TIDMZEG
RNS Number : 1722S
Zegona Communications PLC
29 September 2017
ZEGONA COMMUNICATIONS PLC
("Zegona")
Interim report for the six months ended 30 June 2017
29 September 2017
Zegona, the LSE Main Market company established to acquire and
operate businesses in the European Telecommunications, Media and
Technology ("TMT") sector, announces its interim results for the
six months ended 30 June 2017.
Enquiries:
Tavistock (Public Relations Adviser)
Tel: +44 (0) 20 7920 3150
Jos Simson / Lulu Bridges / Andrew Dunn
Notes to Editors:
About Zegona
Zegona was established with the objective of acquiring
businesses in the European Telecommunications, Media and Technology
sector with a "Buy-Fix-Sell" strategy to deliver attractive
shareholder returns. Zegona is listed on The London Stock
Exchange's Main Market and is led by former Virgin Media
executives, Eamonn O'Hare and Robert Samuelson.
Forward-looking Statements
Certain statements in this Announcement are forward-looking
statements which are based on Zegona's expectations, intentions and
projections regarding its future performance, anticipated events or
trends and other matters that are not historical facts. These
statements are not guarantees of future performance and are subject
to known and unknown risks, uncertainties and other factors that
could cause actual results to differ materially from those
expressed or implied by such forward-looking statements. Given
these risks and uncertainties, prospective investors are cautioned
not to place undue reliance on forward-looking statements.
Forward-looking statements speak only as of the date of such
statements and, except as required by applicable law, Zegona
undertakes no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information,
future events or otherwise. The information contained in this
Announcement is subject to change without notice and Zegona does
not assume any responsibility or obligation to update publicly or
review any of the forward-looking statements contained herein.
Zegona Communications plc
Condensed Consolidated Interim Financial Statements
For the six months ended 30 June 2017
MANAGEMENT REPORT
Overview
The results for the first half of the year have been
significantly impacted by the sale of the Telecable business on 26
July 2017 and the requirement to show the results of Telecable
within discontinued operations from 15 May 2017 when the sale and
purchase and share exchange agreement was signed. Since Telecable
was Zegona's only operating business, substantially all of Zegona's
revenues and costs for both the current and prior periods have been
recorded as discontinued operations.
Sale of Telecable
On 16 May 2017, we announced an agreement to sell Telecable, the
leading quad play cable telecommunications operator in the Asturias
region of north west Spain to Euskaltel, S.A. ("Euskaltel"), the
Spanish telecommunications company in the Basque Country and
Galicia. The sale completed on 26 July 2017.
When Zegona acquired Telecable in 2015, we identified the
opportunity for substantial value creation through the combination
of the three independent Northern Spanish cable telecommunications
operators. This transaction turns our vision into reality.
On completion of the transaction, Zegona received cash
consideration of EUR176.7 million[1], with further deferred
payments of up to EUR15 million, and 26.8 million shares in
Euskaltel, which represent approximately 15% ownership of the
combined group. In addition, Robert Samuelson, Zegona's Chief
Operating Officer, has been appointed to the Euskaltel board and
its committees, including the newly created Strategy Committee.
The transaction has generated very attractive returns for our
shareholders. On completion of the transaction, the implied value
of Telecable was EUR677.9 million[2], comprising an Enterprise
Value of EUR662.9 million and up to EUR15 million deferred payment.
This corresponds to an implied Zegona share price of GBP1.93 per
share[3] and a 37% implied total shareholder return[4] versus the
initial investment by Zegona's shareholders.
We also believe the transaction structure provides opportunity
for additional shareholder value through the continued ownership of
the Euskaltel investment. The combined business creates the leading
integrated telecommunications operator in the North of Spain, with
enhanced scale and exceptional cash generation. There are also
substantial synergies, valued by Euskaltel at EUR245 million,
equivalent to EUR1.37 per share in the combined business. Zegona
will have significant influence in Euskaltel through its Board
representation and the Strategy Committee. All of these factors
combine to create an opportunity to close the current shareholder
value gap since Euskaltel trades at a discount to many of its
industry peers.
Return of capital
On the completion of the Telecable sale, we announced our
intention to return up to GBP140 million of capital to shareholders
through a tender offer, which was selected as the mechanism to
return capital as it is quick and tax efficient. On 30 August 2017,
we delivered on this commitment and the circular detailing the
tender offer and the required general meeting was published. This
return of capital means that, if the 2017 target dividend is paid
as expected, total cash returned to Zegona shareholders will total
up to GBP158.6 million, equivalent to 55% of the initial equity
invested[5]. This substantial return to shareholders has been
possible because of the value generated by Zegona during its period
of ownership, reflected in both the increase in the Enterprise
Value compared to the original acquisition price of EUR640 million
and the strong cash generation of the business during our
ownership.
Returns have also benefitted from the favourable timing of the
acquisition, which has allowed shareholders to crystallise part of
the value from an appreciation in the Euro during Zegona's period
of ownership.
Further returns will be possible as Zegona retains valuable
assets following the tender offer, including the rights to the
contingent payment, cash on hand and the investment in Euskaltel.
Our approximate 15% holding in Euskaltel represents an exposure to
underlying operating cash flows which are of a similar magnitude to
those of Telecable on a standalone basis.
Under the tender offer, each qualifying holder of Zegona's
ordinary shares has the option to sell approximately 36% of their
shares at a price of at least GBP2.00 per share. This share price
represented a premium of at least 19% to the market price of
Zegona's shares at the announcement of the tender offer. Further
details of the tender offer are provided in note 10 to the interim
financial statements.
Zegona's shareholders approved the resolution enabling the
tender offer at a General Meeting on 22 September 2017 and the
tender offer is scheduled to close at 1 p.m. on 5 October 2017 with
cash payments to be made shortly thereafter. All shares purchased
under the tender offer will be cancelled.
Business performance
During the first half of the year, Telecable performed in line
with our expectations, with revenue growth of 2.6% compared to the
first half of 2016, leaving it well positioned to provide a solid
platform for growth as part of the enlarged Euskaltel business.
Operating profit in Telecable was EUR4.6 million in the six
months to 30 June 2017 compared to EUR7.0m in the same period in
2016. Operating profit in the first half of 2017 was impacted, as
expected, by our continued investment in premium football content
and higher mobile access costs from our legacy mobile arrangements.
We expect the impact of both of these items will be substantially
reduced in the second half as a result of the transition to the new
mobile access agreement in July 2017 and active management of the
football cost base. Operating profit was also impacted by one-off
items, mostly related to the sale of Telecable. These included a
benefit to operating profit from ceasing amortisation and
depreciation of Intangible Assets and Property, Plant and Equipment
from the date Telecable was classified as held for sale as required
by IFRS 5. This was offset by a number of one-off costs in the
period including an accrual for a new universal service tax
backdated to 2014 and a number of administration and personnel
costs related to the sale, including the acceleration of certain
employee incentive arrangements. The net impact of these one-off
items was an increase to operating profit of approximately EUR1
million. Net cash flows delivered by Telecable were EUR11.6 million
in the six months to 30 June 2017 compared to EUR6.4 million in the
same period in 2016. The increase was mainly driven by working
capital benefits generated during 2017.
Dividend
In April, we paid a second interim dividend in lieu of a final
dividend in respect of 2016 of 2.25 pence per share. We have also
reconfirmed our target to make a total dividend payment of GBP9.8
million in respect of 2017. This payment is equivalent to 5 pence
per share based on the number of shares outstanding prior to the
completion of the tender offer.
We anticipate declaring an interim dividend for half of the
total amount shortly after the tender offer is completed and intend
to adjust the dividend per share such that a total dividend of
GBP9.8 million is paid in respect of 2017. Assuming all
shareholders participate in the tender offer at a price of GBP2 per
share, this would result in a full year dividend of 7.8p per
share.
Anticipated dividends from Euskaltel will help fund future
Zegona dividends. Euskaltel's current dividend is EUR0.36 per share
and Euskaltel has stated that it intends to increase its annual
dividend pay-out at a double-digit rate.
Strategy and outlook
We expect to help drive Euskaltel's performance improvement,
leveraging our influence at the Euskaltel Board and Strategy
Committee and our positive relationship with Euskaltel's largest
shareholders.
We also continue to search for new investments and identify
opportunities in the European TMT industry where the Zegona
management team can again successfully apply the Company's
innovative 'Buy-Fix-Sell' strategy.
Risks
Risks prior to the disposal of Telecable. The Directors are of
the opinion that the principal risks and uncertainties faced by the
Group prior to the disposal of Telecable were the same as in 2016.
A more detailed explanation of risks and uncertainties is set out
on pages 13 to 15 of the Annual Report for the year ended 31
December 2016.
Risks following the sale of Telecable. Upon the sale of
Telecable, the risks faced by Zegona changed fundamentally and will
continue to develop as Zegona pursues or completes further
acquisitions. Following the disposal of Telecable, the Directors
have revised their assessment of the principal risks facing Zegona
and have concluded that the principal risks are:
Acquisition of Targets
The success of the Group's acquisition strategy depends on
identifying and successfully acquiring suitable target businesses.
There is a risk that Zegona will not be able to identify suitable
targets at a price that allows for acceptable returns. Zegona may
also be unable to obtain any consents or authorisations required to
complete an acquisition or procure the necessary financing, be this
from equity, debt or a combination of the two. There is also the
risk that suitable acquisitions cannot be made before Zegona
exhausts its cash and available liquidity. In making acquisitions,
there is also a risk of unforeseen liabilities being later
discovered which were not uncovered through the due diligence
process.
Further, as per the Group's strategy to buy and fix businesses
that require active change and fundamental improvement to realise
full value, once an acquisition is completed there are risks that
the Group will not succeed in driving strategic and operational
improvements to achieve the expected post-acquisition trading
results or value which were originally anticipated, that the
acquired products and technologies may not be successful or that
the business may require significantly greater resources and
investment than anticipated. If anticipated benefits are not
realised or the trading results of acquired businesses fall below
expectations, it may be necessary to impair the carrying value of
these assets. The Group's return on shareholder investment may fall
as a result. The Group's financial performance may also suffer from
goodwill or other acquisition related impairment charges, or from
the identification of additional liabilities not known at the time
of the acquisition.
Zegona has a disciplined approach to valuation and ultimately is
only prepared to make acquisitions at the right price and after
undertaking a very structured and thorough due diligence process.
When evaluating potential acquisitions, we focus on targets that
have strong fundamentals, high-quality offerings and leading market
positions but which are underperforming their potential and have
scope to generate sustainable performance and cash flow
improvements. Furthermore, in assessing the amount of cash to
return to shareholders, the Directors have ensured that there is
sufficient cash on hand, available liquidity and saleable assets to
enable the business to continue to operate for the foreseeable
future.
Once a business has been acquired, it is Zegona's intention that
management takes a hands-on role in delivering tangible improvement
actions, including the development of strategic plans,
restructuring actions and business development opportunities.
Key Management
On a day-to-day basis, the Group is led by the Executive
Directors, the CFO and two Investment Directors. The absence of key
management could result in the failure of the Group to achieve its
objectives. The Group aims to retain its key staff by offering
remuneration packages at market rates, and through the long term
incentivisation provided through the key staff's holdings of
management shares.
Risks Relating to the Investment in Euskaltel
Following the sale of Telecable, Zegona's principal asset is its
approximate 15% holding in Euskaltel. Although the Euskaltel
shares, other than those used as pledged assets, can be distributed
in specie to Zegona's shareholders at any time, Zegona is not
permitted to sell any of the shares until July 2018 at the
earliest. The value of this investment is subject to variation
based on the performance of the Euskaltel share price, which in
turn is influenced by a number of factors, both specific to
Euskaltel's performance but also more general sentiment about the
Spanish Telecommunications industry, the Spanish and European
economies more broadly and general macro-economic conditions. There
is a risk that any one, or a combination of, these factors could
cause the value of the Euskaltel investment to drop significantly,
materially impacting the return on investment. The Directors will
regularly review the risk-adjusted returns of the Euskaltel
investment and consider whether it is appropriate to retain
ownership.
Zegona has exercised its right to appoint a representative to
Euskaltel's board of directors and each of its board committees.
Zegona believes there is additional value in the Euskaltel
investment, both as a result of the strength of the underlying
business and from the relevant knowledge and experience Zegona's
management team can provide. However, if the other members of
Euskaltel's board have interests which are inconsistent or in
conflict with Zegona's, we cannot ensure they will not oppose or
suggest an alternative strategy to any strategy suggested by
Zegona's representative. In addition, disputes among the Group or
its representative and any such third parties could result in
litigation or arbitration. Any of these events could impair the
Group's objectives and strategy, which could have a material
adverse effect on the value of the Euskaltel interest.
Foreign Currency Risk
Foreign currency translation risk exists due to the Company
operating, and having equity denominated, in a different functional
currency (GBP) to that of its investment in Euskaltel (EUR) and of
many of its likely acquisition targets. Transactional foreign
currency risk is limited and the principal ongoing impact is on the
Company's ability to maintain the GBP value of dividends paid by
Euskaltel in EUR in order to maintain its dividend policy.
Based on the anticipated cashflows of the Group and the Board's
ability to reduce or delay any return to shareholders should it be
necessary, the Board believes that this risk would not have a
material effect on the Group in the ordinary course of business.
However, fluctuations in the GBP/EUR rate could have far more
significant impact on the GBP value of the investment in Euskaltel,
meaning that the GBP value of the proceeds from any future sale of
Euskaltel shares that Zegona may distribute to shareholders may be
reduced.
Similarly, fluctuations in the exchange rate between GBP and
other European currencies could cause potential future acquisitions
to become more expensive in GBP, and therefore less desirable if
equity were raised in GBP to fund a material portion of the
acquisition price.
The Board and the Chief Financial Officer control and monitor
financial risk management, including foreign currency risk, in
accordance with the internal policy and the strategic plan defined
by the Board.
Interest Rate Risk
Interest rate risk is the risk that the fair value of future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates. Other than a small overdraft
facility, which is currently undrawn, Zegona currently has no
exposure to interest rate risk. It is however highly likely that a
material portion of any future acquisition would be funded by a
debt facility. Any significant increase in relevant global interest
rates could result in the funding for future acquisitions becoming
more expensive, or returns becoming less attractive.
Zegona has a disciplined financial approach and is ultimately
only prepared to make acquisitions at the right price and using an
appropriate capital structure after considering the risk-adjusted
returns. In the event funds are raised, Zegona also has the ability
to hedge any exposures.
Brexit
Euskaltel operates entirely in Northern Spain and, therefore, it
is not expected that the value of the investment will be materially
impacted by any market impacts directly due to the United Kingdom's
referendum decision to leave the European Union. Uncertainty is
however likely to continue until the UK's future relationship with
the EU becomes clearer and this could have an impact on the number
or attractiveness of acquisition opportunities available to Zegona,
although no such impact has been apparent so far. Given the complex
negotiations involved, a clearer picture is not expected to emerge
for some time and, with Article 50 only having been invoked in
March 2017 and exit negotiations in their early stages, it is too
early to determine what the likely effects on Zegona might be.
RESPONSIBILITY STATEMENT
Statement of Directors' Responsibility
We confirm to the best of our knowledge:
-- the unaudited condensed consolidated interim financial
statements have been prepared in accordance with IAS 34 Interim
Financial Reporting; and
-- the interim management report includes a fair review of the
information required by Disclosure and Transparency Rule 4.2.7R and
Disclosure and Transparency Rule 4.2.8R.
Neither the Company nor the directors accept any liability to
any person in relation to the half-year financial report except to
the extent that such liability could arise under English law.
Accordingly, any liability to a person who has demonstrated
reliance on any untrue or misleading statement or omission shall be
determined in accordance with section 90A and schedule 10A of the
Financial Services and Markets Act 2000.
Details on the Company's Board of Directors can be found on the
Company website at www.zegona.com.
By order of the Board
Eamonn O'Hare
Chairman and CEO
28 September 2017
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months
ended 30 June
2017 2016
Restated[6]
-------- -------------
Unaudited
-----------------------
EUR000 EUR000
Continuing operations
Administrative and other
operating expenses (2,293) (1,954)
Significant project costs (3,785) (2,688)
-------- -------------
Operating loss (6,078) (4,642)
Finance income 24 23
Gain on FX forwards measured 21 -
at fair value through
profit or loss
Exchange differences 35 26
-------- -------------
Loss for the period before
income tax (5,998) (4,593)
Income tax (18) (30)
-------- -------------
Loss for the period from
continuing operations (6,016) (4,623)
Discontinued operation
Profit for the period
from discontinued operation 888 2,236
Loss for the period attributable
to equity holders of
the parent (5,128) (2,387)
======== =============
Earnings per share -
total operations
Basic and diluted loss
per share attributable
to ordinary equity holders
of the parent (EUR0.01) -2.6 -1.2
Earnings per share -
continuing operations
Basic and diluted loss
per share attributable
to ordinary equity holders
of the parent (EUR0.01) -3.1 -2.4
The accompanying notes are an integral part of the unaudited
condensed consolidated interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE
INCOME
For the six months
ended 30 June
2017 2016
---------- ---------
Unaudited
---------------------
EUR000 EUR000
Loss for the period (5,128) (2,387)
Other comprehensive income
Exchange differences on translation
of foreign operations (52) (438)
Total comprehensive loss for
the period, net of tax, attributable
to equity holders of the parent (5,180) (2,825)
========== =========
The accompanying notes are an integral part of the unaudited
condensed consolidated interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
30 June 31 December
2017 2016
---------- -------------
Unaudited Audited
---------- -------------
Note EUR000 EUR000
Assets
Non-current assets
Property, plant and equipment 4 122,227
Intangible assets 1 559,779
Non-current financial assets 5 1,620 1,927
1,625 683,933
Current assets
Inventories - 626
Trade and other receivables 6 95 17,831
Cash and cash equivalents 1,050 22,435
Assets held for sale 4 717,103 -
---------- -------------
718,248 40,892
---------- -------------
Total assets 719,873 724,825
========== =============
Equity and liabilities
Equity
Share capital 2,738 2,738
Other reserves 376,086 381,155
Share-based payment reserve 84 60
Foreign currency translation
reserve (1,140) (1,088)
Accumulated losses (25,508) (20,380)
---------- -------------
Total equity attributable
to equity holders of the
parent 352,260 362,485
Current liabilities
Trade and other payables 7 2,458 31,317
Current financial liabilities - 13,104
Deferred revenue - 701
Liabilities directly associated
with the assets held for
sale 4 365,155 -
---------- -------------
367,613 45,122
Non-current liabilities
Non-current financial liabilities - 267,045
Deferred revenue - 2,667
Deferred tax liabilities - 47,506
---------- -------------
- 317,218
---------- -------------
Total liabilities 367,613 362,340
---------- -------------
Total equity and liabilities 719,873 724,825
========== =============
The accompanying notes are an integral part of the unaudited
condensed consolidated interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Foreign
Share-based currency
Share Share Other payment translation Accumulated Total
capital premium reserves reserve reserve losses equity
--------- ---------- ---------- ------------ ------------- ------------ --------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
At 1 January
2017 2,738 - 381,155 60 (1,088) (20,380) 362,485
Loss for the
period - - - - - (5,128) (5,128)
Other comprehensive
expense - - - - (52) - (52)
Share-based
payments - - - 24 - - 24
Dividend paid (5,069) (5,069)
--------- ---------- ---------- ------------ ------------- ------------ --------
Balance at 30
June 2017 (unaudited) 2,738 - 376,086 84 (1,140) (25,508) 352,260
========= ========== ========== ============ ============= ============ ========
At 1 January
2016 2,738 386,045 - 25 (263) (14,892) 373,653
Loss for the
period - - - - - (2,387) (2,387)
Other comprehensive
expense - - - - (438) - (438)
Share-based
payments - - - 12 - - 12
Cancellation
of share premium
account - (386,045) 386,045 - - - -
--------- ---------- ---------- ------------ ------------- ------------ --------
Balance at 30
June 2016 (unaudited) 2,738 - 386,045 37 (701) (17,279) 370,840
========= ========== ========== ============ ============= ============ ========
The accompanying notes are an integral part of the unaudited
condensed consolidated interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months
ended 30 June
2017 2016
Unaudited
---------------------
EUR000 EUR000
Operating activities
Loss before income tax (8,958) (4,537)
Reconciliation of loss before
income tax to operating cash
flows:
Depreciation and impairment of
property, plant and equipment 8,257 11,781
Amortisation of intangible assets 10,684 12,913
Impairment loss on trade receivables - 944
Share-based payment expense 24 12
Changes in fair value of financial 21 -
instruments
Net foreign exchange differences (26) (61)
Losses on derecognition or disposal
of non-current assets 1,813 1,424
Finance income (34) (31)
Finance costs 7,554 7,023
Decrease/(increase) in trade
and other receivables and prepayments 636 (1,017)
Decrease/(increase) in inventories 177 (491)
Increase/(decrease) in trade
and other payables 7,802 (3,269)
Increase in other current financial 748 -
liabilities
Decrease in deferred revenues (242) (110)
Interest received - 20
Interest paid (6,636) (7,436)
Income tax (paid)/received (123) 31
---------- ---------
Net cash flows from operating
activities 21,697 17,196
========== =========
Investing activities
Purchase of property, plant and
equipment (8,080) (8,900)
Purchase of intangible assets (5,444) (4,037)
---------- ---------
Net cash flows used in investing
activities (13,524) (12,937)
========== =========
Financing activities
Dividend paid (5,069) -
Net proceeds from loans and borrowings (605) (37)
Cost of settlement of derivatives (21) -
---------- ---------
Net cash flows used in financing
activities (5,695) (37)
========== =========
Net increase in cash and cash
equivalents[7] 2,478 4,222
Net foreign exchange difference (25) (230)
Cash and cash equivalents at
1 January 22,435 14,264
Transferred to assets held for (23,838) -
sale (note 4)
---------- ---------
Cash and cash equivalents at
30 June 1,050 18,256
========== =========
The accompanying notes are an integral part of the unaudited
condensed consolidated interim financial statements.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
1. GENERAL INFORMATION
The condensed consolidated interim financial statements of
Zegona Communications plc (the "Company" or the "Parent") and its
subsidiaries (collectively, the "Group" or "Zegona") for the six
months ended 30 June 2017 (the "Interim Financial Statements") were
authorised for issue in accordance with a resolution of the
directors on 28 September 2017. The Company is incorporated in
England and Wales and domiciled in the United Kingdom as a public
limited company with company number 09395163 and has its registered
office at 20 Buckingham Street, London, WC2N 6EF.
2. BASIS OF PREPARATION
(a) Basis of preparation
The Interim Financial Statements have been prepared in
accordance with IAS 34 Interim Financial Reporting and are
presented on a condensed basis. The Interim Financial Statements do
not constitute statutory accounts within the meaning of section
434(3) of the Companies Act 2006 (the "Companies Act").
The Interim Financial Statements do not include all the
information and disclosures required in the annual financial
statements, and should be read in conjunction with the Group's
annual financial statements as at 31 December 2016 which are
available on the Company's website, www.zegona.com. However,
selected explanatory notes are included to explain events and
transactions that are significant to an understanding of the
changes in the Group's financial position and performance since the
last annual financial statements.
Information from 31 December 2016 is based on the statutory
accounts for the year ended 31 December 2016, which were delivered
to the Registrar of Companies and on which the auditors' report was
unqualified and did not contain a statement under section 498(2) or
498(3) of the Companies Act.
As further disclosed in note 4, the Group agreed on 15 May 2017
to sell Telecable, its Spanish Cable business. The sale completed
on 26 July 2017, as detailed in note 10. As a result, the assets
and liabilities of Telecable have been classified as held for sale
within the Consolidated Statement of Financial Position and its
results are reported as a discontinued operation within the
Consolidated Statement of Comprehensive Income, including a
restatement of the results for the six months ended 30 June
2016.
(b) Going concern
These Interim Financial Statements have been prepared on a going
concern basis, which assumes that the Group will continue to be
able to meet its liabilities as they fall due for the foreseeable
future.
(c) New standards, interpretations and amendments adopted by the Group
The accounting policies adopted in the preparation of the
Interim Financial Statements are consistent with those followed in
the preparation of the Group's annual consolidated financial
statements for the year ended 31 December 2016, which were prepared
in accordance with International Financial Reporting Standards as
adopted by the European Union. The Group has not early adopted any
other standard, interpretation or amendment that has been issued
but is not yet effective.
Standards issued but not yet effective
The following standards are issued but not yet effective. The
Group intends to adopt these standards, if applicable, when they
become effective. The Group does not have any updates to
information provided in the last annual financial statements about
the standards issued but not yet effective that may have a
significant impact on the Group's consolidated financial
statements, other than noting that IFRS 15 Revenue from Contracts
with Customers will now not have the direct impact on the Group's
results from 1 January 2018 as anticipated in the Annual Report for
the year ended 31 December 2016.
Standard Effective
date (period
commencing)
IFRS 14 Regulatory deferral accounts 1 January
2016*
Amendments to IAS 12: Recognition 1 January
of Deferred Tax Assets for Unrealised 2017**
Losses
Amendments to IAS 7: Disclosure 1 January
Initiative 2017**
IFRS 15 Revenue from Contracts with 1 January
Customers 2018
IFRS 9 Financial Instruments 1 January
2018
Amendments to IFRS 2: Classification 1 January
and Measurement of Share-based Payment 2018***
Transactions
Amendments to IFRS 4: Applying IFRS 1 January
9 Financial Instruments with IFRS 2018***
4 Insurance Contracts
Amendments to IAS 40: Transfers 1 January
of Investment Property 2018***
IFRIC 22 Foreign Currency Transactions 1 January
and Advance Consideration 2018***
IFRS 16 Leases 1 January
2019***
IFRIC 23 Uncertainty over Income 1 January
Tax Treatments 2019***
IFRS 17 Insurance Contracts 1 January
2021***
* the EU has decided not to endorse the interim standard and to
wait for the final standard
** EU endorsement expected in Q4 2017
*** subject to EU endorsement
(d) Critical accounting judgements and estimates
The preparation of the Interim Financial Statements requires the
Directors to consider estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities. Estimates and judgements are
continually evaluated and are based on historical experience and
other factors including expectations of future events that are
believed to be reasonable under the circumstances. Actual results
may differ from these estimates.
There have been no material changes to the significant
judgements and estimates made by the Directors as at and for the
year ended 31 December 2016.
3. SEGMENT INFORMATION
Six months to 30 June 2017 Central Telecable Consolidated
costs group
(continuing) (discontinued)
-------------- ---------------- -------------
EUR 000 EUR 000 EUR 000
External customers revenue - 72,301 72,301
Other income - 295 295
Expenses (6,078) (68,003) (74,081)
-------------- ---------------- -------------
Operating (loss)/profit (6,078) 4,593 (1,485)
External net finance costs 80 (7,553) (7,473)
Inter-segment net finance
costs 6,503 (6,503) -
Profit/(loss) before tax 505 (9,463) (8,958)
Income tax (18) 3,848 3,830
-------------- ---------------- -------------
Profit/(loss) for the period 487 (5,615) (5,128)
============== ================ =============
Six months to 30 June 2016 Central Telecable Consolidated
costs group
(continuing) (discontinued)
-------------- ---------------- -------------
EUR 000 EUR 000 EUR 000
External customers revenue - 70,479 70,479
Other income - 281 281
Expenses (4,642) (63,725) (68,367)
-------------- ---------------- -------------
Operating (loss)/profit (4,642) 7,035 2,393
External net finance costs 49 (6,979) (6,930)
Inter-segment net finance
costs 6,544 (6,544) -
-------------- ---------------- -------------
Profit/(loss) before tax 1,951 (6,488) (4,537)
Income tax (30) 2,180 2,150
-------------- ---------------- -------------
Profit/(loss) for the period 1,921 (4,308) (2,387)
============== ================ =============
4. DISCONTINUED OPERATION
On 15 May 2017, the Group signed an agreement to sell Telecable,
its Spanish cable business, to Euskaltel S.A. ("Euskaltel"). The
sale was conditional, amongst other things, upon receipt of merger
clearance from the Council of the National Markets and Competition
Commission in Spain and the approval of the transaction and certain
other resolutions by Euskaltel's shareholders at a general
shareholders' meeting. The sale completed on 26 July 2017, as
detailed in note 10.
In accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations, Telecable has been classified as held for
sale from 15 May 2017, being the date that the sale became highly
probable. In addition, Telecable has been classified as a
discontinued operation in all periods presented in these Interim
Financial Statements because Telecable represents a separate major
geographical area of operations of the Group and, from 15 May 2017,
there existed a single co-ordinated plan to dispose of
Telecable.
On 15 May 2017, impairment assessments were conducted on the
property, plant and equipment and intangible assets held by
Telecable, with no indicators of impairment identified. In
accordance with IFRS 5, no depreciation or amortisation has been
expensed in relation to these non-current assets from 15 May 2017
within these Interim Financial Statements.
Results of discontinued For the six months
operation ended 30 June
2017 2016
---------- ---------
EUR000 EUR000
Revenue 72,301 70,479
Other income 295 281
Expenses (68,003) (63,725)
---------- ---------
Operating profit 4,593 7,035
Net finance costs (7,553) (6,979)
---------- ---------
(Loss)/profit before
tax (2,960) 56
Income tax 3,848 2,180
---------- ---------
Profit for the period from
discontinued operation 888 2,236
========== =========
Basic and diluted earnings
per share (EUR0.01) 0.5 1.1
Cash flows from/(used For the six months
in) discontinued operation ended 30 June
2017 2016
---------- ---------
EUR000 EUR000
Net cash from operating
activities 25,700 19,421
Net cash used in investing
activities (13,523) (12,935)
Net cash used in financing
activities (605) (37)
---------- ---------
Net cash flows for the
period 11,572 6,449
========== =========
In addition, the Telecable businesses have been presented as a
disposal group because the various subsidiaries form a group of
assets to be disposed of together as a group in a single
transaction, being the sale of Telecable. As at 30 June 2017, the
disposal group comprised assets of EUR717.1 million less
liabilities of EUR365.2 million, detailed as follows:
Assets EUR000
Intangible assets 554,261
Property, plant and equipment 120,510
Non-current financial
assets 945
Inventories 449
Trade and other receivables 17,100
Cash and cash equivalents 23,838
717,103
========
Liabilities EUR000
Non-current financial
liabilities 267,963
Non-current deferred
revenue 2,590
Deferred tax liabilities 43,553
Trade and other payables 36,662
Current financial liabilities 13,852
Current deferred revenue 535
365,155
========
An impairment assessment of the disposal group was conducted on
15 May 2017 and 30 June 2017, with no indicators of impairment
identified.
5. NON-CURRENT FINANCIAL ASSETS
As at As at
30 June 31 December
2017 2016
EUR000 EUR000
Telecable Management Loans (see
note 9) 1,620 1,596
Other loans - 284
Guarantees - 45
Investments - 2
Total 1,620 1,927
========= =============
Total non-current financial assets with a carrying amount of
EUR945k as at 30 June 2017 have been transferred to assets held for
sale (see note 4).
6. TRADE AND OTHER RECEIVABLES
As at As at
30 June 31 December
2017 2016
EUR000 EUR000
Trade receivables - 6,817
Other receivables 2 439
Prepaid content rights - 9,946
Other prepayments 59 138
VAT recoverable 34 413
Other receivables with tax authorities - 25
Other current financial assets - 53
Total 95 17,831
========= =============
There are no material differences between the book value and the
fair value of trade and other receivables.
Total trade and other receivables with a carrying amount of
EUR17,100k as at 30 June 2017 have been transferred to assets held
for sale (see note 4).
7. TRADE AND OTHER PAYABLES
As at As at
30 June 31 December
2017 2016
EUR000 EUR000
Trade payables 369 16,841
Other payables 35 10,781
Accruals 1,962 960
Income taxes 91 81
Other tax balances 1 2,654
2,458 31,317
=========== ===============
The carrying amounts of trade and other payables approximate
their fair value.
Included within accruals are professional fees totalling
EUR1,582k in relation to the sale of Telecable.
Trade and other payables with a carrying amount of EUR36,662k as
at 30 June 2017 were transferred to liabilities directly associated
with the assets held for sale (see note 4).
8. FINANCIAL INSTRUMENTS
Financial instrument categories
The classification by category of the financial instruments held
by the Group at 30 June 2017 is as follows:
Current Non current
EUR 000 EUR 000
Loan and receivables
Loans - 1,620
Trade and other receivables 2 -
Cash and cash equivalents 1,050 -
-------- -------------
Financial assets 1,052 1,620
======== =============
Other financial liabilities
Trade and other payables 2,458 -
-------- -------------
Financial liabilities 2,458 -
======== =============
The Directors consider that the carrying amounts, mainly
calculated at amortised cost, of the financial assets and
liabilities recognised in the Interim Financial Statements equate
to their fair values.
9. RELATED PARTY TRANSACTIONS
Mark Brangstrup Watts is a designated member of Marwyn Capital
LLP ("Marwyn"), which provides corporate finance advice and various
office services to the Company. During the period, services
totalling EUR35k were received from Marwyn (2016: EUR39k). Marwyn
was owed an amount of EUR11k at 30 June 2017 (2016: EUR12k), which
was unsecured.
Mark Brangstrup Watts is an ultimate beneficial owner of Axio
Capital Solutions Limited ("Axio"), which provides company
secretarial, administrative and accounting services to the Group.
During the period, services totalling EUR333k were received from
Axio (2016: EUR295k). Axio was owed an amount of EUR76k at 31 June
2017 (2016: EUR117k), which was unsecured.
As at 30 June 2017, EUR1,620k was owed by certain members of the
Telecable management team (2016: EUR1,596k) (the "Telecable
Management Loans"). These loans mature in 2030, bear interest at 5%
per annum, and are secured against the managers' holdings of
2,978,704 shares in the Company. These loans were transferred to
Zegona Limited, a subsidiary of the Company, as at the completion
of the sale of Telecable.
10. SUBSEQUENT EVENTS
Sale of Telecable
Further to the announcement by the Company on 16 May 2017 of the
sale of Telecable, its Spanish cable business, to Euskaltel, on 3
July 2017 Euskaltel informed the Group that the Council of the
National Markets and Competition Commission in Spain had approved
the acquisition by Euskaltel of exclusive control over
Telecable.
On 26 July 2017, the sale of Telecable to Euskaltel was
completed and the Company also announced its intention to return
GBP140 million to shareholders via a tender offer.
The consideration for the sale of Telecable was:
(a) Cash of up to EUR186.5 million. A payment of EUR176.7
million was made on completion which reflects initial net debt
adjustments, other permitted leakages including a EUR2.0 million
dividend paid to Zegona and transfer of EUR1.6 million of loans to
Zegona and certain transactional costs;
(b) 26.8 million shares in Euskaltel, representing approximately
15% of the ordinary share capital of Euskaltel. These shares were
valued at EUR228.1 million on completion of the sale and were
valued at EUR204.5 million as at the date of this report; and
(c) Up to EUR15 million of contingent cash consideration,
payable by Euskaltel to the Group upon certain tax credits arising
and being proven to be useable (the "Tax Credits").
In addition to the monetary consideration, Zegona is entitled to
appoint one representative to Euskaltel's Board of Directors, its
newly-created Strategy Committee, its Audit and Control Committee
and its Appointments and Remuneration Committee. Accordingly,
Robert Samuelson, Zegona's Chief Operating Officer, was appointed
on 26 July 2017. Zegona also nominated Jon James, the former Chief
Operating Officer of Com Hem to serve as an independent director of
Euskaltel and he was also appointed on 26 July 2017.
The sale and purchase and share exchange agreement (the "SPA")
contains covenants which restrict Zegona's potential to operate in
Spain currently and for a period of twelve months from the date on
which Zegona's holding in Euskaltel represents less than 8.3% of
Euskaltel's issued ordinary share capital. Zegona has also agreed
it will not acquire more than 16.5% of the voting rights in
Euskaltel during the twelve months from the date of completion of
the transaction, unless such acquisition is from a shareholder
holding more than 10% of the issued shares in Euskaltel.
Zegona has also agreed to standard lock-in provisions in respect
of those Euskaltel shares issued to it as consideration under the
SPA. Notwithstanding such lock-in arrangements, the Company is
permitted, on 15 business days' notice to Euskaltel, to distribute
Euskaltel shares in specie pro-rata to its own shareholders at any
time.
Zegona and Euskaltel have entered into a tax indemnity agreement
dated 15 May 2017 (the "Tax Indemnity Agreement"), pursuant to
which Zegona has agreed to indemnify Euskaltel in respect of any
losses arising from the Spanish tax authorities declaring the
following void or unusable, whether in whole or in part:
(a) the tax benefits of the tax neutrality regime applied to the
merger of Telecable de Asturias, S.A. with Sociedad Promotora de
las Telecomunicaciones en Asturias, S.A., executed during the 2012
fiscal year (the "Merger Contingency"); and/or
(b) the tax credit generated in favour of Telecable arising from
the distributions of dividends approved and executed by Telecable
during the 2013 fiscal year, which enabled the deduction of the
financial expenses in the corporate income tax of the 2013 and
subsequent fiscal years (the "Financial Expenses Contingency").
Zegona's liabilities under the Tax Indemnity Agreement are
capped in respect of both the Merger Contingency (which has been
fully insured by Zegona) and in respect of the Financial Expenses
Contingency. Zegona has granted security to Euskaltel for the
Financial Expenses Contingency by a share pledge over 1,663,158 of
its shares in Euskaltel.
Zegona Limited has been assigned certain liabilities under
Telecable's management incentive plan (the "Telecable MIP") that
may remain after the payment by Telecable of certain amounts in
relation to the Telecable MIP prior to the completion of the
transaction. Zegona has granted security to Euskaltel by a share
pledge over 526,316 of its shares in Euskaltel to provide coverage
for any losses suffered or incurred by Euskaltel resulting from or
based on the Telecable MIP and/or the Telecable Management
Loans.
As mentioned above, following the completion of the sale of
Telecable, Zegona holds 26.8 million shares in Euskaltel, which
represent approximately 15% of the ordinary share capital of
Euskaltel. IAS 28 Investments in Associates and Joint Ventures
("IAS 28") requires that entities should apply the equity method of
accounting for investments where they have significant influence in
the investee. IAS 28 also includes a presumption that significant
influence does not exist if an investor's holding in an investee is
less than 20%, unless an ability to exercise significant influence
can be clearly demonstrated.
Zegona has undertaken a detailed evaluation of all relevant
factors pertaining to its relationship with Euskaltel and concluded
that there are multiple mechanisms that collectively and
individually give Zegona the ability to exercise significant
influence and participate in the significant operating and
financial decisions of Euskaltel. These mechanisms include the
establishment of a Strategy Committee by Euskaltel at Zegona's
request, the appointment of Robert Samuelson to Euskaltel's Board
of Directors and its committees (including the Strategy Committee)
and its positive relationship with Kutxabank, Euskaltel's largest
shareholder.
Zegona considers that, collectively, these factors are
sufficient to demonstrate its ability to exercise significant
influence in Euskaltel, and therefore the presumption that
significant influence does not exist in holdings less than 20% is
overcome. Zegona will therefore account for its investment in
Euskaltel using the equity method in future periods, unless there
are changes to the facts and circumstances that suggest Zegona is
no longer able to exercise significant influence.
Tender Offer
On 30 August 2017, Zegona announced the launch of a tender
offer, pursuant to which up to GBP140 million will be returned to
shareholders by way of a tender offer at a price of at least GBP2
per Share (the "Tender Offer"). Under the Tender Offer, each
qualifying shareholder will be entitled to sell approximately 36%
of their shares for a minimum of GBP2 per share, meaning that a
maximum of 70 million shares may be repurchased. All shares
repurchased under the Tender Offer will be cancelled. Qualifying
shareholders can choose whether they want to sell shares under the
Tender Offer or not. Qualifying shareholders are not obliged to
sell any of their shares if they do not wish to do so, but if they
do wish to participate, they may sell only the full amount of their
Tender Offer entitlement.
All shares purchased under the tender offer will be purchased at
a price of at least GBP2 per share. This price may be adjusted
upwards as described below, but if this is the case, the number of
shares that may be tendered will also be reduced (as also discussed
below). The result will be that, irrespective of the final price,
for each share owned before tendering, each participating
shareholder will receive approximately 71p in cash.
The tender price is a minimum of GBP2 per share but will be
adjusted upwards if the value of Euskaltel's shares is higher at
the closing date than it was on 30 August 2017. The tender price
will be increased if the value of a Euskaltel Share, denominated in
pounds sterling, on the closing date of the Tender Offer is greater
than GBP7.99, which was the equivalent value on 30 August 2017.
Under the adjustment mechanism, the tender price will be increased
by 14p for every GBP1 increase in the value of a Euskaltel share,
up to a maximum of GBP4. There is no reduction to the price if the
value of Euskaltel shares falls. If the final tender price is above
GBP2 per share, then each shareholders' tender offer entitlement
will be reduced ('scaled back'), however the result will always be
that each participating shareholder will receive the same amount of
cash as they would have received had the tender price been GBP2 per
Share. At the close of trading on 28 September 2017, the value of a
Euskaltel share, denominated in pounds sterling was GBP6.69 which
would mean a tender price of GBP2 if the Tender Offer were to close
at the date of this report.
The Tender Offer was conditional upon shareholders passing a
special resolution to approve the requisite repurchase of shares. A
General Meeting was held on 22 September 2017 which approved the
Tender Offer and also passed a special resolution to amend the
Company's articles of association to give the Board of Directors
the power to make distributions in specie of Euskaltel shares.
The results of the Tender Offer are scheduled to be announced on
6 October 2017, with payment for the shares expected to be made by
16 October 2017.
[1] This includes initial net debt adjustments and other
permitted leakages including a EUR2.0 million dividend and the
transfer of EUR1.6 million of loans to Zegona and certain
transaction related costs borne by Telecable.
[2] At announcement, the equivalent amount was EUR701 million.
The difference primarily represents the change in the market value
of the Euskaltel shares received between the date of announcement
and completion.
[3] Using the closing price for Euskaltel's shares and closing
foreign exchange rates prevailing on 26 July 2017.
[4] Average investment price of GBP1.46 per Zegona share from
initial public offering and subsequent capital raise. Implied value
per Zegona share of GBP2.00, assuming all dividends reinvested.
[5] Total Zegona equity raised GBP286.6 million. Total cash
intended to be returned to shareholders of up to GBP158.6 million,
comprised of up to GBP140 million from the tender offer, dividends
paid in respect of 2016 of GBP8.8 million, and dividends in respect
of 2017 targeted to be paid of GBP9.8 million.
[6] Restated to include the results of the Telecable disposal
group within discontinued operation (note 4).
[7]Includes all cash flows, including both continuing and
discontinued operations. Amounts related to discontinued operations
are disclosed in note 4.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BVLLLDKFXBBQ
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September 29, 2017 02:02 ET (06:02 GMT)
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