(Alliance News) - Zegona Communications PLC on Friday reported a sharp drop in pretax profit following a change in the reporting of its investment in Euskaltel SA.
In the six months to June 30, the telecommunications-focused investment firm saw its pretax profit plunge to EUR7.1 million from EUR33.7 million the year before.
Finance income was wiped out to EUR12,000 from EUR33.9 million the year before.
"This is principally due to the change in the reporting of its investment in Euskaltel," Zegona said.
Zegona's fair value investment in Euskaltel - in which Zegona has a 21% stake - stood at EUR295.3 million at June 30 versus EUR302.6 million at the same point a year prior. At December 31, the value stood at EUR341.6 million.
The company continued: "During the six months ended June 30, 2020, Zegona's share of Euskaltel's profit was EUR8.5 million. During the six months ended June 30, 2019 Zegona had concluded that it did not have significant influence over Euskaltel and therefore accounted for its investment in Euskaltel as a financial asset carried at fair value through profit and loss in accordance with IFRS 9 Financial Instruments.
"During this period, the investment in Euskaltel segment generated finance income of EUR33.8 million, being dividend income of EUR3.8 million and a gain on the fair value of the investment of EUR30 million."
Zegona's total administrative and operating costs rose to EUR2.4 million from EUR2.2 million.
"Operational developments are continuing to deliver positive results, with Euskaltel returning to growth in the fourth quarter of 2019 and the momentum continuing in both the first and second quarters of 2020. On July 23, Euskaltel published its results for the second quarter of 2020, announcing that it had exceeded its key strategic targets," Zegona added.
Euskaltel reported record earnings before interest, taxes, depreciation, and amortization in the second quarter of EUR91.8 million. The hit from Covid-19 has been "limited" Zegona said.
"In addition to supporting Euskaltel's performance improvement through its representation on the Euskaltel board, Zegona continues to see many attractive investment opportunities both in Spain and the wider European TMT market. These are driven by a number of underlying trends that create attractive opportunities across a broad range of assets which Zegona believes it is well placed to capitalise on," Zegona added.
Shares in Zegona Communications were down 2.7% in London on Friday at 109.00 pence each.
By Paul McGowan; paulmcgowan@alliancenews.com
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Zegona Com (ZEG)