TIDMZEG

RNS Number : 1394N

Zegona Communications PLC

28 September 2021

NOT FOR DISTRIBUTION, PUBLICATION OR RELEASE, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM THE UNITED STATES OR CANADA, AUSTRALIA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA (OTHER THAN SPAIN) OR ANY OTHER JURISDICTION IN WHICH THE DISTRIBUTION, PUBLICATION OR RELEASE WOULD BE UNLAWFUL.

ZEGONA COMMUNICATIONS PLC ("Zegona")

LEI: 213800ASI1VZL2ED4S65

28 SEPTEMBER 2021

Interim report for the six months ended 30 June 2021

Zegona announces its interim results for the six months ended 30 June 2021.

Enquiries

Tavistock (Public Relations adviser)

Tel: +44 (0)20 7920 3150

Lulu Bridges - lulu.bridges@tavistock.co.uk

Jos Simson - jos.simson@tavistock.co.uk

About Zegona

Zegona was established in 2015 with the objective of investing in businesses in the European Telecommunications, Media and Technology sector and improving their performance to deliver attractive shareholder returns. Zegona is led by former Virgin Media executives Eamonn O'Hare and Robert Samuelson.

ZEGONA COMMUNICATIONS PLC

Unaudited Condensed Consolidated Interim

Financial Statements

For the six months ended 30 June 2021

MANAGEMENT REPORT

The successful completion of Zegona's strategy in Spain

On 28 March 2021, MásMóvil, the fourth largest telecommunications operator in Spain launched a tender offer to acquire 100% of Euskaltel for EUR11.17 per share in cash (the "Offer"). The Offer valued Euskaltel's equity at EUR2.0 billion which equated to an Enterprise Value of EUR3.5 billion and valued Euskaltel at 10.1x EBITDA and 21x Operating Cash Flow, a significant premium to European telecommunications multiples [1] . The offer price was subsequently adjusted to EUR11.00 per share following the payment by Euskaltel of a EUR0.17 per share dividend on 17 June, 2021 which Zegona passed on to its shareholders in full. The tender offer was declared unconditional with a 97.67% acceptance rate on 5 August 2021 and Zegona successfully tendered all of its shares, receiving EUR421.3 million on 11 August 2021. Eamonn O'Hare and Robert Samuelson resigned as directors of Euskaltel on 10 August, 2021. The completion of MásMóvil's acquisition of Euskaltel underscores the success of our strategy in Spain and p rovides significant value creation for Zegona shareholders. The Offer, together with the dividend we passed on in July delivered proceeds of EUR428 million.

Commitment to swiftly return the proceeds

On 24 May 2021, the Board announced that if the sale of its investment in Euskaltel was successful it planned to return GBP335 million in cash to Shareholders. It also announced the commitment of Zegona's Managers, subject to certain conditions [2] , to re-invest up to GBP4 million in aggregate of the proceeds from the Management Incentive Scheme back into Zegona by subscribing for new Zegona ordinary shares. On 23 July 2021, Zegona began this return of cash to shareholders with a GBP5.7 million dividend payment.

After paying this dividend, Zegona has now committed to return the balance of the GBP335 million, being at least GBP329.3 million, via an on-market share buyback by way of a tender offer at a price of GBP1.535 per share. This tender offer has been overwhelmingly approved by shareholders and will close on 5 October 2021, with cash payments expected shortly thereafter.

Following the tender offer and taking account of Zegona's anticipated net asset balance at this time, shareholders will have received a total return of 92.3% [3] on their Net Invested Capital.

Zegona' s performance

Zegona made a loss for the period of EUR20.4 million compared to a profit of EUR7.1 million in the same period in 2020. This is principally due to the change in the reporting of its investment in Euskaltel and the recognition of a liability of EUR21.1 million in respect of the management incentive scheme.

During the six months ended June 30, 2020, Zegona recognised its investment in Euskaltel as an associate and recognised an EUR8.5 million share of Euskaltel's profits reflecting its 21.44% ownership. During the six months ended June 30, 2021, Zegona concluded that the investment should be accounted for as an asset held for sale and as a discontinued operation from the date of the announcement of MásMóvil's tender offer . This meant that from that date, the investment was recorded at the lower of its carrying amount and fair value less costs to sell with no further recognition of Zegona's share of Euskaltel's profits. Zegona also recognised a gain of EUR5.7 million related to a Deal Contingent Forward Purchase Agreement to hedge the proceeds of the sale into Sterling. Operating and other costs during the period to 30 June 2021 remained at similar levels to those incurred in the comparable period in 2020.

Dividends

Zegona has made two dividend payments in 2021, with 2.2 pence per share paid on 9 March and a further 2.6

pence per share paid on 23 July 2021. In total, 4.8 pence per share or GBP10.5 million has been paid to shareholders in 2021. Zegona has been consistent in its commitment to paying dividends, with more than GBP45.8 million being paid to shareholders since 2016. Following the successful sale of our investment in Euskaltel and completion of the tender offer in October 2021, we do not expect to pay further dividends until we acquire another income generating asset.

Outlook

Following the anticipated return of capital to our shareholders and related transactions [4] , we expect to have approximately GBP9.6 million of cash with no material liabilities. We have already commenced looking for another attractive investment opportunity within the European TMT sector where we can again apply our successful buy-fix-sell strategy . Our focus remains on businesses that require active change to realise full value, creating long-term returns through fundamental business improvements.

We see a very healthy environment for investments across the broader European TMT industry. The market is large and fragmented, with well over 100 European operators, of which over half fit our desired investment scale. We are seeing increased deal activity and greater availability of assets driven by ongoing market consolidation and convergence. We believe this will continue over the coming years, creating fertile ground to both buy and sell assets and once again create significant shareholder value.

Risks

Risks prior to the disposal of Euskaltel . The Directors are of the opinion that the principal risks and uncertainties faced by the Group prior to the disposal of the investment in Euskaltel were the same as in 2020. A more detailed explanation of risks and uncertainties is set out on pages 12 to 15 of the Annual Report for the year ended 31 December 2020.

Once MásMóvil had launched its tender offer to acquire 100% of Euskaltel, Zegona entered into a Deal Contingent Forward Purchase Agreement in order to fix the exchange rate at which it would convert the anticipated proceeds from the sale. This forward purchase agreement removed FX risk from the transaction and resulted in Zegona receiving a Euro/Sterling exchange rate of 1.16, which compares favourably to the spot rate of 1.18 at the time Zegona received its Euro proceeds.

Risks following the disposal of Euskaltel . Upon the sale of the investment in Euskaltel, the risks faced by Zegona changed significantly and will continue to develop as Zegona pursues or completes further acquisitions. Following the disposal of the investment in Euskaltel, the Directors have revised their assessment of the principal risks facing Zegona and have concluded that the principal risks are:

Ongoing ability to identify and complete new acquisitions

Following the sale of its investment in Euskaltel, Zegona meets its day to day working capital requirements, including the costs of evaluating new acquisitions, from cash balances. Following the anticipated return of capital and related transactions [5] , we expect to have approximately GBP9.6 million of cash with approximately GBP0.6 million of liabilities. We have already commenced looking for another attractive investment opportunity within the European TMT sector where we can again apply our successful buy-fix-sell strategy.

The success of Zegona's future investment strategy following the disposal of our interest in Euskaltel depends on our ability to identify, raise appropriate funding for and successfully acquire an available and suitable target. Our cash balance of approximately GBP9.6 million is sufficient to enable us to continue searching for new acquisitions for a reasonable period of time, but we are not certain how long this will take and there is no guarantee that we will be successful in making a further investment during this period. For example, there may be significant competition in some or all of the acquisition opportunities that we may explore from competitors with greater technical, financial, human and other resources than us. Such competition may cause us to be unsuccessful in executing an acquisition or may result in a successful acquisition being made at a higher price than would otherwise have been the case.

Even if an agreement is reached relating to a proposed acquisition, we may fail to complete it for reasons beyond our control. Any failure to reach an agreement or complete on a potential acquisition may result in a loss to the Company of the related costs incurred, which could be a significant proportion of our remaining cash and materially adversely affect subsequent attempts to identify and acquire another target business or even our ability to continue as a going concern without raising further capital.

Even if we successfully identify and agree a new acquisition at an acceptable price, we may not receive sufficient support from our existing Shareholders to raise additional equity, and new equity investors may be unwilling to invest on terms that are favourable us, or at all. Lenders or investors may be unwilling to extend sufficient debt financing to us on attractive terms, or at all.

To the extent that the additional equity and/or debt financing required for a new investment cannot be secured on acceptable terms we may be compelled either to restructure or abandon a particular acquisition target, or proceed with acquisitions on less favourable terms, which may reduce our return on the investment.

Ability to create value in acquired businesses

If Zegona is successful in acquiring a new business, there is a risk of unforeseen liabilities being later discovered which were not uncovered or known at the time of the due diligence process which may have an impact on the value created for shareholders. In addition, the success of Zegona's acquisitions depends on our ability to implement the necessary strategic, operational and financial change programmes in order to refocus the acquired business and improve its performance. Implementing these change programmes may require significant modifications, including changes to business assets, operating and financial processes, business systems, management techniques and personnel, including senior management. There is a risk that we will not be able to successfully implement such change programmes within a reasonable timescale and cost.

We have a disciplined approach to valuation and, ultimately, we are only prepared to make investments at the right price and after undertaking a thorough due diligence process. When evaluating potential investments, we focus on targets that have strong fundamentals, high-quality offerings and strong market positions but which are underperforming their potential and have scope to generate long term sustainable performance and cash flow improvements.

Key management

Zegona's operations are currently managed by the Chief Executive Officer, supported by the Chief Operating Officer, the Investment Director and the Chief Financial Officer. The absence or loss of key management could significantly impede our financial plans, though there has been no such absence or loss since Zegona was founded.

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. The management team is small which places a natural limit on the volume of deal flow that can be addressed. The management team itself along with the Non-Executive Directors continually challenge the focus of the business and the allocation of resources amongst projects.

Brexit

The UK ceased to be a member state of the European Union on 31 January 2020. In December 2020, the UK and EU signed the UK-EU Trade and Cooperation Agreement (the "TCA"). This agreement governs the relationship between the EU and the UK following the end of the transition period agreed after the UK officially left the EU. The agreement provides for free trade in goods and limited mutual market access in services, as well as for cooperation mechanisms in a range of policy areas, transitional provisions about EU access to UK fisheries, and UK participation in some EU programs. On 31 December 2020, the UK ceased to be a member of the EU Single Market and Customs Union.

While the TCA does clarify a number of matters concerning the UK's ongoing legal, political and economic relationship with the EU, there are number of areas that are not covered. Due to this and the size and importance of the UK economy, it is possible that the UK's exit from the EU may continue to be a source of instability in the international markets, create significant currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border co-operation arrangements (whether economic, tax (including the tax treatment of cross border payments), fiscal, legal, regulatory or otherwise) for the foreseeable future. Such continued uncertainty could have an adverse impact on the number or attractiveness of acquisition opportunities available to Zegona.

The long-term effects of Brexit will depend on any agreements (or lack thereof) between the UK and the EU and, in particular, any arrangements for the UK to retain access to EU markets. Additionally, the exchange rate of Sterling vis-a-vis other currencies may continue to be relatively volatile, which could result in increasing costs of non-sterling denominated expenses and other obligations and in changes in the value of non-sterling denominated assets. Furthermore, UK regulatory requirements could be subject to significant change and could place an additional burden on Zegona.

Foreign exchange

Foreign currency translation risk exists due to the Company operating, and having equity denominated, in a different functional currency (GBP) to that of many of its likely acquisition targets. Since the disposal of Euskaltel and the conversion of the proceeds into Sterling, there are no material assets or liabilities denominated in foreign currencies or transactions in foreign currencies. This means there is currently minimal risk to Zegona's results of operations, however fluctuations in the exchange rate between Sterling and other European currencies could cause potential future acquisitions to become more expensive in Sterling, and therefore potentially less desirable.

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.

RESPONSIBILITY STATEMENT

Statement of Directors' Responsibility

We confirm to the best of our knowledge:

-- the unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting; and

-- the interim management report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R and Disclosure and Transparency Rule 4.2.8R.

Neither the Company nor the directors accept any liability to any person in relation to the half-year financial report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A and schedule 10A of the Financial Services and Markets Act 2000.

Details on the Company's Board of Directors can be found on the Company website at www.zegona.com.

By order of the Board

Eamonn O'Hare

Chairman and CEO

27 September 2021

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 
                                                     For the six months ended 
                                                              30 June 
 
                                                     Unaudited        Unaudited 
                                                          2021             2020 
                                            Note       EUR 000          EUR 000 
 Continuing operations 
 Administrative and other operating 
  expenses: 
  Corporate costs                                      (2,102)          (2,219) 
  Incentive scheme costs                              (21,063)   `         (44) 
  Significant project costs                              (790)            (109) 
                                                  ------------      ----------- 
 Operating loss                                       (23,955)          (2,372) 
 
 Finance income                                4           136               12 
 Finance costs                                 4       (1,363)            (317) 
 Net foreign exchange (loss)/gain                        (366)            1,347 
                                                  ------------      ----------- 
 (Loss) for the period before 
  income tax                                          (25,548)          (1,330) 
 
 Income tax expense                                          -                - 
                                                  ------------      ----------- 
 Loss for the period from continuing 
  operations                                          (25,548)          (1,330) 
                                                  ------------      ----------- 
 
 Discontinued operation 
                                                  ------------      ----------- 
 Profit for the period from discontinued 
  operation                                    3         5,159            8,469 
                                                  ------------      ----------- 
 
 (Loss)/Profit for the period 
  attributable to equity holders 
  of the parent                                       (20,389)            7,139 
                                                  ============      =========== 
 
 
                                                           EUR              EUR 
 Earnings per share - total operations 
 Basic and diluted earnings per 
  share attributable to ordinary 
  equity holders of the parent                          (0.09)             0.03 
 Earnings per share - continuing 
  operations 
  Basic and diluted earnings per 
  share attributable to ordinary 
  equity holders of the parent                          (0.12)           (0.01) 
 
 

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 
                                                             2021        2020 
     Note                                                  EUR000      EUR000 
 
 (Loss)/Profit for the period                            (20,389)       7,139 
 
 Other comprehensive profit/(loss) - 
  items that will or may 
  be reclassified subsequently to profit 
  or loss 
 Exchange differences on translation 
  of foreign operations                                        79       (929) 
 Exchange differences arising from discontinued 
  operation                                                14,998    (22,215) 
 
 Total comprehensive loss for the period, 
  net of tax, attributable to equity holders 
  of the parent                                           (5,312)    (16,005) 
                                                      ===========  ========== 
 

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 
                                                        2021        2020 
                                          Notes       EUR000      EUR000 
Assets 
Non-current assets 
Property, plant and equipment                             38          12 
Interest in associate                                      -     322,737 
                                                 ===========  ========== 
                                                          38     322,749 
Current assets 
Derivatives                                            5,645          39 
Prepayments and other receivables             6        5,298         170 
Financial assets measured at fair value 
 through profit or loss                       7        6,400       7,499 
Cash and cash equivalents                             12,310      15,244 
Assets held for sale                          8      326,646           - 
                                                 ===========  ========== 
                                                     356,299      22,952 
                                                 ===========  ========== 
Total assets                                         356,337     345,701 
                                                 ===========  ========== 
 
Equity and liabilities 
Equity 
Share capital                                          2,821       2,821 
Other reserves                               12      284,151     289,643 
Share-based payment reserve                  12            -         799 
Foreign currency translation reserve         12        8,193     (6,884) 
Retained earnings                            12       25,683      46,072 
                                                 ===========  ========== 
Total equity attributable to equity 
 holders of the Parent                               320,848     332,451 
 
 
Current liabilities 
Accruals and other payables                  10        1,732       2,279 
Incentive scheme liability                   11       22,165           - 
Bank borrowings                               9       11,592      10,971 
                                                 ===========  ========== 
                                                      35,489      13,250 
                                                 ===========  ========== 
Total liabilities                                     35,489      13,250 
                                                 ===========  ========== 
Total equity and liabilities                         356,337     345,701 
                                                 ===========  ========== 
 

The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 
                                                                                    Foreign 
                                                               Share-based         currency 
                                                                   payment      translation    Retained 
                            Share capital   Other Reserves         reserve          reserve    earnings   Total equity 
                     Note          EUR000           EUR000          EUR000           EUR000      EUR000         EUR000 
 Balance at 1 
  January 
  2021                              2,821          289,643             799          (6,884)      46,072        332,451 
 Loss for the 
  period                                -                -               -                -    (20,389)       (20,389) 
 Other 
  comprehensive 
  income               12               -                -               -           15,077           -         15,077 
 Reclassification 
  of incentive 
  arrangements         11               -                -           (799)                -           -          (799) 
 Dividend paid         13               -          (5,492)               -                -           -        (5,492) 
                           --------------  ---------------  --------------  ---------------  ----------  ------------- 
 Balance at 30 
  June 
  2021 (unaudited)                  2,821          284,151               -            8,193      25,683        320,848 
                           ==============  ===============  ==============  ===============  ==========  ============= 
 
 
 
   Balance at 1 
   January 
   2020                             2,855          304,556             105           11,819      32,000        351,335 
 Profit for the 
  period                                -                -               -                -       7,139          7,139 
 Other 
  comprehensive 
  loss                                  -                -               -         (23,144)           -       (23,144) 
 Cancellation of 
  shares purchased                   (28)          (2,884)               -                -           -        (2,912) 
 Redemption of 
  Management 
  Shares                                -                -            (24)                -          68             44 
 Dividend paid                          -          (5,080)               -                -           -        (5,080) 
                           --------------  ---------------  --------------  ---------------  ----------  ------------- 
 Balance at 30 
  June 
  2020 (unaudited)                  2,827          296,592              81         (11,325)      39,207        327,382 
                           ==============  ===============  ==============  ===============  ==========  ============= 
 

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 
                                                           2021            2020 
                                                        EUR 000          EUR000 
 Operating activities 
 (Loss) before income tax                              (25,548)         (1,330) 
 
 Adjustments to reconcile profit 
  before income tax from continuing 
  operations to operating cash flows: 
 Depreciation of property, plant 
  and equipment                                               7               1 
 Share based payment expense                             21,063              44 
 Net foreign exchange gains/(losses)                        366         (1,347) 
 Finance income                                           (136)            (12) 
 Finance costs                                            1,363             317 
 Working capital adjustments: 
    (Increase) in trade and other receivables           (5,128)            (43) 
    (Decrease) in trade and other payables                (241)         (1,964) 
 Interest received                                            -              12 
 Interest paid                                            (157)           (260) 
                                                 --------------  -------------- 
 Net cash flows used in operating 
  activities                                            (8,411)         (4,582) 
                                                 ==============  ============== 
 
 Investing activities 
 Purchase of property, plant and 
  equipment                                                (33)             (7) 
 Purchases of interest in associate 
  and of non-current financial assets 
  measured at fair value through profit 
  or loss                                                     -         (1,690) 
 Net cash flows (used in) investing 
  activities                                               (33)         (1,697) 
                                                 --------------  -------------- 
 Net cash flows from discontinued 
  investing activities                                   10,635           5,320 
                                                 ==============  ============== 
 
 Financing activities 
 Dividend paid to shareholders                          (5,492)         (5,080) 
 Cancellation of shares purchased                             -         (2,912) 
 Net cash flows (used in) financing 
  activities                                            (5,492)         (7,992) 
                                                 ==============  ============== 
 
 
 Net (decrease) in cash and cash 
  equivalents                                           (3,301)         (8,951) 
 Net foreign exchange differences                           367           (181) 
 Cash and cash equivalents at 1 January                  15,244          27,035 
                                                 --------------  -------------- 
 Cash and cash equivalents at 30 
  June                                                   12,310          17,903 
                                                 ==============  ============== 
 

The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

   1.    GENERAL INFORMATION 

The 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 2021 (the "Interim Financial Statements") were authorised for issue in accordance with a resolution of the Directors on 27 September 2021. 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 

The Interim Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting and are presented on a condensed basis. The Interim Financial Statements do not constitute statutory accounts within the meaning of section 434(3) of the Companies Act 2006 (the "Companies Act").

The Interim Financial Statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with Zegona's annual financial statements as at 31 December 2020 which are available on the Company's website, www.zegona.com . However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in Zegona's financial position and performance since the last annual financial statements.

The comparative figures for the financial year ended 31 December 2020 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 2006.

   (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 preparation of the Condensed Consolidated 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 twelve months after the preparation of the Condensed Consolidated Financial Statements. The assessment includes the review of Zegona cashflow forecast and budget, which included considerations on expected developments in liquidity, debt and capital as well as the potential impact of the on-going COVID-19 pandemic. The Directors have also considered sensitivities in respect of potential 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 Condensed Consolidated Financial Statements.

Following the sale of its investment in Euskaltel, the sale of its rights to receive contingent consideration from Euskaltel and the repayment of its outstanding debt, Zegona meets its day to day working capital requirements from cash balances. Following the anticipated return of GBP329.3 million of capital, the anticipated payment of GBP25.7 million to management under the terms of the incentive scheme and the anticipated subscription for GBP2.6 million of new Zegona shares by management - all in October 2021 - Zegona anticipates that it will have approximately GBP 9.6 million of cash with approximately GBP0.6 million of liabilities. Following these transactions, Zegona will continue to execute its buy-fix-sell strategy across the European TMT sector.

The Directors have prepared cash flow forecasts for a period of 12 months from the date of approval of these Interim Financial Statements, which indicate that, taking account of reasonably possible downsides, including possible impacts of the Covid-19 outbreak, Zegona will have sufficient funds to meet its liabilities as they fall due for that period. Accordingly, the Directors have continued to adopt the going concern basis in preparing the Interim 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 2020, which were prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union ("IFRSs as adopted by the EU"), and with those parts of the Companies Act 2006 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 2021, none of which had a material effect on Zegona.

 
 Standard                                         Effective date 
 Amendments to IFRS 9, IAS 39 and IFRS 7- Phase   1 January 2021 
  2- Interest Rate Benchmark Reform 
 
 
   (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.

With the exception of the classification of the investment in Euskaltel as an asset held for sale and a discontinued operation, 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 2020. 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:

   --      Classification of discontinued operations and assets held for sale (note 8) 
   --      Recoverability of the tax receivable (note 6) 
   --      Recognition and measurement of share-based payments transactions (note 11) 
   3.    SEGMENT INFORMATION 
 
                                       Continuing 
 Six months to 30 June                Operations-   Discontinued 
  2021                              Central costs      operation   Consolidated 
                                  ---------------  -------------  ------------- 
                                           EUR000         EUR000        EUR 000 
 Depreciation and amortisation                (7)              -            (7) 
 Incentive scheme costs                  (21,063)              -       (21,063) 
 Other operating expenses                 (2,885)              -        (2,885) 
                                  ---------------  -------------  ------------- 
 Operating loss                          (23,955)              -       (23,955) 
 
 Finance income                                 1              -              1 
 Finance costs                            (1,363)              -        (1,363) 
 Net foreign exchange gains                 (366)              -          (366) 
 Gain on derivative instruments               135          5,571          5,706 
 Share of loss of associate                     -          (412)          (412) 
 (Loss)/profit for the 
  period                                 (25,548)          5,159       (20,389) 
                                  ===============  =============  ============= 
 
 
                                      Continuing 
 Six months to 30 June               Operations-   Discontinued 
  2020                             Central costs      operation   Consolidated 
                                 ---------------  -------------  ------------- 
                                          EUR000         EUR000        EUR 000 
 Depreciation and amortisation               (1)              -            (1) 
 Incentive scheme costs                     (44)              -           (44) 
 Other operating expenses                (2,327)              -        (2,327) 
                                 ---------------  -------------  ------------- 
 Operating loss                          (2,372)              -        (2,372) 
 
 Finance income                               12              -             12 
 Finance costs                             (317)              -          (317) 
 Net foreign exchange gains                1,347              -          1,347 
 Share of profit of associate                  -          8,469          8,469 
 (Loss)/profit for the 
  period                                 (1,330)          8,469          7,139 
                                 ===============  =============  ============= 
 
   4.    FINANCE INCOME AND COSTS 
 
                                             For the 6 months ended 
                                                     30 June 
                                                    2021        2020 
                                     Note         EUR000      EUR000 
 Bank interest                                         1          12 
 G ain on derivative                                 135           - 
                                           -------------  ---------- 
 Finance income                                      136          12 
                                           =============  ========== 
 
 Loss on fair value of contingent 
  consideration                         7        (1,085)           - 
 Interest on bank borrowings                       (278)       (317) 
                                           -------------  ---------- 
 Finance costs                                   (1,363)       (317) 
                                           =============  ========== 
 
   5.    FINANCIAL INSTRUMENTS 

The classification by category of the financial instruments held by Zegona is as follows:

 
                                                     Amortised                  Amortised 
                                        Fair Value       costs     Fair Value       costs 
                                              2021        2021           2020        2020 
                                            EUR000      EUR000         EUR000      EUR000 
 Prepayments and other receivables               -       5,298              -         170 
 Derivatives (Level 2)                       5,645           -             39           - 
 Financial assets designated 
  at fair value (level 3)                    6,400           -          7,499           - 
 Cash and cash equivalents                       -      12,310              -      15,244 
 Total current financial 
  assets                                    12,045      17,608          7,538      15,414 
                                     =============  ==========  =============  ========== 
 
 
 Accruals and other payables      -    1,732   -    2,279 
 Incentive Scheme Liability           22,165 
 Bank borrowings                  -   11,592   -   10,971 
                               ----  -------      ------- 
 Total current financial 
  liabilities                     -   35,489   -   13,250 
                               ====  =======      ======= 
 

For the financial assets measured at fair value through profit or loss, the Directors have determined that no transfers have occurred between levels in the fair value hierarchy from 31 December 2020 to 30 June 2021. The Directors consider that the carrying amounts of the financial instruments measured at amortised cost equate to their fair values.

Derivatives (Level 2)

On 7 April 2021, Zegona entered into a Deal Contingent Forward Purchase Agreement ("DCF") with Barclays Bank PLC to hedge the full amount of proceeds to be received on the successful completion of the tender offer to acquire Euskaltel. Under the terms of the DCF, if the tender offer successfully completed on any date between 7 July 2021 and 7 January 2022 and Zegona received proceeds as expected, it would be obligated to sell EUR430 million at a fixed exchange rate. If the tender offer did not complete, Zegona would not be obligated to transact. The actual rate at which the contract would settle was dependent on the exact settlement date but was within a range of 1.1563 GBP/EUR and 1.1556 GBP/EUR.

Zegona settled the DCF in two tranches, first settling EUR7.7 million on 14 July 2021 in respect of the Euskaltel dividend passed on to Zegona shareholders at a rate of 1.1563 GBP/EUR and secondly settling EUR422.3 million on 13 August 2021 in respect of the proceeds received from the sale of its investment in Euskaltel at a rate of 1.1561 GBP/EUR, receiving GBP365.3 million.

The DCF is recognised as a financial asset at Fair Value Through Profit and Loss with the fair value of EUR5.6 million at 30 June 2021 being calculated using prevailing market forward foreign exchange rates and therefore allocated to level 2 in the fair value hierarchy. Since this instrument has been entered into entirely to fix the Sterling value of the Euskaltel proceeds, changes in fair value are recognised within discontinued operations.

Financial assets designated at fair value (level 3)

Financial assets designated at fair value consist entirely of the contingent consideration receivable from the sale of Telecable which is wholly valued using unobservable inputs as discussed in note 7.

   6.    PREPAYMENTS AND OTHER RECEIVABLES 

Prepayments and other receivables include a GBP4.4 million (EUR5.1 million) receivable, which represents the charging notice paid in March 2021 to HMRC in relation to the European Commission (the "EC") state aid investigation into the Group Financing Exemption contained within the UK's Controlled Foreign Company ("CFC") legislation which concluded that the Group Financing Exemption amounted to illegal state aid in certain circumstances.

Whilst various appeals against this decision are ongoing, the UK Government is required to recover the State Aid and HMRC issued Zegona with a charging notice in February 2021 in the amount of GBP4.1 million (EUR4.8 million). Zegona strongly disagrees with HMRC's interpretation and has submitted an appeal against the determination and the notice which was accepted by HMRC on 8 March 2021. This appeal is likely to be stayed until the final outcome of all appeals to the EU Courts in respect of the EU Commission's original decision are known, which may take several years. As required by law, Zegona paid the notice in full on 4 March 2021 (within 30 days of receipt). In June 2021, Zegona also received a second notice for GBP251,711 (EUR335,651) in respect of interest, which it paid in July 2021.

The issuance of charging notices is a collection mechanism only and not an arbitration on the merits of the on-going litigation. Consequently, the issuance and the settlement of the charging notices does not change Zegona's view that while it is finely balanced, it remains more likely than not that the appeals made by other UK taxpayers and the UK Government will be successful and ultimately Zegona will not incur any liability and therefore no provision is required in respect of this matter.

In accordance with the provisions of IFRIC 23, Zegona has recognised a receivable against both HMRC charging notices and will continue to evaluate the recoverability of this receivable until a final resolution is reached. Should future developments cause Zegona to conclude that it is no longer more likely than not that the appeals made by other UK taxpayers and the UK Government will be successful, Zegona will write down the receivable and recognise an expense of GBP4.4 million. Given the expected return of capital (see note 15) this would result in a significant portion of Zegona's net assets being written down.

   7.    CURRENT FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS 

The current financial assets balance of EUR 6.4 million (31 December 2020: EUR7.5 million) comprises solely the contingent consideration receivable from the sale of Telecable.

At December 31 2020, the fair value of the contingent consideration was EUR7.5 million, which primarily reflected Zegona's high confidence at the time in the base case assumption that the full EUR8.7 million recorded in Euskaltel's financial statements would be paid.

Following the issuance of Zegona's financial statements for the year ended 31 December 2020, it became apparent that Euskaltel would in fact seek either substantially to reduce and delay the payment, or require Zegona to deliver a financial instrument to cover any risk in the tax assets at Zegona's cost. Each of these alternatives was not acceptable to Zegona, so it irrevocably sold all of its rights (and associated obligations) to the contingent payment to a third party for EUR6.4 million in cash, which was received on 10 August 2021.

Zegona considers that the subsequent sale of its rights to receive the contingent consideration constitutes an adjusting post balance sheet event in accordance with IAS 10 Events after the reporting period and has therefore used this information to conclude that the value of the contingent consideration at 30 June 2021 was EUR6.4 million.

   8.    ASSETS HELD FOR SALE 

At 30 June 2021, Zegona owned 38.3 million shares (2020: 38.3 million) in 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, which represents approximately 21.44% (31 December 2020: 21.44%) of the ordinary shares and voting rights of Euskaltel.

On 29 March 2021, Zegona announced that a subsidiary of MásMóvil Ibercom, S.A.U ("MásMóvil"), the Spanish fourth national operator, had launched a Tender Offer to acquire all of the outstanding shares of Euskaltel for EUR11.17 per share. The offer price was subsequently adjusted to EUR11.00 per share following the payment by Euskaltel of a EUR0.17 per share dividend on 17 June, 2021.

The tender offer was declared unconditional with a 97.67% acceptance rate on 5 August 2021 and Zegona successfully tendered all of its shares, receiving EUR421.3 million on 11 August 2021. Eamonn O'Hare and Robert Samuelson resigned as directors of Euskaltel on 10 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 changes in the carrying value of Zegona's investment during the six months ended 30 June 2021 have been as follows:

 
                                 Assets held        Interest   Fair Value 
                                    for sale    in Associate 
                                      EUR000          EUR000       EUR000 
 Balance at 31 December 2020               -         322,737      335,105 
 Zegona's share of loss [6]                -           (454)            - 
 Dividend received                         -         (5,362)            - 
 Foreign exchange differences              -          16,147            - 
                                ------------  --------------  ----------- 
 Balance at 28 March 2021                  -         333,068      367,275 
                                ============  ==============  =========== 
 Reclassification to Assets 
  held for sale                      333,068       (333,068)            - 
 Dividend received [7]               (5,273)               -            - 
 Foreign exchange differences        (1,149)               -            - 
                                ------------  --------------  ----------- 
 Balance at 30 June 2021             326,646               -      420,509 
                                ============  ==============  =========== 
 

As required by IAS 5.15, at 30 June 2021, the investment in Euskaltel has been recorded at EUR326.6million, being the lower of its carrying amount and fair value [8] less costs to sell at that date.

A share pledge over 1,663,158 Euskaltel shares granted by Zegona to Euskaltel with respect to certain tax assets generated in favour of Telecable was released by Euskaltel on 19 May 2021.

A share pledge over 32,155,563 Euskaltel shares granted by Zegona to Barclays as security for its loan was released by Barclays on 29 June 2021.

   9.    BANK BORROWINGS 

In December 2020, the Company extended its credit facility with Barclays Bank PLC ("Barclays") for a total of GBP15 million. The amount drawn remained unchanged at GBP10 million. Interest was payable quarterly in arrears on the drawn amount at a rate of 2.6% per annum above the 3-month LIBOR interest rate. A commitment fee of 0.6% per annum was payable on the undrawn amount of GBP5 million. The Company had the right to prepay the loan at any time.

The Barclays facility was due to mature on 14 October 2021. Additionally, any amounts outstanding would have become immediately repayable on the occurrence of certain events of default including a drop in the value of Euskaltel shares to EUR3.42 or below, a change of control of Euskaltel or Zegona and other customary events of default. The Barclays facility was secured by a pledge over 32.2 million Euskaltel shares.

The facility was repaid and terminated on 13 August 2021 using the proceeds of the sale of the investment in Euskaltel.

10. ACCRUALS AND OTHER PAYABLES

 
                   30 June  31 December 
                      2021         2020 
                    EUR000       EUR000 
Trade payables         304          372 
Accrued interest        73           57 
Other accruals       1,355        1,850 
                     1,732        2,279 
                   =======  =========== 
 
 

11. MANAGEMENT INCENTIVE SCHEME

The holders of the Management Shares are entitled to 15% of the growth in value of Zegona during a series of separate Calculation Periods, provided that ordinary shareholders achieve a 5% Preferred Return [9] in each Calculation Period.

The first Calculation Period began on 14 August 2015 and in accordance with the scheme rules, Zegona management redeemed its Management Shares on 25 June 2020. On the redemption date, the value of Zegona's shares (based on the 30-day volume weighted average price "VWAP") was below the level required for the Preferred Return to be met so Zegona management received no payment.

Following the redemption, 51,546,370 Management Shares in Zegona Limited remain allotted, issued and fully paid as shown in the table below:

 
                            Participation    Number of   Nominal value 
                             in             Management   of Management 
                             growth in          Shares          Shares 
                             value 
Eamonn O'Hare               8.88%           30,500,000         GBP3.05 
Robert Samuelson            4.44%           15,250,000         GBP1.53 
Zegona senior management    1.68%            5,796,370         GBP0.58 
                                           ===========  ============== 
                                            51,546,370         GBP5.16 
                                           ===========  ============== 
 

At the 2021 AGM held on 30 June, 2021, Zegona's shareholders voted to renew the management incentive, thereby ratifying the terms of the second Calculation Period that automatically began upon delivery of the redemption notices on 25 June 2020. Throughout the second Calculation Period, management are entitled to 15% of the growth in value of Zegona over the new Calculation Period, provided the Preferred Return is achieved over this period. The starting value against which the growth in value and the Preferred Return are calculated (the "Baseline") at the beginning of the new Calculation Period was set at GBP0.955 per Zegona share [10] .

Under IFRS 2, the new Calculation Period constitutes a new share-based payment award for which the holders of the Management Shares began to render services from June 25, 2020. However, for the purposes of IFRS 2, the grant date of the award was 30 June 2021, when Zegona's shareholders voted to ratify the renewal of the management incentive scheme at Zegona's 2021 AGM.

In addition, Zegona Limited's Articles of Association allows management to exercise its management shares if there is a takeover or acquisition of Zegona (including by a scheme of arrangement), or Zegona sells all or substantially all of its assets and distributes the net proceeds, after satisfying any other creditors of Zegona, to shareholders (collectively, the "Takeover provisions").

The sale of the investment in Euskaltel and the intended return of GBP335 [11] million to shareholders by 14 October as announced on 24 May 2021 will trigger a payment to management under those Takeover provisions that is currently expected to be GBP25.4 million. The terms of the scheme also require this payment to be in cash.

Consequently, Zegona has concluded that the management incentive scheme no longer meets the criteria to be recognised as an equity settled transaction under IFRS 2 and must be accounted for as a cash settled transaction.

Zegona therefore reversed the EUR1.6 million previously recorded in the Share-based payment reserve with a corresponding credit to incentive scheme costs. At the same time, a liability was recorded at 30 June 2021 to recognise the cash settled incentive instrument. This liability is equal to the portion of the fair value of the instrument for which services had been provided at 30 June 2021. This portion is calculated by dividing the period for which services had been provided at 30 June 2021 [12] by the total vesting period. [13]

Zegona engaged an independent valuation specialist to estimate the fair value of the award, who concluded that because the awards will be triggered by the sale and the return of the net proceeds of the sale to shareholders, it was more appropriate to value the award by reference to the known value which will be delivered rather than the approach in previous periods which had been to use a Monte Carlo model.

The value of the award on the valuation date was GBP24.4 million, with a liability of GBP19.0 million being recognised at 30 June 2021 to reflect the remaining 105 days over which services are still to be rendered. For the six months ended 30 June 2021 a net total of EUR 21.1 million (GBP18.3 million) incentive scheme costs were recognised [14] .

The key inputs to the model used to estimate the fair value of the award were the amounts to be received for the sale of the investment and the terms of Zegona Limited's Articles of Association which stipulate the payment waterfall in the event of the Takeover provisions being triggered. There were no items of estimate or judgement for which a +/- 10% change would result in a material impact on the fair value at 30 June 2021.

12. RESERVES

Foreign currency translation reserve

The foreign currency translation reserve includes the foreign exchange differences arising from the translation of the Consolidated Financial Statements functional currency of Sterling ("GBP") to presentational currency euro ("EUR"). This reserve is a non-distributable reserve. The movement in this reserve for the period is driven primarily by the movement in closing EUR:GBP exchange rates from 1.11 at 31 December 2020 to 1.16 at 30 June 2021.

Share-based payment reserve

The share-based payment reserve represents the cumulative build-up of the incentive scheme costs over the vesting period as the employees gradually render service. For the period to 30 June 2021 the share-based payment reserve was Nil as the expected exercise of the management shares by management under the takeover provision will be in cash. More information on the share-based Management incentive scheme can be found in Note 11. This is a non-distributable reserve.

Retained earnings

The retained earnings reserve includes cumulative net profits and permitted transfers from the share-based payment reserve. This is a distributable reserve.

Other Reserves

 
                          Capital 
                       redemption   Share premium      Other     Total Other 
                          reserve         reserve    reserve        reserves 
                          EUR'000         EUR'000    EUR'000         EUR'000 
 At 1 January 2021             34         108,793    180,816         289,643 
 Dividend paid                  -               -    (5,492)         (5,492) 
                     ------------  ==============  =========  -------------- 
 At 30 June 2021               34         108,793    175,324         284,151 
                     ============  ==============  =========  ============== 
 
 
 
                        Capital redemption   Share premium                     Total Other 
                                   reserve         reserve   Other reserve        reserves 
                                   EUR'000         EUR'000         EUR'000         EUR'000 
 At 1 January 2020                       -         108,793         195,763         304,556 
 Issue of shares, 
  net of costs                          34               -         (3,599)         (3,565) 
 Dividend paid                           -               -        (11,348)        (11,348) 
                       -------------------  ==============  ==============  -------------- 
 At 31 December 2020                    34         108,793         180,816         289,643 
                       ===================  ==============  ==============  ============== 
 

Capital redemption reserve

When Zegona buys back shares out of distributable reserves and those shares are immediately cancelled, the amount by which Zegona's issued share capital is reduced must be transferred to the capital redemption reserve.

The capital redemption reserve is a requirement under s692 of the Companies Act 2006 to preserve the Company's capital and is a non-distributable reserve.

Share premium reserve

The reserve comprises amounts subscribed for share capital in excess of nominal value less costs directly attributable to the issue of new shares. The share premium reserve is a requirement under s610 of the Companies Act 2006 and is a non-distributable reserve. As discussed in note 15 on 8 September 2021, following approval by special resolution of the shareholders at the General Meeting of the Company on 20 August 2021, the share premium account of the Company was reduced to GBP100,000, as confirmed by an Order of High Court of Justice, Chancery Division. Upon the reduction of the share premium account, the balance of GBP95.239 million was transferred to the Other reserve.

Other reserve

On 8 June 2016, following approval by special resolution of the shareholders at the Annual General Meeting of the Company on 15 April 2016, the share premium account of the Company was cancelled, as confirmed by an Order of High Court of Justice, Chancery Division. Upon the cancellation of the share premium account, the balance of EUR386.045 million was transferred to the Other reserve. The Other reserve forms part of the distributable reserves of the Company.

The Other reserve also comprise the total costs of buying back shares (the nominal value of the shares and any premium paid), which are charged against distributable reserves.

The Company's total distributable reserves as at 30 June 2021 were GBP135 million, which equates to EUR157 million at 30 June 2021 foreign exchange rates (2020: GBP140 million, which equates to EUR156 million at 31 December 2020 foreign exchange rates).

13. DIVID PAID

The Company declared an interim dividend on 21 December 2020 at a rate of 2.2p per share, totalling GBP4.8 million (EUR5.6 million). The dividend was paid on 9 March 2021.

In the comparative period, the Company declared an interim dividend on 6 February 2020 at a rate of 2.0p per share, totalling GBP4.5 million (EUR5.3 million), which was paid on 6 March 2020.

14. RELATED PARTY TRANSACTIONS

There were no related party transactions during the period to 30 June 2021 other than key management personnel compensation.

15. POST BALANCE SHEET EVENTS

Interim dividends

Zegona received a dividend from Euskaltel on 17 June 2021 at a rate of EUR0.17 per share, totalling EUR6.5 million. The dividend was passed through to Zegona's shareholders by payment of a dividend at a rate of 2.6p per share, totalling GBP5.7 million (EUR6.7 million). The dividend was paid on 23 July 2021.

Sale of Euskaltel and related transactions

The tender offer launched by a subsidiary of MásMóvil to acquire all of the outstanding shares of Euskaltel was declared unconditional with a 99.67% acceptance rate on 5 August and Zegona successfully tendered all of its shares, receiving EUR421.3 million on 11 August 2021. These proceeds were used to settle the Deal Contingent Forward Purchase Agreement on 13 August at a rate of 1.16 EUR/GBP, with Zegona receiving GBP364.4 million. On the same day, the outstanding GBP10 million facility with Barclays was repaid and terminated. On disposal of its investment in Euskaltel, Zegona recorded a gain on disposal within Profit for the period from discontinued operation of EUR91.5 million in addition to a derivative gain of EUR8.9 million.

On 10 August 2021, Zegona sold its right to receive contingent consideration from Euskaltel under the terms of the SPA governing the sale of Telecable to Euskaltel in 2017 for EUR6.4 million.

Capital Reduction

On 24 May 2021, the Board announced that if the sale of its investment in Euskaltel was successful it planned to return GBP335 million in cash to Shareholders. It also announced the commitment of its Managers, subject to certain conditions, to re-invest up to GBP4 million in aggregate of the proceeds from the Management Incentive Scheme back into Zegona by subscribing for new Zegona ordinary shares. On 23 July 2021, Zegona began this return of cash to shareholders with a GBP5.7 million dividend payment.

After payment of this dividend, Zegona's commitment is now to return the balance of the GBP335 million, being at least GBP329.3 million (the "Return of Capital").

The Board has determined, following advice from its legal advisers, that the mechanism it should use is an on-market share buyback by way of a tender offer because the Directors believe this offers the best combination of timeliness, cost effectiveness and tax efficiency.

In order to complete a share buyback of at least GBP329.3 million, the Company would be required to have distributable reserves of at least that amount and in order to achieve this, Zegona announced on 29 July that it intended to reduce its share premium account from GBP95,339,759 to GBP100,000 (the "Capital Reduction"). In order to comply with applicable companies legislation, the Capital Reduction required approval by the Shareholders at a General Meeting of the Company, confirmation by the High Court and the registration of the Court's order at Companies House.

On 20 August 2021, Shareholders approved the proposal to undertake a court approved Capital Reduction with 100% of votes cast in favour. The Court confirmed the Capital Reduction on 7 September 2021 and the Court's order was registered on 8 September 2021, making the Capital Reduction effective. Upon the reduction of the share premium account, the balance was transferred to the Other reserve, which forms part of the distributable reserves of the Company.

Return of Capital

On 13 August 2021, Zegona announced the publication of a circular for a Return of Capital of up to GBP329.3 million to shareholders by way of a tender offer (the "Tender Offer") at a price of GBP1.535 per share. This Tender Offer was approved by shareholders on 6 September with 99.94% of votes cast in favour.

Under the terms of the Tender Offer, each qualifying holder of Zegona's ordinary shares will be entitled to sell approximately 98.0% of their shares (their "Tender Offer Entitlement") at a price of GBP1.535 per share. Shareholders may also tender more than their Tender Offer Entitlement and will be allocated a pro rata portion of any Tender Offer Entitlement not used by other shareholders. The acceptance period of the Tender Offer will close on 5 October 2021 with cash payments expected shortly thereafter.

[1] Euskaltel multiples based on its Enterprise Value divided by its reported 2020 EBITDA (as defined by Euskaltel) of EUR342.8 million and reported 2020 Operating Cash Flow (as defined by Euskaltel as EBITDA-Capex) of EUR164.5 million. Comparable European Cable company multiples of 6.7x 2020 EBITDA and 13.3x 2020 Operating Cash Flow (Source: Citigroup).

[2] conditions include that the maximum ownership to be acquired by management will be 28.1% and that the value to be paid per share will be the net asset value per share of the business at the time of management's investment.

[3] Calculated as the GBP364.3 million GBP consideration received plus Zegona's expected Net Assets of GBP6.6 million on October 14(th) 2021 immediately following the tender proceeds being received by shareholders (excluding the tax receivable), minus the Net Invested Capital of GBP192.8 million, all divided by the GBP192.8 million of Net Invested Capital.

[4] Being the anticipated return of GBP329.3 million of capital, the anticipated payment of GBP25.7 million to management under the terms of the incentive scheme and the anticipated subscription for GBP2.6 million of new Zegona shares by management - all in October 2021.

[5] Being the anticipated return of GBP329.3 million of capital, the anticipated payment of GBP25.7 million to management under the terms of the incentive scheme and the anticipated subscription for GBP2.6 million of new Zegona shares by management - all in October 2021.

[6] Being 21.44% of Euskaltel's Comprehensive Loss of EUR2.1 million for the period.

[7] A dividend of EUR6.5 million was received on 17 June 2021 net of withholding tax of EUR1.2 million subsequently reclaimed in July 2021.

[8] Using the closing share price on 30 June 2021 of EUR10.98.

[9] The preferred Return is a 5% per annum return on a compounded basis on shareholders' net investment.

[10] Being the higher of the Market Capitalisation of Zegona, defined as 30-day VWAP, and the Net Shareholder Invested Capital on that date.

[11] Via a GBP5.7 million dividend paid on 23 July 2021 and a GBP329.3 million share buyback via Tender Offer announced on 13 August 2021.

[12] Being the 371 days between the commencement of the calculation period and 30 June 2021.

[13] Being the 476 days between the commencement of the calculation period and the expected vesting date on 14 October 2021.

[14] Being the accelerated costs of the cash settled liability net of the reversal of the EUR1.6 million previously recorded in the Share-based payment reserve.

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END

IR UBORRAKUKUUR

(END) Dow Jones Newswires

September 28, 2021 02:00 ET (06:00 GMT)

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