REG - Zegona Comms. - Interim Financial Statements
27/09/2024 07:00
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27 September 2024
ZEGONA COMMUNICATIONS PLC ("Zegona")
ZEGONA ANNOUNCES INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE
2024
London, England, Zegona Communications Plc (LSE: ZEG) announces that in
accordance with UK Listing Rule 22.2.6, a copy of its Interim Financial
Statements for the six months ended 30 June 2024 will be submitted to the FCA
and will be available for inspection via the National Storage Mechanism
(NSM) at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
The Interim Financial Statements for the six months ended 30 June 2024 will
also be available on the company's website: www.zegona.com
(http://www.zegona.com)
Enquiries
Lulu Bridges / Katie Hopkins / Ruairi Millar
Tavistock
Tel: 020 7920 3150
Zegona@tavistock.co.uk (mailto:Zegona@tavistock.co.uk)
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
Management Report
For the six months ended 30 June 2024
Financial and operational review
The most significant event in the 6 months to 30 June 2024 was the completion
of the acquisition by Zegona Communications Plc ("the Company") and
subsidiaries ("the Zegona Group") of Vodafone Group Plc's Spanish business
comprising Vodafone Holdings Europe S.L.U., and the trading entities Vodafone
España S.A.U., Vodafone ONO S.A.U. Vodafone Servicios, S.L.U. and Vodafone
Energía S.L.U. (together "Vodafone Spain" and with the Zegona Group "the
Group"), on 31 May 2024.
The completion of the acquisition underlines the Zegona Group's on-going focus
on finding the best opportunities within the European telecommunications
market to enable the Zegona Group's management team to successfully apply
their proven strategic capabilities to drive attractive returns for the
Group's shareholders.
Since the date of acquisition, management has initiated a number of steps
within their plan for the transformation of Vodafone Spain including:
· On 17 July 2024, the successful refinancing of the acquisition financing with
long-term financing placed with Spanish and international institutional
investors;
· On 24 July 2024, Zegona Group announced that Vodafone ONO, S.A.U. and
MasOrange, S.L. signed a confidential non-binding term sheet setting out the
proposed key terms for a national network sharing agreement creating a joint
fibre network company ("FibreCo"). This will cover approximately 11.5 million
premises across Spain and will provide fibre access services to both companies
within this footprint;
· On 31 July 2024, Zegona Group announced that Vodafone ONO, S.A.U. and
Telefonica de Espana, S.A.U. signed a confidential non-binding term sheet
setting out the proposed key terms to create a new fibre network company
covering approximately 3.5 million premises, providing fibre access services
to both companies within this footprint;
· On 12 September 2024, Zegona Group announced that Vodafone ONO S.A.U. and
Telefonica de Espana S.A.U. signed a confidential non-binding term sheet for
the renewal of the current fibre access services on Telefonica's footprint.
This complements the two announced FibreCo deals and completes the
transformation of Vodafone Spain's fixed line strategy. The combination of
these fibre transactions ensures Vodafone Spain will have long term,
economically advantaged access to full national fibre coverage enabling it to
offer the most technically advanced connectivity services to all its
customers;
· Changes to the senior management team of Vodafone Spain to bring in new
leadership and ensure greater focus on the key business drivers; and
· The implementation of the required rationalisation of the Vodafone Spain
organisation, creating a more efficient and effective structure for the future
needs of the business.
Further information on the above actions can be found on the Zegona website
(www.zegona.com (http://www.zegona.com/) ).
The Group' s Financial Performance
The Group's performance for the 6 months ended 30 June 2024 comprises 6 months
of operations of the Zegona Group and one month of Vodafone Spain, resulting
in a loss for the period of €46.0m (€1.8m in the 6 months ended 30 June
2023), with the current period results including one-off transaction related
expenses of €19.6m.
Post acquisition, in July 2024, the Group received strong credit ratings
including corporate and secured ratings from S&P at BB (Positive) and BB
respectively, Moody's at Ba3 (Positive) and Ba3, and Fitch at BB+ and BBB-.
Acquisition of Vodafone Spain
On 31 May 2024, the Zegona Group completed the acquisition of 100% of Vodafone
Spain for a headline purchase price of €5 billion. The details of the
resulting Purchase Price Allocation "PPA", are covered in more detail in note
7.
Principal and emerging risks
Management has carried out robust assessments of the principal and emerging
risks facing the Group, including those that would threaten the business
model, future performance, solvency or liquidity. There is a full list of
principal and emerging risks set out in the Prospectus document dated 13
November 2023, but the most pertinent are set out below:
Ability to create value in acquired businesses
The Zegona Group's acquisition of Vodafone Spain is based on a detailed
assessment of Vodafone Spain's business, including identifying where Zegona
management can create considerable value through its proven long term
improvement strategy. We have a disciplined approach to valuation and,
ultimately, we are only prepared to make investments on attractive terms and
after undertaking thorough due diligence. We believe Vodafone Spain meets our
investment criteria in that it is a business with a significant underlying
asset base, high-quality customer offerings and a strong position in a market
with good fundamentals but which is underperforming its potential and has
scope for improved long term performance and cash flow delivery.
In addition, the success of the Zegona Group's investment in Vodafone Spain
will depend on our ability to implement our identified strategic, operational
and financial changes to refocus the business and improve its operational
efficiency to deliver our financial targets. Implementing these change
programmes will require changes to business assets, operating and financial
processes, business systems, management techniques and personnel, including
senior management.
We first started operating in the Spanish telecommunications market in 2015,
with the acquisition of Telecable until the sale of Euskatel in March 2021. We
have continued to monitor the Spanish Telecommunications markets, given our
deep understanding of the market, its key drivers and the main operators. We
have evaluated Vodafone Spain's market position, business strategies and
operational performance over an extended period of time pre-acquisition. This
has enabled us to identify multiple improvement opportunities and develop a
detailed action plan to ensure these are delivered. This sets out the specific
actions to be taken within each business area and the expected improvements to
be delivered from each. It also includes the costs for the required
restructuring which are included in our financial projections. As a result, we
are confident we can materially improve the performance and financial returns
from the business over the business plan period.
Reliance on key management
The Group's operations are currently managed by the Chief Executive Officer,
supported by the Chief Operating Officer, the Investment Director and the
Chief Financial Officer, who work closely with the Vodafone Spain senior
management team. The absence or loss of key management could significantly
impede our financial plans.
We aim to retain our key staff by offering remuneration packages at market
rates, as well as long term incentives through the issue of Management Shares
and other management incentive plans. Post-acquisition, the Group has been and
continues to strengthen its team through the selective hiring of a small
number of highly qualified personnel to support the implementation of our
plans for Vodafone Spain.
Foreign exchange
The Group originally raised debt in Euros and is effectively managing the
exposure to currency risk (see Note 14 for details on post interim period
re-financing). The Board of Directors of the Company ("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.
Unaudited Condensed Consolidated Interim Financial Statements
For the six months ended 30 June 2024
ZEGONA COMMUNICATIONS PLC
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June
Unaudited Unaudited
2024 2023
Notes €000 €000
Revenue 3 302,060 -
Cost of sales (88,420) -
Gross profit 213,640 -
Operating and administrative expenses (199,658) (1,726)
Operating exceptional items 4 (19,649) (55)
Operating loss (5,667) (1,781)
Finance income 12,025 12
Finance cost (29,903) (3)
Foreign exchange losses 11 (22,492) (2)
Loss for the period before tax (46,037) (1,774)
Income tax expense - -
Loss for the period (46,037) (1,774)
Other comprehensive income
Exchange differences on translation of foreign operations 11 22,362 359
Other comprehensive income 22,362 359
Total comprehensive expense (23,675) (1,415)
The accompanying notes are an integral part of the unaudited condensed
consolidated interim financial statements.
ZEGONA COMMUNICATIONS PLC
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
The accompanying notes are an integral part of the unaudited condensed Unaudited As at 31
consolidated interim financial statements.
As at 30
June December
2024 2023
Notes €000 €000
Assets
Non-current assets
Property, plant and equipment 3,825,450 1
Goodwill 7 391,011 -
Intangible assets 2,017,053 -
Income tax receivable 5,259 5,071
Trade and other receivables 12 257,129 -
6,495,902 5,072
Current assets
Trade and other receivables 12 921,071 1,189,548
Inventory 41,925 -
Cash and cash equivalents 12 112,518 4,648
1,075,514 1,194,196
Total assets 7,571,416 1,199,268
Equity and Liabilities
Equity
Share capital 8,312 8,312
Share premium 8 1,182,375 1,182,375
Other reserves 8 2,767 (1,001)
Retained earnings (58,978) (9,219)
Foreign currency translation reserve 8 23,563 1,201
1,158,039 1,181,668
Non-current liabilities
Trade and other payables 220,219 -
Deferred tax liabilities 7 51,379 -
Long term borrowings 12 3,825,861 -
Lease and other liabilities 12 846,434 -
4,943,893 -
Current liabilities
Accruals and other payables 12 1,106,101 17,600
Lease and other liabilities 12 363,383 -
1,469,484 17,600
Total liabilities 6,413,377 17,600
Total equity and liabilities 7,571,416 1,199,268
The accompanying notes are an integral part of the unaudited condensed
consolidated interim financial statements.
ZEGONA COMMUNICATIONS PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited) Note Share Capital Share Premium Foreign currency translation reserve Retained earnings Other reserves - share based payment Other reserves - capital redemption Other reserves - promissory note receivable Total equity
€000 €000 €000 €000 €000 €000 €000 €000
At 1 January 2024 8,312 1,182,375 1,201 (9,219) 156 2,565 (3,722) 1,181,668
Loss for the period - - - (46,037) - - - (46,037)
Other comprehensive income - - 22,362 - - - - 22,362
Reclassification of interest income related to promissory note 8 - - - (3,722) - - 3,722 -
Share based payment charge - - - - 46 - - 46
Balance at 30 June 2024 8,312 1,182,375 23,563 (58,978) 202 2,565 - 1,158,039
Share premium reserves includes 900m EUR of capital contributions. For more
detail refer to Note 7 and Note 12.
The accompanying notes are an integral part of the unaudited condensed
consolidated interim financial statements.
ZEGONA COMMUNICATIONS PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited) Note Share Capital Share Premium Foreign currency translation reserve Retained earnings Other reserves - share based payment Other reserves - capital redemption Total equity
€000 €000 €000 €000 €000 €000 €000
At 1 January 2023 311 3,049 (6,922) 11,469 65 2,565 10,537
Loss for the period - - - (1,774) - - (1,774)
Other comprehensive income - - 359 - - - 359
Share based payment charge - - - - 35 - 35
Balance at 30 June 2023 311 3,049 (6,563) 9,695 100 2,565 9,157
The accompanying notes are an integral part of the unaudited condensed
consolidated interim financial statements.
ZEGONA COMMUNICATIONS PLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Notes For the six months ended 30 June 2024 For the six months ended 30 June 2023
€'000 €'000
Cash flows from operating activities
Loss before income tax (46,037) (1,774)
Reconciliation of loss before income tax to operating cash flows:
Depreciation and amortisation 126,777 6
Share based payment expense 46 35
Net foreign exchange differences 22,492 2
Finance income (12,025) (12)
Finance costs 29,903 3
Working capital adjustments
Decrease in trade and other receivables 12 167,594 26
Decrease in trade and other payables (147,957) (75)
Decrease in inventories (2,187) -
Other working capital cash flows (47) 9
Net cash inflow/(outflow) from operating activities 138,559 (1,780)
Cash flows from investing activities
Transfer of cash from escrow account, for the acquisition 7 290,000 -
Cash from borrowings used for the acquisition 7 (453,854) -
Cash from escrow account used for the acquisition 7 (290,000) -
Cash acquired 7 91,440 -
Repayment of loans in acquired subsidiary 7 (3,325,540) -
Purchase of intangible fixed assets (34,259) -
Purchase of property, plant and equipment (42,234) -
Interest received relating to investing activities 6,547 -
Other investing cash flows (644) -
Net cash outflow from investing activities (3,758,544) -
Cash flows from financing activities
Proceeds from borrowings, net of transaction costs paid 12 3,802,427 -
Interest paid relating to financing activities (4,023) -
Repayment of borrowings (71,311) -
Net cash inflow from financing activities 3,727,093 -
Net increase/(decrease) in cash and cash equivalents 107,108 (1,780)
Cash and cash equivalents at the beginning of the year 4,648 5,890
Effects of exchange rate changes on cash and cash equivalents 762 197
Cash and cash equivalents at the end of the year 112,518 4,307
The accompanying notes are an integral part of the unaudited condensed
consolidated interim financial statements.
ZEGONA COMMUNICATIONS PLC
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Zegona Communications Plc. 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. The Zegona Group is a leading integrated
telecommunications provider of broadband, mobile and TV services and products
in Spain, delivering voice, data and other value-added services. The Group
covers both business-to-consumer and business-to-business markets, each with a
highly-diversified customer base.
These Interim Financial Statements were authorised for issue in accordance
with a resolution of the Board of Directors on 27 September 2024. The Group is
headquartered in England and has its registered office at 8 Sackville St,
Mayfair, London W1S 3DG.
Upon completion of the acquisition of Vodafone Spain, the Company's accounting
reference date was changed to 31 March and the Company will therefore publish
annual financial statements for the 15-month period ending 31 March 2025.
On 16 July 2024 Ernst & Young LLP were appointed the Group's auditors.
2. MATERIAL ACCOUNTING POLICIES
(a) Basis of preparation
These Interim Financial Statements have 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 2023. The
Group has adopted certain new accounting policies in the period as its
operations have changed due to the acquisition of Vodafone Spain in the
period. 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
2023 which are available on the Group'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 the Group's financial position and performance since the last
annual financial statements.
The condensed consolidated financial information for the six months ended 30
June 2024 and the comparative amounts to 30 June 2023 are unaudited but have
been reviewed by the Group's auditors. The financial information for the year
ended 31 December 2023 has been abridged from the 2023 Annual Report, which
has been filed with the UK Registrar of Companies, for which an unqualified
audit report was given and did not draw attention to any matter by way of
emphasis and did not contain a statement made under s498 (2) or s498 (3) of
the Companies Act 2006. This summary financial information does not constitute
statutory accounts as defined in s434 of the Companies Act 2006.
Subsidiaries are entities controlled by the Company, either directly or
indirectly. Control exists when the Company is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity. The financial
information of subsidiaries is included in the Interim Financial Statements
from the date that control commences until the date that control ceases.
Intragroup balances, any gains and losses or income and expenses arising from
intragroup transactions, and intragroup cash flows are eliminated on
consolidation.
Following the acquisition of Vodafone Spain on 31 May 2024 the Company's
functional currency changed from GBP Sterling to Euro (see note 11 for more
details). The Company's functional currency is therefore now the same as its
presentational currency.
The Interim Financial Statements have been prepared under the historical cost
convention except for certain financial
assets that have been measured at fair value, mainly the PPA valuations as
disclosed in note 7.
(b) Going Concern
The Directors of the Company ("the Directors"), after making appropriate
inquiries, have a reasonable expectation that the Group has adequate resources
and liquidity to continue in operational existence for the 12 month period,
from the issuance of these Interim Financial Statements to 30 September 2025.
As at 30 June 2024, the Group has a strong liquidity position with €112m of
cash and cash equivalents together with undrawn revolving credit facilities of
€500m. None of the Group's debt facilities falls due in the going concern
period.
The Directors have reviewed the detailed cash flow base case and a plausible
but severe downside sensitivity analysis which modeled a significant reduction
in Earnings Before Interest, Tax, Depreciation and Amortisation ("EBITDA").
Additionally, the Directors reviewed a reverse stress scenario to calculate
the decrease to the Group's forecast EBITDA to result in a breach of the
Group's debt covenant. This scenario was deemed as implausible given the
contractual nature of revenue earned within the business, and based on
historical business performance.
Whilst the Directors recognise the uncertainty of the external environment and
have considered the principal risks to the Group in the going concern
forecasting, they have a reasonable expectation that the Group has adequate
resources and liquidity to continue in operational existence for the 12 month
period, from the issuance of these Interim Financial Statements to 30
September 2025.
The Directors therefore consider it appropriate to adopt the going concern
basis when preparing the condensed consolidated financial statements for the
six months ended 30 June 2024.
(c) Critical accounting judgements and significant estimates
The preparation of the Interim Financial Statements requires management 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.
Significant estimates
(i) Business combinations and goodwill
On 31 May 2024, the Zegona Group purchased Vodafone Spain for an enterprise
value of €5bn. The process of determining the fair value of the acquired
assets and liabilities, involves both management judgment in relation to the
valuation methodologies applied and significant estimates in relation to the
key input assumptions selected. These significant estimates and associated
sensitivity analysis are set out in note 7.
(ii) Revenue recognition
Allocation of revenue to goods and services provided to customers
It is necessary to estimate the standalone price when the Group does not sell
equivalent goods or services in similar circumstances on a standalone basis.
When estimating the standalone price, the Group maximises the use of external
inputs; methods for estimating standalone prices include determining the
standalone price of similar goods and services sold by the Group, observing
the standalone prices for similar goods and services when sold by third
parties or using a cost-plus reasonable margin approach (which is sometimes
the case for devices and other equipment). Where it is not possible to
reliably estimate standalone prices due to a lack of observable standalone
sales or highly variable pricing, which is sometimes the case for services,
the standalone price of an obligation may be determined as the transaction
price less the standalone prices of other obligations in the contract.
Critical accounting judgements
Gross versus net revenue presentation
Scenarios requiring judgement to determine whether the Group is a principal or
an agent include those where the Group delivers third-party branded software
or services such as TV content or cloud-based services to customers and goods
or services delivered to customers in partnership with a third-party. The
Group concludes it is acting as principal where the Group has control of goods
or services when they are delivered to a customer. Where the Group does not
have control it is acting as an agent.
(iii) Lease Accounting
a) Lease identification
Whether the arrangement is considered a lease, or a service contract depends
on the analysis by management of both the legal form and substance of the
arrangement between the Group and the counterparty to determine if control of
an identified asset has been passed between the parties; if not, the
arrangement is a service arrangement, rather than a lease.
The specific arrangements requiring significant judgement include those where
the arrangement is for the use of fibre or other fixed telecommunication
lines. Generally, where the Group has exclusive use of a physical line and it
is determined that the Group can also direct the use of those lines, leases
will be recognised. Where the Group provides access to fibre or other fixed
telecommunication lines to another operator on a wholesale basis the
arrangement will generally be identified as a lease, whereas when the Group
provides fixed line services to an end-user it is considered that control over
such lines is not passed to the end-user and a lease is not identified.
b) Lease term
Where leases include additional optional periods after an initial lease term,
judgement is required in determining whether these optional periods should be
included when determining the lease term. As a lessee, optional periods are
included in the lease term if the Group is reasonably certain it will exercise
an extension option or will not exercise a termination option; this depends on
an analysis by management of all relevant facts and circumstances including
the leased asset's nature and purpose, the economic and practical potential
for replacing the asset and any plans that the Group has in place for the
future use of the asset. Where a leased asset is highly customised (either
when initially provided or as a result of leasehold improvements) or it is
impractical or uneconomic to replace then the Group is more likely to judge
that lease extension options are reasonably certain to be exercised. The value
of the right-of-use asset and lease liability will be greater when extension
options are included in the lease term.
(d) Material accounting policies
(i) Business combinations and goodwill
When a business combination occurs, the fair values of the identifiable assets
and liabilities acquired, including intangible assets, are recognised. If
the purchase consideration exceeds the fair value of the net assets acquired,
then the incremental amount paid is recognised as goodwill. Please see note 7
for more details.
(ii) Goodwill
Goodwill is not subject to amortisation but is tested for impairment annually
or whenever there is an indication that the asset may be impaired. For the
purpose of impairment testing, assets are grouped at the lowest levels for
which there are separately identifiable cash flows, known as cash generating
units.
If the recoverable amount of the cash-generating unit is less than the
carrying amount of the unit, the impairment loss is allocated first to reduce
the carrying amount of any goodwill allocated to the unit and then to the
other assets of the unit pro-rata on the basis of the carrying amount of each
asset in the unit. Impairment losses recognised for goodwill are not
reversible in subsequent periods.
(iii) Intangible Assets
Identifiable intangible assets are recognised when the Group controls the
asset, it is probable that future economic benefits attributed to the asset
will flow to the Group and the cost of the asset can be reliably measured.
Identifiable intangible assets are recognised at fair value when the Group
completes a business combination. The determination of the fair values of the
separately identified intangibles, is based, to a considerable extent, on
management's judgement.
Finite lived intangible assets
Intangible assets with finite lives are stated at acquisition or development
cost, less accumulated amortisation. The amortisation period and method are
reviewed at least annually. Changes in the expected useful life or the
expected pattern of consumption of future economic benefits embodied in the
asset are accounted for by changing the amortisation period or method, as
appropriate, and are treated as changes in accounting estimates.
Licence and spectrum fees
Amortisation periods for licence and spectrum fees are determined primarily by
reference to the unexpired licence period, the conditions for licence renewal
and whether licences are dependent on specific technologies. Amortisation is
charged to the statement of comprehensive income on a straight-line basis over
the estimated useful lives from the commencement of related network services.
The estimated useful lives are 5 - 40 years.
Computer software
Computer software comprises software purchased from third parties as well as
the cost of internally developed software. Computer software licences are
capitalised based on the costs incurred to acquire and bring into use the
specific software. Costs that are directly associated with the production of
identifiable and unique software products controlled by the Group, and are
probable of producing future economic benefits, are recognised as intangible
assets. Direct costs of software development include employee costs and
directly attributable overheads.
Software integral to an item of hardware equipment is classified as property,
plant and equipment.
Costs associated with maintaining software programs are recognised as an
expense when they are incurred.
Amortisation is charged to the statement of comprehensive income on a
straight-line basis over the estimated useful life from the date the software
is available for use, being 3 - 5 years.
Other intangible assets
Other intangible assets are recorded at fair value at the date of acquisition.
Amortisation is charged to the statement of comprehensive income, over the
estimated useful lives of intangible assets from the date they are available
for use, on a straight-line basis.
(iv) Capitalisation of customer-related intangible assets
The direct and incremental costs of acquiring or retaining a customer
relationship are recognised as a customer-related asset if the Group expects
to recover those costs. Customer-related assets refers to commissions paid to
staff and agents for acquiring new customers and renewals of existing
customers on behalf of the Group.
Customer-related intangible assets are capitalised whenever they meet the
following criteria:
· Costs that the Group incurs relating to the acquisition of a contract with a
customer that would not have been incurred if the contract had not been
obtained.
· Costs that would have been incurred regardless of whether the contract was
obtained shall be recognised as an expense when incurred unless those costs
are explicitly chargeable to the customer, regardless of whether the contract
is obtained.
Customer-related assets is a component of the intangible assets and amortised
over the contract life; typically, this is over the customer contract period
as new commissions are payable on contract renewal. The estimated useful life
required management judgement and is based on the underlying expected life of
the customer relationship based on historical actuals and market trends.
The amortisation of customer-related intangible assets is recognised in the
comprehensive statement of other income as part of depreciation, amortisation
and impairment losses.
(v) Leases
As a lessee
When the Group leases an asset, a 'right-of-use asset' is recognised for the
leased item and a lease liability is recognised for any lease payments to be
paid over the lease term at the lease commencement date. The right-of-use
asset is initially measured at cost, being the present value of the lease
payments paid or payable, plus any initial direct costs incurred in entering
the lease and less any lease incentives received.
Right-of-use assets are depreciated on a straight-line basis from the
commencement date to the earlier of the end of the asset's useful life or the
end of the lease term. The lease term is the non-cancellable period of the
lease plus any periods for which the Group is 'reasonably certain' to exercise
any extension options. The useful life of the asset is determined in a manner
consistent to that for owned property, plant and equipment. If right-of-use
assets are impaired, the carrying value is reduced accordingly.
Lease liabilities are initially measured at the value of the lease payments
over the lease term that are not paid at the commencement date and are
discounted using the incremental borrowing rates of the applicable Group
entity (the rate implicit in the lease is used if it is readily determinable).
Lease payments included in the lease liability include both fixed payments and
in-substance fixed payments during the term of the lease.
After initial recognition, the lease liability is recorded at amortised cost
using the effective interest method. It is remeasured when there is a change
in future lease payments arising from a change in an index or rate (e.g. an
inflation related increase) or if the Group's assessment of the lease term
changes; any changes in the lease liability as a result of these changes also
results in a corresponding change in the recorded right-of-use asset.
As a lessor
Where the Group is a lessor, it determines at inception whether the lease is a
finance or an operating lease. When a lease transfers substantially all the
risks and rewards of ownership of the underlying asset then the lease is a
finance lease; otherwise, the lease is an operating lease.
Where the Group is an intermediate lessor, the interests in the head lease and
the sub-lease are accounted for separately and the lease classification of a
sub-lease is determined by reference to the right-of-use asset arising from
the head lease.
Income from operating leases is recognised on a straight-line basis over the
lease term. Income from finance leases is recognised at lease commencement
with interest income recognised over the lease term.
Lease income is recognised as revenue for transactions that are part of the
Group's ordinary activities (primarily leases of handsets or other equipment
to customers, leases of wholesale access to the Group's fibre and cable
networks and leases of tower infrastructure assets). The Group uses IFRS 15
principles to allocate the consideration in contracts between any lease and
non-lease components.
(vi) Property, Plant and Equipment
Land and buildings held for use are stated in the statement of financial
position at their cost, less any accumulated depreciation and any accumulated
impairment losses.
Amounts for equipment, fixtures and fittings, which includes network
infrastructure assets are stated at cost less accumulated depreciation and any
accumulated impairment losses.
Assets in the course of construction are carried at cost, less any recognised
impairment losses. Depreciation of these assets commences when the assets are
ready for their intended use.
The cost of property, plant and equipment includes directly attributable
incremental costs incurred in their acquisition and installation. Depreciation
is charged to write off the cost of assets, other than land, using the
straight-line method, over their estimated useful lives, as follows:
Land and buildings
Freehold buildings 5 - 25 years
Leasehold premises The term of the lease
Equipment, fixtures and fittings
Network infrastructure and other 1 - 3 years
Depreciation is not provided on freehold land.
Right-of-use assets arising from the Group's lease arrangements are
depreciated over their reasonably certain lease term, as determined under the
Group's leases policy.
The gain or loss arising on the disposal, retirement or granting of a finance
lease on an item of property, plant and equipment is determined as the
difference between any proceeds from sale or receivables arising on a lease
and the carrying amount of the asset and is recognised in the statement of
comprehensive income.
(vii) Inventory
Inventory is stated at the lower of cost and net realisable value. Cost is
determined on the basis of weighted average costs and comprises direct
materials and, where applicable, direct labour costs and those overheads that
have been incurred in bringing the inventories to their present location and
condition.
(viii) Trade and other receivables
Trade receivables represent amounts owed by customers where the right to
receive payment is conditional only on the passage of time. Trade receivables
that are recovered in installments from customers over an extended period are
discounted at market rates and interest revenue is accreted over the expected
repayment period. Other trade receivables do not carry any interest and are
stated at their nominal value.
The carrying value of all trade receivables, contract assets and finance lease
receivables recorded at amortised cost is reduced by allowances for lifetime
estimated credit losses. Estimated future credit losses are first recorded on
the initial recognition of a receivable and are based on the ageing of the
receivable balances, historical experience and forward-looking considerations.
Individual balances are written off when management deems them not to be
collectible.
(ix) Taxes
Current tax payable or recoverable is based on taxable profit for the year.
Taxable profit differs from profit as reported in the statement of
comprehensive income as some items of income or expense are taxable or
deductible in different years or may never be taxable or deductible. The
Group's liability for current tax is calculated using tax rates and laws that
have been enacted or substantively enacted by the reporting period date.
Where the Group is aware of potential uncertainties, and where it is judged
not probable that the taxation authorities would accept the uncertain tax
treatment, a provision is made following the appropriate requirements set out
in IFRIC 23 Uncertainty over income tax treatments, and determined with
reference to similar transactions and, in some cases, reports from independent
experts.
Recognition of deferred tax assetsand liabilities
Deferred tax assets are recognised up to the point of appropriate deferred tax
liabilities or to the extent it is probable that there will be sufficient and
suitable taxable profits in the relevant legal entity or tax group against
which to utilise the assets in the future.
(x) Trade and other payables
Trade payables are not interest-bearing and are stated at their nominal value.
(xi) Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Group will
be required to settle that obligation and a reliable estimate can be made of
the amount of the obligation. Provisions are measured at the best estimate of
the expenditure required to settle the obligation at the reporting date and
are discounted to present value where the effect is material. Where the timing
of settlement is uncertain undiscounted amounts are classified as non-current
as settlement is expected more than 12 months from the reporting date.
Asset retirement obligations
In the course of the Group's activities, a number of sites and other assets
are utilised which are expected to have costs associated with decommissioning.
A provision for decommissioning is recognised in full when the related
facilities are installed. The amount recognised is the present value of the
estimated future expenditure. A corresponding amount equivalent to the
provision is also recognised as part of the cost of the related asset. This is
subsequently depreciated. Any change in the present value of the estimated
expenditure is dealt with from the start of the financial year as an
adjustment to the opening provision and the asset. The unwinding of the
discount is included as a finance cost. The associated cash outflows are
substantially expected to occur at the dates of decommissioning of the assets
to which they relate and are long term in nature.
Legal and regulatory
The Group, in the normal course of business, will have a number of disputes,
including where the Group has received notifications of possible claims. Group
management, after taking legal advice, have established provisions considering
the facts of each case.
Restructuring
The Group undertakes periodic reviews of its operations and recognises
provisions as required based on the outcomes of these reviews. The associated
cash outflows for restructuring costs are primarily less than one year.
(xii) Contingent liabilities
Contingent liabilities are potential future cash outflows, where the
likelihood of payment is considered more than remote, but is not considered
probable or cannot be measured reliably, and are therefore not recognised in
the Balance Sheet.
(xiii) Borrowing
Interest-bearing loans are initially measured at fair value (which is equal to
cost at inception), and are subsequently measured at amortised cost, using the
effective interest rate method. Any difference between the proceeds net of
transaction costs and the amount due on settlement or redemption of borrowings
is recognised over the term of the borrowing. See further disclosure of costs
incurred relating to the transaction in note 12.
(xiv) Financial liabilities and equity instruments
Financial liabilities and equity instruments issued by the Group are
classified according to the substance of the contractual arrangements entered
into and the definitions of a financial liability and an equity instrument. An
equity instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities and includes no
obligation to deliver cash or other financial assets. The accounting policies
adopted for specific financial liabilities and equity instruments are set out
below.
(xv) Financial instruments
Financial instruments comprise investments trade receivables, cash and cash
equivalents, payables and accruals and borrowings. The financial instruments
included in the Group's acquisition are described in note 7. These fair values
are based on standard valuation techniques, including market comparisons and
discounts of future cash flows, having regard to maximising the use of
observable inputs and adjusting for risk.
(xvi) Share-based transactions
Equity-settled share-based payments are measured at the fair value of the
equity instruments at the grant date. The grant date is the date on which an
employer and an employee agree upon the most essential terms and conditions
associated with the award. If shareholder approval is needed, then the grant
date is delayed until that approval has been obtained, unless shareholder
approval is considered to be perfunctory.
The fair value is expensed through administrative and other operating
expenses, with a corresponding increase in equity through the share-based
payment reserve, on a straight-line basis over the period that the employees
or others providing similar services become unconditionally entitled to the
awards or vesting period.
The vesting period for these schemes may commence before the legal grant date
if the employees have started to render services in respect of the award
before the legal grant date, where there is a shared understanding of the
terms and conditions of the arrangement. Expenses are recognised when the
employee starts to render service to which the award relates. The fair value
of the awards is calculated at each accounting reporting period until the
final fair value is measured at the legal grant date.
The dilutive effect of outstanding share-based payments is reflected as share
dilution in the computation of diluted EPS.
(xvii) Revenue
When the Group enters into an agreement with a customer, goods and services
deliverable under the contract are identified as separate performance
obligations to the extent that the customer can benefit from the goods or
services on their own and that the separate goods and services are considered
distinct from other goods and services in the agreement. Where individual
goods and services do not meet the criteria to be identified as separate
obligations they are aggregated with other goods and/or services in the
agreement until a separate obligation is identified. The obligations
identified will depend on the nature of individual customer contracts, but
might typically be separately identified for mobile handsets, other equipment
such as set-top boxes and routers provided to customers and services provided
to customers such as mobile and fixed line communication services. Activities
relating to connecting customers to the Group's network for the future
provision of services are not considered to meet the criteria to be recognised
as obligations except to the extent that the control of related equipment
passes to customers.
The Group determines the transaction price to which it expects to be entitled
in return for providing the promised obligations to the customer based on the
committed contractual amounts, net of sales taxes and discounts.
The transaction price is allocated between the identified obligations
according to the relative standalone selling prices of the obligations. The
standalone selling price of each obligation deliverable in the contract is
determined according to the prices that the Group would achieve by selling the
same goods and/or services included in the obligation to a similar customer on
a standalone basis; where standalone selling prices are not directly
observable, estimation techniques are used maximising the use of external
inputs. Revenue is recognised when the respective obligations in the contract
are delivered to the customer. Revenue for the provision of services, such as
mobile airtime and fixed line broadband, is recognised when the Group provides
the related service during the agreed service period.
Revenue for device sales to end customers is generally recognised when the
device is delivered to the end customer. For device sales made to
intermediaries such as indirect channel dealers, revenue is recognised when
control of the device has transferred to the intermediary and the intermediary
has no right to return the device to receive a refund; otherwise revenue
recognition is deferred until sale of the device to an end customer by the
intermediary or the expiry of any right of return.
When the Group has control of goods or services prior to delivery to a
customer, then the Group is the principal in the sale to the customer. As a
principal, receipts from, and payments to, suppliers are reported on a gross
basis in revenue and operating costs. If another party has control of goods or
services prior to transfer to a customer, then the Group is acting as an agent
for the other party and revenue in respect of the relevant obligations is
recognised net of any related payments to the supplier and recognised revenue
represents the margin earned by the Group.
When revenue recognised in respect of a customer contract exceeds amounts
received at that time, a contract asset is recognised; contract assets will
typically be recognised for handsets or other equipment provided to customers
where payment is recovered by the Group via future service fees. If amounts
received from a customer exceed revenue recognised for a contract, for example
if the Group receives an advance payment from a customer, a contract liability
is recognised.
When contract assets or liabilities are recognised, a financing component may
exist in the contract; this is typically the case when a handset or other
equipment is provided to a customer up-front but payment is received over the
term of the related service agreement, in which case the customer is deemed to
have received financing. If a significant financing component is provided to
the customer, the transaction price is reduced and interest revenue is
recognised over the customer's payment period using an interest rate
reflecting the relevant central bank rates and customer credit risk.
(xviii) Operating and administrative expenses
Operating and administrative expenses predominantly relate to customer
acquisition and retention costs, depreciation and amortisation.
(xix) Operating exceptional items
Operating exceptional items are income or costs considered to be one-off /
non-recurring in nature, and individually material. Management believe that
such items require separate presentation and disclosure to avoid distortion of
the comparability of results between periods.
(xx) Financing income
Finance income records income received from cash amounts held on account and
is recorded in the Condensed consolidated statement of comprehensive income.
The cash received is recognised as an investing activity in the Condensed
consolidated statement of cash flows.
(xxi) Finance expense
Interest paid is recorded as a finance expense in the Condensed consolidated
statement of comprehensive income, with cash paid recognised as financing
activity in the Condensed consolidated statement of cash flows.
(xxii) Foreign currencies
Functional Currency
The Group's consolidated interim statements are presented in Euros, which is
also the Company's functional currency. For each entity, the Group determines
the functional currency and items included in the financial statements of each
entity are measured using that functional currency. The Group uses the direct
method of consolidation and on disposal of a foreign operation, the gain or
loss that would be reclassified to profit or loss would reflect the amount
that arises from using this method.
On 31 May 2024 the functional currency of the Company changed to Euros on
completion of the acquisition of Vodafone Spain (refer to Note 11).
Transactions
Transactions in foreign currencies are initially recorded at the functional
rate of currency prevailing on the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are
retranslated into the Group's functional currency at the rates prevailing on
the reporting period date. Non-monetary items carried at fair value that are
denominated in foreign currencies are retranslated at the rates prevailing on
the initial transaction dates. Non-monetary items measured in terms of
historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the
retranslation of monetary items, are included in the income statement for the
period. Exchange differences arising on the retranslation of non-monetary
items carried at fair value are included in the income statement for the
period.
The results and financial position of Group entities with a functional
currency other than Euros are translated as follows:
· Assets and liabilities for each balance sheet are translated at the closing
rate at the translation date;
· Income and expenses for items impacting the Condensed consolidated
comprehensive statement of income are translated at an average rate; and
· All resulting exchange differences are recognised in the Foreign Currency
Translation Reserve.
(e) Basis of consolidation
The financial information of subsidiaries is included in Interim Financial
Statements from the date that control commences until the date that control
ceases. Intragroup balances, any gains and losses or income and expenses
arising from intragroup transactions, and intragroup cash flows are eliminated
on consolidation.
(f) New accounting pronouncements to be adopted
No interpretations or amendments to UK-adopted international accounting
standards for 2024 have had a significant impact on the Group's accounting
policies or reporting in the current period.
IFRS 18 'Presentation of Financial Statements', replacing IAS 1, has been
issued by the IASB and endorsed by the UKEB and is effective for annual
periods beginning or after 1 January 2027, with earlier application permitted.
The impact of adopting this standard is currently being assessed by
Management.
3. REVENUE
Revenue reported for the period includes service revenue from contracts with
customers as well as other revenue items including revenue from equipment
revenue, leases and interest revenue arising from transactions with a
significant financing component.
Revenue disaggregation
6 months ended 6 months ended
30 June 2024 30 June 2023
€000 €000
Service revenue 268,722 -
Other revenue 33,338 -
Total Revenue 302,060 -
All revenue in the period to 30 June 2024 relates to Vodafone Spain and was
earned in Spain.
Segmental analysis
The Group is organised as a single business. The chief operating decision
maker is considered to be the Board, which receives consolidated information,
and therefore the Group's conclusion is that it only has a single operating
segment for which the measure of performance is the Group'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
Interim Financial Statements.
4. OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses include depreciation and amortisation of
€126,777k (2023: nil).
Operating exceptional items
In the 6 months to 30 June 2024 €19,649k (2023: €55k) of operating
exceptional items were recognised relating to professional fees incurred as
part of the acquisition of Vodafone Spain.
5. TAXES
No current corporation tax expense has been incurred in the period ended 30
June 2024 (31 December 2023: nil).
As at 30 June 2024 deferred tax assets of €145,178k have been recognised (31
December 2023: nil). The period end deferred tax asset recognition is
supported by deferred tax liabilities of €196,557k (31 December 2023:
nil).
As at 30 June 2024 the Group had unrecognised deferred tax assets of
c.€1,230m relating to gross historical losses and tax credits of c.€5,130m
acquired as part of the Vodafone Spain business combination (31 December 2023:
nil).
The Group does not recognise further deferred assets as the Group's future
profits are not sufficiently certain given the recent business combination.
Further deferred tax assets could be recognised on finalisation of the
provisional PPA balances subject to further work being completed.
6. LOSS PER SHARE
Basic EPS is calculated by dividing the profit or loss attributable to
ordinary shareholders of the Company by the weighted average number of
ordinary shares in issue during the year.
Diluted EPS is calculated by adjusting the weighted average number of ordinary
shares outstanding to assume conversion of all potentially dilutive ordinary
shares. Management shares in the share capital of Zegona Limited were
issued in prior years and, on exercise, the value of these shares is expected
to be delivered by the Company issuing new ordinary shares. Hence, the
management shares could have a dilutive effect, although the Company has the
right at all times to settle such value in cash. In the periods ending 30 June
2024 and 2023 where the Group made a loss, the management share option schemes
are considered anti-dilutive as including them in the diluted number of shares
outstanding would decrease the loss per share, as such they are excluded.
6 months ended 30 June 2024 6 months ended 30 June 2023
Loss for the period attributable to equity holders of the parent (€000) (46,037) (1,774)
Weighted average number of ordinary shares 704,149,410 5,375,758
Basic and diluted EPS (€) (0.07) (0.33)
7. ACQUISITIONS
(a) Background
On 31 May 2024, the Zegona Group (via Zegona Bidco S.L.U.) acquired 100% of
the issued share capital of Vodafone Holdings Europe S.L.U., and thereby the
trading companies constituting Vodafone Spain, from Vodafone Europe B.V.(the
"Seller"). The trading entities provide fixed-line, mobile, TV and digital
market services delivering voice, data and value-added services. The headline
purchase price was €5 billion and is expected to deliver value for the
Group's shareholders by the improved business performance of Vodafone Spain.
The acquired business contributed revenues of €302 million to the Group for
the period from 1 June to 30 June 2024 and has been accounted for using the
acquisition method.
(b) Purchase consideration
Headline purchase price for the acquisition was €5 billion and the
consideration payable of €1,730m comprised:
• €900m transfer of promissory notes (other receivables) to the
seller (non cash);
• €290m transfer of cash in escrow (other receivables) to the
seller;
• €454m cash transfer to the seller; and
• €86m extinguishment of net receivables due from the seller
(non cash).
Immediately prior to the acquisition, with the consideration payable,
€3,326m of pre-existing debt owed to the seller was extinguished by the
Zegona Group on behalf of Vodafone Spain. The subsequent loan payable of
€3,326m from Vodafone Spain to the Zegona Group is included as an acquired
liability within the purchase price allocation ("PPA") as at 31 May 2024 and
included as an investing cashflow in the Condensed consolidated statement of
cash flows.
(c) Purchase price allocation
Due to the size and complexity of the Vodafone Spain acquisition the PPA is
provisional. Most significantly work is ongoing in relation to the valuation
of intangible assets (including customer relationships and brand), tangible
assets (including networks and pipelines) and deferred tax.
Provisional identifiable assets acquired and liabilities assumed €'000
Property, plant and equipment 3,853,056
Intangible assets 2,022,963
Trade and other receivables (non-current) 250,874
Cash and cash equivalents 91,440
Inventory 39,738
Trade and other receivables (current) 1,011,103
Total assets acquired 7,269,174
Long term borrowings to the Zegona Group (3,325,540)
Other long term borrowings (162,340)
Trade and other payables (non-current) (910,690)
Deferred tax liabilities (non-current) (51,127)
Trade and other payables (1,480,078)
Total liabilities acquired (5,929,775)
Total identifiable net assets at fair value 1,339,399
Provisional goodwill 391,011
Purchase consideration 1,730,410
Property, plant and equipment
The provisionally identified property, plant and equipment relate to networks,
pipelines, right of use leased assets and mobile support infrastructure:
· The provisional fair value of the networks was assessed using the replacement
cost method. A change in the estimated replacement cost of +/-5% would
increase / decrease the fair value of these assets by +/-€8.2m.
· The provisional fair value of pipelines was assessed using the market
approach. A +/- 5% change in the estimation would result in an increase /
decrease in the fair value of these assets by +/- €24.9m.
· The provisional fair value of right of use lease assets was assessed by
calculating the net present value of the future lease costs to the Group. A
key assumption is the incremental borrowing rate. A change in the incremental
borrowing rate of +/-0.25% would increase / decrease the fair value of the
leases by +/- €3.4m.
· Included within property plant and equipment is mobile support network
infrastructure. For the purposes of the provisional PPA management have
assumed fair value is equal to the carrying net book value at the acquisition
date.
Intangible assets
The provisionally identified intangible assets relate to brands and customer
related assets:
· Where not supported by external valuations, the provisional fair value of the
Group's brand assets was assessed by considering the benefit to the Group's
future revenue of the acquired brand and assessing the royalty costs that
would be incurred in deriving the same benefit. The key judgements in the
assessments are the forecast revenue growth and royalty cost applied. A change
in revenue growth assumption of +/-5% would increase / decrease the fair value
of the brand by +/- €2.5m. A change in royalty cost of +/-0.5% would
increase / decrease the fair value of the brand by +/- €2.3m.
· The provisional fair value of the customer relationships was assessed using
the multi-period excess earnings methodology. The most significant assumption
in the assessments is existing customer retention rates (churn). A +/-2.5%
increase / decrease in estimated customer churn rates would increase the fair
value of customer relationships by + €56.7m or decrease by -€47.5m
respectively.
· Included within Intangible assets is Spectrum. For the purposes of the
provisional PPA management have assumed fair value is equal to the carrying
net book value at the acquisition date.
Acquired receivables
The fair value of acquired trade receivables is €1,011k. The gross
contractual amount for trade receivables due is €1,192m, with a loss
allowance of €181m recognized on acquisition.
Long term borrowings
Long term borrowings include a term loan of €3,326m issued from Zegona
Holdco Limited to Vodafone Holdings S.L.U (Vodafone Spain) immediately prior
to acquisition.
Goodwill
Management considers the residual goodwill to represent a number of factors
including the future growth of the Vodafone Spain business and the potential
to achieve buyer specific synergies and workforce.
None of the goodwill recognised is expected to be deductible for income tax
purposes.
(d) Costs incurred in the acquisition
Costs related to the acquisition totalled €19.6m, all of which has been
expensed to the Condensed consolidated statement of comprehensive income
within Operating exceptional items and are included within Operating
activities in the Condensed consolidated statement of cash flows.
Net cash acquired with the subsidiary (included in cash flows from investing
activities) was €91m.
8. RESERVES
Other reserves
During the period €3,722k of interest income was reclassified from other
reserves to retained earnings upon extinguishing the promissory note due to
EJLSHM Funding Limited which was originally recorded in other receivables.
Consistent with prior year, the impact in the period is recognised in equity
as the counterparty is a shareholder of the Company.
9. DIVIDENDS
No dividends were declared or paid in the period. (2023: nil.)
10. RELATED PARTY TRANSACTIONS
Transactions with key management personnel
The Board considers the Executive Directors and Non-Executive Directors of the
Group to be the key management personnel of the Group. During the period to 30
June 2024, key management personnel compensation was the only related party
transactions with key management.
11. CHANGE IN FUNCTIONAL CURRENCY
Up until the 31 May 2024, the functional currency of the Company was British
Pounds. The presentational currency of the Company is Euros. In the first 5
months of the period up to 31 May 2024, the Company recognised foreign
exchange losses of €22,492k on the translation of a €900m promissory note
receivable and €290m cash receivable which was sat in escrow.
On 31 May 2024, the functional currency of the Company changed from British
Pounds to Euros. The triggering event was the acquisition of Vodafone Spain,
which now means that dividends paid up in Euros by the Group will be used to
service Euro denominated Group debt. Immediately ahead of this change
€23,563k was recognised in the foreign currency translation reserve, as a
result of the translation of the Companies British Pound balance sheet to
Euros. The change in functional currency is prospectively applied with no
financial impact at the implementation date.
12. FINANCIAL INSTRUMENTS
€'000 As at 30 As at 31
June 2024 D
e
c
e
m
b
e
r
2
0
2
3
Current Non-current Current
Financial Assets
Trade receivables 297,291 78,986 -
Other receivables 293,489 50,972 1,186,717
Trade and other receivables 590,780 129,958 1,186,717
Cash and equivalents 112,518 - 4,648
Total 703,298 129,958 1,191,365
Total trade and other receivables for the Group at 30 June 2024 include
current prepayments of €330,291k (31 December 2023: €2,831k) and
non-current prepayments of €127,171k (31 December 2023: nil), relating to
amounts prepaid to Vodafone Group Plc. for continuing services, and which are
not financial assets.
In the period trade receivables increased from nil as at 31 December 2023 to
€376m as at 30 June 2024 driven by the acquisition of Vodafone Spain.
In the period other receivables reduced from €1,189m as at 31 December 2023
to €344m as at 30 June 2024, relating mostly to recoverable tax amounts due
to Vodafone Spain. At as 31 December 2023 other receivables related to €896m
of promissory notes and €290m of cash held in escrow in relation to the
acquisition of Vodafone Spain. Both of these balances, were completely
extinguished as part of the acquisition.
€'000 As at 30 As at 31
June 2024 D
e
c
e
m
b
e
r
2
0
2
3
Current Non-current Current
Financial Liabilities
Lease and other liabilities 363,383 846,434 -
Long term borrowings - 3,825,861 -
Accruals and other payables 1,106,101 220,219 17,600
Total 1,469,484 4,892,514 17,600
As at 31 December 2023 the Group had committed undrawn financing of €4,700
million, comprising the Corporate Bridge Loan of €3,700 million, Term Loan A
Facility of €500 million and Revolving Credit Facility of €500 million.
As at 30 June 2024 the Group had drawn debt facilities amounting to €3.9
billion, which consisted of:
• a term loan of €500 million (E+4.25%)
• and a corporate bridge facility of €3.4 billion (E+4.75%)
There is an additional €500 million Revolving Credit Facility which was
entered into part of the original financing but was undrawn as at 30 June
2024. The repayment of borrowings in the period shown in the Condensed
consolidated statement of cash flows related to pre-acquisition debt held by
Vodafone Spain.
In relation to the drawn debt, there is a leverage covenant relating to the
ratio between indebtedness and EBITDA, which was not in breach during the
period or at period end.
Debt-related transaction costs in the period totalled €111m.
13. INVESTMENT IN SUBSIDIARIES
The Interim Financial Statements include the results of all subsidiaries
wholly owned by the Company as listed below:
Subsidiary Nature of business Country of incorporation Shares held directly by the Company Shares held indirectly by Company Address
Zegona Limited Incentive company Jersey 100% - 1
Zegona Spanish Holdco Limited Dormant England and Wales - 100% 2
Zegona Borrower Limited Dormant England and Wales - 100% 2
Zegona Holdco Limited Financing company England and Wales - 100% 2
Zegona Topco Limited Financing company England and Wales - 100% 2
Zegona Midco Limited Financing company England and Wales - 100% 2
Zegona Hedge Co Limited Financing company England and Wales 100% - 2
Zegona Hedge II Co Limited Financing company England and Wales - 100% 2
Zegona Finance Plc. Financing company England and Wales - 100% 2
Zegona Finance LLC. Financing company United States of America - 100% 3
Zegona BidCo S.L.U. Acquisition vehicle Spain - 100% 4
Vodafone Holdings Europe S.L.U. Holding company Spain - 100% 4
Vodafone España SAU Trading company Spain - 100% 4
Vodafone Ono SAU Trading company Spain - 100% 4
Vodafone Servicios S.L.U. Trading company Spain - 100% 4
Vodafone Energia S.L.U. Trading company Spain - 100% 4
VTOR America S.A. Acquisition vehicle Spain - 100% 4
The registered office addresses of the subsidiaries are: 1) 47 Esplanade, St
Helier, Jersey, JE1 0BD, 2) 8 Sackville St, Mayfair, London, W1S 3DG, 3) 251
Little Falls Drive, Wilmington, 19808, United States 4) Avenida del Dr. Arce,
14, Bajo, 28002 Madrid, Spain.
14. POST BALANCE SHEET EVENTS
Refinancing
On 17 July 2024, the Group refinanced a part of the original acquisition
funding with long-term financing placed with Spanish and international
institutional investors (the "Refinancing").
The Refinancing comprised debt raises as follows:
• €1,300m 6.750% Senior Secured Notes due 2029;
• US $900m 7.38% Senior Secured Notes due 2029;
• €920m 7.65% 5 year term loan facility B; and
• US $400m 6.88% 5 year term loan facility.
The proceeds from the Refinancing were used to repay the original corporate
bridge facility that was drawn in connection with the acquisition of Vodafone
Spain. The Term Loan of €500m continues to be utilized. In relation to the
drawn debt there is a leverage covenant relating to the ratio between
indebtedness and EBITDA.
Reduction of Share premium
At the AGM, held on 28 June 2024, a capital reduction of the Share Premium
Account was approved and became effective on 8 August 2024.
Restructuring
In July 2024 the Group confirmed a restructuring plan which formed part of the
stated operational transformation plan. The total impact of the reduction in
workforce will be completed as soon as possible and is expected to incur total
costs of c.€100m.
Directors' responsibilities statement
The Directors confirm that to the best of their knowledge the condensed
consolidated financial information, which has been prepared in accordance with
UK adopted International Accounting Standard 34 and the Disclosure Guidance
and Transparency Rules of the United Kingdom's Financial Conduct Authority,
gives a true and fair view of the assets, liabilities, financial position and
profit of the Group, and that the interim management report herein includes a
fair review of the information required by the United Kingdom Disclosure and
Transparency Rules 4.2.7R and 4.2.8R.
At the date of this statement, the Directors of the Company are those listed
on the Zegona website www.zegona.com. (http://www.zegona.com/)
By order of the Board
Eamonn O'Hare
Chairman and CEO
27 September 2024
ZEGONA COMMUNICATIONS PLC
INDEPENDENT REVIEW REPORT
Independent review report to Zegona Communications Plc
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2024 which comprises the Condensed Consolidated Income Statement,
Condensed Consolidated Statement of Financial Position, Condensed Consolidated
Statement of Changes in Equity, Condensed Consolidated Statement of Cash Flows
and the related notes 1 to 14. We have read the other information contained in
the half yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the information in the
condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2024 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 2 (a), the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
27 September 2024
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