 31/12/16. Both 2017 and 2016 exclude all results from the 360 shops that Ladbrokes Coral Group plc was required to sell as part of the CMA’s remedy findings into the merger of Ladbrokes PLC and the Coral Group (2) UK Retail KPIs are stated on a like-for-like basis which adjusts for shop closures.”
4. REGULATION For an overview of the regulatory obligations to which Ladbrokes Coral and, following the Effective Date, the Combined Group, are and will be subject, please refer to Part 8 of this document.
The regulation of online gaming presents possible risks to the Ladbrokes Coral Group and, consequently, after the Effective Date, to the Combined Group, both from existing regulation and regulation which may be introduced or changed in the future. These possible risks are described separately in the “Risk Factors” section of this document.
5. EMPLOYEES For each of the financial years ended 31 December 2014, 31 December 2015 and 31 December 2016 the number of employees of the Ladbrokes Coral Group was:
As at As at As at 31 December 31 December 31 December 20141 20151 2016 UK retail 11,823 12,055 14,281 European retail 1,404 924 918 Digital 696 672 933 Central services 95 100 100 Other – 480 463 Totals 14,141 14,231 16,685
Notes: 1 Employee numbers for 2014 and 2015 do not include employees of the Historic Coral Group as at those times they were not part of the Ladbrokes Coral Group.
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SECTION C: INFORMATION ON THE BETTING AND GAMING INDUSTRY I,12.1 1. RECENT TRENDS IN THE ONLINE GAMING INDUSTRY I,12.2 The online gaming industry was launched in the mid-1990s and has gained momentum over subsequent years. Recent market growth has been due to a number of key growth drivers:
• High speed internet – The roll out and increased penetration of high speed internet has been a key driver for growth in the sector. This, together with the increasing popularity of e-commerce, has allowed online operators to deliver more sophisticated and appealing games to a greater number of customers, with shorter download times and fewer connectivity disruptions.
• Growth in mobile – The strong growth in penetration of increasingly sophisticated mobile devices with increased capacity to process data and ever-improving screen quality has had a huge impact on the volume of mobile commerce (“M-commerce”) generally. Mobile connectivity has also continued to improve with the evolution of ever faster networks which has further stimulated growth in M-commerce. Many online gaming operators have sought to leverage these developments through the delivery of tailored product offerings through multiple mobile platforms and have enjoyed significant revenue growth through these channels as a result.
• Government adoption of heightened regulation – In response to the growth in the global online gaming market, several governments have over recent years adopted internet-specific gaming regulatory frameworks with the aim of protecting customers, promoting choice and raising taxes. While such changes may attract new entrants to the online gaming and betting sector, increased product complexity coupled with compliance costs and the payment of gaming taxes can act as a significant barrier to entry.
• Increased marketing – Advertising of products by gaming operators in such regulated online markets has increased in recent years which has attributed to the growing popularity of the market.
• Increased propensity to consume gaming service through digital channels – Each of the factors above have also resulted in broader acceptance of digital channels as a safe and secure means to consume gaming services. This is evidenced by the fact that digital channels have continued to represent an increasing proportion of global gaming revenues.
2. STRUCTURE AND GROWTH PROSPECTS OF THE ONLINE GAMING INDUSTRY H2 Gambling Capital (“H2GC”), a leading industry consultancy, estimated that in 2016, global Gross Gaming Revenue (“GGR”) across all gaming channels totalled €365.6, billion compared to €358.7 billion in 2015 and €364.3 billion in 20143. The online gaming segment (including online lotteries) represented approximately 9.7 per cent. (or €35.6 billion) of that total in 2016, compared to 9.5 per cent. (or €34.1 billion) in 2015 and 8.5 per cent. (or €31.0 billion) in 20144.
Historical growth trends are expected to continue in the future. H2GC estimates that GGR will increase to €410.5 billion in 2020 across all gaming channels, of which the online gaming sector is expected to represent 12.3 per cent. (or €50.5 billion)5.
The four key products within the online gaming segment are sports betting, casino, poker and bingo.
Online sports betting In sports betting, customers make bets in advance of and/or during particular sporting events to achieve a return as determined by the online gaming operator, who bears the risk of all sports bets placed with them. The operator makes its money dependent on the outcome of the events and the operator’s ability to manage risks associated with the various potential outcomes of those events.
3 H2 Gaming Capital, H2 Global Summary (All Verticals) Data – www.h2gc.com/subscriber/dashboard 4 H2 Gaming Capital, H2 Global Summary (All Verticals) Data – www.h2gc.com/subscriber/dashboard 5 H2 Gaming Capital, H2 Global Summary (All Verticals) Data – www.h2gc.com/subscriber/dashboard
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Sports betting is the largest vertical in the online gaming sector and was estimated globally to be worth €18.5 billion in GGR in 2016, an increase of 11 per cent. on the prior year. H2GC forecasts that this growth is set to continue, with the market worth an estimated €24.4 billion by 2020, a CAGR of 7 per cent., aided by ever wider ranges of markets to bet on and advances in technology alongside smartphone and tablet adoption enabling players to bet more easily during the course of sporting events6. The introduction of in-play betting, and the growth in the popularity of mobile and touch devices have been strong drivers of growth in sports betting in recent years.
Online casino The global online casino market was estimated to be worth approximately €9.7 billion of GGR in 2016, up 9 per cent., versus 2015, and it is forecast to reach €13.4 billion by 2020, implying a compound annual growth rate of 9 per cent.7. Online casinos replicate the real-life casino experience with players playing against ‘the house’ across online versions of classic casino table games such as roulette and blackjack as well as slot and video games. According to the rules of these games, the operator has a statistical advantage, or ‘edge’, over the player which varies depending on the game.
A large pool of players allows an operator to offer significant jackpot prizes, which is a key consideration in determining where many customers choose to play. The long-term profitability of an online casino operator is dependent upon maintaining large volumes of bets by both attracting new customers and retaining existing customers whilst managing risks and controlling costs.
Online poker Despite strong growth since 2001 the online poker market has been impacted by new regulatory frameworks in a number of markets. In 2006, the United States government passed the Unlawful Internet Gambling Enforcement Act, which had a significant impact on the structure of the global poker market as the majority of operators withdrew from the US. Other countries, such as Italy, France and Spain, also introduced regulations requiring that players within a particular market are ‘ring-fenced’, limiting global ‘dotcom’ player liquidity. However, in spite of this, poker remains the third largest vertical in the online gaming market overall and was estimated globally to be worth approximately €2.4 billion of GGR in 2016, unchanged versus 20158. It is forecast to reach €2.6 billion by 2020, implying a CAGR of 3 per cent. In recent developments a number of countries including France, Italy and Spain are planning to share liquidity between their respective markets.
In online poker, the operator acts as the host for the game and provides a platform that enables customers to play various forms of poker against each other. In return, in cash or ‘ring games’, the operator charges players a small fee, or ‘rake’, per hand played dependent on the size of the ‘pot’ (the total bets wagered during a given hand). Online poker players can either compete in ring games, whereby up to ten players can continue to bet their own money with the winner of each hand receiving the total ‘pot’ (combined bets) wagered by all players on that hand, less the rake paid to the operator; or tournaments, where players receive a limited number of ‘chips’ (tokens) to stake against each other in return for a cash ‘buy-in’ (entry fee) to participate in the tournament. The most successful players in the tournament then receive prizes while the operator makes its return from hosting tournaments dependent on the difference between the customers’ total buy-ins and the amount paid out to customers as tournament prizes.
Critical success factors for online poker operators includes maintaining sufficient player liquidity (i.e. a sufficient number of players so that customers can find others to play against in their chosen poker format, at their given time, in their given stake range); offering an attractive range of tournaments throughout the day; offering appealing promotions and offers; and strong marketing and customer relationship management (“CRM”) skills to drive new players to their sites as well as to retain those players for the longest time possible.
6 H2 Gaming Capital, H2 Global Summary (All Verticals) Data – www.h2gc.com/subscriber/dashboard 7 H2 Gaming Capital, H2 Global Summary (All Verticals) Data – www.h2gc.com/subscriber/dashboard 8 H2 Gaming Capital, H2 Global Summary (All Verticals) Data – www.h2gc.com/subscriber/dashboard
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Online bingo Online bingo is the fourth largest vertical in the online gaming industry, estimated to be worth globally approximately €1.7 billion of GGR in 2016, up 8 per cent., versus 2015. H2GC estimates that it will reach approximately €2.1 billion by 2020, implying a compound annual growth rate of 5 per cent9.
Across various formats of online bingo, players buy online tickets that have randomly generated numbers on them (the amount of different numbers is fixed and dependent on the format of the game). Numbers are then randomly ‘called’ by the operator, and the first players to match the numbers called with the numbers on their online ticket to form a row on that ticket, win prizes. The number of players is important to an online bingo operator’s success, as the more players that ‘buy in’, the bigger the potential prizes available, which in turn attracts more customers. As with traditional bingo halls, online bingo rooms offer a sense of community by providing various chatrooms for players to engage and communicate with one another. In addition to revenues generated from the purchase of bingo tickets, online bingo operators also generate significant revenue from side games such as online slots and jackpot slots which are played in between and during bingo games.
The GVC Directors believe that as a result of both the growth in the industry and the heightened regulatory environment governing global and national online gaming markets, the industry is experiencing a level of consolidation not previously seen, and which the GVC Directors expect to continue.
3. THE RETAIL BETTING AND GAMING INDUSTRY 3.1 UK retail The betting and gaming industry in the UK comprises a range of activities, including bookmaking, casinos, bingo, gaming machines, the National Lottery as well as other lotteries and football pools.
The off-course betting market was established in 1961 in the UK, when the UK Government legalised off-course betting shops in the UK. The number of shops grew rapidly, and by 1987 there were approximately 10,300 LBOs in the UK.10
Since then, the sector has experienced consolidation and a reduction in the number of LBOs. By 1994, there were 9,670 LBOs in the UK and by 30 September 2017 there were estimated to be 8,531 LBOs11. It is estimated that as at 30 September 2017 William Hill had approximately 27.0 per cent., Ladbrokes had approximately 22.2 per cent., Coral had approximately 18.6 per cent., Betfred had approximately 19.5 per cent. and other operators had approximately 12.7 per cent. of LBOs in the UK12. The Ladbrokes Coral Group’s and Coral Group’s UK businesses face competition from these operators and from a number of other smaller competitors.
Traditionally the core betting products in LBOs were UK horse racing, greyhound racing and multiple event accumulator bets. However, there have been significant legislative changes over the years which have enabled bookmakers to improve the quality of their customer offering in the shops and the environment in which they deliver it.
At the start of this century, there were a number of positive regulatory developments, including a move to a more favourable gross profits-based tax regime, the introduction of gaming machines and winter evening opening and the legalisation of advertising, including on television. As a result, LBOs now provide customers with greater flexibility and offer a far wider range of betting and gaming products. In recent years, the implementation of the Gambling Act and Gambling (Licensing & Advertising) Act 2014 has introduced more formal regulation designed to keep crime out of gambling, make sure that gambling operators conduct their business in a fair and open way and protect the young and the vulnerable from being harmed or exploited by gambling. This has led to the development of
9 H2 Gaming Capital, H2 Global Summary (All Verticals) Data – www.h2gc.com/subscriber/dashboard 10 Association of British Bookmakers’ submission to the DCMS Triennial Review (April 2013), page 14 11 UKGC Industry statistics (April 2014 to March 2017), page 18 12 UKGC Industry Statistics (April 2014 to March 2017), page 18
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a number of regulations which apply to UK licensed operators, which are documented in the UKGC’s Licence Conditions and Codes of Practice. This has included changes to self-exclusion arrangements in both retail and digital environments, and requirements to offer customers more responsible gambling tools, such as time-outs and reality checks, and to operate with greater auto-play restrictions and improved customer information regarding how customer funds are held and protected. Other changes in regulation have brought about the introduction of time and spend limit functionality on gaming machines, and the requirement to allow only account based play for stakes of over £50 in any one spin on a FOBT and an industry code for socially responsible advertising.
While online betting and gaming has been the main factor contributing towards growth in the sector, retail gross gambling yield (i.e. stakes less customer winnings) has remained stable, totalling £3.35 billion during the period April 2016 to March 2017.13 Additionally, the introduction of the National Lottery in 1994 has contributed to changing social attitudes towards betting and gaming. This, combined with the increased variety of betting and gaming products offered (football, for instance, has become an increasing proportion of the Ladbrokes Coral Group’s UK OTC gross win), has led to growth in the market. Overall gross gambling yield totalled approximately £13.7 billion during the period April 2016 to March 2017, a 1.8 per cent. increase compared with the year prior.14
New entrants to the UK betting and gaming market face certain practical issues. Applicants are required to satisfy the UKGC that they are capable of operating in an industry which is highly regulated in order to be granted the necessary operating licence. Furthermore, the industry remains competitive with a number of operators.
3.2 European retail – Ireland, Belgium, Spain and Italy Regulated under the Betting Act 1931, the number of LBOs in the Republic of Ireland was 855 in 201615. Sports and horse betting is allowed in registered premises throughout the week (including during evenings all year round, even when no Irish horse racing is taking place). However, gaming machines are not available. Estimates suggest off course betting grew by approximately 32 per cent. between 2003 and 2013 and in 2013 accounted for in excess of approximately 95 per cent. of the land-based horseracing gambling revenue.16 It is a highly fragmented market; at the end of 2014 approximately 79 per cent. of LBOs were controlled by Ladbrokes, Paddy Power Betfair and Boylesports with the remainder comprising smaller chains (each with less than 7 per cent. share) and independent shops.17
In Belgium, companies may operate sports betting operations under the jurisdiction of the Ministry of Justice and are liable to pay taxes and levies in Belgium. As at October 2017, there were approximately 670 Belgian shops and 1,805 Belgian newsagents that held licences to provide betting and gaming services18. The licensed shops and newsagents are restricted to offering bets on horses, dogs and sports. In Belgium, the current competition to the Ladbrokes Coral Group’s retail operations includes Tipico, Betcenter, Betfirst and Stanleybet.
In Spain, off-course betting is regulated at the regional level. Each ‘autonomous community’, as they are known, regulates gambling activity independently of the approach adopted by neighbouring communities. This results in regional variances in restrictions on the products that can be offered, for example, the Basque country does not permit betting on horse racing in retail outlets. To date, 15 out of 17 of the autonomous regions have regulated gambling, with the two remaining communities expected to regulate soon. Remote gambling in Spain, on the other hand, has been regulated nationally
13 UKGC Industry Statistics (April 2014 to March 2017), page 6 14 UKGC Industry Statistics (April 2014 to March 2017), page 6 15 Irish Bookmakers association – www.irishbookmakersassociation.com 16 Global Betting and Gaming Consultancy, Global Gambling Report 11th Edition (2016): Ireland, page 16 17 Global Betting and Gaming Consultancy, Global Gambling Report 11th Edition (2016): Ireland, page 10 18 Belgium Gambling Commission – www.gamingcommission.be/opencms/opencms/jhksweb_en/establishments
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by the DGOJ since 2011. In Spain, the current competition to the Ladbrokes Coral Group’s retail operations includes Codere and Kirol.
Italy is the largest regulated betting and gaming market in Europe based on gross win, and has experienced growth in recent years due to improvements in the regulatory environment allowing operators to introduce new product categories such as virtual racing and bet-in-play. Operating licences awarded both in the Italian retail and online markets are granted for fixed periods, after which a further bid must be accepted by ADM through a competitive public bidding process in order to renew them. There is currently little clarity in relation to the renewal processes for the Italian sports and horserace betting licences held by Eurobet Retail (for more detail, see the There is currently little clarity in relation to the renewal processes for the Italian sports and horserace betting licences held by Eurobet Retail in the section of this document headed “Risk Factors”). The current licences held by Eurobet Retail, which govern its Italian sports and horserace betting operations, were due to expire in June 2016, but ADM has permitted existing operators, such as Eurobet Retail, to continue operating under their current licences in exchange for them extending the expiry date of their guarantees to ADM. In spite of the Italian market becoming legal and regulated at the end of 2006, there remains an active illegal market. Eurobet Retail’s principal competitors in Italy are Snai, Intralot, GTECH and Sisal. Eurobet Online’s principal competitors in Italy are Bet365, Snai, Sisal, GTECH, William Hill and Paddy Power Betfair.
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PART 3
TERMS AND CONDITIONS OF THE CVRS
SECTION A: TERMS AND CONDITIONS OF THE CVRS
1. GENERAL Under the terms of the Acquisition, for each Ladbrokes Coral Share that they hold, Ladbrokes Coral Shareholders will be entitled to receive (in addition to the cash and GVC Shares offered) a contingent entitlement of up to 42.8 pence in principal value of Loan Note plus an upward adjustment for the time value of money by way of a contingent value right (“CVR”).
The CVRs have been constituted by a deed poll entered into by GVC on 22 December 2017 (the “CVR Instrument”). The CVR Instrument is governed by English law. Under the terms of the CVR Instrument, the principal value of each Loan Note that the CVR Holder is entitled to (“Loan Note Principal Value”), and therefore the amount of cash ultimately payable to a Loan Note holder upon redemption of their Loan Notes, will be (i) if Triennial Measures are Enacted, determined by means of an assessment process set out in the CVR Instrument and summarised below or (ii) if no Maximum Stakes Measures are Enacted by the CVR Long Stop Date, 35 pence for each CVR held by such CVR Holder (with no upwards adjustment for the time value of money in such circ*mstances). The assessment process referred to in (i) will evaluate the potential impact (if any) of certain measures arising from the Triennial Review on the profitability of the Ladbrokes Coral UK Business taking into account the estimated effect of any mitigating circ*mstances in the UK businesses carried on by the Wider Ladbrokes Coral Group. The Loan Note Principal Value is capped at a maximum of 42.8 pence plus an upward adjustment for the time value of money.
If the results of the assessment process are such that the Loan Note Principal Value is agreed or determined to be zero, no Loan Notes will be issued, and in these circ*mstances the Ladbrokes Coral Shareholders will not receive any additional consideration under the terms of the CVR Instrument. In these circ*mstances, the value of each CVR would be zero.
The CVRs will not represent any equity or ownership interest in GVC, and accordingly will not confer on the CVR Holders any right to attend, speak at or vote at any meeting of the GVC Shareholders, or any right to any dividends in respect of GVC or right to any return of capital by GVC. There will be no interest conferred by a CVR on the economic activities of Ladbrokes Coral, GVC or the Combined Group generally.
Ladbrokes Coral Shareholders should obtain their own independent advice from an appropriate professional adviser in relation to the acquisition, holding, transfer and disposal of CVRs and/or Loan Notes in the light of their own particular circ*mstances.
2. CONSULTING PARTIES The CVR Instrument provides that the following parties (together, the “Consulting Parties”) are involved in the assessment of the Loan Note Principal Value:
• a representative of GVC (the “GVC Representative”);
• an individual appointed to represent the CVR Holders (the “CVR Representative”); and
• if the GVC Representative and the CVR Representative are unable to agree the Loan Note Principal Value, an expert, jointly appointed by GVC and Ladbrokes Coral (the “Expert”), who will be Deloitte LLP.
GVC Representative GVC will, prior to the Effective Date, appoint one individual to act as the GVC Representative, to act on GVC’s behalf for the purposes of the CVR Instrument.
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CVR Representative Ladbrokes Coral will, prior to the Effective Date, appoint one individual to act as the CVR Representative, to act on behalf of the CVR Holders for the purposes of the CVR Instrument.
On or after the Effective Date, the CVR Holders will be entitled to remove and replace the CVR Representative with a suitably qualified individual by way of a resolution of the CVR Holders passed by the holders of at least 90 per cent in number of the CVRs voting in person or by proxy at the relevant meeting of CVR Holders, and who represent a majority by number of the CVR Holders voting at such meeting in person or by proxy.
If the CVR Representative resigns, or is incapacitated and is likely to remain so for a period of more than 15 days the CVR Holders may appoint a replacement CVR Representative, who must be a suitably qualified individual, and who shall be appointed by way of a resolution of the CVR Holders passed by a CVR Holder Majority voting in person or by proxy at the relevant meeting of CVR Holders.
Expert Deloitte LLP has, by means of the Expert Appointment Letter, been jointly appointed by GVC and Ladbrokes Coral as the Expert for the purposes of the CVR Instrument. For a summary of the terms of the Expert Appointment Letter, please see paragraph 13.8 of Part 11 of this document.
Any determinations made by the Expert pursuant to the terms of the CVR Instrument shall (save in the case of manifest error) be conclusive and binding on each of GVC and the CVR Holders.
If the Expert resigns, the Representatives shall jointly appoint another suitably qualified firm to act as Expert for the purposes of the CVR Instrument.
If the Representatives are unable to reach agreement as to the identity of the replacement Expert, the Expert shall be appointed by: (i) an appropriate industry body agreed between the Representatives, or, in the absence of such agreement (ii) the President for the time being of the Institute for Chartered Accountants of England and Wales (or such person as the President specifies for the purpose of making such appointment) upon the application of either of the Representatives.
Indemnity The CVR Instrument contains an indemnity granted by the Company to each CVR Representative and the GVC Representative, under which the Company agrees to hold each of the CVR Representative and the GVC Representative harmless from and against any Claims or Losses (as defined in the CVR Instrument) that they may suffer as a result of the services rendered or duties performed by them under the terms of the CVR Instrument. Such indemnity, to the extent that it is a “Class 1” transaction under the Listing Rules, is conditional upon receipt by GVC of the approval of the GVC Shareholders relating to the entry into such indemnity.
3. TRIENNIAL MEASURES Any of the following changes to law or regulation arising out of the Triennial Review (together, the “Triennial Measures”) will be taken into account in assessing the Loan Note Principal Value:
• any changes to the maximum stake which may be wagered by a player on any particular game cycle on a FOBT which are Enacted (“Maximum Stakes Measures”);
• any Enacted or likely changes to the maximum number of FOBTs legally permitted per LBO (“Maximum Machines Measures”); and
• any Enacted or likely changes to the minimum time period for completion of an individual game cycle on a FOBT (commonly known as “spin speed”) (“Spin Speeds Measures”).
Any other measures arising out of the Triennial Review and relating to the regulation of FOBTs will not be taken into account in the assessment of the Loan Note Principal Value.
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4. ASSESSMENT PROCESS The assessment process for the purposes of determining the Loan Note Principal Value will commence 10 Business Days after the Enactment of the Maximum Stakes Measures (the “Review Commencement Date”). If no Maximum Stakes Measures have been Enacted by the CVR Long Stop Date, then each CVR Holder shall have the right to receive a Loan Note with a principal value of 35 pence for each CVR held by such CVR Holder (with no upwards adjustment for the time value of money in such circ*mstances).
The methodologies to be used by the Consulting Parties to determine the Loan Note Principal Value will vary depending on the type of Triennial Measures which are Enacted (or proposed), what is Enacted (or proposed) in those Triennial Measures, and the proposed timing for the Enactment of those Triennial Measures. In that regard, the CVR Instrument refers to two different scenarios, and the methodologies for each of them are described below.
Scenario 1 Scenario 1 will only apply if:
• the Maximum Stakes Measures are the only Triennial Measure;
• such Maximum Stakes Measures stipulate only one maximum stake for all types of game available on a FOBT; and
• such maximum stake is one of the maximum stakes set out in the table below, or can be Linearly Interpolated between two adjacent maximum stakes set out in the table below:
Row 1Envisaged £50 £40 £30 £20 £10 £5 £2 Maximum Stake Row 2 Base Value 42.8p 40.5p 40.4p 30.3p 13.4p 13.4p 0.0p
Where Scenario 1 applies, the base value to be used for the purposes of the calculation of the Loan Note Principal Value (the “Base Value”) will be agreed or determined by the Consulting Parties by means of the assessment process described below by using the above table, or by Linear Interpolation of two adjacent Base Values set out in the above table.
The Base Value will then be converted into the Loan Note Principal Value by using the following formula (which also takes into account the time value of money between the Effective Date and the Loan Note Issue Date): N P = B 1.07 ^ ( ––– ) * 365 Where:
P is the Loan Note Principal Value;
B is the Base Value agreed or determined in accordance with the above table; and
N is the number of calendar days between (and including) the Effective Date and (and including) the date of calculation of the Loan Note Principal Value.
Scenario 2 Scenario 2 will apply where, as at the Review Commencement Date, Scenario 1 does not apply. Scenario 2 will most likely apply if any Maximum Machine Measures or Spin Speeds Measures are Enacted in addition to Maximum Stakes Measures (or if any Maximum Machine Measures or Spin Speeds Measures have been proposed by the UK Government following the conclusion of the Triennial Review but not yet Enacted).
Where Scenario 2 applies, the Consulting Parties will forecast the gross estimated reduction in EBITDA of the Ladbrokes Coral UK Business resulting from the Triennial Measures, taking into account, amongst other
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things, estimated customer lapse rates and staking down behaviour, and then reduce that gross estimated reduction in EBITDA by the estimated effect of any mitigating factors or circ*mstances. In these circ*mstances, the Consulting Parties will:
• agree or determine the estimated reduction in EBITDA of the Ladbrokes Coral UK Business arising from the Triennial Measures (the “EBITDA Impact Projection”) by reference to a 12 month notional period for the Ladbrokes Coral UK Business;
• assess the EBITDA Impact Projection on the basis:
– of the Ladbrokes Coral UK Business as represented in the financial models used by GVC and Ladbrokes Coral to calculate the Base Values set out in the table above and therefore ignoring any changes made by GVC to the Ladbrokes Coral UK Business on or after the Effective Date; and
– that the Triennial Measures in England and any associated mitigating factors and circ*mstances are of application throughout Great Britain, notwithstanding that different legislation or regulations may in fact be Enacted or proposed at different times in Scotland and Wales; and
• to the extent that any Spin Speed Measures or Maximum Machines Measures have not been Enacted as at the Review Commencement Date, seek to agree their view (or arrive at their own view) as to the most likely form in which such Triennial Measures will ultimately be Enacted and the resulting EBITDA Impact Projection arising out of such Triennial Measures.
This process will result in an agreed or determined EBITDA Impact Projection.
The EBITDA Impact Projection will then be converted into the Loan Note Principal Value by using the following formula (which also takes into account the time value of money between the Effective Date and the Loan Note Issue Date):
P = (6 * (£140 million – E) / C+Z) * (1.07 ^ (N / 365)) Where:
P is the Loan Note Principal Value;
E is the agreed or determined EBITDA Impact Projection;
N is the number of calendar days between (and including) the Effective Date and (and including) the date of calculation of the Loan Note Principal Value;
C is the total number of CVRs; and
Z is the sum of 2.8 pence, which is only added if a Consulting Party has not made use of the table above as the basis for calculation of that part of the EBITDA Impact Projection which arises as a result of the Maximum Stakes Measures, in circ*mstances where the maximum stake stipulated by the Maximum Stakes Measures is in the range from (and including) £20.00 to (and including) £30.00.
The principal value of each Loan Note so determined in accordance with the relevant formula above will be the Loan Note Principal Value for the purposes of the CVR Instrument and the Loan Note Instrument.
5. STEPS IN THE ASSESSMENT PROCESS The CVR Instrument envisages that the assessment process (in both Scenario 1 and Scenario 2) will comprise the following procedures:
• Step 1: the “Consultation Procedure” – the GVC Representative and the CVR Representative will first attempt, for a period of up to 30 days following the Review Commencement Date (the “Consultation Period”), to agree between themselves what the Base Value or EBITDA Impact Projection (as applicable) should be. The Expert may also be involved in the Consultation Procedure
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if either the CVR Representative or the GVC Representative so requests. During the Consultation Period:
• the Consulting Parties shall be required to meet at least twice per week in person or by telephone. During such meetings, each Representative shall be required to present to the other Consulting Parties their latest assessment of the Base Value or EBITDA Impact Projection (as applicable), having applied the Review Methodology, and the basis upon which they have arrived at their view as to the Base Value or EBITDA Impact Projection (as applicable);
• if participating in the Consultation Procedure, the Expert will consider the assessments of the Representatives presented during such meetings, but the Expert will keep confidential, and not provide to either Representative, or any third party, any opinion on those assessments, or reveal the Expert’s own assessment as to the Base Value or EBITDA Impact Projection (as applicable);
• in Scenario 2 , if no change to the Maximum Machine Number and/or Spin Speed has been Enacted as at the Review Commencement Date, but such a change has been proposed by the UK Government following the conclusion of the Triennial Review, the Representatives shall also seek to agree their view as to the likely change (if any) to the Maximum Machine Number and/or Spin Speed (as applicable) which will ultimately be Enacted (and the resulting impact which such changes may have on the EBITDA Impact Projection);
• the CVR Representative shall be entitled (but not obliged) to make representations to either or both of the other Consulting Parties as to adjustments which the CVR Representative considers should be made to any assessments of the Base Value or EBITDA Impact Projection (as applicable) made by the GVC Representative on behalf of GVC; and
• the GVC Representative shall be entitled (but not obliged) to make representations to either or both of the other Consulting Parties as to adjustments which the GVC Representative considers should be made to any assessments of the Base Value or EBITDA Impact Projection (as applicable) made by the CVR Representative.
• Step 2: the “Determination Procedure” – if the Consultation Procedure does not result in agreement between the GVC Representative and the CVR Representative as to the Base Value or EBITDA Impact Projection (as applicable):
• the GVC Representative and the CVR Representative shall jointly deliver to the Expert at the same time their own assessments of the Base Value or EBITDA Impact Projection (as applicable);
• the Expert shall also make their own assessment of the Base Value or EBITDA Impact Projection (as applicable), and the Expert shall not be obliged to give reasons or provide workings or calculations demonstrating how the Base Value or EBITDA Impact Projection (as applicable) was derived;
• all such assessments, once notified, shall be irrevocable;
• in Scenario 2, if no change to the Maximum Machine Number and/or Spin Speed has been Enacted by the end of the Consultation Period, but such a change (as applicable) has been proposed by the UK Government following the conclusion of the Triennial Review, each Consulting Party shall be entitled to take into account their own view as to the likely change (if any) to the Maximum Machine Number and/or Spin Speed which will ultimately be Enacted (and the resulting impact which such changes may have on such Consulting Party’s own assessment of the EBITDA Impact Projection); and
• of the three values notified by the Representatives and the Expert:
– the two values which are numerically closest to one another shall be the “Determining Values” for the purposes of the Determination Procedure;
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– the third value, not being a Determining Value, shall be disregarded; and
– the figure which is the arithmetic mean of the Determining Values shall be the finally determined Base Value or EBITDA Impact Projection (as applicable) for the purposes of calculating the Loan Note Principal Value.
• where Scenario 2 has arisen, and the Maximum Stake stipulated in the Maximum Stakes Measures for Non-Slots Games is within the range of the Envisaged Maximum Stakes, but is different to that stipulated for Slots Games, the CVR Representative, the GVC Representative and the Expert, in agreeing or determining the EBITDA Impact Projection, will:
– take the Base Value relating to such Envisaged Maximum Stake from the Maximum Stakes Table; then
– calculate the EBITDA impact (the “Basic Impact”) relating to such Envisaged Maximum Stake by using the following formula: B C I = ––––––( * ) 6 Where:
I is the Basic Impact (expressed as a positive number);
B is the Base Value determined in accordance with the first bullet above; and
C is the total number of CVRs; then
– calculate, in accordance with the paragraph below, the additional incremental EBITDA impact on the Basic Impact which results from the Maximum Stake introduced for Slots Games (expressed as a positive number) (the “Incremental Impact”); then
– add the Incremental Impact to the Basic Impact to arrive at a figure which, when expressed as a negative number, represents the impact on EBITDA from the different Maximum Stakes stipulated in the Maximum Stakes Measures in respect of both Slots Games and Non-Slots Games;
• forecast the gross estimated reduction in EBITDA caused by the Triennial Measures (other than Maximum Stakes Measures, to the extent that the paragraphs above applies), on the Ladbrokes Coral UK Business taking into account, amongst other things, estimated customer lapse rates and staking down behaviour, and then reduce that gross estimated reduction in reduction in EBITDA by the estimated effect of any mitigating factors and circ*mstances on the Wider Ladbrokes Coral Business.
6. ISSUE OF LOAN NOTES ON A CHANGE OF CONTROL In the event of an offer being made for the entire issued share capital of GVC which would, if it were to become or be declared wholly unconditional or were otherwise to become effective, would result in a Change of Control of GVC, and such offer occurs prior to the Loan Note Issue Date (and notwithstanding the fact that the Review Commencement Date may have occurred prior to such offer having been made), GVC shall issue the Loan Notes to the CVR Holders. Such Loan Notes shall be issued:
• immediately prior to the Change of Control of GVC becoming or being declared wholly unconditional, if such Change of Control of GVC is effected by means of a takeover offer;
• immediately prior to the Change of Control of GVC becoming effective, if such Change of Control of GVC is effected by means of a court-sanctioned scheme of arrangement;
• with a principal value of 42.8 pence each; and
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• on the basis that they shall become redeemable immediately upon the occurrence of the Change of Control, at which time the principal value of the Loan Notes plus accrued interest shall be repaid to the holders of the Loan Notes so issued.
7. WINDING UP EVENTS For the purposes of the CVR Instrument, the following shall be Winding Up Events, to the extent that any such event occurs prior to the Loan Note Issue Date and notwithstanding the fact that the Review Commencement Date may have occurred prior to such Winding Up Event:
• an effective resolution is passed or an order is made for the winding up, dissolution or reorganisation of GVC (other than: (i) a voluntary winding up for the purposes of amalgamation or reconstruction or liquidation under which a successor or successors undertake(s) the obligations of GVC under the CVRs or (ii) a members’ voluntary winding up); or
• GVC takes any corporate action or other steps are taken or legal or other proceedings are started for the appointment of a liquidator in respect of GVC’s assets; or
• anything analogous to or having a substantially similar effect to any of the events specified above occurs under the law of any applicable jurisdiction, provided that any petition or action by a third party which is discharged, stayed or dismissed by a court of competent jurisdiction within 15 Business Days of commencement shall not constitute a Winding Up Event.
Immediately prior to the occurrence of a Winding Up Event, GVC will issue Loan Notes to the CVR Holders.
The Loan Notes to be issued by GVC in the event of a Winding Up Event will be issued:
• with a principal value of 42.8 pence each; and
• on the basis that they shall become redeemable immediately upon the occurrence of the Winding Up Event, at which time the principal value of the Loan Notes plus accrued interest shall be repaid to the Loan Note Holders so issued.
8. CVR LONG STOP DATE If no Maximum Stakes Measures have been Enacted by the CVR Long Stop Date, GVC will issue Loan Notes to the CVR Holders. The Loan Notes to be issued by GVC in such circ*mstances will be issued within 10 Business Days of the CVR Long Stop Date. The Loan Notes to be issued in such circ*mstances will be issued:
• with a principal value of 35 pence each (with no upwards adjustment for the time value of money); and
• with a term of six months and one day from the date of their issue, following the expiry of which the principal value of the Loan Notes so issued shall be repaid to the Loan Note Holders.
9. FORM AND STATUS OF THE CVRS The CVRs will be issued in certificated registered form and will be transferable to any person other than to a Restricted Overseas Holder. The CVRs will have no nominal or principal value.
The CVRs will constitute direct unsecured obligations of GVC and shall rank pari passu with one another and pari passu with all other unsecured obligations of GVC.
The CVRs will not represent any equity or ownership interest in GVC, and accordingly will not confer on the CVR Holders any right to attend, speak at or vote at any meeting of the shareholders of GVC, or right to any dividends or right to any return of capital by GVC.
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Certificates in respect of the CVRs will be issued to each CVR Holder (other than Restricted Overseas Holders). If the issue of CVRs to any Restricted Overseas Holder, or to any person who is reasonably believed to be an Restricted Overseas Holder, would or may infringe the laws of a jurisdiction outside England and Wales or would or may require any governmental or other consent or any registration, filing or other formality which cannot be complied with, or compliance with which would be unduly onerous, GVC may, at its discretion, determine that such Restricted Overseas Holder shall not have issued to him the CVRs or certificates in respect of the CVRs and that the CVRs which would otherwise have been attributable to such Restricted Overseas Holder under the terms of the Acquisition will be held by a nominee on behalf of such Restricted Overseas Holder, and the cash proceeds (if any) following the issue and redemption of any Loan Notes issued under the terms of such CVRs be forwarded to such Restricted Overseas Holder following redemption of the Loan Notes (after deduction of fees and other costs and expenses).
10. TRANSFER OF CVRS Subject to the terms of the CVR Instrument (including the restrictions on transfer referred to below), the CVRs will be freely transferable. The CVRs may be transferred in integral units or multiples of one CVR. Every instrument of transfer in respect of the CVRs must be in writing in any usual form or in another form approved by the GVC Directors, and executed by the transferor. Such instrument of transfer must be left with the Registrar accompanied by:
• the relevant certificate; or
• confirmation that the certificate is in the hands of the Registrar in a form reasonably satisfactory to GVC; or
• if the Registrar so agrees, an indemnity in respect of a lost certificate in a form reasonably satisfactory to GVC;
• such other evidence as the Registrar may reasonably require to prove the title of the transferor or their right to transfer the CVRs; and
• if the instrument of transfer is executed by someone other than the transferor on the transferor’s behalf, the authority of that person to do so.
All instruments of transfer which are registered will be retained by the Registrar and the transferor will be deemed to remain the owner of the CVRs to be transferred until the transferee’s name is registered in the CVR register.
The GVC Directors may, in their absolute discretion, refuse to register the transfer of a CVR to a purported transferee if the GVC Directors reasonably suspect that such transferee is a Restricted Overseas Holder. If the GVC Directors refuse to register the transfer of a CVR they shall, within 10 Business Days of the date on which the instrument of transfer was lodged with the Registrar, send notice of the refusal together with their reasons for the refusal to the transferee. Any instrument of transfer which the GVC Directors refuse to register will (except in the case of suspected fraud) be returned to the person depositing it.
No fee will be payable in respect of the registration of any transfer of a CVR.
The transferee shall be liable for any stamp duty, stamp duty reserve tax, notarial fee or other transfer tax or duty arising in connection with any transfer or agreement to transfer any CVR (or any rights thereunder).
11. MEETINGS OF CVR HOLDERS The GVC Directors may at any time and will, upon a request in writing signed by (i) a CVR Holder(s) holding in aggregate not less than 10 per cent. of the CVRs at the relevant time outstanding (or a CVR Holder(s) holding in aggregate not less than 5 per cent. of the CVRs at the relevant time outstanding, if such meeting is being convened to appoint the CVR Representative following the resignation or incapacity of the CVR Representative or (ii) the CVR Representative, convene a meeting of the CVR Holders.
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At any meeting convened for any purpose other than the passing of a special resolution of the CVR Holders, persons (being at least two in number) holding or representing by proxy 30 per cent. in number of the CVRs at the relevant time outstanding will form a quorum. For the purpose of a special resolution of the CVR Holders, persons (being at least two in number) holding or representing by proxy at least 50 per cent. of the number of CVRs then in issue will form a quorum. No business (other than the choosing of a chairman) will be transacted at any meeting unless the requisite quorum is present.
A resolution put to the vote of a meeting will be decided by a show of hands (unless a poll is demanded) and in case of an equality of votes, the chairman will, in respect of both a show of hands and on a poll, not have a casting vote.
A CVR Holder entitled to attend and vote at a meeting of the CVR Holders may appoint one or more proxies to attend and vote instead of the CVR Holder and that the proxy does not need to be a CVR Holder. A company which is a CVR Holder may, by resolution of its directors or other governing body, authorise a person to act as its representative at a meeting of the CVR Holders.
A resolution in writing executed by or on behalf of CVR Holders holding the requisite majority of the CVRs required to pass such resolution if it had been proposed at a meeting of the CVR Holders is as effective as if it had been passed at a meeting of the CVR Holders duly convened and held.
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SECTION B: TERMS AND CONDITIONS OF THE LOAN NOTES
1. FORM AND STATUS OF THE LOAN NOTES The Loan Notes will be governed by English law. The Loan Notes will be issued in certificated registered form, and will be transferable to any person other than to a Restricted Overseas Holder. The Loan Notes will constitute direct, unsecured obligations of GVC and shall rank pari passu with one another, as applicable.
Certificates in respect of the Loan Notes will be issued to each Loan Note Holder (other than Restricted Overseas Holders as provided for below). If the issue of Loan Notes to any Restricted Overseas Holder, or to any person who is reasonably believed to be an Restricted Overseas Holder, would or may infringe the laws of a jurisdiction outside England and Wales or would or may require any governmental or other consent or any registration, filing or other formality which cannot be complied with, or compliance with which would be unduly onerous, GVC may, at its discretion, determine that such Restricted Overseas Holder shall not have issued to him Loan Notes or certificates in respect of the Loan Notes and that the Loan Notes which would otherwise have been attributable to such Restricted Overseas Holder under the terms of the Acquisition shall be held by a nominee on behalf of such Restricted Overseas Holder, and the cash proceeds (if any) following the redemption of any such Loan Notes be forwarded to such Restricted Overseas Holder following redemption of the Loan Notes (after deduction of fees and other costs and expenses).
Loan Notes will not represent any equity or ownership interest in GVC, and accordingly will not confer on the Loan Note holders any right to attend, speak at or vote at any meeting of the shareholders of GVC, or right to any dividends in respect of GVC or right to any return of capital by GVC.
2. ISSUE OF LOAN NOTES The Loan Notes (if any) to be issued by GVC will be issued pursuant to the terms of the CVR Instrument. The principal value of the Loan Notes will be determined in accordance with the terms of the CVR Instrument.
3. INTEREST Interest on the principal value of the Loan Notes shall, once issued, accrue from day to day and will be calculated on the basis of the actual number of days elapsed and a year of 365 days at the rate set out below:
• for the period from (and including) the Loan Note Issue Date until (but excluding) the date falling 6 months and 1 day after the Loan Note Issue Date, at a rate of 7 per cent. per annum; and
• for the period from (and including) the date falling 6 months and 1 day after the Loan Note Issue Date until (but excluding) the date of redemption of the Loan Notes, at a rate of 9 per cent. per annum, and will be capitalised, and be payable, on the Redemption Date (as defined below) only.
4. REDEMPTION Other than as set out below, the Loan Notes will be issued on the Loan Note Issue Date with a term which shall end on the “Final Redemption Date”, being the later to occur of:
• the date falling 6 months and 1 day after the Loan Note Issue Date; and
• the date falling 18 months after the Effective Date.
If the Loan Notes have been issued because no Maximum Stakes Measures have been Enacted by the CVR Long Stop Date, the Loan Notes will be issued with a term ending on the date falling 6 months and 1 day from the Loan Note Issue Date.
GVC: (i) may also at its option redeem the Loan Notes before the Final Redemption Date provided the Loan Notes shall not be redeemable within the period of 6 months and 1 day from the Loan Note Issue Date; (ii) will be required to redeem the Loan Notes in the event of a change of control of GVC; and (iii) will be
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required to redeem the Loan Notes in the event of a winding up of GVC (any such date being an “Early Redemption Date”, and the first to occur of the Final Redemption Date and the Early Redemption Date being the “Redemption Date”).
On the Redemption Date, GVC will redeem the outstanding principal amount of the relevant Loan Notes for cash (together with accrued interest less any tax required by law to be withheld or deducted therefrom). The Loan Notes will automatically be cancelled upon redemption.
5. REDEMPTION IN USD The principal value of the Loan Notes and interest payable thereon will be expressed in pounds sterling, but Loan Note Holders may by notice to GVC request payment in US dollars.
6. FATCA The Loan Note Instrument contains provisions which enable GVC to request from the Loan Note Holders confirmation or information that such Loan Note Holder is a FATCA Exempt Party. To the extent such Loan Note Holder does not provide such confirmation or information, such Loan Note Holder shall be treated as if it is not a FATCA Exempt Party until such time as it provides such requested confirmation or information.
7. TRANSFER OF LOAN NOTES Subject to the terms of the Loan Note Instrument (including the restrictions on transfer referred to below), the Loan Notes will be freely transferable. The Loan Notes may be transferred in integral units or multiples of one Loan Note. Every instrument of transfer in respect of the Loan Notes must be in writing in any usual form or in another form approved by the GVC Directors, and executed by the transferor. Such instrument of transfer must be left with the Registrar accompanied by:
• the relevant certificate; or
• confirmation that the certificate is in the hands of the Registrar in a form reasonably satisfactory to GVC; or
• if the Registrar so agrees, an indemnity in respect of a lost certificate in a form reasonably satisfactory to GVC;
• such other evidence as the Registrar may reasonably require to prove the title of the transferor or their right to transfer the Loan Notes; and
• if the instrument of transfer is executed by someone other than the transferor on the transferor’s behalf, the authority of that person to do so.
All instruments of transfer which are registered will be retained by the Registrar and the transferor will be deemed to remain the owner of the Loan Notes to be transferred until the transferee’s name is registered in the Loan Note register.
The GVC Directors may, in their absolute discretion, refuse to register the transfer of a Loan Note to a purported transferee if the GVC Directors reasonably suspect that such transferee is a Restricted Overseas Holder. If the GVC Directors refuse to register the transfer of a Loan Note they shall, within 10 Business Days of the date on which the instrument of transfer was lodged with the Registrar, send notice of the refusal together with their reasons for the refusal to the transferee. Any instrument of transfer which the GVC Directors refuse to register will (except in the case of suspected fraud) be returned to the person depositing it.
No fee will be payable in respect of the registration of any transfer of a Loan Note.
The transferee shall be liable for any stamp duty, stamp duty reserve tax, notarial fee or other transfer tax or duty arising in connection with any transfer or agreement to transfer any Loan Note (or any rights thereunder).
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8. MEETINGS OF LOAN NOTE HOLDERS The GVC Directors may at any time and will, upon a request in writing signed by a Loan Note Holder holding in aggregate not less than 10 per cent. of the Loan Notes at the relevant time outstanding, convene a meeting of the Loan Note Holders.
At any meeting convened for any purpose other than the passing of a special resolution of the Loan Note Holders, persons (being at least two in number) holding or representing by proxy 30 per cent. in number of the Loan Notes at the relevant time outstanding will form a quorum. For the purpose of a special resolution of the Loan Note Holders, persons (being at least two in number) holding or representing by proxy at least 50 per cent. of the number of Loan Notes then in issue will form a quorum. No business (other than the choosing of a chairman) will be transacted at any meeting unless the requisite quorum is present.
A resolution put to the vote of a meeting will be decided by a show of hands (unless a poll is demanded) and in case of an equality of votes, the chairman will, in respect of both a show of hands and on a poll, not have a casting vote. On a show of hands every Loan Note Holder present in person or by proxy will have one vote.
A Loan Note Holder entitled to attend and vote at a meeting of the Loan Note Holders may appoint one or more proxies to attend and vote instead of the CVR Holder and that the proxy does not need to be a Loan Note Holder. A company which is a Loan Note Holder may, by resolution of its directors or other governing body, authorise a person to act as its representative at a meeting of the Loan Note Holders.
A resolution in writing executed by or on behalf of Loan Note Holders holding the requisite majority of the Loan Notes required to pass such resolution if it had been proposed at a meeting of the Loan Note Holders is as effective as if it had been passed at a meeting of the Loan Note Holders duly convened and held.
9. POTENTIAL LISTING OF CVRS AND/OR LOAN NOTES GVC is considering seeking an over the counter trading facility or listing for the CVRs and/or the Loan Notes. A further announcement in relation to such trading facility will be made in due course, but there can be no guarantee that any such trading facility or listing will be obtained.
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PART 4
HISTORICAL FINANCIAL INFORMATION OF THE GVC GROUP
1. BASIS OF FINANCIAL INFORMATION I,3.1 I,3.2 1.1 The audited consolidated financial statements of: I,10.1 I,10.2 (a) the GVC Group included in the GVC Annual Report 2016; I,10.3
(b) the Prior GVC Group included in the GVC Annual Report 2015; I,10.4 (c) the bwin.party Group in respect of the financial year ended 31 December 2015 and the three I,10.5 I,20.1 months ended 31 March 2016 and included in the GVC Transfer Announcement; I,20.4.1 I,20.5.1 LR,13.5.7(1)
(d) the Prior GVC Group in respect of the financial year ended 31 December 2014 and included in LR,13.5.6 the GVC Prospectus; and
(e) the bwin.party Group included in the bwin.party Annual Report 2014,
are incorporated by reference into this document.
1.2 The unaudited interim consolidated financial statements of the GVC Group included in the GVC I,20.4.3 Interim Results 2017 are incorporated by reference into this document. LR,13.5.8(2)
1.3 The consolidated financial statements referred to in paragraph 1.1 above were prepared in accordance with IFRS, were audited and the audit report for each such financial year was unqualified.
2. DOCUMENTS INCORPORATED BY REFERENCE Certain sections, as set out below, of the GVC Annual Report 2016, the GVC Annual Report 2015, the GVC Transfer Announcement, the GVC Prospectus, the bwin.party Annual Report 2014 and the GVC Interim Results 2017 are incorporated by reference into this document.
The following cross-reference list is intended to enable investors to identify easily specific items of information that have been incorporated by reference into this document.
2.1 GVC Interim Results 2017 I,20.6.1 The page numbers below refer to the relevant pages of the GVC Interim Results 2017. The financial I,20.6.2 information referred to in this paragraph has not been audited:
Information Pages Independent review report 14 Condensed consolidated income statement 15 Condensed consolidated statement of comprehensive income 15 Condensed consolidated statement of financial position 16 Condensed consolidated statement of changes in equity 17 Condensed consolidated statement of cash flows 18 Notes to the condensed consolidated financial statements 19-30
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2.2 GVC Annual Report 2016 The page numbers below refer to the relevant pages of the GVC Annual Report 2016:
Information Pages Independent auditor’s report 64-67 Consolidated income statement 68 Consolidated statement of comprehensive income 69 Consolidated statement of financial position 70 Consolidated statement of changes in equity 71 Consolidated statement of cash flows 72 Notes to the consolidated financial statements 73-118
2.3 GVC Annual Report 2015 The page numbers below refer to the relevant pages of the GVC Annual Report 2015:
Information Pages Independent auditor’s report 41-45 Consolidated income statement 46 Consolidated statement of comprehensive income 46 Consolidated statement of financial position 47 Consolidated statement of changes in equity 48 Consolidated statement of cash flows 49 Notes to the consolidated financial statements 53-87
2.4 bwin.party Group financial information in respect of the financial year ended 31 December 2015 and the three months ended 31 March 2016 The page numbers below refer to the relevant pages of the GVC Transfer Announcement:
Financial year ended 31 December 2015
Information Pages Independent auditors’ report 26-27 Consolidated statement of comprehensive income 28-29 Consolidated statement of financial position 30-31 Consolidated statement of changes in equity 32 Consolidated statement of cash flows 33-34 Notes to the consolidated financial statements 35-82
Three months ended 31 March 2016
Information Pages Accountants Report 143-144 Consolidated statement of comprehensive income 145 Consolidated statement of financial position 146 Consolidated statement of changes in equity 147-148 Consolidated statement of cashflows 149-150 Notes to the audited consolidated information 151-192
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2.5 Prior GVC Group financial information in respect of the financial year ended 31 December 2014 The page numbers below refer to the relevant pages of the GVC Prospectus:
Information Pages Independent auditor’s report 112 Consolidated income statement 113 Consolidated statement of comprehensive income 114 Consolidated balance sheet 115 Consolidated statement of changes in equity 116 Consolidated statement of cash flows 117 Notes to the consolidated financial statements 118-158
2.6 bwin.party Annual Report 2014 The page numbers below refer to the relevant pages of the bwin.party Annual Report 2014:
Information Pages Independent auditor’s report 96-99 Consolidated statement of comprehensive income 100 Consolidated statement of financial position 101 Consolidated statement of changes in equity 102 Consolidated statement of cash flows 103 Notes to the financial statements 104-142
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PART 5
OPERATING AND FINANCIAL REVIEW – GVC GROUP
Some of the information in this Operating and Financial Review and elsewhere in this document includes I,6.2 forward-looking statements that involve risk and uncertainties. Please see the section entitled “Risk Factors” I,9.1 on pages 26 to 72 of this document for a discussion of important factors that could cause actual results, I,9.2.1 operations or cashflows to differ materially from that described, expressed or implied in the forward-looking I,9.2.2 statements contained in this document. I,9.2.3 I,20.7.1 The following discussion of the GVC Group’s financial condition and results of operations should be read LR,13.5.7(1) in conjunction with the historical financial information of the GVC Group and the notes related thereto LR,13.5.7(2) referred to in Part 4, which is incorporated into this document by reference and the information relating to LR,13.5.6 the business of the GVC Group contained elsewhere in this document. Except as otherwise stated, the LR,13.5.7(3)(a) financial information included in this Part 5 has been extracted without material adjustment from the financial information referred to in Part 4, which has been incorporated into this document by reference. The historical financial information referred to in this Part 5 has been prepared in accordance with IFRS as explained in Part 4.
1. DOCUMENTS INCORPORATED BY REFERENCE Certain sections, as set out below, of the GVC Interim Results 2017, GVC Annual Report 2016, the GVC Annual Report 2015, the GVC Transfer Announcement, the GVC Prospectus and the bwin.party Annual Report 2014 are incorporated by reference into this document.
The following cross-reference list is intended to enable investors to identify easily specific items of information that have been incorporated by reference into this document.
1.1 GVC Interim Results 2017 The page numbers below refer to the relevant pages of the GVC Interim Results 2017. The financial LR,13.5.8(2) information referred to in this paragraph has not been audited:
Information Pages Chief Executive’s review 3-6 Chief Financial Officer’s review 7-12 Principal Risks 13 Independent review report 14 Condensed consolidated income statement 15 Condensed consolidated statement of comprehensive income 15 Condensed consolidated statement of financial position 16 Condensed consolidated statement of changes in equity 17 Condensed consolidated statement of cash flows 18 Notes to the condensed consolidated financial statements 19-30
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1.2 GVC Annual Report 2016 The page numbers below refer to the relevant pages of the GVC Annual Report 2016:
Information Pages Chairman’s Report 3 Chief Executive’s Review 6-9 Major trends in the marketplace 10-11 Business model – How we create value 14-15 Performance of divisions 16-21 Chief Financial Officer’s review 26-31 Principal Risks 32-33 Independent auditor’s report 64-67 Consolidated income statement 68 Consolidated statement of comprehensive income 69 Consolidated statement of financial position 70 Consolidated statement of changes in equity 71 Consolidated statement of cash flows 72 Notes to the consolidated financial statements 73-118
1.3 GVC Annual Report 2015 The page numbers below refer to the relevant pages of the GVC Annual Report 2015:
Information Pages Chairman’s Statement 9 Report of the Chief Executive 10-12 Report of the Group Finance Director 13-25 Principal risks and uncertainties 26-28 Directors’ report 35-37 Independent auditor’s report 41-45 Consolidated income statement 46 Consolidated statement of comprehensive income 46 Consolidated statement of financial position 47 Consolidated statement of changes in equity 48 Consolidated statement of cash flows 49 Notes to the consolidated financial statements 53-87
1.4 bwin.party Group financial information in respect of the financial year ended 31 December 2015 The page numbers below refer to the relevant pages of the GVC Transfer Announcement:
Financial year ended 31 December 2015
Information Pages Independent auditors’ report 26-27 Consolidated statement of comprehensive income 28-29 Consolidated statement of financial position 30-31 Consolidated statement of changes in equity 32 Consolidated statement of cash flows 33-34 Notes to the consolidated financial statements 35-82
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1.5 Prior GVC Group financial information in respect of the financial year ended 31 December 2014 The page numbers below refer to the relevant pages of the GVC Prospectus: Information Pages Directors’ report 109-111 Independent auditor’s report 112 Consolidated income statement 113 Consolidated statement of comprehensive income 114 Consolidated balance sheet 115 Consolidated statement of changes in equity 116 Consolidated statement of cash flows 117 Notes to the consolidated financial statements 118-158
1.6 bwin.party Annual Report 2014 The page numbers below refer to the relevant pages of the bwin.party Annual Report 2014: Information Pages Chairman’s Statement 20-21 CEO’s Review 22-27 Spotlight on strategy 28-29 Spotlight on our gaming products 30-33 Principal Risks 43-44 Independent auditor’s report 96-99 Consolidated statement of comprehensive income 100 Consolidated statement of financial position 101 Consolidated statement of changes in equity 102 Consolidated statement of cash flows 103 Notes to the financial statements 104-142
2. CAPITALISATION AND INDEBTEDNESS I,10.1 The following table shows the unaudited capitalisation of GVC as at 30 June 2017 (being the latest date in respect I,10.2 of which the Company has published financial information); the figures have been extracted without material I,10.3 adjustment from GVC’s unaudited condensed consolidated interim financial statements for the six month period I,10.4 ended 30 June 2017. As there has been a material change in GVC’s capitalisation since 30 June 2017 (being the I,10.5 latest date in respect of which GVC has published financial information) the following table also shows the III,3.2 unaudited capitalisation of GVC as at 31 December 2017; the figures have been extracted without material adjustment from GVC’s unaudited consolidated management accounts as at 31 December 2017. 30 June 2017 31 December 2017 (Unaudited) (Unaudited) Capitalisation (€million) (€million) Share capital 3.0 3.0 Share premium 1,503.9 1,525.3 Merger reserve 40.4 40.4 Translation reserve (4.5) (4.4) Total capitalisation 1,542.8 1,564.3
Notes: (1) Shareholders’ equity does not include the profit and loss account. (2) The €21.4 million increase in the share premium balance, from €1,503.9 million at 30 June 2017 to €1,525.3 million at 31 December 2017, arose due to the exercise of share options.
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The table below sets out GVC’s unaudited indebtedness as at 31 December 2017 and has been extracted without material adjustment from the unaudited consolidated management accounts of GVC as at 31 December 2017.
31 December 2017 (Unaudited) (€million) Total current debt Guaranteed – Secured 0.2 Unguaranteed/unsecured – –––––––– 0.2 –––––––– Total non-current Debt Guaranteed – Secured 295.2 Unguaranteed/unsecured – –––––––– 295.2 –––––––– Total indebtedness 295.4 ––––––––
The following table sets out the net unaudited liquidity of GVC as at 31 December 2017, extracted without material adjustment from the unaudited consolidated management accounts of GVC as at 31 December 2017.
31 December 2017 (Unaudited) (€million) Cash and cash equivalents 303.8 –––––––– Liquidity 303.8 –––––––– Current financial debt Current debt (0.2) –––––––– Total current financial debt (0.2) –––––––– Non-current financial debt Non-current debt (295.2) –––––––– Total non-current financial debt (295.2) –––––––– Net financial liquidity 8.4
As at the date of this document there has been no material change in the capitalisation and financial indebtedness since 31 December 2017.
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PART 6
HISTORICAL FINANCIAL INFORMATION OF THE LADBROKES LR,10.4.1(2)(d) LR,10.4.1(2)(e) CORAL GROUP LR,13.5.7(1) LR,13.5.7(2) SECTION A: HISTORICAL FINANCIAL INFORMATION OF THE LADBROKES CORAL LR,13.5.13(1) GROUP INCORPORATED BY REFERENCE LR,13.5.14(1) LR13.5.1.17(2) 1. BASIS OF FINANCIAL INFORMATION LR,13.5.6 1.1 The audited: LR,13.5.7(3)(a) LR,13.5.17A (a) consolidated financial statements of the Ladbrokes Coral Group included in the Ladbrokes LR,13.5.18 Coral Annual Report 2016;
(b) consolidated financial statements of the Historic Ladbrokes Group included in the Ladbrokes Annual Report 2015 and the Ladbrokes Annual Report 2014; and
(c) combined financial statements of the Coral Group in respect of the 52 weeks ended 27 September 2014 and the 52 weeks ended 26 September 2015 and included in the Ladbrokes Coral Readmission Prospectus;
are incorporated by reference into this document.
1.2 The unaudited interim consolidated financial statements of the Ladbrokes Coral Group included in the LR,13.5.8(2) Ladbrokes Coral Group Interim Results 2017 are incorporated by reference into this document.
1.3 The financial statements referred to in paragraph 1.1 above were prepared in accordance with IFRS, were audited and the audit report for each such financial year was unqualified.
1.4 The GVC Directors confirm that no material adjustments need to be made to the financial information LR,13.5.27(2)(b) of the Ladbrokes Coral Group, the Historical Ladbrokes Group and the Historical Coral Group incorporated by reference into this section A of Part 6 and the financial information on the Historical Coral Group set out in section C of this Part 6 to achieve consistency with the accounting policies adopted by GVC in its latest annual accounts.
2. DOCUMENTS INCORPORATED BY REFERENCE Certain sections, as set out below, of the Ladbrokes Coral Annual Report 2016, the Ladbrokes Annual Report 2015, the Ladbrokes Annual Report 2014 and the Ladbrokes Coral Readmission Prospectus are incorporated by reference into this document.
The following cross-reference list is intended to enable investors to identify easily specific items of information that have been incorporated by reference into this document.
2.1 Ladbrokes Coral Interim Results 2017 The page numbers below refer to the relevant pages of the Ladbrokes Coral Interim Results 2017. The financial information referred to in this paragraph has not been audited:
Information Pages Independent review report to Ladbrokes Coral Group plc 20-21 Interim consolidated income statement 22 Interim consolidated statement of comprehensive income 23 Interim balance sheet 24 Interim consolidated statement of changes in equity 25 Interim consolidated statement of cash flows 26 Notes to financial information 27-36
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2.2 Ladbrokes Coral Annual Report 2016 The page numbers below refer to the relevant pages of the Ladbrokes Coral Annual Report 2016:
Information Pages Independent auditors’ report to the members of Ladbrokes plc 92-99 Consolidated income statement 100 Consolidated statement of comprehensive income 101 Consolidated balance sheet 102 Consolidated statement of changes in equity 103 Consolidated statement of cash flows 104 Notes to the consolidated financial statements 105-157
2.3 Ladbrokes Annual Report 2015 The page numbers below refer to the relevant pages of the Ladbrokes Annual Report 2015:
Information Pages Independent auditors’ report to the members of Ladbrokes plc 76-83 Consolidated income statement 84 Consolidated statement of comprehensive income 85 Consolidated balance sheet 86 Consolidated statement of changes in equity 87 Consolidated statement of cash flows 88 Notes to the consolidated financial statements 89-140
2.4 Ladbrokes Annual Report 2014 The page numbers below refer to the relevant pages of the Ladbrokes Annual Report 2014:
Information Pages Independent auditors’ report to the members of Ladbrokes plc 72-77 Consolidated income statement 78 Consolidated statement of comprehensive income 79 Consolidated balance sheet 80 Consolidated statement of changes in equity 81 Consolidated statement of cash flows 82 Notes to the consolidated financial statements 83-129
2.5 Coral Group financial information in respect of the 52 weeks ended 27 September 2014 and 26 September 2015 The page numbers below refer to the relevant pages of the Ladbrokes Coral Readmission Prospectus:
52 weeks ended 27 September 2014 and 26 September 2015
Information Pages Accountant’s Report in respect of the Historical Financial Information 114-115 Combined income statement 116-117 Combined statement of comprehensive income 118 Combined balance sheet 119 Combined statement of changes in equity 120 Combined statement of cash flow 121 Notes to the Combined Historical Financial Information 122-161
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SECTION B: ACCOUNTANT’S REPORT IN RESPECT OF THE HISTORICAL FINANCIAL INFORMATION RELATING TO THE HISTORICAL CORAL GROUP FOR THE 13 MONTHS ENDED 31 OCTOBER 2016 The Directors GVC Holdings Plc 32 Athol Street Douglas IM1 1JB Isle of Man
9 February 2018
Ladies and Gentlemen
Ladbrokes Coral Group plc
We report on the financial information set out on pages 144 to 184 of the combined Class 1 circular and III,10.2 prospectus dated 9 February 2018 of GVC Holdings PLC for the thirteen months ended 31 October 2016. This financial information has been prepared for inclusion in the Class 1 circular relating to the acquisition of Ladbrokes Coral plc dated 9 February 2018 by GVC Holdings PLC on the basis of the accounting policies set out in note 1. This report is required by paragraph 13.5.21R of the Listing Rules and is given for the purpose of complying with that paragraph and for no other purpose. We have not audited or reviewed the financial information for the 52 weeks ended 30 September 2015 which has been included for comparative purposes only, and accordingly do not express an opinion thereon.
Responsibilities The Directors of GVC Holdings PLC are responsible for preparing the financial information on the basis of preparation set out in note 1 to the financial information and in accordance with International Financial Reporting Standards as adopted by the European Union.
It is our responsibility to form an opinion on the financial information and to report our opinion to you.
Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Listing Rule 13.4.1R(6) and paragraph 23.1 of Annex I of the Prospectus Directive Regulation, consenting to its inclusion in the combined Class 1 circular and prospectus.
Basis of Opinion We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of the significant estimates and judgments made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entity’s circ*mstances, consistently applied and adequately disclosed.
We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error.
We have not audited or reviewed the financial information for the 52 weeks ended 30 September 2015 which has been included for comparative purposes only, and accordingly do not express an opinion thereon.
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Opinion In our opinion, the financial information gives, for the purposes of the Class 1 circular dated 9 February 2018, a true and fair view of the state of affairs of the Coral Group as at 31 October 2016 and of its profit, cash flows and recognised gains and losses and changes in equity for the thirteen month period ended 31 October 2016 in accordance with the basis of preparation set out in note 1 and in accordance with International Financial Reporting Standards as adopted by the European Union as described in note 1.
Declaration For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the prospectus in compliance with paragraph 1.2 of Annex I of the Prospectus Directive Regulation.
Yours faithfully
KPMG LLP
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SECTION C: HISTORICAL INFORMATION RELATING TO THE HISTORICAL CORAL GROUP FOR THE 13 MONTHS ENDED 31 OCTOBER 2016
Combined Income Statement Unaudited 13 months ended 52 weeks ended 31 October 2016 26 September 2015 Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total Continuing Operations Note £m £m £m £m £m £m Revenue 2 1,244.4 – 1,244.4 1,006.6 – 1,006.6 Operating expenses 3 (1,054.8) (69.2) (1,124.0) (857.8) (14.7) (872.5) EBITDA 243.6 (49.0) 194.6 204.0 (4.8) 199.2 Depreciation, amortisation and impairment (54.0) (20.2) (74.2) (55.2) (9.9) (65.1) Group operating profit/(loss) 189.6 (69.2) 120.4 148.8 (14.7) 134.1 Financing costs 6 (90.0) – (90.0) (85.0) – (85.0) Financing income 6 1.6 – 1.6 0.9 – 0.9 Profit/(loss) before tax 101.2 (69.2) 32.0 64.7 (14.7) 50.0 Income tax 7 4.4 3.0 7.4 (18.7) 2.7 (16.0) Profit/(loss) for the period from continuing operations 105.6 (66.2) 39.4 46.0 (12.0) 34.0 Discontinued activities Loss for the period from discontinued activities 8 – – – – (6.8) (6.8) Profit/(loss) for the period 105.6 (66.2) 39.4 46.0 (18.8) 27.2 Profit/(loss) for the period attributable to the owners of the parent company 105.6 (66.2) 39.4 46.0 (18.8) 27.2
The notes on pages 149 to 184 form part of the Combined Historical Financial Information.
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Combined Income Statement Unaudited 13 months 52 weeks ended ended 31 October 26 September 2016 2015 Note £m £m Profit for the period 39.4 27.2 Items of other comprehensive income that may be subsequently reclassified to profit or loss Currency translation differences 3.5 (1.7) Total items that may be reclassified to profit or loss 3.5 (1.7) Items of other comprehensive income that will not be reclassified to profit or loss: Remeasurements of retirement benefits 24 (7.5) 11.5 Tax on items that will not be reclassified to profit or loss 7 0.4 (4.3) Total items that will not be reclassified to profit or loss (7.1) 7.2 Other comprehensive (expense)/income for the period (3.6) 5.5 Total comprehensive income for the period 35.8 32.7 Total comprehensive income for the period attributable to the owners of the parent company 35.8 32.7
The notes on pages 149 to 184 form part of the Combined Historical Financial Information.
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Combined Balance Sheet Unaudited 31 October 26 September 2016 2015 Note £m £m Assets Non-current assets Goodwill and intangible assets 9 1,452.1 1,467.7 Property, plant and equipment 10 95.9 95.0 Interest in associates and other investments 11 4.1 – Deferred tax assets 21 15.7 23.3 Retirement benefit asset 24 52.3 35.7 1,620.1 1,621.7 Current assets Inventories 14 0.4 0.5 Trade and other receivables 15 70.7 33.6 Cash and cash equivalents 90.8 37.1 161.9 71.2 Total assets 1,782.0 1,692.9 Liabilities Current liabilities Trade and other payables 16 (191.1) (161.9) Current income taxation (7.6) (0.5) Other financial liabilities 17 (9.3) (5.7) Interest bearing loans and borrowings with other group companies 18 (985.0) (831.1) Provisions 22 (6.8) (2.4) (1,199.8) (1,001.6) Non-current liabilities Other payables 16 (4.6) (7.2) Deferred tax liabilities 21 (178.4) (205.9) Provisions 22 (11.0) (14.7) (194.0) (227.8) Total liabilities (1,393.8) (1,229.4) Net assets 388.2 463.5 Equity attributable to owners of the parent Invested capital Invested capital attributable to equity holders 388.2 463.5 Total capital 388.2 463.5
The notes on pages 149 to 184 form part of the Combined Historical Financial Information.
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Combined Statement of Changes in Equity Invested capital £m At 27 September 2014 (unaudited) 429.7 Profit for the year 27.2 Other comprehensive income for the year 5.5 Transactions with owners: Share based payment charge 1.1 At 26 September 2015 (unaudited) 463.5 Profit for the period 39.4 Other comprehensive expense for the period (3.6) Transactions with owners: Transfer of residual share of retirement benefit scheme from Coral Group companies (note 24): Net retirement benefit asset transferred 15.4 Related taxation (5.4) Alignment of intercompany debt (95.2) Dividend (25.9) At 31 October 2016 388.2
The notes on pages 149 to 184 form part of the Combined Historical Financial Information.
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Combined Statement of Cash Flow Unaudited 31 October 26 September 2016 2015 Note £m £m Cash generated from operations 23 185.6 209.0 Income tax paid (2.0) (5.3) Net cash inflow from operations 183.6 203.7 Cash inflows/(outflow) from investing activities Acquisitions (net of cash acquired) (0.5) (1.3) Purchase of intangible assets (24.0) (16.3) Purchase of property, plant and equipment (36.6) (35.4) Purchase of investments (4.1) – Net cash outflow from investing activities (65.2) (53.0) Cash inflows/(outflow) from financing activities Dividends paid (25.9) – Interest paid (6.9) (0.9) Interest charged on balances with other Group companies (85.6) (83.4) Net cash funding repayments to Gala Coral Group 50.3 (71.1) Net cash outflow from financing activities (68.1) (155.4) Net increase/(decrease) in cash and cash equivalents 50.3 (4.7) Cash and cash equivalents at beginning of period 37.1 42.7 Exchange (losses)/gains 3.4 (0.9) Cash and cash equivalents at end of period 90.8 37.1
Cash and cash equivalents include £26.1m (2015: £16.5m) held in trust in relation to customer balances.
The notes on pages 149 to 184 form part of the Combined Historical Financial Information.
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SECTION C: NOTES TO THE COMBINED HISTORICAL FINANCIAL INFORMATION 1. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The Coral Group (“the Coral Group”) constitutes the betting and online activities which previously formed part of the Gala Coral Group, the group headed by Gala Coral Group Limited. The Combined Historical Financial Information is presented in pounds sterling, which is the Coral Group’s functional and presentational currency. All values are in millions (£m) rounded to one decimal place except where otherwise indicated.
The Combined Historical Financial Information for the 13 months ended 31 October 2016 has been prepared in accordance with the requirements of the Prospective Directive (“PD”) regulation, the Listing Rules, and in accordance with this basis of preparation. The basis of preparation describes how the financial information has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS as adopted by the EU”) except as described below.
IFRS as adopted by the EU does not provide for the preparation of combined historical financial information or for the specific accounting treatment set out below, and accordingly in preparing the combined historical financial information, certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 “Standards for Investment Reporting applicable to public reporting engagements on historical financial information” issued by the UK Auditing Practices Board have been applied. The application of these conventions results in the following departure from IFRSs as adopted by the EU. Other than this departure IFRSs as adopted by the EU have been applied.
• The Combined Historical Financial Information is prepared on a combined carve-out basis and therefore does not comply with the requirements of IFRS 10. The combined historical information has been prepared by allocating central items to the operating divisions which make up the Coral Group and aggregating the results, assets and liabilities of each of the divisions by applying the principles underlying the consolidation procedures of IFRS 10 ‘Consolidated Financial Statements’ for each of the periods presented.
• The Coral Group is not a separate legal group and therefore it is not meaningful to present share capital or an analysis of reserves. The net assets of the group are therefore represented by the cumulative investment of the Gala Coral Group (shown as “Invested Capital”) and Earnings per share (EPS) as required by IAS 33 have also not been presented in the Combined Income Statement.
• Final dividends proposed by the Board of Directors and unpaid at the period end are not recognised in the Combined Historical Financial Information until they have been approved by shareholders at the Annual General Meeting. Interim dividends are recognised when paid. Dividends paid by the parent company of the Coral Group to its immediate parent are shown as a reduction in invested capital at the date they are approved.
The following summarises the accounting and other principles applied in preparing the Combined Financial Information:
• Transactions and balances within the Coral Group have been eliminated. All intra-group balances, transactions, income and expenses and profits and losses, including unrealised profits arising from intra-group transactions, have been eliminated on combination;
• Transactions and the balances between the Coral Group and rest of the Gala Coral Group represent third-party transactions and balances from the perspective of Coral Group. They have been presented alongside all other third-party transactions and balances in the appropriate Income Statement and Balance Sheet line items of the Combined Historical Financial Information to which such transactions and balances relate;
• Balances with Gala Coral which are never expected to be settled have been included within invested capital attributable to equity holders (equity). The Coral Group has historically been funded as part of
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the Gala Coral group and the balance reported, which is payable to Gala Group Finance plc, represents the anticipated post transaction debt position. When a change in the amounts which are never expected to be settled occurs, the balance due to Gala Group Finance plc is adjusted with an equivalent movement shown in equity.
• The rate of interest applied to funding balances within the Combined Historical Financial Information reflects the Gala Coral group weighted average cost of debt relevant to that particular year. They are not necessarily representative of the finance costs and income that may arise in the future.
• Payments for overhead costs to the Gala Coral Group for management oversight, administration, human resources, information technology, marketing and taxation support have been reflected in the Combined Historical Financial Information based on the divisions that central employees or roles have now been allocated to. Exceptional income/(costs) have been recharged to the Coral Group where they are directly attributable to the activities of the Coral Group, see note 27;
• Current and deferred tax charges in the Combined Historical Financial Information have been based on the tax treatment of the income and expenditure in the legal entities in which they have arisen with adjustments made for consolidation purposes. Deferred tax assets and liabilities reflect the full historical deferred tax assets and liabilities recorded by the legal entities adjusted for IFRS. The tax charges recorded in the combined income statement and combined statement of comprehensive income are not necessarily representative of the tax charges that would have been reported had the Coral Group been an independent group throughout the period presented. They are not necessarily representative of the tax charges that may arise in the future.
• The Combined Historical Financial Information has been prepared on a going concern basis and under the historical cost convention, except for certain areas where fair value measurement is required, as identified in the accounting policies below.
Basis of combination The purchase method of accounting is used to account for the acquisition of entities. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the identifiable net assets acquired is recorded as goodwill.
Going concern The directors of GVC have reviewed the Coral Group’s cash flow forecasts and trading budgets and after making appropriate enquiries, have formed the view that the Coral Group is operationally and financially robust and will generate sufficient cash to meet its ongoing requirements for at least the next 12 months. Accordingly, the going concern basis of preparation has been adopted.
Accounting policies The directors of Ladbrokes confirm that the Combined Historic Financial Information has been prepared using the accounting policies set out herein for all accounting periods presented. The accounting policies applied are consistent with those adopted by Ladbrokes PLC in its financial statements for the year ended 31 December 2015 except as discussed in the basis of preparation note.
Standards, amendments and interpretations to existing standards that are not yet effective Future accounting developments: The IASB and IFRIC have issued a number of standards, interpretations and amendments to standards which could impact the Coral Group, with an effective date after the date of this Combined Historical Financial Information.
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IFRS 9, ‘Financial instruments’, which addresses the classification, measurement and recognition of financial assets and liabilities, was issued in July 2015. IFRS 9 retains and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of the classification depends on the business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The Group is assessing the impact of IFRS 9. At this stage the impact is expected to be limited.
IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. IFRS 15 will only impact revenue that is it not governed by IAS 39. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2017 and earlier adoption is permitted. The Group has determined that the impact of IFRS 15 will be limited.
IFRS 16, ‘Leases’ sets out the principles for the recognition, measurement, presentation and disclosure of leases. The objective is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. IFRS 16 now requires lessees to recognise a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. This information gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the entity. The standard replaces IAS 17 ‘Leases’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2019 and earlier adoption is permitted for entities that apply IFRS 15 at or before the date of initial application of IFRS 16. The Group is assessing the impact of IFRS 16. At this stage the effects have not been quantified, but the potential impacts are expected to be material given the extent of operating leases over property and equipment.
There are no other IFRSs or IFRS IC interpretations that are not yet effective that would be expected to have a material impact on the Group.
Critical accounting estimates and judgements The preparation of Combined Historical Financial Information in conformity with IFRS requires the use of certain critical accounting estimates and requires the exercise of judgement in applying accounting policies. Use of available information and application of judgement are inherent in the formation of estimates. Actual results in the future may differ from those reported.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods. The areas involving a higher degree of judgement or complexity, where assumptions and estimates are significant to the Combined Historical Financial Information, are set out below.
Impairment of intangible assets and property, plant and equipment: Licensed Betting Office (‘LBO’) licences have been classified as intangible assets with an indefinite life and accordingly are not amortised but are subject to annual impairment reviews. The Coral Group tests annually whether assets which have an indefinite useful life, have suffered any impairment. The Coral Group also reviews assets that are subject to amortisation or depreciation for events or changes in circ*mstances that indicate the carrying amount of the asset may not be recoverable.
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The application of the policy requires the use of accounting estimates and judgements in determining the recoverable amount of cash-generating units to which the intangible assets and property, plant and equipment are associated.
The recoverable amount is the higher of the fair value less costs to sell and value in use. Estimates of fair value less costs to sell are performed internally by experienced senior management supported by knowledge of similar transactions and advice from external valuers. Estimating a value in use amount requires management to make an estimate of the expected future cash flows from the cash generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Note 12 provides information on the assumptions and sensitivities used in this Historic Financial Information.
Retirement benefit obligations: The cost of defined benefit pension plans and other post-employment benefits is determined using actuarial valuations.
The actuarial valuation involves assumptions over discount rates, expected rates of return on assets, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. Details of those assumptions used are disclosed in note 24.
The Coral Group also reviews any net pension asset to determine whether this is recoverable and the amount (if any) to be recognised in the Coral Group’s balance sheet in accordance with IAS19 (Revised).
Segmental reporting The operating segments set out in note 2 are reported in a manner consistent with the internal reporting to the Chief Operating Decision Maker. For the purposes of IFRS 8 – Operating Segments – the Chief Operating Decision Maker has been identified as the Executive Board of the Coral Group.
Revenue recognition Amounts staked does not represent the Coral Group’s statutory revenue and comprises the gross takings receivable from customers.
Revenue arising from the operation of bookmakers (“LBOs”) and online gaming is stated as net win, which is calculated as the fair value of bets placed less amounts won by customers. Revenue is stated net of any sales tax and free bets, but before the deduction of gaming duty. Open betting positions are carried at fair value and gains and losses on these positions are recognised in revenue.
Revenue of Greyhound Stadia includes the sale of food and beverages, which is recorded net of VAT.
The Coral Group operates betting establishments in Italy via franchise partners. Under the terms of the franchise agreements, the Coral Group bears the risks and rewards of the operations and therefore the Coral Group acts as principal. As a result, the Coral Group recognises the full net win generated from these operations in revenue.
Cost of sales Cost of sales primarily comprises the costs of gaming duties, including machine gaming duty, gross profit tax and gaming duty. Cost of sales also includes the revenue share payments to franchisees and machine rental costs.
Exceptional items Exceptional items are non-recurring or unusual items which, by their size or nature, are separately disclosed in order to give a clearer understanding of the financial results of the Coral Group and present underlying performance on a consistent and comparable basis.
The exceptional items have been included within the appropriate classifications in the combined income statement. See note 5 for further details.
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Goodwill Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the Coral Group’s interest in the net fair value of the separately identifiable assets, liabilities and contingent liabilities of a subsidiary at the date of acquisition. In accordance with IFRS 3 Business Combinations, goodwill is not amortised but reviewed annually for impairment and as such, is stated at cost less any provision for impairment of value. Any impairment is recognised immediately in the combined income statement and is not subsequently reversed.
On acquisition, any goodwill acquired is allocated to cash generating units for the purpose of impairment testing. Where goodwill forms part of a cash generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed is included in the carrying amount of the operation when determining the gain or loss on disposal.
Intangible assets Intangible assets acquired separately are capitalised at cost and those acquired as part of a business combination are capitalised separately from goodwill if the fair value can be measured reliably on initial recognition. The costs relating to internally generated intangible assets, principally software costs, are capitalised as an intangible asset only when the future economic benefits expected to arise are deemed probable and the costs can be reliably measured. Other expenditure is charged against profit in the period in which the expenditure is incurred.
Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.
The useful lives of these intangible assets are assessed to be either finite or indefinite. Where amortisation is charged on assets with finite lives, this expense is taken to the combined income statement through amortisation. Useful lives are reviewed on an annual basis.
A summary of the policies applied to the Coral Group’s intangible assets is as follows:
LBO Licences – United Kingdom LBO licences are considered to have indefinite lives as there is no foreseeable limit to the period over which the licences are expected to generate net cash inflows and each licence holds a value outside the property in which it resides. In addition:
• the Coral Group is a leading operator in well established markets,
• there is a proven and sustained demand for bookmaking services,
• existing legislation restricts further entry to the market,
• the Coral Group has a strong record of renewing its licences at minimal cost,
• the UK licences have no definitive life, unlike the Italian gaming licences.
Each licence is reviewed annually for impairment. Any costs incurred on renewing licences annually are expensed as incurred.
LBO Licences – Italy The Coral Group capitalises Italian gaming licences at cost which are amortised on a straight-line basis over their initial term which is up to nine years.
Trade marks The Coral Group capitalises trademarks at their fair value on acquisition. The Coral Group trademarks are not amortised as their useful life has been assessed as indefinite. As such these are assessed annually for impairment.
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Software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on a straight line basis over their estimated useful lives (three to five years).
Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Coral Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets for externally purchased and internally developed software. Direct costs include specific employee costs for software development.
Computer software development costs recognised as assets are amortised over their estimated useful lives (three to five years).
An intangible asset is derecognised upon disposal, with any gain or loss arising (calculated as the difference between the net disposal proceeds and the carrying amount of the item) included in the combined income statement in the period of disposal.
Property, plant and equipment Property, plant and equipment is stated at cost, net of accumulated depreciation and impairment. Such cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, and only when it is probable that future economic benefits associated with the item will flow to the Coral Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the combined income statement during the financial period in which they are incurred.
Depreciation is provided on a straight-line basis on all property, plant and equipment, with the exception of freehold land, at rates calculated to write off the cost, less estimated residual value, of each asset evenly over its expected useful life, as follows:
Freehold buildings – 50 years
Leasehold land and buildings – shorter of 50 years and term of lease
Fixtures, fittings, vehicles and equipment – over three to ten years
Residual values and useful lives are reviewed at each balance sheet date, and adjusted prospectively, if appropriate. The carrying values of plant and equipment are reviewed for impairment annually as to whether there are events or changes in circ*mstances indicating that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amount.
The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre- tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the combined income statement.
Investment in subsidiary The investment in subsidiary is stated at cost less any accumulated impairment losses.
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Impairment reviews Assets that have an indefinite life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation and depreciation are reviewed for impairment whenever events or changes in circ*mstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for any amount by which an asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
Within Coral Retail, the cash generating units are generally individual LBOs and therefore, impairment is first assessed at this level for licences and property, plant and equipment, with any impairment arising booked first to licences and then to property, plant and equipment. Since goodwill has not been historically allocated to individual LBOs, a secondary assessment is then made to compare the carrying value of the segment against the recoverable amount with any additional impairment then taken against goodwill.
For all other segments (as disclosed in note 2) the cash generating unit is the segment itself and any impairments are made firstly to goodwill, next to any capitalised intangible asset and then finally to property, plant and equipment.
The expected cash flows generated by the assets are discounted using appropriate discount rates that reflect the time value of money and risks associated with the group of assets.
If an impairment loss is recognised, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an exceptional cost in the combined income statement immediately.
If an impairment loss subsequently reverses (other than in respect of goodwill), the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years.
For both tangible and intangible assets the future cash flows are based on the forecasts and budgets of the cash-generating unit or business discounted to reflect time value of money. The key assumptions within the budgets for the Coral Retail and Eurobet Retail segments are the average number of machines per shop, gross win per shop per week, wage increases and the fixed costs of the licensed betting offices. The key assumptions within the budgets for the Online segment are the number of active customers, revenue per head, win percentage, revenue shares and operating costs.
Inventories Inventories are valued at the lower of cost and net realisable value.
Taxation Current tax Current tax assets and liabilities for the current and prior periods are measured as the amount expected to be paid to or to be recovered from the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.
Management evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation at each reporting date and establishes provisions where appropriate.
Deferred tax Deferred tax is provided using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Combined Historical Financial Information. However, if deferred income tax arises from the initial recognition of an asset or liability in a transaction
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other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for.
Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current taxation assets against current taxation liabilities and it is the intention to settle these on a net basis. Deferred tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Coral Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Leases Leases are tested at inception to determine whether the lease is a finance or operating lease and treated accordingly. Property leases comprising a lease of land and buildings within a single contract are split into its two component parts before testing.
Leases are classified as finance leases whenever the terms of a lease transfer substantially all the benefits and risks of ownership of the asset to the lessee. All other leases are classified as operating leases.
Operating lease payments (including any lease incentives or premiums) are recognised as an expense in the combined income statement on a straight-line basis over the lease term.
Provisions Provisions are recognised when there is a present legal or constructive obligation as a result of past events if it is more likely than not that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are measured at the best estimate of the expenditures required to settle the obligation. If the effect of the time value of money is material, provisions are discounted using a pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to passage of time is recognised as a finance cost.
Provision is made against those leases where the property is now vacant and the unavoidable costs under the lease exceed the economic benefit expected to be derived from potential sub-letting arrangements.
Retirement benefits The Coral Group participates in the Gala Coral Pension Plan (‘the Plan’), a plan covering employees and former employees of the Coral Group and of the wider Gala Coral Group. The scheme has a defined benefit section and a defined contribution section. The assets of the scheme are managed separately from those of the Coral Group. The defined benefit section of the scheme is closed to new entrants and future accrual of benefits. The Coral Group records its share of the assets and liabilities of the Plan. As explained in note 24, from 19 December 2015 the assets and liabilities of the Gala Group were transferred to the Coral Group.
Retirement benefit scheme assets are measured at fair value and liabilities are measured on an actuarial basis using the projected unit method and discounted at a rate equivalent to the current rate of return on a high- quality corporate bond of equivalent currency and term to the scheme liabilities. Actuarial valuations are obtained every three years and are updated at each balance sheet date.
For the defined benefit scheme, management makes annual estimates and assumptions in respect of discount rates, future changes in salaries, employee turnover, inflation rates and life expectancy. In making these estimates and assumptions, management considers advice provided by external advisers, such as actuaries. Where actual experience differs to these estimates, remeasurements are recognised in the combined statement of comprehensive income in the period in which they arise.
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The retirement benefit cost relating to the defined benefit section of this fund is assessed in accordance with the advice of independent qualified actuaries using the projected unit credit method.
Any past service cost is recognised immediately.
Any interest income or expense relating to the pension scheme is included within financing costs or income within the combined income statement.
If the defined benefit scheme is in surplus, an asset is only recognised to the extent that the group has an unconditional right to use the surplus at some point during the life of the scheme or on its winding up.
For the defined contribution pension scheme, the amounts charged to the profit and loss account in respect of pension costs represent the contributions payable in the period as per the payment certificates. Differences between contributions payable in the period and contributions actually paid are shown as either accruals or prepayments.
Share based payments The Coral Group operates an equity-settled share based payment plan under which the Coral Group receives services from employees as consideration for the ability to participate in the purchase of equity instruments from the Coral Group’s parent. The fair value of the services received in exchange for the equity instrument is recognised as an expense. The total amount expensed is determined by reference to the fair value of the instruments granted:
• including any market performance conditions
• excluding the impact of any service and non-performance vesting conditions
The cost of equity settled transactions is recognised together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date). The cumulative expense recognised for equity settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of the directors of the Coral Group at that date, based on the best available estimate of the number of equity instruments, will ultimately vest.
At the end of each reporting period, the Coral Group revises its estimates over the number of instruments which are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement with a corresponding adjustment to equity.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.
Cash and cash equivalents Cash and cash equivalents consists of cash at bank and in hand and short-term deposits with an original maturity of less than three months, net of outstanding bank overdrafts.
Financial liabilities Financial liabilities include interest bearing loans and borrowings and ante-post bets. On initial recognition, financial liabilities are measured at fair value plus transaction costs where they are not categorised as financial liabilities at fair value through profit or loss. Financial liabilities at fair value through profit or loss include ante-post bets.
Financial liabilities at fair value through profit or loss are measured initially at fair value, with transaction costs taken directly to the combined income statement. Subsequently, the fair values are remeasured and gains and losses from changes therein are taken directly to the combined income statement.
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All interest bearing loans and borrowings are initially recognised at fair value net of issue costs associated with the borrowing. After initial recognition, fixed rate interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method.
Financial liabilities are derecognised when the obligation is discharged, cancelled or expires.
Foreign currencies The presentation currency of the Coral Group and the functional currency of its UK operations is Sterling (£).
The main functional currency of the overseas operation in Italy is the Euro. The main functional currency of the operation in Gibraltar is Sterling (£).
Transactions in foreign currencies are initially recorded at the foreign currency rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated at the foreign currency rate of exchange ruling at the balance sheet date.
All foreign currency translation differences are taken to the combined income statement.
At the reporting date, the assets and liabilities of overseas entities are translated into Sterling at the rate of exchange ruling at the balance sheet date and their income statements are translated at the average exchange rates for the year. The post-tax exchange differences arising on the retranslation, since the date of transition to IFRS, are taken directly to equity. On disposal of a foreign entity (in full), the relevant portion of the deferred cumulative amount recognised in equity relating to that particular foreign entity is recognised in the combined income statement as a component of the gain or loss on disposal.
2. SEGMENTAL ANALYSIS The Coral Group’s reportable segments have been drawn up in line with the guidance provided by IFRS 8 – Operating Segments. The segments disclosed below are aligned with the reports reviewed by the Executive Board of Coral, who have been identified as the ‘Chief Operating Decision Maker’, to make strategic decisions. Those segments reported reflect the operating segments and not an aggregation of a number of operating segments.
The reportable segments are:
• Coral Retail comprises all activity undertaken in LBOs in the UK. In addition this segment includes greyhound stadia operations, including on-course betting.
• Eurobet Retail comprises all activity undertaken in LBOs in Italy.
• Online comprises all activity undertaken online including online sportsbooks, online bingo, online casinos and other online gaming products.
• Telebet comprises activities relating to bets taken on the telephone.
• Corporate includes costs associated solely with Group functions including Group executive, legal, Group finance, tax and treasury. Costs previously managed centrally have been allocated to reportable segments on a consistent basis.
Corporate liabilities primarily relate to amounts owed to Gala Coral Group entities.
There are no inter-segment transactions which have a material effect on the information set out below.
During the 13 months ended 31 October 2016 all activity relates to continuing operations and the Group also reclassified its Gaming Development operations to Online from Coral Retail. The prior period comparatives have been restated to reflect this change.
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Segment information is as follows:
Coral Eurobet 13 months ended Retail Retail Online Telebet Corporate Group 31 October 2016 £m £m £m £m £m £m Amounts staked 12,538.4 600.7 8,726.8 77.9 – 21,943.8 Revenue 769.0 118.5 352.5 4.4 – 1,244.4 Gross profit 565.1 37.7 240.9 3.6 – 847.3 EBITDA (pre-exceptional items) 143.1 23.6 84.2 0.9 (8.2) 243.6 Depreciation and amortisation (29.3) (11.7) (13.0) – – (54.0) Operating profit/(loss) before exceptional items 113.8 11.9 71.2 0.9 (8.2) 189.6 Exceptional items (23.6) (0.1) 0.4 – (45.9) (69.2) Operating profit/(loss) after exceptional items 90.2 11.8 71.6 0.9 (54.1) 120.4 Net financing expense (88.4) Profit before taxation from continuing operations 32.0 Income tax 7.4 Profit before taxation from continuing operations 39.4 Profit for the period 39.4 Other disclosures: Net assets/(liabilities) 1,245.7 (3.2) 137.9 3.5 (995.7) 388.2 Operating expenses 678.8 106.7 280.9 3.5 54.1 1,124.0 Capital expenditure Intangible assets 1.4 – 21.4 – – 22.8 Property, plant and equipment 28.2 5.9 – – – 34.1
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Unaudited Coral Eurobet 52 weeks ended Retail Retail Online Telebet Corporate Group 26 September 2015 £m £m £m £m £m £m Amounts staked 11,278.6 465.8 6,331.4 63.7 – 18,139.5 Revenue 677.2 77.3 247.7 4.4 – 1,006.6 Gross profit 503.4 24.9 167.6 3.8 – 699.7 EBITDA (pre-exceptional items) 142.3 13.4 53.9 1.1 (6.7) 204.0 Depreciation and amortisation (27.1) (12.9) (15.2) – – (55.2) Operating profit/(loss) before exceptional items 115.2 0.5 38.7 1.1 (6.7) 148.8 Exceptional items (12.0) (0.4) (2.3) – – (14.7) Operating profit/(loss) after exceptional items 103.2 0.1 36.4 1.1 (6.7) 134.1 Net financing expense (84.1) Profit before taxation from continuing operations 50.0 Income tax (16.0) Profit for the period from continuing operations 34.0 Loss from discontinued activities (6.8) Profit for the period 27.2 Other disclosures: Net assets/(liabilities) 1,074.2 18.0 182.0 – (810.7) 463.5 Operating expenses 574.0 77.2 211.3 3.3 6.7 872.5 Capital expenditure Intangible assets 2.3 – 13.1 – – 15.4 Property, plant and equipment 27.1 7.7 4.3 – – 39.1 29.4 7.7 17.4 – – 54.5
Geographical Areas Revenue by Geographical Area Unaudited 13 months 52 weeks ended ended 31 October 26 September 2016 2015 By origin £m £m United Kingdom 769.0 677.2 Europe 475.4 329.4 1,244.4 1,006.6
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Non-Current Assets by Geographical Area Unaudited 31 October 26 September 2016 2015 £m £m United Kingdom 1,382.8 1,383.7 Europe 237.3 238.0 1,620.1 1,621.7
3. OPERATING EXPENSES The following items have been charged in arriving at the profit/(loss) for the period before financing and taxation:
Unaudited 13 months 52 weeks ended ended 31 October 26 September 2016 2015 £m £m Gross profits tax, Betting tax and Machine Games 270.2 209.1 Salaries and payroll-related expenses (note 4(a)) 247.1 205.5 Property expenses 150.3 122.3 Content and levy expenses 130.8 125.2 Marketing expenses 91.0 67.9 Depreciation, amortisation and impairment 74.2 65.1 49.0 4.8 Other operating expenses 111.4 72.6 Total operating expenses 1,124.0 872.5
4. EMPLOYEES AND KEY MANAGEMENT COMPENSATION (a) Employee benefit expense Unaudited 13 months 52 weeks ended ended 31 October 26 September 2016 2015 £m £m Wages and salaries 222.7 184.6 Social security costs 17.7 14.3 Retirement benefit costs (note 24) 6.7 5.5 Share based payment charge (note 25) – 1.1 247.1 205.5
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(b) Average monthly number of employees: Unaudited 13 months 52 weeks ended ended 31 October 26 September 2016 2015 Coral Retail 9,976 9,884 Eurobet Retail 211 179 Online 973 629 Corporate 37 39 11,197 10,731
Redundancy costs are included within restructuring and reorganisation costs within exceptional items. Further details are included in note 5.
The average number of employees includes executive directors. All staff are engaged in the administration and provision of betting and gaming services and the operation of greyhound stadia.
(c) Key management compensation Unaudited 13 months 52 weeks ended ended 31 October 26 September 2016 2015 £m £m Salaries and short-term employee benefits 3.7 3.9 Social security costs 0.7 0.6 Share based payments – 1.1 Post-employment benefits 0.3 0.3 4.7 5.9
Key management is defined as the executive management represented by the Coral group executive management team and the managing director of each operating divisions who meet on a regular basis to determine the strategic direction of the business and discuss its results.
5. EXCEPTIONAL ITEMS The analysis of the exceptional items is as follows:
Unaudited 13 months 52 weeks ended ended 31 October 26 September 2016 2015 £m £m Impairment charges (a) 20.0 9.7 Charge for legal & onerous contracts (b) 15.2 3.2 Release of legal & onerous contracts and other liabilities (b) (12.7) (3.0) Transaction, restructuring and (c) 46.7 3.7 Share based payment charge (d) – 1.1 Total exceptional items 69.2 14.7
The definition of exceptional items is disclosed within the group’s accounting policies.
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Details of the taxation credits and charges arising on exceptional items are set out in note 7.
(a) Impairment charges An impairment charge of £20.0 million (26 September 2015: £9.7 million) has been recognised in respect of the 13 months ended 31 October 2016. This has primarily resulted from the continued impact of the recent regulatory changes on certain LBOs and the write down of assets no longer used by the Group. The impairment has been recorded against licences for £16.2 million (26 September 2015: £9.7 million), property, plant and equipment for £0.9 million (26 September 2015: £nil) within the Coral Retail CGU and software for £2.9 million (26 September 2015: £nil) within the Online CGU. The impairment represents a non-cash charge at a combined group level.
The impairment review has been performed in accordance with IAS 36 assessing the value in use through a discounted cash flow model. Further details are set out in Note 12.
(b) Legal and onerous contracts and release of other liabilities Details of onerous lease provisions are set out in note 22. Certain other customer related liabilities have been derecognised following legal opinion that there is no remaining contractual liability.
(c) Transaction, restructuring and reorganisation costs Relates to internal re-organisations and restructurings including redundancy costs and contract termination payments as well as deal related costs.
(d) Share based payment charge Represents the ‘Share Based Payment’ charge and related costs detailed further in note 25. The IFRS 2 ‘Share Based Payment’ charge is an accounting charge only and does not represent a cash commitment on the Coral Group or any of its subsidiaries, either now or in the future. The ultimate obligation lies with the current parent company, GCG Manager S.A Luxco S.C.A and only in an exit event, which would represent an exceptional transaction. As such the associated IFRS2 charge has also been treated as exceptional.
6. FINANCE COSTS AND INCOME Unaudited 13 months 52 weeks ended ended 31 October 26 September 2016 2015 £m £m Finance costs Net interest cost with other Group companies (85.2) (83.4) Other interest (4.5) (1.1) Unwinding of the discount in onerous lease provisions (0.3) (0.5) Total finance costs (90.0) (85.0) Finance income Net finance income in respect of retirement benefit asset 1.6 0.9 Total finance income 1.6 0.9 Total net financing cost (88.4) (84.1)
The Coral Group has historically used the Gala Coral Group central treasury function to provide loans and make deposits of surplus funds utilising cash pools where such arrangements were in place within the Gala Coral Group. Interest on intercompany balances has historically been charged at a rate equivalent to the Gala Coral Group’s weighted average cost of debt. The interest charge in these Combined Historical Financial Information is therefore not representative of the interest expense anticipated post the merger.
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7. TAXATION Unaudited 13 months 52 weeks ended ended 31 October 26 September 2016 2015 £m £m Current income tax Current income tax – UK – group relief (8.4) (8.5) Current income tax – overseas (8.3) (1.6) Adjustment in respect of prior years (1.6) 0.3 Total current income tax charge (18.3) (9.8) Deferred tax Origination and reversal of temporary differences (2.7) (1.4) Impact of tax rate changes 26.1 – Adjustment in respect of prior years 2.3 (4.0) Total deferred tax charge 25.7 (5.4) Tax credit/(charge) in the Combined Income Statement 7.4 (15.2) The tax credit/(charge) for the period relates to: Continuing operations 7.4 (16.0) Discontinued activities – 0.8 Tax credit/(charge) in the Combined Income Statement 7.4 (15.2) Tax credit/(charge) directly relating to Other Comprehensive Income Deferred tax 0.4 (4.7) Current tax – 0.4 Total tax credit/(charge) in Other Comprehensive Income 0.4 (4.3)
UK Corporation tax is calculated at 20.0% (26 September 2015: 20.51%), of the estimated taxable profit for the period. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
Taxation effect of exceptional items The taxation credit/(charge) included in the amounts above relating to exceptional items is as follows:
Unaudited 13 months 52 weeks ended ended 31 October 26 September 2016 2015 £m £m Current income tax – UK 3.0 0.8 Current income tax – overseas – – Deferred tax – 1.9 3.0 2.7
Acquisition costs and the share based payment charge do not qualify for a deduction in calculating tax obligations. The other exceptional items are subject to either current income tax or deferred tax (in the case of impairment of other intangible assets, profit or losses on sale of property, plant and equipment and pension scheme closure).
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The charge for the period can be reconciled to the profit in the income statement as follows:
Unaudited 13 months 52 weeks ended ended 31 October 26 September 2016 2015 £m £m Profit from continuing operations 32.0 50.0 Loss from discontinued operations – (7.6) Profit before taxation 32.0 42.4 Tax charge calculated at the standard rate of corporation tax in the UK of 20.00% (2015: 20.51%) (6.4) (8.7) Effects of: Expenses not deductible for tax purposes (11.7) (3.3) Impact of different overseas tax rates (1.3) 1.0 Impact of changes in statutory tax rates 26.1 – Tax rate differential – (0.5) Deferred tax movement not recognised in profit & – – Adjustment in respect of prior periods 0.7 (3.7) Tax credit/(charge) in the Combined Income Statement 7.4 (15.2)
Factors affecting future taxation Legislation to reduce the mainstream rate of corporation tax from 20% to 19% from 1 April 2017 and from 19% to 18% from 1 April 2020 was included in the Finance Act 2015. A subsequent reduction in the rate to 17%, effective from 1 April 2020, was announced in the 2016 budget. This was substantively enacted on 6 September 2016. The deferred tax assets and liabilities have therefore been disclosed at the rate expected to apply when the timing difference is expected to reverse, primarily 17% as timing differences are predominantly expected to reverse after 1 April 2020.
8. DISCONTINUED ACTIVITIES During the year ended 26 September 2015 the group discontinued the activities of its High Roller segment. The results of discontinued activities are:
Unaudited 13 months 52 weeks ended ended 31 October 26 September 2016 2015 £m £m Revenue – (9.3) Operating expenses – 1.7 Operating loss and loss before taxation – (7.6) Income tax – 0.8 Net loss from discontinued activities – (6.8)
There were no assets or liabilities in relation to the High Roller segment at 26 September 2015, or 31 October 2016.
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The net cash flows from discontinued activities are:
Unaudited 13 months 52 weeks ended ended 31 September 26 September 2016 2015 £m £m Operating – (7.6)
9. GOODWILL AND INTANGIBLE ASSETS Goodwill Licences Trademarks Software Total £m £m £m £m £m Cost At 27 September 2014 (unaudited) 489.2 1,265.1 166.0 50.2 1,970.5 Additions – 1.3 – 14.1 15.4 Disposals – (5.6) – – (5.6) Exchange differences – (3.0) – (0.3) (3.3) At 26 September 2015 (unaudited) 489.2 1,257.8 166.0 64.0 1,977.0 Additions – 0.5 – 22.3 22.8 Disposals – – – (0.3) (0.3) Exchange differences – 6.4 – 1.0 7.4 At 31 October 2016 489.2 1,264.7 166.0 87.0 2,006.9 Accumulated amortisation and At 27 September 2014 – 457.8 – 25.4 483.2 Charge for the year – 8.4 – 15.7 24.1 Impairment – 9.7 – – 9.7 Disposals – (5.6) – – (5.6) Exchange differences – (2.1) – – (2.1) At 26 September 2015 (unaudited) – 468.2 – 41.1 509.3 Charge for the period – 2.3 – 17.4 19.7 Impairment – 16.2 – 2.9 19.1 Disposals – – – (0.2) (0.2) Exchange differences – 6.3 – 0.6 6.9 At 31 October 2016 – 493.0 – 61.8 554.8 Net book value At 26 September 2015 (unaudited) 489.2 789.6 166.0 22.9 1,467.7 At 31 October 2016 489.2 771.7 166.0 25.2 1,452.1
Indefinite life intangible assets have been reviewed for impairment as set out in note 12.
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10. PROPERTY, PLANT AND EQUIPMENT Fixtures, Freehold Leasehold fittings, land and land and vehicles and buildings buildings equipment Total £m £m £m £m Cost At 27 September 2014 (unaudited) 12.8 42.7 405.0 460.5 Additions – 3.4 35.7 39.1 Exchange differences – – (1.0) (1.0) At 26 September 2015 (unaudited) 12.8 46.1 439.7 498.6 Additions – 1.0 33.1 34.1 Exchange differences – – 3.8 3.8 At 31 October 2016 12.8 47.1 476.6 536.5 Accumulated depreciation and impairment At 27 September 2014 (unaudited) 2.3 31.7 338.6 372.6 Charge for the year – 1.5 29.6 31.1 Exchange differences – – (0.1) (0.1) At 26 September 2015 (unaudited) 2.3 33.2 368.1 403.6 Charge for the period – 1.4 33.1 34.5 Impairment charge – – 0.9 0.9 Exchange differences – – 1.6 1.6 At 31 October 2015 2.3 34.6 403.7 440.6 Net book value At 26 September 2015 (unaudited) 10.5 12.9 71.6 95.0 At 31 October 2016 10.5 12.5 72.9 95.9
(a) Borrowing costs There were no qualifying assets in any periods presented and therefore no borrowing costs have been capitalised in the Combined Historical Financial Information.
(b) Assets under construction There were no assets under construction in the period of the Combined Historical Financial Information.
11. INTEREST IN ASSOCIATES AND OTHER INVESTMENTS Other Investments Total £m £m Cost At 26 September 2015 (unaudited) – – Additions 4.1 4.1 At 31 October 2016 4.1 4.1
On 31 October 2016 the Company purchased a 15% stake in Hui 10, a company registered in China for an initial consideration of £4.1 million.
12. IMPAIRMENT REVIEW OF INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT An impairment loss is recognised for any amount by which an asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its
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value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Within Coral Retail, the cash generating units are generally an individual LBO and therefore, impairment is first assessed at this level for licences and property, plant and equipment, with any impairment arising booked first to licences and then to property, plant and equipment. Since goodwill has not been historically allocated to individual LBOs, a secondary assessment is then made to compare the carrying value of the segment against the recoverable amount with any additional impairment then taken against goodwill.
For all other segments (as disclosed in note 2) the cash generating unit is the segment itself and any impairments are made firstly to goodwill, next to any capitalised intangible asset and then finally to property, plant and equipment.
The expected cash flows generated by the assets are discounted using appropriate discount rates that reflect the time value of money and risks associated with the group of assets.
For both tangible and intangible assets the future cash flows are based on the forecasts and budgets of the cash-generating unit or business discounted to reflect time value of money. The key assumptions within the budgets for the Coral Retail and Eurobet Retail segments are the average number of machines per shop, gross win per shop per week, wage increases and the fixed costs of the licensed betting offices. The key assumptions within the budgets for the Online segment are the number of active customers, revenue per head, win percentage, revenue shares and operating costs.
The pre-tax discount rate applied to cash-flow projections for CGU’s in Coral Retail and Eurobet Retail is 11%, and 11% in 2015 and 2016 respectively and in Online is 11% and 11% in 2015 and 2016 respectively. The discount rate calculation is based on the specific circ*mstances with reference to the WACC expected in the industry in which we operate. The annual growth rate of 2.5% for each year is representative of the long term rate of GDP growth in the UK.
The carrying value of goodwill by segment is as follows:
Unaudited 31 October 26 September 2016 2015 £m £m Coral Retail 292.6 292.6 Online 194.8 194.8 Eurobet Retail 1.8 1.8 489.2 489.2
The carrying value of licences by individual LBO is not practical or material to be disclosed.
Impairment review of intangible assets with indefinite lives Any impairment booked at a divisional level (segments as disclosed in note 2) is booked first to goodwill, then intangibles and finally to tangible fixed assets. Any impairment booked at LBO level is booked to licences first, and then to tangible fixed assets.
Possible changes in key assumptions that could cause the carrying value of individual licences to further exceed their recoverable amount are:
Possible change Key assumption impacted Increased or improved competition Customer visits Poor or decreased promotional activity Customer visits Failure to respond to technological advances Customer visits, spend per visit Deterioration in economic conditions Customer visits, spend per visit Changes in regulation Customer visits, spend per visit Changes in taxation Gaming machines taxation
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Impairment recognised during the period of combined historical financial information Impairments of intangible assets and property, plant and equipment are recognised as an exceptional item in other operating costs in the Combined Historical Financial Information.
During the periods 26 September 2015 and 31 October 2016 impairments of £9.7 million and £20.0 million respectively, have been recorded. Licences have been impaired by £9.7 million in 2015. Licenses have been impaired by £16.2 million, property plant and equipment has been impaired by £0.9 million and software has been impaired by £2.9 million in the period to 31 October 2016.
Sensitivity analysis A 0.5% increase in the discount rate across all CGU’s (with other assumptions remaining constant) would result in an additional write down of £nil million and £3.2 million for 31 October 2016 and 26 September 2015 respectively.
A 5% decrease in cash flows across all CGU’s (with other assumptions remaining constant) would result in an additional write down of £nil million and £16.7 million for the period to 31 October 2016 and 26 September 2015 respectively.
13. BUSINESS COMBINATIONS There have been no individually material business combinations during the periods covered by this Combined Historical Financial Information.
During the period ended 31 October 2016 the Coral Group made a number of trade and asset purchases of LBOs for a total consideration of £0.5 million.
During the year ended 26 September 2015 the Coral Group made a number of trade and asset purchases of LBOs for a total consideration of £1.3 million.
14. INVENTORIES Unaudited 31 October 26 September 2016 2015 £m £m Consumables and bar stocks 0.4 0.5
The cost of inventories recognised as an expense was £5.6 million for the year ended 26 September 2015 and £2.4 million for the period ended 31 October 2016.
There were no provisions against inventory at any balance sheet date.
15. TRADE AND OTHER RECEIVABLES Unaudited 31 October 26 September 2016 2015 £m £m Current Trade receivables 0.6 0.6 Prepayments 25.6 18.6 Income tax recoverable – 0.7 Other receivables 44.5 13.7 Trade and other receivables – current 70.7 33.6
The carrying amount of trade and other receivables approximates to their fair value.
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Trade receivables are reduced by appropriate allowances for estimated irrecoverable amounts. During the course of the current and preceding accounting periods there has been no material doubtful debt expense and there is no material doubtful debt provision in existence.
Other receivables includes an amount of £28.0m of cash paid in advance to Ladbrokes Group Finance Plc in relation to the settlement of Group borrowings.
There are no material amounts receivable that are past due but not impaired.
16. TRADE AND OTHER PAYABLES Unaudited 31 October 26 September 2016 2015 £m £m Current Trade payables 25.1 27.5 Social security and other taxation 43.4 44.0 Accruals 64.5 47.7 Other payables 58.1 42.7 Trade and other payables – current 191.1 161.9 Non-current Other payables – 2.5 Accruals 4.6 4.7 Other payables – non-current 4.6 7.2
The carrying amount of trade payables, social security and other taxation and other payables approximates to their fair value.
17. OTHER FINANCIAL LIABILITIES Other financial liabilities comprise ante-post bets. These are liabilities arising from open positions at the period end date and are recorded at fair value. The fair value is the expected net amount payable to customers based on betting odds and other conditions prevailing at the period end date. Ante-post bets are classified as current liabilities.
18, INTEREST BEARING LOANS AND BORROWINGS WITH GROUP COMPANIES Unaudited 31 October 26 September 2016 2015 £m £m Interest bearing loans and borrowings with other Gala Coral Group companies 985.0 831.1
Amounts owed to other Gala Coral Group companies are unsecured and have no fixed date of repayment. Balances bear interest at a rate linked to the Gala Coral Group’s weighted average cost of debt.
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19. FINANCIAL ASSETS AND LIABILITIES Fair values The table below is a comparison by class of the carrying amounts and fair values of financial instruments at each balance sheet date:
Carrying amount Fair value Unaudited Unaudited 31 October 26 September 31 October 26 September 2016 2015 2016 2015 £m £m £m £m Financial assets: Loans and receivables Trade receivables 0.6 0.6 0.6 0.6 Other receivables 44.5 13.7 44.5 13.7 Cash and cash 90.8 37.1 90.8 37.1 Available for sale financial assets Other financial assets and investments 4.1 – 4.1 – Total financial assets 140.0 51.4 140.0 51.4 Financial liabilities: Liabilities at amortised cost Trade and other 152.3 125.1 152.3 125.1 Interest bearing loans and borrowings with other Group companies 985.0 831.1 985.0 831.1 Fair value through the income statement Ante-post liabilities 9.3 5.7 9.3 5.7 Total financial liabilities 1,146.6 961.9 1,146.6 961.9
* Trade and other payables exclude amounts in respect of current income taxation and social security and other taxation. The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The fair value of the interest bearing loans and borrowings with the rest of the Gala Coral Group companies is equal to the book value.
Fair value hierarchy The Coral Group is required to classify its financial assets and liabilities carried at fair value into categories within a hierarchy of valuation principles and methods.
No financial instruments are classified as Level 1, for which fair value is based on quoted prices in active markets for identical assets or liabilities or as Level 2, for which fair value is determined based on techniques for which all significant inputs are observable, either directly or indirectly.
The Coral Group’s ante-post liabilities are classified as Level 3 as their fair value is measured using techniques where significant inputs are not based on observable market data. There are no reasonably probable changes to assumptions or inputs that would lead to material changes in the fair value determined, although the final value will be determined by future sporting results. The principal assumptions relate to anticipated gross win margins on unsettled bets. All fair value movements on ante-post liabilities are recognised in the income statement.
20. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Coral Group’s principal financial liabilities comprise group borrowings, trade and other payables and provisions relating to onerous property leases. The Coral Group’s principal financial assets are trade and
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other receivables and cash and cash equivalents that derive directly from its operations. Balances between Gala Coral Group and the Coral Group are deemed to be long-term funding in nature and represent a financial liability.
The Coral Group is exposed to market risk, credit risk and liquidity risk. However, as the Coral Group is part of the Gala Coral Group, a centralised treasury team oversees the management of these risks. The treasury team identifies, evaluates and hedges financial risk of all Gala Coral Group companies and any individual risks associated with the Coral Group.
(a) Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices.
(i) Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The Coral Group has minimal exposure to foreign currency risk. All assets and liabilities are maintained in Sterling, with the exception of our operations in Italy and a number of foreign currency denominated bank accounts to facilitate the international operations of the Coral Group’s Online division.
The functional currency of the Italian business is the Euro. The Coral Group has reviewed the net exposure to foreign currency risk and has concluded that no hedging is necessary at the current time due to the low level of actual exposure. This policy remains subject to periodic review.
Other than the translation of foreign currency operations, there is no significant foreign currency exposure.
(ii) Cash flow and fair value interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
The cash flow risk of the Coral Group is managed by the Gala Coral Group by a centralised treasury team. This team identifies the cash requirements of the Gala Coral Group and ensures suitable financing facilities are in place to meet the cash flow requirements of each of the Gala Coral Group companies based on detailed cash forecasting and analysis of business trading scenarios.
Interest on intercompany balances between group companies is charged at Gala Coral Group’s weighted average cost of debt. The Coral Group’s interest rate risk arises from Gala Coral Group’s long-term debt obligations borrowed at floating interest rates and the effect of these on the weighted average cost of debt. The Gala Coral Group’s interest rate risk is primarily managed through the use of interest rate caps which limit the exposure of increases in interest rates for the Coral Group. The Coral Group’s exposure to interest rate risk is subject to periodic review.
As the Coral Group has no significant interest-bearing assets (excluding cash and cash equivalents) its income and operating cash flows are substantially independent of changes in market interest rates. The Coral Group’s only interest-bearing assets are cash and cash equivalents (excluding cash floats) which earn floating rate interest.
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The table below demonstrates the sensitivity to reasonably possible changes in interest rates on income for the year when this movement is applied to the carrying value of financial assets and liabilities.
Profit before tax Unaudited 31 October 26 September 2016 2015 £m £m Effect of: 100 basis 7.2 2.2 200 basis 11.9 3.8
The sensitivity has been estimated by applying the basis points movement to the carrying value of the financial assets and liabilities, subject to interest at floating rates, held by the Coral Group at the year end. Due to current low interest rates, any further decline would not have a material impact on income for the year. As such, sensitivity to a decrease in interest rates has not been presented.
(b) Credit risk Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Coral Group is exposed to credit risk from cash and short-term deposits with banks and financial institutions and outstanding receivables.
Financial instruments and cash deposits The Coral Group is exposed to credit risk from counterparties defaulting on their obligations resulting in financial loss. It primarily arises in relation to financial institutions with which the Coral Group deposits its surplus funds.
Credit risk from balances with banks and financial institutions is managed by the Gala Coral Group’s centralised treasury team in accordance with Gala Coral Group’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed and subject to approval on a periodic basis. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty failure.
Revenue from retail customers are settled in cash or using major credit cards and therefore the exposure to credit risk is not considered significant.
(c) Liquidity risk Liquidity risk is the risk that the Coral Group will not have sufficient funds to meet its liabilities. The central treasury team identifies the cash requirements and ensures suitable financing facilities are in place to meet the cash flow requirements of each of the Gala Coral Group companies.
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The table below analyses the Coral Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Between Between Less than one and two and After one year two years five years five years Total £m £m £m £m £m At 31 October 2016 Trade and other payables 147.7 0.5 1.8 2.3 152.3 Other financial liabilities 9.3 – – – 9.3 Interest bearing loans with Gala Coral group companies* 985.0 – – – 985.0 1,142.0 0.5 1.8 2.3 1,146.6 At 26 September 2015 (Unaudited) Trade and other payables 117.9 3.0 1.8 2.4 125.1 Other financial liabilities 5.7 – – – 5.7 Interest bearing loans with Gala Coral group companies* 831.1 – – – 831.1 954.7 3.0 1.8 2.4 961.9
* Interest bearing loans of £985.0 million (2015: £831.1 million) have no fixed repayment date but the Directors received confirmation that the balances would not have been requested to be repaid within 12 months of the balance sheet date unless there had been a change of control.
Capital management Capital management of the Coral Group’s balance sheet has been performed as part of the overall management of the Gala Coral Group’s balance sheet.
Collateral The Coral Group did not pledge or hold any collateral during the period of the Combined Historical Financial Information.
21. DEFERRED TAX Deferred tax is calculated on temporary differences between tax bases of assets and liabilities and their carrying amounts, under the liability method using a tax rate of 17% (2015: 20%).
The movement on the deferred tax liability is as follows:
£m At 27 September 2014 172.5 Amount charged to the Income Statement 5.4 Amounts charged to Other Comprehensive Income 4.7 At 26 September 2015 (unaudited) 182.6 Amount charged to the Income Statement (25.7) Amounts charged to Other Comprehensive Income 0.4 On recognition of additional pension asset 5.4 At 31 October 2016 162.7
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The net deferred tax liability comprises:
Unaudited 31 October 26 September 2016 2015 £m £m Licences and other intangibles 160.1 193.4 Retirement benefit obligations 18.3 12.5 Overseas betting licences – (1.1) Property, plant and equipment (13.8) (19.3) Other timing differences (1.1) (2.2) Tax losses (0.8) (0.7) 162.7 182.6
Deferred tax assets and liabilities are only offset where there is a legally enforceable right to offset and there is an intention to settle the balances net.
Deferred tax assets and liabilities are expected to reverse primarily after more than one year.
The amounts reported in the balance sheet are:
Unaudited 31 October 26 September 2016 2015 £m £m Deferred tax asset 15.7 23.3 Deferred tax liability (178.4) (205.9) Net deferred tax liability (162.7) (182.6)
The movements in deferred tax (assets) and liabilities are shown below:
Licences Retirement Overseas Property, Other and other benefit betting plant and timing intangibles obligations licences equipment differences Tax losses Total £m £m £m £m £m £m £m At 27 September 2014 195.7 7.3 (2.3) (24.5) (2.2) (1.5) 172.5 Charged/(credited) to Income statement (2.3) 0.5 1.2 5.2 – 0.8 5.4 Charged to Other Comprehensive income – 4.7 – – – – 4.7 At 26 September 2015 (unaudited) 193.4 12.5 (1.1) (19.3) (2.2) (0.7) 182.6 Charged/(credited) to Income statement (33.3) – 1.1 5.5 1.1 (0.1) (25.7) Charged to Other Comprehensive income – 0.4 – – – – 0.4 On recognition of additional net pension asset – 5.4 – – – – 5.4 At 31 October 2016 160.1 18.3 – (13.8) (1.1) (0.8) 162.7
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22. PROVISIONS Onerous leases Other Total £m £m £m At 27 September 2014 21.1 – 21.1 Unwinding of discount 0.5 – 0.5 Charged to the Income Statement – exceptional charge 3.2 – 3.2 Credited to the Income Statement – exceptional credit (3.2) – (3.2) Utilised in the year (4.5) – (4.5) At 26 September 2015 (unaudited) 17.1 – 17.1 Unwinding of discount 0.3 – 0.3 Charged to the Income Statement – exceptional charge 7.0 7.3 14.3 Credited to the Income Statement – exceptional credit (6.3) – (6.3) Utilised in the year (7.6) – (7.6) At 31 October 2016 10.5 7.3 17.8
Provisions are analysed in the balance sheet as follows:
Unaudited 31 October 26 September 2016 2015 £m £m Current 6.8 2.4 Non-current 11.0 14.7 17.8 17.1
Onerous leases The Coral Group is party to a number of leasehold property contracts. Provision has been made against those leases where the property is now vacant and the unavoidable costs under the lease exceed the economic benefit expected to be derived from potential sub-letting arrangements.
Other provisions include legal, insurance and regulatory provisions associated with certain claims that have largely arisen in the period.
Provisions have been based on management’s best estimate of the minimum future cash flows to settle the Coral Group’s obligations, taking into account the risks associated with each obligation, discounted at an average risk free interest rate of 0.47% at 31 October 2016 and 1.73% at 26 September 2015.
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23. CASH GENERATED FROM OPERATIONS Reconciliation of operating profit/(loss) to cash inflow from operating activities:
Unaudited 31 October 26 September 2016 2015 £m £m Operating profit from continuing operations 120.4 134.1 Loss before tax from discontinued activities – (7.6) Adjusted for: Amortisation 19.7 24.1 Depreciation 34.5 31.1 Impairment charges 20.0 9.7 Non cash element of share based payments charge – 1.1 Pension contributions in excess of pension expense (6.7) (2.8) Changes in working capital: Decrease in inventories 0.1 0.2 Increase in trade and other receivables (28.0) (2.5) Increase in trade and other payables 21.5 24.9 Increase/(decrease) in provisions and other financial liabilities 4.1 (3.3) Net cash inflow from operating activities 185.6 209.0
24. RETIREMENT BENEFITS Defined benefit scheme The Coral Group participates in a Gala Coral Group operated defined benefit pension scheme, which was closed to new entrants from October 2002. This defined benefit scheme is funded by the payment of contributions to separately administered funds. The contributions to the scheme are determined with the advice of independent qualified actuaries on the basis of triennial valuations. The scheme is based in the United Kingdom.
On 28 September 2013 the scheme was closed to future accrual and all participants were transferred to personal pension plans.
The pension payable to an individual is based on average earnings calculated over the period of pensionable service (career average revalued earnings or CARE).
A full actuarial valuation of the Gala Coral Pension Plan for statutory funding purposes was undertaken as at 5 April 2014.
An actuarial review of the scheme valuation was carried out by a qualified independent actuary at the end of each period being reported in order to provide the following information required by IAS 19 (revised) “Employee Benefits”.
Until 19 December 2015 The Coral Group recorded 60% of the assets and liabilities of the plan. This allocation was based on the % split in the 2008 actuarial valuation, which was the final actuarial valuation before the Gala and Coral pension plans were merged. On 19 December 2015; following the disposal of the Gala Bingo Business by the wider Gala Coral Group, The Coral Group assumed full responsibility for the Gala Coral Pension Plan and consequently from that date records 100% of the assets and liabilities of the plan. The Coral Group has recognised the additional share of the net pension asset at that date of £15.4 million through equity as a contribution from its parent company.
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Principal assumptions The assumptions used by the actuary in determining the present value of the defined benefit scheme’s liabilities were:
Financial assumptions: Unaudited 31 October 26 September 2016 2015 Rate of salary increases N/A N/A Rate of pension increases 3.2% 3.2% Discount rate 2.7% 4.0% CPI inflation assumption 2.4% 2.3% RPI inflation assumption 3.4% 3.2%
In accordance with IAS 19 (Revised), the discount rate has been determined by reference to market yields at the period end date on high quality fixed income investments at a term consistent with the expected duration of the liabilities.
Price inflation is determined by the difference between the yields on fixed and index-linked government bonds. The Bank of England target inflation rate has also been considered in setting this assumption. The expected rate of salary growth and pension increases are set with reference to the expected rate of inflation.
Mortality assumptions: Unaudited 31 October 26 September 2016 2015 Assumed life expectations on retirement age of 65 Years Years Retiring at balance sheet date (member aged 65) 22.3 22.2 Male 24.0 23.9 Female Retiring in 25 years (member aged 40) 24.5 24.4 Male 25.9 25.8 Female
Mortality assumptions are based on standard tables adjusted for scheme experience and with an allowance for future improvement in life expectancy.
Assets and liabilities of the scheme The net asset recognised is as follows:
Unaudited 31 October 26 September 2016 2015 £m £m Total fair value of assets 452.1 225.4 Present value of scheme liabilities (399.8) (189.7) Net pension asset 52.3 35.7
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Movements in the present value of defined benefit obligations were as follows:
Unaudited 31 October 26 September 2016 2015 £m £m Present value of scheme liabilities at the beginning of the period 189.7 188.7 Interest expense 12.6 7.6 Benefits paid (11.9) (6.9) Transfer in from Group company 137.7 – Remeasurements: Gain from changes in demographic assumptions – (1.8) Loss from changes in financial assumptions 71.7 2.2 Experience (gain)/loss – (0.1) Total remeasurements 71.7 0.3 Present value of scheme liabilities at the end of the period 399.8 189.7
The allocation of the defined benefit obligation by category of member is:
Unaudited 31 October 26 September 2016 2015 £m £m Deferred, entitled to benefits once retired 236.3 119.4 Pensioners 163.5 70.3 399.8 189.7
As a consequence of the closure of the scheme to future accrual with effect from 28 September 2013 members previously categorised as active became deferred members.
Movements in the fair value of scheme assets were as follows:
Unaudited 31 October 26 September 2016 2015 £m £m Fair value of scheme assets at the beginning of the period 225.4 209.4 Interest income on scheme assets 15.1 8.5 Remeasurement of return on plan assets (excluding interest income) 64.2 11.8 Administrative expenses (0.5) (0.5) Benefits paid (11.9) (6.9) Employer contributions (including payment of administrative expenses) 6.7 3.1 Transfer in from Group company 153.1 – Fair value of scheme assets at the end of the period 452.1 225.4
The actual return on plan assets was a gain of £79.3 million (2015: £20.3 million).
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The major categories of scheme assets are:
Unaudited 31 October 26 September 2016 2015 £m £m Equities 28.4 24.2 Investment funds 45.3 374.1 Debt instruments 374.1 184.5 Other (cash) 4.3 0.7 Fair value 452.1 225.4
The scheme’s assets are invested in managed funds. The managed funds are unquoted. However, the underlying investments, upon which the fair values of the schemes assets are based, are primarily held in quoted securities.
The employer contributions expected to be paid during the next financial period amount to £nil.
Funding levels are monitored on an on-going basis and an updated valuation is being obtained to determine the level of any future contributions. The Coral Group is presently fully funding the scheme administration costs. The weighted average duration of the defined benefit obligation is 21 years.
Pension costs recognised in the income statement Unaudited 31 October 26 September 2016 2015 £m £m Included in administrative expenses: Scheme administrative expenses (0.5) (0.5) (0.5) (0.5) Credited to other finance income: Interest income on scheme assets 15.1 8.5 Interest expense on benefit obligations (12.6) (7.6) Other finance income 2.5 0.9 Total income recognised in the income statement 2.0 0.4
Amounts recognised in other comprehensive income
Unaudited 31 October 26 September 2016 2015 £m £m Actual return on plan assets less interest on plan assets 64.2 11.8 Remeasurement losses on defined benefit obligations (71.7) (0.3) Total remeasurement (losses)/gains recognised in other comprehensive income (7.5) 11.5
Sensitivity analysis The sensitivity of the present value of the scheme’s liabilities at 31 October 2016 to changes in the principal assumptions used to measure these liabilities is illustrated in the table that follows. The illustrations consider the single change shown, with the other assumptions assumed to be unchanged. In practice, changes in one assumption may be accompanied by offsetting changes in another assumption (although this is not always
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the case). In addition, changes in the assumptions may occur at the same time as changes in the market value of the scheme assets, which may or may not offset the change in assumptions.
Increase/(decrease) in Change in defined benefit obligation Assumption Assumption £m Discount rate Decrease by 0.25% 21.4 Increase by 0.25% (20.0) Rate of inflation Decrease by 0.25% (13.0) Increase by 0.25% 15.1 Life expectancy Increase by one year 12.5
Scheme risks The analysis above is solely assessing the plan obligation’s sensitivity to given variables without considering the plan assets. Although changes in the discount rate create a significant risk to the plan based on the sensitivity analysis, in practice, the interest rate sensitivity is partly offset by plan assets including investments in debt instruments. The plan assets also include equities and investment funds that in the near term may be volatile but in the longer term are expected to outperform debt instrument yields.
The risks related to asset performance are significant due to the absolute size of the plan assets and their relative size compared to the plan obligation. This risk is mitigated by suitable assets allocations.
The defined benefit obligation is determined based on current best estimates of life expectancy. Uncertainty regarding the reliability of this estimate is also a significant risk to the plan.
History of remeasurements Unaudited 31 October 26 September 2016 2015 £m £m Present value of defined benefit obligation (399.8) (189.7) Fair value of scheme assets 452.1 225.4 Surplus in the scheme 52.3 35.7 Experience adjustments on defined benefit obligations – (0.1)
Defined contribution schemes The Coral Group participates in defined contribution pension schemes with contributing and non- contributing membership levels. During the year ended 28 September 2013 the Coral Group closed its principal defined contribution pension scheme and transferred all its participants into personal pension plans. The pension cost charge for the period represents contributions paid by the Coral Group into the current personal pension plans and the old defined contribution scheme which amounted to £6.7 million (2015: £5.5 million), respectively, on behalf of its employees participating in these schemes.
A liability of £0.2 million (2015: £0.2 million) existed in respect of pension contributions at 31 October 2016.
25. SHARE BASED PAYMENTS The Gala Coral Group operates a management incentive scheme for certain members of management. The share scheme was implemented by Gala Coral Group’s ultimate parent undertaking, GCG Manager S.A Luxco S.C.A, with shares in the parent being purchased by management. A proportion of the shares issued vested immediately with additional shares vesting over a period of up to five years.
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The amounts paid to participants depend on certain criteria, including good/bad leaver considerations and sale proceeds on an exit event.
Despite the fact that the shares awarded to management are shares of GCG Manager S.A Luxco S.C.A, a charge has been recognised in these Combined Historical Financial Information as prescribed by the guidelines of IFRS 2 “Share Based Payments”. The charge recorded (excluding legal fees) of £nil, and £1.1 million in 2016 and 2015 respectively, represents an accounting recharge only rather than a commitment on the Coral Group to pay cash. On exit and realisation of value of the UK Group, the cash cost associated with this share scheme will be incurred by GCG Manager S.A Luxco S.C.A , not Coral Group or any of its operations. The charge recognised in The Combined Historical Financial Information reflects the charge associated with the segments identified within note 2.
The shares issued are unlisted. As the scheme reflects shares issued there are no outstanding options.
During the year ended 27 September 2014 certain amendments, primarily to lower the threshold at which management participate, were made to the shares previously issued to management. Previously issued B shares were converted into I shares and C to H shares were converted into J shares. In addition to these amendments additional J shares were issued to certain management, these are identified as J (2014) shares in the disclosures that follow.
The disclosures in the tables below represent those relating to the Coral Group:
Class of share I J J (2014) Number of shares issued 1,264,471 6,925,876 1,791,488 Number of shares unissued – – – Vesting period (years) 0 to 5 0 to 5 0 to 5 Expected volatility 96% 96% 54% Fair value of shares at grant date 2.31 2.31 0.82
The amendments to the scheme, and the newly issued J shares, were valued using a Monte Carlo valuation model as permitted by IFRS 2. The valuation of the scheme for IFRS 2 in the preceding years was undertaken using the Black-Scholes pricing model.
The expected volatility is based on the historical volatility, over a 5 year period, of similar listed companies with appropriate adjustments made for the level of gearing within Gala Coral Group Limited. Dividend yields were assumed at 0% for all awards and the risk free rate at 0.92%. An exit assumption of 5 years from the grant date has been used in the valuation of the scheme.
Unaudited 31 October 26 September Grant date 2016 2015 Number of shares in issue at start of the period 9,981,835 10,426,941 Granted: Class B – – Class C – – Class D – – Class J (2014) – 435,888 Forfeited – class C – – Forfeited – class D – – Forfeited – class J – (880,994) Converted from class B into class I – – Converted into class I from class B – –
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Unaudited 31 October 26 September Grant date 2016 2015 Converted from class C into class J – – Converted from class D into class J – – Converted into class J from classes C to D – – Number of shares in issue at end of the period 9,981,835 9,981,835
26. COMMITMENTS (a) Operating lease commitments The Coral Group has entered into commercial leases on certain properties, plant and items of machinery.
Future minimum rentals payable expected under non-cancellable operating leases are as follows:
Unaudited 31 October 26 September 2016 2015 £m £m Not later than one year 40.8 40.0 After one year but not more than five years 128.2 131.8 After five years 82.4 101.7 251.4 273.5
In addition, the Coral Group has operating lease commitments with rentals determined in relation to its respective revenues. It is not possible to quantify accurately future rental payable under such leases.
The group has entered into sub-lease agreements for unutilised space in the UK LBO estate. Lease receipts recognised as income for the period are £2.8 million (2015: £2.6 million).
(b) Capital commitments Contracts placed for future capital expenditure, primarily relating to property, plant and equipment, were £0.9 million at 31 October 2016 and £6.3 million at 27 September 2015.
(c) Financial guarantees The borrowings of the Gala Coral Group are secured on the assets of group companies including the Coral Group. No liability is expected to result from this guarantee.
27. RELATED PARTY TRANSACTIONS The Gala Coral Group Pension Plan falls within the definition of a related party. Details of the pension plan and the group’s transactions with it are set out in note 24.
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The Coral Group undertakes various transactions with other companies in the Gala Coral Group during the normal course of business. Income or costs associated with the funding transactions are not necessarily representative of the position that would have been reported had the Coral Group been a standalone independent group. Income and costs included in the Combined Statements associated with these transactions are:
Unaudited 31 October 26 September 2016 2015 £m £m Overhead and exceptional cost allocations (a) 18.9 19.2 Net finance expense on net funding from other Group companies (b) 85.2 83.4 Other net funding movements with other Group companies (net amount funded to other group companies) (b) (47.3) 71.1 Key management compensation (see note 4(b)) 4.7 5.9
(a) Overhead and exceptional cost allocations from other group companies Other Group companies provided various services during the periods presented. These services included management oversight, administration, human resources, information technology and audit fees. These costs have been allocated on a reasonable and consistent basis in all periods.
Exceptional cost recharges represent the allocation of certain restructuring and reorganisation costs incurred by the other Group companies on behalf of the Coral Group. These costs have been recharged where they are directly attributable to Coral Retail, Eurobet Retail and Online divisions.
(b) Net finance expense and cash pooling arrangements The group has historically used other Group companies’ central treasury function to provide loans and make deposits of surplus funds using cash pooling arrangements. Interest is charged on these balances at the weighted average cost of debt of the Gala Coral Group as disclosed in note 6.
28. POST BALANCE SHEET EVENTS On 1 November 2016 the Coral Group was acquired by Ladbrokes PLC resulting in the new combined group Ladbrokes Coral Group plc.
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PART 7 I,20.2 LR,13.4.1(5) LR,13.5.7(3)(c) UNAUDITED PRO FORMA FINANCIAL INFORMATION ON II, 1-7 THE COMBINED GROUP LR,13.5.6
CONTENT OF THIS PART 7 This Part 7 comprises the following sections:
• section A: unaudited pro forma net assets of the Combined Group as at 30 June 2017
• section B: unaudited pro forma income statement of the Combined Group for the year ended 31 December 2016, with section A and section B collectively comprising the “Pro Forma Financial Information” of the Combined Group, and
• section C: Accountants report on the Pro Forma Financial Information.
The unaudited Pro Forma Financial Information has been prepared for illustrative purposes only and, by its nature, addresses a hypothetical situation and does not, therefore, represent the Combined Group’s actual financial position or results.
The unaudited Pro Forma Financial Information does not constitute financial statements within the meaning of Section 434 of the UK Companies Act 2006. Shareholders should read the whole of this document and not rely solely on the summarised financial information contained in this Part 7.
The unaudited Pro Forma Financial Information has been prepared under IFRS and on a basis consistent with the accounting policies of GVC and the matters set out in the notes below, and in accordance with Annex II to the Prospectus Directive.
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SECTION A: UNAUDITED PRO FORMA NET ASSETS OF THE COMBINED GROUP AS AT 30 JUNE 2017 The unaudited pro forma statement of net assets for the Combined Group as at 30 June 2017 set out below has been prepared on the basis set out in the notes thereto in order to illustrate the Acquisition and the related financing as if they had occurred as at 30 June 2017. Adjustments –––––––––––––––––––––––––– Other Ladbrokes Ladbrokes Coral Pro forma GVC as at Coral as at acquisition as at 30 June 2017 30 June 2017 adjustments 30 June 2017 (Note 1) (Note 2) (Note 3) (Note 4) (€m) (€m) (€m) (€m) NON-CURRENT ASSETS Intangible assets 1,557.4 2,995.7 1,777.9 6,331.0 Property, plant and equipment 18.1 254.9 – 273.0 Trade and other receivables 3.9 1.8 – 5.7 Investments and available for sale financial assets 4.0 51.5 – 55.5 Retirement benefit asset – 146.1 – 146.1 Deferred tax 1.2 9.8 – 11.0 Total non-current assets 1,584.6 3,459.8 1,777.9 6,822.3 CURRENT ASSETS Trade and other receivables 109.7 111.2 – 220.9 Inventory – 1.7 – 1.7 Derivative financial assets 3.7 – – 3.7 Income and other taxes reclaimable 8.5 14.1 – 22.6 Short-term investments 4.9 – – 4.9 Cash and cash equivalents 211.6 150.7 – 362.3 Assets held for sale 2.0 – – 2.0 Total current assets 340.4 277.7 – 618.1 TOTAL ASSETS 1,925.0 3,737.5 1,777.9 7,440.4 CURRENT LIABILITIES Trade and other payables (73.3) (285.5) – (358.8) Balances with customers (112.3) (89.7) – (202.0) Progressive prize pools (15.3) – – (15.3) Amounts due under finance leases – (2.3) – (2.3) Loans and borrowings (1.8) (198.3) – (200.1) Provisions (1.1) (34.3) – (35.4) Income taxes payable (14.9) (13.6) – (28.5) Other taxation payable (53.5) (151.0) – (204.5) Liabilities in disposal groups classified as held for sale (1.1) – – (1.1) Total current liabilities (273.3) (774.7) – (1,048.0) CURRENT ASSETS LESS CURRENT LIABILITIES 67.1 (497.0) – (429.9) NON-CURRENT LIABILITIES Trade and other payables (4.3) (43.2) – (47.5) Loans and borrowings (246.6) (1,072.4) (819.2) (2,138.2) Provisions (6.5) (31.7) – (38.2) Deferred tax (59.2) (198.8) – (258.0) Total non-current liabilities (316.6) (1,346.1) (819.2) (2,481.9) TOTAL NET ASSETS 1,335.1 1,616.7 958.7 3,910.5
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Notes 1. The net assets of GVC have been extracted, without material adjustment, from GVC’s unaudited interim condensed financial statements for the six months ended 30 June 2017, incorporated by reference in Part 4 of this document. 2. The net assets of Ladbrokes Coral as at 30 June 2017 have been derived as set out below:
Ladbrokes Ladbrokes Coral As reported Coral at at 30 June 2017 by Ladbrokes 30 June 2017 under GVC’s Coral as at Reclassification under GVC’s presentation 30 June 2017 adjustments presentation & currency (note i) (note ii) (note iii) (note iv) (£m) (£m) (£m) (€m) NON-CURRENT ASSETS Goodwill 1,077.5 (1,077.5) – – Intangible assets 1,556.6 1,077.5 2,634.1 2,995.7 Property, plant and equipment 224.1 – 224.1 254.9 Interest in joint venture 17.8 (17.8) – – Interest in associates and other investments 27.5 (27.5) – – Other financial assets 1.6 (1.6) – – Trade and other receivables – 1.6 1.6 1.8 Investments and available for sale financial assets – 45.3 45.3 51.5 Deferred tax 8.6 – 8.6 9.8 Retirement benefit asset 128.5 – 128.5 146.1 Total non-current assets 3,042.2 – 3,042.2 3,459.8 CURRENT ASSETS Trade and other receivables 93.5 4.3 97.8 111.2 Inventory 1.5 – 1.5 1.7 Income and other taxes reclaimable 12.4 – 12.4 14.1 Cash and cash equivalents 136.8 (4.3) 132.5 150.7 Total current assets 244.2 – 244.2 277.7 TOTAL ASSETS 3,286.4 – 3,286.4 3,737.5 CURRENT LIABILITIES Trade and other payables (452.0) 201.0 (251.0) (285.5) Balances with customers – (78.9) (78.9) (89.7) Amounts due under finance leases (2.0) – (2.0) (2.3) Bank overdraft (1.0) 1.0 – – Loans and borrowings (173.4) (1.0) (174.4) (198.3) Provisions (30.2) – (30.2) (34.3) Income taxes payable (12.0) – (12.0) (13.6) Other financial liabilities (10.7) 10.7 – – Other taxation payable – (132.8) (132.8) (151.0) Total current liabilities (681.3) – (681.3) (774.7) CURRENT ASSETS LESS CURRENT LIABILITIES (437.1) – (437.1) (497.0) NON-CURRENT LIABILITIES Trade and other payables – (38.0) (38.0) (43.2) Loans and borrowings (942.3) (0.7) (943.0) (1,072.4) Provisions (27.9) – (27.9) (31.7) Deferred tax (174.8) – (174.8) (198.8) Other financial liabilities (38.0) 38.0 – – Lease liabilities (0.7) 0.7 – – Total non-current liabilities (1,183.7) – (1,183.7) (1,346.1) TOTAL NET ASSETS 1,421.4 – 1,421.1 1,616.7
(i) The net assets of Ladbrokes Coral have been extracted, without material adjustment, from Ladbroke Coral’s unaudited interim condensed financial information for the six months ended 30 June 2017, incorporated by reference in Part 6 of this document. (ii) Certain reclassification adjustments have been made to accord with GVC’s accounting presentation, as follows: • Goodwill included with other Intangible assets;
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• E-Wallet balances moved from Cash to Trade & other receivables; • Interests in joint venture, associates & other investments moved to Investments and available for sale financial assets; • Other financial assets included in Trade & other receivables; • Bank overdraft included in Loans & borrowing; • Player balances moved from Trade & other payables to Balances with customers; • Gaming taxes, VAT and Social security taxes moved from Trade & other payables to Other taxation payable; • Other financial liabilities included in Trade & other payables; and • Lease liabilities included in Loans & borrowings. (iii) Represents the sum of columns (i) to (iii) inclusive. (iv) Ladbrokes Coral currently reports in £Sterling, whereas GVC currently reports in Euros. Accordingly the total of column (iii) is adjusted from £Sterling into Euros by applying the £/€exchange rate as at 30 June 2017 of £1:€1.137. 3. An adjustment has been made to reflect the consideration payable for the Acquisition, additional drawdowns on loan facilities to fund the Acquisition, and the estimated intangible assets arising on the Acquisition. For the purposes of this pro forma information, no adjustment has been made to the separate assets and liabilities of Ladbrokes Coral to reflect their fair value. The difference between the net assets of Ladbrokes Coral as stated at their book value at 30 June 2017 and the estimated consideration has therefore been presented as a single goodwill value in “Intangible assets”. The net assets of Ladbrokes Coral will be subject to a fair value restatement as at the effective date of the transaction. Actual intangible assets and deferred tax liabilities thereon will be included in GVC’s next published financial statements subsequent to the Acquisition may therefore be materially different from that included in the pro forma statement of net assets. Intangible assets other than goodwill will be subject to amortisation which will be charged to the income statement and therefore the amortisation charge may be materially different from that shown in the pro forma income statement in section B of this Part 7. Under the terms of the Acquisition, for each Ladbrokes Coral share held, Ladbrokes Coral shareholders will be entitled to 32.7 pence in cash, 0.141 ordinary GVC Shares and a contingent entitlement of up to a further 42.8 pence in principal value of Loan Note, plus an upward adjustment for the time value of money by way of a CVR. For the purpose of this pro forma, it has been assumed that the consideration for Ladbrokes Coral is approximately €3,394.6 million, based on the closing price of the Company’s shares on 7 February 2018 of 873 pence and the exchange rate of £1:€1.13 as at the same date, being the latest practicable date prior to publication of this document. No amount has been included within this estimated consideration for the contingent element relating to the CVRs on the basis that it is not possible to reliably estimate a value for the CVRs at this point in time, since it depends upon unknown future changes in laws and regulations relating to gaming machines. €m Consideration payable in cash 712.5 Consideration payable in GVC shares 2,682.1 ––––––– Total consideration 3,394.6 Book value of the net assets of Ladbrokes Coral as at 30 June 2017 1,616.7 ––––––– Estimated intangible assets arising on the Acquisition 1,777.9 –––––––
The increase in borrowings represents the sum of the consideration payable in cash and transaction costs. For purposes of this pro forma it has been assumed that these are all funded from drawing down on new borrowing facilities. In the event that each CVR has no value and no Loan Notes are issued, the total consideration would comprise at set out above. In contrast, if each CVR delivers its maximum value of 42.8 pence in principal value of Loan Note (without taking into account any upward adjustment for the time value of money) the total consideration would increase by €932.6 million and the estimated intangible assets would decrease by €932.6 million, compared with the amounts set out above. Any change in the value of consideration would have no net impact on the total shown for pro forma net assets, although the outcome of any changes in laws and regulations underpinning the calculation of the CVRs may lead to a reassessment of assets carrying values. 4. Represents the sum of columns 1 to 3 inclusive to derive the pro forma net asset statement for the Combined Group. 5. No account has been taken of the financial or trading performance of GVC or Ladbrokes Coral subsequent to 30 June 2017 or of any other event, save as disclosed above.
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SECTION B: UNAUDITED PRO FORMA INCOME STATEMENT OF THE COMBINED GROUP FOR THE YEAR ENDED 31 DECEMBER 2016 The unaudited pro forma income statement for the Combined Group set out below has been prepared on the basis set out in the notes below to illustrate the effect of the acquisition of bwin.party and the Acquisition and the related financing as if they had taken place on 1 January 2016.
Adjustments –––––––––————————–––––––––––––––––– Bwin.party for the period Ladbrokes Other GVC for the 1 January Other Coral for the Ladbrokes Pro forma year ended 2016 to bwin year ended Coral year ended 31 December 31 January acquisition 31 December acquisition 31 December 2016 2016 adjustments 2016 adjustments 2016 (Note 1) (Note 2) (Note 3) (Note 4) (Note 5) (Note 6) (€m) (€m) (€m) (€m) (€m) (€m) NET GAMING REVENUE 843.4 51.2 – 2,880.8 – 3,775.4 Sales tax on revenue (20.1) (1.3) – (10.8) – (32.2) REVENUE 823.3 49.9 – 2,870.0 – 3,743.2 Cost of sales (385.8) (23.4) – (1,124.2) – (1,533.4) CONTRIBUTION 437.5 26.5 – 1,745.8 – 2,209.8 Administrative costs (244.0) (14.3) – (1,274.2) – (1,532.5) CLEAN EBITDA 193.5 12.2 – 471.6 – 677.3 Share-based payments (31.1) (1.9) – (7.1) – (40.1) Exceptional items (117.8) (9.8) – (435.9) (98.9) (662.4) Depreciation and amortisation (136.5) (5.4) (6.8) (284.9) – (433.6) Impairment of available for sale asset (4.2) – – – – (4.2) Changes in the fair value of derivative financial instruments 15.0 – – – – 15.0 OPERATING LOSS (81.1) (4.9) (6.8) (256.3) (98.9) (448.0) Financial income 4.5 0.1 – 34.9 – 39.5 Financial expense (65.3) (1.0) – (126.1) (46.0) (238.4) Dividend income 3.1 – – – – 3.1 Share of profit of joint ventures and associates 0.2 – – 7.4 – 7.6 LOSS BEFORE TAX (138.6) (5.8) (6.8) (340.0) (144.9) (636.1) Taxation credit (expense) – (1.1) 1.2 23.5 – 23.6 LOSS AFTER TAX (138.6) (6.9) (5.6) (316.5) (144.9) (612.5)
Notes 1. The income statement for GVC has been extracted, without material adjustment, from GVC’s audited annual financial statements for the year ended 31 December 2016, incorporated by reference in Part 4 of this document. 2. As bwin.party was acquired by GVC on 1 February 2016 and only consolidated into GVC’s results from that date onwards, an adjustment has been included to reflect the results of bwin.party for the period 1 January 2016 to 31 January 2016. This financial information on bwin.party has been extracted, without material adjustment from the accounting records of bwin.party. 3. This adjusts the combined amortisation charge of GVC and bwin to the amortisation charge which would have applied within GVC had bwin been acquired on 1 January 2016, together with deferred tax thereon.
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4. The income statement for Ladbrokes Coral for the year ended 31 December 2016 has been derived as set out below: Other adjustments Coral for relating As the period to the Ladbrokes reported 1 January acquisition Ladbrokes Coral by 2016 to of Reclassifi- Coral under GVC’s Ladbrokes 31 October Coral by cation on under GVC’s presentation Coral 2016 Ladbrokes adjustments presentation & currency (note i) (note ii) (note iii) (note iv) (note v) (note vi) (£m) (£m) (£m) (£m) (£m) (€m) NET GAMING REVENUE 1,516.7 913.7 (69.7) – 2,360.7 2,880.8 Sales on tax revenue (8.8) – – – (8.8) (10.8) REVENUE 1,507.9 913.7 (69.7) – 2,351.9 2,870.0 Cost of sales (431.6) (285.9) 19.5 (223.2) (921.2) (1,124.2) GROSS PROFIT/ CONTRIBUTION 1,076.3 627.8 (50.2) (223.2) 1,430.7 1,745.8 Operating expenses, depreciation and amortisation (961.2) (471.8) 37.3 1,395.7 – – Non-trading operating expenses (323.6) (63.2) 6.5 380.3 – – Administrative costs – – – (1,044.2) (1,044.2) (1,274.2) Share-based payments – – – (5.8) (5.8) (7.1) Exceptional items – – – (357.2) (357.2) (435.9) Depreciation and amortisation – – (87.9) (145.6) (233.5) (284.9) Share of results from joint venture and associates 6.1 – – (6.1) – – OPERATING (LOSS) PROFIT (202.4) 92.8 (94.3) (6.1) (210.0) (256.3) Financial income 28.6 – – – 28.6 34.9 Financial expense (39.5) (65.9) 2.0 – (103.4) (126.1) Share of profit of associates – – – 6.1 6.1 7.4 (LOSS) PROFIT BEFORE TAX (213.3) 26.9 (92.3) – (278.7) (340.0) Taxation credit (expense) 9.0 (5.7) 16.0 – 19.3 23.5 (LOSS) PROFIT AFTER TAX (204.3) 21.2 (76.3) – (259.4) (316.5)
(i) The income statement on Ladbrokes Coral has been extracted, without material adjustment, from Ladbroke Coral’s audited financial statements for the year ended 31 December 2016, incorporated by reference in Part 6 of this document. (ii) As Coral was acquired by Ladbrokes on 31 October 2016 and only consolidated into Ladbrokes Coral’s results from that date onwards, an adjustment has been included to reflect the results of Coral for the period 1 January 2016 to 31 October 2016. This financial information on Coral has been extracted, without material adjustment from the Ladbrokes Coral Annual Report 2016 and the accounting records held by the Ladbrokes Coral Group. (iii) Other adjustments relating to the acquisition of Coral by Ladbrokes comprise the divestment of certain Ladbrokes and Coral shops which was required as a condition of undertaking the acquisition of Coral, the additional amortisation that would have been incurred on the intangible assets arising on the acquisition of Coral if the acquisition had taken place on 1 January 2016, and the tax effect of these adjustments. (iv) Certain reclassification adjustments have been made to accord with the GVC’s accounting presentation, as follows: • Depreciation and amortisation have been shown separately, rather than as Operating expenses; • Share based payments have been shown separately, rather than as Operating expenses; • Payment processer costs have been included in Cost of sales, rather than Operating expenses; • Marketing costs have been included in Cost of sales, rather than Operating expenses; • Non-trading operating expenses have been included in Exceptional items or Depreciation and amortisation, as appropriate, rather than as a separate category; • Remaining operating expenses have been discloses as Administrative costs; and • Profit from joint ventures and associates has included below Interest rather than within Operating profit. (v) Represents the sum of columns (i) to (iv) inclusive.
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(vi) Ladbrokes Coral currently reports in £Sterling, whereas GVC currently reports in Euros. Accordingly the total of column (iv) is adjusted from £Sterling into Euros by applying the average £/€exchange rate for the year ended 31 December 2016 of £1:€1.22. 5. Estimated costs of the Acquisition of €138.3 million, based on costs incurred in £ being converted at the exchange rate of £1:€1.13 prevailing on 7 February 2018, and including VAT which is assumed for the purposes of this pro forma financial information to be irrecoverable, less debt arrangement fees of €36.9 million, have been recognised as an exceptional item. In addition, interest has been included relating to additional borrowings drawn down to fund the consideration for the Acquisition payable in cash and estimated costs of the Acquisition, together with debt arrangement fees expensed to the income statement over the expected term of the loan. No adjustment has been made to the amortisation charge of Ladbrokes Coral to reflect the Acquisition since no assessment has yet been made as to the fair value of the separate assets and liabilities of Ladbrokes Coral. Therefore the actual amortisation charge may be materially different from that shown in the pro forma income statement. 6. Represents the sum of columns 1 to 5 to derive the pro forma income statement for the Combined Group. 7. The pro forma income statement adjustments are expected to have a continuing effect on the Combined Group, other than exceptional items that are one off costs by their size or nature. 8. No account has been taken of the financial or trading performance of GVC or Ladbrokes Coral subsequent to 31 December 2016 or of any other event, save as disclosed above.
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SECTION C: ACCOUNTANT’S REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION The Directors Grant Thornton UK LLP GVC Holdings Plc 30 Finsbury Square 32 Athol Street London Douglas EC2P 2YU IM1 1JB T +44 (0)20 7383 5100 Isle of Man F +44 (0)20 7184 4301 www.grant-thornton.co.uk
9 February 2018
Dear Sirs
GVC Holdings PLC (the “Company”) and its Subsidiary Undertakings (together the “Group”) – Report On Pro Forma Financial Information
We report on the pro forma financial information (the “Pro Forma Financial Information”) set out in Part 7 III,10.2 Section A of the Company’s prospectus dated 9 February 2018 (the “Prospectus”), which has been prepared on the basis described in the notes in Part 7 of the Prospectus, for illustrative purposes only, to provide information about how the acquisition of Ladbrokes Coral Group plc and its subsidiary undertakings might have affected the financial information presented on the basis of the accounting policies adopted by the Company in preparing the its financial statements for the year ended 31 December 2017.
This report is required by item 20.2 of Annex 1 of Appendix III of the Financial Conduct Authority’s Prospectus Rules (the “Prospectus Rules”) and is given for the purpose of complying with that item 7 of Annex II to Appendix III of the Prospectus Rules and for no other purpose.
Responsibilities It is the responsibility of the directors and the Proposed Director of the Company (the “Directors”) to prepare the Pro Forma Financial Information in accordance with item 20.2 of Annex 1 of Appendix III of the Prospectus Rules.
It is our responsibility to form an opinion, as required by item 7 of Annex 2 of Appendix III of the Prospectus Rules, as to the proper compilation of the Pro Forma Financial Information and to report that opinion to you.
Save for any responsibility arising under Prospectus Rules 5.5.3R(2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with, item 20.2 of Annex 1 of Appendix III of the Prospectus Rules, consenting to its inclusion in the Prospectus.
In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro Forma Financial Information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue.
Basis of Opinion We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Financial Information with the Directors.
We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro Forma Financial Information has
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been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Company.
Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America or other jurisdictions and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.
Opinion In our opinion:
(a) the Pro Forma Financial Information has been properly compiled on the basis stated; and
(b) such basis is consistent with the accounting policies of the Company.
Declaration For the purposes of Prospectus Rule 5.5.3R(2)(f) we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with item 1.2 of Annex 1 of Appendix III of the Prospectus Rules.
Yours faithfully
GRANT THORNTON UK LLP
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PART 8 I,6.4
REGULATORY OVERVIEW
1. ONLINE GAMING REGULATION This section describes the regulatory environment for online gaming affecting the GVC Group and the Ladbrokes Coral Group as at the date of this document.
The regulation of online gaming (or lack thereof) presents possible risks to the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group, both from existing regulation and regulation which may be introduced or changed in the future. These possible risks are described separately in the “Risk Factors” section of this document.
Overview The fundamental overall risk that all online gaming companies face is that, irrespective of the fact that they hold a licence to provide their services at the point of supply, there are many disparities in the way that their services are regulated in the jurisdictions in which their customers are based (i.e. from where the services are accessed). Few jurisdictions recognise foreign licences and many prescribe a local licensing regime. In some cases relevant laws carry criminal penalties for breaches of local gaming laws. That said, in a number of cases local laws in the jurisdiction of the customer, i.e. “at the point of consumption”, do not explicitly address online gaming.
In addition, gambling remains a politically controversial issue and widely varying views are held by governments and regulators around the world as to the merits of permitting consumers to exercise freedom of choice in accessing online gaming services. Some of the views held are driven by issues of morality, but in the majority of jurisdictions they are primarily fiscal. There is continued uncertainty as to whether jurisdictions can effectively criminalise the actions of customers participating in gambling via a remote gaming site, (and/or whether it is politically expedient to do so) or the actions of an operator based outside the local jurisdiction in supplying those services from abroad.
In addition, and as described in paragraph 2.1 of the section of this document entitled “Risk Factors”, where the activity of the customer participating in gaming via a remote gaming site is deemed to be illegal this can trigger separate facilitation offences (for example, aiding and abetting) and may cause issues of wider reputational risk if customers were to be prosecuted. Likewise, even if a third party is responsible for marketing or supporting payments, insofar as the activity is considered a criminal offence within a certain territory, this could expose the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group to wider claims of aiding and abetting. This could ultimately result in proceedings being brought against the GVC Group, the Ladbrokes Coral Group and, following the Effective Date, the Combined Group or them becoming involved in litigation (as party to injunctions or similar) or their funds or other assets being seized or traced. There could also be reputational and operational supply risk issues if third parties such as affiliates, advertising partners or payment service providers are prosecuted in the jurisdictions where they are based, as well as interruption to the business, and loss of income. Furthermore, the debate on the legality of online gambling or certain online gambling products may cause the risk of authorities seeking to seize funds generated from the allegedly illegal activity.
The legal justification for the operation of the online gaming industry has, for many years, been founded on the assertion that, if online gaming is legal in the country from which the supply is made, then the laws in the country of receipt would have to specifically prohibit the activity of the customer (remotely participating in online gaming) or support services (with a presence in the jurisdiction) in order to render the operator’s online gaming activities illegal in the country where the customer is located or support services are sourced and entitle that country to assert jurisdiction. This follows the VAT treatment applied to other B2C supply of service transactions outside the gaming industry.
The GVC Group, along with other online gaming companies including the Ladbrokes Coral Group, generally relies on this argument by supplying services only from jurisdictions in which it holds a valid
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gaming licence and from where it is legal to operate. It couples this with refraining from having an established physical presence in jurisdictions where its activities are expressly prohibited by local law unless the GVC Group has been advised that enforcement risk is minimal.
2. RETAIL GAMBLING REGULATION The regulation of retail betting and gaming presents possible risks to the Ladbrokes Coral Group and following the Effective Date, the Combined Group, both from existing regulation and regulation which may be introduced or changed in the future. These possible risks are described separately in the “Risk Factors” section of this document.
The betting and gaming industry includes activities such as bookmaking, on-course and off-course betting, gaming, gaming machines, local and national lotteries, casinos, bingo and football pools. The Ladbrokes Coral Group, and following the Effective Date, the Combined Group operates in the betting and gaming industry in the UK, Belgium, Ireland, Spain and Italy.
3. LICENCES AND APPROVALS The parties’ relevant licences (the type and scope of which varies from territory to territory) for retail and online gaming are summarised in the table below.
Ladbrokes Territories GVC Group Coral Group Alderney Yes (Disaster Yes Recovery) Australia No Yes Belgium Yes Yes Bulgaria Yes No Denmark Yes No France Yes No Germany (Schleswig Holstein) Yes Yes Germany (Hesse) Application Application Gibraltar Yes Yes Great Britain Yes Yes Greece Yes (transitional) No Ireland Yes Yes Italy Yes Yes Jersey No Yes Malta Yes No Northern Ireland No Yes Philippines (Sub-Licence) Application Application Romania Yes No South Africa Yes No Spain Yes Yes (Joint Venture) United States (New Jersey) Yes No United States (Nevada) No Yes
The GVC Group The GVC Group holds a number of licences for online gaming and betting granted by the relevant authorities in Alderney, Belgium, Bulgaria, Denmark, France, Germany (Schleswig-Holstein), Gibraltar, Great Britain, Ireland, Italy, Malta, Romania, Spain and the US (State of New Jersey). A transitional licence for the provision of gaming services is also held in Greece. The GVC Group also holds a manufacturing licence in South Africa. GVC operates there under a website services agreement on the basis of a local licence held by its South African partner.
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The primary infrastructure necessary to run the GVC Group’s gaming operations, including its gaming servers, is located in Gibraltar and Malta. Additional support functions are located in other jurisdictions, including primarily Austria, Ireland, Uruguay, the Philippines, and the UK. Furthermore, the GVC Group has applied for a Philippine Amusem*nt and Gaming Corporation Licence (“PAGCOR”) sublicence in the Philippines and its application is currently pending.
The GVC Group makes its facilities available in certain territories in reliance on its Gibraltar and Maltese licences on a point of supply basis, maintaining no physical presence in such territories. The GVC Group considers that its operations in these territories are not in breach of local laws. In addition, the GVC Group takes the view that the legislation in force in certain Member States is not compliant with EU law and provides services in reliance on its Gibraltar and Maltese licences and Article 56 of the TFEU which guarantees the fundamental EU principle of free movement of services between Member States.
The Ladbrokes Coral Group The Ladbrokes Coral Group holds a number of licences for retail betting and online gaming and betting granted by the relevant authorities in Alderney, Australia, Belgium, Germany (Schleswig-Holstein), Gibraltar, Great Britain, Ireland, Italy, Jersey, Northern Ireland and Spain as well as a licence granted in the US (State of Nevada) for the supply of software and technology for race books and sports pools.
The Combined Group Completion and the resulting change of control of the GVC Group and the Ladbrokes Coral Group will require notifications to, and/or regulatory approvals from, the relevant authorities either prior to or following the Effective Date. These requirements result from the regulations or licensing conditions applicable to the licences held by the GVC Group or the Ladbrokes Coral Group. The GVC Group and the Ladbrokes Coral Group are working with local counsel in each of the relevant jurisdictions to ensure that all necessary approvals and/or notifications are obtained or submitted, as appropriate, in a timely manner. The change of control of Ladbrokes Coral requires the approval of the Nevada Gaming Commission with respect to the Ladbrokes Coral Group’s interest in a Nevada regulated entity called Stadium Technology Group, LLC (“Stadium”). It is proposed that, prior to the Effective Date, the Ladbrokes Coral Group entity which holds the interest in Stadium, a Delaware registered entity called Ladbrokes Holdco, Inc., is transferred out of the Ladbrokes Coral Group and held by a trust entity, The Ladbrokes Holdco Irrevocable Trust (the “Trust”), of which John Kelly (the Chairman of Ladbrokes Coral) is proposed to be a trustee, as a Nevada licensed person, on a bare trust for Ladbrokes Coral pending the Nevada Gaming Commission’s approval of the change of control.
Pursuant to that arrangement, John Kelly and Ladbrokes Coral entered into a deed of trust on 7 February 2018 and, prior to the transfer of the Ladbrokes Holdco, Inc. shares into the Trust, propose to enter into a customary deed of indemnification for the benefit of John Kelly and a letter of appointment, pursuant to which John Kelly is appointed as trustee for an initial period of six months and is entitled to receive a commercial arm’s-length fee in respect of him acting as trustee of the Trust for that period. If the Nevada Gaming Commission approves the transfer into the Trust of the shares in Ladbrokes Holdco, Inc. and the Scheme is approved by the Court, then Ladbrokes Coral will, after the date of the Court approval of the Scheme but before the Effective Date, transfer the shares in Ladbrokes Holdco, Inc. into the Trust. This type of arrangement is not uncommon on transactions that require Nevada Gaming Commission approval. Following the Effective Date, GVC would apply to the Nevada Gaming Commission to be licensed to hold the ultimate controlling interest in Stadium. If such approval were forthcoming the Trust arrangement would be brought to an end.
The GVC Group and the Ladbrokes Coral Group believe that all other necessary approvals should be forthcoming without the need to warehouse entities in this manner; however it cannot be ruled out that the GVC Group or the Ladbrokes Coral Group may not obtain certain necessary approvals, or that they may not be obtainable within a timescale acceptable to the GVC Group or the Ladbrokes Coral Group, or that they may only be obtained subject to certain conditions or undertakings which may not be acceptable to the GVC Group or the Ladbrokes Coral Group.
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The GVC Group and the Ladbrokes Coral Group rely on their Gibraltar and Maltese licences respectively to provide services in certain territories on a point of supply basis. Whilst the Gibraltar Licensing Authority and the Malta Gaming Authority have both been prepared to accept that it is for the operator to determine its own legal risks in relation to the jurisdictions into which it supplies, there is no guarantee that indirect pressure on these bodies or the relevant governments will not result in either body taking a different attitude with regard to certain territories and therefore requiring the Combined Group and other operators to block those jurisdictions as part of their licensing obligations.
The Combined Group intends to monitor closely legal and regulatory developments in all of the Material Territories and generally keep abreast of legal and regulatory developments affecting the online gaming industry as a whole, and will evaluate when it is appropriate to commission legal opinions in certain territories. Where feasible, the Combined Group will attempt to reduce risk by proactively reviewing blocking policies, the cessation or reduction of marketing programmes, clear travel policies as well as ensuring that monies are collected from and held in jurisdictions where the legality of their provenance is not in question.
With regard to land-based sports betting, the Combined Group will continue to run its shops, including retail shops based on franchise/agency agreements, in those jurisdictions where there is a clear licensing regime in place and the respective licenses have been obtained. The Ladbrokes Coral Group’s UK Business will remain a key business within the Combined Group. The Combined Group intends to continue to develop and enhance its multi-channel offering, both within the UK and in other jurisdictions in which the Combined Group holds or will hold retail betting licences.
4. ISSUES RELATING TO SUPPLY WITHIN THE EUROPEAN UNION A number of important jurisdictions for the GVC Group and the Ladbrokes Coral Group are Member States. Supranational EU law plays a significant role as regards the legality of the supply of online gaming services by operators licensed in one Member State to customers in another Member State. Accordingly, before describing the legal and regulatory regimes in individual jurisdictions in which the GVC Group and the Ladbrokes Coral Group have customers, the position under EU law is considered below.
Online gaming is not subject to harmonised EU regulation. Each of the current 28 Member States may impose its own regulatory regime subject to the condition that it complies with EU law (which has supremacy over an Member State’s domestic law).
The TFEU establishes the principle that unjustified restrictions on the supply and movement of goods, services, people and capital are not permitted. However, Member States retain a margin of discretion to limit operators’ rights in providing services within their territory if objectively justified. The ECJ has decided a number of preliminary ruling cases pursuant to Art 267 TFEU which test the extent to which restrictions in the area of online gaming can be objectively justified. These include the following:
In Schindler (Case C-275/92) the ECJ decided in March 1994 that gambling activities fall within the scope of the freedom to provide services (Art 56 TFEU). According to the ECJ, gambling services are deemed to be economic activities as they fulfil the two criteria laid down by the ECJ in its case law, namely: (i) the provision of a particular service for remuneration and (ii) the intention to make profit. The freedom to provide services thus also applies to gambling activities.
In Gambelli and others (Case C-243/01), the ECJ decided in November 2003 that national law restrictions on the cross-border supply of online gaming services could give rise to restrictions on the freedom to provide services and the freedom of establishment under Articles 49 and 56 TFEU, and that such restrictions were capable of being justified on public interest grounds. However, restrictions can only be justified if they were applied without discrimination, applied in a “consistent and systematic manner” and do not go beyond what is necessary to achieve their objective. Additionally, if a Member State incites and encourages consumers to participate in gaming to the financial benefit of the Member State, that Member State may not use the pretext of protecting public order in order to justify restrictions on freedoms.
In Placanica and others (Case C-338/04), the ECJ held in March 2007, that while Article 56 and the case law permits a “margin of discretion” to restrict online gaming services, such margin of discretion must be
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“suitable for achieving the objective … invoked by the Member State concerned” and “not go beyond what is necessary to achieve those objectives”. The ECJ also held that Articles 49 and 56 TFEU must be interpreted as precluding national legislation which imposes a criminal penalty on persons for pursuing the organised activity of collecting bets without a licence or a police authorisation (as required under the national legislation), where those persons were unable to obtain licences or authorisations because that Member State, in breach of EU law, refused to grant licences or authorisations to such persons.
In Liga Portuguesa de Futebol Profissional (Case C-42/07), the ECJ ruled in September 2009 that granting exclusive rights to State-run gaming monopolies such as the Portuguese State monopoly operator Santa Casa da Misericórdia de Lisboa, which is subject to strict state controls, may be regarded as appropriate for the purposes of protecting consumers against fraud on the part of operators. While maintaining the need for restrictions on gaming services to be justified in the public interest, the judgment is unambiguous in its vindication of such monopolies as a possible method for doing so.
The rulings in Ladbrokes (Case C-258/08) and Betfair (Case C-203/08) were published in June 2010 and closely followed the Liga Portuguesa de Futebol Profissional judgment, finding that Member States are able to maintain monopoly gaming regimes and to restrict the rights of online gaming operators established outside their territory from offering their gaming services if such restrictions are objectively justified, non- discriminatory and proportionate.
The joined cases Markus Stoß et al (C-316/07, C-358/07 to 360/07, C-409/07 and C-410/07) as well as Carmen Media (Case C-46/08) were decided in 2010 and were a mixed blessing for online gaming operators. On the one hand, the ECJ confirmed its general approach that Member States may establish State gaming monopolies. On the other hand, the ECJ placed more emphasis on the principle that any restriction of the activities of private gaming operators has to pursue public interest goals in a consistent and systematic manner. Furthermore, the ECJ established strict rules on the advertising measures that a state monopoly may take, but not go beyond in order to channel customers into the regulated offer. National rules which are not in line with these criteria cannot be applied by the competent authorities. When the judgments were published the German courts were already expressing their doubt over whether the regulatory regime in place at the time pursued the objective of limiting games of chance in such a consistent and systematic manner.
In the Winner Wetten case (Case C-409/06) decided in September 2010, the ECJ – in finding inconsistencies of the German sports betting monopoly – held that national legislation establishing a sports betting monopoly, which national courts have found to be incompatible with the EU freedom of establishment and the freedom to provide services, must not continue to apply during a transitional period.
In Engelmann ruling (Case C-64/08), handed down on 9 September 2010, the ECJ established that Austrian legislation, under which only Austria-registered companies were eligible to apply for a casino licence and to operate a casino, was incompatible with the freedom of establishment under EU law, and that the award of all available licences to the Austrian casino monopoly operator was also incompatible with the requirements of EU law in relation to the transparency and fairness of licensing procedures.
Dickinger and Ömer (C-347/09) was decided in September 2011 and concerned criminal proceedings brought in Austria against Jochen Dickinger and Franz Ömer, the Austrian founders of the multi-national online gaming group Bet-at-home.com, on the grounds of alleged infringement of the Austrian law on games of chance. It was alleged that Dickinger and Ömer’s company hosted a server in Austria used by its Maltese- licensed online gaming subsidiaries to offer casino games from their website. Such activity is in breach of the Austrian gaming law, which permits only one licensed operator to offer online casino games in Austria at any one time. The ECJ noted that a monopoly on games of chance constitutes a restriction of the freedom to provide services but that such a restriction may nevertheless be justified by overriding reasons in the public interest, such as the objective of ensuring a particularly high level of consumer protection. To be consistent with the objective of fighting crime and reducing opportunities for gambling, national legislation establishing a monopoly which allows the holder of the monopoly to follow an expansionist policy must genuinely be based on a finding that the crime and fraud linked to gaming are a problem in the Member State concerned, which could be remedied by expanding authorised regulated activities. The ECJ emphasised that
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the objective of maximising public revenue alone cannot permit such a restriction to the freedom to provide services.
In the Costa and Cifone ruling (Case C-72/10 and C-77/10) given in February 2012, the ECJ found that the gaming and betting sector in Italy has long been driven by a policy of expanding activity with the aim of increasing tax revenue rather than for the pursuit of the objective to limit the propensity of consumers to take part in gambling by channelling the activities of betting and gaming into controlled systems. The ECJ further stated that measures under national law designed to ensure that incumbent operators maintain their market positions by unlawfully excluding certain operators from obtaining licenses in violation of EU law, was in breach of the EU market freedoms.
In January 2013, the ECJ ruled on the matter of Stanleybet International Ltd, William Hill Organisation Ltd and William Hill v Ipourgos Ikonomias kai Ikonomikon and Ipourgos Politismou (C-186/11 and C-209/11). The ECJ confirmed that EU law precludes the grant of an exclusive right to run, manage, organise and operate games of chance to a single entity, in circ*mstances where: (i) the relevant legislation does not genuinely address the need to reduce opportunities for gambling and to limit activities in that domain “in a consistent and systematic manner”; and (ii) strict control by the public authorities of the expansion of the sector of games of chance, solely in so far as is necessary to combat criminality linked to those games, is not ensured.
In Pfleger and others (C-390/12) the ECJ confirmed in April 2014 its previous case law on national gaming legislation being compliant with EU law only if the declared public interest objectives are not only theoretically, but also actually pursued in a consistent and systematic manner. The ECJ further ruled that the burden of proof regarding the proportionality and consistency of a measure rests with the Member States and reiterated that, where a restrictive system has been established and that system is incompatible with the freedom to provide services, an infringement of that system by an economic operator cannot give rise to penalties.
In June 2015, the ECJ repeated in its Berlington Hungary ruling (Case C-98/14) on the Hungarian legal framework for offline slot machines that national gambling legislation must comply with EU law and that a restriction of the gambling market can only be justified by prevailing public interests. The ECJ confirmed that national provisions containing “technical rules” have to be notified to the European Commission before coming into force. Another point stated in the ruling is that licensed operators have to provide an attractive and reliable gambling offer to provide consumers with a serious alternative. For the first time, the ECJ stated that amendments to national tax legislation, without providing a transitional period, restrict the freedom to provide services, if the changes lead to a five-fold increase of the tax rate, as was the case in the ruling concerned.
In February 2016, the ECJ issued its ruling in Ince (Case C-336/14), where proceedings were brought against Ms. Ince who had carried out sports betting intermediation activities without holding a German authorisation. The ECJ found that the German monopoly, which several German courts had already held to be in violation of EU law, persisted in practice. It followed that various amendments made by German legislators to rectify the inconsistencies of the German monopoly cannot be regarded as having remedied the incompatibility with EU law. The ECJ also reiterated that EU law prohibits the imposition of sanctions against operators licensed in other Member States in the case where the public monopoly regime is deemed to be contrary to EU law. In this decision, the ECJ made clear that the non-applicability of sanctions applies not only in cases of a monopoly where private operators do not have the option to obtain a local license, but also in situations where a license procedure exists only in theory, creating a de facto monopoly.
In the Admiral Casinos ruling (Case C-464/15) of June 2016, the ECJ concluded that Article 56 TFEU must be interpreted as meaning that a review of the proportionality of restrictive national gaming legislation must be based not only on the objective of that legislation at the time of its adoption, but also on the practical effects of the legislation, assessed after its adoption.
In June 2017, in the Online Games decision (Case C-685/15), the ECJ emphasised that it is the task of the Member State’s authorities – and not the duty of national courts’ ruling on such authorities’ decisions – to provide evidence of whether a restriction of EU law is justified. Should the obligated authorities fail to
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provide such justifications, the national courts must be able to draw all inferences which result from such failure. Nonetheless, national courts may be required, under national procedural rules, to take measures in order to encourage the production of evidence regarding the justification of national measures restricting EU law.
In the Unibet ruling (Case C-49/16) of June 2017, the ECJ confirmed that the Hungarian online casino regulation, was not in compliance with EU law. In this context, the ECJ confirmed its consistent case law and stated that Art 56 TFEU must be interpreted as precluding sanctions, whether criminal or administrative, imposed for the infringement of national legislation, if such national legislation is contrary to EU law. It is vital to note that, for the first time in a gambling-related case, the ECJ expressly stated that the term “sanctions” also includes administrative sanctions, such as ISP-blocking measures and fines.
Despite the extensive case law on the gambling sector, Member States and licensed monopoly operators continue to bring legal actions against online gaming operators licensed in other Member States aimed at safeguarding State-run monopoly operations. Further gambling-related referrals for preliminary rulings are currently pending before the ECJ.
Separately to the ECJ, the European Commission monitors the application of EU law in its role as the “guardian of the Treaties”. In this role the European Commission initiated infringement proceedings pursuant to Art 258 TFEU against a number of Member States whose gaming legislation was perceived not to comply with EU law. Infringement proceedings are a pre-litigation procedure which can ultimately result in the offending Member State being referred to the ECJ by the European Commission. Following a political decision of the Juncker Commission, which is in office until 2019, on 7 December 2017, the European Commission officially closed all pending infringement cases and complaints. In its press release, the European Commission notes that the ECJ has recognised the Member States’ rights to restrict gambling services where necessary to protect public interest objectives such as the protection of minors or combating gambling addiction. The Commission also notes that it will continue to support Member States in their efforts to modernise their national online gambling legal frameworks. With regard to complaints in the gambling sector, the Commission states that it considers these can be handled more efficiently by national courts also in the light of the numerous ECJ judgements on national gambling legislation. As the European Commission encourages complainants to make use of national remedies when facing problems with EU law in the gambling sector, it is expected that the European Commission’s closure of infringement cases and the treatment of complaints in the gambling sector will ultimately lead to an increase of litigation at national as well as at the level of the ECJ. While the political decision that it is not a priority for the European Commission to use its infringement powers to promote the EU Single Market in the area of online gambling comes without legal prejudice, Member States may interpret this as providing them greater leeway when restricting operators’ rights under the EU market freedoms, which may result in negative consequences for the gaming industry.
While there is scope for challenging many of the more restrictive Member State gaming regimes under EU law, providing gaming services in the EU without complying with individual national licensing requirements remains risky, even if such operations are based on the EU market freedoms. This is further prompted by Member States imposing sanctions directly or indirectly impacting online gaming operators, such as fines or blocking measures (predominantly ISP- and PSP-blocking), despite the doubts as regards the compatibility of their legislation with overriding EU law.
The Combined Group is likely to continue to face a level of uncertainty as the regulatory landscape within the EU continues to evolve. Where the Combined Group is able to obtain a local licence, it will benefit from a strengthened legal position but may also face operational issues to which licensing regimes give rise.
5. OVERVIEW OF REGULATION IN MATERIAL TERRITORIES WHERE THE GVC GROUP AND WHERE THE LADBROKES CORAL GROUP HOLD ONLINE GAMING AND BETTING LICENCES 5.1 Alderney The GVC Group holds Category 1 and Category 2 eGambling licenses issued by the Alderney Gambling Control Commission allowing the GVC Group to offer online gambling including sports
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betting, casino games and poker. The licenses held by the GVC Group are held by ElectraWorks (Alderney) Limited. The GVC Group’s Alderney licenses serve as disaster recovery licenses in case of major technical issues occurring in the main Gibraltar and Malta data centres.
The Ladbrokes Coral Group holds Category 1 and Category 2 eGambling licences issued by the Alderney Gambling Control Commission to Exchange Platform Solutions Limited. The Ladbrokes Coral Group’s Alderney licences are required in respect of technical equipment located in Guernsey that is used to support the Ladbrokes Coral Group’s exchange betting business.
5.2 Australia In Australia, interactive and internet gambling is regulated by each individual state, in each case as applicable to gaming and sports betting activities conducted within such state, and at the Federal level, by the Interactive Gambling Act 2001 (“IGA 2001”), which purports to regulate certain types of interactive and internet wagering offered to individuals located in Australia, and to prohibit certain interactive gambling services on racing and sporting events as well as online gambling type services. The IGA 2001 provides that a person is guilty of a civil or criminal offence if that person intentionally provides a prohibited interactive gambling service to customers located within Australia or provides a regulated interactive gambling service unless the provider of the service holds the relevant Australian licence and provides the services in accordance with that licence.
The Ladbrokes Coral Group holds a Northern Territory sports bookmaking licence issued by the Northern Territory Racing Commission to Ladbrokes Digital Australia Pty Ltd. This licence allows the Ladbrokes Coral Group’s Australian business to accept bets and wagers from players in all Australian states. Following the Effective Date, the Combined Group’s products will be available to consumers in Australia on the basis of the Ladbrokes Coral Group’s licence.
Further, Ladbrokes Digital Australia Pty Ltd holds an Australian Financial Services Licence, which authorises it to provide non-cash payment products (the relevant products being the Ladbrokes Visa Debit Card and the Ladbrokes EFTPOS Card). These Ladbrokes cards, inter alia, allow customers to withdraw at ATM machines or EFTPOS directly from their user accounts. For these purposes, Ladbrokes Digital Australia Pty Ltd is regulated by the Australian Securities and Investments Commission across Australia, provided that all such bets and wagers are processed through servers located in Australia.
In addition to the Ladbrokes cards, Ladbrokes Australia uses affiliates and product innovation such as Oddsboost and the “cash in” option via a network of newsagents. Oddsboost was launched in March 2016 initially on racing products giving clients improved odds. The ‘cash in’ system which allows customers to make deposits in cash was launched in August 2015. The system allows customers to deposit and withdraw cash through the Ladbrokes card. ‘Cash in’ is currently available through more than 1,000 retail newsagents throughout Australia.
The IGA 2001 was amended with effect on and from 13 September 2017 to clarify its provisions regarding illegal offshore gambling and to grant greater enforcement powers for online gambling breaches to the Australian Communications and Media Authority, the federal regulator.
Since 1 July 2017, betting operators (including Ladbrokes Digital Australia Pty Ltd) that provide betting services to persons in South Australia have been liable to pay a point of consumption tax at a rate of 15 per cent. of the amount of net State wagering revenue in excess of AU$150,000 from bets placed in South Australia, and will pay a similar point of consumption tax in Western Australia on and from 1 January 2019 (on the basis that legislation is introduced in accordance with proposals announced last year, although no draft legislation has been introduced to date). Certain other Australian states (notably Victoria, Queensland, and New South Wales) are known to be contemplating introducing a similar point of consumption tax in the near future.
Betting operators are obliged to pay product fees to Australian racing and sports controlling bodies to enable them to use and/or publish race fields and sporting fixture information. These product fees are subject to change and may increase.
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5.3 Belgium The provision of facilities for gambling without a licence is unlawful in Belgium. Only land-based gambling operators can offer online gambling services and the server of the gambling website must be located in Belgium. The GVC Group as well as the Ladbrokes Coral Group hold B2B licenses for providing technology and services (“E-license”) to Belgian B2C operators.
In March 2013, the Belgian Gaming Commission granted an E-license to bwin.party Limited. The license is now held by GVC Services Limited. The GVC Group operates an online casino and sports betting offering (“.be” label) in partnership with Casino Kursaal Oostende SA of Groupe Partouche SA and CKO Betting NV.
The Ladbrokes Coral Group operates in Belgium through licences issued to Derby S.A. and Tierce Ladbroke S.A. The Ladbrokes Coral Group also holds an E-licence through Professional Gaming Services, in which Ladbrokes Belgium S.A. holds a 19 per cent. stake.
5.4 Bulgaria A licence is required in order to provide facilities for online betting and gaming in Bulgaria. Sanctions apply to persons providing facilities for online gaming and betting unlawfully.
The Bulgarian State Commission on Gambling granted licenses for the operation of online casino games, sports betting and online betting on horse and dog races to ElectraWorks Limited in February 2016. This allows the GVC Group to offer its online gaming and betting products to customers located in Bulgaria.
The GVC Group also holds assets in Bulgaria through a Bulgarian subsidiary, including operations which provide back office services to the GVC Group’s licensed entities, such as technological and customer support services, computational activities for sports betting websites, risk management and security, production and maintenance of software programmes, server maintenance, database maintenance, marketing and human resources.
The Ladbrokes Coral Group does not currently hold a licence in Bulgaria and its products are not available to consumers located there. Following the Effective Date, the Combined Group’s products will be available to consumers in Bulgaria on the basis of the GVC Group’s licence.
5.5 France Licences are available for the provision of online sports betting, online mutual betting on horse racing (with the exception of spread betting, exchange betting and betting on negative events) and online poker in France. It is illegal for an operator to provide such facilities to French consumers without being licensed in France. Licences are available to companies outside France, subject to certain conditions.
The GVC Group holds licences for the provision of sports betting and poker products to consumers located in France. The licensed entities are B.E.S. SAS (France) and ElectraWorks (France) Limited. The Ladbrokes Coral Group does not currently hold a licence in France and its products are not available to consumers located there. Following the Effective Date the Combined Group’s products will be available to consumers in France on the basis of the GVC Group’s licences.
5.6 Gibraltar Online gaming and betting in Gibraltar is licensed and regulated under the provisions of the Gibraltar Gambling Act 2005 (“GA”) and the terms and conditions of a licence agreement (“Licence Agreement”) made between (1) the licence holder and (2) the Minister for Gambling of the Government of Gibraltar as Licensing Authority (“Gibraltar Licensing Authority”). Part VI of the GA, entitled “Remote Gambling” and Part VII entitled “Obligations of all Licence Holders”, is the statutory basis for nearly all aspects of Gibraltar’s online gaming regulatory regime. In addition to the GA, a number of “Codes of Practice” have been issued by the Gibraltar Gambling Commissioner, and, by virtue of sections 6(6)(F) and 6(7) of the GA are authoritative in nature. The terms of a
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Licence Agreement applicable to a betting licence or casino licence do not vary materially save for the following:
(a) the type of licence, which is usually expressed as “remote gambling – online casino” in the case of a gaming licence and as “remote gambling – fixed odds betting” in the case of a betting licence; and
(b) authorised games: a gaming licence is restricted to a maximum of 10 groups of generic games, whereas the betting licence is not and instead covers “betting” as defined in the GA, namely: “……making or accepting a bet on: (a) the outcome of a race, competition or other event of any description; (b) the likelihood of anything occurring or not occurring; or (c) whether anything is or is not true….but does not include any bet made or stake hazarded in the course of or incidental to any gaming and the expressions bet, betting and bookmaking shall be construed accordingly….”
Gibraltar is the main licensing jurisdiction of the GVC Group’s core trading company, ElectraWorks Limited. The GVC Group operates under various licence agreements which permits it to provide different game variants such as fixed-odds games, casino games and approved betting products. The licences held by the GVC Group are valid for a period of five years and automatically renewed each year during the five-year period unless there has been a breach of any term or condition of the Licence Agreement. In the event of any such breach which has not been rectified within 90 days of written notification by the Gibraltar Licensing Authority, the Gibraltar Licensing Authority may refuse to renew the respective licence. The GVC Group’s licences were renewed in March 2017. An annual renewal fee is payable by the licensee.
The Ladbrokes Coral Group also holds remote gaming and betting licences issued by the Gibraltar Licensing Authority. The Ladbrokes Coral Group relies on these licences when operating internationally and offering its services on a point-of-supply basis. A licence is issued on the express understanding that the licence holder shall not provide its products to any person where such provision would be illegal under the laws applying to the gaming contract with the consumer. This is a standard condition usually contained in the Licence Agreement, so is contractually binding on the licence holder. There is no list of jurisdictions prescribed by the GA, the Gibraltar Licensing Authority, the Codes of Practice or the Gibraltar Gambling Commissioner as being “white”, “grey” or “black” markets and operators are generally left to determine at their own discretion which markets they operate in subject to obtaining legal advice that supports their position in such jurisdictions.
In those jurisdictions in which the relevant operating entities in the Combined Group operate, and will operate from the Effective Date, on the basis of licences issued in Gibraltar, the Combined Group is of the view that Gibraltar law is currently the applicable law in respect of such online gaming activities, given the express submission to Gibraltar law in its contracts with consumers, in addition to its main gaming servers being based in Gibraltar. The Combined Group is also of the view that in the event of a specific prohibition against the provision of online gaming activities in any such jurisdiction, there will be no breach of the Combined Group’s Gibraltar licence requirements. Gibraltar is an overseas territory of the UK and generally subject to EU law pursuant to paragraph 3 of Article 355 TFEU. Articles 49 and 56 TFEU have direct effect in Gibraltar by virtue of the UK’s membership of the EU and can be relied upon as the basis of doing business in Member States that have legislation in force, which is non-compliant with the EU market freedoms.
However, if the national legislation complained of is UK legislation, the position is somewhat complicated by the proceedings brought by the Gibraltar Betting and Gaming Association (“GBGA”) against the UK Government in the English High Court, where the UK Government argued inter alia that the UK and Gibraltar should be considered as forming part of the same Member State for the purposes of the case. In the GBGA vs. the United Kingdom ruling (C-591/15) of 13 June 2017, the ECJ stated that the freedom to provide services does not cover services rendered by operators established in Gibraltar to persons established in the United Kingdom, as the market freedoms are not applicable in such circ*mstances. The ruling clarified that gambling operators established in Gibraltar may therefore be subject to double taxation in Gibraltar and the United Kingdom.
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The legal position of Gibraltar within the EU must also be considered in light of Brexit. The British Prime Minister signed the letter invoking Article 50 Treaty on European Union (“TEU”) on 29 March 2017, which was delivered to the European Council on 29 March 2017. Article 50 of the TEU provides that the United Kingdom and the EU have two years to negotiate the United Kingdom’s departure from the EU, taking into account the future applicability of EU law, in particular, the applicability of the fundamental EU market freedoms. The legal consequence of the United Kingdom withdrawing from the EU will be that EU Treaties (and Protocols thereto) will cease to apply to the United Kingdom, and consequently Gibraltar, as of the time and date of the withdrawal. This is currently scheduled to be at 11:00 p.m. (London time) on 29 March 2019 (unless extended by all parties involved); after such date, if not agreed upon earlier, any newly negotiated relationship between the United Kingdom and the EU would enter into effect. Still, at this point, it is too early to determine what effect the withdrawal of the United Kingdom from the EU will have on the internal market provisions and their applicability to the United Kingdom and Gibraltar, including the applicability of the freedom of establishment (Art 49 TFEU) and the freedom to provide services (Art 56 TFEU). It also still remains unclear what effect the United Kingdom’s withdrawal from the EU will have on Gibraltar and its relationship with other Member States. The negotiations between the United Kingdom and the European Commission will continue during 2018.
5.7 Greece It is illegal to provide facilities for betting and gaming without a local licence in Greece. Local licences for both betting and gaming (which are not distinguished under local legislation) are only available to the monopoly holder, the Organisation of Football Prognostics S.A. (“OPAP”) and a number (initially 24) EU-licensed companies that have been granted so-called transitional licences since the beginning of 2012 due to their voluntary submission to a retrospective tax regime at that time enabling them to operate for a transitional period. The GVC Group offers its products to consumers in Greece under such a transitional regime through to Sporting Odds Limited. The Ladbrokes Coral Group does not currently hold a licence to offer its products to consumers in Greece. Following the Effective Date, the Combined Group intends to offer services in Greece through the transitional licence held by Sporting Odds Limited.
However, there are arguments that the Greek legislative regime is inconsistent with EU law, in particular on the basis that it is an unjustifiable restriction in not serving the purported objectives and instead increasing the state’s income. Under the current regulatory regime, the provision of facilities for betting and gaming without a licence is subject to criminal and administrative penalties, applicable to directors and the operator itself respectively. Substantial fines can be imposed for both criminal and administrative breaches and prison sentences may be imposed for criminal breaches. In addition, users of illegal facilities commit an offence and can be punished by imprisonment or a fine.
The Hellenic Gaming Commission (the Greek gaming authority) maintains a black list of companies which illegally provide online gaming services in Greece and regularly investigates breaches of the relevant legislation. Criminal investigations in relation to unlicensed operators are underway. Unlicensed online gaming operators are subject to website blocking by ISPs.
Credit and payment institutions registered and lawfully operating in Greece cannot fulfil any transactions of operators on the black list. If credit or payment institutions become aware of such a transaction they are required to provide information about that transaction to the regulator. If such notification is not made the institution may be subject to a fine of ten times the amount processed.
At the end of 2017, the Hellenic Gaming Commission launched a consultation on online gaming regulation inviting interested parties to formulate their views and proposals for updating the current legal framework for online gaming and betting. The public consultation (which closed on 12 December 2017) could be followed by the drafting of a new gaming bill that may ultimately lead to the issuing of new Greek online gaming and betting licences.
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5.8 Ireland The Ladbrokes Coral Group operates a retail bookmaking business through a number of licensed betting offices regulated under the Irish Betting Acts 1931 to 2015. Bookmaker’s licences and premises registration certificates are required to operate betting shops in the Republic of Ireland. Such bookmaker’s licences must be renewed every two years and must be approved by the police and the Office of the Revenue Commissioners in the Republic of Ireland. Premises registration certificates are held by individuals on behalf of the Ladbrokes Coral Group. The “relevant officers” of an entity which holds a bookmaker’s licence must obtain certificates of personal fitness from the police (in the case of domestic applicants) or the Department of Justice and Equality (in the case of overseas applicants). From the Effective Date, the Combined Group will continue to operate a retail bookmaking business in Ireland in reliance on such licences.
With regard to online bookmaking, the Irish law on betting was amended in April 2015 by the Betting (Amendment) Act 2015 (the “2015 Act”). The 2015 Act introduced a new licensing system for remote bookmakers and remote betting intermediaries who accept, or facilitate, bets from Irish customers, regardless of where in the world the remote bookmaker or remote betting intermediary is located. The 2015 Act makes it illegal for an unlicensed remote bookmaker or a remote betting intermediary to accept bets from Irish customers after 1 August 2015.
The Irish law on gaming is contained in the Gaming and Lotteries Act 1956 as amended (the “1956 Act”). The 1956 Act generally prohibits gaming (which includes poker) except in very limited circ*mstances such as at carnivals or where the promoter does not derive a profit from the operation of a game. There is currently no licensing regime in respect of the provision of online gaming services (as opposed to betting services) by remote operators to customers in Ireland although such a regime is expected to be introduced in the short to medium term. In the meantime, while there is a residual risk that the Irish authorities may seek to enforce the provisions of the 1956 Act, there is no further restriction on an operator from outside of Ireland continuing to offer online gaming services to customers in Ireland, even if offered from a platform offering licensed bookmaking or betting intermediary services.
The GVC Group and the Ladbrokes Coral Group both hold licences for the provision of online betting services to Irish customers. Following the Effective Date, the Combined Group will supply online betting services to Irish customers on the basis of these licences. Following the Effective Date, the Combined Group intends to make its online gaming products available to customers in Ireland on a point of supply basis.
5.9 Italy The Ladbrokes Coral Group operates a retail sports and horse race betting business in Italy through licences held by Eurobet Italia srl under the Eurobet brand. Eurobet Retail operates in the Italian retail market through certain franchise/agency models or management contracts. Franchisees provide the premises and incur running costs, and Eurobet Retail provides the product, trading and brand marketing. Franchisees receive a share of the retail net revenue they generate, plus a commission for the online activity of customers they recruit.
Retail betting licences in Italy are supply-constrained. The last auction for Italian licences took place in 2013, when Eurobet won 500 new licences, which comprised 25 per cent. of those made available in the auction. The current licences expired in June 2016 but ADM, the Italian betting and gaming regulator, has permitted existing operators such as Eurobet to continue operating under their current licences in exchange for them extending the expiry date of their guarantees to ADM.
Following the Effective Date, the Combined Group intends to offer retail sports and horse betting in Italy on the basis of the Ladbrokes Coral Group’s current and to-be renewed licences.
Online gaming in Italy is regulated by Law No. 88/2009 (Legge Comunitaria), which stipulates that the offering of online gaming to Italian residents requires a licence issued by ADM.
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Licences are available in Italy for the provision of facilities for betting and gaming. The provision of facilities for gaming and betting (from either within or outside Italy) is lawful provided that a licence is held. End users of unlicensed facilities would commit an offence.
The GVC Group and the Ladbrokes Coral Group hold various online gaming and betting licences through local subsidiaries issued by ADM which enable them to offer online sports betting, horse betting, poker, casino games, card games, skill games, and bingo to consumers located in Italy. The Italian licences have formally expired and require renewal. ADM currently tolerates the provision of services by the GVC Group and the Ladbrokes Coral Group under the expired licenses. On 10 January 2018, the tender for Italian online gaming licences was issued in the Gazette of the EU. The deadline for filing applications in the tender will expire on 19 March 2018. Following the Effective Date, the Combined Group intends to offer remote gaming and betting services in Italy on the basis of the current licences and ultimately under licences to be newly issued.
5.10 Malta The online licensing regime in Malta is regulated by the Lotteries and Other Games Act 2001 and the Remote Gaming Regulations 2004 (the “Maltese Regulations”).
The Maltese Regulations provide a definition of what constitutes remote betting and remote gaming. Pursuant to Regulation 2, remote betting is defined as “the negotiation or receiving of any bet by means of distance communications”. Remote gaming is defined as “any form of gaming by means of distance communications”.
The Maltese Regulations stipulate four different classes of licences granted by the Malta Gaming Authority (“MGA”) that are broadly speaking related to risk-taking operations and non-risk taking operations, from the operator’s perspective:
(a) Class 1: Games of risk based on repetitive events with random outcome and the House partakes in the risk, such as casino-style games, lotteries, skill games with house robots;
(b) Class 2: Games of risk based on a singular event having a market, such as fixed-odds betting, spread betting, and pool betting;
(c) Class 3: Promoting or abetting gaming from Malta whereby operator receives only a commission, such as P2P (Skill and exchanges), affiliates, portals, poker room front-end; and
(d) Class 4: Hosting and managing other remote gaming operators but operator receives only a commission, such as software provider, poker room networks (B2B supplier licence).
In July 2017, the MGA released a White Paper to Future Proof Malta’s Gaming Legal Framework (the “White Paper”) on the aim to repeal all currently existing Maltese regulation on gambling and replace it with a single piece of legislation (the “Gaming Act”). The Gaming Act is expected to enter into force in the course of 2018. According to the White Paper, the MGA envisages to substitute the four classes of licenses with a Gaming Service licence (B2C) and Critical Gaming Supply licence (B2B): each such licence will enable operators to offer different gaming products, which have been approved by the MGA. The term for Maltese licences shall be extended from five to ten years.
Further, the MGA envisages to introduce a point-of-consumption taxation model in respect of gaming services offered by remote means. To this effect, gaming operators located in Malta and having an international presence, would have to pay only those taxes that are imposed by the jurisdiction where the customer is located (with a 5 per cent. tax applying to the gross gaming revenue derived from customers located in Malta).
B2B operators will not be subject to any additional gaming tax. The MGA intends to abolish the tax paid as a fixed fee by Class 4 operators under the current Remote Gaming Regulations, as well as the fee payable by the Class 4 operators when hosting or managing operators licensed outside Malta.
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On 1 January 2018, a new fiscal structure become effective by virtue of the Gaming Licence Fees Regulations. The Malta Gaming Authority has, however, envisaged a transitory period whereby existing licensees continue paying the fees in accordance with the current Remote Gaming Regulations up until 30 June 2018. Consequently, and as from 1 July 2018, existing licensees will start paying the new gaming licence fees under the new Regulations. A reconciliation will then take place in order for the difference between what was due for the first 6 months of the year 2018 and the rest of the year under the new regime to be calculated. Those licensees which would have paid more than what was due will then receive tax credits, whilst those licensees which would have paid less than what was due will pay the difference accrued by year end 2018.
Currently, the GVC Group holds Class 1 B2C and Class 4 B2B licences. Martingale Malta 2 Limited, operating the CasinoClub brand, is licensed by the MGA under Class 1 on 4 licenses for the operation of casino games provided by third party suppliers. bwin.party Services (Malta) Limited holds Class 4 B2B supplier licenses. The GVC Group is of the view that Maltese law is currently the applicable law in respect of the online gaming activities offered by Martingale Malta 2 Limited, given the express submission to Malta law in its contracts with consumers. It is also of the view that in the event of a specific prohibition against the provision of online gaming activities in any given jurisdiction, there will be no breach of the GVC Group’s Malta licence requirements.
The present Maltese Regulations do not impose any restrictions or prohibitions on the territories to which an operator licensed in the jurisdiction can provide its services. However, as a matter of policy, the MGA will not issue a remote gaming licence which is intended to be used to target citizens of the USA. A standard condition to the remote gaming licence obliges the licensee to abide by any applicable laws in other jurisdictions.
5.11 Spain Spanish Law 13/2011 of 27 May 2011 (Ley 13/2011, de 27 de mayo, de regulación del Juego) (the “Spanish Law”) sets out the general legal framework for the offering of online gaming in Spain. According to the Spanish Law, operators who wish to offer online gaming products in Spain are required to obtain general gambling and betting licences which cover the activities they wish to offer, and then apply for a specific licence for each individual game variant.
The GVC Group holds online gaming and betting licences issued by the Spanish gaming regulator, the Directorate General for the Regulation of Gambling (“DGOJ”). The licences held by ElectraWorks (España) PLC allow the GVC Group to offer online sports betting, poker, and various casino games to customers located in Spain.
The Ladbrokes Coral Group holds Spanish online gaming and betting licences through a joint venture with Cirsa Gaming Corporation, Sportium Apuestas Deportivas S.A., which is regulated by the DGOJ.
The GVC Group and the Ladbrokes Coral Group (via its joint venture) both hold licences for the provision of online gaming and betting services to Spanish customers.
The Ladbrokes Coral Group has a significant retail presence in Spain through the Sportium joint venture. In Spain, off-course betting is regulated at the regional level. Each ‘autonomous community’ regulates gambling activity independently of the approach adopted by neighbouring communities. This results in regional variances in restrictions on the products that can be offered. Each of the 17 autonomous regions have now established, or, in the case of two of them, are in the process of establishing, regulation in respect of gambling activity, with each regional regulation containing a list of regulated gambling products. The Ladbrokes Coral Group operates and, following the Effective Date, the Combined Group will operate in each autonomous community through group companies holding licences with each regional authority.
Following the Effective Date, the Combined Group will supply retail and online betting and online gaming services to Spanish customers on the basis of these licences.
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5.12 Great Britain With regard to the Ladbrokes Coral Group’s retail operations, there are three licence types that have been issued to members of the Ladbrokes Coral Group and their directors and employees to enable them to operate in Great Britain. The first is an operating licence issued to the relevant trading company by the UKGC. Five members of the Ladbrokes Coral Group hold UK retail operating licences. The second licence type is a personal management licence held by relevant individuals within the Ladbrokes Coral Group. The UKGC specifies certain senior roles within the organisations that must be undertaken by a personal management licence holder. The third licence type is a premises licence, which is issued by the relevant local authority. The Ladbrokes Coral Group holds separate premises licences for each of their LBOs.
Following the Effective Date, the Combined Group will supply retail betting services to British customers on the basis of the licences held by the Ladbrokes Coral Group.
Online gaming in Great Britain is regulated by the UK Gambling Act 2005 and the regulations and licensing conditions and codes of practice enacted by the British regulator – the UKGC.
The provision of facilities for betting and gaming to consumers in Great Britain is legal, provided the operator holds an appropriate licence and the services are provided in accordance with the terms and the conditions of that licence. The UKGC also specified certain senior roles within the remote operators must be undertaken by a personal management licence holder. Offshore operators are subject to the same regime and it is illegal for them to provide facilities for betting and gaming without a licence issued by the UKGC. In addition, the British regulatory regime requires remote gaming operators to source their gambling software from suppliers licensed by the UKGC.
Both the GVC Group and the Ladbrokes Coral Group hold online gaming operating licences and the required personal management licences issued by the UKGC. Following the Effective Date, the Combined Group will supply online gaming and betting services to British customers on the basis of these licences.
5.13 United States of America The GVC Group holds a Casino Service Industry Enterprise License issued by the State of New Jersey, Division of Gaming Enforcement. Under this licence, issued to bwin.party entertainment (NJ), LLC and bwin.party USA, Inc, the GVC Group offers online games of chance (poker and casino) in cooperation with Marina District Development Company, LLC d/b/a Borgata Hotel Casino & Spa, which holds an internet gaming permit. bwin.party entertainment (NJ), LLC operates the consumer- orientated offer available to customers located in New Jersey via the nj.partypoker.com website. Following the Effective Date, the Combined Group intends to supply online poker and casino services to customers located in New Jersey on the basis of the licence held by the GVC Group.
The Ladbrokes Coral Group has a 79 per cent. indirect controlling ownership interest in Stadium Technology Group, LLC, a company creating and supporting software and technology for race books and sports pools. based in Las Vegas, Nevada. Stadium Technology Group, LLC is licensed by the Nevada Gaming Commission as a gaming manufacturer, distributor and information service provider. Ladbrokes Coral as its controlling company is also required to be licensed in Nevada and holds an information service provider licence.
6. OVERVIEW OF REGULATION IN MATERIAL TERRITORIES WHERE THE COMBINED GROUP DO NOT HOLD GAMING AND BETTING LICENCES 6.1 Austria In Austria, licences are available for sports betting only (which are not considered games of chance) and these are granted by provincial governments. However, these provincial licenses mainly regulate land-based betting, with only a few provinces also granting licenses for online sports betting in case performed via servers located in the respective provincial territory. The provincial betting laws do not regulate or prohibit the provision of online sports betting into Austria from foreign countries. Under
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the Federal Austrian Gambling Act (Glücksspielgesetz, “GSpG”), the Federal Government has an exclusive right to organise games of chance, including via the internet, and has granted a sole concession to offer games of chance via the internet to the monopoly operator, Österreichische Lotterien GmbH (“ÖLG”). Provision of facilities for online gaming by providers other than ÖLG is considered illegal.
Over the course of the last ten years, the former bwin.party Group and its directors have repeatedly been subject to investigations and civil and criminal proceedings because of alleged infringements of Austrian gaming laws prohibiting the cross-border offering of online gaming. These cases were based on complaints filed by various parties, including competitors on the Austrian market. All cases that have advanced to court so far have either been decided in favour of the former bwin.party Group and its directors or closed after investigations, finding no breach of Austrian law.
The Higher Regional Court Linz (Oberlandesgericht Linz) had found an online gaming operator based and licensed in Malta liable to reimburse approximately €1.0 million that a customer had spent on the operator’s online roulette. The court argued that providing online gaming without an Austrian licence would be illegal and the underlying gaming contract would be void. Following appeals to the Austrian Supreme Court (Oberster Gerichtshof), this court has already twice referred the case back to the lower courts, in particular as it considered the necessity of examining the compatibility of the Austrian de facto monopoly with EU law. In an unrelated case, another Chamber of the Supreme Court has considered the decision of a lower court as regards refunding a customer EUR 70,000 lost in online gambling as valid in an Order issued in July 2017. However, details of the case and the decisions of the lower instance courts are not publicly available.
Since 2016, the three Austrian high courts (being the Supreme Court, the Supreme Administrative Court and the Constitutional Court) have issued decisions holding that the GSpG and the Austrian de facto monopoly are in line with EU law and Austrian constitutional law. The decisions taken by the Supreme Court so far have been issued by its 4th Chamber, with the further abovementioned case currently pending with its 2nd Chamber. The rulings of the Supreme Court’s Chambers do not take precedence over each other.
Although the three Austrian high courts take a similar approach as regards the compatibility of the GSpG with EU law, the Regional Administrative Court of Upper Austria (Landesverwaltungsgericht Oberösterreich) issued several contrary decisions. The Regional Administrative Court of Upper Austria takes the view, that (i) the gambling monopoly is based on significant fiscal interests; (ii) the Austrian Ministry of Finance, in its capacity as gambling regulator, has not provided evidence that the restrictions to the market freedoms resulting from the establishment of a de facto monopoly are actually necessary to achieve public interest goals and (iii) the advertising activities of the de facto monopolists are aggressive and conflict with the ECJ’s consistent case law, in particular the ruling in Markus Stoß on the requirements for a monopoly’s advertising behaviour. Recently, the Regional Administrative Court of Upper Austria has submitted three cases regarding the compatibility of the Austrian gambling regime for preliminary ruling to the ECJ.
In case the authorities take a contrary view that the offering of online casino and poker games by the GVC Group, and following the Effective Date the Combined Group, in Austria is illegal due to the GSpG being in line with EU law, there is a risk that any assets held by the GVC Group, and following the Effective Date the Combined Group, in Austria could be at risk of being seized should enforcement action be taken by the authorities.
6.2 Germany The legality of the German regulatory regime for the provision of online betting and gaming services has been uncertain for a number of years. The current German Interstate Treaty on Gambling came into force on 1 July 2012 and there are currently several on-going legal challenges. The provision of facilities for online betting and gaming services is generally prohibited without a licence. While online casino and poker are subject to a total ban under the Interstate Treaty, a license tender for online sports betting commenced in 2012. Each of the GVC Group and the Ladbrokes Coral Group were successful applicants in the tender process for one of the 20 available Germany-wide sports betting
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licences. However, due to ongoing legal challenges, no such license has been granted so far. In July 2015, the European Commission took preliminary steps towards infringement proceedings against Germany and criticised, inter alia, the inconsistency of the ban on online casino and poker while allowing online sports betting. The Higher Administrative Court of Hesse on 16 October 2015 confirmed several defects in the sports betting licensing process that are contrary to EU law with the effect that the licensing process was stopped. While these challenges remain unresolved, there is a risk of enforcement action being taken against providers of online betting and gaming services who do not hold a local German licence. However, there is evidence of renewed political impetus to resolve issues of legal certainty through amendments to the current regulatory regime, in particular to include regulation of online poker and casino.
Various subsidiaries of the GVC Group have been issued prohibition orders under the Interstate Treaty on Gambling and related legislation, as well as under earlier legislation by certain German States. The GVC Group has filed administrative proceedings challenging each of these orders and in some cases has also filed state liability complaints against the respective German State. While some of the cases concern challenges of prohibition orders, the GVC Group is not presently subject to any prohibition orders currently being enforced against it. Following the ECJ judgments issued in September 2010 (Markus Stoß et al, Carmen Media and Winner Wetten) and February 2016 (Ince) as well as the GVC Group and the Ladbrokes Coral Group’s successful licence applications in the tender procedure for one of the 20 available Germany-wide sports betting licences (see below), no new prohibition orders have been initiated against the GVC Group or the Ladbrokes Coral Group, save for one single prohibition order from the German State of Hesse, to which, however, the authority has declared not to commence any enforcement actions, prior to a court having decided over this issue. In several cases, GVC Group companies entered into settlement agreements and recovered fines that had initially been paid.
Recently, however, German authorities have sent warning letters with regard to the products not licensable under the Interstate Treaty to several operators (including GVC Group companies ElectraWorks Ltd and Martingale Malta 2 Ltd). Furthermore, the ruling of the German Federal Administrative Court (Bundesverwaltungsgericht) of 26 October 2017 against two companies unrelated to the GVC Group, namely Cassava Enterprises (Gibraltar) Limited, a company of the 888 Holdings Plc group of companies, and NG International Ltd, in which the Federal Administrative Court has found, inter alia, the prohibition of online casino and poker to be in line with EU law and German constitutional law, has increased the risk of enforcement against the online poker and casino offer. Therefore, there is a risk that currently dormant cases could be reopened and new fines imposed.
Due to on-going legal challenges of the legislative framework, there are currently no licences available for online sports betting and the main case relating to the license tender is currently pending before the Higher Administrative Court of Hesse. In addition, no new licences are available for the provision of online gaming facilities in the state of Schleswig-Holstein, where online gaming licences were issued by the state government between 2012 and 2013. The GVC Group holds online gaming and betting licences from Schleswig-Holstein and presently its products are available to consumers in Schleswig-Holstein under its licences. The GVC Group and the Ladbrokes Coral Group also have a pending application with the German State of Hesse for a Germany-wide sports betting licence. Apart from the GVC Group’s locally licensed offer in the German State of Schleswig-Holstein, the GVC Group and the Ladbrokes Coral Group currently provide services in Germany under their EU licences on a point-of-supply basis. Following the Effective Date, the Combined Group intends to make its products available to consumers in Germany on the basis of the GVC Group’s Schleswig-Holstein licence and based on the EU market freedoms on a point-of-supply basis.
While amendments to the Interstate Treaty that had been scheduled to enter into force on 1 January 2018 have not been ratified by all 16 German states, as would have been required, it is likely that the legislative debate will recommence in the course of 2018. A number of states have openly criticised the current legislation and its non-compatibility with EU law, including the lacking of licenses being available for online casino and poker. Until a feasible legislative solution has been found, German gambling legislation will remain under court scrutiny.
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It is a criminal offence to offer illegal gambling as well as for consumers to participate in such gaming offers but proceedings against individuals have been rare. Consumers of online poker may commit a criminal offence by failing to report taxable income gained as a result of their participation in poker games but this is subject to challenge in the federal courts. Assisting in payment transactions in connection with illegal gambling is prohibited and the competent authorities can prohibit transactions.
6.3 India The GVC Group contracts for software and IT enabled business process outsourcing services (“BPO”) from subsidiaries in Hyderabad, in the state of Telangana in India. As the GVC Group’s Indian subsidiaries’ income is derived solely from international transactions with an associated enterprise, its revenues are subject to Transfer Pricing Regulations under the Indian Income Tax Act 1961, which requires services to be provided at an arm’s length price. The GVC Group’s Indian subsidiaries have entered into agreements with GVC group companies for the provision of BPO services at arm’s length prices.
Indian law prohibits gaming and maintaining gaming houses in India. However, there is no statute or law prohibiting the provision of BPO services in India for gaming which takes place outside India or to gaming houses which are not located in India and which do not offer gaming services to any person accessing such services from India. Both the GVC Group and the Ladbrokes Coral Group employs technology that identifies the geographic location of consumers who attempt to access its websites and ensures that its online gaming and betting products will not be accessible to any person located in India. The GVC Group has been advised that, as a result, the GVC Group’s current operations in India are in accordance with local law.
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PART 9
TAXATION
The statements set out in this Part 9 are intended only as a general guide to certain limited tax matters connected with GVC Shares. They are not exhaustive and do not constitute tax or legal advice. GVC Shareholders, or prospective GVC Shareholders, should obtain their own independent professional tax advice in relation to the acquisition, holding and disposal of GVC Shares.
1. UK TAXATION The statements set out below are intended only as a general guide to certain aspects of current UK tax law and the published practice of HMRC as at the date of this document, both of which may change (possibly with retroactive effect). HMRC’s published practice may not be binding on it. The statements set out below do not purport to be a complete analysis or description of all the potential UK tax consequences of acquiring, holding or disposing of GVC Shares.
They apply only to GVC Shareholders who are resident (and, in the case of individuals, domiciled) for tax purposes solely in the United Kingdom, save where express reference is made to non-UK resident Shareholders. They do not apply to GVC Shareholders who are not the absolute beneficial owners of both their GVC Shares and any dividends paid on them. They apply only to GVC Shareholders who hold their GVC Shares as an investment (other than in an individual savings account or a self- invested personal pension) and not to persons holding GVC Shares in connection with a trade, profession or vocation. They do not apply to GVC Shareholders who are subject to special tax rules, including dealers in securities, brokers, insurance companies, trustees, investment companies and collective investment schemes, tax- exempt institutions, persons holding GVC Shares in connection with an employment or office, or persons holding GVC Shares as part of hedging transactions, persons holding, either themselves or together with connected or associated persons, more than 10 per cent. of any class of shares or other participation interests in GVC.
GVC Shareholders, or prospective GVC Shareholders, should obtain their own independent professional tax advice in relation to the acquisition, holding and disposal of GVC Shares in light of their own particular circ*mstances.
The GVC Directors intend that the affairs of the Company will continue to be conducted so that the Company is not and does not become resident for tax purposes in the United Kingdom, and is resident in its place of incorporation only.
1.1 Taxation of dividends paid on GVC Shares III,4.11 (a) Withholding tax Dividends paid by GVC will not be subject to deduction at source of UK tax.
(b) UK individuals Dividends on GVC Shares received by a UK resident GVC Shareholder who is an individual will be subject to UK income tax. Such GVC Shareholders should generally be entitled to a tax-free annual allowance of £5,000 applied to dividend income from all shareholdings. This allowance will reduce to £2,000 for dividends received on or after 6 April 2018.
An individual GVC Shareholder who is liable to income tax on dividend income in excess of the tax-free allowance (at the rates applicable for the tax year 2017/18), treating that dividend income as forming the top slice of such GVC Shareholder’s income for income tax purposes:
• at the basic rate will be subject to tax on the gross dividend at a rate of 7.5 per cent.;
• at the higher rate, will be subject to tax on the gross dividend at a rate of 32.5 per cent.; and
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• at the additional rate will be subject to tax on the gross dividend at a rate of 38.1 per cent.
Dividend income within the allowance will count towards an individual’s basic or higher rate limits.
Depending on the circ*mstances of the individual GVC Shareholder and to the extent it has not been used against other income of the taxpayer, the income tax personal allowance (£11,000 for the 2016-17 tax year and £11,500 for the 2017-18 tax year) may also be available to set against the dividend income arising from GVC Shares.
Dividends that fall within the individual GVC Shareholder’s income tax personal allowance do not count towards the tax free dividend allowance noted above.
(c) GVC Shareholders subject to UK corporation tax GVC Shareholders that are not “small” companies may be exempt from corporation tax on dividends received on GVC Shares if the conditions for one (or more) of a number of exemptions are met. In particular, a distribution in respect of non-redeemable ordinary shares will be exempt for a non-small company recipient if certain other conditions are met. GVC Shareholders should note that the exemptions are subject to a number of anti-avoidance provisions and are not comprehensive.
GVC Shareholders which are “small” companies that receive dividends may be liable to corporation tax at the prevailing rate of corporation tax. This is 19 per cent. for the financial year 1 April 2017 to 31 March 2018 and is expected to reduce to 17 per cent. with effect from 1 April 2020.
It is recommended that GVC Shareholders who are subject to corporation tax seek independent professional advice on the treatment of dividends received by them from the Company.
1.2 Taxation of disposals of GVC Shares A disposal, or deemed disposal, of GVC Shares by a GVC Shareholder may give rise to a charge to UK capital gains tax or UK corporation tax, depending on the circ*mstances of that GVC Shareholder, the circ*mstances of the acquisition and disposal of its GVC Shares (including whether it “rolled-over” any gain on the disposal of other shares or securities into any GVC Shares), and the availability of any exemption or relief.
(a) Individuals Any gain realised on a sale or other disposal of all or part of a holding of GVC Shares (including from a liquidation or dissolution of GVC) by GVC Shareholders who are individuals may be subject to capital gains tax as a chargeable gain.
Chargeable gains are subject to capital gains tax at a rate of 10 per cent. (for the tax year 2017/2018), to the extent that when aggregated with the relevant individual’s taxable income they fall below the limit of the basic rate of income tax (taking the chargeable gain as being the highest part of the aggregate) or 20 per cent. to the extent that the aggregate is above the basic rate limit.
Individuals may be able to make use of exemptions or reliefs to reduce their chargeable gains arising on a disposal, or deemed disposal, of GVC Shares, including by making use of all or part of their annual exempt amount (£11,300 for the tax year 2017/2018) and any capital losses available to them.
(b) Corporation tax payers Any gain realised on a sale or other disposal of the GVC Shares (including from liquidation or dissolution of GVC) by GVC Shareholders who are subject to corporation tax may be subject
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to corporation tax on chargeable gains. The current rate of corporation tax is 19 per cent. and is expected to reduce to 17 per cent. from 1 April 2020.
Corporation tax payers may be entitled to calculate their chargeable gains taking into account indexation allowance, in accordance with any rise in the Retail Prices Index over their period of ownership of the GVC Shares being disposed of. However, legislation has been introduced into Parliament which, if enacted, will have the effect of removing indexation allowance for any gains made on or after 1 January 2018 (though some indexation allowance would still be available for any GVC Shares which were held or are treated as having been held before 31 December 2017). Corporation tax payers may also be able to make use of other reliefs available to them, such as setting capital losses against their chargeable gains.
(c) Non-residents GVC Shareholders who are not resident in the United Kingdom for tax purposes will generally not be subject to UK tax on any chargeable gains on the disposal of any GVC Shares unless they carry on a trade, profession or vocation in the UK (including, in the case of corporate GVC Shareholders, through a branch, agency or permanent establishment) for the purpose of which the GVC Shares are or have been used, held or acquired. Such Shareholders may be subject to non-UK taxation on any gain under applicable local law.
An individual who has been UK resident but is not resident in the United Kingdom at the time he disposes of GVC Shares may still be subject to UK capital gains tax on any gain upon re- acquiring UK tax residence if his period of non-residence is five years or less.
1.3 Stamp duty and stamp duty reserve tax (“SDRT”) The statements below apply in circ*mstances where the GVC Shares are admitted to the Official List and traded on the Main Market. They apply in relation to GVC Shares irrespective of the residence or domicile of the relevant Shareholder or prospective Shareholder.
They do not apply to certain brokers and intermediaries who may not be liable to stamp duty or SDRT, or to persons connected with depository arrangements or clearance services, to whom special rules apply and who may be liable at higher rates.
(a) Issue of GVC Shares No stamp duty or SDRT should be payable on the issue of GVC Shares.
(b) Subsequent transfers of GVC Shares held in certificated form III,4.3 Any instrument effecting or evidencing a transfer of GVC Shares held in certificated form which is executed in the UK may not (except in criminal proceedings) be given in evidence or be available for any purpose whatsoever in the UK unless duly stamped. Any instrument of transfer executed outside the UK which relates to any matter or thing done or to be done, or any property situated, in the UK may not (except in criminal proceedings) be given in evidence or be available for any purpose whatsoever in the UK, unless duly stamped after it has first been received in the UK. The rate of stamp duty is 0.5 per cent. on the amount or value of the consideration for the relevant transfer, rounded up (if necessary) to the next multiple of £5. However, instruments of transfer for which the consideration is £1,000 or less are exempt from stamp duty provided they are certified appropriately. Interest on any stamp duty payable will accrue from 30 days after the date the instrument is executed. Penalties may also apply for late stamping.
No charge to stamp duty will generally arise in practice in relation to the transfer of GVC Shares held in certificated form provided that all instruments relating to the transfer are executed and retained outside the UK and do not relate to anything done or to be done in the UK.
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No charge to SDRT will generally arise in respect of an agreement to transfer GVC Shares held in certificated form, provided that such GVC Shares are not registered in any register kept in the UK by or on behalf of GVC.
(c) Subsequent transfers of GVC Shares held in uncertificated form No charge to stamp duty or SDRT should arise on the transfer of GVC Shares to CREST for conversion into uncertificated form, unless the transfer is for consideration. Neither would a charge to SDRT arise provided such GVC Shares are not registered in any register kept in the UK by or on behalf of GVC.
Sales of GVC Shares within CREST will generally not be liable to SDRT provided such GVC Shares are not registered in any register kept in the UK by or on behalf of GVC.
2. ISLE OF MAN TAXATION The statements set out below are intended only as a general guide to certain current Isle of Man taxation aspects of ownership of GVC Shares. The summary does not purport to be an exhaustive analysis of all potential Isle of Man tax and does not cover certain categories of GVC Shareholders such as trustees, dealers, employees of GVC or any of its subsidiaries. If you are in any doubt as to your tax position or if you may be subject to tax in any other jurisdiction, you are strongly recommended to consult an appropriate professional adviser.
The following statements are made on the assumption that GVC is subject to the zero corporate income taxation regime in the Isle of Man.
2.1 Tax residence in the Isle of Man GVC is resident for taxation purposes in the Isle of Man by virtue of being incorporated in the Isle of Man, and having the Isle of Man as its central place of management and control.
2.2 Isle of Man taxes The Isle of Man Government levies income tax, applicable to both individuals and companies. The Isle of Man does not operate any capital gains tax, stamp duty, stamp duty land tax or inheritance taxes.
2.3 Zero Rate of Corporate Income Tax in the Isle of Man The standard rate of corporate income tax in the Isle of Man is 0 per cent. However, a higher rate of tax applies to income received by a company from any of the following sources:
(a) banking business and certain retail profits (10 per cent. rate); and
(b) land and property in the Isle of Man (including property development, residential and commercial rental or property letting and mining & quarrying) (20 per cent. rate).
As it does not receive income from these sources, the Company is liable to income tax at a “zero” per cent. rate on its profits. The Company is not required to withhold tax from the payment of dividends to Shareholders, wherever resident.
2.4 Taxation of Dividends Holders of GVC Shares resident in the Isle of Man will, depending on their particular circ*mstances, be liable to Isle of Man income tax on dividends received from GVC.
An Isle of Man company has no requirement to make any deduction or withholding of tax on dividends paid to Isle of Man or non-Isle of Man resident shareholders.
GVC Shareholders who are not resident in the Isle of Man will not be exposed to or incur Isle of Man income tax on dividends they received from their GVC shares.
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2.5 Isle of Man probate In the event of the death of a sole holder of GVC Shares an Isle of Man grant of probate or administration may be required, in respect of which certain fees may be payable to the Isle of Man government.
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PART 10
DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE
1 GVC BOARD AND SENIOR MANAGEMENT I,14.1
1.1 Directors At Admission the GVC Board will comprise of 2 Executive Directors* and 6 Non-executive Directors (including the Chairman).
The business address of the Directors is, and of the Proposed Director will be, 32 Athol Street, Douglas IM1 1JB, Isle of Man.
(a) Lee Feldman (age 50), Chairman and Non-executive Director Lee joined the GVC Group in December 2004 and became Chairman in 2008. He is the Managing Partner of Twin Lakes Capital, a private equity firm focused on branded consumer products, media and business services. From 2008 to 2015, he was also the Chief Executive Officer of Aurora Brands: the owner of both MacKenzie-Childs and Jay Strongwater, the iconic American luxury home furnishings and personal accessories companies. Lee was appointed the Chief Executive Officer of Aurora Brands when Twin Lakes led the acquisition of the business. He is also a member of the board of directors of LRN Corporation and TLH Beauty LLC. Prior to co-founding Twin Lakes, Lee was a partner in Softbank Capital Partners. He has a B.A. and J.D. from Columbia University.
(b) Kenneth Alexander (age 48), Chief Executive Officer Kenneth joined GVC as its Chief Executive Officer in March 2007. On the re-domiciliation of Gaming VC Holdings S.A. to the Isle of Man and its renaming as GVC Holdings plc, he became a director of GVC Holdings plc in January 2010. He was formerly Finance Director, then Managing Director, of the European operations of Sportingbet plc, which he joined in 2000. He is a member of the Institute of Chartered Accountants of Scotland and previously worked for Grant Thornton LLP.
(c) Paul Miles (age 46), Chief Financial Officer Paul joined GVC in February 2017 as Chief Financial Officer. A Chartered Accountant, Paul has held a number of senior finance roles in regulated industries, encompassing international and online operations. Previous roles include Group Financial Controller at insurance group RSA Group plc and Acting Group Finance Director of Phoenix Group plc, the FTSE 250 life assurance operator. Paul joined Wonga as Chief Finance Officer in 2014 as a key member of an executive team brought in to restructure the business.
(d) Karl Diacono (age 55), Non-executive Director Karl joined the GVC Board as a Non-executive Director in December 2008, having previously served on the board of directors of Gaming VC Holdings S.A.. He holds a Masters Degree in Management and is currently the Chief Executive Officer of Fenlex Corporate Services Limited, a corporate service provider based in Malta. He is also a non-executive director of various trading and holding companies as well as other online gaming companies. He is actively involved in the hospitality industry. Karl is also a director of a number of Maltese subsidiaries of the GVC Group to which Fenlex Corporate Services Limited also provides certain administrative services. He is a Maltese citizen.
* It is intended that Paul Bowtell will replace Paul Miles as Chief Financial Officer on the Effective Date.
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(e) Stephen Morana (age 46), Non-executive Director Stephen Morana joined the GVC Board on 2 February 2016 and is widely recognised for his e-commerce expertise, particularly as a specialist in the online gaming sector having spent ten years as part of the management team at Betfair plc. Stephen joined Betfair in 2002, becoming Chief Financial Officer in 2006 and also served as Interim Chief Executive Officer in 2012. After Betfair, Stephen spent over three years at Zoopla Property Group Plc as Chief Financial Officer, where he helped them join the FTSE 250 in June 2014. Stephen joined the Board of GVC following the successful acquisition of bwin.party digital entertainment plc and the enlarged group’s move to the Main Market of the London Stock Exchange. Stephen was until recently a Non-executive Director and Audit Committee Chairman of boohoo.com plc, the high growth fast fashion business. Stephen is a member of the Institute of Chartered Accountants in England and Wales and an alumnus of the executive management programme at INSEAD.
(f) Peter Isola (age 59), Non-executive Director Peter Isola joined the GVC Board in 2016 following the move to the Main Market of the London Stock Exchange as an expert in gaming law and regulation with experience advising numerous e-commerce clients. Peter Isola is the Senior Partner of ISOLAS, Gibraltar’s longest established law firm. He is a Gibraltarian, domiciled in Gibraltar, and in 1982 was called to the Bar of England and Wales and also Gibraltar. Peter has worked in the gaming and financial services sector all of his professional life and is widely recognised and respected as a leading expert in gaming and regulation. Peter is a former President of the Gibraltar Chamber of Commerce and advises the Government of Gibraltar on a number of committees in both financial services and gaming. He is also a director of a number of Gibraltar regulated firms in financial services, gaming and e-commerce including the Gibraltar International Bank, Callaghan Insurance Brokers and Broadband Gibraltar Limited. He was appointed a Commissioner to the Gibraltar Financial Services Commission in March 2017.
(g) Will Whitehorn (age 57), Senior Independent Director Will joined the GVC Board on 23 March 2017. Will is the Deputy Chairman and Senior Independent Director at Stagecoach Group plc, an independent Non-executive Director of Purplebricks Group plc and a Non-executive Director of AAC Microtec AB. He is also a member of the First Minister of Scotland’s ‘GlobalScot’ Business mentoring network, President of the Chartered Institute of Logistics and Transport and Chairman of the Scottish Gallery and Scottish Event Campus Limited. Previously, Will joined the Virgin Group in 1987 and served as Group Public Relations Manager and as Brand Development and Corporate Affairs Director, as well as being a founding director of Virgin Games, before being appointed as President of Virgin Galactic from 2007 to 2011. He is also a former non-executive Chairman of Next Fifteen Communications Group plc, Crowd Reactive Limited and Speed Communications Agency Limited, and was a member of the Science & Technology Facilities Council (“STFC”) until 2012, chairing its Economic Impact Advisory Board and was a Non- executive director of STFC Innovations Limited.
(h) Jane Anscombe (age 59), Non-executive Director Jane joined the GVC Board in June 2017. She has more than 30 years of experience in the gaming, leisure and entertainment sectors, primarily as an equity research analyst. She retired from equity research in spring 2017 having been a gaming and entertainment analyst at Edison Investment Research since its formation in 2003. Prior to that she was an independent equity research analyst from 1999 to 2003, and before that a leisure sector analyst at Investec Henderson Crosthwaite from 1998 to 1999.
Prior to this Jane served as the Director of Investor Relations at Carlton Communications plc from 1997 to 1998, having joined from The Rank Group plc where she was the Director of Investor Relations between 1993 and 1997. From 1981 to 1993, Jane was an equity research analyst at de Zoete & Bevan and then Barclays de Zoete Wedd, where she was a director of
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BZW Research Ltd. Jane has a first class BA honours degree in Philosophy, Politics and Economics from Brasenose College, Oxford.
Further information on the GVC Directors, including the interests held by them in the share capital of GVC, is given in paragraph 3 of this Part 10.
1.2 Proposed Director
Paul Bowtell (age 49), Chief Financial Officer Paul joined Gala Coral Group in October 2011 as Chief Financial Officer. Prior to that he was Chief LR,10.4.1(2)(g) Finance Officer of First Choice Holidays PLC and became Chief Financial Officer of TUI Travel PLC LR,10.4.1(2)(j) after its merger with First Choice Holidays PLC. He previously held a number of senior positions with Centrica, WHSmith and Forte. Paul is also Chairman of Alua Hotels, a privately owned company. Paul is a Chartered Accountant.
1.3 GVC senior management (a) Other members of GVC’s senior management include:
(i) Nick Batram – Head of Investor Relations & Corporate Strategy Nick joined the GVC Group in April 2016. Nick joined the GVC Group from Peel Hunt LLP where he was Head of the Leisure & Gaming Team. He joined Peel Hunt in 2008 and under his leadership the Leisure & Gaming Team was rated in the Top 3 in leisure in the Extel analyst rankings. Mr Batram was voted the number one Leisure and Gaming analyst by corporates in the 2014 Extel Survey. Mr Batram is well-known and highly regarded in the sector having worked on numerous high profile fundraisings and M&A transactions.
(ii) Robert Hoskin – Group Head of Legal, Compliance & Secretariat Robert joined PartyGaming Plc in August 2005 where he served as Deputy and then Group Company Secretary and Head of Compliance. He remained Group Company Secretary and a director of many of the group’s licensed subsidiaries following the merger with bwin Interactive Entertainment AG in 2011 and has managed the internal legal department from 2014. Prior to working in online gaming Robert headed up the Investment Company Secretariat at Aberdeen Asset Management.
(iii) Jim Humberstone – Group Head of Trading & Operations Jim joined the GVC Group in April 2010 and successfully spearheaded the expansion of the Betboo Sportsbook offering into new geographical markets in the first half of 2011. He was formerly South Eastern Europe Regional Sales Manager and Head of Sportsbook for Sportingbet plc. He became Chief Operating Officer of GVC on the acquisition by GVC of Sportingbet plc in March 2013 and then became the Group Head of Trading & operations following the acquisition of bwin.party digital entertainment plc in February 2016.
(iv) Adam Lewis – Chief Marketing Officer Adam joined the GVC Group as Chief Marketing Officer in March 2013. As a life-long marketer he has worked for Sony Music, Universal Music Group, Sportingbet, BSkyB and run his own marketing agency for five years. Adam has over 18 years international marketing experience within the gaming industry and now leads the marketing strategy of the GVC Group.
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(v) Shay Segev – Joint Chief Operating Officer Shay joined the GVC Group in March 2016. Shay was the former Chief Strategy Officer at the Gala Coral Group, developing the Company’s Omni-channel growth strategy and leading the early stages platform integration between Ladbrokes and Coral. He was previous Chief Operating Officer of Playtech, online eGaming B2B leading provider, and also Chief Executive Officer of Videobet, UK betting shops gaming machines platform provider. He is recognised as one of the leading technology and product experts in the online gaming industry with a wealth of experience gained at several companies across the sector.
(b) The following will also be members of the senior management of the Combined Group: LR,10.4.1(2)(j)
(i) Andy Hornby – Joint Chief Operating Officer Andy joined Gala Coral in July 2011 and is currently Ladbrokes Coral’s Chief Operating Officer. Andy brings a wealth of experience from working across a number of blue chip organisations. He was previously Group Chief Executive of Alliance Boots. Prior to joining Alliance Boots, he was Group Chief Executive of HBOS until the takeover by Lloyds TSB Group. He has also held a range of roles at Asda, including Retail Managing Director and Managing Director of “George” clothing. He has a degree in English Literature from Oxford University and an MBA from Harvard Business School. Andy will become Joint Chief Operating Officer of the Combined Group with responsibility for all retail business in the UK and Europe and all digital marketing.
(b) Lindsay Beardsell – General Counsel Lindsay joined Ladbrokes Coral as Group General Counsel in early 2017 from SuperGroup Plc. Lindsay trained as a solicitor with Freshfields Bruckhaus Deringer and has worked in-house for the majority of her career, heading up the legal, company secretarial and regulatory functions at Gazprom Energy and Renold Plc. She previously held positions with Centrica and United Utilities. Lindsay will become General Counsel of the Combined Group.
2 GVC CORPORATE GOVERNANCE I,16.3 I,16.4 2.1 UK Corporate Governance Code Prior to its admission to trading on the Main Market, GVC chose not to comply with the UK Corporate Governance Code, because it was not required to as an AIM quoted company. After the GVC Shares were admitted to the standard segment of the Official List in February 2016 and in preparation for applying to transferring its listing category to the premium segment of the Official List, GVC worked to align its policies, procedures and practices to comply with the UK Corporate Governance Code’s recommendations. Since GVC transferred its listing category to the premium segment of the Official List on 1 August 2016, GVC considers that it has complied with the recommendations of the UK Corporate Governance Code except in two respects:
(a) until 23 March 2017, the GVC Board had not appointed a Senior Independent Director. Following the appointment of Will Whitehorn, GVC now complies with this recommendation; and
(b) until 14 December 2017, in certain termination scenarios Lee Feldman (Chairman) and Kenneth Alexander (Chief Executive Officer) were entitled to two years’ notice in respect of remuneration and bonus payments. These contractual obligations were entered into prior to the Company obtaining a premium listing and the UK Corporate Governance Code being applicable to the Company. Following the approval of a change to GVC Directors’ remuneration policy at an extraordinary general meeting of GVC held on 14 December 2017 these notice periods were shortened to 12 months’ notice with only entitlement to fees or salary (as applicable) over that period. These changes and others approved at the extraordinary
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general meeting have brought Kenneth Alexander’s and Lee Feldman’s service agreements in line with corporate governance best practice for a FTSE 250 company.
2.2 GVC Board meetings and committees GVC maintains an Audit Committee, Nominations Committee and a Remuneration Committee.
GVC will continue to hold at least four board meetings throughout the year and will meet more frequently if required. The GVC Board is responsible for formulating, reviewing and approving the GVC Group’s strategy, budgets, major investments and acquisitions.
2.3 Audit Committee The Audit Committee is chaired by Stephen Morana and its other members are Will Whitehorn and Karl Diacono. The Audit Committee meets at least twice each year and where appropriate such meetings coincide with key dates in the Company’s financial reporting cycle. The responsibilities of the Audit Committee include, among other things:
(a) monitoring the financial integrity of the financial statements of the Company;
(b) reviewing the content of the annual report and accounts and advise the GVC Board on whether, on a whole, it is fair, balanced and understandable;
(c) establishing procedures to monitoring internal controls and risk management systems on an ongoing basis to ensure their adequacy and effectiveness;
(d) reviewing the adequacy and security of the Company’s arrangements for its employees and contractors to raise concerns, in confidence, about possible wrongdoing in financial reporting matters;
(e) reviewing the Company’s procedures for detecting fraud;
(f) approving the appointment or termination of appointment of the Head of Internal Audit (where an internal audit function exists); and
(g) monitoring and meeting with the Company’s external auditors to discuss the remit of their role and any issues arising from their audit.
2.4 Nominations Committee The Nominations Committee is chaired by Lee Feldman and its other members are Jane Anscombe and Will Whitehorn. The Nominations Committee was established in April 2016. The Nominations Committee shall meet no less than once a year and is responsible for, among other things:
(a) ensuring that the Company maintains contact as necessary with its major shareholders about appointments of the Company;
(b) reviewing and establishing from time to time appropriate induction processes for newly- appointed directors;
(c) reviewing the GVC Board structure, size and composition, identifying and nominating candidates to fill vacancies on the GVC Board as and when they arise;
(d) identifying and nominating candidates for the approval of the GVC Board;
(e) recommending suitable adjustments to the GVC Board and evaluating the balance of skills, knowledge, experience and diversity of the GVC Board; and
(f) satisfy itself with regard to succession planning, that the processes and plans are in place with regard to both the GVC Board and senior appointments.
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2.5 Remuneration Committee The Remuneration Committee is chaired by Jane Anscombe and its other members are Stephen Morana, Peter Isola and Will Whitehorn. The Remuneration Committee meets at least twice a year. The responsibilities of the Remuneration Committee include, among other things:
(a) determining a policy for the remuneration of the Chief Executive Officer, the Executive Directors, Company Secretary and senior managers of the Company reporting directly to the Chief Executive Officer;
(b) determining, an on an annual basis reviewing, the total individual remuneration package of the Chief Executive Officer, each executive director, the Company Secretary and senior management, including bonuses, incentive payments and share options or other share awards;
(c) reviewing regularly the on-going appropriateness and relevance of the remuneration policy;
(d) agreeing the policy for authorising claims of expenses of the Chief Executive Director and Chairman; and
(e) reviewing the design of all share incentive plans for approval by the GVC Board and shareholders.
3 GVC DIRECTORS’ INTERESTS I,17.2
3.1 Disclosure Save as set out in this paragraph 3, as at the date of this document:
(a) no GVC Director will, and no person so connected with a GVC Director has, or is expected to have, any interest in the share capital of GVC or any of its subsidiaries or any options over GVC Shares; and
(b) no GVC Director or member of a GVC Director’s family has, or will have upon Admission, any financial product whose value in whole or in part is determined directly or indirectly by reference to the price of the GVC Shares.
3.2 Directors’ shareholdings The following table sets out the interests of the GVC Directors, their immediate families and persons connected with them (within the meaning of section 252-255 of the UK Companies Act 2006). All the holdings noted below are as at the date of this document and immediately following Admission.
Percentage No of Percentage No of GVC of GVC GVC Shares of GVC Shares Shares held Shares held held at the Last held at the Last immediately immediately Practicable Practicable following following Name Date Date Admission Admission Jane Anscombe 1,406 0.00 per cent. 1,406 0.00 per cent. Kenneth Alexander 1,898,7881 0.63 per cent. 1,898,788 0.33 per cent. Lee Feldman 734,141 0.24 per cent. 734,141 0.13 per cent. Notes: 1 This includes 313,333 shares owned by Kenneth Alexander’s wife
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3.3 Directors’ options As at the Latest Practicable Date, the GVC Directors and the Senior Managers had outstanding options and awards over GVC Shares as set out in the table below:
Number of GVC Shares GVC to which Vesting Share Date grant Exercise schedule/ Name Plan of grant relates price conditions Kenneth Alexander 2015 LTIP 2 February 2016 2,932,692 £4.22 Quarterly/TSR 2017 LTIP 28 December 2017 242,587 Nil 28 December 20203 Lee Feldman 2015 LTIP 2 February 2016 1,466,345 £4.671 Quarterly/TSR Paul Miles 2017 CFO 30 March 2017 350,000 £4.22 Quarterly/TSR Incentive Plan2 2017 LTIP 28 December 2017 94,339 Nil 28 December 20203 Nicholas Batram 2017 LTIP 28 December 2017 18,867 Nil 28 December 20203 2016 MIP 19 December 2016 173,334 £4.22 Quarterly/TSR Robert Hoskin 2017 LTIP 28 December 2017 11,859 Nil 28 December 20203 2016 MIP 19 December 2016 133,336 £4.22 Quarterly/TSR and 30 March 2017 £4.22 Quarterly/TSR Jim Humberstone 2017 LTIP 28 December 2017 19,946 Nil 28 December 20203 2016 MIP 19 December 2016 333,333 £4.22 Quarterly/TSR Adam Lewis 2017 LTIP 28 December 2017 19,946 Nil 28 December 20203 2016 MIP 19 December 2016 333,333 £4.22 Quarterly/TSR Shay Segev 2017 LTIP 28 December 2017 53,908 Nil 28 December 20203 2016 MIP 19 December 2016 2,500,000 £4.22 Quarterly/TSR Notes: 1 Due to certain limitations associated with the grant of these options to individuals subject to U.S. federal income taxes, Lee Feldman’s option was granted at a higher exercise price which represents the market value of the GVC Shares as at the date at which the scheme of arrangement to acquire bwin.party digital entertainment plc became effective on 1 February 2016, being, £4.67. 2 The Company has granted the option under the exemption to Listing Rule 9.4.1 contained in Listing Rule 9.4.2(2). The rules governing these options are identical to the rules of the 2016 MIP except in respect of the latter’s eligibility provision. 3 Total shareholder return (“TSR”) and earnings per share (“EPS”) conditions apply.
4 INTERESTS OF THE PROPOSED DIRECTOR III,3.3 The Proposed Director does not have, and no person so connected with the Proposed Director has, or is expected to have, any interest in the share capital of GVC or any of its subsidiaries or any options over GVC Shares.
The Proposed Director does not have and no member of the Proposed Director’s family has, or will have upon Admission, any financial product whose value in whole or in part is determined directly or indirectly by reference to the price of GVC Shares.
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5 ADDITIONAL INFORMATION ON THE GVC DIRECTORS 5.1 As at the date of this document and save as set out below, the GVC Directors have not held any directorships of any other company or been a partner in any partnership (other than companies in the GVC Group and companies which are subsidiaries of companies of which the GVC Directors are directors) at any time in the five years preceding the date of this document:
Director Current directorships Past directorships Lee Feldman LRN Corporation Jay Strongwater LLC Twin Lakes Capital LLC MacKenzie-Childs LLC TLH Beauty LLC Pacific Health Labs Kenneth Alexander VGW Holdings Limited None Paul Miles None Wonga Canada Inc. (Canada) Wonga.pl sp. z o.o. (Poland) Folkia AS (Norway) Wonga Technology Limited Twice Lamda Investments Slu Folkia AS (Norway) Everline Financial Services Limited Nahar Credits Private Limited Quickbridge Mauritius Holdings Limited (Mauritius) Everline HoldCo Limited Wonga.Com Limited WDFC Services Limited Wonga Worldwide Limited WDFC UK Limited Wonga Decisions Limited Capquest Mortgage Servicing Limited Quest Topco Limited Capquest Debt Recovery Limited Data Verification Services Limited Capquest Investments Limited Capquest Group Limited Capquest Asset Management Limited Capquest Debt Recovery Services Limited Care Debt Management Limited Capquest Limited Capquest Investments 2 Limited Karl Diacono APAC Holdings (Malta) Limited 36 Gaming Limited A to Z Dynamics Limited (formerly Ibutler Games Limited) Evoke Gaming (formerly Bonnier Accerta Limited Gaming Malta Ltd (formerly Bet3G Limited Bertil Pa Internet Bingo Limited) Diacono Limited Besedo Limited Equiventus SARL Caero Solar Limited Evanescent Limited Caero Invest Holdings Limited H&P Corporate Services Limited CCS Limited IBC Ltd (formerly Ibutler Casino) CSU Corporate Services Limited Know How Gaming Limited Dargell Holdings Limited Lexicom Translation Services Dargell Investments Limited Limited Fenlex Corporate Services Limited Metropolis Limited Fenlex Holding and Services Limited Noubet Games Limited
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Director Current directorships Past directorships Karl Diacono GarterMaker Limited Playgames on Line Limited (continued) Kantara Proparco 1 Limited (formerly Bonobet Limited) Lehmann-Art Limited RVG Tech Limited R2010 Limited Lepanto Holdings Limited Sclavo Diagnostics S.P.A. Lepanto Limited Tempo Gaming Limited Materials and Technology Limited Lexicom Translation Services North Atlantic Holdings Limited Limited (in dissolution) Northlight Holdings Limited KAD Services Limited Northlight Investments (formerly KAD Yachting Limited) Petrokim Energy Holding Limited Impetus Europe Consulting Group Petrokim Trading Limited Limited (in voluntary liquidation) Trinity International Trade Limited) Bet 3G Ltd Rashel-Art Limited The Greenoffset Company Limited Rubino Catering Limited Snowie International Limited Seabourme Limited Snowie Solutions Limited Six Trees Holdings Limited Slovak Bioethanol Corporation
Stephen Morana Satellite Solutions Worldwide plc Zoopla Property Group Plc Lampada Consultants Limited Betfair Group plc KM Capital Investments Limited boohoo.com plc
Peter Isola Atlantic Suites Management Limited BMI Wealth Limited Atlas Investments Limited Brookfield Europe Holdco Limited Axolotl Limited Cattelya Limited BetVictor Limited Chandler ESS Limited Blacks Entertainment Limited Devant Pointe Ltd. Brisa Holdings Limited E.M. Management Limited BroadBand Gibraltar Limited Eurobet (Gibraltar) Limited Bulwark Limited Fiduciary Fund Administration Burgundy Services Limited Limited Buttress Limited Fiduciary Pension Trustees Limited Callaghan Insurance Brokers Limited Hercules Fund PCC Limited Diramic Insurance Limited Isolabella Limited Dominus Management Limited Mounir Development SA Dominus Nominees Limited Portland House Amenities Limited Dominus Trust Limited Redcastle Limited Europort (International) Rollett Limited Holdings Limited Sea Hall Limited Europort Administration Limited Terrapin Holdings Limited Europort Five Limited Tomorrow Limited Europort Six Limited Trinity Square Insurance Limited Fiduciary Exchange Services Limited Turtle (International) Fiduciary Holdings Limited Holdings Limited Fiduciary Management Limited Fiduciary Management Services Limited Fiduciary Marine Services Limited Fiduciary Nominees Limited Fiduciary Trust (New Zealand) Limited Fiduciary Trust Limited Fiduciary Trust Services Limited
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Director Current directorships Past directorships Peter Isola Fine Fabrics Limited (continued) Gencon Insurance Company International Hercules Investments Limited I & I Management Services Limited IFM Limited Island Management Services (BVI) Inc. Island Management Services (Gibraltar) Limited Island Management Services (Panama) Inc Jalila Company Limited Kusuma Trust Gibraltar Melda Ventures Limited Newcote International Limited Newcote Services Limited Portland House Management Limited Prism Holdings Limited Prism National Holdings Limited Richborough Estates Limited Rock Publishing Limited Sapphire (International) Holdings Limited Terrapin (International) Holdings Limited The Democrat Publishing Company Limited Tradewise Holdings Limited Tradewise Insurance Company Limited Gibraltar International Bank
Will Whitehorn Stagecoach Group plc Speed Communications Limited Purplebricks Group plc Crowd Reactive Limited Scottish Event Campus Limited Transport Systems Catapult Limited Aitken Dott Limited Clyde Space Limited Will Whitehorn Consultancy Limited AAC Microtec AB Jane Anscombe None None
5.2 None of the GVC Directors are, or have been over the five years preceding the date of this document, members of any partnership other than Peter Isola who is the Senior Partner of ISOLAS LLP, a Gibraltar law firm.
5.3 Neither any of the GVC Directors nor the Proposed Director have any potential conflicts of interest I,14.2 between their duties to GVC and their private interests and/or their duties to third parties. III, 3.3
5.4 For at least the previous five years, none of the GVC Directors have:
(a) any convictions in relation to fraudulent offences;
(b) had a bankruptcy order made against him/her or made an individual voluntary arrangement;
(c) been a director of a company which has been placed in receivership, compulsory liquidation, creditors voluntary liquidation, administration, company voluntary arrangement or made any
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composition or arrangement with its creditors generally or of any class of its creditors whilst he/she was a director of that company or within 12 months after he/she ceased to be a director of that company;
(d) been a partner in a partnership which has been placed in compulsory liquidation, administration or made a partnership voluntary arrangement whilst he/she was a partner in that partnership or within 12 months after he/she ceased to be a partner in that partnership;
(e) had any asset placed in receivership or any asset of a partnership in which he/she was a partner placed in receivership whilst he/she was a partner in that partnership or within 12 months after he/she ceased to be a partner in that partnership; or
(f) been subject to any official public incrimination and/or sanctions or publicly criticised by any statutory or regulatory authority (including recognised professional bodies) or disqualified by a court from acting as a member of the administrative, management or supervisory bodies or as a director of a company or from acting in the management or conduct of the affairs of any company.
6 GVC DIRECTORS’ AND THE PROPOSED DIRECTOR’S SERVICE AGREEMENTS AND ENTITLEMENTS 6.1 The GVC Directors have entered into service agreements or letters of appointment with GVC as I,16.1 follows: I,16.2
(a) Executive Directors Each of the Executive Directors has entered into a service agreement with GVC. The principal terms are summarised below:
Annual Other Date of salary benefits Service Director Job title (£) (£) Agreement Kenneth Alexander Chief Executive Officer £750,000 30,0001 19 April 2010 (as amended on 8 February 2018) Paul Miles Group Finance Director £350,000 Nil 13 September 2016 Notes: 1 GVC provides Kenneth Alexander with an annual allowance of £30,000 for accommodation as he is resident in Scotland but is at times required to work in London.
The Executive Directors’ service agreements are terminable on 12 months’ notice by either the Company or the Executive Director. In the event that an Executive Director’s service agreement is terminated by the Company, the Executive Director shall be entitled to no more than their fixed salary for that part of their notice period which the Executive Director has not worked. Additionally, the Executive Directors are under a duty to mitigate the Company’s loss by searching for new employment.
Salaries are subject to annual review by the GVC Board (through the Remuneration Committee).
The Executive Directors are entitled to participate in the Company’s bonus arrangements. The eligibility of each Executive Director to participate in bonus arrangements will be set by the Remuneration Committee in its sole discretion.
The Executive Directors are entitled to 25 working days annual holiday plus usual UK bank holidays.
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Each of the Executive Directors is subject to non-competition, non-solicitation, non-dealing and non-poaching covenants in favour of GVC for a period of 12 months following cessation of their employment.
The Executive Directors are entitled to participate in health and medical expenses insurance maintained from time to time by the Company (at its sole discretion) and life insurance cover equal to four times basic salary.
The service agreements are governed by English law.
(b) Non-executive Directors Each of the Non-executive Directors has entered into a letter of appointment with GVC. The principal terms are summarised below:
Date of Annual Other Letter of Director Job title fee benefit Appointment Jane Anscombe Non-executive Director €125,0002 Nil 20 June 2017 Karl Diacono Non-executive Director €100,000 Nil 19 April 2010 (as amended on 6 January 2014) Lee Feldman Non-executive Chairman £350,000 £950,0001 19 April 2010 (as amended on 8 February 2018) Peter Isola Non-executive Director €100,000 Nil 1 February 2016 Stephen Morana Non-executive Director €125,0003 Nil 1 February 2016 Will Whitehorn Senior Independent Director £155,000 Nil 22 March 2017
Notes: 1 Lee Feldman will receive a one of fee of £950,000 which (following income tax and social security deductions) is required to be invested in GVC Shares subject to the risk of forfeiture: the forfeiture risk on 50 per cent. of the GVC Shares will be removed on the second anniversary of the date of payment with the risk removed on the balance on the GVC Shares on the third anniversary subject solely to continuing to hold office as a director. 2 Of which €25,000 is paid in respect of Jane Anscombe’s role as chair of the Remuneration Committee. 3 Of which €25,000 is paid in respect of Stephen Morana’s role as chair of the Audit Committee. The Non-executive Directors’ letters of appointment are terminable on at least three months’ written notice by either party save for Lee Feldman and Karl Diacono who are entitled to 12 months’ written notice. The appointments are contingent on satisfactory performance and will cease without compensation in the event that the Non-executive Director is not re-elected by GVC Shareholders in accordance with the GVC Articles.
If at any time a GVC Non-executive Director is considering taking on any new directorships, appointments or interests which might give rise to a conflict of interest with GVC, he/she must first discuss the matter with the GVC Chairman.
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(c) Remuneration of GVC Directors for the financial year ended 31 December 2016 I,15.1 In the financial year ended 31 December 2016, the amount of remuneration paid or accrued (including any contingent or deferred compensation) and benefits in kind granted to each of the GVC Directors for services to GVC were as follows:
Base salary/ Taxable Other – legacy Fees benefits1 arrangement Total Director (€000) (€000) (€000) (€000) Kenneth Alexander 929 3 21,257 22,188 Richard Cooper2 491 4 10,675 11,169 Lee Feldman 158 – 9,072 9,231 Karl Diacono 100 – 69 169 Norbert Teufelberger3 194 – 170 364 Stephen Morana 115 – 115 Peter Isola 92 – 92 Will Whitehorn Nil – – Jane Anscombe Nil – – Notes: 1 Taxable benefits comprise a car allowance, private medical and life insurance. 2 Richard Cooper retired as a director of the GVC Board in February 2017. 3 Norbert Teufelberger retired as a director of the GVC Board on 2 February 2018.
No pension contributions were made on behalf of the GVC Directors in the three years to 31 December 2016.
(d) Amounts set aside by GVC I,15.2 The GVC Group does not operate any pension schemes. The GVC Group, as part of general remuneration arrangements, makes payments directly to employees as a pension contribution allowance. In some jurisdictions in which the GVC Group has employees, there are government schemes into which the employing company or branch must make payments.
(e) Annual Bonus arrangements after the Acquisition On 14 December 2017, GVC Shareholders approved the introduction of the GVC ABP, as outlined in paragraph 7.6 of this Part 10, and the 2017 LTIP, as outlined in paragraph 7.5 of this Part 10, as appropriate incentive arrangements for the Executive Directors. In accordance with the GVC ABP, the maximum award level for the Chief Executive Officer will be 250 per cent. of salary and the maximum award level for the Chief Financial Officer will be 200 per cent. of salary. In accordance with the 2017 LTIP, the maximum award level for the Chief Executive Office will be 300 per cent. of salary and the maximum award for the Chief Financial officer will be 250 per cent. of salary.
Subject to the introduction of any further incentive arrangements proposed in the ordinary course pursuant to GVC’s remuneration policy, the GVC ABP and 2017 LTIP will remain the only incentive arrangements for Executive Directors following Completion.
Following changes made to Lee Feldman’s remuneration package, which was approved by GVC Shareholders on 14 December 2017, the Non-executive Directors are not entitled to participate in the Company’s bonus or incentive arrangements.
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6.2 The Proposed Director has entered into a service agreement with GVC conditional upon Completion LR, 10.4.1(2)(g) on the following terms:
Annual salary Other benefits Date of Service Director Job title (£) (£) Agreement Paul Bowtell Chief Finance Officer £656,0001 None 9 February 2018
Notes: 1 Represents a basic salary of £535,500 plus £120,500 in lieu of pension contributions Paul is entitled to under his existing service agreement with Ladbrokes Coral.
2 Paul Bowtell is entitled to participate in the Company’s annual bonus arrangements as summarised in paragraph 6.1(e) above.
The Proposed Director’s service agreement is substantially on the same terms as those of the Executive Directors save that he is entitled to 28 days holiday per annum which reflects the position of his existing service agreement with the Ladbrokes Coral.
6.3 GVC has granted an indemnity to each GVC Director in relation to all expenses, including legal fees, and all judgements, fines and amounts paid in settlement and reasonably incurred by the relevant GVC Director who is a party, or threatened with being made a party, to any legal proceedings by reason of the fact that he is or was a director of GVC. The indemnity is subject to the Isle of Man Companies Act 2006.
6.4 Save as set out in this paragraph 6 of this Part 10, there are no existing or proposed service agreements between any of the GVC Directors and GVC or any member of the GVC Group.
6.5 Other than payment of salary and benefits in lieu of notice and the specific terms referenced above, the GVC Directors’ service agreements and letters of appointment do not provide for benefits upon termination of employment.
6.6 The aggregate remuneration paid and benefits in kind granted to the GVC Directors, including amounts paid from all members of the GVC Group for the year ended 31 December 2016, amounted to €43,328,000 of which €2,086,000 is attributable to salary and benefits in kind and €41,242,000 is attributable to legacy arrangements.
6.7 The aggregate remuneration paid and benefits in kind granted to the Senior Managers, including amounts paid from all members of the GVC Group for the year ended 31 December 2016 amounted to £3,979,167 (inclusive of legacy arrangements).
7 GVC SHARE INCENTIVE PLANS I,17.3
7.1 2015 Long Term Incentive Plan (“2015 LTIP”) No further awards are intended to be made under the 2015 LTIP.
The principal terms of the 2015 LTIP are summarised as follows:
(a) Vesting, exercise and lapse of Options Options will normally only be exercisable to the extent vested and to the extent that the performance conditions which apply to them have been satisfied.
Once vested, Options will normally be exercisable up to ten years from the date of grant at the end of which period they will lapse.
When an Option has vested and the holder of an Option (“Option Holder”) has notified the Company of his intention to exercise the Option, in full or in part, the Remuneration Committee may determine that the Option Holder shall be paid a cash amount equal to the gain the Option Holder would have made had the Option been satisfied in GVC Shares.
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(b) Leavers If an Option Holder ceases to be employed by or hold office within the GVC Group or to provide consultancy or other services to the GVC Group in circ*mstances where the GVC Group is entitled to dismiss or terminate the consultancy or other service without notice (“Bad Leaver”), the Option shall lapse upon such cessation, whether or not the Option has vested.
If an Option Holder with unvested Options ceases to be employed or hold office within the GVC Group or to provide services to the GVC Group on the grounds of:
(i) injury;
(ii) ill health;
(iii) disability;
(iv) redundancy;
(v) sale of the Option Holder’s employing company or the company with which he holds office or to which he provides services out of the GVC Group or the undertaking in which he is employed or with which he holds office or to which he provides services, being transferred out of the GVC Group;
(vi) retirement with the consent of the Option Holder’s employing company; or
(vii) for any other reasons as are determined by the Remuneration Committee,
(“Good Leaver”),
the Option Holder’s Option shall not lapse and shall vest on the normal vesting date, or such other date as the Remuneration Committee may specify within 30 days of cessation.
In such a case, the Performance Condition shall continue to apply and, unless the Remuneration Committee determines otherwise, shall be reduced pro-rata on a time elapsed basis.
If an Option Holder with vested Options ceases to be employed or hold office within the GVC Group or to provide services to the GVC Group other than as a result of death or as a Bad Leaver, the vested GVC Shares may be exercised until the end of the exercise period.
If an Option Holder dies before his Option vests, his Option shall vest as soon as practicable after his death and the Remuneration Committee shall apply any performance or other condition applying to the vesting of the Option to determine the number of vested GVC Shares subject to that Option and, unless the Remuneration Committee determines otherwise, apply a pro-rata reduction on a time elapsed basis. The Option Holder’s personal representatives may then exercise the Option, to the extent it has vested, at any time during the twelve month period following his death. The Option will lapse thereafter.
(c) Dividend equivalents The Remuneration Committee may determine that on the exercise of an Option a participant shall receive an amount of cash and/or GVC Shares equivalent to the value of some or all of the dividends (and special dividends at the discretion of the Remuneration Committee) that would have been paid on the vested GVC Shares between the date of grant and the date of vesting.
(d) Change of control In the event of a takeover, a scheme of arrangement or voluntary winding up of GVC, all Options may be exercised for a period of one month from the date the Option Holders are notified of such an event or the change of control occurs. The Performance Condition shall
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apply to any unvested Options on a change of control, unless the Remuneration Committee determines otherwise.
(e) Variation of share capital In the event of certain variations of the ordinary share capital of GVC (including a capitalisation issue, a rights issue, a subdivision or consolidation of shares or reduction in capital) the Remuneration Committee may adjust the number of GVC Shares comprised in subsisting Options, and the exercise price in the case of an Option, in such manner as the Remuneration Committee considers to be appropriate.
(f) Rights attaching to ordinary shares GVC Shares issued on the vesting or exercise of an Option will be identical to and rank equally with all other GVC Shares in issue. However, an Option Holder shall not be entitled to any dividend or other distribution by GVC in respect of the GVC Shares issued or transferred to him where the relevant record date fell before the date on which the GVC Shares were issued or transferred to the Option Holder (although an Option Holder may be entitled to a dividend equivalent payment).
(g) Amendment The Remuneration Committee may make any amendment to the 2015 LTIP, provided that any amendment to the overall limit on the number of GVC Shares subject to the 2015 LTIP, or the amendment provision itself, to the advantage of Option Holders, may only be made with the sanction of the GVC Shareholders in a general meeting.
The requirement to obtain the approval of GVC Shareholders will not apply to minor amendments to benefit the administration of the 2015 LTIP or to amendments to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for Option Holders, future participants or any company in the GVC Group.
If an amendment would materially disadvantage an Option Holder, the Remuneration Committee will require written consent from the affected Option Holder or consent from the majority of those affected by such an alteration.
(h) Termination The 2015 LTIP will terminate on the tenth anniversary of its approval by GVC Shareholders or earlier, if the Remuneration Committee so determines.
7.2 2016 Annual Share Bonus Plan (“2016 ASBP”) There are no directors holding subsisting options (“Options”) under the 2016 ASBP.
The principal terms of the 2016 ASBP are summarised as follows:
(a) Eligibility Only employees of and consultants and other providers of services to the GVC Group are eligible to participate in the 2016 ASBP. All GVC Directors are expressly excluded.
(b) Grant of Options Options may be granted to eligible persons at the absolute discretion of the Remuneration Committee and will entitle the holder of an Option (“Option Holder”) to acquire GVC Shares on payment of the exercise price.
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(c) Exercise price The exercise price per GVC Share is €0.01 (“Exercise Price”).
(d) Performance conditions Options granted under the 2016 ASBP are not subject to performance conditions.
(e) Period for the grant of Options Options may be granted within 42 days immediately following the announcement of GVC’s annual or half yearly results or the announcement of its results for any other period. Options may be granted at other times if the Remuneration Committee determines that there are exceptional circ*mstances.
(f) Overall limit No Option may be granted under the 2016 ASBP if it would cause the aggregate number of GVC Shares, that are capable of being issued pursuant to Options granted under the 2016 ASBP, when aggregated with the number of GVC Shares issued or issuable pursuant to rights to subscribe for GVC Shares granted during the preceding ten years under the 2016 ASBP or any other employees’ share scheme established by any company in the GVC Group, to exceed 10 per cent, of GVC’s issued ordinary share capital at the proposed date of grant. For the purposes of this limit no account shall be taken of any GVC Shares issued or issuable pursuant to rights to subscribe for GVC Shares granted prior to 15 December 2015.
Rights to acquire GVC Shares granted under the 2016 ASBP or any other employees’ share scheme established by any company in the GVC Group that have lapsed or been surrendered are excluded when calculating the overall limit. If Options are to be satisfied by a transfer of existing ordinary shares or in cash, the percentage limit stated above will not apply.
(g) Vesting and exercise The date on which the Options shall vest and become exercisable (“Vesting Date”) shall be set when the Option is granted, at the absolute discretion of the Remuneration Committee. However, the Vesting Date shall not be more than six months after the date the Option is granted. Unless the “leavers” or “change of control” provisions below apply, the Options will be exercisable from the Vesting Date until the tenth anniversary of the date of grant after which time they will lapse.
(h) Leavers If an Option Holder ceases to be employed within the GVC Group or ceases to provide consultancy or other services to the GVC Group in circ*mstances where the GVC Group is entitled to dismiss or terminate the consultancy or other service without notice or the Option Holder resigns (“Bad Leaver”), the Option shall lapse upon such cessation, whether or not the Option has vested.
If an Option Holder with an unvested Option ceases to be employed within the GVC Group or ceases to provide consultancy or other services to the GVC Group and is not a Bad Leaver and therefore is a “Good Leaver”, the Option shall not lapse and shall vest on the normal vesting date, or such other date as the Remuneration Committee may specify within 30 days of cessation.
If an Option Holder with a vested Option ceases to be employed within the GVC Group or to provide consultancy or other services to the GVC Group as a Good Leaver, the vested Option may be exercised until the end of the exercise period.
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(i) Change of control In the event of a takeover, a scheme of arrangement or voluntary winding up of GVC, all Options may be exercised for a period of one month from the date the Option Holders are notified of such event or the change of control occurs.
(j) Variation of share capital In the event of certain variations of the ordinary share capital of GVC (including a capitalisation issue, a rights issue, a subdivision or consolidation of shares or reduction in capital) the Remuneration Committee may adjust the number of GVC Shares comprised in subsisting Options, and the Exercise Price, in such manner as the Remuneration Committee considers to be appropriate.
(k) Rights attaching to ordinary shares GVC Shares issued on the vesting or exercise of an Option will be identical to and rank equally with all other GVC Shares in issue. However, an Option Holder shall not be entitled to any dividend or other distribution by GVC in respect of the GVC Shares issued or transferred to him where the relevant record date fell before the date on which the GVC Shares were issued or transferred to the Option Holder.
(l) Amendment The Remuneration Committee may make any amendment to the 2016 ASBP, provided that if an amendment would materially disadvantage an Option Holder, the Remuneration Committee will invite every affected Option Holder to indicate whether or not they approve the amendment and the amendment must be approved by at least a majority of those who have been given such indication.
(m) Termination The 2016 ASBP will terminate on the tenth anniversary of its approval by the Remuneration Committee, or earlier, if the Remuneration Committee so determines.
7.3 2016 Management Incentive Plan (“2016 MIP”). There are no directors holding subsisting options (“Options”) under the 2016 MIP.
The principal terms of the 2016 MIP are summarised as follows:
(a) Eligibility All employees of the GVC Group, (excluding any GVC Directors) and all consultants and other providers of services to the GVC Group are eligible to participate in the 2016 MIP.
(b) Grant of Options Options granted under the 2016 MIP (“Options”) may be granted to eligible persons at the absolute discretion of the Remuneration Committee.
Options will entitle the holder of an Option (“Option Holder”) to acquire GVC Shares on payment of the exercise price (“Exercise Price”), to be determined by the Remuneration Committee. Options will be granted free of charge and will be non-transferable (other than in the event of death of the Option Holder).
(c) Exercise Price The Exercise Price per GVC Share will be £4.22 or such other price per GVC Share as the Remuneration Committee shall determine at the time of grant of each Option provided that if the GVC Shares are to be subscribed, the Exercise Price must not be less than the nominal value of a GVC Share.
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(d) Performance condition On the grant of an Option, the Remuneration Committee may make its vesting dependent on the satisfaction of a performance condition.
To the extent that the Performance Condition is not met at the end of a performance period, it shall be re-tested at the end of the next performance period and at the end of the last performance period.
The performance periods shall be such periods of time as determined by the Remuneration Committee and set out in each Option Holder’s option certificate. The Option may vest in such number of tranches as the Remuneration Committee shall determine.
Once the Performance Condition has been satisfied and the Options have vested they are exercisable until the tenth anniversary of their date of grant.
(e) Period for the grant of Options Options may be granted within 42 days immediately following the announcement of GVC’s results for the last preceding financial year, half-year or other period. Options may be granted at other times if the Remuneration Committee determines that there are exceptional circ*mstances.
(f) Overall limit No Options may be granted under the 2016 MIP if it would cause the aggregate number of GVC Shares that are capable of being issued pursuant to Options granted under the 2016 MIP, when aggregated with the number of GVC Shares issued or issuable pursuant to rights to subscribe for GVC Shares granted during the preceding ten years under the 2016 MIP or any other employees’ share scheme established by any company in the GVC Group, to exceed 10 per cent, of GVC’s issued ordinary share capital at the proposed date of grant.
For the purposes of this limit no account shall be taken of any GVC Shares issued or issuable pursuant to rights to subscribe for GVC Shares granted prior to 15 December 2015.
Rights to acquire GVC Shares granted under the 2016 MIP or any other employees’ share scheme established by any company in the GVC Group that have lapsed or been surrendered are excluded when calculating the overall limit. If Options are to be satisfied by a transfer of existing ordinary shares or in cash, the percentage limit stated above will not apply.
(g) Vesting and exercise On the grant of an Option the Remuneration Committee will specify the terms on which the Options vest. Options will normally only be exercisable to the extent vested and to the extent that the performance conditions which apply to them have been satisfied.
Once vested, Options will normally be exercisable up to ten years from the date of grant at the end of which period they will lapse.
(h) Leavers If an Option Holder ceases to be employed by or hold office within the GVC Group or to provide consultancy or other services to the GVC Group in circ*mstances where the GVC Group is entitled to dismiss or terminate the consultancy or other service without notice (“Bad Leaver”), the Option shall lapse upon such cessation, whether or not the Option has vested.
If an Option Holder ceases to be employed or hold office within the GVC Group or to provide services to the GVC Group on the grounds of:
(i) injury;
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(ii) ill health;
(iii) disability;
(iv) redundancy;
(v) sale of the Option Holder’s employing company or the company to which he provides services out of the GVC Group or the undertaking in which he is employed or to which he provides services being transferred out of the GVC Group;
(vi) retirement with the consent of the Option Holder’s employing company;
(vii) or for any other reasons as are determined by the Remuneration Committee,
(“Good Leaver”) with unvested Options, the Option shall not lapse and shall vest on the normal vesting date, or such other date as the Remuneration Committee may specify within 30 days of cessation.
In such a case the Performance Condition shall continue to apply and, unless the Remuneration Committee determines otherwise, shall be reduced pro-rata on a time elapsed basis.
If an Option Holder with vested Options ceases to be employed or hold office within the GVC Group or to provide services to the GVC Group other than as a result of death or as a Bad Leaver, the vested GVC Shares may be exercised until the end of the exercise period.
If an Option Holder dies before his Option vests, his Option shall vest as soon as practicable after his death. In determining the number of Options that vest following death of the Option Holder, the Remuneration Committee shall apply any Performance Condition and unless they determine otherwise, apply a pro rata reduction on a time elapsed basis. The Option Holder’s personal representatives may then exercise the Option, to the extent it has vested, at any time during the twelve month period following the Option Holder’s death. The Option will lapse thereafter.
(i) Dividend equivalents The Remuneration Committee may determine on or before the grant of an Option that on the exercise of an Option an Option Holder shall receive an amount of cash and/or GVC Shares equivalent to the value of some or all of the dividends (and special dividends at the discretion of the Remuneration Committee) that would have been paid on the vested GVC Shares between the date of grant and the date of vesting.
(j) Change of control In the event of a takeover, a scheme of arrangement or voluntary winding up of GVC, all Options may be exercised for a period of one month from the date the Option Holders are notified of such event or the change of control occurs. The Performance Condition shall apply to any unvested Options on a change of control, unless the Remuneration Committee determines otherwise.
(k) Variation of share capital In the event of certain variations of the ordinary share capital of GVC (including a capitalisation issue, a rights issue, a subdivision or consolidation of shares or reduction in capital) the Remuneration Committee may adjust the number of GVC Shares comprised in subsisting Options, and the Exercise Price, in such manner as the Remuneration Committee considers to be appropriate.
(l) Rights attaching to ordinary shares GVC Shares issued on the vesting or exercise of an Option will be identical to and rank equally with all other GVC Shares in issue. However, an Option Holder shall not be entitled to any
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dividend or other distribution by GVC in respect of the GVC Shares issued or transferred to him where the relevant record date fell before the date on which the GVC Shares were issued or transferred to the Option Holder (although an Option Holder may be entitled to a dividend equivalent payment).
(m) Amendment The Remuneration Committee may make any amendment to the 2016 MIP, provided that if an amendment would materially disadvantage an Option Holder, the Remuneration Committee will invite every affected Option Holder to indicate whether or not they approve the amendment and the amendment must be approved by at least a majority of those who have been given such indication.
(n) Termination The 2016 MIP will terminate on the tenth anniversary of its approval by the Remuneration Committee, or earlier, if the Remuneration Committee so determines.
7.4 Chief Financial Officer Incentive Plan 2017 (“2017 CFO Plan”) The terms of the 2017 CFO Plan are identical to the 2016 MIP except that only the Chief Financial Officer of GVC, as at 28 February 2017, is eligible to be granted an option under the 2017 CFO Plan.
No further options will be granted under the 2017 CFO Plan.
7.5 2017 Long Term Incentive Plan (“2017 LTIP”) The 2017 LTIP was approved by the shareholders of the Company on 14 December 2017. The 2017 LTIP is a discretionary executive share plan and is intended to be offered to selected directors and senior employees of the GVC Group. The Remuneration Committee may, within certain limits and subject to any applicable performance conditions, grant to eligible employees: (i) nil cost options over GVC Shares (“Option”); and/or (ii) conditional award (i.e. a conditional right to acquire GVC Shares) (“Conditional Award”); and/or (iii) GVC Shares which are subject to restrictions and the risk of forfeiture (“Restricted Shares”, and together with Options and Conditional Awards, “LTIP Awards”).
The principal terms of the 2017 LTIP are summarised as follows:
(a) Eligibility All employees of the GVC Group (including Executive Directors) are eligible to participate in the 2017 LTIP at the discretion of the Remuneration Committee (“Eligible Persons”).
(b) Grant of LTIP Awards The Remuneration Committee may grant LTIP Awards over GVC Shares to Eligible Persons with a maximum total market value in any financial year of up to 300 per cent. of an Eligible Person’s annual base salary.
(c) Exercise Price In relation to any Option granted under the 2017 LTIP, the exercise price (“Exercise Price”) per GVC Share will be determined by the Remuneration Committee at the time of grant, which may be any price.
(d) Performance and other conditions On the grant of LTIP Awards, the Remuneration Committee may make its vesting dependent on the satisfaction of performance conditions on the vesting of LTIP Awards.
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Any performance conditions applying to LTIP Awards may be varied, substituted or waived if the Remuneration Committee considers it appropriate, provided the Remuneration Committee considers that the new performance conditions are reasonable and are not materially less difficult to satisfy than the original performance conditions (except in the case of waiver).
The Remuneration Committee may also impose other conditions on the vesting of LTIP Awards.
(e) Holding period At its discretion, the Remuneration Committee may grant LTIP Awards under the 2017 LTIP, subject to a holding period of a maximum of two years following vesting.
(f) Period of grant of LTIP Awards LTIP Awards may be granted during the 42 days beginning on: (i) the date of approval of the 2017 LTIP; (ii) the dealing day after the announcement of the Company’s results for any period; (iii) any day on which the Remuneration Committee determines that circ*mstances are sufficiently exceptional to justify the making of an LTIP Award at that time; or (iv) the day after the lifting of any dealing restrictions.
However, no LTIP Awards may be granted more than 10 years from 14 December 2017 (the date when the 2017 LTIP was approved by shareholders).
(g) Overall Limit The 2017 LTIP may operate over new issue GVC Shares, treasury GVC Shares or GVC Shares purchased in the market. The rules of the 2017 LTIP provide that, in any period of 10 calendar years, not more than 10 per cent. of the Company’s issued ordinary share capital may be issued under the 2017 LTIP and under any other employees’ share scheme operated by the Company.
In addition, the rules of the 2017 LTIP provide that, in any period of 10 calendar years, not more than 5 per cent. of the Company’s issued ordinary share capital may be issued under the 2017 LTIP and under any other executive share scheme adopted by the Company. GVC Shares issued out of treasury will count towards these limits for so long as this is required under institutional shareholder guidelines.
LTIP Awards which are renounced or lapse shall be disregarded for the purposes of these limits.
(h) Vesting and exercise LTIP Awards will normally vest, and Options will normally become exercisable, on the third anniversary of the date of grant of the LTIP Award to the extent that any applicable performance conditions have been satisfied and to the extent permitted following any operation of malus or clawback. Options will normally remain exercisable for a period determined by the Remuneration Committee at grant which shall not exceed 10 years from grant.
At its discretion, the Remuneration Committee may decide to satisfy LTIP Awards with a payment in cash or GVC Shares equal to any gain that the holder of an LTIP Award (“Award Holder”) participant would have made had the relevant LTIP Award been satisfied with GVC Shares.
(i) Leavers Except in certain circ*mstances, set out below, an LTIP Award will lapse immediately upon an Award Holder ceasing to be employed by or holding office with the Group.
However, if an Award Holder ceases employment because of his ill health, injury, disability, redundancy, retirement with the agreement of his employer, the Award Holder being employed by a company which ceases to be a member of the GVC Group or being employed in an
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undertaking which is transferred to a person who is not a member of the GVC Group company or in other circ*mstances at the discretion of the Remuneration Committee (each an “LTIP Good Leaver Reason”), his LTIP Award will ordinarily vest on the date when it would have vested if he had not so ceased to be an employee or director of the GVC Group, subject to the satisfaction of any applicable performance conditions measured over the original performance period and the operation of malus or clawback. In addition, unless the Remuneration Committee decides otherwise, vesting will be pro-rated to reflect the reduced period of time between grant and the Award Holder’s cessation of employment as a proportion of the normal vesting period.
If an Award Holder ceases to be an employee or director of the GVC Group for an LTIP Good Leaver Reason, the Remuneration Committee can alternatively decide that his LTIP Award will vest early when he leaves. If an Award Holder dies, a proportion of his LTIP Award will normally vest on the date of his death. The extent to which an LTIP Award will vest in these situations will be determined by the Remuneration Committee at its absolute discretion taking into account, among other factors, the period of time the LTIP Award has been held and the extent to which any applicable performance conditions have been satisfied at the date of cessation of employment and the operation of malus or clawback. In addition, unless the Remuneration Committee decides otherwise, vesting will be pro-rated to reflect the reduced period of time between grant and the Award Holders’ cessation of employment as a proportion of the normal vesting period.
To the extent that LTIP Options vest for an LTIP Good Leaver Reason, they may be exercised for a period of 6 months following vesting (or such longer period as the Remuneration Committee determines) and will otherwise lapse at the end of that period. To the extent that Options vest following death of a participant, they may normally be exercised for a period of 12 months following death and will otherwise lapse at the end of that period.
(j) Dividend equivalents The Remuneration Committee may decide that Award Holders will receive a payment (in cash and/or additional GVC Shares) equal in value to any dividends that would have been paid on the GVC Shares which vest under an LTIP Award by reference to the period between the time when the relevant LTIP Award was granted and the time when the relevant LTIP Award vested. This amount may assume the reinvestment of dividends and exclude or include special dividends or dividends in specie.
(k) Change of control In the event of a takeover, scheme of arrangement, or winding-up of the Company, the LTIP Awards will vest early. The proportion of the LTIP Awards which vest shall be determined by the Remuneration Committee taking into account, among other factors, the period of time the LTIP Award has been held by the Award Holder and the extent to which any applicable performance conditions have been satisfied at that time.
To the extent that Options vest in the event of a takeover, scheme of arrangement, or winding- up of the Company, they may be exercised for a period of six months from the relevant event (or such longer period as the Remuneration Committee determines) and will otherwise lapse at the end of that period.
In the event of a demerger, distribution or any other corporate event, the Remuneration Committee may determine that LTIP Awards shall vest. The proportion of the LTIP Awards which vest shall be determined by the Remuneration Committee taking into account, among other factors, the period of time the LTIP Award has been held by the Award Holder and the extent to which any applicable performance conditions have been satisfied at that time. Options that vest in these circ*mstances may be exercised during such period as the Remuneration Committee determines and will otherwise lapse at the end of that period.
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If there is a corporate event resulting in a new person or company acquiring control of the Company, the Remuneration Committee may (with the consent of the acquiring company) alternatively decide that LTIP Awards will not vest or lapse but will be replaced by equivalent new awards over shares in the new acquiring company.
(l) Malus and clawback The Remuneration Committee may decide, at the vesting of LTIP Awards or at any time before, that the number of GVC Shares subject to an LTIP Award shall be reduced (including to nil) on such basis that the Remuneration Committee in its discretion considers to be fair and reasonable in the following circ*mstances:
• discovery of a material misstatement resulting in an adjustment in the audited accounts of the GVC Group or any GVC Group company;
• the assessment of any Performance Condition or condition in respect of an LTIP Award was based on error, or inaccurate or misleading information;
• the discovery that any information used to determine the number of GVC Shares subject to an LTIP Award was based on error, or inaccurate or misleading information;
• action or conduct of an Award Holder which amounts to fraud or gross misconduct; or
• events or the behaviour of an Award Holder have led to the censure of a GVC Group company by a regulatory authority or have had a significant detrimental impact on the reputation of any Group company provided that the Remuneration Committee is satisfied that the relevant an Award Holder was responsible for the censure or reputational damage and that the censure or reputational damage is attributable to him.
The Remuneration Committee may also apply clawback to all or part of a participant’s LTIP Award in substantially the same circ*mstances as apply to malus during the period of two years following the vesting of an LTIP Award. Clawback may be effected, among other means, by requiring the transfer of GVC Shares, payment of cash or reduction of awards.
(m) Variation of share capital If there is a variation of share capital of the Company or in the event of a demerger or other distribution, special dividend or distribution, the Remuneration Committee may make such adjustments to LTIP Awards, including the number of GVC Shares subject to LTIP Awards and the option exercise price (if any), as it considers to be fair and reasonable.
(n) Rights attaching to ordinary shares Except in relation to the award of GVC Shares subject to restrictions, GVC Shares issued and/or transferred under the 2017 LTIP will not confer any rights on any Award Holder until the relevant LTIP Award has vested or the relevant Option has been exercised and the Award Holder in question has received the underlying GVC Shares (although an Award Holder may be entitled to a dividend equivalent payment). Any GVC Shares allotted when an Option is exercised or an LTIP Award vests will rank equally with GVC Shares then in issue (except for rights arising by reference to a record date prior to their issue). An Award Holder awarded GVC Shares subject to restrictions shall have the same rights as a holder of GVC Shares in issue at the time that the Award Holder acquires the GVC Shares, save to the extent set out in the agreement with the Award Holder relating to those GVC Shares.
(o) Amendment The Remuneration Committee may, at any time, amend the provisions of the 2017 LTIP in any respect. The prior approval of the Company in a general meeting must be obtained in the case of any amendment to the advantage of Award Holders which is made to the provisions relating to eligibility, individual or overall limits, the persons to whom an LTIP Award can be made, the
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adjustments that may be made in the event of any variation to the share capital of the Company and/or the rule relating to such prior approval, save that there are exceptions for any minor amendment to benefit the administration of the 2017 LTIP, to take account of the provisions of any proposed or existing legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for Award Holders, the Company and/or the GVC Group. Amendments may not normally adversely affect the rights of Award Holders except where Award Holders are notified of such amendment and the majority of Award Holders approve such amendment.
(p) Termination The 2017 LTIP will terminate on 14 December 2027, or earlier, if the Remuneration Committee so determines.
7.6 GVC Holdings PLC Annual and Deferred Bonus Plan (“GVC ABP”) The GVC ABP incorporates the Company’s executive bonus plan as well as a mechanism for the deferral of bonus into awards over GVC Shares.
The GVC ABP is both a cash bonus plan and a discretionary executive share plan under which a proportion of a participant’s (“Award Holder”) bonus may be deferred into an award over GVC Shares. Under the GVC ABP, the Remuneration Committee may, within certain limits, grant to eligible employees deferred awards over GVC Shares taking the form of (i) nil cost options over GVC Shares (“Options”) and/or (ii) conditional awards (i.e. a conditional right to acquire GVC Shares) (“Conditional Awards”) and/or (iii) GVC Shares which are subject to restrictions and the risk of forfeiture (“Restricted Shares” and, together with Options and Conditional Awards, “ABP Awards”). No payment is required for the grant of an ABP Award.
The principal terms of the GVC ABP are summarised as follows:
(a) Eligibility All employees (including the Executive Directors) of the GVC Group are eligible for selection to participate in the GVC ABP at the discretion of the Remuneration Committee.
(b) Bonus opportunity Employees selected to participate in the GVC ABP for a financial year of the Company (“ABP Participants”) will be eligible to receive an annual bonus subject to satisfying performance conditions and targets set for that financial year. The Remuneration Committee may determine that a proportion of a participant’s annual bonus will be deferred into an ABP Award. The maximum bonus (including any part of the bonus deferred into an ABP Award) deliverable under the GVC ABP will be 250 per cent. of an ABP Participant’s annual base salary.
The Remuneration Committee will determine the bonus to be delivered following the end of the relevant financial year.
Except in certain circ*mstances, an ABP Participant who ceases to be employed by or hold office with the GVC Group before the bonus determination is made will cease to be eligible to receive a bonus. However, if an ABP Participant ceases to be employed because of his ill- health, injury, disability, redundancy, retirement with the agreement of his employer, the ABP Participant being employed by a company which ceases to be a GVC Group company or in other circ*mstances at the discretion of the Remuneration Committee, he will remain eligible for a bonus. The performance conditions and targets will be considered and the bonus will be deliverable in the same way and at the same time as if the ABP Participant had not ceased to be employed or hold office with the GVC Group, unless the Remuneration Committee otherwise decides.
In addition, in the event that a corporate event occurs as described below, an ABP Participant will be eligible to receive a bonus as soon as practicable after the relevant event, the amount of
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which shall be determined by the Remuneration Committee taking into account the performance conditions and targets. The value of the bonus will be pro-rated to reflect the reduced period of time between the start of the financial year and the relevant corporate event as a proportion of the relevant financial year unless the Remuneration Committee otherwise decides.
(c) Grant of ABP Awards The Remuneration Committee may determine that a proportion of an Award Holder’s annual bonus will be deferred into an ABP Award. There is a maximum limit on the market value of GVC Shares granted to any employee under an ABP Award of 50 per cent. of the total annual bonus for that individual.
(d) Exercise Price In relation to any Option granted under the GVC ABP, the Exercise Price per GVC Share will be determined, if any, by the Remuneration Committee at the time of grant of each Option and may be any price.
(e) Holding period At its discretion, the Remuneration Committee may grant ABP Awards under the ABP subject to a maximum two years following vesting.
(f) Period of grant for ABP Awards ABP Awards may be granted during the 42 days beginning on: (i) the dealing day after the announcement of the Company’s results for any period; (ii) any day on which the Remuneration Committee determines that circ*mstances are sufficiently exceptional to justify the making of the ABP Award at that time; or (iii) the day after the lifting of any dealing restrictions.
However, no ABP Awards may be granted more than 10 years from 14 December 2017 (when the GVC ABP was approved by shareholders).
(g) Overall Limit The GVC ABP may operate over new issue GVC Shares, treasury GVC Shares or GVC Shares purchased in the market. The rules of the GVC ABP provide that, in any period of 10 calendar years, not more than 10 per cent. of the Company’s issued ordinary share capital may be issued under the GVC ABP and under any other employees’ share scheme operated by the Company.
In addition, the rules of the GVC ABP provide that, in any period of 10 calendar years, not more than 5 per cent. of the Company’s issued ordinary share capital may be issued under the GVC ABP and under any other executive share scheme adopted by the Company. GVC Shares issued out of treasury will count towards these limits for so long as this is required under institutional shareholder guidelines.
In addition, ABP Awards which are renounced or lapse shall be disregarded for the purposes of these limits.
(h) Vesting and exercise ABP Awards will normally vest on the third anniversary of the date of grant of the ABP Award to the extent permitted following any operation of malus or clawback. Options will normally remain exercisable for a period determined by the Remuneration Committee at grant which shall not exceed 10 years from the date of grant.
At its discretion, the Remuneration Committee may decide to satisfy ABP Awards with a payment in cash or GVC Shares equal to any gain that an Award Holder would have made had
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the relevant award been satisfied with GVC Shares.
(i) Leavers Except in certain circ*mstances, set out below, an ABP Award will lapse immediately upon an Award Holder ceasing to be employed by or holding office with the GVC Group.
However, if an Award Holder ceases employment because of his ill-health, injury, disability, redundancy, retirement with the agreement of his employer, the Award Holder being employed by a company which ceases to be a member of the GVC Group company or being employed in an undertaking which is transferred to a person who is not a member of the GVC Group company or in other circ*mstances at the discretion of the Remuneration Committee (each and “ABP Good Leaver Reason”), his ABP Award will ordinarily vest on the date when it would have vested if he had not so ceased to be an employee or director of the GVC Group, subject to the operation of malus or clawback. In addition, the Remuneration Committee may decide that vesting will be pro-rated to reflect the reduced period of time between grant and the Award Holder’s cessation of employment as a proportion of the normal vesting period.
If a participant ceases to be a Group employee or director for an ABP Good Leaver Reason, the Remuneration Committee can, alternatively, decide that his ABP Award will vest early when he leaves. If an Award Holder dies, a proportion of his ABP Award will vest on the date of his death. The extent to which an ABP Award will vest in these situations will be determined by the Remuneration Committee at its absolute discretion taking into account, among other factors, the period of time the ABP Award has been held and the operation of malus or clawback. In addition, the Remuneration Committee may decide that vesting will be pro-rated to reflect the reduced period of time between grant and the participant’s cessation of employment as a proportion of the normal vesting period.
To the extent that ABP Options vest for a ABP Good Leaver Reason, they may be exercised for a period of 6 months following vesting (or such longer period as the Remuneration Committee determines) and will otherwise lapse at the end of that period. To the extent that ABP Options vest following the death of an Award Holder, they may be exercised for a period of 12 months following death and will otherwise lapse at the end of that period.
(j) Dividend equivalents The Remuneration Committee may decide that Award Holders will receive a payment (in cash and/or additional GVC Shares) equal in value to any dividends that would have been paid on the GVC Shares which vest under an ABP Award by reference to the period between the time when the relevant ABP Award was granted and the time when the relevant ABP Award vested. This amount may assume the reinvestment of dividends and exclude or include special dividends or dividends in specie.
(k) Change of control In the event of a takeover, scheme of arrangement or winding-up of the Company, the ABP Awards will vest early in full, unless the Remuneration Committee otherwise decides.
To the extent that Options vest in the event of a takeover, scheme of arrangement or winding- up of the Company they may be exercised for a period of 6 months measured from the relevant event (or such longer period as the Remuneration Committee determines) and will otherwise lapse at the end of that period.
In the event of a demerger, distribution or any other corporate event, the Remuneration Committee may determine that ABP Awards shall vest. The proportion of the ABP Awards which vest shall be determined by the Remuneration Committee taking into account, among other factors, the period of time the ABP Award has been held by the participant. Options that vest in these circ*mstances may be exercised during such period as the Remuneration Committee determines and will otherwise lapse at the end of that period.
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If there is a corporate event resulting in a new person or company acquiring control of the Company, the Remuneration Committee may (with the consent of the acquiring company) alternatively decide that ABP Awards will not vest or lapse but will be replaced by equivalent new awards over shares in the new acquiring company.
(l) Malus and clawback The Remuneration Committee may decide (a) at the time of payment of a cash bonus or at any time before to reduce the amount of the bonus (including to nil) and/or (b) at the vesting of an ABP Award or any time before, that the number of GVC Shares subject to an ABP Award shall be reduced (including to nil) on such basis that the Remuneration Committee in its discretion considers to be fair and reasonable in the following circ*mstances:
• discovery of a material misstatement resulting in an adjustment in the audited accounts of the GVC Group or any GVC Group company,
• the assessment of any performance condition or condition in respect of a ABP Award was based on error, or inaccurate or misleading information,
• the discovery that any information used to determine the number of GVC Shares subject to a ABP Award was based on error, or inaccurate or misleading information,
• action or conduct of an Award Holder which amounts to fraud or gross misconduct, or
• events or the behaviour of an Award Holder have led to the censure of a GVC Group company by a regulatory authority or have had a significant detrimental impact on the reputation of any GVC Group company provided that the Remuneration Committee is satisfied that the relevant an Award Holder was responsible for the censure or reputational damage and that the censure or reputational damage is attributable to him.
The Remuneration Committee may apply clawback to all or part of a participant’s cash bonus and/or ABP Award in substantially the same circ*mstances as apply to malus (as described above) during the period of two years following the determination of the bonus by reference to which the ABP Award was granted. Clawback may be effected, among other means, by requiring the transfer of GVC Shares, payment of cash or reduction of awards or bonuses.
(m) Variation of share capital If there is a variation of share capital of the Company or in the event of a demerger or other distribution, special dividend or distribution, the Remuneration Committee may make such adjustments to ABP Awards, including the number of GVC Shares subject to ABP Awards, in such a manner as the Remuneration Committee shall determine.
(n) Rights attaching to ordinary shares Except in relation to the award of GVC Shares subject to restrictions, GVC Shares issued and/or transferred under the GVC ABP will not confer any rights on any Award Holder until the ABP Award has vested or the relevant Option has been exercised and the an Award Holder in question has received the underlying GVC Shares (although an Award Holder may be entitled to a dividend equivalent payment). Any GVC Shares allotted when an Option or Conditional Award is exercised or an ABP Award vests will rank equally with GVC Shares then in issue (except for rights arising by reference to a record date prior to their issue). An Award Holder awarded GVC Shares subject to restrictions shall have the same rights as a holder of GVC Shares in issue at the time that the an Award Holder acquires the GVC Shares, save to the extent set out in the agreement with the Award Holder relating to those GVC Shares.
(o) Amendment The Remuneration Committee may, at any time, amend the provisions of the GVC ABP in any respect. The prior approval of the Company in a general meeting must be obtained in the case
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of any amendment to the advantage of Award Holders which is made to the provisions relating to eligibility, individual or overall limits, the persons to whom an ABP Award can be made, the adjustments that may be made in the event of any variation to the share capital of the Company and/or the rule relating to such prior approval, save that there are exceptions for any minor amendment to benefit the administration of the GVC ABP, to take account of the provisions of any proposed or existing legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for Award Holders, the Company and/or the GVC Group. Amendments may not normally adversely affect the rights of Award Holders except where Award Holders are notified of such amendment and the majority of Award Holders approve such amendment.
(p) Termination The GVC ABP will terminate on 14 December 2027, or earlier, if the Remuneration Committee so determines.
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PART 11
ADDITIONAL INFORMATION
1 RESPONSIBILITY I,1.2 GVC and each of the GVC Directors, whose names and functions are set out in paragraph 1.1 of Part 10 of III,1.1 this document, and the Proposed Director, whose name and proposed function is set out in paragraph 1.2 of III,1.2 Part 10 of this document, accept responsibility for the information contained in this document. To the best LR,13.4.1(4) of the knowledge and belief of GVC, the GVC Directors and the Proposed Director (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.
2 GVC I,5.1.5 2.1 GVC was incorporated and registered in the Isle of Man under the Isle of Man Companies Act 2006 I,5.1.2 with registered number 4685V on 5 January 2010 as a company limited by shares with its existing I,5.1.3 name “GVC Holdings PLC”. III,4.2
2.2 The principal legislation under which GVC operates, and under which the GVC Shares have been created, is the Isle of Man Companies 2006 and regulations made under the Isle of Man Companies 2006. The liability of GVC’s members is limited.
2.3 GVC is domiciled in the Isle of Man. The registered office and principal place of business of GVC is I,5.1.4 at 32 Athol Street, Douglas, Isle of Man IM1 1JB (telephone number +44(0)1624 652 559).
2.4 GVC was incorporated with the purpose of assuming the business and operations of GVC Holdings I,5.1.4 S.A., the Luxembourg incorporated holding company of the former GVC group, as part of the re- domiciliation of the former GVC group from Luxembourg to the Isle of Man in 2010.
2.5 On 21 May 2010, GVC Holdings S.A. transferred the entirety of its assets and liabilities (save for certain subscriber shares and certain agreements such as those with professional advisers) to GVC in consideration for the issue of 31,135,662 shares to GVC Holdings S.A. (the “Transfer Shares”). GVC Holdings S.A. was subsequently put into members’ voluntary liquidation and all of the shares held by it were distributed to the holders of fully paid GVC Holdings S.A. shares.
2.6 On 24 May 2010, the GVC Shares were admitted to trading on AIM.
2.7 On 20 December 2012 GVC announced that its offer, made with a subsidiary of William Hill plc, to acquire the entire issued and to be issued share capital of Sportingbet plc had been recommended by the board of Sportingbet. On 19 March 2013 GVC completed the acquisition of Sportingbet and the enlarged share capital of GVC was admitted to trading on AIM.
2.8 On 4 September 2015 GVC announced that it had reached agreement on the terms of an offer to acquire the entire issued and to be issued share capital of bwin.party. On 1 February 2016 GVC completed the acquisition of bwin.party. On 2 February 2016 the enlarged share capital of GVC was admitted to the standard listing segment of the Official List of the UKLA and to trading on the Main Market of the London Stock Exchange.
2.9 On 1 July 2016 GVC announced that it was proposing to transfer the listing category of its ordinary shares from a standard listing on the Official List to a premium listing on the Official List. On 1 August 2016, the GVC Shares were transferred to a premium listing on the Official List.
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3 SHARE CAPITAL 3.1 The share capital history of GVC for the period covered by the historical financial information, as set I,21.1.1 out in Part 4 of this document, is set out below: I,21.1.7
(a) The issued share capital of GVC as at 1 January 2014, was 60,906,760 ordinary shares of €0.01 III,4.4 each.
(b) Details of changes in GVC’s share capital for the period covered by the financial information contained in this document from 1 January 2014 to 30 June 2017 are set out in the following table:
1 January 1 January 1 January 1 January 2017 to 2016 to 2015 to 2014 to 30 June 31 December 31 December 31 December 2017 2016 2015 2014 Issued Share Capital on 293,268,229 61,276,480 61,276,480 60,906,760 first day of financial period Movement in issued share 7,399,817 231,991,749 0 369,720 capital Issued share capital on 300,668,046 293,268,229 61,276,480 61,276,480 last day of financial period
(c) The issued share capital of GVC as at the Last Practicable Date was 303,734,808 GVC Shares.
(d) The share capital of GVC available for issue as at the Last Practicable Date is €5,000,000 divided into 500,000,000 ordinary shares of €0.01 each.
(e) Immediately following Admission, subject to the passing of the relevant resolution at the GVC General Meeting, and assuming that all of the Consideration Shares are issued, the share capital of GVC is anticipated to be €5,767,348.08 divided into 576,734,808 GVC Shares.
3.2 There is no class of shares in issue in GVC other than ordinary shares.
3.3 As at the date of this document: I,21.1.3 I,21.1.4 (a) GVC does not hold any shares in treasury and no GVC Shares are held by, or on behalf of, any I,21.1.5 member of the GVC Group; I,21.1.6 (b) GVC does not have any convertible securities, exchangeable securities or securities with warrants;
(c) other than in connection with the Acquisition or as may be provided for under the Share Incentive Schemes, GVC has not given any undertaking to increase its share capital;
(d) save as may be provided for under the GVC Share Incentive Schemes or as otherwise set out in this document, there are no acquisition rights or obligations over any authorised but unissued capital of GVC; and
(e) save as may be provided for under the GVC Share Incentive Schemes or as set out in paragraph 3.3 of Part 10 of this document, no capital of any member of the GVC Group is under option or is agreed, conditionally or unconditionally, to be put under option.
4 SUBSIDIARY UNDERTAKINGS GVC acts as the holding company of the GVC Group and, on the Effective Date, will become the holding I,7.1 company of the Combined Group. The principal activity of the GVC Group the provision of online gaming and sports betting services.
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The principal and significant subsidiary undertakings and associated undertakings of the Company and Ladbrokes that the Company considers are, on Admission, likely to have a significant effect on the assessment of the Combined Group’s assets and liabilities, financial position or profits and losses are listed below. Unless otherwise stated to the contrary, all are wholly-owned, directly or indirectly.
4.1 Principal and significant subsidiary undertakings and associated undertakings of GVC I,7.2 Country of Percentage Business I,25 Name Incorporation ownership activity BES S.A.S. France 100 Online gaming bwin.party European Italy 100 Intermediate holding Markets Holdings S.P.A. company bwin.party Italia S.r.l. Italy 100 Online gaming bwin.party (USA) Inc. USA 100 B2B Services bwin.party digital entertainment Gibraltar 100 Holding company Limited bwin.party entertainment (NJ) LLC USA 90 Online gaming bwin.party holdings Limited Gibraltar 100 Holding company line gaming bwin.party services (Austria) GmbH Austria 100 IT, customer support and marketing support services bwin.party services (Bulgaria) EOOD Bulgaria 100 IT and customer support services bwin.party services (Malta) Limited Malta 100 B2B Services Cashcade Limited England and Wales 100 Marketing services ElectraWorks (Alderney) Limited Alderney 100 IT services ElectraWorks (Espana) Plc Malta 100 Online gaming ElectraWorks (Kiel) Limited Malta 100 Online gaming ElectraWorks Limited Gibraltar 100 Online gaming Gomifer SA Uruguay 100 Administration services GVC Administration Services Limited England and Wales 100 Administration company GVC Corporate Services Limited Gibraltar 100 Administration services GVC Services B.V. Curaçao 100 Administration company GVC Services Israel branch Israel 100 Marketing support services GVC Services Limited Gibraltar 100 HR services company Headlong 2 Limited Malta 100 Online gaming Interactive Sports Asia Inc. Philippines 100 Trading services InterTrader Limited Gibraltar 100 Financial services IVY BPO Services Private Limited India 99.998 Administration services IVY Comptech Private Limited India 99.998 IT and customer support services IVY Software Development Services India 99.998 IT Services Private Limited Javari Marketing Consultancy Spain 100 Marketing Support Services SL Services
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Country of Percentage Business Name Incorporation ownership activity Martingale Malta 2 Limited Malta 99 Online gaming PartyGaming IA Limited Bermuda 100 Intangible asset management Sporting Odds Limited England and Wales 100 Online gaming Webdollar Sweden AB Sweden 100 Payment processing services
The GVC Group has ongoing interests in the following operations that are classified as associates or joint ventures:
Country of Percentage Business Name Incorporation ownership Act bwin.party e.k. Germany 50 Customer support services
4.2 Principal and significant subsidiary undertakings and associated undertakings of Ladbrokes Coral:
(a) Subsidiaries Country of Percentage Business Name Incorporation ownership activity Birchgree Limited England 100 Other trading activity Brickagent Limited England 100 Other trading activity CE Acquisition 1 Limited England 100 Other trading activity Coral (Holdings) Limited England 100 Other trading activity Coral Estates Limited England 100 Other trading activity Coral Eurobet Limited England 100 Other trading activity Coral Eurobet Holdings Limited England 100 Other trading activity Coral Group Limited England 100 Other trading activity Coral Group Trading Limited England 100 Trading entity engaged in activity associated with betting and gaming Coral Limited England 100 Other trading activity Coral Racing Limited England 100 Trading entity engaged in activity associated with betting and gaming Coral Stadia Limited England 100 Trading entity engaged in activity associated with betting and gaming Ganton House Investments England 100 Other trading activity Limited Hindwain Limited England 100 Other trading activity Jack Brown (Bookmaker) England 100 Other trading activity Limited Ladbroke & Co., Limited England 100 Holding company
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Country of Percentage Business Name Incorporation ownership activity Ladbroke (Rentals) Limited England 100 Other trading activity Ladbroke City & County Land England 100 Holding company Company Limited Ladbroke Dormant Holding England 100 Holding company Company Limited Ladbroke Entertainments England 100 Other trading activity Limited Ladbroke Group England 100 Holding company Ladbroke Racing (Reading) England 100 Other trading activity Limited Ladbroke US Investments England 100 Holding company Limited Ladbrokes Betting & Gaming England 100 Trading entity engaged in activity associated with betting and gaming Limited Ladbrokes Contact Centre England 100 Other trading activity Limited Ladbrokes Coral Group England 100 Other trading activity Pension Trustee Limited Ladbrokes E-Gaming Limited England 100 Other trading activity Ladbrokes Group Finance plc England 100 Other trading activity Ladbrokes Investments England 100 Holding company Holdings Limited Ladbrokes IT & Shared England 100 Other trading activity Services Limited Ladbrokes Trustee Company England 100 Other trading activity Limited Margolis and Ridley Limited England 100 Holding company Romford Stadium Limited England 100 Trading entity engaged in activity associated with betting and gaming Sabrinet Limited England 100 Other trading activity Sponsio Limited England 100 Other trading activity Town and County Factors England 100 Other trading activity Limited Travel Document Service England 100 Holding company Ventmear Limited England 100 Other trading activity Ladbrokes (Northern Ireland) Northern Ireland 100 Holding company (Holdings) Limited North West Bookmakers Northern Ireland 100 Trading entity engaged in Limited activity associated with betting and gaming
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Country of Percentage Business Name Incorporation ownership activity Ladbrokes Digital Australia Australia 100 Trading entity engaged in Pty Limited activity associated with betting and gaming LB Australia Holdings Pty Australia 100 Other trading activity Limited Panda Gaming Pty Limited Australia 100 Other trading activity Ladbroke Belgium S.A. Belgium 100 Other trading activity Pari Mutuel Management Belgium 100 Other trading activity Services S.A. S.A. Derby N.V. Belgium 100 Trading entity engaged in activity associated with betting and gaming Tierce Ladbroke S.A. Belgium 100 Trading entity engaged in activity associated with betting and gaming Ladbrokes Lottery (Asia) Co. China 100 Other trading activity Limited Balltree (International) Limited Gibraltar 100 Holding company Bingo Marketing Limited Gibraltar 100 Other trading activity Coral Interactive (Gibraltar) Gibraltar 100 Trading entity engaged in Limited activity associated with betting and gaming Gala Coral Interactive Gibraltar 100 Holding company (Gibraltar) Limited Gala Interactive (Gibraltar) Gibraltar 100 Trading entity engaged in Limited activity associated with betting and gaming LC International Limited Gibraltar 100 Trading entity engaged in activity associated with betting and gaming Ladbrokes Balltree LIP Gibraltar 100 Other trading activity Limited Partnership Ladbrokes Balltree LSLP Gibraltar 100 Other trading activity Limited Partnership Ladbrokes Sportsbook LP Gibraltar 100 Trading entity engaged in activity associated with betting and gaming Exchange Platform Solutions Guernsey 100 Trading entity engaged in Limited activity associated with betting and gaming Ladbroke (Ireland) Limited Ireland 100 Trading entity engaged in activity associated with betting and gaming
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Country of Percentage Business Name Incorporation ownership activity Ladbroke Leisure (Ireland) Ireland 100 Trading entity engaged in Limited activity associated with betting and gaming Gala Coral Interactive (Ireland) Ireland 100 Other trading activity Limited Ladbroke Services (Ireland) Ireland 100 Other trading activity Limited Gala Interactive (Services) Israel 100 Other trading activity Limited Ladbrokes Israel Limited Israel 100 Other trading activity Eurobet Holding SRL Italy 100 Trading entity engaged in activity associated with betting and gaming Eurobet Italia SRL Italy 100 Trading entity engaged in activity associated with betting and gaming IHF (Jersey) Limited Jersey 100 Holding company Ladbroke (Channel Islands) Jersey 100 Trading entity engaged in Limited activity associated with betting and gaming NCH Customer Support Philippines 100 Other trading activity Services, Inc Ladbrokes (SA) (Pty) Limited South Africa 60 Other trading activity Ladbrokes Holdco Inc. United States 100 Other trading activity Stadium Technology Group, United States 79 Trading entity engaged in LLC activity associated with betting and gaming
(b) Joint Ventures Country of Percentage Business Name Incorporation ownership activity Digital Gaming Mexico, Mexico 35 Trading entity engaged in S.A.P.I de C.V. activity associated with betting and gaming Sportium Apuestas Columbia, Columbia 50 Trading entity engaged in S.A. activity associated with betting and gaming Sportium Apuestas Panama, Panama 40 Trading entity engaged in S.A. activity associated with betting and gaming Cirsa Digital S.A. Spain 50 Trading entity engaged in activity associated with betting and gaming
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Country of Percentage Business Name Incorporation ownership activity Sportium Apostes Catalunya, Spain 50 Trading entity engaged in S.A. activity associated with betting and gaming Sportium Apuestas Andalucia, Spain 50 Trading entity engaged in S.L. activity associated with betting and gaming Sportium Apuestas Aragon, Spain 50 Trading entity engaged in S.L. activity associated with betting and gaming Sportium Apuestas Asturias, Spain 50 Trading entity engaged in S.A. activity associated with betting and gaming Sportium Apuestas Baleares, Spain 50 Trading entity engaged in S.L. activity associated with betting and gaming Sportium Apuestas Canarias, Spain 50 Trading entity engaged in S.L. activity associated with betting and gaming Sportium Apuestas Castilla Spain 50 Trading entity engaged in La Mancha, S.L. activity associated with betting and gaming Sportium Apuestas Ceuta Spain 50 Trading entity engaged in activity associated with betting and gaming Sportium Apuestas Deportivas, Spain 50 Trading entity engaged in S.A. activity associated with betting and gaming Sportium Apuestas Galicia, Spain 50 Trading entity engaged in S.L. activity associated with betting and gaming Sportium Apuestas Levante, Spain 50 Trading entity engaged in S.A.U activity associated with betting and gaming Sportium Apuestas Melilla, Spain 50 Trading entity engaged in S.L. activity associated with betting and gaming Sportium Apuestas Navarra Spain 50 Trading entity engaged in S.A. activity associated with betting and gaming Sportium Apuestas Oeste, Spain 50 Trading entity engaged in S.A. activity associated with betting and gaming Sportium Zona Norte, S.A. Spain 50 Trading entity engaged in activity associated with betting and gaming
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(c) Associates Country of Percentage Business Name Incorporation ownership activity Professional Gaming Services Belgium 19 Other trading activity HUI10 Inc, Cayman Islands 3.7 Other trading activity Asia Gaming Technologies China 49 Trading entity engaged in (Beijing) Co., Ltd activity associated with betting and gaming Asia Gaming Technologies China 49 Trading entity engaged in (Tianjin) Co., Ltd activity associated with betting and gaming Asia Gaming Technologies China 49 Trading entity engaged in Limited activity associated with betting and gaming 49s Limited United Kingdom 66.6 Trading entity engaged in activity associated with betting and gaming Sports Information Services United Kingdom 66.6 Trading entity engaged in (Holdings) Limited activity associated with betting and gaming
5 MEMORANDUM AND ARTICLES OF ASSOCIATION I,21.2.1 Set out below is a summary of GVC’s memorandum of association and the GVC Articles as at the date of I,21.2.2 this document. Persons seeking a detailed explanation of any provisions of Isle of Man law or the differences I,21.2.3 between it and the laws of England and Wales or any jurisdiction with which they may be more familiar are I,21.2.4 recommended to seek legal advice. III,4.5
5.1 GVC’s Memorandum of Association GVC has, subject to the Isle of Man Companies Act 2006, the capacity and the rights, powers and privileges of an individual. Furthermore, the memorandum of association of GVC does not restrict the purposes of GVC nor does it restrict the exercise of the rights, powers and privileges of GVC.
By amendment of the memorandum of association on 29 March 2010, an addition was made to state that neither GVC’s memorandum of association nor the GVC Articles may be amended except pursuant to a resolution approved by a majority of not less than three fourths of such members as, being entitled so to do, vote in person or by proxy at the general meeting at which such resolution is proposed.
5.2 The GVC Articles of Association The following is a summary of the principal provisions of the GVC Articles:
(a) Capital structure Unless GVC by resolution otherwise directs, the amount of share capital of GVC available for issue is €5,000,000 divided into 500,000,000 GVC Shares of €0.01 each.
(b) Summary of rights attaching to the GVC Shares Subject to the provisions of the Isle of Man Companies Act 2006, each GVC Share shall confer upon each GVC Shareholder the right, inter alia, to receive notice of, attend and vote at every Annual General Meeting and Extraordinary General Meeting of GVC, to participate, pari passu, in every dividend or distribution of GVC and to participate, pari passu, in the
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distribution of surplus assets of GVC remaining after the payment of all creditors in the winding up of GVC.
(c) Variation of rights Subject to the provisions of the Isle of Man Companies Act 2006, if at any time the share capital of GVC is divided into shares of different classes, any of the rights for the time being attached to any share or class of shares in GVC (and notwithstanding that GVC may be or be about to be in liquidation) may (unless otherwise provided by the terms of issue of the shares of that class) be varied or abrogated in such manner (if any) as may be provided by such rights or, in the absence of any such provision, either with the consent in writing of the holders of not less than three quarters in par value of the issued shares of the class or with the sanction of a special resolution passed at a separate general meeting of the holders of shares of the class duly convened and held as provided in the GVC Articles.
This paragraph shall also apply to the variation or abrogation of the special rights attached to some only of the shares of any class as if each group of shares of the class differently treated formed a separate class the separate rights of which are to be varied. Subject to the terms of issue or the rights attached to any shares, the rights or privileges attached to any class of shares shall be deemed not to be varied or abrogated by the GVC Board resolving that a class of shares is to become or cease to be a share or class of shares or a renounceable right of allotment or a share, title to which is permitted to be transferred by means of a relevant system in accordance with the Regulations.
(d) Alteration of capital The provisions of the GVC Articles in respect of the alteration of share capital are more stringent than those required by the Isle of Man Companies Act 2006. Whereas under the Isle of Man Companies Act 2006 the following action may be taken by resolution of the GVC Board, in accordance with the GVC Articles, to the extent that the shares in the capital of GVC comprise shares with a par value, GVC in general meeting may from time to time by ordinary resolution:
(i) increase its share capital by such sum to be divided into shares of such amount as the resolution prescribes;
(ii) consolidate and/or divide, re-designate or redenominate or convert all or any of its share capital into shares of larger or smaller par value, into shares having a purchase price of another currency or into different classes of shares than its existing shares; and
(iii) sub-divide its shares or any of them into shares of smaller par value and may by such resolution determine that as between the shares resulting from such sub-division, one or more of the shares may, as compared with the others, have any such preferred, deferred or other special rights or be subject to any such restrictions as GVC has power to attach to unissued or new shares but so that the proportion between the amount paid up and the amount (if any) not paid up on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived.
Subject to compliance with the solvency test (as defined in section 49 of the Isle of Man Companies Act 2006) and to any rights for the time being attached to any shares, GVC may by special resolution reduce its paid up share capital. This is again a more onerous requirement than that required by the Isle of Man Companies Act 2006, which authorises a company to reduce its share capital pursuant to a resolution of the GVC Board, provided the GVC Board is satisfied that, immediately after such reduction in share capital, GVC would satisfy the same solvency test.
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(e) Issue of GVC Shares Subject to the provisions of the GVC Articles summarised in paragraph 5.2(f), and subject to any resolution of GVC, all unissued shares in GVC shall be at the disposal of the GVC Board and the GVC Board may allot, grant options over or otherwise deal with or dispose of them to such persons, at such times and on such terms as it may decide.
(f) Pre-emption rights There are no statutory pre-emption rights under Isle of Man law which have automatic application. Such rights are therefore embodied in the GVC Articles as follows:
Subject as indicated in the paragraph below, and unless GVC shall by special resolution otherwise direct, unissued shares in the capital of GVC shall only be allotted for cash in accordance with the following provisions:
(i) all shares to be allotted (the “offer shares”) shall first be offered to the members of GVC to whom the GVC Directors determine such shares can be offered without GVC incurring securities offering compliance costs which, in the opinion of the GVC Directors, would be burdensome given the number of members in the relevant jurisdiction in relation to which such compliance costs would be incurred (the “relevant members”);
(ii) the offer to relevant members set out in sub-paragraph (i) above (the “offer”) shall be made in proportion to the existing holdings of shares of relevant members;
(iii) the offer shall be made by written notice (the “offer notice”) from the GVC Directors specifying the number and price of the offer shares and shall invite each relevant member to state in writing within a period, not being less than fourteen days, whether they are willing to accept any offer shares and, if so, the maximum number of offer shares they are willing to take;
(iv) at the expiration of the time specified for acceptance in the offer notice the GVC Directors shall allocate the offer shares to or amongst the relevant members who shall have notified to the GVC Directors their willingness to take any of the offer shares but so that no relevant member shall be obliged to take more than the maximum number of shares notified by him under sub-paragraph (iii) above; and
(v) if any offer shares remain unallocated after the offer, the GVC Directors shall be entitled to allot, grant options over or otherwise dispose of those shares to such persons on such terms and in such manner as they think fit save that those shares shall not be disposed of on terms which are more favourable to their subscribers than the terms on which they were offered to the relevant members.
The pre-emption rights described above shall not apply to the allotment of any shares for a consideration other than for cash or in connection with an employees’ share scheme (as defined in the GVC Articles), and, accordingly, the GVC Directors may allot or otherwise dispose of any unissued shares in the capital of GVC for a consideration other than cash to such persons at such times and generally on such terms as they may think fit.
A reference in the foregoing paragraphs to the allotment of any shares includes the grant of a right to subscribe for, or to convert any securities into, shares but such reference does not include the allotment of any relevant shares pursuant to such a right.
(g) Voting rights Subject to any special terms as to voting on which any shares may have been issued or may for the time being be held and to any suspension or abrogation of voting rights pursuant to the GVC Articles, at any general meeting every member who (being an individual) is present in person and every member who (being a corporation) is present by duly authorised corporate
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representative shall on a show of hands have one vote. On a poll every member who (being an individual) is present in person or by proxy and every member who (being a corporation) is present by duly authorised corporate representative or by proxy shall have one vote for each share of which he is the holder.
(h) Dividends Subject to the provisions of the GVC Articles the satisfaction of the solvency test (as defined in section 49 of the Isle of Man Companies Act 2006), GVC may by resolution declare that out of profits available for distribution in accordance with Isle of Man law dividends be paid to members according to their respective rights and interests in the profits of GVC available for distribution. However, no dividend shall exceed the amount recommended by the GVC Board. Notwithstanding the foregoing, the GVC Board may (subject to satisfaction of the solvency test) declare and pay such interim dividends as appear to be justified by the profits and financial position of GVC. If at any time the share capital of GVC is divided into different classes, the GVC Board may pay such interim dividends on shares which rank after shares conferring preferential rights with regard to dividend as well as on shares conferring preferential rights unless at the time of payment an preferential dividend is in arrears. Provided that the GVC Board acts in good faith it shall not incur any liability to the holders of shares conferring preferential rights for any loss that they may suffer in consequence of the declaration or by the lawful payment of any interim dividend on any shares ranking after those with preferential rights.
All dividends and interest shall be paid (subject to any lien on GVC) to those GVC Shareholders whose names appear on the register of shareholders of GVC at the date at which such dividend shall be declared or at the date at which such interest shall be payable respectively, or at such other date as GVC, by resolution of the GVC Board, may determine, notwithstanding any subsequent transfer or transmission of GVC Shares.
The GVC Board may, at its discretion, make provisions to enable such member as the GVC Board shall from time to time determine to receive dividends duly declared in a currency or currencies other than euro. For the purposes of the calculation of the amount receivable in respect of any dividend, the rate of exchange to be used to determine the foreign currency equivalent of any sum payable as a dividend shall be such market rate selected by the GVC Board as it shall consider appropriate at the close of business in London on the date which is the Business Day last preceding:
(i) in the case of a dividend to be declared by GVC in general meeting, the date on which the GVC Board publicly announces its intention to recommend that specific dividend; and
(ii) in the case of any other dividend, the date on which the GVC Board publicly announces its intention to pay that specific dividend, provided that where the GVC Board considers the circ*mstances to be appropriate it shall determine such foreign currency equivalent by reference to such market rate or rates or the mean of such market rates prevailing at such time or times or on such other date or dates, in each case falling before the time of the relevant announcement, as the GVC Board may select.
GVC may make, or procure the making of, any payment in respect of a GVC Shareholder’s uncertificated shares through CREST in accordance with any authority given to GVC to do so (whether in writing, through CREST or otherwise) by or on behalf of the GVC Shareholder in a form satisfactory to the GVC Board. The making of such payment in accordance with such authority shall be a good discharge to GVC.
If cheques, warrants or orders for dividends or other sums payable in respect of an GVC Share sent by GVC to the person entitled thereto by post are returned to GVC undelivered or left uncashed on two consecutive occasions or, following one occasion, reasonable enquiries have
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failed to establish any new address to be used for the purpose, GVC shall not be obliged to send any further dividends or other moneys payable in respect of that GVC Share due to that person until he notifies GVC of an address to be used for the purpose.
All dividends, interest or other sum payable and unclaimed for 12 months after having become payable may be invested or otherwise made use of by the GVC Board for the benefit of GVC until claimed and GVC shall not be constituted as a trustee in respect thereof. All dividends unclaimed for a period of six years after having become due for payment shall (if the GVC Board so resolves) be forfeited and revert to GVC.
(i) Transfer of shares Each member may transfer all or any of his shares in the case of certificated shares by instrument of transfer in writing in any usual form or in any form approved by the GVC Board or in the case of uncertificated shares without a written instrument in accordance with the Regulations. Any written instrument shall contain the business or residential address of the III,4.3 transferee and be executed by or on behalf of the transferor and (in the case of a transfer of a III,4.8 share which is not fully paid up) by or on behalf of the transferee. The transferor shall be deemed to remain the holder of such share until the name of the transferee is entered in GVC’s register of members as the holder of the share.
No transfer of any share shall be made:
(i) to a minor; or
(ii) to a bankrupt; or
(iii) to any person who is, or may be, suffering from mental disorder and either:
(A) has been admitted to hospital in pursuance of an application for admission for treatment under the Mental Health Act 1983 (an Act of Parliament in the United Kingdom) or any similar statute relating to mental health (whether in the United Kingdom, the Isle of Man or elsewhere); or
(B) an order has been made by any court having jurisdiction (whether in the United Kingdom, the Isle of Man or elsewhere) in matters concerning mental disorder for his detention or for the appointment of a receiver, curator bonis or other person to exercise powers with respect to his property or affairs,
and the GVC Directors shall refuse to register the purported transfer of a share to any such person.
The GVC Board may in its absolute discretion and without giving any reason refuse to register any transfer of a certificated share unless:
(iv) it is in respect of a share which is fully paid up;
(v) it is in respect of a share on which GVC has no lien;
(vi) it is in respect of only one class of shares;
(vii) it is in favour of a single transferee or not more than four joint transferees;
(viii) it is duly stamped (if so required); and
(ix) it is delivered for registration to the registered agent of GVC, or such other person as the GVC Board may from time to time appoint, accompanied (except in the case of a transfer where a certificate has not been required to be issued) by the certificate for the shares to which it relates and such other evidence as the GVC Board may reasonably require to prove the title of the transferor and the due execution by him of the transfer
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or if the transfer is executed by some other person on his behalf, the authority of that person to do so,
provided that such discretion may not be exercised in such a way as to prevent dealings in the shares from taking place on an open and proper basis.
The registration of transfers of shares or of any class of shares may be suspended at such times and for such periods (not exceeding thirty days in any year) as the GVC Board in its absolute discretion may from time to time determine (subject to the Regulations in the case of any shares of a class which is a Participating Security (as defined below)). Notice of closure of the register of members of GVC shall be given in accordance with the requirements of the Isle of Man Companies Act 2006.
The GVC Board shall register a transfer of title to any uncertificated share or the renunciation or transfer of any renounceable right of allotment of a share which is a share or class of shares or a renounceable right of allotment of a share (“Participating Security”), title to which is permitted to be transferred by means of a relevant uncertificated system in accordance with the Regulations, held in uncertificated form in accordance with the Regulations, except that the GVC Board may refuse (subject to any relevant requirements applicable to the recognised investment exchange(s) to which the shares of GVC are admitted) to register any such transfer or renunciation which is in favour of more than four persons jointly or in any other circ*mstance permitted by the Regulations.
(j) GVC Directors At every annual general meeting one third of the GVC Directors who are subject to retirement by rotation or, if their number is not three or a multiple of three, the number nearest to but not exceeding one third shall retire from office by rotation provided that if there is only one GVC Director who is subject to retirement by rotation, he shall retire.
(k) GVC Directors’ interests A GVC Director who to his knowledge is in any way (directly or indirectly) interested in any contract, arrangement, transaction or proposal with GVC shall declare the nature of his interest at the meeting of the GVC Board at which the question of entering into the contract, arrangement, transaction or proposal is first considered if he knows his interest then exists or, in any other case, at the first meeting of the GVC Board after he knows that he is or has become so interested.
Save as provided below, a GVC Director shall not vote on or be counted in the quorum in relation to any resolution of the GVC Board or of a committee of the GVC Board concerning any contract, arrangement, transaction or any proposal whatsoever to which GVC is or is to be a party and in which (together with any interest of any person connected with him within the meaning of section 252 to 255 of the UK Companies Act 2006) he has (directly or indirectly) an interest which is material (other than by virtue of his interests in shares or debentures or other securities of, or otherwise in or through GVC) or a duty which conflicts with the interests of GVC unless his duty or interest arises only because the resolution relates to one of the matters set out in the following sub-paragraphs in which case he shall be entitled to vote and be counted in the quorum:
(i) the giving to him of any guarantee, security or indemnity in respect of money lent or obligations incurred by him at the request of or for the benefit of GVC or any of its subsidiaries;
(ii) the giving to a third party of any guarantee, security or indemnity in respect of a debt or obligation of GVC or any of its subsidiaries for which he himself has assumed responsibility in whole or in part either alone or jointly with others, under a guarantee or indemnity or by the giving of security;
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(iii) where GVC or any of its subsidiaries is offering securities in which offer the GVC Director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which the GVC Director is to participate;
(iv) relating to another company in which he and any persons connected with him (within the meaning of sections 252 to 255 of the UK Companies Act 2006) do not to his knowledge hold an interest in shares (as that term is used in sections 820 to 825 of the UK Companies Act 2006) representing 1 per cent. or more of either any class of the equity share capital, or the voting rights, in such company;
(v) relating to an arrangement for the benefit of the employees of GVC or any of its subsidiaries which does not award him any privilege or benefit not generally awarded to the employees to whom such arrangement relates; or
(vi) concerning insurance which GVC proposes to maintain or purchase for the benefit of GVC Directors or for the benefit of persons including GVC Directors.
An interest of a person who is, for any purpose of the UK Companies Act 2006 (excluding any such modification thereof not in force when the GVC Articles became binding on GVC), connected with a GVC Director shall be treated as an interest of the GVC Director and, in relation to an alternate GVC Director, an interest of his appointer shall be treated as an interest of the alternate GVC Director without prejudice to any interest which the alternate GVC Director otherwise has.
A GVC Director shall not vote or be counted in the quorum on any resolution of the GVC Board or committee of the GVC Board concerning his own appointment (including fixing or varying the terms of his appointment or its termination) as the holder of any office or place of profit with GVC or any company in which GVC is interested. Where proposals are under consideration concerning the appointment (including fixing or varying the terms of appointment or termination) of two or more GVC Directors to offices or places of profit with GVC or any company in which GVC is interested, such proposals may be divided and a separate resolution considered in relation to each GVC Director. In such case, each of the GVC Directors concerned (if not otherwise debarred from voting under the GVC Articles) shall be entitled to vote (and be counted in the quorum) in respect of each resolution except that concerning his own appointment.
The GVC Directors (other than alternate directors) shall be entitled to receive by way of fees for their services as directors such sum as the GVC Board may from time to time determine (not exceeding in aggregate £600,000 or such other sum as GVC in general meeting shall from time to time determine by resolution). Such sum (unless otherwise directed by the resolution of GVC by which it is voted) shall be divided among the GVC Directors in such proportions and in such manner as the GVC Board may determine or in default of such determination, equally (except that in such event any GVC Director holding office for less than the whole of the relevant period in respect of which the fees are paid shall only rank in such division in proportion to the time during such period for which he holds office). Any fees payable pursuant to the GVC Articles shall be distinct from any salary, remuneration or other amounts payable to a GVC Director pursuant to any other provisions of the GVC Articles and shall accrue from day to day. Each GVC Director is entitled to be repaid all reasonable travelling, hotel and other expenses properly incurred by him in the performance of his duties as a GVC Director, including any expenses incurred in attending meetings of the GVC Board or any committee of the GVC Board or general meetings or separate meetings of the holders of any class of shares or of debentures of GVC. A Non-executive Director may be paid money in addition to any fee payable to him for his services as a GVC Director.
Subject to the Isle of Man Companies Act 2006, GVC may indemnify every GVC Director, GVC alternate Director or other officer of GVC (other than an auditor) to the fullest extent permitted by law.
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(l) Disclosure of interests Every person who to his knowledge becomes interested, or becomes aware that he is or has become interested, in 3 per cent. or more of the shares for the time being in issue of any relevant class of shares of GVC, shall be under an obligation to give to GVC notice in writing of that fact, specifying the following information:
(i) the number of shares of the relevant class in which he was to his knowledge interested immediately after the obligation arose and the percentage of voting rights in GVC held through those GVC Shares (and/or any other direct or indirect holding of Relevant Financial Instruments (meaning a financial instrument relating to GVC’s securities in respect of which disclosure would be required under DGTR 5.3.1 if GVC were incorporated in England) in such shares);
(ii) the chain of controlled undertakings through which voting rights are effectively held, if applicable;
(iii) the date on which the threshold was reached or crossed;
(iv) the identity and address of each registered holder of such GVC Shares and of any person entitled to exercise voting rights on behalf of that holder; and
(v) in respect of any notification of voting rights arising from the holding of Relevant Financial Instruments, the following shall be required:
(A) the resulting situation in terms of voting rights;
(B) if applicable, the chain of controlled undertakings through which financial instruments are effectively held;
(C) the date on which the threshold was reached or crossed;
(D) for instruments with an exercise period, an indication of that date or time period where shares will or can be acquired, if applicable;
(E) date of maturity or expiration of the instrument; and
(F) the identity of the holder, (collectively, the “Relevant Information”).
Every person who, at any time after the date on which GVC Article 75 comes into force ceases to be interested, or becomes aware that he has ceased to be interested, in 3 per cent. or more of the shares for the time being in issue of any relevant class of shares of GVC, shall be under an obligation to give to GVC notice in writing of that fact, specifying the Relevant Information.
Where:
(vi) a person is, to his knowledge, interested in 3 per cent. or more of the shares for the time being in issue of any relevant class of shares of GVC; and
(vii) there occurs, to his knowledge, or he becomes aware that there has occurred, an integer change in his percentage interest in the shares of that class for the time being in issue;
that person shall be under an obligation to give to GVC notice in writing of the change, specifying the Relevant Information.
An obligation to give a notice to GVC under the above provisions shall be fulfilled without delay and in any event before the end of the second working day after the day on which it arises.
The GVC Directors shall keep a register (the “Register of Substantial Interests”) and shall procure that, whenever GVC receives information from a person in consequence of the fulfilment of an obligation imposed on him by that article, that information is within three
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working days thereafter inscribed in the Register of Substantial Interests against that person’s name, together with the date of the inscription.
(m) Suspension of rights The GVC Board may at any time serve a notice (“Information Notice”) upon a member requiring the member to disclose to it in writing within such period (being no less than ten days and not more than thirty days from the date of despatch) as may be specified in the notice, information relating to any beneficial interest of any third party or any other interest of any kind whatsoever which a third party may have in relation to any or all GVC Shares registered in the member’s name. If a member has been issued with an Information Notice and has failed in relation to any GVC Shares the subject of the Information Notice (“notice shares”) to furnish any information required by such notice within the time period specified therein, then the GVC Board may at any time following fourteen days from the expiry of the date on which the information required to be furnished pursuant to the relevant Information Notice is due to be received by the GVC Board, serve on the relevant holder a notice (in this paragraph called a “disenfranchisem*nt notice”) whereupon the following sanctions shall apply:
(i) Voting The member shall not, with effect from the service of the disenfranchisem*nt notice, be entitled in respect of the notice shares to attend or to vote (either in person or by representative or proxy) at any general meeting of GVC or at any separate meeting of the holders of any class of shares of GVC or on any poll or to exercise any other right conferred by membership in relation to any such meeting or poll.
(ii) Dividends and transfers Where the notice shares represent at least 0.25 per cent. in par value of their class:
(A) any dividend or other money payable in respect of the notice shares shall be withheld by GVC, which shall not have any obligation to pay interest on it and the member shall not be entitled to elect pursuant to the GVC Articles to receive shares instead of that dividend; and
(B) subject in the case of uncertificated shares to the Regulations, no transfer, other than an approved transfer, or any notice shares held by the member shall be registered unless the member is not himself in default as regards supplying the information required pursuant to the relevant Information Notice and the member proves to the satisfaction of the GVC Board that no person in default as regards supplying such information is interested in any of the GVC Shares which are the subject of the transfer.
(n) Borrowing powers Subject to the other provisions of the GVC Articles and to the Isle of Man Companies Act 2006, the GVC Directors may exercise all the powers of GVC to borrow money, to guarantee, to indemnify and to mortgage or charge its undertaking, property, assets (present and future) and uncalled capital or any part or parts thereof and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of GVC or of any third party.
(o) General meetings The GVC Board shall convene in each year a general meeting of the members of GVC called the annual general meeting; any annual general meeting shall be held at such time and place as the GVC Board may determine.
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All general meetings, other than annual general meetings, shall be called extraordinary general meetings.
The GVC Board may convene any extraordinary general meeting whenever it thinks fit. At any meeting convened on such requisition (or any meeting requisitioned pursuant to section 67(2) of the Isle of Man Companies Act 2006) no business shall be transacted except that stated by the requisition or proposed by the GVC Board. If there are not sufficient members of the GVC Board to convene a general meeting, any GVC Director or any member of GVC may call a general meeting.
Any annual general meeting and any extraordinary general meeting convened for the passing of a special resolution or a resolution appointing a person as a GVC Director shall be convened by not less than twenty-one clear days’ notice in writing. Other extraordinary general meetings shall be convened by not less than fourteen clear days’ notice in writing. Notwithstanding that a meeting is convened by shorter notice than that specified in the GVC Articles, it shall be deemed to have been properly convened if it is so agreed by all the members entitled to attend and vote at the meeting. No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business but the absence of a quorum shall not preclude the choice or appointment of a chairman which shall not be treated as part of the business of the meeting. Subject to the provisions of the GVC Articles, two persons entitled to attend and to vote on the business to be transacted, each being a member present in person or a proxy for a member or a duly authorised representative of a corporation which is a member, or one person entitled to attend and to vote on the business to be transacted, being a member holding not less than one-tenth of the issued share capital of GVC and being present in person or by proxy, shall be a quorum. (The provisions of section 67(4) of the Isle of Man Companies Act 2006, which permit members to attend by electronic means or telephone, are excluded.) If within fifteen minutes (or such longer interval not exceeding one hour as the chairman in his absolute discretion thinks fit) from the time appointed for the holding of a general meeting a quorum is not present, or if during a meeting such a quorum ceases to be present, the meeting, if convened on the requisition of members, shall be dissolved. In any other case, the meeting shall stand adjourned to later on the same day, to the same day in the next week at the same time and place, or to such other day and at such time and place as the chairman (or, in default, the GVC Board) may determine, being not less than fourteen nor more than twenty-eight days thereafter. If at such adjourned meeting a quorum is not present within fifteen minutes from the time appointed for holding the meeting one member present in person or by proxy or (being a corporation) by a duly authorised representative shall be a quorum. If no such quorum is present or, if during the adjourned meeting a quorum ceases to be present, the adjourned meeting shall be dissolved. GVC shall give at least seven clear days’ notice of any meeting adjourned through lack of quorum (where such meeting is adjourned to a day being not less than fourteen nor more than twenty-eight days thereafter).
(p) Winding up If GVC is wound up, the surplus assets remaining after payment of all creditors are to be divided among the members in proportion to the capital which at the commencement of the winding up is paid up on the GVC Shares held by them respectively and, if such surplus assets are insufficient to repay the whole of the paid up capital, they are to be distributed so that as nearly as may be the losses are borne by the members in proportion to the capital paid up at the commencement of the winding up on the GVC Shares held by them respectively, subject to the rights attached to any GVC Shares which may be issued on special terms or conditions.
If GVC is wound up, the liquidator may, with the sanction of a special resolution of GVC and any other sanction required by law, divide among the members in specie the whole or any part of the assets of GVC and may for that purpose value any assets and determine how the division shall be carried out as between the members or different classes of members. Any such division may be otherwise than in accordance with the existing rights of the members but if any division
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is resolved otherwise than in accordance with such rights the members shall have the same right of dissent and consequential rights as if such resolution were a special resolution passed pursuant to section 222 of the Isle of Man Companies Act 1931 (which provision applies to GVC (with statutory modification) pursuant to the Isle of Man Companies Act 2006). The liquidator may with the like sanction vest the whole or any part of the assets in trustees on such trusts for the benefit of the members as he shall determine but no member shall be compelled to accept any assets on which there is a liability.
A special resolution sanctioning a transfer or sale to another company duly passed pursuant to section 222 of the Isle of Man Companies Act 1931 (which provision applies to GVC (with statutory modification) pursuant to the Isle of Man Companies Act 2006) may in the like manner authorise the distribution of any shares or other consideration receivable by the liquidator among the members otherwise than in accordance with their existing rights and any such determination shall be binding on all the members, subject to the right of dissent and consequential rights conferred by the said section.
6 SUMMARY OF ISLE OF MAN COMPANY LAW
6.1 Isle of Man summary The Isle of Man is an internally self-governing dependent territory of the British Crown. It is politically and constitutionally separate from the UK and has its own legal system and jurisprudence based on English common law principles. The UK Government is, however, responsible for the Island’s foreign affairs and defence and, with the Island’s consent, the UK Parliament may legislate for the Island in some areas of common concern (such as nationality and immigration matters).
The Isle of Man’s relationship with the European Union is set out in Protocol 3 of the Act of Accession annexed to the Treaty of Accession 1972, by virtue of which the UK became a member of the European Community. The Island is neither a member state nor an associate member of the European Community. By virtue of Protocol 3, the Island is part of the customs territory of the EU. Therefore the common customs tariff, levies and other agricultural import measures apply to trade between the Island and non-member countries. There is free movement of goods and agricultural products between the Island and the EU, but the EU provisions which relate to trade in financial services and products and those in respect of the free movement of persons, services and capital do not apply to the Island. Consequently, European Community law has direct application to the Island only for very limited purposes.
6.2 Corporate law in the Isle of Man The Isle of Man Companies Act 2006 came into force on 1 November 2006 and introduced a new simplified Isle of Man corporate vehicle (based on the international business company model available in a number of other jurisdictions). The Isle of Man Companies Act 2006 is largely a standalone piece of legislation and companies incorporated under the Isle of Man Companies Act 2006 (“2006 Companies”) co-exist with present and future companies incorporated under the existing Isle of Man Companies Acts 1931–2009 (“1931 Companies”).
6.3 Key Features of a 2006 Company A 2006 Company is a legal entity in its own right, separate from its members, and will continue in existence until it is dissolved in the same way as 1931 Companies. Every 2006 Company is required, at all times, to have:
(a) a registered agent in the Isle of Man who holds the appropriate licence granted by the Isle of Man Financial Supervision Commission (ensuring that there is a licensed professional on the Isle of Man overseeing the administration of the company); and
(b) a registered office address in the Isle of Man.
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6.4 Power and Capacity The doctrine of ultra vires does not apply to 2006 Companies. The Isle of Man Companies Act 2006 expressly states that, notwithstanding any provision to the contrary in a company’s memorandum or articles of association and irrespective of corporate benefit and whether or not it is in the best interests of a company to do so, a company has unlimited capacity to carry on or undertake any business or activity, to do, or to be subject to, any act or to enter into any transaction.
Notwithstanding this, the directors of 2006 Companies are still subject to the various duties imposed on directors by common law and statute as well as fiduciary duties (such as the duty to act bona fide in the best interests of the company).
6.5 Directors Unlike a 1931 Company, a 2006 Company is permitted to have a single director which may be an individual or, subject to compliance with certain requirements, a body corporate.
6.6 Members The Isle of Man Companies Act 2006 contains very few prescriptive rules relating to members’ meetings. Companies are not required to hold annual general meetings and the Isle of Man Companies Act 2006 allows members meetings to be held at such time and in such places, within or outside the Isle of Man, as the convener of the meeting considers appropriate. However, as is the case with the GVC Articles (as described in this Part 11), more prescriptive requirements relating to members’ meetings can be included in a company’s articles of association.
Subject to contrary provision in the Isle of Man Companies Act 2006 or in a company’s memorandum or articles, members exercise their powers by resolutions:
(a) passed at a meeting of the members; or
(b) passed as a written resolution.
The concept of “ordinary”, “special” and “extraordinary” resolutions is not recognised under the Isle of Man Companies Act 2006 and resolutions passed at a members meeting only require the approval of a member or members holding in excess of 50 per cent. of the voting rights exercised in relation thereto. However, as permitted under the Isle of Man Companies Act 2006, the GVC Articles incorporate the concept of a “special resolution” (requiring the approval of members holding 75 per cent. or more of the voting rights exercised in relation thereto) in relation to certain matters.
6.7 Shares I,21.2.7 The provisions relating to shares and share capital in the Isle of Man Companies Act 2006 are more I,21.2.8 relaxed than the equivalent provisions applying to 1931 Companies.
The Isle of Man Companies Act 2006 provides that shares in a company may (without limitation):
(a) be convertible, common or ordinary;
(b) be redeemable at the option of the shareholder or the company or either of them;
(c) confer preferential rights to distributions;
(d) confer special, limited or conditional rights, including voting rights; or
(e) entitle participation only in certain assets.
6.8 Distributions and the Solvency Test The Isle of Man Companies Act 2006 introduces a new definition of “distribution” in relation to a distribution by a 2006 Company of its assets to its members. A “distribution” essentially means the direct or indirect transfer of company assets or the incurring of a debt by a company to or for the
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benefit of a member and includes the payment of dividends and the redemption, purchase or other acquisition by a company of its own shares.
The Isle of Man Companies Act 2006 permits the directors of a company to authorise a distribution by the company to its members at such time and of such amount as they think fit if they are satisfied, on reasonable grounds, that the company will, immediately after the distribution, satisfy the solvency test.
A company satisfies the “solvency test” if:
(a) it is able to pay its debts as they become due in the normal course of its business; and
(b) the value of its assets exceeds the value of its liabilities.
The solvency test replaces the traditional capital maintenance requirements which apply to 1931 Companies. Provided that the solvency test has been satisfied, dividends may be paid and shares redeemed or purchased out of any capital or profits of the company.
Where a distribution has been made to a GVC Shareholder by GVC and GVC did not, immediately after the distribution, satisfy the solvency test, then the distribution (or the value thereof) may be recovered by GVC from the GVC Shareholder but only if:
(c) the member received the distribution or the benefit of the distribution (as the case may be) other than in good faith and without knowledge of GVC’s failure to satisfy the solvency test; and
(d) the member’s position has not been altered by the member relying on the validity of the distribution; and
(e) it would not be unfair to require repayment in full or at all.
6.9 Accounting Records The Isle of Man Companies Act 2006 requires a company to keep reliable accounting records which:
(a) correctly explain the transactions of the company;
(b) enable the financial position of the company to be determined with reasonable accuracy at any time; and
(c) allow financial statements to be prepared.
6.10 Offering Documents The Isle of Man Companies Act 2006 does not distinguish between public and private companies and (subject to any restrictions in a company’s memorandum or articles of association) a 2006 Company can offer its securities to the public.
If an offering document is issued in relation to a 2006 Company, the Isle of Man Companies Act 2006 requires the directors of a 2006 Company to ensure that any offering document issued in relation to that company:
(a) contains all material information relating to the offer or invitation contained therein (i) that the intended recipients would reasonably expect to be included therein in order to enable them to make an informed decision as to whether or not to accept the offer or make the application referred to therein; and (ii) of which the directors or proposed director were aware at the time of issue of the offering document or of which they would have been aware had they made such enquiries as would have been reasonable in all the circ*mstances; and
(b) sets out such information fairly and accurately.
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6.11 Statutory Books Originals or copies (as appropriate) of various documents, including the constitutional documents, statutory books and accounting records of a 2006 Company, are required to be kept at the office of the 2006 Company’s registered agent.
6.12 Issue of shares for non-cash consideration Under the Isle of Man Companies Act 2006 shares can either be issued for cash consideration or for consideration other than money. Under section 38 of the Isle of Man Companies Act 2006, if the directors are issuing shares for consideration other than money they shall pass a resolution stating: (i) the amount to be credited for the issues of the shares; (ii) their determination of the reasonable present cash value of the non-money consideration for the issue; and (iii) that in their opinion the present cash value of the non-money consideration for the issue is not less than the amount to be credited for the issue of the shares.
7 TAKEOVERS III,4.9
7.1 City Code GVC is subject to the provisions of the City Code, including the rules regarding mandatory takeover offers set out in the City Code. Under Rule 9 of the City Code, when (i) a person acquires an interest in shares which, when taken together with shares in which he or persons acting in concert with him (as defined in the City Code) are interested, carry 30 per cent. or more of the voting rights of a company subject to the City Code or (ii) any person who, together with persons acting in concert with him, is interested in shares carrying not less than 30 per cent. but not more than 50 per cent. of the voting rights of a company subject to the City Code, and such person, or any person acting in concert with him, acquires an interest in any other shares which increases the percentage of shares carrying voting rights in which he is interested, then, in either case, that person, together with the persons acting in concert with him, is normally required to make a general offer in cash, at the highest price paid by him or any person acting in concert with him for shares in the company within the preceding 12 months, for all of the remaining equity share capital of the company.
7.2 Compulsory acquisition procedure (a) Pursuant to section 160 of the Isle of Man Companies Act 2006, if a scheme or a contract involving the transfer of shares or any class of shares in the capital of the Company to another company (“the transferee company”) has within 16 weeks after the making of the offer by the transferee company been approved by the holders of not less than 90 per cent. in value of the shares affected, the transferee company may, at any time within eight weeks after the transferee has acquired or contracted to acquire not less than 90 per cent. in value of the shares, give notice in the prescribed manner to any dissenting shareholder that it desires to acquire such dissenting shareholders’ shares, and where such a notice is given the transferee company shall, unless on an application made by the dissenting shareholder within one month from the date on which the notice was given the court thinks fit to order otherwise, be entitled and bound to acquire those shares on the terms on which under the scheme or contract the shares of the approving shareholders are to be transferred to the transferee company (or on such terms as may be permitted by variation under the Isle of Man Companies Act 2006 in certain circ*mstances.
(b) Where such a notice has been given by the transferee company and the court has not, on an application made by the dissenting shareholder, ordered to the contrary, the transferee company shall, on the expiration of one month from the date on which the notice has been given, or, if an application to the court by the dissenting shareholder is then pending, after that application has been disposed of, transmit a copy of the notice to the Company and pay or transfer to the Company the amount or other consideration representing the price payable by the transferee company for the shares which the transferee company is entitled to acquire, and the Company shall thereupon register the transferee company as the holder of those shares.
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(c) The Isle of Man Companies Act 2006 would also give dissenting members a right to be bought out in certain circ*mstances by an offeror. A dissenting member may be entitled to payment of fair value of the members’ shares upon dissenting from either a merger, a consolidation or any scheme of arrangement permitted by court. If a member decides to exercise this entitlement he shall give notice to the Company before the meeting of members at which the action is submitted to a vote or by written objection at the meeting prior to the vote. Within 21 days immediately following the date on which the vote of members authorising the action is taken or the date on which the written resolution of members is obtained, the Company will give notice of the authorisation or consent to each member who gave objection (if in writing). That member then may, within 21 days immediately following the date on which they received notice, give a written election to dissent from the action. Within 7 days of the expiration of the period in which members may give their notice of election to dissent or within 7 days immediately following the date on which the proposed action is put into effect, whichever is the later, the Company shall make a written offer to each dissenting member to acquire the member’s share at a specified price that the Company determines to be its fair value. If within one month the Company and the dissenting member agree to the value then the Company shall pay to the member that amount in money. If the Company and the member fail to reach agreement on value then there is a process provided for in section 161 of the Isle of Man Companies Act 2006 to ascertain a fair value.
8 MAJOR SHAREHOLDERS III,3.3 Set out below are, insofar as is known to GVC, the names of those persons who, directly or indirectly, have I,18.1 an interest in 3 per cent. or more of the issued share capital of GVC as at the Last Practicable Date and are anticipated to have an interest immediately following Admission:
Percentage of No. of Percentage of No. of GVC Shares GVC Shares GVC Shares GVC Shares anticipated held as at held as at held to be held the Last the Last immediately immediately Practicable Practicable following following Name Date Date Admission* Admission* Standard Life Aberdeen plc 40,862,896 13.45 70,529,312 12.23 The Capital Group of Companies, Inc. 22,175,560 7.30 30,736,369 5.33 Old Mutual plc 20,923,106 6.89 29,840,577 5.17 Janus Henderson Group plc 18,217,102 6.00 18,776,286 3.26 Goldman Sachs International 13,127,425 4.32 13,127,425 2.28 Blackrock, Inc 12,570,348 4.14 21,450,208 3.72 Legal And General Investment Management Ltd. 9,667,073 3.18 17,280,761 3.00 Marathon Asset Management LLP 9,402,937 3.10 9,402,937 1.63 *Assuming standard terms of the offer with no specific mix and match elections.
No holder of GVC Shares has voting rights different from other holders of GVC Shares. I,18.2
As at the Last Practicable Date, GVC is not aware of (i) any person or persons who, directly or indirectly, I,18.3 owns or controls GVC or (ii) any arrangements the operation of which may at a subsequent date result in a I,18.4 change in control in GVC.
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9 RELATED PARTY TRANSACTIONS 9.1 Save as described (i) in note 21 on page 154 to the GVC Prospectus, (ii) in note 22 on page 83 to the I,19 GVC Annual Report 2015, (iii) in note 26 on page 106 to the GVC Annual Report 2016 (iv) in note 12 on page 30 to the GVC Interim Results 2017, (v) note 26 on pages 62 and 63 and note 26 on page 176 of the GVC Transfer Announcement , (vi) note 29 on page 129 to the bwin.party Annual Report 2014 and (vii) below, there were no related party transactions entered into by GVC or any member of the GVC Group in the period commencing on 1 January 2014 up to the Last Practicable Date:
(a) Lee Feldman is the managing partner of Twin Lakes Capital, a private equity firm based in New York. In the period from 1 July 2017 up to the Last Practicable Date, Twin Lakes Capital received £25,000 from the GVC Group in relation to office services.
(b) Karl Diacono is the chief executive officer of Fenlex Corporate Services Limited (“Fenlex”), a corporate services provider incorporated in Malta. In the period from 1 July 2017 up to the Last Practicable Date, the GVC Group paid to Fenlex €71,033.08 in relation to corporate service provider fees for corporate services provided to the GVC Group in Malta.
(c) Peter Isola is the Senior Partner of ISOLAS LLP, a Gibraltar law firm. In the period from 1 July 2017 up to the Last Practicable Date, the GVC Group paid to ISOLAS LLP €13,039.38 in relation to the provision of legal advice to the GVC Group in Gibraltar.
9.2 Save as described in (i) note 32 on pages 116 to 118 to the Ladbrokes Annual Report 2014, (ii) note 33 on pages 123 to 128 of the Ladbrokes Annual Report 2015, (iii) note 36 on pages 143 to 148 of the Ladbrokes Coral Annual Report 2016, (iv) note 11 on page 34 of the Ladbrokes Coral Interim Results 2017, and (v) note 26 on page 160 of the Historical Coral Group financial information in respect of the 52 weeks ended 27 September 2014, the 40 weeks ended 26 September 2015 and the 40 weeks ended 2 July 2016 set out in the Ladbrokes Coral Readmission Prospectus, there were no related party transactions entered into by Ladbrokes or any member of the Ladbrokes Coral Group in the period commencing on 1 January 2014 up to the Last Practicable Date.
10 WORKING CAPITAL III,3.1 10.1 The Company is of the opinion that the working capital available to the GVC Group is sufficient for LR,13.4.3(1) its present requirements, this is, for at least 12 months from the date of this document.
10.2 The Company is of the opinion that the working capital available to the Combined Group is sufficient for its present requirements, this is, for at least 12 months from the date of this document.
11 LEGAL AND ARBITRATION PROCEEDINGS OF THE GVC GROUP I,20.8 Save as disclosed in this paragraph, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which GVC is aware) which may have, or have had during the 12 months prior to the date of this document, a significant effect on GVC and/or the GVC Group’s financial position or profitability and, following the Effective Date, the Combined Group and/or the Combined Group’s financial condition or profitability.
11.1 Cyprus: Proceedings initiated against Nomato Investments Limited and certain former bwin.party group companies On 28 February 2014, BAW International Ltd (now bwin.party services (Gibraltar) Limited) and bwin.party digital entertainment plc (now bwin.party digital entertainment Limited) (together “bwin.party Cyprus defendants”) received a claim filed at the District Court of Limassol by Rodolfo Odoni against Nomato Investments Limited (“Nomato”) and others, including the bwin.party Cyprus defendants. In 2005, the former bwin.party entity had bought the platforms betoto.com and thecroupier.com from Nomato. Mr. Odoni claims that he owned 30 per cent. of Nomato’s shares at the time of the asset purchase. Mr. Odoni is seeking damages in the amount of €6.9 million or 30 per cent. of the profits in Nomato along with a declaration that he holds 30 per cent. of the shares in Nomato. Following Mr. Odoni having filed his statement of claim in late 2016 and
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the bwin.party Cyprus defendants having filed its defence on 12 May 2017, in order for the case to proceed, Mr. Odoni would next need to file an application requesting the court to schedule the case for directions. If Mr. Odoni proceeds on this basis, the bwin.party Cyprus defendants will file an application to make an indemnity claim against Nomato and its co-defendants to recover the damages it will suffer in respect of Mr. Odoni’s claim.
11.2 Germany: Administrative proceedings (cease-and-desist orders) Various GVC Group companies have received cease-and-desist orders/prohibition orders (Untersagungsverfügungen) issued by German federal states (“Länder”) aimed at suspending the operations of the GVC Group companies in the relevant territory and imposing fines for non- compliance with such orders. In total, approximately €1.6 million in fines have been imposed against the GVC Group or non-compliance with the prohibition orders. These orders have been challenged with complaints to the competent administrative courts in the respective Länder, including filing liability claims against the relevant authorities.
Following the ECJ decisions of September 2010 in Markus Stoß et al, Carmen Media and Winner Wetten (referred to in Part 8 of this document), German authorities have effectively ceased to impose fines on the GVC Group, and following the licence application in the tender procedure for one of the 20 available Germany-wide sports betting licences (referred to in Part 8 of this document), no new prohibition orders have been initiated against the GVC Group, save for one single prohibition order from the German State of Hesse, to which, the authority has determined that it will not commence enforcement action prior to a Court having decided on over the issue. In several cases, the relevant GVC Group companies have entered into settlement agreements and recovered fines paid to authorities.
However, German authorities have sent warning letters with regard to the products not licensable under the Interstate Treaty to several operators (including ElectraWorks and Martingale Malta 2 Ltd). Furthermore, the ruling of the German Federal Administrative Court (Bundesverwaltungsgericht) against two companies unrelated to the GVC Group, namely Cassava Enterprises (Gibraltar) Limited, a company of the 888 Holdings Plc group of companies, and NG International Ltd (referred to in Part 8 of this document), has increased the risk of enforcement against companies offering online poker and casino games. Therefore, there is a risk that currently dormant cases could be reopened and new fines imposed.
In the event that the GVC companies lose any of the administrative cases described above, the GVC Group may be required to partially or fully cease offering online casino and poker to German customers and may be found liable to pay procedural costs and/or administrative fines.
In taking the view that the prohibition of online casino and poker is not in line with EU law and must not be applied by German courts and authorities, ElectraWorks has applied to the authorities in Hesse, the competent licensing authority for Germany-wide licences awarded under the Interstate Treaty, to be granted an online casino licence. On 15 November 2017, as expected, the Hesse authorities declined the licence application, claiming that the Interstate Treaty prohibits online casino and poker. ElectraWorks challenged this decision by filing a claim to the administrative courts in Hesse on 12 December 2017. The claim aims at awarding ElectraWorks a licence for online casino and poker.
11.3 Portugal: Proceedings initiated by Santa Casa As a result of bwin.party’s sponsorship of the Portuguese Soccer League (Liga Portuguesa de Futebol Profissional, the “Liga”) commencing with the 2005/2006 season, Santa Casa da Misericórdia de Lisboa (“Santa Casa”), the Portuguese betting and lottery monopolist, and the Portuguese Casino Association (“APC”) initiated proceedings against the Liga as well as bwin.party digital entertainment plc and bwin.party services (Gibraltar) Ltd (in this section, together referred to as the “bwin.party Portuguese defendants”).
On 16 October 2014, the Portuguese Supreme Court upheld a ruling of the Oporto Court of First Instance made in September 2011 against the Liga and the bwin.party Portuguese defendants. In the initial ruling, the Court of First Instance: (i) declared that the (by that time terminated) sponsorship
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agreement between the bwin.party Portuguese defendants and the Liga was illegal; (ii) declared that offering of online gaming and advertising of the same was illegal; (iii) prohibited the bwin.party Portuguese defendants from offering mutual bets and lottery games in Portugal and from carrying out any form of publicity or promotion in relation to the same; (iv) imposed on the defendants pecuniary sanctions of (A) €50,000 per day of infringement, payable to the APC and (B) €50,000 per day of infringement, payable to Santa Casa; and (v) ordered the publication of the ruling. Following the initial ruling, the Liga and the bwin.party Portuguese defendants took measures to comply with the decision. However, it cannot be ruled out that certain activities may still be considered to be in violation of the ruling.
Following the Supreme Court’s decision, the bwin.party Portuguese defendants filed a formal appeal to the Portuguese Constitutional Court due to its unconstitutional interpretation of advertising rules in Portugal, however, on 19 March 2015, the Constitutional Court rejected the appeal.
In June 2012, APC initiated enforcement proceedings against the Liga and the bwin.party Portuguese defendants, requesting the payment of pecuniary sanctions in the total amount of €6.35 million for the alleged violation of the ruling of the Court of First Instance during the period 24 September 2011 to 31 January 2012. In June 2012, the Oporto Enforcement Court dismissed APC’s enforcement claim for lack of enforceability. APC filed an appeal against that decision, which the appellate enforcement court granted and determined that pecuniary sanctions were enforceable. The Liga submitted an appeal to the Supreme Court, which was rejected. Subsequently, the Liga appealed the decision to the Portuguese Constitutional Court. The case is still pending before the Constitutional Court, however, the enforcement proceedings can nevertheless continue before the Oporto Enforcement Court of First Instance.
Similar to the abovementioned case, Santa Casa initiated unfair competition proceedings against Sporting Clube de Braga, S.C. Braga, S.A.D, Sportingbet and Internet Opportunity Entertainment Limited (the two latter referred to as “Sportingbet Portuguese defendants”) in November 2006. In June 2015, the Portuguese Court of First Instance ordered the Sportingbet Portuguese defendants to jointly and severally pay €50,000 per infringement. The Sportingbet Portuguese defendants appealed the decision, however, the court of appeal upheld the original decision. Following an appeal to the Supreme Court, in March 2017 the Supreme Court submitted preliminary questions to the ECJ. In October 2017, the ECJ issued an Order stating that the referred questions have partly already been clarified in earlier ECJ case law (acte éclairé) and, as regards a number of questions, the referring court had made technical mistakes in the wording of the preliminary questions. At the end of November 2017, the Supreme Court was requested to refer amended questions to the ECJ. The case is currently pending before the Supreme Court.
11.4 Spain: Unfair competition proceedings initiated by Codere During 2011 to 2013, a Spanish company, Codere, applied for injunctions and made claims against several bwin.party group companies (including bwin.party digital entertainment plc, Party Gaming Holdings Ltd, ElectraWorks, ElectraWorks (España) Plc and bwin Interactive Marketing España SL (together the “bwin.party Spanish defendants”)) and against several companies in the Sportingbet Group (including Internet Opportunity Entertainment (Sports) Limited; Interactive Sports; Spread Your Wings Limited, Sportingbet Management Services Limited, Sportingbet Spain and Sportingbet PLC (together the “Sportingbet Spanish defendants”) and other gaming operators in different Spanish courts in order to stop their sites trading on the basis of unfair competition.
Codere’s claim is based on Codere being unable to operate in Spain under Spanish law whilst international online gaming companies claimed they were permitted to under EU law.
Case against the bwin.party Spanish defendants On 10 July 2014, the court issued a ruling dismissing Codere’s claim and all of its petitions. On 16 October 2014, Codere filed an appeal against the first instance court’s ruling before the Madrid Hearing Court. On 2 December 2014, the bwin.party Spanish defendants submitted a counterplea and
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included a petition that Codere must be charges with all Court fees. On 31 July 2015, the Madrid Hearing Court issued a Procedural Order which recorded the submission of the appeal as well as objections of the appeal filed on behalf of the bwin.party Spanish defendants. The proceedings are currently ongoing.
Codere is seeking damages of approximately €25.0 million from the bwin.party Spanish defendants.
Case against the Sportingbet Spanish defendants Although Codere was unsuccessful in its injunction applications against other operators, Codere was successful before the Madrid Commercial Court No. 10 in its application against the Sportingbet Spanish defendants. As a result, the Sportingbet Spanish defendants immediately complied with the injunction and ceased accepting business from the Spanish market. On 3 January 2014, the Court of Appeal resolved that the first instance decision to grant the interim measures against the Sportingbet Spanish defendants was incorrect and that the Sportingbet Group was therefore entitled to its costs of the proceedings at the first instance and to claim damages from Codere. The Sportingbet Spanish defendants filed their claim for damages in 2015. On 18 May 2016, Codere filed its statement of defence against this claim. On 22 February 2017, the Madrid Commercial Court No. 10 ordered the stay of the damages claim proceedings due to a prejudicial issue alleged by Codere. On 7 March 2017, the Sportingbet Spanish Defendants filed their opposition to the stay of the damages claim proceedings. A ruling on the stay of proceedings is pending.
Although the resolution of 3 January 2014 was not subject to appeal, on 6 October 2014 Codere requested it to be annulled before the Madrid Provincial Court on the basis of an alleged infringement of constitutional rights. On 8 May 2015, the Sportingbet Spanish defendants filed its opposition to Codere’s petition. A judgment is currently still pending.
In December 2014, a writ was filed on behalf of the Sportingbet Spanish defendants for legal fees totalling €426,509.95. Codere successfully requested the suspension of the proceedings regarding the valuation of the costs of the proceedings at first instance. The Court of Appeal resolved that the first instance court was competent to deal with the damages claim related to the interim measures. Codere has appealed this resolution, which is currently pending.
Codere filed its main unfair competition claim against the majority of Sportingbet Group companies on 23 January 2012. The case is currently pending before the Spanish Supreme Court, which has not yet set a date for the trial. Interactive Sports and Spread Your Wings Spain were served with the main claim in April 2013. The trial is expected to take place at the same time as the claim against the other Sportingbet Spanish defendants.
Whilst the disputes summarised above may impact GVC, William Hill Australia has agreed to indemnify GVC in respect of any actions, proceedings and losses which GVC or the GVC Group may suffer or incur which arise out of the Codere litigation relating to the Sportingbet Spanish defendants. This indemnity is uncapped. Any award by the Spanish Court for the reimbursem*nt of legal fees would be repayable to William Hill. As at the Last Practicable Date, GVC has received payment in the amount of €64,061.43 of the €364,225.68 total which it has sought to recover from William Hill Australia in respect of this claim.
11.5 Spain: Administrative proceedings initiated by Spanish regulator On 21 October 2014, the Spanish gaming regulator, DGOJ, initiated an infringement procedure (Case nº DGOJ-ES 2014/28) against ElectraWorks (España) PLC (“EWE”) due to an alleged infringement of allowing prohibited individuals to access its online gambling offering. On 20 April 2015, EWE was notified of the DGOJ’s decision imposing a fine in the amount of €169,805. EWE appealed against this decision before the Spanish administrative courts due to the absence of wilful misconduct for such alleged serious infringement and instead is seeking an alternative interpretation of the applicable regulation. On 18 September 2017, the Spanish administrative courts rejected EWE’s appeal and ordered the company to pay the court costs. The case has been closed.
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On 4 August 2016, EWE received another resolution issued by the DGOJ dated 19 July 2016 (Case nº DGOJ-ES 2016/3) whereby a fine of €150,000 was imposed on the company on grounds of having allowed players to exceed limits when placing live bets. On 15 February 2017, EWE appealed against the decision before the Madrid High Court “TSJ”. The Court set the date for voting and judgement on 21 February 2018.
11.6 Hungary: Administrative proceedings related to fines and ISP blocking Several proceedings have been commenced before the Hungarian courts against administrative fining and blocking resolutions issued by the Hungarian authorities against ElectraWorks Limited (“EWL”), Headlong and SPODDS due to their allegedly unlawful offering of online gambling to customers located in Hungary. Each of the companies (and several industry peers) received fining resolutions from the Hungarian authorities. Since 2014, EWL, Headlong and SPODDS have challenged all such fining resolutions, asking for their annulment and claiming that Hungarian gambling legislation is not compatible with overriding EU law and thus, sanctions must not be applied.
Headlong and SPODDS have been subjected to a total of 15 fines (with an aggregate total value of HUF 358.5 million, approximately €1.16 million), whereas EWL has been subjected to 8 fines (with a total value of HUF 54.5 million, approximately €175,890). Several national cases involving EWL, Headlong and SPODDS were suspended in 2016 due to the pending ECJ preliminary ruling procedure concerning Unibet (C-49/16). In its ruling the ECJ confirmed, inter alia, that it considered the Hungarian legislation at question in the specific national proceeding that had led to the referral as being incompatible with EU law and as a consequence, sanctions based on such legislation, including administrative sanctions such as fines and ISP blocking, are inadmissible. So far, hearings have been scheduled for 13 February, 20 March and 11 April 2018 in the suspended cases. It is worth noting that in December 2017, a Hungarian court ruled in favour of Unibet in one the local court cases pending against the Kindred Group. This is a positive signal for the cases concerning EWL, Headlong and SPODDS. Furthermore, there are two ECJ referrals pending that relate to national cases initiated by the GVC Group namely, Sporting Odds (C-3/17) and Headlong (C-303/17). In November 2017, the ECJ issued a notification concerning SPODDS case, noting that it would neither hold an oral hearing nor obtain an Advocate General’s opinion in this case. This is another positive signal as the ECJ is expected to rule in this case along the lines of its favourable Unibet judgment. The ECJ is expected to issue its ruling in the Sporting Odds case (C-3/17) on 28 February 2018.
11.7 Czech Republic: Fining order by Ministry of Finance On 4 May 2017, the Czech Ministry of Finance (“MoF”) issued a fine against EWL in the amount of up to CZK 25 million (approximately €992,000) for operating in the Czech Republic without a local gaming licence (i) for an indefinite period prior to the new Czech gambling law having entered into force on 1 January 2017 and (ii) in January/February 2017. On 12 June 2017, EWL submitted a formal appeal requesting cancellation of the order. On 9 October 2017, EWL provided a final statement of reply and a hearing took place at the MoF. The outcome of this appeal is pending.
11.8 Slovakia: Administrative proceedings following blacklisting On 3 July 2017, EWL received cease and desist letters by email from the Financial Directorate of the Slovak Republic. On 10 August 2017, the Financial Directorate requested the Regional Court in Banská Bystrica to issue an ISP blocking order. On 11 August 2017, the Regional Court issued an order to restrict the access to the bwin.party.com website. This was followed by a request of 4 September 2017 to issue an order to restrict execution of payment transactions. On 18 September 2017, the Regional Court issued an order to restrict the execution of payment transactions and payment services.
On 17 October 2017, EWL submitted a complaint requesting cancellation of the measures before the Financial Directorate and a petition before the Regional Court. EWL clarified that the aforementioned actions of the Slovak authorities constitute an unlawful interference with their rights under the Slovak Constitution and violate the EU market freedoms. EWL argued that it legitimately offers its services
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to customers located in the Slovak Republic on the basis of licenses issued to EWL in another EU Member State. On 18 October 2017, EWL also filed a complaint before the Constitutional Court. While the Financial Directorate, to which the claim had been sent for reasons of exercising all remedies in order to have access to the Constitutional Court, dismissed the complaint. EWL challenged the dismissal of the complaint on 18 January 2018. The proceedings are pending.
In course of the proceedings before the Regional Court, the Finance Directorate issued a statement arguing that the gambling regulatory regime established by the Slovak Gambling Act is compliant with EU law and that the Slovak law does not allow any legal remedies against the aforementioned court orders. EWL contested the submission in its reply of 26 January 2018. These proceedings before the Constitutional Court are pending.
11.9 United States: Patent infringement claim by CG Technology Development LLC and others A complaint was filed in April 2016 in the United States District Court in Nevada alleging patent infringement by GVC’s US-facing New Jersey business in connection with certain casino and poker software it operates. The claims have been brought by CG Technology Development, LLC, Interactive Games Limited and Interactive Games LLC against bwin.party digital entertainment Ltd, bwin.party (USA) Inc and bwin.party entertainment (NJ) LLC.
Five patents remain in issue, of which four patents are the subject of Inter Parties Review (“IPR”) before the Patent Trial and Appeal Board. The fifth patent has been alleged on a single ground which GVC believes is unsubstantiated with no evidence to support it and therefore this has not been made the subject of an IPR. On 18 December 2017, the case before the IPR was stayed. The case will remain inactive for at least twelve months, if not longer, until written decisions have been made on all of the issues before the IPR. GVC considers and contends that its New Jersey platform does not infringe the asserted patents and that the patents asserted should be and will be declared invalid at the Patent Trial and Appeal Board or in Court.
In the event that some of the patents survive the IPR process, although GVC consider it unlikely, there is a possibility the federal litigation could resume. In that eventuality, GVC considers that the likelihood that GVC will be held liable for infringement is low. If GVC was held liable, it could be made to pay a royalty fee (as a percentage of revenue generated by the software in issue) to the claimant, such fees are not quantifiable at this stage of proceedings.
In the event that injunctive relief is sought by the claimant this would not prevent GVC from operating in the state of New Jersey.
11.10 Greece: Tax assessment
Interim gaming licence The regulation of gaming in Greece (and the tax regime applicable to gaming operators), has been in a state of uncertainty for many years. On 22 August 2011 the Greek government enacted its online gaming and video lottery terminal framework law 2011 (the “2011 Law”). The 2011 Law provided that gaming operators licensed in another EU Member State may continue operating in Greece under the condition they “voluntarily” submit to a “transitional period”, which would last until the Greek government issued licensing conditions and opened a tender process.
Greek gambling laws prior to enactment of the 2011 Law had been subject to review and challenge by the European Commission for their alleged infringement of EU law, and the Greek Government faced criticism for not taking account of this review and challenge when it enacted the 2011 Law.
The 2011 Law was also challenged by industry bodies, the European Gaming and Betting Association and the Remote Gambling Association.
In December 2011, the Greek Gambling Commission announced that the application window for the “transitional period” would expire by the end of 2011, giving operators a very short period to apply for an interim licence. Core elements of the licensing regime and how they would be applied were
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still unclear at that time and there were doubts about the regulatory framework’s compliance with EU principles. As a result many operators declined to apply for an interim licence. Despite these regulatory uncertainties, one of GVC’s current subsidiaries, Sportingodds Limited (“SPODDS”) (which was at that time owned by Sportingbet) was successful in securing a Greek interim licence and has since that time offered online gaming services to players resident in Greece on that basis.
Tax assessment On 25 January 2018 GVC announced that one if its subsidiaries, Sportingodds Limited (“SPODDS”), had received a tax audit assessment notice (the “Assessment”) from the Greek Audit Centre for Large Enterprises (the “Authority”) in respect of fiscal year 2010 and 2011 (the “Period”). During the Period SPODDS was owned by Sportingbet, prior to the acquisition of Sportingbet by GVC in 2013. The total amount of the Assessment is €186.77 million. The Assessment claims that Greek corporate income tax, Greek gaming tax and withheld player winnings tax plus significant surcharges are owed by SPODDS to the Authority. The total Assessment amount is substantially higher (by a number of multiples) than the total Greek revenues generated by SPODDS during the Period. Based on the advice received by SPODDS from its Greek tax advisers, the GVC Board believes that SPODDS has strong grounds to appeal the Assessment. An appeal was filed by SPODDS with the Authority on 29 January 2018 (the “Lodged Appeal”). The basis of the Lodged Appeal centred on Greece’s lack of taxing rights, the method of calculation of the corporate income tax, gaming tax and customer winning withholding tax liability of SPODDS, the obligation to report and pay customer winnings withholding tax and whether the Greek rules respect the EU legal framework. The appeal process is expected to be conducted through the Greek courts and may take several years to complete if the appeal process has to be exhausted. SPODDS is currently in discussions with the Authority to enter into a payment scheme, whereby funds are paid to the Authority and held on account of the Assessment. Under the scheme SPODDS would pay to the Authority approximately €7.8 million a month over a 24 month period (the “Payment Scheme”). Entering into the Payment Scheme is not an admission that the Assessment is correct. SPODDS will seek to recover such payments from the Authority. The benefits of the Payment Scheme are that it ensures that the Greek authorities cannot seize the assets of SPODDS situated in Greece preventing it from operating and reduces the risk of any criminal proceedings in Greece in connection with Assessment being successful against the current and former directors and Greek representatives of SPODDS. SPODDS is seeking to agree the terms of the Payment Scheme within the three week period following the date of this document. If SPODDS cannot or does not enter into the Payment Scheme which it is seeking to agree with the Authority (or another form of payment scheme, for example the payment to the Authority of approximately €15.6 million a month over a 12 month period, a payment scheme which is currently available to SPODDS) and does not pay the amount of the Assessment pending completion of the Lodged Appeal, SPODDS will be exposed to the risks of criminal proceedings and asset seizure referred to above. The GVC Board strongly disputes the basis of the Assessment calculation, believing the assessed quantum to be inaccurate and is confident in the grounds of appeal. However, considering that SPODDS has now implemented a potentially lengthy appeal process, the GVC Board is considering either including a provision of up to approximately €200 million in GVC’s 2017 financial accounts to cover the Period and up to the end of 2017 (the “Provision”) or treating it as a contingent liability with appropriate disclosure. In the event that SPODDS is wholly or partially unsuccessful with its Lodged Appeal, it is likely that SPODDS will need to pay all or part of the Assessment (which includes surcharges), less any amounts already paid under the Payment Scheme. If such Assessment is not paid, then SPODDS may have its
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Greek (and potentially any EU) assets seized by the Greek authorities, which would result in it having to cease operations and wind up its business. The former and present directors and Greek representatives of SPODDS may also have their Greek (and potentially any EU) assets seized by the Greek authorities, and may also be subject to criminal proceedings in Greece.
Impact If the GVC Directors conclude that a Provision is required, GVC would incur a charge of up to approximately €200 million to its income statement for the year ended 31 December 2017 and would reduce net assets as at 31 December 2017 by a corresponding amount. In such circ*mstances, should the Lodged Appeal be successful, and SPODDS is able to recover any payments made under the Payment Scheme, the Enlarged Group’s net assets would be increased by the amount of such recovered payments in the period that the GVC Directors believe that any such amounts are recoverable.
11.11 Great Britain: UKGC Compliance review On 4 October 2017, EWL, a subsidiary of GVC, received a letter from the UKGC informing EWL that the UKGC was undertaking a licence review in accordance with s116 Gambling Act 2005. The grounds for the review were limited to a small number of alleged marketing infringements and the late filing of a personal management licence application. EWL has cooperated fully and in a timely fashion with the UKGC’s inquiries. As at the Last Practicable Date, the UKGC review findings have not been published, however, EWL has informed the UKGC that it will accept the regulator’s proposed fine of £350,000.
12 LEGAL AND ARBITRATION PROCEEDINGS OF THE LADBROKES CORAL GROUP Save as set out below, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which GVC is aware) which may have, or have had during the 12 months prior to the date of this document, a significant effect on Ladbrokes Coral and/or the Ladbrokes Coral Group’s financial position or profitability and, following the Effective Date, the Combined Group and/or the Combined Group’s financial condition or profitability.
12.1 United Kingdom: CMA investigation There is a risk that the Ladbrokes Coral Group is not compliant with all consumer laws, including in particular those relating to its marketing and advertising practices. On 21 October 2016, the CMA launched an investigation into whether online gambling companies are treating customers fairly, with particular focus on casino promotions and sports free bet bonuses. Following this, the CMA informed Ladbrokes Coral on 23 June 2017 that it had opened a formal investigation into suspected breaches of consumer protection law by Ladbrokes Coral. On 29 January 2018 Ladbrokes Coral entered into a series of undertakings to the CMA in relation to the concerns raised by the CMA in its investigation. Ladbrokes Coral has undertaken to make changes to the terms and conditions of its promotions to ensure transparency of terms and free bet proportions, and fair management of withdrawals. Ladbrokes Coral is currently implementing processes and procedures to ensure that it complies with these undertakings within the time frame agreed with the CMA. If these processes and procedures are not followed there is a risk that Ladbrokes Coral may breach the undertakings and may therefore be subject to sanctions from the CMA.
13 GVC’S MATERIAL CONTRACTS Set out below is a summary of each contract (not being a contract entered into in the ordinary course of I,22 business) entered into by any member of the GVC Group:
(a) within the two years immediately preceding the date of this document and which are or may be material to the GVC Group; or
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(b) which contain any provision under which any member of the GVC Group has any obligation or entitlement which is material to the GVC Group as at the date of this document.
13.1 Confidentiality Agreement GVC and Ladbrokes entered into a confidentiality agreement on 20 November 2016 pursuant to which GVC and Ladbrokes have undertaken to each other to keep information relating to the other confidential and not to disclose it to third parties (other than to permitted recipients) unless required by law or regulation. These confidentiality obligations will remain in force irrespective of whether or not the Acquisition is implemented.
The Confidentiality Agreement also contains mutual non-solicitation and non-hire of directors and employees provisions which are effective for a period of 12 months from the date of the Confidentiality Agreement, subject to certain exceptions in respect of (i) the publication of advertisem*nts and (ii) employees who terminated their employment more than six months prior to such solicitation.
13.2 Cost Coverage Agreement GVC and Ladbrokes Coral entered into a Cost Coverage Agreement on 7 December 2017 pursuant to which GVC has undertaken to pay the reasonable documented costs and expenses of Ladbrokes Coral, together with its professional advisers incurred in connection with the Acquisition up to a maximum amount of £5,000,000 (including any irrevocable VAT thereon) in the event that (i) GVC ceases discussions or negotiations regarding the acquisition (ii) its directors decide not to unanimously recommend the offer to GVC’s Shareholders before any firm offer announcement is made (iii) its directors withdraw, adversely modify or qualify their recommendation or intended recommendation after any firm offer announcement is made. The costs and expenses are those incurred from and including 27 November 2017 up until the date on which any of the events occurs or, in respect of (i) and (ii), the date on which it becomes reasonably apparent to Ladbrokes Coral that such an event has occurred. Ladbrokes Coral are not liable for the costs and expenses of GVC’s professional advisers in the event Ladbrokes Coral cease discussions or negotiations or its directors, no longer unanimously recommend the acquisition before or after any firm offer announcement or recommend a competing offer.
13.3 Co-operation Agreement GVC and Ladbrokes Coral have entered into the Co-operation Agreement, pursuant to which GVC and Ladbrokes Coral have agreed to certain undertakings to co-operate and provide each other with reasonable information, assistance and access in relation to the filings, submissions and notifications to be made in relation to these regulatory clearances and authorisations that are required in connection with the acquisition. GVC and Ladbrokes Coral have also agreed to provide each other with reasonable information, assistance and access for the preparation of certain parts of the key shareholder documentation.
GVC has agreed to certain limited restrictions on its conduct of business in respect of material matters pending the Acquisition becoming effective. GVC has also represented to Ladbrokes Coral that it has served a Clean Break Notice, and undertaken it will not revoke it unless the Scheme is withdrawn or lapses.
The Co-operation Agreement records GVC’s and Ladbrokes Coral’s intention to implement the acquisition by way of the scheme, subject to the ability of GVC to proceed by way of a takeover offer which is subject to the consent of Ladbrokes Coral, save where an independent competing transaction is announced or the board of Ladbrokes Coral Board withdraws its unanimous and unconditional recommendation of the Acquisition.
The Co-operation Agreement shall be terminated with immediate effect if GVC and Ladbrokes Coral so agree in writing. Both GVC and Ladbrokes Coral have the right to terminate the Co-operation Agreement, inter alia, if (i) a Condition becomes incapable of satisfaction or is invoked so as to cause
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the acquisition not to proceed, (ii) if the Acquisition is withdrawn or lapses in accordance with its terms and/or with the consent of the Panel (other than where such lapse or withdrawal is a result of the exercise of a right to switch to a scheme or offer (as applicable), (iii) the Acquisition does not become Effective on or before the Long Stop Date, (iv) if one or more Ladbrokes Coral Director withdraws his or her recommendation of the Acquisition, (v) if one or more GVC Director withdraws his or her recommendation of any of the GVC Shareholder Resolutions, and (vi) an independent competing transaction is announced which is unanimously and unconditionally recommended by the Ladbrokes Coral Board.
The Co-operation Agreement also contains provisions that will apply in respect of the Ladbrokes Coral Share Plans.
13.4 Term Loan and Revolving Credit Facility On 2 March 2017, GVC entered into a €320.0 million term and multi-currency revolving credit facilities agreement with certain financial institutions acting as bookrunners, mandated lead arrangers and lenders and Wilmington Trust (London) Limited acting as agent and security agent (the “Existing Facilities Agreement”) which was subsequently amended and restated on 7 December 2017 to, among other things, increase the then-existing term loan B facility (the “Original TLB”) by €50.0 million to €300.0 million (which is the current outstanding principal amount of the Original TLB). The €70.0 million revolving credit facility (the “Original RCF”) was not increased and remains undrawn as at the Last Practicable Date.
In addition to certain customary baskets, the Existing Facilities Agreement permits the incurrence of incremental debt (either as an increase to the total commitments under the Existing Facilities Agreement or as a new third party debt outside of the Existing Facilities Agreement) up to an amount equal to the aggregate of (i) the greater of €100.0 million and 50 per cent. of Adjusted EBITDA (as defined in the Existing Facilities Agreement) for the most recently completed (and reported) twelve month period (a “relevant period”) plus (ii) an amount such that GVC’s leverage ratio, being the ratio of its consolidated total net debt on the last day of any relevant period to Adjusted EBITDA (as defined in the Existing Facilities Agreement) in respect of that relevant period, does not exceed 3.50:1 (or, if the debt to be incurred is not to rank pari passu with the Existing Facilities Agreement in right of payment and proceeds of collateral, an amount such that GVC’s fixed charge coverage ratio, being the ratio of its Adjusted EBITDA (as defined in the Existing Facilities Agreement) in respect of a relevant period to its consolidated financial interest expenses for that relevant period, is at least 2.00:1). This flexibility was exercised on 22 December 2017 in order to introduce a new £600.0 million term loan B facility (the “B2(£) Facility”), a new £800.0 million term loan B facility (to be redenominated into euro) (the “B2(€) Facility”, and together with the B2(£) Facility, the “B2 Facilities”), a new £400.0 million bond backstop term loan B facility (the “B3 Facility”) (the “New Term Loan Facilities”) and a new £550.0 million revolving credit facility (the “Replacement RCF”) to replace the Original RCF (provided that up to £100.0 million of the Replacement RCF will be cancelled if not used within 1 year of the date of the Acquisition to refinance certain Ladbrokes Coral Group bonds and/or amounts due in respect of the CVR Instrument).
GVC can only apply amounts borrowed by it under the B2 Facilities towards: financing or refinancing the payment of the cash consideration in connection with the Acquisition; financing, refinancing or otherwise discharging (or providing funding to one or more other member of the Combined Group to finance, refinance or otherwise discharge) certain existing indebtedness of the Ladbrokes Coral Group and paying any related breakage costs, redemption premium, make whole costs and other fees, costs and expenses payable in connection with such financing, refinancing and/or discharge including all fees, costs and expenses incurred by any member of the Combined Group in connection with the close-out or termination of any related hedging arrangements in respect of which any member of the Combined Group was a party (including in respect of interest and/or exchange rate hedging; financing or refinancing the payment of fees, costs and expenses relating to the Acquisition; and any other purpose in connection with the Acquisition.
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GVC can only apply amounts borrowed by it under Facility B3 towards: any financing, refinancing, redemption, repayment, defeasance, discharge or other acquisition or retirement for the value of certain Ladbrokes Coral Group bonds and paying any related breakage costs, redemption premium, make whole costs and other fees, costs and expenses payable in connection with such refinancing and/or discharge (and any offer to holders of such bonds in connection therewith and/or the change of control as a result of the Acquisition, and any consent solicitation seeking a waiver of the requirement to make such an offer) including all fees, costs and expenses incurred in connection with such refinancing, redemption, repayment, defeasance, discharge or any other acquisition or retirement for value, including all fees, costs and expenses incurred by any member of the Combined Group in connection with the close-out or termination of any related hedging arrangements in respect of which any member of the Combined Group was a party (including in respect of interest and/or exchange rate hedging).
Each borrower under the Replacement RCF can only apply amounts borrowed by it towards the general corporate and working capital purposes of the Combined Group including any redemption, repayment, defeasance, discharge or other acquisition or retirement for value of certain Labrokes Coral Group bonds and/or amounts due in respect of the CVR.
The Existing Facilities Agreement contains certain voluntary cancellation and prepayment rights. There are also mandatory cancellation and prepayment events, including, but not limited to, change of control (meaning if any person or group of persons acting in concert becoming interested in (i) more than 50 per cent. of the issued or allotted ordinary share capital of GVC or (ii) shares in the capital of GVC carrying more than 50 per cent. of the voting rights normally exercisable at a general meeting of GVC) and an excess cash flow sweep, where 25 per cent. of excess cash (defined in the Existing Facilities Agreement as Excess Cash Flow and less certain amounts, including a de minimis basket) is required to be applied in prepayment of the Existing Facilities Agreement if GVC’s leverage ratio is above 3.50:1. The Existing Facilities Agreement also contains protections for the lenders that will apply to certain regulatory breaches of the Combined Group that have been outstanding for a certain period of time, the effect of which is that GVC will be restricted from making dividends, and the excess cash flow sweep percentage will be increased from 25 per cent. to 100 per cent., for so long as such breaches are not cured.
The interest rate under the Existing Facilities Agreement is made up of the applicable margin and, in relation to any loan in euros, the Euro Interbank Offered Rate, in relation to loans in Australian Dollars, the average bid rate administered by the Australian Financial Markets Association, or in relation to any other loan the London Interbank Offered Rate. The level of the applicable margin depends on GVC’s leverage ratio; at GVC’s current leverage ratio, the applicable margin for the Original TLB is 2.75 per cent. and the applicable margin for the Original RCF is 2.75 per cent. The initial applicable margin for the B2(£) Facility will be 3.50 per cent., the initial applicable margin for the B2(€) Facility will be 2.75 per cent. and the initial margin for the B3 Facility will be 3.50 per cent. (unless redenominated into euro, in which case the initial applicable margin will be 2.75 per cent.), provided that if no event of default is continuing under the Existing Facilities Agreement and a period of at least six months has expired since the Closing Date (defined below), then the applicable margins for the B2 Facilities and the B3 Facility shall be as follows for the relevant leverage ratio of GVC:
Leverage Ratio Facility B2(£) Facility B2(€) Facility B3 Facility B3 Margin Margin Margin if £ Margin if € % p.a. % p.a. Loan % p.a. Loan % p.a. Greater than 3.00 3.75 3.00 3.75 3.00 Equal to or less than 3.00 but greater than 2.00 3.50 2.75 3.50 2.75 Equal to or less than 2.00 3.25 2.50 3.25 2.50
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Leverage Ratio Replacement RCF Margin % p.a. Greater than 3.00 3.00 Equal to or less than 3.00 but greater than 2.00 2.75 Equal to or less than 2.00 but greater than 1.75 2.50 Equal to or less than 1.75 but greater than 1.50 2.25 Equal to or less than 1.50 2.00
GVC and certain other member of the Combined Group will act as guarantors under the Existing Facilities Agreement. Each entity which is party to the Existing Facilities Agreement as a borrower under/or guarantor has made or will make certain representations and has given certain general undertakings, which are customary to make or give in a facility agreement of this nature.
For the benefit of Lenders under the Original RCF (and the Replacement RCF), GVC has undertaken to comply with an obligation to ensure that its leverage ratio does not exceed 4.00:1 in respect of any relevant period ending on a quarter date on which the aggregate outstanding cash loans under the Original RCF (or the Replacement RCF) exceed 35 per cent. of the total Original RCF/Replacement RCF commitments.
Events of default, customary in a facility agreement of this nature, include, without limitation, non- payment of amounts due, misrepresentation, cross-default in an amount over €30.0 million, insolvency, insolvency proceedings, cessation of business and material adverse change.
The Original TLB matures on 2 March 2023, the New Term Loan Facilities will mature on the date falling six years after the first date on which such facilities are drawn in connection with the Acquisition (the “Closing Date”) and the Replacement RCF will mature on the date falling 5 years after the Closing Date.
The Existing Facilities Agreement refinances the €250 million one year bridge loan facility dated 19 September 2016 (as amended as restated on 30 January 2017) entered into between, amongst others, GVC as borrower, Nomura International plc as original lender and as mandated lead arranger and Wilmington Trust (London) Limited as agent and security agent which was used in part to repay the Cerberus Loan.
13.5 Sponsor Agreement On the date of this document, the Company and Investec entered into a sponsor agreement (the “Sponsor Agreement”). Pursuant to the Sponsor Agreement:
(a) the Company has appointed Investec as its sole sponsor (subject to and in accordance with the terms of the Sponsor Agreement);
(b) Investec has the right to terminate the Sponsor Agreement prior to the Effective Date in certain circ*mstances, including if there is a material adverse change in the business of the GVC Group;
(c) the Company has given certain warranties and undertakings to Investec;
(d) the Company has given a customary indemnity to Investec; and
(e) the Company has agreed to pay or cause to be paid (together with, in each case, any related VAT) certain fees to Investec, together with certain costs, charges and fees and expenses of, or in connection with, or incidental to, amongst other things, Admission.
13.6 CVR Instrument A summary of the terms of the CVR Instrument is contained in section A of Part 3 of this document.
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13.7 Loan Note Instrument A summary of the terms of the Loan Note Instrument is contained in section B of Part 3 of this document.
13.8 Expert Appointment Letter On 22 December 2017, GVC and Ladbrokes Coral, on the one hand, and Deloitte LLP on the other hand, entered into an appointment letter (the “Expert Appointment Letter”), pursuant to which Deloitte LLP is appointed as the Expert for the purposes of the CVR Instrument. Under the Expert Appointment Letter, Deloitte LLP is to be paid a fee in respect of such appointment, such fee being payable by GVC, and also benefits from certain indemnities and limitations of liability which are customary for appointments of this nature.
13.9 CVR Representative Appointment Letter On 8 February 2018, GVC and Ladbrokes Coral, on the one hand, and the CVR Representative on the other hand, entered into an appointment letter (the “CVR Representative Appointment Letter”), pursuant to which Carl Leaver is appointed as the CVR Representative for the purposes of the CVR Instrument. Under the terms of the CVR Representative Appointment Letter, Carl Leaver is to be paid a fee in respect of such appointment, such fee being paid by GVC, and also benefits from certain indemnities and limitations of liability (such indemnified and limitations of liability being set out in the CVR Instrument).
13.10 Uwin Option Agreement On 24 March 2015, Winunited (“Uwin”), an online gambling business operating the brands youwin, uwin, hepsibahis & mroyun, granted to the GVC Group an option to acquire the Uwin business. The exercise period for the call option is the period between four years and nine months after the effective date and the five year anniversary of the effective date. Should GVC not exercise the call option by the expiry of this period, the agreement remains in force for a period of 6 years from the effective date. The option price is an amount in Euros equal to 12 months EBITDA x (65 per cent of the P/E multiple) + working capital where:
(a) 12 month EBITDA means the EBITDA of Winunited for the 12 months prior to the date of the call option notice; and
(b) P/E multiple means the ratio on the date of the call option notice of GVC market capitalisation to GVC published earnings.
During the term of the agreement Winunited and GVC agreed to split the Net Gaming Revenue on a monthly basis and on an 80:20 basis (Winunited 80 per cent., and GVC 20 per cent.).
13.11 Acquisition of Innopark Pte. Limited Pursuant to a sale and purchase agreement dated 31 July 2017 (“Innopark SPA”) made between, among others, Innopark (India) Private Limited (as Seller), GVC Services Limited (as Buyer) and GVC Holdings plc (as Buyer Guarantor), GVC Services Limited agreed to acquire the entire issued share capital of Innopark Pte. Limited (“Innopark”). Innopark is a Singaporean entity which operates an online gambling B2C, white label bingo and casino business which operate under the Cozy Games brand. The acquisition completed on 9 August 2017 and Innopark and its subsidiaries became part of the GVC Group on that date.
The consideration for the shares in Innopark was an initial purchase price of c.£26.2 million (subject to a working capital adjustment) together with deferred consideration of up to an £800,000 if certain conditions are met.
The Seller provided customary warranty and indemnity protection to the Buyer under the Innopark SPA (including in relation to tax) together with certain set-off rights against the deferred and earn-out consideration in the event of a claim.
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13.12 Disposal of Kalixa Payments Group Limited On 16 December 2016, Kalixa Group Limited (a wholly owned subsidiary of the Company) (“KGL”), entered into a share sale agreement (“SSA”) pursuant to which it sold all of the shares in Kalixa Payments Group Limited (“Kalixa”), the Company’s payments processing business, to Senjō Group Pte. Ltd (“Senjō”), a global payments operator and investment firm headquartered in Singapore, for a total consideration of €29.0 million cash subject to a completion accounts adjustment, total consideration was capped at €35.5 million. The obligations of KGL under the SSA were guaranteed by bwin.party Holdings Limited. Under the terms of the SSA, KGL agreed to certain customary restrictive covenants in relation to competition with Kalixa, and the employment of certain ‘restricted employees’. KGL also agreed to provide Senjō with customary indemnities, representations and warranties. The maximum aggregate liability of KGL for any claims under the SSA was capped at the purchase price. GVC Services Limited and Kalixa each agreed to provide transitional services to each other on a transitional basis pursuant to a separate transitional services agreement.
13.13 Sale and Purchase Agreement for the sale of Headlong Limited On 2 November 2017 GVC entered into a sale and purchase agreement (the “Sale Agreement”) with Ropso Malta Limited (the “Buyer”) and GVC Investments Limited, pursuant to which GVC Investments Limited agreed to sell the entire issued share capital of Headlong, comprising its Turkish facing operations, to Ropso Malta Limited (the “Disposal”). The Disposal completed on 19 December 2017.
The consideration for the Disposal took the form of a performance related earn-out payable monthly over a 5 year period up to a maximum of €150.0 million. The first payment was to fall due 5 days after the end of the second month following completion of the sale.
The Sale Agreement provides that following completion of the Disposal, GVC Investments Limited (the “Seller”) has the right to serve a ‘clean break’ notice on the buyer, notifying the buyer that on the date that is one month following service of the notice (“Clean Break Date”), the Buyer’s obligations to pay the consideration shall terminate.
On 21 December 2017 the Seller served a notice on the buyer and accordingly the Clean Break Date was 21 January 2018. Under the Sale Agreement the Clean Break Notice is revocable. In the Co- operation Agreement GVC has undertaken not to revoke the Clean Break Notice unless the Acquisition fails to become Effective. Given that the Clean Break Date fell before the date on which the first payment of consideration fell due, no consideration has been paid nor will any consideration be payable by the Buyer.
Under the Sale Agreement, the Seller provided an indemnity to Ropso Malta Limited in connection with certain potential Hungarian regulatory claims. The Seller’s liability under the indemnity is capped at €10.0 million. Other than in respect of this indemnity, GVC and GVC Investment Limited’s maximum liability under the sale and purchase agreement is capped at the total amount of consideration paid by the Ropso Malta Limited, which is nil.
On completion of the Disposal, Headlong entered into: (i) a transitional service agreement with GVC Services Limited whereby GVC Services Limited agreed to provide Headlong with various back office support services; and (ii) a transitional services agreement with ElectraWorks Limited whereby Headlong agreed to provide ElectraWorks with platform related services (together the “Transitional Service Agreements”). On 8 February 2018, GVC Services Limited and ElectraWorks Limited served notice on Headlong to terminate the Transitional Service Agreements with effect from 31 March 2018.
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14 LADBROKES CORAL GROUP’S MATERIAL CONTRACTS Set out below is a summary of each contract (not being a contract entered into in the ordinary course of business) entered into by any member of the Ladbrokes Coral Group:
(a) within the two years immediately preceding the date of this document and which are or may be material to the Ladbrokes Coral Group; or
(b) which contain any provision under which any member of the Ladbrokes Coral Group has any obligation or entitlement which is material to the Ladbrokes Coral Group as at the date of this document.
14.1 Confidentiality Agreement, Cost Coverage Agreement, Co-operation Agreement and Expert Appointment Letter Details of the Confidentiality Agreement, Cost Coverage Agreement, Co-operation Agreement, Expert Appointment Letter and the CVR Representative Letter are set out in paragraph 13 of this Part 11.
14.2 Historic Ladbrokes Group Business Transfer Agreements (a) Ladbrokes Betting & Gaming Limited has entered into: (A) a business transfer agreement to sell 168 LBOs to Done Brothers (Cash Betting) Limited (trading as Betfred); and (B) a business transfer agreement to sell 17 LBOs to StanJames (Abingdon) Limited (trading as Stan James) on 15 October 2016;
(b) Coral Racing Limited has entered into: (A) a business transfer agreement to sell 154 LBOs to Betfred; and (B) a business transfer agreement to sell 20 LBOs to Stan James on 15 October 2016; and
(c) Ladbrokes Betting & Gaming Limited entered into a further business transfer agreement with Bet 21 Limited in respect of the sale of one LBO to Bet 21 Limited on 21 October 2016,
(collectively, the “Historic Ladbrokes Group Business Transfer Agreements”).
Ladbrokes Betting & Gaming Limited and Coral Racing Limited each gave certain customary warranties and indemnities in relation to the business and assets transferring to the purchasers under the relevant Historic Ladbrokes Group Business Transfer Agreements, including an indemnity in respect of all matters arising in connection with the operation of the business transferring to them prior to completion of the Historic Ladbrokes Group Business Transfer Agreements.
14.3 Financing arrangements
(a) Facilities Agreement Ladbrokes Group Finance plc, as borrower, Ladbrokes Coral as guarantor and Barclays Bank PLC as agent on behalf of the lenders have entered into a Facilities Agreement dated 8 October 2015, as amended on 13 June 2016, 24 March 2017 and 16 October 2017 (the “Facilities Agreement”). The Facilities Agreement comprises: (i) a £200,000,000 sterling term loan facility (“Facility A”), which is due to mature on 26 October 2020; (ii) a £400,000,000 multi- currency revolving loan facility (“Facility B”), which is due to mature on 8 October 2020; and (iii) a £350,000,000 multi-currency revolving loan facility (“Facility C”), which is due to mature on 16 October 2020. The Facilities Agreement also allows for any lender to make available to Ladbrokes Group Finance plc and any of Ladbrokes Coral’s subsidiaries various ancillary facilities in place of all or part of its Facility B and Facility C commitment.
All amounts borrowed by Ladbrokes Group Finance plc are available towards the general corporate purposes of the Ladbrokes Coral Group, including, without limitation, for working capital purposes.
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(b) Interest and fees Loans under the Facilities Agreement will bear interest at the percentage rates per annum equal to the aggregate of IBOR and the applicable margin.
Commitment fees are payable on the aggregate undrawn and uncancelled amount of each facility during each facility’s availability period. An arrangement fee and a facility fee were separately agreed between Ladbrokes Group Finance plc and the lenders.
(c) Guarantee Ladbrokes Coral provides a continuing guarantee of all amounts payable to the finance parties under the Facilities Agreement and undertakes to pay any amount on demand when due.
(d) Representations and warranties The Facilities Agreement contains customary representations and warranties including, without limitation:
• corporate representations (including status and incorporation, binding obligations, non- conflict with constitutional documents, laws or other obligations, validity and admissibility in evidence and true and fair financial statements);
• no event of default;
• pari passu ranking with all other unsubordinated and unsecured indebtedness;
• sanctions;
• no misleading information; and
• no proceedings pending or threatened.
(e) Covenants and undertakings The Facilities Agreement has a net borrowings to EBITDA financial covenant of 3.5 times and an EBITDA to net borrowing costs financial covenant of 3.0 times. The net borrowings to EBITDA financial covenant widens to 4.25 times for the test period during which a “class 1” acquisition is made and the two immediately following test periods.
In addition, the Facilities Agreement contains certain undertakings, including, without limitation, a restriction on certain sales and other disposals, a restriction on the creation or subsistence of security subject to certain exceptions, a sanctions undertaking and a restriction on financial indebtedness of subsidiaries of Ladbrokes Coral (other than Ladbrokes Group Finance plc) subject to certain exceptions.
(f) Change of control, regulatory events, mandatory prepayment and events of default The Facilities Agreement contains a change of control provision, provisions relating to the occurrence of regulatory events (including breaches of certain gambling laws), a mandatory prepayment provision and events of default.
Under the terms of the mandatory prepayment provision, Ladbrokes Group Finance plc must prepay and/or cancel Facility A using all proceeds received from any bond issuance.
The events of default include, without limitation, failure to make payments under the Facilities Agreement, breach of the financial covenants, breach of other obligations contained in the Facilities Agreement, breach of representations, certain events of liquidation or reorganisation and similar events, insolvency, cross-default in excess of specified amounts, suspension of operations, invalidity of the Facilities Agreement and creditors’ process or enforcement of security in respect of property having a value in excess of specified amounts.
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If an event of default, a change of control of Ladbrokes Coral or a regulatory event occurs, the agent bank may give notice of cancellation of all available commitments and/or declare all outstanding advances, together with accrued interest, to be immediately due and payable. On the giving of such notice the outstanding amounts would be repayable immediately.
(g) Existing Notes/Bonds
(i) 2022 Notes Ladbrokes Group Finance plc has issued £100,000,000 5.125 per cent. notes due 2022 (the “2022 Notes”) pursuant to a prospectus dated 27 May 2014 and a subscription agreement dated 13 June 2014 and a trust deed dated 16 June 2014. Payment obligations under the 2022 Notes are guaranteed by Ladbrokes Coral.
The 2022 Notes are subject to certain covenants, including, without limitation: (i) a covenant that restricts, subject to certain exceptions, the creation or subsistence of security for indebtedness for borrowed monies unless the 2022 Notes are secured equally and rateably with such indebtedness to the satisfaction of the trustee of the 2022 Notes (the “2022 Notes Trustee”) (or certain other alternative arrangements are made); (ii) a limitation on the incurrence of financial indebtedness by any member of the Ladbrokes Coral Group subject to certain exceptions and provided that the issuer of the notes and any guarantor may incur indebtedness if the Fixed Charge Coverage Ratio (as defined in the 2022 Notes) is equal to or greater than 2.75 to 1.00 after giving effect to the new indebtedness on a pro forma basis; and (iii) a covenant that restricts merger, consolidation and the sale of substantially all assets, subject to certain exceptions.
The 2022 Notes are also subject to certain events of default, including, without limitation, failure to make payments in respect of the 2022 Notes, certain events of liquidation or reorganisation and similar events, cessation of payment of debts generally or cessation of business, creditors’ process, insolvency, composition with creditors, cross-acceleration in excess of specified amounts and breach of other obligations under the 2022 Notes.
In an event of default (in certain cases only after certification by the 2022 Notes Trustee that the relevant event is, in its opinion, materially prejudicial to the interests of the holders of such notes) the 2022 Notes Trustee may, or if requested or directed by a certain proportion of the holders of the 2022 Notes, shall declare the 2022 Notes immediately due and payable.
(ii) 2023 Notes Ladbrokes Group Finance plc has issued £400,000,000 5.125 per cent. Notes due 2023 (the “2023 Notes”) pursuant to a prospectus dated 4 November 2016, a subscription agreement dated 4 November 2016 and a trust deed dated 8 November 2016. Payment obligations under the 2023 Notes are guaranteed by Ladbrokes Coral.
The 2023 Notes are subject to certain covenants, including, without limitation: (i) a covenant that restricts, subject to certain exceptions, the creation or subsistence of security for indebtedness for borrowed monies unless the 2023 Notes are secured equally and rateably with such indebtedness to the satisfaction of the trustee of the 2023 Notes (the “2023 Notes Trustee”) (or certain other alternative arrangements are made); (ii) a limitation on the incurrence of financial indebtedness by any member of the Group subject to certain exceptions and provided the issuer of the notes, any guarantor and any subsidiary of Ladbrokes Coral established for and engaged exclusively in the business of incurring debt may incur indebtedness if the Fixed Charge Coverage Ratio (as defined in the 2023 Notes) is equal to or greater than 2.00 to 1.00 after giving effect to the new indebtedness on a pro forma basis; and (iii) a covenant that restricts the Company from
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merger, consolidation and the sale of substantially all of its assets, subject to certain exceptions.
The 2023 Notes are also subject to certain events of default, including, without limitation, failure to make payments in respect of the 2023 Notes, certain events of liquidation or reorganisation and similar events, cessation of payment of debts generally or cessation of business, creditors’ process, insolvency, composition with creditors, cross-acceleration in excess of specified amounts and breach of other obligations under the 2023 Notes.
In an event of default (in certain cases only after certification by the 2023 Notes Trustee that the relevant event is, in its opinion, materially prejudicial to the interests of the holders of such notes) the 2023 Notes Trustee may, or if requested or directed by a certain proportion of the holders of the 2023 Notes, shall declare the 2023 Notes immediately due and payable.
(h) Bank guarantees and letters of credit Bank guarantees and letters of credit have been issued on behalf of certain subsidiaries of Ladbrokes Coral and certain joint ventures in which the Ladbrokes Coral Group has an interest.
As at 31 December 2017, the principal outstanding amount of such guarantees and letters of credit was £61.2 million, of which £45 million in principal outstanding amount was issued under the Facility Agreement. The remainder was issued under certain uncommitted lines of credit.
Ladbrokes Coral has provided a counter-indemnity in respect of some of the guarantees and letters of credit issued under uncommitted lines of credit.
Certain issue and other fees are payable to the issuers of the bank guarantees and letters of credit.
14.4 Playtech
(a) Playtech Marketing Services Agreement On 10 March 2013, Ladbrokes International entered into a marketing services agreement with PT Turnkey Services Limited (“PTS”) (the “Marketing Services Agreement”). Pursuant to the terms of the Marketing Services Agreement, PTS agreed to provide marketing and advisory services, including sophisticated business intelligence and customer relationship management systems, to Ladbrokes International in order to grow Ladbrokes’ digital business. The Marketing Services Agreement commenced on 1 May 2013 and was due to terminate on 31 December 2017.
On 23 July 2015, Ladbrokes International and PTS agreed to amend the Marketing Services Agreement (the “Marketing Amendment Agreement”). Pursuant to the Marketing Amendment Agreement the previous terms of the Marketing Services Agreement ceased to apply and were replaced with new provisions that provided for: (i) the payment to PTS of £40 million on completion of the Ladbrokes Coral Merger satisfied by way of the issue of shares in Ladbrokes Coral, and (ii) the payment to PTS of a further guaranteed £35 million in cash payable upon delivery of key operational milestones but, in any event, within 42 months from completion of the Ladbrokes Coral Merger.
(b) Playtech Software Agreement On 10 March 2013, Ladbrokes International entered into a new software licence and services agreement with Playtech Software Limited (“PSL”) (as amended from time to time, the “Software Agreement”). Pursuant to the terms of the Software Agreement, PSL agreed to provide services in relation to online casino and gaming activities and a software licence to allow Ladbrokes access to PSL’s full product suite and technology. The Software Agreement
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has an initial term calculated to end on 25 March 2021 followed by five year rolling terms. There is a break clause in the Software Agreement that entitles Ladbrokes International to terminate the Software Agreement on 25 December 2019. The fees payable to PSL under the Software Agreement are calculated on a product-by-product basis (principally by reference to the revenue generated by products).
On 23 July 2015, Ladbrokes International and PSL agreed to amend the Software Agreement (the “Software Amendment Agreement”). Pursuant to the Software Amendment Agreement, the previous break clause in the Software Agreement was terminated and ceased to apply and was replaced with a new break clause that entitles Ladbrokes International to terminate the Software Agreement on the date that is the later of: (i) 54 months from completion of the Ladbrokes Coral Merger; and (ii) 31 December 2020. Ladbrokes International also agreed revised fee arrangements to apply following completion of the Ladbrokes Coral Merger.
(c) Coral Playtech Software Agreement On 19 July 2011, Gala Coral Interactive (Gibraltar) Limited (“GCI”) entered into an agreement for the provision of online gambling services with PSL and Playtech Limited (collectively, “PT”), as amended by deeds of variation dated 3 May 2012, 9 October 2013 and 6 November 2013 (the “Coral Software Agreement”). Pursuant to the terms of the Coral Software Agreement, PT agreed to set up, integrate, launch and maintain an online gaming system on behalf of GCI, and to provide games to GCI for use on that system. The Coral Software Agreement commenced on 19 July 2011 and has an initial term of 10 years followed by rolling five-year terms. There is a break clause in the Coral Software Agreement that entitles GCI to terminate the Coral Software Agreement on 19 July 2019. The fees payable to GCI under the Coral Software Agreement are calculated on a product-by-product basis (principally by reference to the revenue generated by products).
On 23 July 2015, GCI and PSL entered into a letter agreement pursuant to which, inter alia, GCI agreed that it would not exercise its right to terminate the Coral Software Agreement prior to 31 March 2017 and, if requested by PSL, GCI would amend the Coral Software Agreement to reflect the changes to the termination provisions of the Coral Software Agreement envisaged by the Software Amendment Agreement and Marketing Amendment Agreement.
15 LICENCES Refer to Part 8 of this document for details of the licences held by each of the GVC Group and the Ladbrokes Coral Group.
16 CONSENTS I,23.1 16.1 Grant Thornton has given and not withdrawn its written consent to the issue of this document with the LR,13.4.1(6) inclusion herein of its report in section B of Part 7 of this document and the references to its report in LR,13.3.1(10) the form and context in which it appears and has authorised the contents of Part 7 of this document for the purposes of paragraph 5.5.3R(2)(f) of the Prospectus Rules. Grant Thornton is a member of the Institute of Chartered Accountants in England and Wales.
16.2 KPMG has given and not withdrawn its written consent to the issue of this document with the III,10.3 inclusion herein of its report in section B of Part 6 of this document and the references to its report in the form and context in which it appears and has authorised the contents of section B of Part 6 of this document for the purposes of paragraph 5.5.3R(2)(f) of the Prospectus Rules. KPMG is a member of the Institute of Chartered Accountants in England and Wales.
16.3 Investec has given and not withdrawn its written consent to the issue of this document with the inclusion of its name and references to it in the form and context in which it appears.
16.4 Houlihan Lokey has given and not withdrawn its written consent to the issue of this document with III,10.3 the inclusion of its name and references to it in the form and context in which it appears.
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17 SIGNIFICANT CHANGE I,20.9 17.1 Save in respect of the Disposal set in out paragraph 7 of Part 1 of this document and the Greek Tax Assessment set out in paragraph 11.10 of this Part 11, there has been no significant change in the financial or trading position of the GVC Group since 30 June 2017, the most recent date to which financial information has been prepared and published.
17.2 There has been no significant change in the financial or trading position of the Ladbrokes Coral Group since 30 June 2017, the most recent date to which financial information has been prepared and published.
18 PROPERTY I,8.1 18.1 The following are the principal establishments of the GVC Group:
Country Location Contract Address Entity leasing Term Austria Vienna Leasehold Marxergasse 1B bwin.party services 30/09/2023 1030 Wien (Austria) GmbH 1030 Wien Bulgaria Sofia Leasehold 55 Nikola bwin.party services 31/10/2022 Vaptzarov Blvd., (Bulgaria) EOOD Expo 2000 now GVC Services Office Park, (Bulgaria) EOOD Building Phase 4, 3rd floor, 1407 Sofia Gibraltar Gibraltar Leasehold Suites 6 & 7 Europort Five 30/06/2021 Atlantic Suites Limited & Bay Europort Avenue Management Gibraltar Limited & Partygaming Holdings Limited
Country Location Contract Address Entity leasing Term Gibraltar Underlease Block 641, Europort 28/02/2028 Europort, (International) Europort Avenue, Holdings Limited Gibraltar & bwin.party International Limited Gibraltar Leasehold Block 611, Europort 14/07/2020 Europort, (International) Europort Avenue, Holdings Limited Gibraltar & bwin.party International Limited Gibraltar Leasehold Block 621, Europort 10/07/2024 Europort, (International) Europort Avenue, Holdings Limited Gibraltar & bwin party management (Gibraltar) Limited
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Country Location Contract Address Entity leasing Term India Hyderabad Leasehold Divyasree Omega, Ivy Comptech 10/03/2021 “B” Block Private Ltd, 5th Floor, Ivy Software Hitech City Road Development Kondapur, Services Pvt. Ltd. Hyderabad- Ivy BPO Services 500081 Private Ltd Divyasree Omega, “B” Block 5th Floor, Hitech City Road Kondapur, Hyderabad-500081 Ireland Dublin Leasehold 7a Store Street, MLB Limited 30/09/2021 Spencer House, Dublin 1 Israel Tel Aviv Leasehold 1 Merkaz Azrieli GVC Corporation 19/09/2021 Center, BV Round Tower, Floor 22 Tel Aviv Italy Rome Leasehold bwin.party bwin.party 30/06/2021 European Markets European Markets Holding SPA Holding SpA (BEMH) Via Adolfo Rava 124 Roma 00142 Milan Leasehold bwin.party bwin.party 30/06/2022 European Markets European Markets Holding SpA Holding SpA (BEMH) Via Previati, 9 20149 Milano Malta Ta’ Xbiex Leasehold Headlong GVC Headlong GVC 31/05/2020 Holding Ltd., GB Holding Ltd., Buildings, 1st 85 St John Street, floor, Watar Valletta Street, Ta ’Xbiex United Finance PLC, GB Buildings, Watar Street, Ta ’Xbiex Philippines Makati City Leasehold Makati Avenue Interactive Sports 14/11/2018 Corner Paseo de Asia Limited Roxas and Sta. AND Potenciana Street, Bridgebury Realty Makati City Corporation Metro Manila Philippines
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Country Location Contract Address Entity leasing Term Slovakia Bratislava Leasehold MMK Transport, Sub-lessee: 30/09/2018 s.r.o. VTD Media s.r.o. Vysoká 34 St, Moskovska 13, 81106 Bratislava Bratislava 81108 Lessee: MMK Transport, s.r.o. 81106 Bratislava, Vysoká 34 St Spain Barcelona Leasehold Torre Diagonal Javari Marketing 30/11/2020 Litoral Consultancy Josep Pla no 2, Services, S.L. 08019 Barcelona UK London Leasehold bwin.party bwin.party 15/07/2022 marketing (UK) marketing (UK) Limited Limited Third floor Third floor One New Change One New Change London London EC4M 9AF EC4M 9AF London Leasehold Salisbury House, GVC 27/07/2019 London Wall, Administration London EC2, Services Limited, Rooms 381 – 399 GVC Holdings on the first floor PLC Uruguay Montevideo Leasehold Local 205, Gomifer, S.A. 6/02/2020 Edificio 3, AND Ruta 8, km. Silicon Plaza 3 17500 S.A. Departamento de Montevideo. USA New Jersey Leasehold Metropark Office, bwin.party 30/04/2022 399 Thornall St, Entertainment (NJ) 12th floor LLC Edison, NJ 08837 AND 399 Thornall Street LLC
The following are the data centres of the GVC Group:
Country Location Contract Address Gibraltar Gibraltar Leasehold GibTelecom Building Mount Pleasant Gibraltar 11164
Channel Islands Guernsey Leasehold JT Global First Tower Lane St Peter Port Guernsey GY1 2RZ
UK London Leasehold Sportingbet, c/o TelecityGroup, Unit 1, Powergate Business Park, Volt Avenue London NW10 6PW
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Country Location Contract Address UK London Leasehold Harbour Exchange, Telecity, 6&7 Harbour Exchange Square, London E14 9GE Ireland Dublin Leasehold Eircom Data Centre Sportingbet (IT Services) Ltd IDA Business and Technology Park Oscar Traynor Road Clonshaugh Dublin 17 Ireland Malta Handaq Leasehold Headlong Limited 54/55, Zona Industrijali, Triq Manuel Borg Gauci, Handaq, QRM4000 Canada Quebec Leasehold Sportingbet IT Solutions Mohawk Internet Technologies 1470 Route 138 Kahnawake, Quebec Canada J0L 1B0 Malta Marsa Leasehold GO plc. Fra Diego Str MRS1501 Marsa Malta
Other than as listed above, as at 30 June 2017 the GVC Group held no other material tangible fixed assets. As far as the GVC Directors are aware, there are no environmental issues affecting GVC’s utilisation of its tangible fixed assets.
18.2 The following are the principal establishments of the Ladbrokes Coral Group:
Country Location Contract Address Entity leasing Term England London Leaseholder One Stratford Coral Racing 21/02/2027 Place Limited Montfichet Road London E20 1EJ England London Leaseholder Part 2nd Floor Ladbrokes Betting 21/02/2027 Here East Estate & Gaming Ltd Queen Elizabeth Park London E20 3BS England London Leaseholder Part 5th Floor Ladbrokes Betting 13/09/2027 The Zig Zag & Gaming Ltd Building 70 Victoria Street London SW1E 6SQ Australia Brisbane Leaseholder 461-473 Ladbrokes Digital 31/12/2024 Lutwyche Road Australia Pty Ltd Lutwyche Queensland 4030 Australia
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Country Location Contract Address Entity leasing Term Belgium Brussels Leaseholder Chaussée NV Derby SA Break clause on de/Steenweg op 31/12/2022. Waterloo 715/3 Lease expires 1180 Brussels on 31/12/2040. Belgium Gibraltar Gibraltar Leaseholder Suite 651 Ladbrokes 31/12/2021 5th Floor International Europort Limited Gibraltar Gibraltar Gibraltar Leaseholder Suites 751a, Ladbrokes 30/09/2018 751b and 851 International 5th Floor Limited Europort Gibraltar Gibraltar Gibraltar Leaseholder Suite 711 Coral Interactive 29/08/2023 Europort (Gibraltar) Gibraltar Limited Gibraltar Gibraltar Leaseholder Regal House Gala Interactive Five suites Queensway (Gibraltar) with various Gibraltar Limited expiry dates from 06/12/2017 to 31/01/2021. Israel Tel Aviv Leaseholder Azreili Sarona Ladbrokes Expires in 2022. Center Israel 132 Petah Limited Tikva Road Tel Aviv Italy Rome Leaseholder Viale Alessandro Eurobet Italia Two suites Marchetti 105 SRL expiring Roma, 00148 19/02/2019 and Italy 31/08/2019. Spain Madrid Leaseholder Sportium Apuestas Sportium 01/01/2020 Deportivas S.A. Apuestas C/Santa Maria Deportivas S.A. Magdalena, 10-12, 4º 8016 Madrid Spain Spain Barcelona Leaseholder Carrer Sena 2-10 Sportium 01/09/2018 08174 Sant Cugat Apuestas des Valles Deportivas S.A. Barcelona Ireland Dublin Leaseholder Otter House Ladbrokes 31/08/2019 Naas Road Ireland Dublin D22 Limited
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19 SYNERGY INFORMATION Paragraph 3 of Part 1 of this document contains statements of estimated cost savings and synergies arising from the Acquisition (together, the “Quantified Financial Benefits Statement”).
19.1 The synergies set out below compare to a EBITDA for Ladbrokes Coral Group of £198.9 million for LR,13.5.9A(3) the year ended 31 December 2016 where cost of sales were £431.6 million and operating expenses were £877.4 million and Coral Group’s EBITDA (before exceptional items) for the 13 months ended 31 October 2016 was £243.6 million where operating expenses (before exceptional items) were £1,054.8 million. GVC’s EBITDA for the year ended 31 December 2016 was €193.5 million where cost of sales were €385.8 million and administrative costs were €244.0 million and bwin.party’s EBITDA for the three months ended 31 March 2016 was €37.0 million where cost of sales were €22.9 million and administrative and distribution expenses were €74.1 million and €51.1 million respectively.
19.2 A copy of the Quantified Financial Benefits Statement is set out below:
“Following analysis undertaken by GVC and discussions with Ladbrokes Coral, the Directors of GVC have identified significant opportunities for cost and revenue synergies as a result of the Acquisition which are expected to create shareholder value.
The Board of GVC believes that the Combined Group will be able to achieve recurring annual pre-tax LR,13.5.9A(2) cost synergies of not less than £100 million. GVC expects that these cost synergies are split between and would be realised principally from:
(a) Technology and data enabled efficiencies, accounting for approximately 44 per cent. of the identified cost synergies:
• consolidating the Combined Group’s sportsbetting and gaming operations and other business operations onto common platforms, where possible;
• deploying and promoting the Combined Group’s own gaming content rather than that of a third party, where possible; and
• using the increased bargaining power of the Combined Group to negotiate better contracted rates with common suppliers for data content and streaming.
(b) Corporate and administrative efficiencies, accounting for approximately 30 per cent. of the identified cost synergies:
• consolidating the trading and customer service teams to service all brands across the Combined Group and consolidating technology costs to the GVC technology platform;
• utilising technology and lower cost locations to drive greater staff productivity; and
• moving common operational marketing and central functions to a central service group.
(c) Marketing efficiencies, accounting for approximately 14 per cent. of the identified cost synergies:
• applying Ladbrokes Coral’s business intelligence to GVC brands to achieve savings from reduced marketing and bonus spend.
(d) Other efficiencies, accounting for approximately 12 per cent. of the identified cost synergies:
• consolidating some international businesses by combining platforms and harmonising teams;
• reducing external costs including payment processing and professional services fees; and
• reducing other expenditure such as office and travel costs.
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The Board of GVC expects that synergy and saving realisation of £100 million will take place progressively, whereby approximately £7 million of the total cost synergies will be achieved in the first calendar year following Completion, rising to approximately £33 million by year two and approximately £56 million by year three following Completion. It is expected that a benefit of £100 million of identified cost synergies will be achieved by 2021. The synergies programme is expected to continue after 2021, but the scale of further synergies have not been fully quantified, and so are not being reported on for the purposes of the Takeover Code. The expected synergies will accrue as a direct result of the Acquisition and would not be achieved on a standalone basis.
Non-recurring restructuring costs of approximately £100 million are expected to be incurred in delivering the identified cost synergies in the four years post completion. The phasing of these costs will be £17 million in the financial year ending 31 December 2018, £30 million within the two years immediately preceding the date of this document and which are or may be material to the GVC Group; or
which contain any provision under which any member of the GVC Group has any obligation or entitlement which is material to the GVC Group as at the date of this document in 2019, £31 million in 2020 and £22 million in 2021. No recurring restructuring costs have been identified as a consequence of the Acquisition.
Other than these identified restructuring costs and the waiver by GVC of its rights to earn-out consideration following the sale of its Turkish facing business which was payable over a five-year period up to a maximum of €150 million,* the Board of GVC does not expect any dis-synergies to arise as a result of the Acquisition.”
Bases of belief LR,13.5.9A(1) The assessment and quantification of the potential synergies from the Acquisition have been informed by LR,13.5.9A(3) GVC and Ladbrokes management’s industry knowledge as well as their combined experience of executing and integrating past acquisitions, including GVC’s acquisition of Sportingbet and bwin.party and Ladbrokes’ merger with Coral.
The principal assumption for assessing the potential synergies is that the Ladbrokes business activities will be supported by the GVC infrastructure as much as practicable, and that business and central functions will be consolidated where appropriate. This approach reflects the fact that both GVC and Ladbrokes operate substantial online gaming businesses and there are operational and cost advantages to consolidating activities on a single platform where possible.
In order to prepare the Quantified Financial Benefits Statement of potential synergies that are expected to be available, GVC took the following steps:
• GVC held several meetings with senior finance, commercial and strategy personnel at Ladbrokes and both sides shared sufficient operating and financial information to enable GVC to quantify initial estimates of potential synergies and associated costs available from the Acquisition;
• In areas where data has been limited for commercial or other reasons, GVC has made estimates and assumptions to aid its development of individual synergy initiatives;
• The 2016 cost bases for GVC and Ladbrokes were added to establish a pro-forma cost base as a base line for the synergies analysis (the “Initial Cost Base”). The cost base for GVC used as the basis for the Quantified Financial Benefits Statement is the pro-forma combined cost base for the 12 months ended 31 December 2016, giving effect to the acquisition of bwin.party as if that acquisition had occurred on 1 January 2016. The cost base for Ladbrokes used as the basis for the Quantified Financial Benefits Statement is the pro-forma combined cost base for the 12 months ended 31 December 2016, giving effect to the combination of Ladbrokes and Coral as if that combination had occurred on 1 January 2016;
* This is summarised in paragraph 7 of Part 1 of this document.
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• Unless otherwise stated, the financial information relating to GVC is extracted (without adjustment) from management accounts and audited consolidated financial statements for GVC for the year ended 31 December 2016, from the interim results statement of GVC for the six months ended 30 June 2017 or the 2017 latest estimate financial information (actual for January to October 2017 and forecast for November – December 2017);
• Unless otherwise stated, the financial information relating to Ladbrokes Coral is extracted (without adjustment) from management accounts and audited consolidated financial statements for Ladbrokes Coral for the year ended 31 December 2016 which shows the pro-forma information for Ladbrokes Coral from the interim results statement of Ladbrokes Coral for the six months ended 30 June 2017 or the 2017 latest estimate financial information (actual for January to October 2017 and forecast for November – December 2017);
• GVC then assessed the increase in staff costs and operating expenses required from the GVC 2016 cost base to support Ladbrokes Coral’s business operations (the “GVC Plus methodology”), after giving effect to the sale of GVC’s Turkish facing business (completed in December 2017) and the sale of GVC Kalixa business (completed in May 2017). The GVC 2016 cost base and the assessed increase in staff costs and operating expenses were added to establish the ending cost base under the GVC Plus methodology (the “Final Cost Base”);
• The gross synergies (the “Gross Synergies”) were calculated as the Initial Cost Base minus the Final Cost Base;
• During 2016 and 2017 GVC was integrating the bwin.party business, with expectation of significant cost savings which were publicly announced in September 2015 to be €125 million. GVC identified those elements of the Gross Synergies which were due to the GVC/bwin.party integration programme (the “bwin.party Synergies”), and confirmed that the bwin.party Synergies would still be achieved if the Acquisition proceeded;
• During 2016 and 2017 Ladbrokes and Coral have been integrating their businesses, with expectation of significant synergies which were publicly announced in July 2017 to be £150 million. GVC and Ladbrokes identified those elements of the Gross Synergies which were due to the Ladbrokes/Coral integration programme (the “Ladbrokes/Coral Synergies”), and confirmed that the Ladbrokes/Coral Synergies would still be achieved if the Acquisition proceeded;
• The potential synergies available from the Acquisition were calculated as the Gross Synergies minus the bwin.party Synergies minus the Ladbrokes/Coral Synergies;
• The phasing of the benefits and the one-off costs involved in delivering the potential synergies were assessed as part of this process; and
• Gross incremental synergies (after deducting synergies from previous transactions) were risk- weighted by GVC Management, reflecting their assessment on the likely delivery of the targeted benefits.
GVC Management have used an exchange rate of 1.150 €/£
Reports As required by Rule 28.1(a) of the Takeover Code, Grant Thornton, as reporting accountants to GVC, have provided a report stating that, in their opinion, the Quantified Financial Benefits Statement has been properly compiled on the basis stated. In addition Houlihan Lokey as financial adviser to GVC, has provided a report stating that, in its opinion, the Quantified Financial Benefits Statement has been prepared with due care and consideration.
Copies of these reports are included in Parts B and C of the Announcement. Grant Thornton and Houlihan Lokey provided and have not withdrawn their consent to the publication of their reports in the form and context in which they are included in the Announcement.
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Notes 1 The statements of estimated cost synergies relate to future actions and circ*mstances which, by their nature, involve risks, uncertainties and contingencies. As a result, the cost synergies referred to may not be achieved, or may be achieved later or sooner than estimated, or those achieved could be materially different from those estimated. No statement in the Quantified Financial Benefits Statement should be construed as a profit forecast or interpreted to mean that the Combined Group’s earnings in the first full year following the Acquisition, or in any subsequent period, would necessarily match or be greater than or be less than those of GVC and/or Ladbrokes Coral for the relevant preceding financial period or any other period 2 Due to the scale of the Combined Group, there may be additional changes to the Combined Group’s operations. As a result, and given the fact that the changes relate to the future, the resulting cost synergies may be materially greater or less than those estimated. 3 In arriving at the estimate of cost synergies set out in the Quantified Financial Benefits Statement, the GVC Directors have assumed that there will be no significant impact on the underlying operations of either business as a result of the Acquisition or the Triennial Review.”
20 GENERAL 20.1 Where information in this document has been sourced from a third party, GVC confirms that it has III,10.4 been accurately reproduced and, as far as it is aware and is able to ascertain from the information I,23.2 published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading.
20.2 GVC has agreed to pay all other costs, charges and expenses of, and incidental to, the Admission, including the fees of the London Stock Exchange, registrars fees, printing, advertising and distribution expenses, GVC’s legal and accountancy expenses and all related irrecoverable value added tax, if applicable.
20.3 The expenses of or incidental to the Acquisition are payable by GVC and are estimated to amount to III,8.1 approximately €125.8 million (£111.4 million) (excluding value added tax).
20.4 Other than the intended application for Admission, the Consideration Shares have not been admitted to dealings on any recognised investment exchange nor has any application for such admission been made, nor are there intended to be any other arrangements for dealings in the Consideration Shares.
20.5 The GVC Shares are in registered form. Following Admission, the Consideration Shares will also be III,4.3 in registered form and will be capable of being held in uncertificated form. CREST is a paperless LR,13.3.1(9)(g) settlement procedure enabling securities to be evidenced otherwise than by certificate and transferred otherwise than by written instrument. The GVC Articles of Association permit the holding of GVC Shares under CREST. CREST is a voluntary system and holders of GVC Shares including holders of Consideration Shares who wish to retain share certificates are able to do so.
21 DOCUMENTS AVAILABLE FOR INSPECTION I,24 Copies of the following documents will be available for inspection during normal business hours on any Business Day free of charge from the offices of Addleshaw Goddard LLP and shall remain available until the Effective Date:
(a) the GVC Memorandum of Association and Articles of Association;
(b) the historical financial information of the GVC Group and the bwin.party Group incorporated by reference in Parts 4 and 5 of this document;
(c) the historical financial information of the Historic Ladbrokes Group, the Historic Coral Group and the Ladbrokes Coral Group incorporated by reference and/or included in Part 6 of this document;
(d) the report of KPMG set out in section B of Part 6 of this document;
(e) the report of Grant Thornton set out in section B of Part 7 of this document;
(f) the Notice of GVC General Meeting;
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(g) the consent letters referred to in paragraph 16 of this Part 11;
(h) the Existing Facilities Agreement summarised in paragraph 13.4 of this Part 11 of this document; and
(i) this document.
Copies of this document are also available for inspection at the National Storage Mechanism at http://www.morningstar.co.uk/nsm. In addition, this document will be published in electronic form and available on the Company’s website at www.GVC-plc.com, subject to certain access restrictions.
The date of this document is 9 February 2018.
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DEFINITIONS
The following definitions apply throughout this document unless the context otherwise requires:
1931 Companies a company incorporated under the Isle of Man Companies Act 1931-2009
2006 Company a company incorporated under the Isle of Man Companies Act 2006
2011 Law has the meaning given to that term in paragraph 11.10 of Part 11 of this document
2015 LTIP GVC Holdings PLC 2015 Long Term Incentive Plan a summary of the principal terms of which is set out in paragraph 7.1 of Part 10 of this document
2016 ASBP GVC Holdings PLC 2016 Annual Share Bonus Plan a summary of the principal terms of which is set out in paragraph 7.2 of Part 10 of this document
2016 MIP GVC Holdings PLC 2016 Management Incentive Plan a summary of the principal terms of which is set out in paragraph 7.3 of Part 10 of this document
2017 CFO Plan Chief Executive Officer Incentive Plan 2017 a summary of the principal terms of which is set out in paragraph 7.4 of Part 10 of this document
2017 LTIP GVC Holdings Plc 2017 Long Term Incentive Plan a summary of the principal terms of which is set out in paragraph 7.5 of Part 10 of this document
2022 Notes has the meaning given to that term in paragraph 14.3(g)(i) of Part 11 of this document
2022 Notes Trustee has the meaning given to that term in paragraph 14.3(g)(i) of Part 11 of this document
2023 Notes has the meaning given to that term in paragraph 14.3(g)(ii) of Part 11 of this document
2023 Notes Trustee has the meaning given to that term in paragraph 14.3(g)(ii) of Part 11 of this document
Acquisition the recommended acquisition of the entire issued and to be issued share capital of Ladbrokes Coral by GVC, to be effected by means of the Scheme (or pursuant to a Takeover Offer), on the terms and subject to the Conditions and, where the context admits, any subsequent revision, variation, extension or renewal thereof
ADM L’Agenzia delle Dogane e dei Monopoli, the Italian gaming regulator
Admission or Admission to Trading the admission of the Consideration Shares to the premium segment or Admitted to Trading of the Official List and to trading on the Main Market becoming effective
AIM AIM, a market operated by the London Stock Exchange
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Announcement the announcement made by GVC and Ladbrokes Coral regarding the recommended offer for Ladbrokes Coral in accordance with Rule 2.7 of the City Code on 22 December 2017
APC has the meaning given to that term in paragraph 11.3 of Part 11 of this document
Audit Committee the audit committee of GVC, which at the date of this document is chaired by Stephen Morana and has Karl Diacono and Will Whitehorn as its other members
Authority has the meaning given to that term in paragraph 11.10 of Part 11 of this document
B2 Facilities has the meaning given to that term in paragraph 13.4 of Part 11 of this document
B2(£) Facility has the meaning given to that term in paragraph 13.4 of Part 11 of this document
B2(€) Facility has the meaning given to that term in paragraph 13.4 of Part 11 of this document
B2 Standards means the “Machine standards category B2” Revision 2, dated June 2012 as published by the UKGC as at the date of the CVR Instrument
B2B business to business
B2C business to consumer
B3 Facility has the meaning given to that term in paragraph 13.4 of Part 11 of this document
Base Value an amount agreed or determined in accordance with the conditions to the CVRs and paragraph 1 of the CVR review methodology set out in Appendix 1 to the CVR Instrument, in circ*mstances where Scenario 1 has arisen
Basic Impact has the meaning given to that term in paragraph 5 of section A of Part 3 of this document
BBSW the average bid rate administered by the Australian Financial Markets Association (or any other person that takes over administration of that role)
Board the board of directors of GVC or, where the context admits, of the Combined Company
Brexit has the meaning given to that term in paragraph 5 of the section headed “Risk Factors”
Business Day a day (other than a Saturday, Sunday or public holiday) on which clearing banks are open for normal business in the City of London bwin.party bwin.party Digital Entertainment Limited, a private company limited by shares, incorporated in Gibraltar with company number 91225 bwin.party Annual Report 2014 the annual report and audited accounts of the bwin.party Group for the financial year ended 31 December 2014
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bwin.party Cyprus defendants has the meaning given to that term in paragraph 11.1 of Part 11 of this document bwin.party Group bwin.party, and, prior to 1 February 2016, any subsidiary undertaking of bwin.party, any parent undertaking of bwin.party and any subsidiary undertaking of any parent undertaking of bwin.party, in each case, from time to time bwin.party Portuguese defendants has the meaning given to that term in paragraph 11.3 of Part 11 of this document bwin.party Spanish defendants has the meaning given to that term in paragraph 11.4 of Part 11 of this document
CAGR compound annual growth rate
Cerberus Cerberus Business Finance, LLC, a company incorporated in Delaware, USA, with registered number 3997684
Cerberus Existing Facilities the agreement dated 4 September 2015 (as amended and restated Agreement from time to time) setting out the terms and conditions of the Cerberus Loan to the Company
Cerberus Loan the €400 million loan from Cerberus to GVC pursuant to the terms of the Cerberus Existing Facilities Agreement
Change of Control a circ*mstance where any person or group of persons acting in concert gains direct or indirect control of the Company. For the purposes of this definition:
(a) control of the Company means:
(i) the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to:
(A) cast, or control the casting of, more than one- half of the maximum number of votes that might be cast at a general meeting of the Company; or
(B) appoint or remove all, or the majority, of the directors or other equivalent officers of the Company; or
(C) give directions with respect to the operating and financial policies of the Company with which the directors or other equivalent officers of the Company are obliged to comply; or
(ii) the holding beneficially of more than 50 per cent of the issued share capital of the Company (excluding any part of that issued share capital that carries no right to participate, or no right to participate beyond a specified amount, in a distribution of either profits or capital); and
(b) acting in concert means, in respect of a group of persons, that such persons pursuant to an agreement or understanding (whether formal or informal), co-operate to obtain or consolidate control of the Company, such expression to be
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construed in accordance with the City Code and the rulings of the Panel
City Code the City Code on Takeovers and Mergers of the United Kingdom issued, from time to time, by or on behalf of the Panel
CJEU the Court of Justice of the European Union
Clean Break Date has the meaning given to that term in paragraph 13.13 of Part 11 of this document
Clean Break Date has the meaning given to that term in paragraph 7 of Part 1 of this document
Clean Break Notice has the meaning given to that term in paragraph 7 of Part 1 of this document
Clean EBITDA earnings before interest, tax, depreciation and amortisation and before exceptional items and share option charges
Closing Date has the meaning given to that term in paragraph 13.4 of Part 11 of this document
Closing Price the closing middle market quotation of a share on a particular trading day, as derived (in respect of the Ladbrokes Coral Shares or the GVC Shares (as applicable)) from the London Stock Exchange Daily Official List
CMA the UK Competition and Markets Authority, being the body responsible for investigating mergers, market shares and conditions and the regulation of firms under UK Competition law created by the Enterprise and Regulatory Reform Act 2013
Combined Company GVC, following Completion
Combined Group the GVC Group, as enlarged by the Acquisition following Completion
Completion Completion of the Acquisition (i.e. when the Scheme becomes Effective, the transfer of Ladbrokes Coral Shares takes place, Admission occurs and all of the other Conditions are satisfied or, if capable of being waived, are waived)
Conditions the conditions, referred to in paragraph 5 of Part 1 of this document to which the Scheme becoming Effective is subject
Confidentiality Agreement the confidentiality agreement entered into between GVC and Ladbrokes Coral dated 10 November 2016
Consideration Shares up to 273,000,000 new GVC Shares to be issued as consideration to the Ladbrokes Coral Shareholders pursuant to the Scheme
Consultation Period has the meaning given to that term in paragraph 5 of section A of Part 3 of this document
Consultation Procedure has the meaning given to that term in paragraph 5 of section A of Part 3 of this document
Consulting Parties has the meaning given to that term in paragraph 2 of section A of Part 3 of this document
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Contribution NGR less software royalties, payment processing costs, affiliate shares and other marketing expenditure
Contribution Margin Contribution divided by NGR
Co-operation Agreement the agreement dated 22 December 2017 between Ladbrokes Coral and GVC relating to, among other things, the implementation of the Acquisition
Coral Coral Limited, a private limited company, incorporated in England and Wales with company number 05240310
Coral Group Coral, and, prior to 1 November 2016, any subsidiary undertaking of Coral, any parent undertaking of Coral and any subsidiary undertaking of any parent undertaking of Coral, in each case, from time to time and, where the context admits, each of them
Coral Plan the Coral defined benefit pension scheme
Coral Software Agreement has the meaning given to that term in paragraph 14.4(c) of Part 11 of this document
Cost Coverage Agreement has the meaning given to that term in paragraph 13.2 of Part 11 of this document
Court the High Court of Justice, Chancery Division (Companies Court) in England and Wales
Court Sanction Date the date on which the Scheme Court Order is made
CREST the system for the paperless settlement of trades and the holding of securities in uncertificated form operated by Euroclear
CRM customer relationship manager
CVR Holder a person who is for the time being entered in the CVR register as a holder of CVRs and CVR Holders shall be construed accordingly
CVR Holder Majority the holder or holders for the time being of at least 50.1 per cent. of the number of CVRs in issue at the relevant time
CVR Instrument the deed poll dated 22 December 2017 constituting the CVRs and made by GVC
CVRs the contingent value rights to be issued by GVC
CVR Long Stop Date 00.01 am on the first anniversary of the Effective Date
CVR Representative Carl Leaver as appointed pursuant to the CVR Representative Appointment Letter
CVR Representative Appointment means the appointment letter dated 8 February 2018 and entered Letter into between the CVR Representative on the one hand, and the Company and Ladbrokes Coral on the other hand, pursuant to which the CVR Representative is appointed as the CVR Representative for the purposes of the CVR Instrument, a summary of the principal terms of which is set out in paragraph 13.9 of Part 11 of this document
DCMS means the Department for Digital, Culture, Media & Sport of the UK Government, or any successor to such department
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DDoS distributed denial of service
Deferred Consideration has the meaning given to that term in paragraph 7 of Part 1 of this document
Determination Procedure has the meaning given to that term in paragraph 5 of section A of Part 3 of this document
DGOJ La Dirección General de Ordenación del Juego (the Directorate General for the Regulation of Gambling), the Spanish gaming regulator
Disclosure Guidance and the Disclosure Guidance and Transparency Rules made by the FCA Transparency Rules or DGTR under Part VI of FSMA
Disposal the disposal of Headlong, as further detailed in paragraph 7 of Part 1
Early Redemption Date has the meaning given to that term in paragraph 4 of section B of Part 3 of this document
EBITDA earnings before interest, tax, depreciation and amortisation
EBITDA Impact Projection has the meaning given to that term in paragraph 4 of section A of Part 3 of this document
EC European Commission
ECJ European Court of Justice
EEA European Economic Area
Effective the Scheme Court Order becoming effective in accordance with its terms
Effective Date the date on which the Scheme becomes Effective in accordance with its terms
EFTPOS electronic funds transfer at point of sale
Enacted in respect of a particular Triennial Measure, either:
(a) a statutory instrument in respect of such Triennial Measure having been laid before Parliament by the UK Government pursuant to section 172 or section 240 of the Gambling Act, and a period of 40 calendar days having elapsed since the date of such statutory instrument having been laid before Parliament, without a petition having been presented either by the House of Commons or the House of Lords for the annulment of such statutory instrument; or
(b) a statutory instrument in respect of such Triennial Measure having been proposed to Parliament by the UK Government pursuant to section 236 of the Gambling Act, and an affirmative vote in respect of such statutory instrument having been obtained from both the House of Commons and the House of Lords; or
(c) Royal Assent in respect of any primary legislation to give effect to any such Triennial Measure having been given; or
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(d) the making by the UKGC of a specification of a licence condition pursuant to section 76 of the Gambling Act (after any necessary consultation period having occurred) to bring into effect such Triennial Measure, or the following of any equivalent process in respect of any amendment to the B2 Standards
Enlarged Issued Share Capital the issued share capital of the Company following the Scheme becoming Effective on a fully diluted basis, that is assuming the vesting and exercise of all options and awards under the Ladbrokes Coral Share Plans and the GVC Share Incentive Schemes awarded or granted on or before the Last Practicable Date
Envisaged Maximum Stakes means any of the possible Maximum Stakes set out in Row 1 of the Maximum Stakes Table
EPC East Pioneer Corporation B.V., a wholly-owned subsidiary of Sigma Corporate Management, a company incorporated and registered in Curaçao under company number 88008
EPS earnings per share
EWE ElectraWorks (España) plc
EWL ElectraWorks Limited, a company incorporated in Gibraltar
EU the European Union
EURIBOR the euro interbank offered rate administered by European Money Markets Institutions (or any other person which takes over the administration of that role)
Euro or € the monetary unit of the EU’s single currency
Eurobet Retail the division of the Ladbrokes Coral Group responsible for the conduct of operations within the market for operation of LBOs in Italy
Euroclear Euroclear UK & Ireland Limited, a company incorporated in England and Wales with registered number 2878738
Exchange Act US Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder
Executive Directors the executive directors of GVC, being Kenneth Alexander and Paul Miles
Expert Deloitte LLP, appointed pursuant to the Expert Appointment Letter
Expert Appointment Letter means the appointment letter dated 22 December 2017 and entered into between Deloitte LLP on the one hand, and the Company and Ladbrokes Coral on the other hand, pursuant to which Deloitte LLP is appointed as the Expert for the purposes of the CVR Instrument, a summary of the principal terms of which is set out in paragraph 13.8 of Part 11
Facilities Agreement has the meaning given to that term in paragraph 14.3(a) of Part 11 of this document
Facility A has the meaning given to that term in paragraph 14.3(a) of Part 11 of this document
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Facility B has the meaning given to that term in paragraph 14.3(a) of Part 11 of this document
Facility C has the meaning given to that term in paragraph 14.3(a) of Part 11 of this document
FATCA (a) sections 1471 to 1474 of the US Internal Revenue Code of 1986 or any associated regulations;
(b) any treaty, law or regulation of any other jurisdiction, or relating to an intergovernmental agreement between the US and any other jurisdiction, which (in either case) facilitates the implementation of any law or regulation referred to in paragraph (a) above; or
(c) any agreement pursuant to the implementation of any treaty, law or regulation referred to in paragraphs (a) or (b) above with the US Internal Revenue Service, the US government or any governmental or taxation authority in any other jurisdiction
FATCA Exempt Party a Loan Note Holder that is entitled to receive payments free from any deduction or withholding from a payment on a Loan Note required by FATCA
FCA the UK Financial Conduct Authority acting in its capacity as the competent authority for the purposes of Part VI of the FSMA, and any successor body having the same or similar functions
Fenlex Fenlex Corporate Services Limited
Final Redemption Date has the meaning given to that term in paragraph 4 of section B of Part 3 of this document
FOBT a gaming machine falling within regulation 5(5) of the Categories of Gaming Machine Regulations 2007 (SI 2007/2158) as amended, made by the DCMS pursuant to section 236(1) of the Gambling Act
Form of Proxy the form of proxy in connection with each of the Ladbrokes Coral Shareholder Court Meeting and the Ladbrokes Coral General Meeting, which shall accompany the Scheme Document and “Form of Proxy” shall mean either of them as the context requires
FSMA the UK Financial Services Market Act 2000, as amended from time to time and any subordinate legislation
GA Gibraltar Gambling Act 2005
Gambling Act the UK Gambling Act 2005
GBGA Gibraltar Betting and Gaming Association
GCI has the meaning given to that term in paragraph 14.4(c) of Part 11 of this document
GDPR Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation)
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GGR gross gaming revenue
Gibraltar Licensing Authority has the meaning given to that term in paragraph 5.6 of Part 8 of this document
Grant Thornton Grant Thornton UK LLP
Greek Tax Assessment a tax audit assessment from the Greek Audit Centre for Large Enterprises claiming that SPODDS owes the authority €186.77 million in taxes and surcharges from its operations in Greece in respect of 2010 and 2011, a summary of the principal terms of which is set out in paragraph 11.10 of Part 11 of this document
GVC or Company GVC Holdings plc, a public company limited by shares, incorporated in the Isle of Man with company number 4685V
GVC ABP GVC Holdings PLC Annual and Deferred Bonus Plan a summary of the principal terms of which is set out in paragraph 7.6 of Part 10 of this document
GVC Annual Report 2015 the annual report and audited accounts of the Prior GVC Group for the financial year ended 31 December 2015
GVC Annual Report 2016 the annual report and audited accounts of the GVC Group for the financial year ended 31 December 2016
GVC Articles or GVC Articles of the articles of association of GVC as at the date of this document Association or Company’s Articles
GVC Board the board of directors of GVC
GVC Directors the directors (both executive and non-executive) of GVC at the date of this document whose names are set out on page 73 of this document, and “Director” shall mean any one of them
GVC Form of Proxy the form of proxy sent to GVC Shareholders in connection with their voting instructions at the GVC General Meeting
GVC General Meeting or the General Meeting of GVC to be convened in connection with the Extraordinary General Meeting Acquisition, notice of which is set out in this document (including any adjournment thereof)
GVC Group GVC, any subsidiary undertaking of GVC, any parent undertaking of GVC and any subsidiary undertaking of any parent undertaking of GVC, in each case, from time to time
GVC Interim Results 2017 the unaudited interim results of the GVC Group for the six months ended 30 June 2017
GVC Investments GVC Investments Limited, a company incorporated in the Isle of Man with company number 011447V
GVC Prospectus the prospectus published by GVC on 13 November 2015 in connection with its acquisition of bwin.party
GVC Representative has the meaning given to that term in paragraph 2 of section A of Part 3 of this document
GVC Share Incentive Schemes the 2015 LTIP, the 2017 LTIP, the 2016 ASBP, the 2016 MIP, the 2017 CFO Plan and the GVC ABP
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GVC Shareholder Resolutions the resolutions to be proposed at the GVC General Meeting to, among other things, approve the Acquisition and increase the authorised share capital of GVC as such resolutions are set out in the Notice of Extraordinary General Meeting
GVC Shareholders holders of GVC Shares
GVC Shares ordinary shares of €0.01 par value each in the capital of GVC
GVC Transfer Announcement the announcement published by GVC on 1 July 2016, relating to the transfer of its listing category from the standard segment of the Official List to the premium segment of the Official List
GVC Voting Record Time 10.00 p.m. on 6 March 2018 or if the GVC General Meeting is adjourned, 10.00 p.m. on the second calendar day before the adjourned GVC General Meeting
Headlong Headlong Limited a company incorporated in Malta with company number C60820
Historic Coral Group Gala Coral Limited and its subsidiary undertakings prior to completion of the Ladbrokes Coral Merger
Historic Ladbrokes Group Ladbrokes plc and its subsidiary undertakings prior to completion of to the Ladbrokes Coral Merger
HMRC HM Revenue & Customs
Houlihan Lokey Houlihan Lokey EMEA, LLP
IBOR BBSW, EURIBOR and/or LIBOR, as appropriate
IFRS International Financial Reporting Standards
IGA 2001 Interactive Gambling Act 2001
ISP internet service provider
ITEPA Income Tax (Earnings and Pensions) Act 2003
Incremental Impact has the meaning given to that term in paragraph 5 of section A of Part 3 of this document
Innopark Innopark Pte. Limited
Innopark SPA a sale and purchase agreement dated 31 July 2017 between, among others, Innopark (India) Private Limited, GVC Services Limited and GVC, a summary of the principal terms of which are set out in paragraph 13.11 of Part 11
Interstate Treaty the German Interstate Treaty on Gambling
Investec Investec Bank plc
IPR Inter Parties Review
Isle of Man Companies Act 2006 the Companies Act 2006 of the Isle of Man
Kalixa Kalixa Payments Group Limited
KGL Kalixa Group Limited
KPMG KPMG LLP
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Ladbrokes Annual Report 2014 the annual report and audited accounts of Ladbrokes plc for the financial year ended 31 December 2014
Ladbrokes Annual Report 2015 the annual report and audited accounts of Ladbrokes plc for the financial year ended 31 December 2015
Ladbrokes Coral or Ladbrokes Ladbrokes Coral Group plc, a public limited company incorporated Coral Group plc in England and Wales under company registration number 566221
Ladbrokes Coral ADRs American depositary receipt, each of which represents one Ladbrokes Coral Share, issued under the Ladbrokes Coral Deposit Agreement
Ladbrokes Coral ADR Holders a person who is for the time being entered in the Ladbrokes Coral ADR register as a holder of Ladbrokes Coral ADRs and Ladbrokes Coral ADR Holders shall be construed accordingly
Ladbrokes Coral Annual Report the annual report and audited accounts of the Ladbrokes Coral 2016 Group for the financial year ended 31 December 2016
Ladbrokes Coral Board the board of Ladbrokes Coral Directors
Ladbrokes Coral Deposit Agreement the deposit agreement dated 22 May 1998 by and among others Ladbrokes Coral, the Ladbrokes Coral Depositary and all holders from time to time of Ladbrokes Coral ADRs issued thereunder
Ladbrokes Coral Depositary Deutsche Bank Trust Company of New York, an indirect wholly owned subsidiary of Deutsche Bank AG
Ladbrokes Coral Directors the directors (both executive and non-executive) of Ladbrokes Coral
Ladbrokes Coral Form of Election the form of election for use by an eligible Scheme Shareholder who holds Scheme Shares in certificated form in relation to the Mix and Match Facility
Ladbrokes Coral Forms of Proxy the proxy forms to be sent to Ladbrokes Coral Shareholders in connection with their voting instructions at the Ladbrokes Coral Shareholder Court Meeting and Ladbrokes Coral General Meeting respectively and “Ladbrokes Coral Form of Proxy” means any one of them as the context requires
Ladbrokes Coral General Meeting the general meeting of Ladbrokes Coral Shareholders to be convened in connection with the Scheme to consider and, if thought fit, approve the Ladbrokes Coral Shareholder Resolutions (with or without amendment) including any adjournment or postponement of any such meeting
Ladbrokes Coral Group Ladbrokes Coral, and any subsidiary undertaking of Ladbrokes Coral, from time to time and, where the context admits, each of them
Ladbrokes Coral Interim Results the unaudited interim results of the Ladbrokes Coral Group for the 2017 six months ended 30 June 2017
Ladbrokes Coral Labels the business units of Ladbrokes Coral that predominantly focused on sports betting
Ladbrokes Coral Merger the combination of Ladbrokes plc and certain businesses of Gala Coral Group Limited, which completed on 1 November 2016
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Ladbrokes Coral Readmission the prospectus published by Ladbrokes Coral on 27 October 2016 Prospectus in relation to the Ladbrokes Coral Merger
Ladbrokes Coral Share Plans the Ladbrokes Coral 1978 Share Option Scheme, the Ladbrokes Coral Executive Deferred Bonus Plan, the Ladbrokes Coral Performance Share Plan, the Ladbrokes Coral Restricted Share Plan, the Ladbrokes Coral 1983 Savings Related Option Scheme and the Ladbrokes Coral Share Incentive Plan
Ladbrokes Coral Shareholders the registered holders of Ladbrokes Coral Shares from time to time
Ladbrokes Coral Shareholder the meeting of Scheme Shareholders convened by order of the Court Meeting Court pursuant to Part 26 of the UK Companies Act 2006 to consider and, if thought fit, approve the Scheme (with or without amendment) including any adjournment or postponement of any such meeting
Ladbrokes Coral Shareholder the resolutions to be proposed by Ladbrokes Coral at the Ladbrokes Resolutions Coral General Meeting in connection with, among other things, the alteration of Ladbrokes Coral’s articles of association and such other matters as may be necessary to implement the Scheme and the delisting of the Ladbrokes Coral Shares
Ladbrokes Coral Shares the fully paid up ordinary shares of 28⅓ pence each in the capital of Ladbrokes Coral
Ladbrokes Coral UK Business the Ladbrokes Coral business of operating LBOs in England, Wales and Scotland
Ladbrokes Plan the Historic Ladbrokes Group’s defined benefit pension scheme
Länder has the meaning given to that term in paragraph 11.2 of Part 11 of this document
Last Practicable Date 7 February 2018
Lenders has the meaning given to that term in paragraph 6 of Part 1 of this document
LBO a premises in respect of which a betting premises licence (as defined in section 150(1)(e) of the Gambling Act) has been issued by a licensing authority (as defined in section 2 of the Gambling Act)
LIBOR the London interbank offered rate administered by ICE Benchmark Administration Limited (or any other person that takes over the administration of that role)
Liga has the meaning given to that term in paragraph 11.3 of Part 11 of this document
Linear Interpolation in circ*mstances where the Maximum Stake stipulated in the Maximum Stakes Measures falls between two Envisaged Maximum Stakes which are adjacent to one another in Row 1 of the Maximum Stakes Table, determining the Base Value associated with that stipulated Maximum Stake by assuming that the Base Value figure in Row 2 directly below the lower of those Envisaged Maximum Stakes in Row 1 of the Maximum Stakes Table increases on a straight-line basis up to the Base Value figure in Row 2 directly below the higher of those Envisaged Maximum Stakes in Row 1 of
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the Maximum Stakes Table, and “linearly interpolated” shall be construed accordingly
Listing Rules the rules and regulations made by the Financial Conduct Authority in its capacity as the UKLA under the FSMA
Existing Facilities Agreement a €320,000,000 term and multi-currency revolving credit facilities agreement dated 2 March 2017 with certain financial institutions acting as bookrunners, mandated lead arrangers and lenders and Wilmington Trust (London) Limited acting as agent and security agent, as amended from time to time, a summary of the principal terms of which is set out in paragraph 13.4 of Part 11 of this document
Loan Notes the loan notes to be issued by GVC pursuant to the terms of the CVR Instrument
Loan Note Holder a person who is for the time being entered in the Loan Note register as a holder of Loan Notes and Loan Note Holders shall be construed accordingly
Loan Note Holder Majority the holder or holders for the time being of at least 50.1 per cent. of the number of Loan Notes in issue at the relevant time
Loan Note Instrument the deed poll constituting the Loan Notes and to be made by GVC to the extent Loan Notes are to be required under the terms of the CVR Instrument
Loan Note Issue Date the date of issuance (if any) by the Company of the Loan Notes
Loan Note Principal Value has the meaning given to that term in paragraph 2 of Part 1 of this document
Lodged Appeal has the meaning given to that term in paragraph 11.10 of Part 11 of this document
London Stock Exchange London Stock Exchange plc
Long Stop Date 30 June 2018, or such earlier or later date as Ladbrokes Coral and GVC may agree and the Court may allow
Main Market the Main Market for listed securities of the London Stock Exchange
Marketing Amendment Agreement has the meaning given to that term in paragraph 14.4(a) of Part 11 of this document
Marketing Services Agreement has the meaning given to that term in paragraph 14.4(a) of Part 11 of this document
Material Territories each of those jurisdictions from which the Combined Group, after the Effective Date, will generate a material proportion of its revenues or in which it will have a physical presence, being those jurisdictions set out in paragraphs 5 and 6 of Part 8 of this document
Maximum Machine Number the legally permitted maximum number of FOBTs in each LBO as currently prescribed by section 172(8) of the Gambling Act
Maximum Machines Measures has the meaning given to that term in paragraph 3 of section A of Part 3 of this document
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Maximum Stake the maximum stake which may be wagered by a player on any particular game cycle on a FOBT, disregarding any conditions imposed by law or regulation that may have to be satisfied before such maximum stake may be wagered
Maximum Stakes Measures has the meaning given to that term in paragraph 3 of section A of Part 3 of this document
Maximum Stakes Table the table set out in paragraph 4 of section A of Part 3 of this document
Member State a member state of the EU
Mix and Match Facility the mix and match facility under which it is proposed that Ladbrokes Coral Shareholders (other than any Ladbrokes Coral Shareholders in a Restricted Jurisdiction) would be able to elect to vary the proportions in which they receive cash and GVC Shares under the Acquisition, subject to the off-setting elections made by other Ladbrokes Coral Shareholders
MoF Czech Ministry of Finance
MLD4 Fourth Money Laundering Directive ((EU) 2015/849)
NCI non-controlling interest
Nevada Act the Nevada Gaming Control Act and the regulations promulgated thereunder
Nevada Board the Nevada State Gaming Control Board
Nevada Commission the Nevada Gaming Commission
Net Gaming Revenue or NGR the fair value of consideration received or receivable. In sports betting, NGR is calculated as the gains and losses in respect of bets placed on sporting events which have taken place in the period, stated net of betting taxes and certain promotional bonuses. In casino and gaming, NGR represents the net win in respect of bets placed in games that have concluded in the period, stated net of certain promotional bonuses. In poker, NGR represents the rake or commission for games that have concluded in the period, net of certain promotional bonuses
New Term Loan Facilities has the meaning given to that term in paragraph 13.4 of Part 11 of this document
Nomato Nomato Investments Limited
Non-executive Directors the current non-executive directors of GVC, being Lee Feldman, Karl Diacono, Stephen Morana, Peter Isola, Will Whitehorn, Jane Anscombe as the context requires
Non-Slots Games a game on a FOBT which is not a Slots Game (for example, a virtual game of the type played in casinos such as roulette, or other virtual sporting events such and horse and dog tracks)
Notice of Extraordinary General the notice convening the GVC General Meeting set out at the end of Meeting this document
Offer Period the offer period (as defined by the City Code) relating to Ladbrokes Coral, which commenced on 7 December 2017
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Offer Price the consideration payable for each Ladbrokes Coral Share under the Acquisition, being 0.141 New GVC Shares, 32.7 pence in cash and a contingent entitlement of up to a further 42.8 pence plus an upward adjustment for the time value of money in principal value of Loan Note by way of a CVR linked to the outcome of the Triennial Review
Official List the official list which is maintained by the UK Listing Authority pursuant to Part VI of FSMA
OPAP has the meaning given to that term in paragraph 5.7 of Part 8 of this document
OTC over-the-counter
Original RCF has the meaning given to that term in paragraph 13.4 of Part 11 of this document
Original TLB has the meaning given to that term in paragraph 13.4 of Part 11 of this document
Overseas Holder Ladbrokes Coral Shareholders, CVR Holders and/or Loan Note Holders (as applicable) (or nominees of, or custodians or trustees for, such Ladbrokes Coral Shareholders CVR Holders and/or Loan Note Holders (as applicable)) not resident in, or nationals or citizens of the United Kingdom
Overseas Person means a person (or nominees of, or custodians or trustees for, such person) not resident in, or nationals or citizens of, the United Kingdom
Panel or Takeover Panel the Panel on Takeovers and Mergers
Parliament the Parliament of the United Kingdom, and House of Lords and House of Commons mean the upper and lower chambers of such Parliament respectively
Payment Scheme has the meaning given to that term in paragraph 11.10 of Part 11 of this document
Playtech Playtech plc incorporated in the Isle of Man with company number 8505V
PRA Prudential Regulation Authority
Prior GVC Group the GVC Group prior to 1 February 2016, the date of completion of its acquisition of the bwin.party Group
Proposed Director Paul Bowtell whose appointment as a director of GVC will take effect upon Admission
Prospectus Directive Article 3 of the European Union Directive 2003/71/EC (as amended)
Prospectus Rules the prospectus rules made by the FCA pursuant to section 73A of the FSMA Registrar of Companies
Provision has the meaning given to that term in paragraph 11.10 of Part 11 of this document
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PSL has the meaning given to that term in paragraph 14.4(b) of Part 11 of this document
PT has the meaning given to that term in paragraph 14.4(a) of Part 11 of this document
PTS has the meaning given to that term in paragraph 14.4(a) of Part 11 of this document
Quantified Financial Benefit has the meaning given to that term in paragraph 9 of Part 11 of this Statement document
Redemption Date has the meaning given to that term in paragraph 4 of section B of Part 3 of this document
Registrar Link Asset Services Limited, in its capacity as registrar for the CVRs and the Loan Notes
Registrar of Companies the registrar of Companies of England and Wales
Regulations the Uncertificated Securities Regulations 2006 of the Isle of Man (Statutory Document Number 743/06) including any modifications or any regulations made in substitution under sections 48 and 215 of the Isle of Man Companies Act 2006 and for the time being in force
Regulatory Authority any government, government department or governmental, quasi-governmental, supranational, statutory, regulatory, environmental, or investigative body, court, trade agency, association, institution or any other body or person whatsoever in any jurisdiction
Relevant Financial Instruments a financial instrument relating to GVC’s securities in respect of which disclosure would be required under DGTR 5.3.1, if GVC were incorporated in England
Remuneration Committee the remuneration committee of GVC which at the date of this document is chaired by Jane Anscombe, Peter Isola, Stephen Morana and Will Whitehorn as its other member
Replacement RCF has the meaning given to that term in paragraph 13.4 of Part 11 of this document
Representatives the CVR Representative and the GVC Representative
Restricted Jurisdictions any jurisdiction where GVC is advised that the extension of, availability or issue of GVC Shares or of the Acquisition would violate the law of that jurisdiction, or would result in a requirement to comply with any other governmental or other consent or any registration, filing or other formality that GVC, in its absolute discretion, regards as unduly onerous
Restricted Overseas Holder overseas holders to which the issue of Consideration Shares, CVRs and/or Loan Notes (as applicable) would or may infringe the laws of a jurisdiction outside England and Wales or may require any governmental or other consent or any registration, filing or other formality which cannot be complied with, or compliance with which would be unduly onerous
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Review Commencement Date has the meaning given to that term in paragraph 4 of section A of Part 3 of this document
Ropso Ropso Malta Limited
Santa Casa has the meaning given to that term in paragraph 11.3 of Part 11 of this document
Scheme the proposed scheme of arrangement to be made under Part 26 of the UK Companies Act 2006 between Ladbrokes Coral and the Scheme Shareholders in connection with the Acquisition, with or subject to any modification, addition or condition approved or imposed by the Court and agreed by Ladbrokes Coral and GVC
Scheme Court Hearing the hearing of the Court to sanction the Scheme under section 899 of the UK Companies Act 2006
Scheme Court Order the order of the Court sanctioning the Scheme under Part 26 of the UK Companies Act 2006
Scheme Document the document to be dispatched to Ladbrokes Coral Shareholders containing, among other things, the details of the Scheme and the notices convening the Ladbrokes Coral Shareholder Court Meeting and the Ladbrokes Coral General Meeting
Scheme Record Time 6.00 p.m. the Business Day after the Court Sanction Date
Scheme Shareholders holders of Scheme Shares
Scheme Shares all the Ladbrokes Coral Shares:
(i) in issue at the date of this document;
(ii) issued after the date of this document, but before the Scheme Voting Record Time; and
(iii) issued at or after the Scheme Voting Record Time, but before the Scheme Record Time on terms that the holders shall be bound by the Scheme,
in each case, excluding any Ladbrokes Coral Shares registered in the name of, or beneficially owned by, GVC or any entity in the GVC Group
Scheme Voting Record Time 10.00 p.m. on 6 March 2018 or if the Ladbrokes Coral Shareholder Court Meeting and/or the Ladbrokes Coral General Meeting is adjourned, 10.00 p.m. on the second calendar day before the date of the relevant adjourned meeting
SDRT Stamp Duty Reserve Tax
SEC the US Securities and Exchange Commission
Senior Managers the senior managers of GVC, being Nick Batram, Robert Hoskin, Jim Humberstone, Adam Lewis and Shay Segev
Senjō Senjo Group Pte. Ltd
Slots Game a game on a FOBT which is mechanical or virtual in nature and which uses spinning reels, discs or other representations of moving or changing symbols
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Software Agreement has the meaning given to that term in paragraph 14.4(b) of Part 11 of this document
Software Amendment Agreement has the meaning given to that term in paragraph 14.4(b) of Part 11 of this document
Spin Speed the minimum time period for completion of an individual game cycle on a FOBT as currently specified in paragraph 5.7 of the B2 Standards
Spin Speed Measures has the meaning given to that term in paragraph 3 of section A of Part 3 of this document
SPODDS Sporting Odds Limited, a company incorporated in England and Wales with company number 03655231
Sponsor Investec
Sponsor Agreement an agreement entered into on the date of this document between the Sponsor on one hand and the Company on the other hand, a summary of the principal terms of which are set out at paragraph 13.5 of Part 11
Sportingbet Sportingbet plc, the company acquired by GVC in March 2013
Sportingbet Group Sportingbet and its subsidiary undertakings
Sportingbet Portuguese defendants has the meaning given to that term in paragraph 11.3 of Part 11 of this document
Sportingbet Spanish dedendants has the meaning given to that term in paragraph 11.4 of Part 11 of this document
Sportsbook sports betting operation
Superbahis Business the Turkish language website, www.superbahis.com and associated offshore assets which were acquired by EPC from Ladbrokes Coral on 21 November 2011
SSBT self-service betting terminal
TEU Treaty on European Union
TFEU Treaty on the Functioning of the European Union
Transitional Service Agreements has the meaning given to that term in paragraph 13.13 of Part 11 of this document
Triennial Measures has the meaning given to that term in paragraph 3 of section A of Part 3 of this document
Triennial Review the UK Government’s Review of Gaming Machines and Social Responsibility Measures, as initiated by a Call for Evidence published by the Department for Culture Media & Sport on 24 October 2016, and having as its terms of reference a review of the maximum stakes and prizes for gaming machines across all premises licensed under the Gambling Act; the number and location of gaming machines across all licensed premises; and social responsibility measures to protect players from gambling-related harm
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TSR total shareholder return
Turkey Sale Agreement has the meaning given to that term in paragraph 7 of Part 1 of this document
UK Corporate Governance Code the UK Corporate Governance Code published by the Financial Reporting Council from time to time
UKGC the UK Gambling Commission or any successor thereto
UK Government Her Majesty’s Government of the United Kingdom from time to time and/or (i) any ministerial or non-ministerial department of it, including but not limited to the DCMS, and/or (ii) any executive agency of any such department
UK Listing Authority or UKLA the FCA acting in its capacity as the competent authority for the purposes of Part VI of the FSMA
UK or United Kingdom the United Kingdom of Great Britain and Northern Ireland
UK Companies Act 2006 the UK Companies Act 2006 as amended, modified, consolidated, re-enacted or replaced from time to time
US GAAP US generally accepted accounting principles
US Securities Act the US Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder
Winding Up Events has the meaning given to that term in paragraph 7 of section A of Part 3 of this document
VAT value added tax and/or any similar sales or turnover tax imposed in any jurisdiction
References to the singular shall include references to the plural, where applicable and vice versa.
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INFORMATION INCORPORATED BY REFERENCE
The tables below sets out the documents of which certain parts are incorporated by reference into, and which form part of, this Prospectus, and only the parts of the documents identified in the table below are incorporated into, and form part of this Prospectus. The parts of these documents which are not incorporated by reference are either not relevant for investors or are covered elsewhere in this Prospectus. To the extent that any information incorporated by reference, either expressly or impliedly, such information will not form part of this Prospectus for the purpose of the Prospectus Rules, except where such information is stated within this Prospectus as specifically being incorporated by reference or where the document is specifically defined as including such information.
Any statement contained in a document which is deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purpose of this Prospectus to the extent that such statement contained herein (or in a later document which in incorporated by reference herein) modified or supersedes such earlier statement (whether expressly, by implication or otherwise).
The following pages are incorporated by reference from the GVC Interim results 2017:
Information Pages Chief Executive’s review 3-6 Chief Financial Officer’s review 7-12 Principal Risks 13 Independent review report 14 Condensed consolidated income statement 15 Condensed consolidated statement of comprehensive income 15 Condensed consolidated statement of financial position 16 Condensed consolidated statement of changes in equity 17 Condensed consolidated statement of cash flows 18 Notes to the condensed consolidated financial statements 19-30
The following pages are incorporated by reference from the GVC Annual Report 2016:
Information Pages Chairman’s Report 3 Chief Executive’s Review 6-9 Major trends in the marketplace 10-11 Business model – How we create value 14-15 Performance of divisions 16-21 Chief Financial Officer’s review 26-31 Principal Risks 32-33 Independent auditor’s report 64-67 Consolidated income statement 68 Consolidated statement of comprehensive income 69 Consolidated statement of financial position 70 Consolidated statement of changes in equity 71 Consolidated statement of cash flows 72 Notes to the consolidated financial statements 73-118
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The following pages are incorporated by reference from the GVC Annual Report 2015:
Information Pages Chairman’s Statement 9 Report of the Chief Executive 10 -12 Report of the Group Finance Director 13-25 Principal risks and uncertainties 26-28 Directors’ report 35-37 Independent auditor’s report 41-45 Consolidated income statement 46 Consolidated statement of comprehensive income 46 Consolidated statement of financial position 47 Consolidated statement of changes in equity 48 Consolidated statement of cash flows 49 Notes to the consolidated financial statements 53-87
The following pages are incorporated by reference from the GVC Transfer Announcement:
Information Pages In respect of the bwin.party Group for the financial year ended 31 December 2015 Independent auditors’ report 26-27 Consolidated statement of comprehensive income 28-29 Consolidated statement of financial position 30-31 Consolidated statement of changes in equity 32 Consolidated statement of cash flows 33-34 Notes to the consolidated financial statements 35-82 In respect of the bwin.party Group for the three months ended 31 March 2016 Accountants Report 143-144 Consolidated statement of comprehensive income 145 Consolidated statement of financial position 146 Consolidated statement of changes in equity 147-148 Consolidated statement of cash flows 149-150 Notes to the consolidated financial statements 151-192
The following pages are incorporated by reference from the GVC Prospectus:
Information Pages Directors’ report 109-111 Independent auditor’s report 112 Consolidated income statement 113 Consolidated statement of comprehensive income 114 Consolidated balance sheet 115 Consolidated statement of changes in equity 116 Consolidated statement of cash flows 117 Notes to the consolidated financial statements 118-158
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The following pages are incorporated by reference from the bwin.party Annual Report 2014:
Information Pages Chairman’s Statement 20-21 CEO’s Review 22-27 Spotlight on strategy 28-29 Spotlight on our gaming products 30-33 Principal Risks 43-44 Independent auditor’s report 96-99 Consolidated statement of comprehensive income 100 Consolidated statement of financial position 101 Consolidated statement of changes in equity 102 Consolidated statement of cash flows 103 Notes to the financial statements 104-142
The following pages are incorporated by reference from the Ladbrokes Coral Interim Results 2017:
Information Pages Independent review report to Ladbrokes Coral Group plc 20-21 Interim consolidated income statement 22 Interim consolidated statement of comprehensive income 23 Interim balance sheer 24 Interim consolidated statement of changes in equity 25 Interim consolidated statement of cash flows 26 Notes to financial information 27-36
The following pages are incorporated by reference from the Ladbrokes Coral Annual Report 2016:
Information Pages Strategic Report 26-31 Independent auditors’ report to the members of Ladbrokes plc 92-99 Consolidated income statement 100 Consolidated statement of comprehensive income 101 Consolidated balance sheet 102 Consolidated statement of changes in equity 103 Consolidated statement of cash flows 104 Notes to the consolidated financial statements 105-157
The following pages are incorporated by reference from the Ladbrokes Annual Report 2015:
Information Pages Independent auditors’ report to the members of Ladbrokes plc 76-83 Consolidated income statement 84 Consolidated statement of comprehensive income 85 Consolidated balance sheet 86 Consolidated statement of changes in equity 87 Consolidated statement of cash flows 88 Notes to the consolidated financial statements 89-140
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The following pages are incorporated by reference from the Ladbrokes Annual Report 2014:
Information Pages Independent auditors’ report to the members of Ladbrokes plc 72-77 Consolidated income statement 78 Consolidated statement of comprehensive income 79 Consolidated balance sheet 80 Consolidated statement of changes in equity 81 Consolidated statement of cash flows 82 Notes to the consolidated financial statements 83-129
The following pages are incorporated by reference from the Ladbrokes Coral Readmission Prospectus:
Information Pages Accountant’s Report in respect of the Historical Financial Information 114-115 Combined income statement 116-117 Combined statement of comprehensive income 118 Combined balance sheet 119 Combined statement of changes in equity 120 Combined statement of cash flow 121 Notes to the Combined Historical Financial Information 122-161
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NOTICE OF EXTRAORDINARY GENERAL MEETING
GVC HOLDINGS PLC (incorporated and registered in the Isle of Man with registered number 4685V)
Notice is hereby given that an Extraordinary General Meeting of the shareholders of GVC Holdings PLC III,4.6 (the “Company”) will be held at the Sunborn Hotel, 35 Ocean Village, GX11 1AA Gibraltar at 9.30 a.m. (Gibraltar time) on 8 March 2018 for the purpose of considering and, if thought fit, passing the following resolutions (the “Resolutions”), of which Resolutions 1, 2 and 4 will be proposed as ordinary resolutions and Resolution 3 will be proposed as a special resolution.
Capitalised terms used in this Notice of Extraordinary General Meeting and not defined shall have the same meanings as in the Prospectus (as defined below).
RESOLUTION 1: ORDINARY RESOLUTION – APPROVAL OF ACQUISITION 1 THAT, subject to and conditional upon the passing of Resolutions 2 and 3, the proposed acquisition of Ladbrokes Coral Group plc by the Company, to be effected by means of a scheme of arrangement of Ladbrokes Coral Group plc under Part 26 of the Companies Act 2006, as described in the prospectus to shareholders of the Company dated 9 February 2018 of which this Notice of Extraordinary General Meeting forms part, a copy of which has been produced to the meeting and initialled by the Chairman of the meeting for the purposes of identification only (“Prospectus”), on the terms and subject to the conditions set out in the Prospectus and the Scheme Document, be and is hereby approved, including for the purposes of Chapter 10 of the Listing Rules of the Financial Conduct Authority, and that the directors of the Company (“Directors”) (or a duly authorised committee thereof) be and are hereby authorised to take all such steps as may be necessary, expedient or appropriate in relation thereto and to carry the same into effect with such modifications, variations, revisions, waivers or amendments (providing such modifications, variations, revisions, waivers or amendments are not in the opinion of the Directors, or any such committee, of a material nature) to such agreements or any documents relating thereto or as they shall deem necessary, expedient or appropriate.
RESOLUTION 2: ORDINARY RESOLUTION – AUTHORITY TO ALLOT SHARES 2 THAT, subject to and conditional upon the passing of Resolutions 2 and 3, the Directors be and are XIII,13.8,1 hereby generally and unconditionally authorised pursuant to the Company’s articles of association (4) (“Articles”) to exercise all the powers of the Company to allot and issue shares in the Company and XIII,13.8.1 to grant rights to subscribe for or to convert any security into such shares (all of which transactions (3) are hereafter referred to as an allotment of “relevant securities”) up to an aggregate nominal amount of €2,730,000 pursuant to the Scheme, which authority shall be in addition to the existing authority conferred on the Directors at the Company’s annual general meeting held on 20 June 2017, which shall continue in full force and effect. The authority conferred by this Resolution shall expire (unless previously revoked or varied by the Company in general meeting) on 1 December 2018, save that the Company may before such expiry, revocation or variation make an offer or agreement which would or might require relevant securities to be allotted after such expiry, revocation or variation and the Directors may allot relevant securities in pursuant of such offer or agreement as if the authority hereby conferred had not expired or been revoked or varied.
RESOLUTION 3: SPECIAL RESOLUTION – AMENDMENT OF THE ARTICLES TO INCREASE SHARE CAPITAL 3 THAT, subject to and conditional upon the passing of Resolutions 1 and 2, the amount of share capital of the Company available for issue is increased from €5,000,000 divided into 500,000,000 ordinary shares of €0.01 to €7,730,000 divided into 773,000,000 ordinary shares of €0.01 by the creation of a further 273,000,000 new ordinary shares in the Company, each ranking pari passu in all respects with
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the existing ordinary shares in the capital of the Company and that accordingly Article 4 of the Articles is amended to read:
“Unless the Company shall by resolution otherwise direct, the amount of share capital of the Company available for issue is €7,730,000 divided into 773,000,000 ordinary shares of €0.01 each.”
RESOLUTION 4: ORDINARY RESOLUTION – AUTHORITY TO PROVIDE AN INDEMNITY 4 THAT in the context of the Acquisition, and in particular the Company’s entry into and performance of its obligations under the deed poll made by the Company and dated 22 December 2017, a copy of which has been produced to the meeting and initialled by the Chairman of the meeting for the purposes of identification only (the “CVR Instrument”), the Directors be and they are hereby further authorised to cause the Company to enter into, grant, be bound by the terms of, and perform its obligations under, the indemnity in the CVR Instrument granted to the Indemnified Persons (as defined therein), under which the Representatives are to be indemnified by the Company from and against any Claims or Losses (each as defined therein) which may be suffered or incurred by the Indemnified Persons in connection with the services rendered or duties performed by the Indemnified Persons under the CVR Instrument, and the terms of such indemnity and the Company’s entry into such indemnity, including for the purposes of Chapter 10 of the Listing Rules of the Financial Conduct Authority (including, without limitation, LR 10.2.4R), be and they are hereby approved.
BY ORDER OF THE BOARD Registered Office: 9 February 2018 32 Athol Street Lee Feldman Douglas Chairman Isle of Man IM1 1JB
Notes: 1 Pursuant to Regulation 22 of the Uncertificated Securities Regulations 2006 of the Isle of Man, only those shareholders registered in the shareholders’ register of the Company as at 10.00 p.m. (London time) on 6 March 2018 shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their name at that time. If the meeting is adjourned, the time by which a person must be entered on the shareholders’ register of the Company in order to have the right to attend and vote at the adjourned meeting is 10.00 p.m. (London time) on the day two days before the date fixed for the adjourned meeting. Changes to entries on the shareholders’ register after that time shall be disregarded in determining the rights of any person to attend or vote at the meeting. 2 Members entitled to attend and vote at the Extraordinary General Meeting are also entitled to appoint one or more proxies to exercise all or any of their rights to attend and to speak and vote on their behalf at the meeting. A shareholder may appoint more than one proxy provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder, which detail must be identified on the Form of Proxy. A proxy need not be a shareholder of the Company. A Form of Proxy which may be used to make such appointment and give proxy instructions accompanies this notice. If you wish your proxy to speak at the meeting, you should appoint a proxy other than the chairman of the meeting and give your instructions to that proxy. 3 To be valid the Form of Proxy should be completed, signed and delivered (together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority) to the Company’s registrars, Link Asset Services, PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF not later than 48 hours before the time appointed for holding the Extraordinary General Meeting or, in the case of a poll taken subsequent to the date of the Extraordinary General Meeting, or any adjourned meeting, not less than 24 hours before the time appointed for the taking of the poll which is taken more than 48 hours after the day of the Extraordinary General Meeting or adjourned meeting. Shareholders who intend to appoint more than one proxy can obtain additional Forms of Proxy from Link Asset Services on 0371 664 0300. Calls are charged at the standard geographical rate and will vary by provider. Calls from outside of the United Kingdom will be charged at the applicable international rate. Lines are open 9.00 a.m. to 5.30 p.m. (London time) Monday to Friday excluding public holidays in England and Wales. Alternatively, the Form of Proxy provided may be photocopied for completion. The Forms of Proxy should be returned in the same envelope and each should indicate that it is one of multiple appointments being made. 4 Completion and submission of the Form of Proxy by a shareholder will not prevent him from attending the meeting and voting at the meeting in person, in which case any votes cast by the proxy will be excluded. 5 In the case of joint holders, the vote of the senior holder who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the votes of any other joint holders. For these purposes, seniority shall be determined by the order in which the names stand in the shareholders’ register in respect of the joint holding.
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6 A vote withheld option has been included on the Form of Proxy. The legal effect of choosing the vote withheld option on any resolution is that the shareholder concerned will be treated as not having voted on the relevant resolution. The number of votes in respect of which there are withheld votes will however be counted and recorded, but disregarded in calculating the number of votes for or against each resolution. 7 CREST members who wish to appoint one or more proxies through the CREST system may do so by using the procedures described in the “CREST voting service” section of the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed one or more voting service providers, should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or a proxy instruction made using the CREST voting service to be valid, the appropriate CREST message (a “CREST proxy appointment instruction”) must be properly authenticated in accordance with the specifications of CREST’s operator, Euroclear UK & Ireland Limited (“Euroclear”), and must contain all the relevant information required by the CREST Manual. To be valid, the message (regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy) must be transmitted so as to be received by Link Asset Services (ID RA10), as the Company’s “issuer’s agent”, by 8.30 a.m. (London time) on 6 March 2018. After this time any change of instruction to a proxy appointed through the CREST system should be communicated to the appointee through other means. The time of the message’s receipt will be taken to be when (as determined by the timestamp applied by the CREST Applications Host) the issuer’s agent is first able to retrieve it by enquiry through the CREST system in the prescribed manner. Euroclear does not make available special procedures in the CREST system for transmitting any particular message. Normal system timings and limitations apply in relation to the input of CREST proxy appointment instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or a CREST sponsored member or has appointed any voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as is necessary to ensure that a message is transmitted by means of the CREST system by any particular time. CREST members and, where applicable, their CREST sponsors or voting service providers should take into account the provisions of the CREST Manual concerning timings as well as its section on “Practical limitations of the system”. In certain circ*mstances the Company may, in accordance with the Uncertificated Securities Regulations 2006 or the CREST Manual, treat a CREST proxy appointment instruction as invalid. 8 Shareholders, proxies and authorised representatives will be required to provide their names and addresses for verification against the register of members and proxy appointments received by the Company before entering the meeting. Each authorised representative must produce proof of his or her appointment, in the form of the actual appointment or a certified copy. Other than this, there are no procedures with which any such persons must comply in order to attend and vote at the meeting. 9 As at the close of business (London time) on 7 February 2018 (the latest practicable date before publication of the Prospectus), the Company’s issued share capital comprised 303,734,808 ordinary shares of €0.01 each. Each ordinary share carries the right to one vote at a general meeting of the Company and, therefore, the total number of voting rights in the Company as at the close of business (London time) on 7 February 2018 was 303,734,808. 10. If you have any questions in relation to the completion and return of the Form of Proxy, please contact the Company's registrars, Link Asset Services, on 0371 664 0300. Calls are charged at the standard geographical rate and will vary by provider. Calls from outside of the United Kingdom will be charged at the applicable international rate. Lines are open 9.00 a.m. to 5.30 p.m. (London time) Monday to Friday excluding public holidays in England and Wales. Please note that Link Asset Services cannot provide advice on the merits of the matters to be considered at the Extraordinary General Meeting nor give financial, tax, investment or legal advice.
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sterling 170384
