TIDMZEG
RNS Number : 6854Y
Zegona Communications PLC
08 September 2022
NOT FOR DISTRIBUTION, PUBLICATION OR RELEASE, IN WHOLE OR IN
PART, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM THE UNITED STATES
OR CANADA, AUSTRALIA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY
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RELEASE WOULD BE UNLAWFUL.
ZEGONA COMMUNICATIONS PLC ("Zegona")
LEI: 213800ASI1VZL2ED4S65
8 SEPTEMBER 2022
INTERIM REPORT FOR THE SIX MONTHSED 30 JUNE 2022
Zegona announces its interim results for the six months ended 30
June 2022.
Enquiries
Tavistock (Public Relations adviser)
Tel: +44 (0)20 7920 3150
Lulu Bridges - lulu.bridges@tavistock.co.uk
Jos Simson - jos.simson@tavistock.co.uk
About Zegona
Zegona was established in 2015 with the objective of investing
in businesses in the European Telecommunications, Media and
Technology sector and improving their performance to deliver
attractive shareholder returns. Zegona is led by former Virgin
Media executives Eamonn O'Hare and Robert Samuelson.
ZEGONA COMMUNICATIONS PLC
Unaudited Condensed Consolidated Interim
Financial Statements
For the six months ended 30 June 2022
MANAGEMENT REPORT
Identifying the right acquisition target within European TMT to
deliver attractive returns to shareholders
Following the successful disposal of our investment in Euskaltel
and return of GBP335 million of capital to shareholders in 2021, we
have spent the first six months of 2022 continuing to actively
pursue our next investment opportunity. We are seeking a business
within the European TMT industry where we can again successfully
apply our Buy-Fix-Sell strategy. We have reviewed a number of
interesting opportunities and have entered into discussions on
those where we believe there is both a market opportunity and
Zegona's skills and capabilities can add significant value. We have
retained sufficient capital to give ourselves time to find the
right target that can again deliver attractive returns to
shareholders and therefore we will be very selective in the
opportunities which we pursue.
The broader European TMT landscape remains large and fragmented,
with well over 100 operators, of which over half fit our desired
investment size. We continue to see a very healthy environment for
acquisitions across the industry, which has continued to see
significant deal activity despite the war in Ukraine and the
economic challenges it has created. This healthy acquisition
environment continues to be driven by a number of core themes that
we believe present Zegona with attractive investment opportunities.
These include; further fixed/mobile convergence, a continuing need
for in-market consolidation, increasing customer focus on service
value, and large multi-national operators divesting non strategic
assets.
During the first six months of 2022, we have reviewed multiple
opportunities and have participated in a number of transaction
processes. These have been in markets which we know well and where
we are confident we can apply our expertise and experience to again
deliver superior returns for our shareholders. We remain patient
and disciplined and will not pursue a transaction unless we are
confident that it meets our strict financial criteria. We are
currently working on a shortlist of attractive opportunities and
hope to be able to update our shareholders on the progress we are
making in due course.
Zegona' s performance
Zegona made a loss for the period from continuing operations of
EUR1.9 million, compared to a loss of EUR23.8 million in the same
period in 2021 which included incentive costs associated with the
disposal of our investment in Euskaltel. The EUR1.9 million loss
during the first half of 2022 is related to the corporate operating
costs of Zegona. Corporate costs principally represent the salary
and benefit costs of Zegona's employees and other professional
fees, are lower than the equivalent costs in 2021, and are in line
with expectations for the six months ended June 30, 2022. Zegona
has continued to finance itself from its cash reserves and had
GBP6.1 million as of 7 September, 2022. Zegona is comfortable that
this will be sufficient to finance its operations for at least 12
months from the date of this report. As discussed in note 6 to the
interim financial statements, Zegona has maintained its EUR5.1
million income tax receivable in respect of the European
Commission's decision that UK Controlled Foreign Company
legislation constituted illegal state aid.
Risks
The principal and emerging risks and uncertainties faced by
Zegona have not changed significantly since our
annual report for the year ended 31 December 2021 (the "2021
Annual Report").
Change in risk assessment
since the 2021 Annual
Risk title Risk rating Report
--------------------------------- ------------ ----------------------------
Ability to identify and complete Moderate <--> No change
new acquisitions
------------ --------- -----------------
Ability to create value in Moderate <--> No change
acquired businesses
------------ --------- -----------------
Key management Low <--> No change
------------ --------- -----------------
Brexit Low <--> No change
------------ --------- -----------------
Foreign exchange Moderate <--> No change
------------ --------- -----------------
These risks have the potential to affect Zegona's results and
financial position during the remainder of 2022. A
more detailed explanation of risks and uncertainties is set out
on pages 7 to 9 of the 2021 Annual Report
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 as adopted for use in the UK; and
-- the interim management report includes a fair review of the
information required by DTR 4.2.7R of the Disclosure Guidance and
Transparency Rules, being an indication of important events that
have occurred during the first six months of the financial year and
their impact on the condensed set of financial statements; and a
description of the principal risks and uncertainties for the
remaining six months of the year; and
-- DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
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
7 September 2022
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months
ended 30 June
Unaudited Unaudited
2022 2021
Note EUR 000 EUR 000
Continuing operations
Administrative and other operating
expenses:
Corporate costs (1,834) (2,102)
Incentive scheme costs 10 (34) ` (21,063)
Significant project costs (26) (103)
---------- ----------
Operating loss (1,894) (23,268)
Finance income 4 - 136
Finance costs 4 - (278)
Net foreign exchange (loss)/gain - (366)
---------- ----------
Loss for the period before
income tax (1,894) (23,776)
Income tax expense - -
---------- ----------
Loss for the period from continuing
operations (1,894) (23,776)
---------- ----------
Discontinued operation
---------- ----------
Profit for the period from
discontinued operation 7 - 3,387
---------- ----------
Loss for the period attributable
to equity holders of the parent (1,894) (20,389)
========== ==========
EUR EUR
Earnings per share - total
operations
Basic and diluted earnings per
share attributable to ordinary
equity holders of the parent (0.36) (0.09)
Earnings per share - continuing
operations
Basic and diluted earnings per
share attributable to ordinary
equiy holders of the parent (0.36) (0.11)
Earnings per share - discontinued
operations
Basic and diluted earnings per
share attributable to ordinary
equity holders of the parent - (0.02)
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
Unaudited Unaudited
2022 2021
Note EUR000 EUR000
Loss for the period (1,894) (20,389)
Other comprehensive profit/(loss) -
items that will or may
be reclassified subsequently to profit
or loss
Exchange differences on translation
of foreign operations 11 (313) 79
Exchange differences arising from discontinued
operations - 14,998
Total comprehensive loss for the period,
net of tax, attributable to equity holders
of the parent (2,207) (5,312)
========== ==========
The accompanying notes are an integral part of the unaudited
condensed consolidated interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Audited
As at 30 As at
June 31
December
2022 2021
Notes EUR000 EUR000
Assets
Non-current assets
Property, plant and equipment 23 30
Income tax receivable 6 5,107 5,234
========= =========
5,130 5,264
Current assets
Prepayments and other receivables 294 197
Cash and cash equivalents 8,169 10,556
========= =========
8,463 10,753
========= =========
Total assets 13,593 16,017
========= =========
Equity and liabilities
Equity
Share capital 11 301 301
Capital redemption reserve 11 2,565 2,565
Share premium reserve 11 1,616 1,616
Other reserve 11 - -
Shares to be issued 11 1,443 1,443
Share-based payment reserve 11 65 31
Foreign currency translation reserve 11 (6,597) (6,284)
Retained earnings 11 12,888 14,782
========= =========
Total equity attributable to equity
holders of the Parent 12,281 14,454
Current liabilities
Accruals and other payables 9 794 1,457
Bank borrowings 8 518 106
========= =========
Total liabilities 1,312 1,563
========= =========
Total equity and liabilities 13,593 16,017
========= =========
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 Capital Share Shares
Share payment translation Retained redemption premium Other to be Total
capital reserve reserve earnings reserve reserve reserve issued equity
Note EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Balance at 1 January
2022 301 31 (6,284) 14,782 2,565 1,616 - 1,443 14,454
Profit for the year - - - (1,894) - - - - (1,894)
Other comprehensive
income - - (313) - - - - - (313)
Share-based payment
expense 10 - 34 - - - - - - 34
Balance at 30 June
2022 301 65 (6,597) 12,888 2,565 1,616 - 1,443 12,281
========= ============ ============ ========== =========== ======== ======== ======= ========
The accompanying notes are an integral part of the unaudited
condensed consolidated interim financial statements.
Foreign
Share-based currency Capital Share
Share payment translation Retained redemption premium Other Total
capital reserve reserve earnings reserve reserve reserve equity
Note EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Balance at 1
January
2021 2,821 799 (6,884) 46,072 34 108,793 180,816 332,451
Loss for the period - - - (20,389) - - - (20,389)
Other comprehensive
income - - 15,077 - - - - 15,077
Share-based payment
expense 11 763 - - - - - 763
Reclassification
of incentive
arrangements 11 - (1,562) - - - - - (1,562)
Dividend paid 11 - - - - - - (5,492) (5,492)
Balance at 30 June
2021 2,821 - 8,193 25,683 34 108,793 175,324 320,848
========= ============ ============ ========== =========== ======== ======== =========
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
Unaudited Unaudited
2022 2021
EUR 000 EUR 000
Operating activities
(Loss) before income tax (1,894) (23,776)
Adjustments to reconcile profit
before income tax from continuing
operations to operating cash flows:
Depreciation of property, plant
and equipment 7 7
Share based payment expense 34 21,063
Net foreign exchange gains/(losses) - 366
Finance income - (136)
Finance costs - 278
Working capital adjustments:
(Increase) in trade and other receivables (97) (5,128)
Decrease in income tax receivable 127 -
(Decrease) in trade and other payables (663) (241)
Interest received - -
Interest paid - (157)
------------- -------------
Net cash flows used in operating
activities (2,486) (7,724)
============= =============
Investing activities
Purchase of property, plant and
equipment - (33)
Net cash flows (used in) investing
activities - (33)
------------- -------------
Net cash flows from discontinued
investing activities - 9,948
============= =============
Financing activities
Dividend paid to shareholders - (5,492)
Net proceeds from bank borrowing 412 -
Net cash flows (used in) financing
activities 412 (5,492)
============= =============
Net (decrease) in cash and cash
equivalents (2,074) (3,301)
Net foreign exchange differences (313) 367
Cash and cash equivalents at 1 January 10,556 15,244
------------- -------------
Cash and cash equivalents at 30
June 8,169 12,310
============= =============
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
1. GENERAL INFORMATION
The unaudited condensed consolidated interim financial
statements of Zegona Communications plc (the "Company" or the
"Parent") and its subsidiaries (collectively, "Zegona") for the six
months ended 30 June 2022 (the "Interim Financial Statements") were
authorised for issue in accordance with a resolution of the
Directors on 7 September 2022. The Company is incorporated and
domiciled in England and has its registered office at 8 Sackville
St, Mayfair, London W1S 3DG.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
This condensed set of financial statements (the "Interim
Financial Statements") has been prepared in accordance with IAS 34
Interim Financial Reporting as adopted for use in the UK. The
annual financial statements of the group are prepared in accordance
with UK-adopted international accounting standards. As required by
the Disclosure Guidance and Transparency Rules of the Financial
Conduct Authority, the condensed set of financial statements has
been prepared applying the accounting policies and presentation
that were applied in the preparation of the company's published
consolidated financial statements for the year ended 31 December
2021. 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 Zegona's annual
financial statements as at 31 December 2021 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 Zegona's
financial position and performance since the last annual financial
statements.
The comparative figures for the financial year ended 31 December
2021 are not the company's statutory accounts for that financial
year. Those accounts have been reported on by the company's auditor
and delivered to the registrar of companies. The report of the
auditor was (i) unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act.
Certain comparative balances for the six months ended 30 June 2021
have been reclassified to within discontinued operations to be
consistent with the classification applied in the annual financial
statements with no impact on loss for the period attributable to
equity holders of the parent.
(b) Going concern
The Interim Financial Statements have been prepared on the going
concern basis, which the directors consider to be appropriate for
the reasons outlined below.
Zegona's Directors have assessed the going concern assumptions
during the approval of the Interim Financial Statements. There are
no events or conditions that give rise to doubt the ability of
Zegona to continue as a going concern for a period of at least
twelve months after the approval of the Interim Financial
Statements. The assessment includes the review of Zegona cashflow
forecast and budget, which included considerations on expected
developments in liquidity, debt and capital. The Directors have
also considered sensitivities in respect of potential severe but
plausible downside scenarios in concluding that Zegona is able to
continue in operation for a period of at least twelve months from
the date of approving the Interim Financial Statements.
Following the sale of the investment in Euskaltel and the Return
of Capital in 2021, Zegona meets its day to day working capital
requirements from cash balances. Zegona is continuing to execute
its Buy-Fix-Sell strategy which currently involves actively
searching for another attractive investment opportunity within the
European TMT sector. During this period, Zegona's ongoing costs are
reasonably predictable, and the Directors have considered the
forecast cash inflows and outflows over the next two years and are
comfortable that Zegona's cash holdings of GBP6.1 million (EUR7.1
million) at 7 September 2022 is sufficient to fund these costs for
at least twelve months after the approval of these Interim
Financial Statements.
In performing their assessment, the Directors also noted that
based on their forecasts of cash inflows and outflows, Zegona could
absorb quite significant unexpected costs in connection with an
unsuccessful deal. However, it is possible that a significant
aborted transaction during the 12 month assessment period could
reduce Zegona's cash balance below the level necessary to fund its
on-going costs for the remainder of the assessment period. Zegona
has not presently committed to any material costs to undertake any
deal and expects to be able to control costs incurred during a deal
process in order to manage any costs on aborted deals.
In conclusion, based on their review, the Directors are
confident that the Company and Zegona group will have sufficient
funds to continue to meet their liabilities as they fall due for at
least 12 months from the date of approval of the financial
statements. Accordingly, the Directors continue to adopt the going
concern basis in preparing the Consolidated and Parent Financial
Statements .
(c) New standards, interpretations and amendments adopted by Zegona
The accounting policies adopted in the preparation of the
Interim Financial Statements are consistent with those followed in
the preparation of Zegona's annual consolidated financial
statements for the year ended 31 December 2021, which were prepared
in accordance with UK-adopted international accounting standards
and with those parts of the Companies Act as applicable to
companies reporting under international accounting standards.
Zegona has not early adopted any other standard, interpretation or
amendment that has been issued but is not yet effective.
Standards, amendments and interpretations effective and adopted
by Zegona:
The accounting policies adopted in the presentation of the
Interim Financial Statements reflect the adoption of the following
amendments for annual periods beginning on or after 1 January 2022,
none of which had a material effect on Zegona.
Standard Effective date
Onerous Contracts - Cost of Fulfilling a Contract 1 January 2022
(Amendments to IAS 37)
Property, Plant and Equipment: Proceeds before 1 January 2022
Intended Use (Amendments to IAS 16)
Amendments to IFRS3: Reference to the conceptual 1 January 2022
framework
Annual improvements to IFRS Standards 2018-2020 1 January 2022
(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 2021. The main judgements and
estimates used by the Directors in applying
the accounting policies of Zegona that had the greatest impact
on the Interim Financial Statements are as
follows:
-- The recoverability of the income tax receivable (note 6)
-- The classification of the delayed share subscription (note 11)
3. SEGMENT INFORMATION
Following the disposal of Euskaltel, Zegona and its subsidiaries
are organised as a single business which seeks to generate
shareholder returns by applying its Buy-Fix-Sell strategy to
European TMT assets. The chief operating decision maker is
considered to be the Board, who only receive consolidated
information which does not include an analysis of either profit and
loss or assets and liabilities to any lower level. Zegona has
therefore concluded that it only has a single operating segment for
which the measure of performance is Zegona's consolidated loss for
the period from continuing operations and all amounts required to
be disclosed in accordance with paragraph 23-24 of IFRS 8 Operating
Segments are the same as the equivalent consolidated amounts
disclosed elsewhere in these financial statements. All non-current
assets are domiciled in the United Kingdom.
4. FINANCE INCOME AND COSTS
For the 6 months ended
30 June
2022 2021
EUR000 EUR000
Bank interest - 1
G ain on derivative - 135
------------ -----------
Finance income - 136
============ ===========
Interest on bank borrowings - (278)
------------ -----------
Finance costs - (278)
============ ===========
5. FINANCIAL INSTRUMENTS
The classification by category of the financial instruments held
by Zegona is as follows:
Fair Amortised Fair Amortised
Value cost Value cost
2022 2022 2021 2021
EUR000 EUR000 EUR000 EUR000
Income Tax receivable - 5,107 - 5,234
------ --------- ------ ---------
Total non- current financial
assets - 5,107 - 5,234
====== ========= ====== =========
Prepayments and other receivables - 294 - 197
Cash and cash equivalents - 8,169 - 10,556
------ --------- ------ ---------
Total current financial
assets - 8,463 - 10,753
====== ========= ====== =========
Fair Amortised Fair Amortised
Value Cost Value cost
2022 2022 2021 2021
EUR000 EUR000 EUR000 EUR000
Accruals and other payables - 794 - 1,457
Bank borrowing - 518 - 106
Total current financial
liabilities - 1,312 - 1,563
====== ========= ====== =========
6. INCOME TAX RECEIVABLE
As described in note 15 to the 31 December 2021 annual financial
statements, Zegona has recorded a receivable in respect of two
charging notices issued by HMRC in 2021 totalling GBP4.4 million
(EUR5.1 million). These charging notices are for the repayment of
tax relief received under the Group Financing Exemption of the UK's
Controlled Foreign Company ("CFC") legislation which the European
Commission (the "Commission") determined comprised illegal state
aid.
Both the UK Government and a number of other impacted taxpayers
have submitted appeals to the EU General Court to annul the
Commission's findings. On 8 June 2022, the General Court of the
Court of Justice of the European Union ("CJEU") found in favour of
the Commission's decision. The UK Government has now announced that
it has lodged an appeal of the decision with the Court of Justice.
If the UK Government's appeals are ultimately successful, Zegona
will be entitled to recover the amounts already paid and will
suffer no loss
Despite the decision of the General Court, based on its current
assessment and also supported by external professional advice,
Zegona believes that the UK Government's appeal will likely be
successful. As a result, Zegona continues to believe that it has no
liability. Therefore, no tax charge is required in the current or
previous periods and the amounts paid to HMRC under the State Aid
charging notices are expected to be repaid. Given that an appeal
would be expected to take more than a year, a long-term current tax
receivable has continued to be recognized in respect of the amounts
paid at the balance sheet date. Any appeal of the General Court
decision to the Court of Justice, and the progress of the UK Tax
Authority challenge into the historic financing arrangements of the
Group, will continue to be monitored by Management.
7. DISCONTINUED OPERATIONS
During 2021, Zegona disposed of its 21.44% investment in
Euskaltel S.A. ("Euskaltel"), a Spanish telecommunications company
incorporated in Spain and operating in the Basque Country, Asturias
and Galicia under regional brands and nationally across Spain under
the Virgin telco brand. The investment in Euskaltel was sold to a
subsidiary of MásMóvil Ibercom, S.A.U ("MásMóvil"), the Spanish
fourth national operator who launched a tender offer to acquire all
of the outstanding shares of Euskaltel on 28 March 2022. The tender
offer completed successfully and Zegona received EUR421.3 million
in cash on 11 August 2021.
Up to the announcement of MásMóvil's tender offer on 28 March
2021, Zegona had accounted for its investment in Euskaltel as an
associate. From 28 March 2021, Zegona concluded that the two
conditions for classifying the investment as an asset held for sale
in paragraph 7-10 of IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations had been met. Accordingly, the investment
in Euskaltel as an associate was classified as both held for sale
and as a discontinued operation from March 28, 2021
The amounts recorded in the Consolidated statement of
comprehensive income in respect of discontinued operations were as
follows:
For the 6 months ended
30 June
2022 2021
EUR000 EUR000
Share of loss of associate - (412)
Gain on derivative - 5,571
Significant project costs - (687)
Finance costs - (1,085)
----------- -----------
Discontinued operations - 3,387
=========== ===========
Share of loss of associate
The Share of loss of associate represents Zegona's share of the
loss of Euskaltel for the period prior to the announcement of
MásMóvil's tender offer.
Gain on derivative
On 7 April 2021, Zegona entered into a Deal Contingent Forward
Purchase Agreement ("DCF") with Barclays Bank PLC to ensure it
would receive a fixed Sterling value if the tender offer to acquire
Euskaltel was completed successfully. The DCF was recognised as a
financial asset at Fair Value Through Profit and Loss with the fair
value of EUR5.6 million at 30 June 2021 being calculated using
prevailing market forward foreign exchange rates. Since this
instrument was entered into entirely to fix the Sterling value of
the Euskaltel proceeds, changes in fair value are recognised within
discontinued operations.
Significant project costs
Significant project costs are those incurred on projects that
are considered to be one-off or non-recurring in nature, where the
costs are so material individually or collectively that the
Directors believe that they require separate presentation and
disclosure to avoid distortion of the comparability of corporate
costs between periods. In 2021, EUR0.7 million of significant
project costs that had been incurred by 30 June 2022 and which were
related to the disposal of the Euskaltel investment and the return
of capital were recognised within discontinued operations which
were principally legal and other advisory fees.
Finance costs
During 2020 and up to 10 August 2021, Zegona recorded a
financial asset designated at fair value for contingent
consideration receivable from Euskaltel in relation to the sale of
Telecable in 2017. This asset was always recorded at fair value
using a probability-weighted disco unted cash flow model and the
loss of EUR1.1 million reflects the change in the fair value of the
asset up to 10 August 2021 when it was sold to a third party for
EUR6.4 million in cash, which was received on 10 August 2021. As
the sale of Euskaltel would not have been undertaken without the
settlement of the contingent consideration Zegona concluded that
the contingent consideration was part of the discontinued
operation.
8. BANK BORROWINGS
Zegona has a GBP1.5 million overdraft facility with HSBC PLC
which is generally undrawn, however at 30 June 2022, GBP485
thousand (EUR518 thousand) of the facility was drawn for a brief
period to cover short-term working capital requirements (31
December 2021: GBP90 thousand). The interest rate on the overdraft
facility is 0.25% and it is repayable on demand. The overdraft was
repaid on 13 July 2022.
9. ACCRUALS AND OTHER PAYABLES
30 June 31 December
2022 2021
EUR000 EUR000
Trade payables 248 250
Other accruals 546 1,207
794 1,457
======= ===========
10. MANAGEMENT INCENTIVE SCHEME
Incentive scheme arrangements were put in place at Zegona's
inception in 2015 to create incentives for Zegona's management team
who have been issued Class A Ordinary Shares in the Company's
subsidiary, Zegona Limited
("Management Shares").
The holders of the Management Shares are entitled to 15% of the
growth in value of Zegona during a series of five separate
Calculation Periods, provided that ordinary shareholders achieve a
5% per annum Preferred Return [1] in each Calculation Period.
Holders have the right to end each Calculation Period by
redeeming 99% of their Management Shares at any time between the
third and fifth anniversaries of the beginning of the Calculation
Period, although a Calculation Period may also end upon certain
specified events such as a winding up or takeover, or a change of
control of Zegona.
When a Calculation Period ends, a new Calculation Period
automatically begins with the remaining 1% of unredeemed shares
retaining the entitlement to 15% of the growth in value of Zegona
for the next Calculation Period. The first two calculation periods
have been completed and the third calculation period began on 14
October 2021.
At 30 June 2022, a total of 515,464 Management Shares in Zegona
Limited remain allotted, issued and fully paid as shown in the
table below:
Participation Number of Nominal value
in Management of Management
growth in Shares Shares
value
Eamonn O'Hare 8.88% 305,000 GBP305
Robert Samuelson 4.44% 152,500 GBP153
Zegona senior management 1.68% 57,964 GBP58
=========== ==============
515,464 GBP516
=========== ==============
The Third Calculation Period
The Third Calculation Period automatically began on 14 October
2021, with the Baseline Value Per Share for the new Calculation
Period being GBP1.51 per share, which was equal to the volume
weighted average mid-market price of Zegona shares for the previous
30 trading days. During the Third Calculation Period, the
Management Shares may be redeemed between 14 October 2024 and 14
October 2026. All other terms remain the same as for the other
Calculation Periods.
The renewal of the scheme was subject to a shareholder vote at
Zegona's 2022 AGM which passed with 98.03% of votes in favour.
The start of the new calculation period constituted a new award
with services rendered from 14 October 2021. However, the grant
date of the award under IFRS 2 could not be until shareholders
ratified the renewal of the scheme at Zegona's 2022 AGM on 28 June
2022. Until this date, Zegona estimated the fair value of the award
at each balance sheet date and recognised an expense that reflected
the date that holders began to render services. Upon ratification
of the scheme at the AGM, Zegona valued the award a final time and
adjusted the expense to reflect the proportion of the final value
that would have been recognised based on the proportion of services
rendered. Zegona expects that any amounts due under the third
calculation period will be settled in equity and, therefore has
concluded that the Management Shares are equity settled
instruments.
Accordingly, Zegona engaged an independent valuation specialist
to estimate the fair value of the award at 28 June 2022. The value
of the award on the valuation date was GBP0.46 per Management Share
which will be recognised in the Consolidated Statement of
Comprehensive Income based on the proportion of total services
rendered. For the period to 30 June 2022 a total expense of EUR34
th ousand was recognised, with a corresponding amount recognised in
the share based payment reserve.
The fair value of the award was calculated using a Monte Carlo
model. The fair value uses a volatility of 20% depending on the
acquisition size, and an expected term of three years. The
Incentive Shares are subject to the Preferred Return being
achieved, which is a market performance condition, and as such has
been taken into consideration in determining their fair value. A
risk-free rat e of 1.75% has been a pplied, based on the implied
yield available at the measurement date on the zero-coupon
government issues with a remaining term equal to the expected term
of the Awards. The model incorporates a range of probabilities for
the likelihood of a successful acquisition being made of a given
size in a range of GBP0.5 billion - GBP2.0 billion and inc ludes a
number of discou nts of 90% in aggre gate to reflect the risks
inherent in the instrument such as the competition for assets and
the need to raise capital within a short timeframe.
On 1 April 2022, a member of Zegona's senior management team
left the business and 28,982 shares were re-purchased for no
consideration. The cumulative expense that had been recognised in
relation to these shares were reversed in the period. On June 7
2022, another member of Zegona's senior management team was issued
28,982 shares which were then deemed to be granted at the AGM on 28
June 2022. An expense was recognised for the period between
issuance and 30 June 2022.
11. RESERVES
Distributable reserves
Retained earnings
The retained earnings reserve includes cumulative net profits
and permitted transfers from the share-based payment reserve.
Amounts in the retained earnings reserve are typically
distributable profits.
Other reserve
The other reserve is a distributable reserve which is comprised
of transfers from the share premium reserve in 2016 and 2021
following court approved reductions of capital, net of all
historical dividends paid and the total costs of buying back shares
(the nominal value of the shares and any premium paid), which are
charged against distributable reserves.
Following the completion of Zegona's tender offer in October
2021, the full amount then outstanding in the other reserve was
utilised to fund the tender offer
Total distributable reserves
While the other reserve continues to be distributable, its
balance in Sterling is zero, therefore the Company's total
distributable reserves are now solely the retained earnings
reserve. At 31 December 2021 the Company's Retained earnings
reserve in Sterling (Zegona's functional currency) was GBP 1.9
million (31 December 2021; GBP3.5 million).
Non - distributable reserves
Share-based payment reserve
The share-based payment reserve is a non-distributable reserve
that represents the cumulative build-up of the Management Incentive
Scheme costs over the vesting period as the employees gradually
render service while the Management Incentive Scheme is considered
to be an equity settled instrument.
The current balance of the reserve reflects the aggregate
amortisation of a portion of the fair value of the third
Calculation Period as discussed in note 10.
Foreign currency translation reserve
The foreign currency translation reserve is a non-distributable
reserve that includes the foreign exchange differences arising from
the translation of the Consolidated Financial Statements functional
currency of Sterling ("GBP") to presentational currency euro
("EUR"). The movement in this reserve for the period is driven
primarily by the movement in the closing EUR:GBP exchange rates
from 1.19 at 31 December 2021 to 1.16 at 30 June 2022.
Capital redemption reserve
The capital redemption reserve is a requirement under s692 of
the Companies Act to preserve the Company's capital and is a
non-distributable reserve. When the Company buys back shares out of
profits and those shares are immediately cancelled, the amount by
which the Company's issued share capital is reduced must be
transferred to the capital redemption reserve.
During 2021, GBP2.1 million (EUR2.5 million at the rate
prevailing at the transaction date) has been transferred to the
capital redemption reserve which represents the nominal value of
the 214,532,103 shares repurchased in the tender offer.
Share premium reserve
The share premium reserve is a requirement under s610 of the
Companies Act and is a non-distributable reserve. The reserve
comprises amounts subscribed for share capital in excess of nominal
value less costs directly attributable to the issue of new shares.
During 2021, the share premium account of the Company was reduced
to GBP100,000 (EUR114.1 thousand) with GBP95.239 million (EUR108.7
million) being transferred to the Other reserve. This was offset by
GBP1.2 million, being the proceeds received in excess of the
nominal value of the 887,594 shares subscribed for by Eamonn O'Hare
and Robert Samuelson on 27 October 2021.
Shares to be issued
The shares to be issued reserve is a non-distributable reserve
that relates solely to the GBP1.2 million (EUR1.4 million) of cash
received from Robert Samuelson and Eamonn O'Hare to subscribe for
shares in 2021.
The Zegona management team committed to re-invest up to GBP4.0
million of the proceeds of the exercise of the second calculation
period of the Management Incentive Scheme (see note 10) back into
Zegona by subscribing for new shares. The subscription price was
agreed as the adjusted net asset value per share of Zegona
immediately prior to completion of the subscriptions. To the extent
that the aggregate number of shares to be subscribed for would
exceed 28.1% of the issued share capital of the Company immediately
following the subscription, the subscriptions were to be scaled
back pro rata. The subscriptions were also conditional on the
admission to trading ("Admission") of these shares by the Financial
Conduct Authority ("FCA") and Zegona had been advised that the
company should not be required to issue a prospectus for Admission.
The subscriptions were approved by Zegona's shareholders at a
General Meeting of the Company on 30 June 2021.
Following the completion of the tender offer, the subscription
price was confirmed as GBP1.438 per share, meaning the management
team were able to subscribe for 1,734,451 shares which would have
been 28.1% of the Company immediately following the subscription.
The aggregate total investment was GBP2.5 million, which was paid
by the management team on 14 October 2021. Following the
investment, the Board and management team would have held 29.1% of
Zegona's shares.
Upon applying for Admission of the new shares, Zegona was
informed that Admission was limited to a maximum of 20% of its
shares in issue immediately following its tender offer without
publishing a prospectus. Zegona, together with Eamonn O'Hare and
Robert Samuelson (the affected members of the management team),
elected to issue and admit 887,594 shares on 27 October 2021 ([2])
with the remaining 846,857 shares to be issued the next time Zegona
prepares a prospectus ([3]) . Zegona entered into a revised
Subscription Agreement ("Subscription Agreement (as Amended)") with
Eamonn O'Hare and Robert Samuelson that confirmed they were both
committed to complete the subscription for the agreed number of
shares at the agreed price under any circumstances.
Zegona has concluded that the Subscription Agreement (as
Amended) is an equity instrument as it is defined in IAS 32
Financial Instruments: Presentation on the basis that (a) there is
no contractual obligation to deliver cash or another financial
asset to another party (b) there is no obligation to exchange
financial assets or liabilities with another party and (c) the
agreement is a non-derivative and obliges Zegona to deliver a fixed
number of shares.
12. RELATED PARTY TRANSACTIONS
There were no related party transactions during the period to 30
June 2022 other than key management personnel compensation.
13. POST BALANCE SHEET EVENTS
There were no material post balance sheet events.
[1] The preferred Return is a 5% per annum return on a
compounded basis on shareholders' net investment.
[2] Being the maximum number of shares that could be Admitted on
that date.
[3] The remaining shares may also be Admitted without the need
for a prospectus from 27 October 2022.
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END
IR UBUWRUWUKRAR
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