REG - Zegona Comm PLC - Half-year Report
08/09/2022 07:00
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RNS Number : 6854Y Zegona Communications PLC 08 September 2022
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ZEGONA COMMUNICATIONS PLC ("Zegona")
LEI: 213800ASI1VZL2ED4S65
8 SEPTEMBER 2022
INTERIM REPORT FOR THE SIX MONTHS ENDED 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
(mailto:lulu.bridges@tavistock.co.uk)
Jos Simson - jos.simson@tavistock.co.uk (mailto: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
£335 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 €1.9
million, compared to a loss of €23.8 million in the same period in 2021
which included incentive costs associated with the disposal of our investment
in Euskaltel. The €1.9 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 £6.1 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 €5.1 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").
Risk title Risk rating Change in risk assessment since the 2021 Annual Report
Ability to identify and complete new acquisitions Moderate -- No change
Ability to create value in acquired businesses Moderate -- No change
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 €000 €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)
€ €
Earnings per share - total operations
Basic and diluted earnings per share attributable to ordinary equity holders (0.36) (0.09)
of the parent
Earnings per share - continuing operations
Basic and diluted earnings per share attributable to ordinary equiy holders of (0.36) (0.11)
the parent
Earnings per share - discontinued operations - (0.02)
Basic and diluted earnings per share attributable to ordinary equity holders
of the parent
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 €000 €000
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 (313) 79
11
Exchange differences arising from discontinued operations - 14,998
Total comprehensive loss for the period, net of tax, attributable to equity (2,207) (5,312)
holders of the parent
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 31
June December
2022 2021
Notes €000 €000
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
Share-based payment reserve Foreign currency translation reserve Capital redemption reserve Share premium reserve Other reserve Shares to be issued Total equity
Share capital
Retained
earnings
Note €000 €000 €000 €000 €000 €000 €000 €000 €000
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.
Share-based payment reserve Foreign currency translation reserve Capital redemption reserve Share premium reserve Other reserve Total equity
Share capital
Retained
earnings
Note €000 €000 €000 €000 €000 €000 €000 €000
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
€000 €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
(http://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 £6.1 million (€7.1 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 (Amendments to IAS 37) 1 January 2022
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 1 January 2022
16)
Amendments to IFRS3: Reference to the conceptual framework 1 January 2022
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
€000 €000
Bank interest - 1
Gain 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
€000 €000 €000 €000
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
€000 €000 €000 €000
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 £4.4 million (€5.1 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 €421.3 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
€000 €000
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 €5.6 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, €0.7 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 discounted cash flow model
and the loss of €1.1 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 €6.4
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 £1.5 million overdraft facility with HSBC PLC which is generally
undrawn, however at 30 June 2022, £485 thousand (€518 thousand) of the
facility was drawn for a brief period to cover short-term working capital
requirements (31 December 2021: £90 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
€000 €000
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 (#_ftn1)
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 in Number of Management Shares Nominal value
growth in of Management Shares
value
Eamonn O'Hare 8.88% 305,000 £305
Robert Samuelson 4.44% 152,500 £153
Zegona senior management 1.68% 57,964 £58
515,464 £516
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 £1.51 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 £0.46 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
€34 thousand 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 rate of 1.75% has been applied, 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 £0.5 billion - £2.0 billion and includes a number
of discounts of 90% in aggregate 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 £ 1.9 million
(31 December 2021; £3.5 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 ("£") to
presentational currency euro ("€"). The movement in this reserve for the
period is driven primarily by the movement in the closing €:£ 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, £2.1 million (€2.5 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 £100,000 (€114.1 thousand) with £95.239 million (€108.7
million) being transferred to the Other reserve. This was offset by £1.2
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 £1.2 million (€1.4 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 £4.0 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 £1.438 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
£2.5 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 (#_ftn2) )) with the remaining 846,857 shares to be issued the next
time Zegona prepares a prospectus(( 3 (#_ftn3) )). 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 (#_ftnref1) The preferred Return is a 5% per annum return on a compounded
basis on shareholders' net investment.
2 (#_ftnref2) Being the maximum number of shares that could be Admitted on
that date.
3 (#_ftnref3) The remaining shares may also be Admitted without the need for
a prospectus from 27 October 2022.
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